Customs Union does not protect Belarus from external shocks

Belarus’ reduced exports to Russia and urged devaluation in Kazakhstan imply that the Customs Union is unable to achieve its main goal – to support CU participants’ economies integrating into the global economy. Controversies among the participating states will not fade as they negotiate integration processes, led by Russia.

Last week, information about the preparation of the Eurasian Economic Union’s core documents was disseminated, which indicated the parties’ inability to overcome differences in approaches to economic integration. Russia insists on introducing common rules in trade and economic policy, and on harmonising technical standards, while Belarus wants to keep national technical standards to evade the common rules in the trade and financial policies. Moreover, Belarus does not agree with having a common economic policy.

Agreement on the Eurasian Economic Union is scheduled to be signed in May 2014, and it is becoming clear that this document will be just a declaration. Agreements on main substantial provisions will be postponed.

In addition, it is unlikely that the parties will be able to find a compromise. The first results of the economic integration’s ‘primary stage’, i.e. the Customs Union, have not inspired the participating countries. Most of all, this applies to Belarus. The benefits which Belarus has received within the Customs Union – preferential conditions for the supply of oil and gas – are insufficient to protect her economy from negative external influences and competition.

In 2013, Belarus lost her position on the Russian market regarding most commodities and accumulated a huge trade deficit (USD 5.8 bln). Belarus had to patch up the negative trade balance with loans and international reserves, which created additional pressure on the national currency. In addition, in early 2014, Belarus’ both partners in CU – Russia and Kazakhstan – devalued their national currencies, prompting her to depreciate the Belarusian ruble.

It is noteworthy that in a similar way, the Russo-Belarusian bilateral integration project – Union State of Belarus and Russia – the Customs Union predecessor, was unable to resolve the disputes between the parties. They were permanently postponed and have never been resolved. The irresolvable contradictions, rooted in opposite expectations from the Union State, had prompted Russia to offer a more ‘advanced’ integration project in a trilateral format.

Presumably, the existing contradictions and disagreements will not interfere with parties signing the agreement on the Eurasian Economic Union with great solemnity and minimal substance. Signing the agreement will not eliminate conflicts, trade wars or mutual accusations by the participating countries.