Customs Union plagued by infighting as it flirts with Turkey

By bne IntelliNews October 25, 2013

Ben Aris in Moscow -

With only a month to go before the EU's crucial Vilnius summit where Ukraine is expected to turn its back on Russia once and for all, the members of the Russian-led Customs Union held their own summit on October 25. The meeting was full of spice, peppered with infighting and claims that Turkey is mulling membership.

The most controversial suggestion at the session of the Supreme Eurasian Economic Council in Minsk was that Turkey might like to join the CIS-based trade club. "I hear many say that, for instance, Syria would like to enter," said Kazakh President Nursultan Nazarbayev, putting the cat among the pigeons. Turkey Prime Minister Erdogan has contacted me to ask whether Turkey could be part of the Customs Union."

Tensions between eastern and western Europe have spiralled in the run up to the Vilnius summit, where Kyiv has said it will sign off on an association and trade pact - an early step towards joining the European Union proper eventually. Russia has been lobbying hard, using both carrot and stick to prevent this. The Customs Union project doesn't really make sense without Ukraine's participation.

Russian President Vladimir Putin reiterated his ire at Ukrainian counterpart Viktor Yanukovych's decision during the summit, to which Kyiv was invited as an observer. Putin once again highlighted the dangers he claims stalk Kyiv's tie up with the EU.

"We believe that such degree of market opening is very dangerous and unacceptable for us at this stage of the development of our economy," the Russian president said. "We seek to create the Eurasian economic space from Lisbon to Vladivostok, and for this process to be on equal footing, for us not to face economic losses and social problems, it should be well-coordinated, gradual."

Speaking about Ukraine's plans to sign the association agreement with the EU, Putin claimed: "We are not for or against. It is not our business. It is the sovereign right of the Ukrainian people, the Ukrainian leadership. But we reserve the right to apply protection measures," he added ominously.

Despite such pressure, Yanukovych seems sure to take the European plunge. Indeed, many analysts suggest that because of Putin's pressure, politicians in Brussels have swallowed their reservations about letting the Ukrainian kleptocracy inside the fence. The pact was actually negotiated several years ago, but Brussels has been dragging its heels with the Yanukovych administration's mismanagement running the economy into the ground and raising concern over human rights and corruption.

Replacing Ukraine

Although already in accession talks, Turkey has been in limbo for years when it comes to joining the European bloc. Perversely, the offer to join the Customs Union might be exactly what Ankara needs to catalyse that bid.

Germany did an about face this month, dropping its objections to Turkish membership, and talks are set to resume in November after a three year hiatus. If the Customs Union membership offer is serious, this might add extra impetus.

Meanwhile, Turkish membership in the Russian-led bloc would make a lot of sense, and it would also go a long way to replacing Ukraine. Turkey is one of Russia's biggest investors and also one of its biggest trade partners to the west. In addition, much of Central Asia shares Turkic origins; the Turkish and Uzbek languages for example are extremely close.

"Turkey is a large country, we have a common border. Critics would be silenced if [Turkey joins]," Nazarbayev said. "Everywhere in the West I get asked whether we are creating the Soviet Union or something to suit Russia, and I have to explain that we do nothing of the kind. It is possible that if we let Turkey join, that question will stop."

Turkey is not the only possible new addition to the club. India is also showing interest. "The Prime Minister of India ... asked me to put this issue on the agenda of today's meeting, namely that India would like to consider the possibility of signing a free trade agreement," , Putin told the delegates, according to BelTA

If the Customs Union is to work it is badly in need of some more large members to offer some balance. The union currently consists of Russia, Kazakhstan and Belarus plus applicants and observers Armenia, Kyrgyzstan, Moldova, Tajikistan, and Uzbekistan. Kyrgyzstan and Armenia have confirmed they wish to join; Tajikistan has expressed interest, but all of these countries are dwarfed by Russia's economy.


However, all the talk of expansion may yet come to nothing after this meeting, which was marred by bickering and complaints amongst the existing members.

Russia is in the middle of a very nasty spat with Belarus centred on the pair's respective potash industries. Russian trade sanctions have followed, and the whole situation has become very ugly. Not the way friends are supposed to behave.

However, Kazakhstan's Nazarbayev was the most outspoken. Normally a staunch Russian ally, the Kazakh president had a bone to pick with his fellow members of the Customs Union, complaining that while the idea of the trade club was to expand mutual trade, all that has happened is Kazakhstan has been swamped with cheap Russian and Belarusian imports.

Over the first seven months of the year, the volume of imports from Kazakhstan's two partners has swelled to three-times the amount Kazakhstan sends back in exports to Russia and eight-times those sent to Belarus, Nazarbayev said. He also complained of bureaucratic and administrative barriers to Kazakh exports.

To add insult to injury, Kazakhstan's backing of Russia scuppered Astana's attempt to join the World Trade Organization (WTO) before the end of this year. In September Kazakhstan said all the paperwork was complete, but now its membership has been delayed.

"Kazakhstan's WTO accession is a very serious issue," Nazarbayev continued. "We were walking in the footsteps of Russia. We were promised support with the WTO accession. The Bali Conference will take place in December. Kazakhstan's accession could have been formalized then. But it will not happen because we supported the level of protection of Russia."

Russia has found itself in various spats with the WTO over European car imports and Lithuanian dairy trade amongst other things. Putin was conciliatory but vague, describing it as "necessary, of course, to work on eliminating all exemptions and all mutual preferences" and "necessary to create equal conditions," reports EurasiaNet.

Trade was not the only sore point: Nazarbayev also accused the Eurasian Economic Commission, the union's regulatory body, of worrying more about politics than trade. "The work of the commission is obviously politicized; the resources and efforts are scattered on the expansion of integration."

All of which gives the members - and leader Moscow in particular - plenty to work on ahead of the next Customs Union summit in December. Meanwhile, Belarus, Russia and Kazakhstan are set to sign the Eurasian Economic Union Treaty - the next phase in development towards the full-blown Eurasian Union project - in May. Nazarbayev said that agreement is supposed to come into force at the start of 2015.

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