Kazakhstan Defies Russia over Eurasian Economic Union

By Sarah Lain

Kazakh president Nursultan Nazarbaev and Russian president Vladimir Putin shake hands after signing the treaty on the Eurasian Economic Union Photo: kremlin.ru
Kazakh president Nursultan Nazarbaev and Russian president Vladimir Putin shake hands after signing the treaty on the Eurasian Economic Union Photo: kremlin.ru

On May 29 Kazakhstan, Belarus and Russia signed into existence the Eurasian Economic Union (“EEU”), set to come into force in January 2015. The EEU’s aim is the economic integration of ex-Soviet countries, based on a European Union-style collective model. It builds on the Customs Union, signed in 2010, which implemented a common customs territory and removed internal border controls between the three states. Against the backdrop of a shifting geopolitical landscape sparked by events in Ukraine, and strengthening Russian and Kazakh bi-lateral relations with China, the original vision of the EEU may no longer be viable. Although they wish to show they have a diversified partner base, Kazakhstan and Russia also want to avoid perceptions of any overt economic threat to its shared Chinese partner. This is particularly relevant to Kazakhstan, which has in fact suffered economically from the initial implementation of the Customs Union, as laid out below.

Theoretically, membership of the EEU is in Kazakhstan’s interest. It satisfies the former-Soviet section of Nazarbaev’s “multi-vector” foreign policy and acts as a counter-balance to Chinese influence in the region. However, the envisaged economic benefits have fallen short. The Customs Union was supposed to open up Kazakh manufacturing to Russian markets, but according to a World Bank report disparities in technical regulations between Russia and Kazakhstan have increased costs on Kazakh exports to Russia. The agreed increase in external trade tariffs under the Customs Union has in fact limited choice on certain consumer products available to Kazakhstan in favour of cheap, low-quality Russian products. The World Bank predicted that in 2011 Kazakhstan was losing 0.2% in real income as a result of joining the Customs Union. In the long-term, Nazarbaev is unwilling to support unfavourable economic conditions for the sake of maintaining good relations with Russia; particularly if China offers a less complicated alternative.

Kazakhstan has already shown its unwillingness to act subservient to Russian dominance in the EEU, particularly in light of Ukraine. Northern Kazakhstan is home to a significant population of ethnic Russians, and Nazarbaev is very aware of Russia’s apparent willingness to intervene in other countries to “protect” such populations. Nazarbaev has successfully blocked Russia’s fuller, more politicised vision of the EEU by refusing to accept the political elements of the agreement proposed by Russia. Russia had envisaged a supra-national Eurasian political system that was very much at odds with official views on Kazakh state sovereignty.

As China strengthens its bi-lateral relations with the five Central Asian states, and reinforces relations with Russia, third-party economic relations that could counteract Chinese investments in the region become more likely. China has been relatively quiet on its view of the EEU. Previously China was generally dismissive of negative effects of the Customs Union, but the timing of the EEU’s creation may cause quiet concern within the Chinese government. China can draw some comfort from the obvious weaknesses of the agreement. Unless serious reform is made to certain conditions of the EEU, Kazakhstan will not wish to over-commit itself to Russia, and Russia will not have the leverage to force its will.

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