Union under tension: how sanctions against Russia affect the EAEU

Russian foreign policy questions the prospects for Eurasian integration. Political interests have always played an important role in building ties between the EEU and the outside world. But after the aggravation of the Ukrainian crisis and the imposition of draconian sanctions against Moscow, the search for foreign partners has become a particularly difficult and politically charged task for the EEU, according to Alexander Korolev and Grigory Kalachigin of the Center for Integrated European and International Studies of the Higher School of Economics

Politics in the Eurasian Union began to “undermine” the economy even before the official launch of the project in 2015. Among the main reasons were the degradation of Russia’s relations with the West and the ensuing sanctions. Formally, restrictive measures were imposed only on Russia. However, when a sub-sanctioned country accounts for 87% of the GDP of the entire association, this automatically becomes a headache for the other participants. In addition to the net economic losses, the sanctions and increasing disagreements with the collective West have directly affected the foreign trade interests of the Eurasian participants. For example, it was in 2014 that New Zealand refused to negotiate a free trade zone with the EAEU’s predecessor, the Customs Union of Russia, Belarus and Kazakhstan.

A much bigger shock for the EEU Treaty member states was Moscow’s decision to unilaterally impose a food embargo on the European Union and several other Western countries. Leaving economic consequences aside, the fact that the introduction of restrictive measures was not coordinated with them caused dissatisfaction among Russia’s partners. Moscow did not inform the Eurasian Economic Commission about its plans, which directly contradicts the letter of the treaty and the spirit of integration.

Russia’s unilateral political actions in the context of the EEU manifest themselves not only in the fight against the collective West, but also in the development of cooperation with key partners. As an example, a joint statement by Russia and China on cooperation in linking the construction of the EEU and China’s Silk Road Economic Belt initiative was adopted in May 2015. Other countries of the Union or representatives of the Eurasian Economic Commission did not participate in its preparation either.

Trade and policy preferences

Sanctions and a lack of coordination between Moscow and its allies have not prevented the EAEU from concluding a number of important deals. First of all, these are agreements on free trade zones (FTAs) with Vietnam, an emerging economy with a population of nearly 100 million, and Singapore, an important transport hub that the EAEU needs to integrate into the Asia-Pacific region. The agreement with Iran makes it possible to count on an increase in container traffic along the North-South transport corridor, as well as on the use of Armenia’s transit opportunities to increase exports from EAEU countries. Finally, China is the EAEU’s second largest trade and economic partner after the European Union and the most important source of direct investments in the national economies.

However, the signing of all these trade agreements inevitably included a political factor. China, Vietnam or Iran have no political differences with Russia, and it is easier to reach an agreement with them. India, which has been on the EAEU’s radar for several years now, largely fits into this logic, although no further rounds of talks on a free trade zone have been held since the official launch of the talks in 2017.

Moreover, none of the deals concluded so far have had a quick and economically meaningful effect on the EAEU. Each agreement implies a transition period (usually 10 years), aimed at minimizing risks for the most sensitive industries.

The EEU and new sanctions

The beginning of Russia’s “special operation “* in Ukraine and the ensuing unprecedentedly harsh Western sanctions against Moscow have further undermined the economic logic of the EAEU’s interaction with third countries. First, this time the sanctions targeted not only Russia, but also Belarus, which increases the overall toxicity of the Eurasian jurisdiction. Second, the economic war between Russia and unfriendly countries probably puts an end to all EAEU efforts to establish a dialogue with the collective West for years to come. In all likelihood, any such attempts will now be doomed to failure.

Not so long ago, there was serious talk about creating free trade zones with developed countries, such as South Korea, but now even raising such a question seems pure utopia. And Singapore’s imposition of sanctions on Russia ruins all plans to conclude agreements on the free movement of services and investments with the EAEU countries, at least with Russia and Belarus (such agreements are concluded separately by each member of the union).

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