October 16, 2003

October 16, 2003 | WebMemo on Russia

U.S. Should Promote WTO as Substitute to Eurasian Common EconomicSpace

On September 19, Russia signed an agreement to create a Common Economic Space (CES) with Belarus, Ukraine, and Kazakhstan. The economic zone is an attempt at integration amongst countries that comprise 90 percent of Russia's trade with the Commonwealth of Independent States (CIS), a loose affiliation of the former Soviet Republics.

 

U.S. officials have grounds for concern, as they would like to prevent the emergence of a new Russian-dominate entity in Eurasia. Their policy options are limited, however, but should promote Russian and Ukrainian membership in the WTO as an alternative to the CES.

 

About CES

CES is an ambitious project, which is aimed at boosting President Vladimir Putin's popularity on the eve of an election cycle, while maximizing Moscow's political and economic power. It is a multi-phased agreement, which proclaims that each member will be able to control the speed of integration. However, this goal may be over-ambitious: the free economic space must be completed in 5-7 years, whereas the EU took over five decades to construct. There are three agreed-upon phases in the Yalta accords:

 

  1. Coordination of customs duties and harmonization of trade and custom regulations.
  2. Lifting current trade barriers exemptions and creation of the customs union. 
  3. "Internal customs boundaries will be liquidated, a common customs boundary will be formed and a supra-national regulating institution will start functioning through member countries' voluntary assignment of functions...," Interfax reported. 

Moscow Power Move

The zone will be run by "supra-national regulatory bodies," likely to be based in Moscow, which no doubt will be Russian-dominated. Beyond that, Russia is pushing for members to agree on a common currency, presumably based on the ruble.

 

As with the EU, the four founding states aspire to produce a powerhouse economic zone that would generate growth and foreign investment. However, this agreement did not come to fruition easily. Elites in Belarus and Ukraine have reservations about re-integrating with Russia and sacrifice of national sovereignty. Furthermore, all of them have issues, such as corruption, that act as an impediment to economic growth and investment.

 

Fissures have emerged between the leaders of signatory nations even prior to the signing ceremony. For example, Putin and Presidents Leonid Kuchma of Ukraine and Alexander Lukashenko of Belarus, have argued about their countries' future membership in the EU and WTO vis-à-vis their membership in the CES. "The Ukrainian parliament will not vote on this agreement in its current form," a senior Ukrainian diplomat commented to this author. And before the Yalta summit, Ukrainian Justice Minister Alexander Lavrinovich announced that some articles of the draft agreement were in violation of the Ukrainian constitution that prohibits the assigning of any national powers to a supra-national entity.  

 

The accords will marginalize other former Soviet countries, such as Georgia, Armenia, and Kyrgyzstan, which are WTO members, and put pressure on them to join. Potential candidates for Putin's club were all present in Yalta. Prime Minister of Azerbaijan Ilham Aliev, Georgian President Eduard Shevardnadze and Armenian president Kocharian praised the economic union.

 

They could not do otherwise: as in case of Central America and the United States, millions of Azerbaijanis, Armenians, and Georgians, are employed in Russia as guest workers and support families back home to the tune of up to one-third of national GDP.

 

Further closure of borders will be a massive blow to Southern Caucasus economies. And a customs union, allowing free movement of goods, will encourage foreign investment in CES -- the market of 214 million consumers, not in small and unstable markets such as South Caucasus states.

 

What U.S. Should Do:

The policy options are limited: Washington badly needs Russian support on the U.N. Security Iraq peacekeeping resolution and in the war on terrorism. The Bush Administration should:

 

  • Promote Russian and Ukrainian membership in the WTO as an alternative to the CES.
  • Express concern to governments that consider joining the CES. U.S. officials, including U.S. Ambassador to Kyiv, John Herbst, have already expressed concerns about the new body, despite Russia's ire.
  • Encourage WTO concessions to Russia and Ukraine by the EU. Moscow and Kyiv have complained about EU-inspired measures they believe would harm their agriculture, aerospace, and automotive industries.

No Repeat Mistakes

Ambitions for a new super-state may be in the making. Anatoly Chubais, the controversial architect of the Russian privatization called it a "liberal empire" and even put a timeframe on its creation: 50 years. His boss, Vladimir Putin, on the eve of Spring 2004 presidential elections, is a man in hurry, and may be attempting to impose a more ambitious schedule.

 

The West is facing a choice: embrace Russia and Ukraine, and promote free markets, democracy and the rule of law, or let them drift away.

 

The EU has put Turkey in membership limbo, potentially encouraging its drift towards the Islamic world. Similarly, rejection of Russia and Ukraine may push Moscow towards imperialistic adventurism, and Kiev - back into the Kremlin's embrace.

 

The four-way summit took place in Yalta, a highly symbolic venue, where in 1945 President Franklin D. Roosevelt and the British Prime Minister Winston Churchill abandoned Central Europeans to the mercies of Soviet dictator "Uncle Joe" Stalin. This mistake should not be repeated.

 

Ariel Cohen is a Research Fellow in Russian and Eurasian Studies at the Davis Institute for International Studies at The Heritage Foundation, and the author of Russian Imperlialism: Development and Crisis, Greenwood Praeger, 1998. Special thanks to Irene Gorelik for assistance in research of this article.

About the Author

Ariel Cohen, Ph.D. Visiting Fellow in Russian and Eurasian Studies and International Energy Policy in the Douglas and Sarah Allison Center for Foreign and National Security Policy, a division of the Kathryn and Shelby Cullom Davis Institute for International Studies, at The Heritage Foundation
Douglas and Sarah Allison Center for Foreign and National Security Policy

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