Belarus Strengthens its Bargaining Position in the Eurasian Economic Union
Lukashenka's administration believes that Belarus' participation in the Eurasian Economic Union (EaEU) does not restrict its ability to balance its interests between Russia and the West.
Despite Russia's position, Belarus continues to participate in the Eastern Partnership. Belarus has even recognised the results of the presidential election in Ukraine. Lukashenka intends to develop cooperation with the government of Ukraine, which is oriented towards European integration.
It is highly unlikely that the creation of the EaEU with Belarus' participation will entail the implementation by Belarus of Russia's demands, which the Belarusian party has already ignored during for more than twenty years.
The authorities simply refuse to sell enterprises to Russian companies and investors. Meanwhile, restrictions against Russian exports in Belarus remain, despite growing the two nation's apparent gradual economic integration.
Currently, Russia is not interested in a conflict with Lukashenka. The establishment of the EaEU provides additional guarantees for the years ahead that create favourable conditions for Belarusian exports to Russia. And all the while Russia, for its part, will be supplying Belarus with cheap gas. Lukashenka has been successful in guaranteeing that the conditions of their oil deal will also be quite favourable for Belarus as well.
Belarus’s Participation in the Eurasian Economic Union (EaEU): More Pros than Cons
Before the treaty was signed, several media publications appeared to be claiming that the Russian representatives would prevail in the supranational bodies of the EaEU; thus, Russia would be able to impose its will on its partners within the EaEU as it controlled its administrative organs.
However, the treaty which was recently signed is based on a decision making process that is based on obtaining a consensus at all levels. Similarly, the staffing policy in the union bodies envisages a principle of equal representation from all parties, a move that would severely hamper Russian dominance of its institutions.
At first glance, it would appear that Belarus’ joining the EaEU would bring with it a number of real benefits.
Indeed, when negotiating over the creation of the EaEU, Lukashenka demanded that Russia would eliminate all of its exemptions and restrictions on trade, whereas Russia's representatives scarcely mentioned the trade restrictions that Belarus has placed on Russian exports.
The Russians’ silence on the issue once more convinced their Belarusian counterparts that setting up the EaEU, as well as other integration platforms, is more of a move of geopolitical, rather than economic, significance for Russia.
The Belarusian market, in terms of Russia's overall trade, is rather insignificant when considered in broader terms. The trade volume between Russia and its present and potential EaEU members is miniscule in comparison to volume of trade between Russia and the European Union or with China.
Sale of Large State-Owned Enterprises Remains Unlikely
In the coming years, Russia is unlikely to raise the issue of Belarus selling off its largest state-owned enterprises to Russian investors.
At a time when relations with Russia have steadily deteriorated, Russia has not shied away from posing the question of whether or not Belarus was ready to sell its largest enterprises. It has tried to pressure the Belarusian authorities in several ways, from denying Belarus lines of credit, reducing its the amount of oil flowing into the country, and even introducing specific restrictions on Belarusian exports.
These kinds of coercive measures are nothing new and have been employed several times. For instance, during the so-called “milk wars” of the summer 2009. In the midst of the trade war, Lukashenka proclaimed: “We will go to the trenches, but will not sell [our] enterprises for next to nothing!”
With the establishment of the EaEU, Russia has provided Belarus with financing under largely favourable conditions. Russia has gone as far as creating a good environment for some Belarusian exports. To keep the economy afloat, it has agreed to provide Belarusian oil refineries with low-priced oil, oil that it will re-export to the EU at a profit. In 2015 its estimated that the Belarusian budget will see an influx of funds to the tune of $1.5 billion, in part due to the terms of their economic cooperation.
Belarus sets very strict terms for the sale of any of its factories and manufacturing plants Russian investors may wish to purchase
All this enhances Belarus’ positions at the negotiation table when the question of selling of its state-run enterprises. As in the past, Belarus sets very strict terms for the sale of any of its factories and manufacturing plants Russian investors may wish to purchase: modernisation, maintaining the current number of workers employed, higher tax rates, etc.
Negotiations over the sale of the Minsk Automobile Factory, for example, have been underway for over 13 years. A similar situation has developed with other Belarusian-owned enterprises. From time to time, Lukashenko publicly states that he does not see any reason for selling them off, creating further delays and room for negotiation.
Despite reports to the contrary, for the time being Russia is unlikely to push other issues of real integration, whether it be political integration or unifying the EaEU's national currencies into a single currency.
The Growing Bargaining Power of Belarus
In the coming years, Belarus simply is not going to be at the top of the Kremlin's agenda. Currently, the burning issue for Russia’s foreign policy establishment is clearly Ukraine. Moscow is not only closely following the developments in eastern Ukraine, it is also supporting the region's separatists.
Russia's foreign policy agenda also includes dealing with the issues that are emerging from Georgia and Moldova's march towards European integration, all while drastic changes are taking place with Russia's own relations with the West.
Given these current circumstances, Russia is not interested in creating a more integrated (more than it is at present) EaEU, for two main reasons.
The first and, probably, the most crucial is that the Russian leadership wants to show to Russian society that in a world where Ukraine, Georgia and Moldova are headed west, and ties with the West are on the verge of a new Cold War, Russia is not alone and has its own robust and integrated group of allies.
Second, Russia needs to make real progress with its Eurasian integration project in order to feel more confident when it comes to negotiating with the West.
Without Belarus' participation, all Russia's integration projects would be more Asian than Eurasian in their nature
Certainly, the Belarusian side has taken into account another important point. Without Belarus' participation, all Russia's integration projects would be more Asian than Eurasian in their nature.
During negotiations on the founding of the EaEU, Belarus' adopted a tough stance on ensuring its demands were met. In March and April 2014, Lukashenka repeatedly stated that Belarus' participation in EaEU was conditioned on the abolition of duties on exported oil products created using Russian crude oil.
If Russia had accommodated Belarus, the Belarusian budget would have swelled by another $3-4 billion dollars annually. While not entirely successful, Belarus was able to secure a short-term deal with long-term prospects that has it in a much better position than it had held in years past.
More Economic Support from Russia and No Reforms
Lukashenka's team appears to be of the opinion that the deterioration of relations between Russia and the West, and Ukraine’s, Georgian and Moldovan push towards European integration, comes with guarantees of significant economic long-term support from Russia. Russia will pay out exuberant sums to its Belarusian ally, and at the same time will not be in a position demand any real concessions.
The resources provided to Belarus after joining the EaEU could be used to carry out structural economic reforms, to implement programmes to enhance energy efficiency, or create new promising industries.
However, the first signals coming out of Minsk seem to indicate that these resources will be used to maintain the existing economic model. Increased levels of financing from Russia is not an impetus for stimulus and change, but rather a means to preserve the status quo.