A Split in the Eurasian Union: Belarus Refuses to Join Russia's Trade War with Ukraine
While Ukraine was preparing to sign the Association Agreement with the EU, Russia was trying to secure the support of Belarus and Kazakhstan in introducing protective measures against Ukrainian goods.
Moscow failed to convince its Eurasian partners that Kyiv’s Association Agreement would pose a threat to their economies and had to resort to taking unilateral action for raising customs duties on goods from Ukraine.
This case may well represent a model of relations that may come to dominate decision-making in the Eurasian Economic Union.
Fairly frequently, the three nations have viewed their respective interests as being too divergent to reach a comfortable compromise and instead are resorting to taking unilateral action.
Interestingly, Belarus itself behaves in a similar fashion towards several Ukrainian imports that it views as a real hazard to its domestic industries.
Russia’s authorities had warned their Ukrainian counterparts that they would resort to serious protective policies if the latter decided to sign the Association Agreement long before Kyiv’s Maidan happened. Presumably, those warnings may explain Viktor Yanukovych’s decision to not sign the agreement at the Eastern Partnership Summit in Vilnius back in November 2013.
When the newly elected Ukrainian President Petro Poroshenko declared that he would sign the economic part of the Association Agreement immediately after his inauguration, the issue returned to the Kremlin’s agenda. The Russian government raised it with Belarus and Kazakhstan, its Eurasian Customs Union (ECU) partners. At a meeting of the Eurasian Economic Commission on 23 June in Russian Sochi, the ECU’s supranational body, Russian officials suggested putting forth a collective response to Ukraine’s decision.
They argued that the Association Agreement threatens producers and manufacturers from the Eurasian troika. The Deep and Comprehensive Free Trade Agreement (DCFTA), the economic part of the Association Agreement, stipulates that Kyiv should remove its import duties on goods from the EU.
Ukraine is also a member of the Commonwealth of Independent States’ (CIS) region of free trade. Ostensibly, Russia fears that cheap European goods, disguised as Ukrainian goods, will flood the ECU’s markets and, thus, bankrupt less competitive producers in Belarus, Kazakhstan and Russia.
However, this argument has failed to convince Moscow’s allies. In the words of Belarus’ representative to the Council of the Eurasian Economic Commission Siarhei Rumas, Belarus and Kazakhstan “strongly reject” the proposal.
According to Rumas, the consequences of Ukraine signing the Association Agreement for the ECU’s economies remains unclear as the Eurasian Economic Commission has yet to analyse them. Under these circumstances, Belarus sees no “urgent need to adopt such a decision”.
As a result, however, Russia must invoke a special clause from the CIS free trade treaty and introduce its protectivist measures unilaterally.
Own Interests First
By rejecting Russia’s proposal, Minsk again demonstrates that its space to manoeuvre in its relations with Russia and remains resolute in using it to protect its own interests. It is abundantly clear now that one of Belarus' national interests includes maintaining good relations with Ukraine.
In 2013, Ukraine was Belarus’ third largest trading partner, following Russia and the EU. It accounted for 7.8% of the country’s foreign trade. Crucially, Minsk had a sizable trade surplus with Ukraine amounting to around $2.1bn.
Given the country's worsening economic situation and its traditional problems with its current and foreign trade accounts, the Belarusian authorities are actively looking for ways to minimise the negative repercussions of the crisis in Ukraine on their bilateral trade.
Minsk would be happy to re-export Ukrainian goods to Russia
Supporting Russia’s sanctions against Kyiv would exclude such a possibility. Moreover, Belarus would be happy to use the ongoing trade tensions between Russia and Ukraine to bolster its own position. For example, Minsk would be happy to re-export Ukrainian goods to Russia.
Similar events unfolded after the Russia-Georgia War in 2008. When Moscow banned Georgia’s imports, certain Georgian goods (for example, its staple wine and mineral water exports) started entering Russia via Belarus.
Therefore, instead of aligning itself with Russia’s policies, the Belarusian Foreign Ministry emphasises that it considers Ukraine’s decision to sign the AA with the European Union as “the sovereign right of a sovereign nation”.
Belarus Says No to Ukrainian Sweets and Beer
At the same time, Belarus’ government feels free to take the liberty of introducing its own restrictions on trade for certain imports from Ukraine that it perceives as a threat for domestic producers. Recently, both beer and confectionery products from Ukraine have been denied entry to the Belarusian market.
In May, the Council of Ministers adopted a decree that obliges confectionery importers to obtain one-time incentives. In order to acquire the licenses, importers need to set very high prices, prices so high that they automatically make their goods uncompetitive on the Belarusian market.
The decree does not name Ukraine specifically. It does, however, appear to be the primary target. According to the Ukrainian Confectionery Industry Association, Belarus’ authorities have begun to ask the importers of sweets from Ukraine to increase their prices and even blocked their deliveries a month before the decree’s adoption.
As a result, most Ukrainian confectionery producers have had to abruptly stop exporting their goods to Belarus. Similar developments have affected beer imports from Ukraine as well.
Unlike Moscow’s proposal to take collective, union-wide measures, the Belarusian government is much more concerned about its own domestic preferences when considering which Ukrainian imports to curb - a decision that has nothing to do with Kyiv’s decision to sign the Association Agreement.
In his 22 April 2014 State of the Nation address, Lukashenka proclaimed that the development was a top priority of what he called a new economic policy. Ukrainian confectionery and beer imports simply fell victim to the Belarusian government’s understanding, or lack of it, of how an internal market should develop.
It should be noted that Minsk did not even bother consulting with its ECU partners before introducing the restrictive measures.
Model for Decision-Making in the Eurasian Economic Union
Unilateral actions are likely to dominate sensitive decision-making issues in Eurasian Economic Union's future
The unilateral actions by both Moscow and Minsk suggest that a similar model will dominate sensitive decision-making issues in Eurasian Economic Union's future. Belarus and Kazakhstan's refusal to support Russia’s sanctions against Ukraine shows that the Kremlin lacks the ability to force its ECU allies into full political and economic compliance.
Belarus’ unilateral moves against Ukrainian beer and confectionery products implies that it does not take Eurasian regulations and supranational institutions very seriously.
This would appear to be a more or less natural state of affairs for an economic union that embraces authoritarian political regimes, each of whom are racked with difficult mixtures of contradicting economic problems and political concerns and ambitions.
In this light, Eurasian integration will likely face one of the two scenarios. Either Russia will have to pressure its allies into better compliance or the integration dynamics will gradually erode to reflect one of the more amorphous forms of the post-Soviet integration – something akin to the CIS and the Union State of Belarus and Russia.