Uzbekistan’s possible accession into the Russia-led Eurasian Economic Union (EEU) has been a question debated within and outside the country for two years. Membership would carry clear benefits and risks for Uzbekistan.

The Cabinet in March last year approved a decision to apply for EEU observer status. That status was granted in December.

If membership was established, international transport permit processes would be simplified and the free movement of passengers, cargo and vehicles would be ensured as regards EEU members Russia, Kazakhstan, Kyrgyzstan, Armenia and Belarus.

Uzbekistan currently has duty-free trade with the member states of the EEU under a Free Trade Zone Agreement inked in 2013 with the CIS, of which all EEU countries are members.

According to the Center for International Private Enterprise, by joining the EEU, Uzbekistan would become part of the customs area in which the Single Customs Tariff (SCT) is in effect. Therefore, the country’s import customs duty rates for third countries (except for other signatories to the CIS Free Trade Zone Agreement, namely Moldova, Tajikistan, Ukraine) would change, and they would be regulated by the SCT of the EEU.

The customs tariff systems of the EEU and Uzbekistan differ significantly, so the most important changes would occur in the rates of Uzbekistan’s import customs duties, causing a change in the price ratio and increasing structural costs in the economy.

Lower import tariffs

In the short term, full membership of Uzbekistan in the EEU would lead to lower import tariff rates on several consumer goods, hence enhancing competition on the domestic market.

At the same time, import customs duties would rise on many other goods, especially resource and capital goods, which could impede modernisation and structural reform of the economy.

Overall, if Uzbekistan’s import customs duties are standardised with the single rates of the EEU, the country could expect imports of consumer goods from third countries to grow, the exchange rate of the national currency to fall, and structural costs in the economy to increase.

Another advantage of joining the EEU for Uzbekistan would be that tariffs on transit and transportation would decrease, and it would be easier and simpler for Uzbek migrants to work in the EEU in the short and medium term, which could increase migration and money transfers back to Uzbekistan.

Kyrgyz experience

Director of the analytical center Cross-Border Research Network of Central Eurasia, Denis Berdakov, shared some thoughts on Kyrgyzstan’s experience within the trade bloc.

“Kyrgyzstan has greatly benefited from joining the EEU in terms of the labour force. Our labour migrants, whose number at that time according to various estimates was from 600,000 to a million, became workers within the EEU. Because of this, they did not need to pass exams for knowledge of the Russian language, they could stay on the territory of the Russian Federation as long as they had a legal employment contract. They also received all kinds of medical rights, their children could study in schools, there was no need to buy patents,” he said.

“According to the minimum calculations, each worker from Kyrgyzstan gained at least 40,000 rubles ($540) a year. That is, they did not have to buy patents and certificates, while migrants from other countries were required to buy all these documents. Currently, about 800,000 Kyrgyz citizens work in Russia. If you multiply the above-mentioned 40,000 rubles by the number of migrants, this is a lot of money. This money came back to Kyrgyzstan and remained in the families of the migrants themselves,” Berdakov added.

He also talked about disadvantages in joining the EEU.

“If we talk about negative consequences, products such as cars, smartphones, and TVs imported from the United Arab Emirates, Turkey, and China have become more expensive for Kyrgyz citizens. This is logical, since any customs union provides for the development of domestic production, closing access to others. Chinese goods are very cheap, but in Russia, Kazakhstan, and Russia, these goods are subject to a high duty. This is the entry price.”