Eurasian economic union as a factor of economic growth

Table of contents: The Kazakh-American Free University Academic Journal №7 - 2015

Authors:
Trofimova Yuliya , Kazakh - American Free University, Kazakhstan
Kolesnikova Vera, Kazakh - American Free University, Kazakhstan

Eurasian Economic Union (EAEU) is an international integration economic union established by a treaty which was signed on May 29, 2014 in Astana and came into force on January 1, 2015. The union includes Russia, Kazakhstan and Belarus. Also, another country that signed the treaty to join the union in October 2014 was Armenia; and on January 2, 2015 the treaty came into force. In addition, the Republic of Kyrgyzstan, which signed a corresponding agreement at the end of December 2014, is likely to join EAEU in 2015 (http: // www. kursiv. kz).

EAEC is based on the Customs Union of the Eurasian Economic Community (EurAsEC) to strengthen the economies of the member countries and contribute to "rapprochement to each other", modernize and improve the competitiveness of the member countries in the world market. EAEC member states plan to continue economic integration in the coming years. Signing this treaty is a milestone event, which offers broad prospects for economic development and improvement of the population welfare.

Work on the document lasted for almost 3 years. The document describes the procedure of elimination of customs and immigration barriers between the member countries. Now, the citizens of Russia, Belarus and Kazakhstan will be able to move freely across the territory of the union.  This means they can decide for themselves where to live, work and study. Entrepreneurs are now able to import goods and conduct business in any of the member countries.

The states will have a coherent policy in the key sectors of the economy: energy generation, manufacture, transportation and agriculture. It is expected that all this will increase the incomes by at least 15%.

The countries of the union plan to unify investment procedures. Investors will have the right to get reimbursement for the damage to their investments from the public funds. The nationalization of private assets, on the one hand, is prohibited; on the other hand, the appendix to the treaty describes a compensation mechanism: it should be market-oriented, quickly redeemed and delay in recovery of damage should result in interest accrual (http: // bnews.kz).

Russia, Belarus and Kazakhstan will agree to pursue a common macroeconomic, anti-monopoly, monetary and financial policy. The document says nothing about an adoption of a common e currency. The states may introduce exchange restrictions for the period of up to one year "in exceptional cases".

Eurasian Economic Union (EAEU) is an integration association, which does not address issues of independence of member states.

The integration is based, primarily, on the economic pragmatism. The fundamental principle of the future Eurasian Economic Union is a Common Economic Space, which is a significant resource for the joint development of the CIS countries.

Also, integration is a voluntary initiative. Each state and society should come to the understanding of its necessity independently (http: // ria.ru).

As a union of states, EAEU is based on the principles of equality, non-interference in internal affairs of each other, and respect for sovereignty and inviolability of state borders.

As a whole, EAEU gives an opportunity for Kazakhstan and its partners to come out as an integrated economic bloc in issues of international relations, which contributes to the strengthening of national economies.

What are the advantages that the union offers the citizens of the Republic of Kazakhstan? The advantages are quite numerous.

First of all, it is the development of competitiveness of the Russian-Kazakh-Belarusian market as a whole. Considering open trade borders, all goods produced by EAEU countries will compete with each other in terms of price and quality. Kazakhstan offers Russia and Belarus its goods produced by metallurgy, machine building, processing industry and agriculture. This expanding market for us, Kazakhstan citizens, provide both favorable and negative outcomes. For example, due to a sharp currency depreciation in Russia, Kazakhs literally devastated automobile showrooms in all border regions of Russia. Of course, buying a car 30-40% cheaper than its cost in Kazakhstan is an incredible stroke of luck. But if you look at the situation in terms of outcomes for of our country, you’ll see that significant amounts of money are "funneling" from the country and Kazakhstan automotive industry is losing its customer. This, in its turn, affects the state tax revenues and the salary of people who work at Kazakhstan plants. Fortunately, this kind of craze is a short-term situation during the crisis. Of course, very soon the acute phase of the crises will pass over, and the price range for products in Russia will stabilize [4].

As you can see, the consumers in Kazakhstan get a wide choice of goods and services, which results in tough competition leading to market regulation of price for imported and local products. Increased imports also entail the arrival of new equipment and technology. But what consumers benefit the most is the high quality of products that meets the world standards. There are also new jobs created as a result of opening joint ventures and expansion of the existing manufacturers that are focused on the markets of the partner countries. It leads to the reduction of unemployment and increase in the welfare of the people.

Secondly, easy migration of the human capital allows people to significantly reduce time and simplify procedures of employment or training in the EAEU member countries. For example, now a citizen of Kazakhstan has the right to stay in Russia for 30 days without a previously mandatory registration. All citizens of the EAEU member countries have the same employment rights and responsibilities in Kazakhstan, Belarus and Russia, with some exceptions (http: // www. ereport.ru).

Also, at the moment, EAEU member countries develop a list of higher education institutions whose diplomas will be acknowledged in all three countries. For example, a graduate of Nazarbayev University has the full right to work in Russia and Belarus, as well as a graduate of Lomonossov Moscow State University.

Signing this treaty eliminated the procedure of getting work permits that the countries previously established in order to protect the domestic labor market. The worker, who arrived from a EAEU member state, enjoys the same professional and social preferences (the right to work, to placement of children in school and pre-school institutions, possibility to use the services of medical institutions, obligation to pay taxes), as the workers of the host country. The only exceptions are civil and military service.

The current difficulties in this matter are related to the 30% income tax for migrant workers from Kazakhstan in Russia, while the Russians, working in Kazakhstan, pay only 10%. Kazakhstan insisted on the reduction and adjustment of the income tax in our countries, and got an agreement of the Russian party. Since January 1, 2015 the income tax rate in Russia for Kazakhstani migrant workers will constitute 10%.

Also, if a Kazakhstan citizen decides to move, for example, to Belarus their work experience in Kazakhstan will be taken into account while calculating their pension payment. Securing this rule (work experience off-set) is currently under development.

Third, the advent of the Eurasian economic space should give a new impetus to development of joint ventures. Even in the early years of EAEU existence we can expect the successful impact of this association on the following plants: Kazakhstan-Russia - "Asia Auto" JSC, "Kazrospromarmatura" LLP, Kazakh-Bela-rusian "SemAz" Ltd and others. There is another important point. Opening the borders is expected to increase the inflow of investments from Russia and Belarus. Kazakhstan creates favorable conditions for foreign investors. Therefore, doing business in Kazakhstan is becoming profitable (http: // www. ereport. ru).

Creation of extensional consumer market is definitely an attractive investment. Kazakhstan, as a participant and one of the founders of this market, gets more powerful negotiating position and competitive advantages in economic relations with the third countries. An example of this is the negotiation of a number of major world economies concerning free trade areas and preferential trade with Kazakhstan.

Creation of EAEU allowed a significant increase in the capacity of the domestic market. The common member states market size is 2 trillion US dollars, its human resources is estimated at about 170 million people, its area is 20 million sq. m., and its total productive capacity is 600 billion dollars.

In addition to the substantial expansion of the boundaries of the market for the businessmen of Kazakhstan, creation of EAEU has provided additional opportunities for domestic businesses in terms of reducing transaction and time costs at the border and releasing significant working assets, which can now be spent for business development [5].

All this should become a powerful incentive for the development of new industries in the union territory, the cooperation of complementary companies and the creation of vertically integrated corporations. Ultimately, in the long term it will allow EAEU countries compete in the world market with their products.

Creation of the Customs Union will increase the marketing outlet for Kazakhstan producers tenfold, which, in its turn, will allow them to significantly increase production.

Another important factor is the fact that the larger domestic market becomes more attractive for foreign investors.

Kazakhstan is a country distant from major markets and having almost no access to sea ports. In this regard, particular attention is paid to providing Kazakh exporters with a better access to the Russian transportation infrastructure which will reduce transport costs and, thus, increase the competitiveness of Kazakhstan products in the markets of the third countries. Absence of internal customs borders now allows reducing transport costs and travel time for Kazakhstan exporters of grain and flour and other finished and raw goods to European markets.

Joining EAEU results in the following advantages for Kazakhstan:

- growth of GDP by 25% by 2030;

- decrease in prices due to increasing competition;

- creation of new jobs in modern companies and enterprises;

- significant development of non-resource sector of the economy;

- improvement of investment climate;

- new level of human resource market development;

- development of new capital- and knowledge-intensive industries;

- improvement of product quality due to higher requirements;

- foreign trade growth;

- upgrade in production and technology, and build-up of industrial power;

- creation of single market for 170 million people without tariff and non-tariff barriers;

- increased resilience to the global crisis.

A clear understanding of the EAEU goals and objectives can be explained in the following way: any joint efforts, resources, opportunities always increase chances for further successful development of the country. This is the objective of a common Eurasian space – to compensate for the shortcomings due to interaction within EAEU.

But now that there is a severe crisis in Russia, what are the chances that the neighbor will not pull us back? The difficult economic situation in Russia gives additional opportunities for Kazakhstan. We become a more valuable and attractive partner when Russia's ties with other countries are weakened. This increases our value and makes our partners consider our interests. Therefore, from a strategic point of view, we can’t step aside now. Stepping aside may result in rather adverse effects (2014).

EAEU also has its doubts and weaknesses. Experts point to the specific and real problems of EAEU functioning. These problems are the following:

- guaranteed dominance of Russia in the EAEU bodies eliminates the possibility of equitable coordination of economic interests of the union member states;

- in the monetary system, each state retains its significant national characteristics, which objectively impede integration in this area. The flip side of this model, which has ensured high rates of economic growth, is the underdeveloped financial markets and, to a certain extent, a close nature of the financial system;

- There still remain competition in the fiscal sphere of national jurisdictions; consequently, the unification of monetary systems as the final phase of integration is also under development;

- European experience suggests that if EAEU members want to have a common currency, we need to set limits on the emission of debt securities so that public debt were financed by a single paper, issued on the basis of the overall balance and common borders. Thus far these states are not ready for this (Stolyarova, 2015).

Western political elites perceive EAEU as a hostile project, capable of creating serious competition to the dominant influence of the West not only in the post-Soviet market, but also in the global market. Everyone saw how much had been done in order to prevent the entry of Ukraine into the Eurasian project. But in spite of the situation in Ukraine, establishment of EAEU and strengthening of cooperation of Russia and Kazakhstan with China hit the West hard. Therefore, in the near future we can expect attempts to destabilize the situation, especially in the Central Asian region. As to the Western businesses, they have long been looking narrowly the Eurasian project and are looking for new forms of collaboration and business communications with Eurasian partners.

If we view EAEU with the eyes of Kazakhstan citizen, we can say the following: less than 20% of Kazakhstani people are informed about the Eurasian Union, but nearly half of them see it as "a powerful impetus to the development."

Thus, 50.5% of respondents admitted that they have a very superficial understanding of the project, they "heard or read something, but they don’t know the details." 29.6% had heard about the Eurasian Union. And only 19.9% said that they are aware at what is happening and "are closely watching the events related to the establishment of the Union."

Among the positive aspects of active integration with Russia and Belarus, Kazakhstan citizens name the development prospects. In particular, 47.5% of respondents believe that "it will give a powerful impetus to the development." 12.7% hope that "EAEU will be one of the major economic and geopolitical centers of influence".

9.9% rely on political support of Russia, and 9.2% believe that the Eurasian Union will serve as an effective "bridge" between Europe and Asia, and, first of all, between Europe and China. "Removing trade barriers" is an advantage for only 2% of respondents, border security around the EAC perimeter - for only 1.2%, and the prospect of using a single currency – for just 0.9%.

In assessing possible negative effects of the creation of the Eurasian Union, 32% of respondents said that they see no disadvantages in this project. However, 20.5% of respondents expressed apprehension that "it is unknown how reliable are the Russian Federation and Belarus as partners."

Another 12.6% of Kazakhstanis negatively assessed the likelihood that "the countries will have to sacrifice a part of their independence to create the Union." 3.2% see EAEU as a threat to sovereignty in general. "The increase in prices, reduction in product choice" is a negative factor for only 8.4% of respondents. And only 4.7% believe that "Kazakhstani producers won’t be able to compete with Russian and Belarusian goods".

On the whole, the survey demonstrated a very low awareness of Kazakhstani people about the Eurasian Union and other integration initiatives, which the population considers either in the context of the experience of the Soviet Union, or as yet very uncertain future.

Experts believe that the Eurasian Union provides a real chance for the member states and prospective members to improve their competitiveness in the global markets, as well as modernize the economy with their joint efforts.

Thus, the Eurasian Economic Community is an international economic organization created to effectively promote by its stakeholders of formation of the Customs Union and the Common Economic Space, and also to implement other goals and objectives associated with deep integration in economic and humanitarian spheres. The main objectives of the Eurasian Economic Community are: formation of a common financial market, establishing common rules for trade in commodities and services and their access to domestic markets, creation of a common unified system of customs regulation, creation of equal conditions for production and business activities, development of a common market of transport services, creation of a common energy space, creation of a collective security system, ensuring free movement of citizens of the EurAsEC states within the Community and others.

Energy potential of the Eurasian Economic Community is unique both in terms of availability of energy resources and transit opportunities and exports of these resources within and outside the Community. The territory of EurAsEC allows organizing export of resources in all promising directions: west, east and south-east. Today, Kazakhstan, Russia and Tajikistan have fuel, energy and hydro resources of global significance and are very attractive for investors. All EurAsEC states are connected with regional pipelines into a single system that allows transport resources within the Community. At the same time, there is a number of states, including Kazakhstan, Russia and Belarus, that are connected with a system of export pipelines, allowing to export natural gas extracted by the Community countries.

The priority is given to the formation and development of agreed principles of customs, tax and tariff policy of the EurAsEC countries, deepening cooperation of electric power systems of the Community members, effective use of transit potential, joint construction of power facilities, development of favorable conditions for active attraction of investments from both EurAsEC and foreign partners.

Currently, Eurasian Economic Community is a developing economic system with a huge economic potential, a large sphere of geopolitical influence and real prospects for development, important for each member of the Community. However, development of the Eurasian Economic Community is a fairly complex and lengthy process. For the efficient operation of any economic integration organization it must be integrated into the global economic system, which is not possible, above all, without its functioning within WTO. This will take time, but will provide an opportunity for each country to realize its potential and become equitable members of the regional and global economic cooperation.

According to the President of the Republic of Kazakhstan N. Nazarbayev in the long run one of the strategic goals of the Eurasian Economic Community is its evolutionary transition to a more advanced structure - the Eurasian Economic Union of Russia, Belarus and Kazakhstan, which is planned to be created by 2015. In addition the President of Kazakhstan considers it necessary to gradually expand the Customs Union, which at the moment consists of three members. He said Turkey and Syria expressed their interest in joining the Customs Union. N. Nazarbayev said that it is possible to invite Kyrgyzstan and Tajikistan into the Customs Union as observers. The future will show if these goals are justified. At the present stage, it is important to consider that most of the economic plans of EurAsEC will depend not only on the degree of interest of these states in collaboration, but also on the real possibilities of economic integration. Significant differences in the levels of socio-economic development, economic structure, territorial remoteness of the states of the Community from each other and high transport rates, a complex socio-political situation in some member countries require careful consideration of the implementation prospects of objectives related to their close economic cooperation within EurAsEC.

Indicators and criteria of EAEU success is not an increase in economic indicators, but development of the most important social institutions. Because this is the ultimate goal; economics is only a tool to achieve it. People do not live for the purpose of making money. We live to create a family, raise children, to realize our personal potential. The economy is to create the conditions for this. We often confuse GDP indices and quality of life of every individual, substituting one concept with the others, forfeiting the difference between ends and means. When in a year, two or three years we will start drawing first conclusions, we can’t focus on economic performance only. We need to assess how they are transformed into a more accessible healthcare system, better education, etc. The main question to be asked is whether people began to live better? Time will prove if it is so.

REFERENCES

1. Eurasian Economic Union treaty. Retrieved from на http: // www. kursiv. kz

2. Economic News. Retrieved from http://bnews. kz, http: // total. kz

3. Russian Information Agency News at http: // ria.ru

4. Articles in Issues of Economics at http: // www. ereport. ru

5. International Conference "Integration Processes in Eurasia and modern world. (2014). Conference Proceedings held at Kazakhstan Institute for Strategic Studies under the President of RK. Almaty. 234 p.

6. Stolyarova, E. (2015) Interview. Retrieved from http: // altaynews.kz



Table of contents: The Kazakh-American Free University Academic Journal №7 - 2015

  
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