Eurasian integration has reached a very important point in its stories. At the beginning of last year, optimists and supporters of unconditional integration clearly prevailed without any questions. However, to date, a lot of questions have accumulated. And most of them are related to the results of two and a half years of the Customs Union, as well as the extent to which the CU's economic model is in the interests of each country individually. And this question is related to another - is there any prospect for Eurasian economic integration? At the same time, we here deliberately bypass the issue of the political aspect of what is happening. Although it is obvious that it is political motivation that is the most important argument for many supporters of economic integration.
Initially, the concept of economic integration was based on the idea of combining the potentials of the economies of a number of countries located on the territory of the former USSR. At the same time, this idea proceeded from the fact that the collapse of the USSR led to the breakdown of the former economic ties between the republics, which had a detrimental effect on their development. Restoring connections was a way to solve the problem of technological and production backwardness.
Such backwardness was particularly noticeable, on the one hand, in comparison with the rest of the world, and on the other, against the background of the technological might of the former USSR. That is, the countries of the former Soviet Union have lost almost the entire technological potential of this once-developed industrial country. In the global global system, they have become a periphery that serves as a market for the sale of finished products and a source of raw materials for their production.
This situation was especially offensive for former Soviet citizens, because during the time that has passed since the collapse of the USSR, many countries of Southeast Asia, such as China, South Korea, have become industrialized powers. The former socialist China is in fact the main "factory of the world." South Korea successfully crowds the old industrialized countries in the production of automobiles, merchant ships, electronics, etc. in world markets. Therefore, it was quite natural for some elites and the public to try to change the situation, to avoid commodity dependence. It is this kind of implication of integration that has aroused the enthusiasm of the public in Russia, Kazakhstan and Belarus. That is, in fact, integration was based on the idea of some kind of “industrial revenge”, an attempt by joint efforts to increase the economic importance of the territory of the former USSR in the global economy.
In addition, on the eve of the start of integration, it was said that it would lead to an increase in trade turnover between the countries. In Kazakhstan, they indicated that they would gain access to the huge Russian market. Due to more favorable conditions in Kazakhstan, associated with low taxes and a more comfortable environment for investment, investors will be able to expand production here for subsequent export to Russia. Among the advantages for Kazakhstan, the use of domestic Russian tariffs for the transportation of goods through Russia was also noted.
For its part, Belarus hoped to gain access to the duty-free Russian oil and, through the resale of its refined products to Europe, receive the much-needed currency. In addition, Minsk believed that after the introduction of protective customs duties, it would be able to increase the export of its goods to the markets of Kazakhstan and Russia. Otherwise, the unreformed Belarusian economy was not able to continue its existence in the same format. She needed markets and foreign exchange earnings.
The interests of Russia were associated with the expansion of trade within the CU countries. On the one hand, this provided an advantage for Russian exports in nearby markets, because high import duties in the vehicle acted as a kind of protective umbrella that gave an advantage to Russian manufacturers. On the other hand, this made it possible to reduce pressure from uncontrolled merchandise imports, in particular from China, as tighter controls at the external borders of the CU meant a reduction in uncontrolled imports through Kyrgyzstan. At the same time, Kazakhstan, as part of the CU, was also to reduce imports from China and the subsequent informal re-export to Russia. Kazakhstan was also obliged to restore order on the border with China and Kyrgyzstan.
Another important aspect of Russian economic interests was the ability of companies from Russia to obtain important assets in nearby countries. This policy was implemented in Ukraine, Armenia, it is part of the requirements of Moscow in relation to Belarus in exchange for preferences in oil and gas trade. We can also recall the policy of Moscow in Kyrgyzstan.
Not all assets were equal in price. Some of them were very problematic, like Kyrgyzgas or Moscow’s commitment to build the Kambarata hydropower station in Kyrgyzstan and Rogun in Tajikistan. Some were among the strategic ones, such as the Belarusian gas transportation system. In some cases, Russian private companies assumed control over the management of very significant enterprises. This situation was with the Belarusian Potash Company, which worked closely with the private Russian Uralkali to the well-known scandal with the arrest of the director of the latter. In other cases, Russian state-owned companies acquired assets in companies important to Russia. For example, they were acquired by uranium assets in Kazakhstan, some of which came under the control of Rosatomprom (Russia controls 20 percent of Kazakhstan uranium production).
But the trend was quite obvious. Russia showed interest in interesting and strategically important assets for it in the near abroad. For example, the same uranium is the most important priority for Moscow. Because own production in Russia does not cover the needs. Uranium production is about 3,5 thousand tons per year. All these tons are mined using old, costly mining technologies. For example, in Buryatia, the mining method of mining is still used.
While the annual consumption in Russia is more than 6 thousand tons and it is expected that it will increase to 9 thousand tons by the 2020 year. Prior to the acquisition of Kazakhstan assets (under bilateral agreements, as well as under the purchase agreement of the Canadian company Uranium One), Russia covered the deficit of uranium at the expense of Soviet reserves. However, they should have ended by 2015 year.
It is clear that the CU, under which the requirements for the economy were to be unified, and some of the powers transferred to the supranational body, generally contributed to creating favorable conditions for the interests of Russian business and the state.
In general, each country had its own expectations of integration, they sought to solve their economic problems. But it is quite natural. It is clear that the classic situation of reaching agreements includes an assessment of possible losses and probable acquisitions. But it is also clear that each country still strives for a balance in order not to lose at least more than to gain. And, of course, the countries of the CU expected that the unification of economies would give a certain multiplicative effect, which compensates for their possible losses.
There was another important point. Kazakhstan is located in the center of the continent, it is among the so-called land-locked countries. Accordingly, access to world markets, both for export and for import, is crucial for us. Most of the transport routes pass through the territory of Russia. Therefore, we depend on both access to these routes and prices for transportation. This issue was not actively discussed, but everyone understood its importance, at least for bilateral Kazakh-Russian relations.
12 December 2013 in an interview with the newspaper “Kursiv”, Minister of the Eurasian Economic Commission Nurlan Aldabergenov made a clear hint: “We must understand that if we don’t have a CEA, then there will be difficulties in both the sale and transit of our goods”. It almost sounds like a warning from a knowledgeable person. Especially since at the end of 1990, we had a quota for the export of oil through the Russian pipeline system. It accounted for total 3,5 million tons of oil. For comparison, today we export more 70 million tons.
Earlier in November, the governor of the Kemerovo Region, Aman Tuleyev, in an interview with the Russian magazine Expert, said that the main problem of Kuzbass was the lack of sales markets. Therefore, the warehouses are at least 16 million tons of unsold coal. While Russia imports from Kazakhstan 20 million tons of steam coal from Ekibastuz. According to him, this coal is “this land” and is incomparable in quality with Kuzbass coal. If we consider that the export of coal from Kazakhstan to Russia is at least 1 billion dollars, then the refusal of the Russian side of this import will automatically lead to a drop in Kazakhstan's exports to this country by about 15 percent.
The topic of admission to the transit of goods through Russian territory is very sensitive. It is rarely spoken of, but the experience of Turkmenistan shows that, theoretically, Russia can completely stop exports through its territory. For example, at the beginning of the 1990s, Gazprom did not buy Turkmen gas at all and did not let it through its pipelines. Although in Soviet times, gas supplies from Turkmenistan amounted to 90 billion cubic meters per year. In the two thousand years, the Chinese built a gas pipeline from Turkmenistan to China, the so-called Asian gas pipeline. Now Turkmen sell their gas mainly to China. We can also recall that Kazakhstan in 1999 had a quota for the export of oil through the Russian system of oil pipelines. It accounted for 3,5 million tons per year. This is twenty times less than in 2013.
Therefore, bilateral relations between Kazakhstan and Russia have always been of great importance and will continue to be in the future. True, Minister Aldabergenov is not quite right when he puts the question or-or. There is always a choice. For example, today the situation is different from 1999 of the year: there is a pipeline to China - Atasu - Alashankou. Theoretically, the Baku-Ceyhan oil pipeline can also be used. Although the Russian direction remains decisive. In any case, you should never bring the matter to an open conflict of interest with key partners. But theoretically, partners should not use their geographical advantage to put pressure on Kazakhstan.
On the eve of integration
It should be noted that in the twenty years that have passed since the collapse of the USSR and the beginning of the CU work, significant differences have accumulated between the economies of individual countries.
With the advancement from east to west of the new integration association, the role of the state is becoming more significant. For example, in Kazakhstan the smallest taxes, including on oil exports, are less than the state’s presence in the economy, and there are many foreign companies in the extractive sector. In Kazakhstan, at one time, we carried out a pension reform, increased the retirement age and abolished benefits. This can be treated differently, for obvious reasons, the public is negative about this. But de facto today in Kazakhstan there are 1,7 million pensioners for 17 million inhabitants (10%), and in Russia 39 million pensioners for 143 million inhabitants (27%). The level of pressure on the budget is much lower. Respectively and above opportunities for maneuver in difficult times. In Russia, for example, from the budget in 14 trillion. rubles 3 trillion go on subsidies for the pension system.
In Russia, taxes are higher, especially for the export of raw materials. The economy is dominated by state-owned giants, there are practically no foreigners left in oil production. Therefore, Russia is able to withdraw from the oil industry most of its income in the form of taxes. In this regard, the revenues of the Russian budget are greater than the revenues of the Kazakh budget.
In general, the level of state paternalism in Russia is also higher. This is a consequence of the inertia of the Soviet era. Market reforms here were carried out in a milder format than in Kazakhstan. As a result, the society has more expectations from the state. In addition, many enterprises have retained their former thousands of collectives and have not adapted to the market. Some of them continue to exist thanks to state support. For example, this is typical of automobile production at VAZ or the concomitant production of auto components.
There are also many metallurgical industries in Russia with the former very significant number of workers. This is especially striking in comparison with the metallurgical giant Arcelor-Mittal, which owns factories in Kazakhstan and Ukraine. (In Kazakhstan, from Soviet times, the number of workers at the Karaganda Metallurgical Combine decreased from 40 thousand to 16 thousand). In Russia, reductions in percentage terms were significantly smaller. Obviously, the decline in global demand for ferrous metals will still sooner or later lead Russian steel mills to the need to reduce employment. The Russian metallurgical oligarch Lisin in February said that many metallurgical companies in Russia are re-credited and may face great difficulties. Because Russian production is largely export oriented. And this leads to the need to compete with steel companies around the world. In a declining market, competition means fighting for costs.
Similarly, the discussion will focus on reducing the number of workers at the VAZ, where 70 thousand people produce half a million cars a year. At the same time, production at the VAZ falls. In the future, automobile plants will face major problems in a competitive environment, which inevitably will only increase in the framework of the WTO. Unreformed factories are a problem of small cities, there are a lot of such in Russia, and their population is focused exclusively on state support. Again, you can talk a lot about the problems of company towns, but in the modern history of Kazakhstan, all the bad things that could happen to them have already happened in the middle of the 1990s. In Russia, in many of them, this is still to come. The advantage of Russia is the dominance of large enterprises in the market as a whole. For example, Sberbank and other state-owned banks are larger and more powerful than the corresponding Kazakhstan banks. This is true for many businesses, both production and market-oriented services. In agriculture, Russia is dominated by large-scale enterprises. While in Kazakhstan in the countryside mainly small-scale production.
So on the whole, Russia not only had a bigger economy than Kazakhstan’s, but it had a stronger state presence. Due to the greater role of the state in the economy, Russia had an organizational advantage over Kazakhstan, despite the fact that from the point of view of liberal economic reforms, Kazakhstan has achieved great success. He had fewer problems than Russia (in particular, on pensioners, taxes, unreformed enterprises and the presence of a petty-bourgeois environment in agriculture), but also less than the level of state organization.
But still, the economies of Kazakhstan and Russia, with all the differences, have long been integrated into the world economy, and by this they resemble each other. Therefore, they can be part of the WTO. Russia has already joined this organization, Kazakhstan is going to do it in 2014 year. But the same cannot be said about the third participant of the Eurasian integration - Belarus.
Traditionally, our intellectual community in Kazakhstan is very positively disposed towards the Belarusian model. It is believed that, in contrast to Kazakhstan and Russia, production of the USSR times was preserved in this country and this distinguishes Belarus favorably from those economies that have moved to the market. Given the nostalgia for the Soviet industrial power and regrets about the commodity orientation of the economies of Russia and Kazakhstan, the Belarusian model in the eyes of the Russian and Kazakh public looked like a more successful development option.
However, in the conditions of the actual conservation of the Soviet model in Belarus, all the weak points of the socialist economy remained. First of all, this is a general production inefficiency. End products are often produced as planned, without real market demand. Hence the overstocking of warehouses, freezing of capital, worsening of the financial situation of enterprises. Under the conditions of the USSR, the products of the Belarusian factories did not have to compete with anyone, the sale was guaranteed. Today they have to compete primarily with imported products. And although within the CU, import duties protect the interests of domestic producers, they are not sufficient to solve all the problems of Belarusian enterprises. The competitiveness of the latter is complicated by the need to maintain artificial employment, to contain the social sphere. They invest little in science, so their products are inferior to external competitors. And finally, they have weak management, which is not used to working in market conditions.
Therefore, Belarusian products are in demand mainly within the CU. Here she has some competitive advantage, which is ensured by financial policy. Enterprises receive direct support from the state in Belarusian rubles. The latter are depreciating all the time, because the state is actually carrying out unsecured money issue. In this situation, any sale of goods for hard currency (for example, for rubles or tenge) provides the Belarusian enterprise with the ability to pay off debts over time.
Some integration results
In the first years of the TC operation, an objective assessment of the situation was difficult. On the one hand, because state propaganda in all countries was naturally focused on supporting such an ambitious project. On the other - because the project enjoyed very sincere public support, especially in Kazakhstan. This impeded objective analysis.
It is quite characteristic that in almost all the speeches and articles of 2011 – 2013, it was pointed out that the main result of the CU was an increase in turnover. At the same time, no one focused on its structure. Although such information was always available on the website of the Eurasian Economic Commission. According to the EEC, the main result of the CU work was the growth of imports from Russia to Kazakhstan.
In 2009, it was 9 billion dollars, the lowest value due to the recent crisis. In 2010, 11 billion, then growth to 17 billion, and in 2013, imports amounted to 18 billion. At the same time, Kazakhstan’s exports remain virtually unchanged and balance around the mark of 6 billion dollars a year. That is, the negative balance of export-import balance with Russia amounts to 12 billion for Kazakhstan. With Belarus, the volume of trade in Kazakhstan is much lower than with Russia, but the trend is even more negative.
At the same time, imports from Russia rose sharply after the start of the TS operation (50%) and stopped only when it apparently reached its growth limit. In fact, this was the main effect of the introduction of increased customs duties in the CU. And, on the one hand, the growth of Russian imports to Kazakhstan was partly due to the redistribution of trade flows, for example, machinery and equipment, which were now cheaper to buy in Russia than in world markets. On the other hand, Russian imports began to crowd out local production.
The problem for Kazakhstan has worsened due to the fact that a greater degree of liberalization of the economy meant a smaller state presence. As a result, the Russian bureaucracy replayed the Kazakh bureaucracy, both at the stage of signing agreements on the CU, and later, when it already began to work. It must be admitted that the Russians have created a very effective system of protecting their own market from Kazakhstani goods through various regulatory measures - from recycling fees to cars to discriminatory requirements for the importation of certain categories of goods.
In addition, the Russian representatives in the Eurasian Commission introduced their very significant organizational beginning into its work, which caused a huge shaft of documentation. Our representatives are simply not able to work through this whole stream, and the Russian position dominates de facto. As a result, many documents are in the Russian edition. The President of Kazakhstan was forced to point out that the EEC works as a branch of the Russian government.
As a result of Russian bureaucratic domination, Kazakhstani goods could not get into the Russian market, as the initiators of the CU talked about. While the Russian goods filled the Kazakhstan market. Hence, such a disproportion in the trade balance.
In this regard, a curious argument was made by some supporters of integration. They said that one should think not of Kazakhstani producers, but of consumers, for whom cheap imports from Russia and Belarus are more profitable than Kazakhstani production. They appealed to the principles of competition. On this occasion, you can make a number of objections. First, the transition to imports from Russia means the closure of many small enterprises in the regions of Kazakhstan and a decrease in the production of consumer goods. This leads to the loss of jobs, reducing the number of small businesses and reducing tax revenues. Secondly, the competition as a whole is not entirely fair, taking into account the above circumstances. Thirdly, in some cases, Russian, and especially Belarusian, products enjoy serious subsidies. For example, Belarusian meat cannot be cheaper than a similar product produced in the Almaty region. Another argument of integration supporters is related to the fact that only the CU will allow us all together to overcome technological backwardness. In theory, it sounds good. But in fact, we defended the production of Russian engineering products with high import duties. For example, 26 percent of all Russian imports to Kazakhstan are machinery and equipment. Over the 2013 year, this amounted to roughly 4,5 billion dollars. At the same time, the entire machine-building export from Russia for 2013 a year is equal to 26 billion dollars. This is 5 percent of total exports. Of these, 15 billion amounted to military products. Consequently, almost 40 percent of all Russian civil engineering exports go to Kazakhstan.
This makes Kazakhstan the most important sales market for engineering products for Russia. And the market, which is objectively impossible to replace. Because nowhere else in the world markets are these products uncompetitive. So it turned out that the concept of jointly overcoming the technological gap between the CU countries de facto was realized in protecting Russian engineering products from external competition. That is, a technological breakthrough is planned to be made on the basis of the activities of Russian enterprises of VAZ, Rostselmash and others.
Even if Kazakhstan manages to break through to the Russian car market and realize its projects for screwdriver assembly of cars, it still will not be a technological breakthrough. All projects of the screwdriver assembly are oriented towards the import of components with minimal Kazakhstan participation. In this sense, Russia can be understood - why give your market to Kazakhstani companies, what is the Russian interest here? Russia has its own automobile production and they have a higher level of localization. So, from the point of view of solving the common problem of overcoming the technological backwardness of all the CU countries, it is more logical to develop Russian production, which has the advantage in terms of the start of its implementation. But the Russian side cannot say this directly. This would mean to confirm that it considers Kazakhstan as a market for finished Russian products. Therefore, it remains only an informal way to prevent Kazakhstani deliveries of products to Russia.
In general, it is clearly seen that Moscow needs to take into account the interests of Kazakhstan and Belarus. Best of all, the Russian point of view was expressed by the Russian political scientist Ajdar Kurtov. He noted that in the case of the unification of two economies, the one that is greater should have an advantage in management, therefore, the equal conditions in which representatives of three countries are in the Eurasian government bodies are not completely justified.
It is clear that official Moscow cannot voice such a position either. Because the natural question immediately arises: what then can be the economic interest of Kazakhstan? If you follow the logic of the size of the economy, then Kazakhstan will be the economic periphery of huge Russia. And it will mainly serve as a source of raw materials and a market for finished products.
The main problems of Eurasian integration are related to the fact that our countries are not very competitive together in the global division of labor. At the same time, the idea of the CU is based primarily on the protection of the domestic market from external competition and the growth of commodity circulation within the union. Both of these ideas by and large do not work, because Russia is already a member of the WTO, which means that foreign trade liberalization is inevitable. While Kazakhstan is going to become a member of the WTO. Accordingly, the current barriers to import from outside the CU are temporary. There was also no increase in turnover within the vehicle. Kazakhstan faced growth in imports from Russia, which, among other things, led to crowding out of local producers. Now the import of services is in line, because the further development of integration implies the admission of companies from the CU to domestic government procurement.
What we will do next depends on many factors. Among them, oil prices, the fall of which will create significant problems for our economies. There is also a question about unfair competition within the CU, which sooner or later will force Kazakhstan to switch to a tactic of a symmetrical response to Russian restrictions. The latest devaluation in Kazakhstan is also a method of responding to the accumulated imbalances in the trade balance between our countries. We are already engaged in “currency wars” that are typical of many economies. This is when countries are struggling for a weak currency in order to support domestic producers in their competition with imports. The most typical example is China, which constantly struggles with the United States for the yuan exchange rate. The Chinese want the yuan to be weak, and the Americans are calling for its strengthening.
If we join the WTO, the future Eurasian Economic Union will acquire a strange configuration. Two countries will live according to the laws of a large economic league, and one country will be in limbo. As a result, the whole structure will not be very stable, considering how many contradictions exist already today.
Instead of completing
Integration - it was an attempt to take a step towards each other. But she showed that the old format was better, at least for Kazakhstan. Bilateral relations between Moscow and Astana have more depth than even integration processes. These relationships existed before the creation of the vehicle, they will be and if it does not exist.