Belarus Trapped Into Eurasian Integration

Russian oil and gas pipelines

The Ambassadors of Poland, Lithuania and Sweden have returned to Minsk and their colleagues are on the way to the Belarusian capital. It seems that EU-Belarus relations have broken the deadlock, but they remain difficult and the EU has few carrots to offer its restive authoritarian neighbour. Unlike countries like Moldova and Armenia, Belarus is increasingly integrating into the Eurasian Economic Union without any serious interest in European integration. 

The reason for this is oil and its financial dependence on Russia. If the EU wants to establish democracy in Belarus, it should offer a comprehensive package of assistance in reforms. But even if Belarus decides to take European path, it will take at least 3-4 years to reach the same level of relations as exists with Georgia or Ukraine. And there are plenty of obstacles: from WTO membership to an obligation to secure permission from the yet to be established Eurasian Commission.

Changed Environment

The planned return of all EU ambassadors to Belarus marks the end of the worst EU-Belarus political conflict since it regained its independence. Swedish Foreign Minister Carl Bildt says that the EU is ready to restore the status-quo in its relations with Belarus that existed before the notorious presidential election in December 2010. 

return to the year 2010 is no longer possible because Belarus increasingly integrating into the new Eurasian Economic Union

Unfortunately such a return to the year 2010 is no longer possible because Belarus is increasingly integrating into the new Eurasian Economic Union advanced by Russian president-elect Vladimir Putin. He offered significant discounted oil and gas supplies to Belarus which helped the country survive the economic crisis that  began in April-May 2011. Recently Standard & Poor's has even revised the outlook on Belarus from "negative" to "stable" despite pessimistic forecasts of local analysts.

Russia managed to obtain the main Belarusian gas pipeline tranpsortation system (Beltransgaz) in return for assistance in hard times. Moreover, approximately 70% of all enterprises in Belarus are still state-owned. The country plans to privatise 133 of them with the total amount of $2.5bn this year. And guess who will own most of them soon? That's right -- their big neighbour to the east.

Locked In the Eurasian Union

At the same time the majority of Eastern Partnership countries, in particular Moldova, Georgia, Armenia and Ukraine, conduct negotiations with the EU under the Association Agreement and Deep and Comprehensive Free Trade Area (DCFTA or Free Trade Agreement).

The Free Trade Agreement is key to understanding why Ukraine does not want to participate fully in the creation of the Customs Union with Russia, Belarus and Kazakhstan. This type of agreement implies progressive liberalisation of bilateral trade through lifting tariff and non-tariff barriers. It also extends to legislative and administrative regulation of trade. As a result these countries should approximate to the EU standards as closely as possible, as if they were Norway or Switzerland. 

The Free Trade Agreement is the main "carrot" of the Eastern Partnership as it opens the EU Single Market for Eastern Partnership countries. Their advantages are obvious, because the EU GDP by purchasing power parity is almost seven times greater than the GDP of the Russia-led Customs Union.

And economic integration is more beneficial with prosperous countries, not with oil-rich backward Russia and Kazakhstan which want to protect themselves from foreign competition. If Ukraine is a member of the Eurasian Economic Union, it would have to pay high levels of compensation for its trade partners outside the Union as the country has lower import tariffs under its WTO obligations.

a member of the Eurasian Economic Union does not have a right to conduct separate trade negotiations with any countries

What is more important, a member of the Eurasian Economic Union does not have a right to conduct separate trade negotiations with any countries. Instead, it should ask for permission of the supranational Eurasian Economic Commission and take into account economic interests of all member states. It means that in practice Belarus can not launch negotiations with the EU on Free Trade Agreement without Russian consent even if all political prisoners are free.

Why Belarus Chose Eurasian Integration?

petrochemicals amount to more than 65% of Belarusian export to the EU countries

As many other Eastern Partnership countries, Belarus has at least 25% EU share in its trade balance. As opposed to them, petrochemicals amount to more than 65% of Belarusian export to the EU countries. Only Azerbaijan surpasses Belarus with its 99.5% share of oil and gas in export to the EU. Whether it is a coincidence or not, both countries are authoritarian and are not WTO members.

However, while Azerbaijan has its own oil, Belarus mostly relies on Russian oil producers. In January 2012 its export to the EU increased fourfold from $439m to $1.74bn as compared with the previous year due to favourable conditions of oil supplies from Russia.

EU-Belarus relations on a political level may make Russia angry and thus put an end to its oil paradise

But the significant improvement in EU-Belarus relations on a political level may make Russia angry and thus put an end to its oil paradise. Benefits from reduced import tariffs in trade with the EU will not cover losses from a decrease in the amount of oil refined in Belarus. The reason for Eurasian integration is very simple: Belarus is badly dependent on Russia.

Belarusian Authorities Live For The Moment

Another reason for choosing the Eurasian integration is the unwillingness to undertake any significant reforms. Belarusian authorities would like to maintain the existing political and economic status quo for as long as they can. Most of the Eastern Partnership countries on the contrary intend to improve their administrative and legislative systems according to European standards in order to attract foreign investments.

It clearly illustrates the dilemma that the Belarusian ruler faced in 2010. On the one hand, he could follow the path of modernization and liberalisation. It was a sound strategy, but it demanded large sums of money and could have caused social and political instability. On the other hand, he could restore deteriorating relations with the Russians and reinstate their generous support in exchange for promises of future concessions.

Finally, Lukashenka prefers short-term benefits over long-term advantages and is unwilling to invest money in the democratic future of Belarus.

To Support Reforms In Belarus

Belarusian authorities are forced to rely on Russian support to survive, but Russia may soon get control over all strategic assets in the country for cheap. Thus participation in the Eurasian Union poses a threat to Belarusian sovereignty. But it also has at least one positive consequence – Belarus will be forced to become a WTO member and this will consequently encourage authorities to make economic reforms.

Russia does not guarantee that it will keep its oil and gas discounts for a very long time. Sooner or later Belarusian authorities will face the prospect of the collapse of their economic model. At that moment the EU should be ready to offer Belarus a comprehensive package of financial and technical assistance in reforms and enter into a dialogue with authorities and businessmen on the future development of the country.

George Plaschinsky is a graduate of the London School of Economics where he studied under the OESS scholarship by European Comission.

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