EU-EEU ties a matter of when, not if

EU-EEU ties a matter of when, not if
Flags of EEU and its member states.
By Iana Dreyer in Brussels February 1, 2016

Relations between Brussels and Moscow reached a new low over the fiasco of trilateral negotiations over the implementation of Ukraine’s new free trade and association deal with the EU in late 2015. Yet despite appearances, the establishment of diplomatic ties between the EU and the Russian-championed Eurasian Economic Union (EEU) – a goal actively sought by Moscow – is now only a matter of time. What both sides can achieve in the short term remains unclear, though.

The EEU still has a long road before it will be recognised as a full-fledged member of the international community. The regional trade bloc – which comprises Belarus, Russia, Armenia, Kazakhstan and Kyrgyzstan – came into being in January 2015. It is the culmination of a process that began several years after the break-up of the Soviet Union and involved a series of failed attempts to build customs unions in the territory of the former Soviet Union.

This time round the drive by Russian President Vladimir Putin, kick-started in 2010 with a customs union with Belarus and Kazakhstan, to establish a lasting and functioning regional body has borne some fruit. The EEU aims at “ensuring free movement of goods, services, capital and labour within its borders, as well as coordinated, agreed or common policy in the economic sectors”, its 2014 founding treaty states.

To Western powers, the EEU is not a reassuring construct. The project championed by Putin is at the heart of the Ukraine crisis. Russia had been trying to convince Ukraine to join its EEU, but Kyiv, regardless of which political group was in power, be it the pro-Kremlin regime of ousted former president Viktor Yanukovych in 2014, or more Western-leaning leaders before or after his rule, proved reluctant. Although Yanukovych baulked at signing the Association Agreement with the EU in November 2013, he still didn’t opt for the EEU, and was anyway ousted a few months later following street demonstrations over his betrayal of the EU dream.

The EEU is perceived in the West as a means for Moscow to assert power over its “near abroad”, as it calls it. The Kremlin’s political positioning of the project as a separate ‘pole’ in a ‘multipolar’ world order, and as a rival to the EU and its 2008 Eastern Partnership policy isn’t palatable to the prevailing EU mindset. Russia’s crude carrot-and-stick methods to induce Ukraine (to no avail) or Armenia (successfully in 2013) to abandon Association Agreements with the EU have bred mistrust.

Not much is actually known about the EEU’s construct and process, though slowly its contours are taking shape. 2015 has seen a bout of institution-building as the parties fine-tune the division of labour and powers between the bloc and its members. Belarus and Kazakhstan are ensuring the project remains focused on economic issues and does not undermine their political and diplomatic freedom of action.

Today, as the political scientist Nicu Popescu put it: “There are two Eurasian Unions: one real, and the other imaginary… There is the Eurasian dream of leaders like President Putin, who see the project as primarily geopolitical. And there is the Eurasian Union of the technocrats of the secretariat and the Eurasian Economic Commission”, the executive body that oversees the coordination of the member country’s macroeconomic policies, industrial and agricultural policies, energy and infrastructure policies, trade policy and customs cooperation, and competition and antitrust policy.

How to respond to Russia’s overtures

The EU is not quite sure what to do about the EEU. Putin’s signals to Europe are ambiguous: on the one hand, he has posited the project as a rival to the EU, which justifies Moscow’s military intervention in Ukraine; on the other hand, there are repeated calls from the Kremlin to have the EEU recognised internationally. The grouping has already signed a free trade agreement with Vietnam and a memorandum of understanding with South Korea. The EU – Russia’s main trading partner – is the big prize that Moscow is seeking.

Putin’s drive from 2010 to lay the foundations for the EEU coincided with parallel calls to establish a common trade area “from Lisbon to Vladivostok”. Putin’s vision was picked up in mostly German-speaking political circles in the aftermath of the Ukraine crisis. When Switzerland presided over the six-month rotating presidency of the Organization for Security and Cooperation (OSCE) – the body that oversees the ceasefire in Ukraine – in 2014, Bern was exploring ways to restart building confidence between Russia and its partners on the basis of conversations over trade issues.

The Swiss set up an ‘Eminent Persons’ group that published an OSCE report in November 2015 with recommendations “on European Security as a Common Project”. The recommendations included to: explore “what could or should be done about the use of trade regulations as a political weapon”; “look at the question of economic connectivity between the European Union and the Eurasian Economic Union, giving special attention to the position of the states in-between”; and “consider, in consultation with the World Trade Organization whether it might be possible and useful to create a quick and light process for resolving trade disputes within the OSCE area”. Germany’s presidency of the OSCE in 2016 perpetuates this line of thinking.

The above forms the backdrop to various exchanges of letters in the autumn of 2015, which have led the European Commission President Jean-Claude Juncker in December to write a letter to Putin, accepting the notion of establishing diplomatic relationships between the EU and the EEU, if the February 2015 Minsk ceasefire agreements over eastern Ukraine, where the Ukrainian government is fighting a war against Russian-backed separatists, are applied. 

The EU’s move ties the EEU issue to the lifting of the economic and financial sanctions in force against Russia since 2014. In February 2015, Paris and Berlin had already promised Moscow relations with the EEU if the Minsk deal they had just hammered out succeeded. Moscow is not happy about the EU linking EEU recognition to the Minsk agreements.

Juncker’s move is controversial in Brussels. The trade policy community around the directorate for trade in the European Commission views the EEU with scepticism. The EU and Russia are locking horns over anti-dumping duties (both sides), Russia’s implementation of WTO tariff commitments, its ban on pork meat, and over the EU’s energy policy. The failure of trilateral talks over Ukraine in late 2015 made trade officials even warier.

However, in Brussels’ foreign policy circles around the External Action Service, a growing number of people believe that if there were to be any resumption of a constructive political dialogue with Russia, the EEU would be the ideal place to start.

Their line of argument is that all EEU members want such a dialogue, not only Russia. Some concrete powers of particular interest to EU trade policy have already been transferred to the Eurasian Economic Commission, and are managed in a relatively technocratic fashion. Trade is seen as the ideal kind of ‘low politics’ occurring below the political radar screen, which helps build trust among officials despite broader geopolitical disagreements.

Topics of conversation

The EU certainly would have plenty of issues to discuss with the EEU, from customs procedures to transit of goods. Yet when bne IntelliNews asked officials in the Eurasian Economic Commission what concrete trade issues they wanted to resolve with the EU in the short term, answers remained elusive. One official reiterated the overall EEU wish to pursue the ‘Lisbon to Vladivostok’ idea. Mutual recognition and/or harmonization of technical standards was another topic floated.

Yet few believe the prospects for agreement on such matters are good in the short term. To economists familiar with Russia’s trade policies, the country has become too protectionist for free trade talks to be a realistic route. Worse, the West’s sanctions and Russia’s counter-sanctions in the form of import bans on agricultural products and import substitution in areas like railway equipment have in fact emboldened statist and protectionist interest groups in Russia. Also, Belarus is not member of the WTO – a precondition for the EU to engage in free trade talks.

All in all, a move to launch formal diplomatic ties between the EU and the EEU appears like a matter of time rather than of principle. This move could come when there is sufficient consensus among the EU’s 28 member states that a lasting ceasefire in eastern Ukraine is in the making. The move would be part of a broader package of confidence-building measures should the overall political climate between Russia and the West improve. Whether this can happen around the time the EU needs to decide again on the extension of these sanctions in mid-2016 is too early to say. At the time of writing, such a move is still opposed by too many member states. But politics can move fast.