Painful Lessons of Eurasian Integration
On 25 April 2013 Tatsiana Matoryna, Director of the Brest Stocking Plant — one of the largest apparel industry companies in the former Soviet Union— blamed sharp decreases in the plant’s sales on Belarus’ economic integration with Russia and Kazakhstan.
The accusation has serious grounds: in 2013, the volume of sales from the plant decreased by about 30% compared to the same period in 2012.
The main reason for this and similar sales drops is competition in which Belarusian goods often lose out. For years, tariffs and non-tariff barriers to trade helped Belarusian businesses avoid unwanted competitors on the domestic market. However, the country’s accession to the Customs Union with Russia and Kazakhstan, and Russia’s subsequent accession to the World Trade Organisation (WTO) deprived Belarusian plants of the usual state protection.
Little by little, Belarus’ optimistic expectations about the Eurasian integration turn out to be unrealistic. A few years ago,the director of the Centre of Integration Research of the Eurasian Bank of Development Evgeny Vinakurau estimated that because of the economic integration with Russia and Kazakhstan from 2011-2030 Belarus’ GDP would increase by 15%. The recent performance of the Belarusian economy has cast a shadow on this forecast.
Integration – Not A Virtue In Itself
The history of international economic relations can teach Belarus a good lesson. Belarus has strong trade links with Russia and was supposed to benefit from joining the Common Economic Space (next step of integration after the Customs Union). The Common Economic Space rules exempt Belarusian goods from nearly all tariff and non-tariff barriers to trade. Exports from Belarus to Russia in 2012 decreased by about 25.5% compared to the last year. Even long-desired Belarusian meat and dairy products now turned out to be 4.5% less popular in Russia than in 2012.
Clearly Belarusian goods are becoming less competitive in Russia. However, in 2010 when the Customs Union de-facto started to function, one could hardly expect such a hardening of competition, mainly because it was not known that Russia would join the WTO on 22 August 2012.
At the same time, the WTO rules are not a suitable excuse for Belarus’ economic poor performance in relations with its big neighbour. In fact, Russia’s tariffs for meat and dairy products with WTO countries have increased after August, 2012. As a result, the reasons for the low level of competitiveness of Belarusian experts must be found elsewhere.
In such a situation, the forecast of the former Minister of Economy and Development of Russia Elvira Nabiullina seems more realistic: integration within the Common Economic Space will increase internal competition and create incentives for the modernization of enterprises. For Belarus, it really will. Otherwise, the country’s economy will not only lose hope for finding new markets, but will also lose its own market.
Belarus: The Gates for Foreign Investments?
The Belarusian government also hoped that Eurasian integration would boost foreign investments. Official web sites and brochures still list the state’s participation in the Customs Union as one of the main reasons to invest in it.
Indeed, the market of the Common Economic Space can seduce foreign investors. It covers around 170 million people, and eliminates barriers to trade and capital’s movement. But Belarus should be interested in a different question. Rather than “does the Common Economic Space attract foreign capital?” it should be “will foreigners be interested in the Common Economic Space invest in Belarus?”
According to the 2012 Index of Economic Freedom Belarus ranked 153th, while Kazakhstan and Russia were 65th and 144th respectively. The A.T. Kearney Foreign Direct Investment Confidence Index ranked Russia 12th in the world. Foreign investors willing to do business in the Common Economic Space will most probably prefer investing in Russia and Kazakhstan rather than in Belarus. The negative image of the Belarusian regime in Europe, as well as its recent treatment of foreign investors are taking their toll.
Two Hidden Rocks
Eurasian integration can also decrease capital inflows into Belarus.
One reason for that is Belarus’ inability to use its traditional methods of investors’ attraction. For instance, Free Economic Zones (FEZs) — six special regions in the territory of Belarus — have been among the strongest arguments for investing in Belarus for years. Foreign goods used for new production in the FEZ did not have to pass customs clearance. As a result, FEZ's residents used to save both customs duties and value added tax.
However, on 18 June 2010 Belarus signed an agreement on free economic zones within the territory of the Customs Union, which has reversed this rule. Belarusian attractiveness for foreign investors has respectively fallen.
According to Belarusian economist Iryna Tachytskaya theoretical and empirical surveys give no clear answer as to whether participation in regional integration encourages foreign investments. The practise shows that liberalisation and institutional reforms look more important for foreign investments than economic integration. In formations of South-South type (between developing or transition economies) the investments are distributed disproportionately. Tachytskaya concludes that in case of the Common Economic Space the disproportional allocation is hardly to hurt the Belarusian economy.
The lessons of the Custom Union and Common Economic Space for Belarus are simple to verbalise, difficult to follow, and urgent to implement. The country has to increase its competitiveness and continue liberalisation of its economy. In absence of these factors, Belarus will fail to benefit from the Eurasian integration and may end up in a worse condition that before the integration.
Forget Lukashenka – Remember Belarus – Digest of Belarusian Analytics
Over the last two weeks, Belarusian analysts devote much attention to Belarus-EU relations. A major Amnesty International report on Belarus came out. Analysts discuss privatisation and female politicians in the country.
Forget Lukashenka – Remember Belarus – politician Andrei Dmitriev names Lukashenka a politician of the past and offers to stop using the legacy code "Lukashenka" – and start to create and use the new code: "We and Our country". Dmitriev calls to join the discourse of the new majority – the work on the national agenda of change which provides a social agreement about the changes, where the main principle is "not Who instead, but How after."
What is not Permitted is Prohibited: Silencing Civil Society in Belarus – Amnesty International’s report analyses the legislation governing freedom of peaceful assembly and association and documents violations of these rights faced by human rights defenders, trade unions, environmental campaigners and sexual minorities individuals. The report shows how the authorities in Belarus regularly deny the rights to freedom of peaceful assembly, association and expression, preventing people from speaking out in public, holding demonstrations or setting up civil organisations.
BISS Political Media Barometer #3 – BISS presents its report for October – December 2012 and offers the analysis of political media following the 2012 parliamentary campaign period in Belarus. The report notes growing differences between the forces inside and outside of Belarus. The main topic of communication of those actors/forces outside of Belarus are repressions while those in Belarus focused on social sphere and internal questions of political parties. Meanwhile, media pay much more attention to stories of repression and political conflict.
What Do Belarusians think? – A video capturing the most interesting moments of the discussion What Do Belarusians Think? is available online. The discussion took place on April 12, in Vilnius, and focused at the newest results of national public opinion polls carried out by Belarus’ leading pollsters and analysts. The event was organized by the Eastern European Studies Center (EESC, Lithuania) and the Belarus Research Council (BRC).
PR1MUS: Yaraslaa Ramanchuk (audio) – Yaraslau Ramanchuk, head of Mises Research and Analysis Centre, sums up the development of the Belarusian economy for the first three months, analyses the two long-running privatisation deals – MTS and MAZ and argues that now the Belarusian government is carried away by the stimulation of the economy and just forgot the future.
Female Politician: Reality or Nonsense? – Tatiana Schurko notes that in the modern world, despite the declarative statements on gender equality, women are still faced with the barriers that hinder their promotion into the political sphere. Government leaders and all active women in politics are still not so much that connected with gender stereotypes and prejudices. The expert presents the history of women's political rights, gives the actual statistics of women in governance, and describes the stereotypes that exist in Belarus in this field.
The Holly War for a Water-Pump Station: Notes to the Latest Events – Andrei Yahorau, Centre for European Transformation, appeals to the recent conflict among the political members of the opposition when Alexander Milinkevich and Andrei Sannikau expressed different points of view if the EU should have a dialogue with the official Minsk. The expert considers the conflict "the highest point of absurdity" because the opposition was left aside the dialogue between the EU and Minsk long ago. Until the political opposition is in state of disorganisation and only gives useful pieces of advice, nobody will take it seriously, Yahorau summarises.
Three Levels of Misunderstanding – Uladzimir Matskevich, the head of International Consortium EuroBelarus, suggests his vision of the situation why the discussion of Belarus-Europe dialogue permanently provoke sharp conflicts within Belarusian political opposition. The analyst singles out three types of incomprehension: the level of ordinary people who are not initiated into the subtlety of international politics; the political level, when professionals don’t understand the essence of dialogue; and finally, the level of intraoppositional competition and struggle when every leader tries to get in the mainstream of European politics.
Prospects for EU Policy Towards Belarus During the Presidency of Lithuania – Kinga Dudzińska and Anna Maria Dyner, the Polish Institute of International Affairs (PISM), note an intensification of political and economic relations between Lithuania and Belarus and expect that Lithuania will use its presidency of the EU Council to resume a dialogue with the Belarusian authorities. The experts consider that this would be a great success for Lithuanian diplomacy.
Analysis of EU Instruments for the Development of Civil Society in Belarus – experts of Centre for European Transformation (CET) prepared working papers that analyze two thematic EU instruments – European Instrument for Democracy and Human Rights (EIDHR) and Non-State Actors and Local Authorities (NSA-LA). The papers consider the priorities of EU instruments and draw some conclusions on their capacity in the Belarusian context. The papers are a part of the CET study aimed to analyse effectiveness of EU programs for the development of civil society and democracy in Belarus.
Traps and Opportunities of the European Policy towards Belarus – Whether there is a shift in the EU dialogue with the official Minsk? What are the reasons of this shift, what are traps and possibilities there; what is the role in the process of civil society? Radio Svaboda discusses the mentioned issues with Pavol Demes, German Marshall Fund, Kamil Klysinsky, Polish Center for Eastern Studies, and Kirill Koktysh, the Moscow State Institute of International Relations.