INTEGRATION PROSPECTS OF POST-SOVIET STATES ON THE EXAMPLE OF KIRGIZIA AND UKRAINE
04-06-2013 12:12:32 | Armenia | Articles and Analyses
Sergei Sargsyan
Deputy Head of the Center for Political Studies, “Noravank” Foundation
Coming forward on the post-Soviet space of a new integration project – Eurasian Economic Union (EAEU), initiated polemics, discussions and blazing rows on the issue of viability of the project itself as well as on possible advantages and disadvantages of joining it.
The alternative offer of Russia, Kazakhstan and Belarus stirred up negotiating activity of the “Eastern partnership” programme member-countries in the European direction too. This is mostly noticeable on the example of Ukraine, with which the European Union can sign the “Association Agreement” in November 2013.
The prospects of joining the Customs Union in the Central Asia states, which are geographically located between two geopolitical power centers – Russia and China, are discussed no less tensely.
Despite the fact that the treaty on Eurasian Economic Union must be ready by May 1, 2014 and on January 1, 2015 it should start functioning as a new international organization, a number of experts, politician and culture experts still remain skeptical on the very possibility of creation of a supranational structure by three states. At the same time its economic basis in the form of the Customs Union is already functioning and this allows estimating rather accurately economic prospects of possible joining the project by one or another country, revealing its strong and weak sides in regard to each separate branch of economy.
Many applied researches, which allow the ruling elites of the interested countries to orient in this situation and elaborate the policy in regard to the European and Eurasian Unions, have been carried out. The expectation from their joining one or another project, the problems they may face and reasons, which cause most concern, are of definite interest for Armenia.
Among the positive sides of Kirgizia’s joining of the Customs Union mentioned by a number of the economists is the competitive growth of the Kirgiz goods as compared to the Chinese import in consequence of imposition of curtain duties. At the same time the absence of inner customs duties in the CU and the access of Kirgizia to the markets of Russia, Kazakhstan and Belarus will make the deployment of the industrial and agricultural objects on its territory commercially viable.
It especially concerns the production of the agricultural complex of Kirgizia, which is assessed as the second important and prospective item of export to the CU markets1. Direct positive and, which is important, immediate effect is anticipated in the customer goods industry, which export potential is demonstrating some growth even now. As for ore industry, under the current investments flows from China and Canada, drawing companies from the CU countries on advantageous terms will cause the growth of competitive attractiveness of the objects of this sector, which will also have a good effect on its development pace. In the future achieving of the acceptable balance of interests between the old and new investors is forecasted. Specialization of Kirgizia on some clusters of the ore industry against the background of the branch cooperation with profile objects of the CU states in a mid-term prospect will cause even bigger growth of the profitability of the local production. And the further prospects of the country on joining the Common Economic Space in future will provide free movement of capital, investments and the work force. At the first stage the labor migration (according to some estimations up to 2 million citizens of Kirgizia2), first of all to Russia and Kazakhstan, have to stabilize the level of unemployment, increase the level of the life in the country and to some extent it will decrease the social tension. At the same time, as the results of the public opinion polls show, most of the respondents among the labor migrants are resolute to return home at the earliest opportunity in case if the workplaces are opened3.
As it is expected, the Common Economic Community will initiate development of the tourism industry too; it will increase a possibility of drawing additional large investments there. At the same time joining the Customs Union, growth of the average rate of the customs duties up to 10% will cause, at least in a short-term perspective, a decrease of the customs dues approximately at one third and will greatly affect a considerable segment of Kirgiz businessmen who are dealing with the re-export of the Chinese goods (and it is about 70% of the goods coming from the PRC). In the social aspect it means growth of the prices on Chinese production of everyday use and general growth of retail prices4.
Opening of the Kirgizia’s market for the Chinese goods, which was lobbied by the Beijing on the official level, brought to the substitution of the local products and now restoration and support of the local producers will not be an easy task for the leadership of the country.
As for Ukraine, the advantages and disadvantages of its joining Customs Union can be vividly observed by the alternative prospects of implementation of the Association Agreement between Ukraine and EU.
In the opinion of the supporters of Ukraine’s integration into the EAEU who take as ground the data provided by a number of different researches (in particular, a study carried out in 2010-11 by a working group headed by the Deputy Minister of Economics of Ukraine Prof. V.Muntian), in case of joining the Customs Union Ukraine can have – for the whole of the economics – 3-3,5% gain in production, GDP growth at a level of 2,5%, and the forecasted additional growth of the budget income at a level of 9,4 billion grivna per year (about $1,2 billion). And this does not include tariff, energy and other privileges5.
As the editor-in-chief of “Folio” publishing house (Kharkov) A.Krasovitsky believe, small and medium business of Ukraine, which can broaden its presence on the Customs Union’s vast market, and the common population of the country are interested in the integration with the CU. And the political elites and big business are not interested in joining CU, though their representatives in iron and steel, chemical, oil industries and energy production may face serious problems after the entry into a force of the EU Association Agreement. In particular, in the appendix to the Agreement reservations on regulating “limits of the emission for the existing plants” are made. It means that Ukraine will have to take urgent measures on installation of the cleaning systems. Taking into consideration the age of the industrial objects, it is not excluded that some of them will have to be closed.
Nevertheless, according to the president of the Center for System Analysis and Forecasts R.Ishenko, for the 20 years of independence Ukraine has managed to preserve only 30% of its industrial potential as compared to the level of 1991. Back in 2012 40% of iron and steel capacities was closed and in 2013 it is planned to close 30% of the coal producing enterprises and mines6.
Besides, Ukraine cedes in its investing attractiveness to Russia, and as a result the Ukrainian businessmen move their works to Russia. Thus, Peter Poroshenko – the “chocolate king” – moved its chocolate business and the plant on producing “Bogdan” buses to Russia.
The supporters of the integration of Ukraine with the EU have the arguments of their own. Thus, according to official data, the stance of this country, e.g. on agricultural production market of the EU is only getting stronger – for the first quarter of this year the commodity turnover between Ukraine and EU countries has been up by 46% and reached the level of $2.5 billion. According to the Minister of Agricultural Policy and Food of Ukraine Nikolai Prisyajnyuk, joining of Ukraine to European Neighbourhood Programme for Agriculture and Rural Development (ENPARD) is also prospective: “In Europe this programme has already produced results. Europe has already elaborated programme which provides technical, financial support for the creation of the cooperatives. And we, after we liquidated collective farms, need to offer an efficient form of management in the rural areas”7.
At the same time, in accordance with the Agreement all kinds of the export agricultural production of Ukraine will be strictly regulated. For example, instead of 3 million tons of wheat, which have been exported to Europe from Ukraine for the recent several years, its quota will be decreased up to 1 million tons; it stipulates 10 times shrinkage of sugar export – from 300 thousand to 30 thousand tons.
Besides, according to the WTO accession treaty Ukraine has been obliged to impose a ban on selling meet, fat, butter and milk produced in the private households. Now the ban is spread upon kraut, salting, soaked apples, natural oil, veal rum steak, honey, etc. “Directive on the common catalogue of varieties of agricultural plant species” provides an exact list of the species grown in Ukraine that can go to the market.
Besides, in the first years after signing the Agreement Ukraine will have to fully substitute the system of standards – there are more than 20 thousand of them – on European one. According to the estimations of the experts of the Federation of the Employers of Ukraine, due to the differences in the systems of standards with the CU member countries, their country will lose no less than $15 billion annually8. And they can hardly substitute this market by the European Union’s market.
At a bottom Ukraine faces a fateful selection – either to stay at a usual post-Soviet space market, or to radically reform or in fact to start creating almost new economy and try to win new markets.
The point is whether it will manage to avoid default and social explosion in the transition period. Under the global economic crisis its condition, as compared to the countries which joined EU in the 1990s, is less favourable and prospects are vaguer. At least because those countries had a guarantee of entering the European Union and for Ukraine signing of the Association Agreement is only a beginning of the first (and not the last) “stage of rapprochement”, which will last at least ten years.
Of course every post-Soviet state has its own unique relations with the European Union, and their relations with a newly forming Eurasian Economic Union are built up in different ways. But, as it would seem, scrutiny of the experience of other countries can and must help Armenia to avoid many disappointments and mistakes, to orient more confidently and to participate in the integration processes with maximum efficiency.
1 Labour export is an income item number one for Kirgizia.
3 Only 6% of respondents want to stay on permanent residency in Russia and 9% - in Kazakhstan. The public opinion poll was carried out within the framework of “Aftermaths of Kirgizia’s joining Customs Union and Eurasian Economic Partnership for the Labor market and human capital of the Country” project. Center for Integration Studies, Saint-Petersburg, 2013.
5 «Украина и Таможенный союз: время дискуссий заканчивается». http://rusedin.ru/2013/02/20/ukraina-i-tamozhennyj-soyuz-vremya-diskussij-zakanchivaetsya/.
6 Ibid.
7 «Коммерсантъ (Украина)», 30 апреля 2013г. http://www.kommersant.ua/news/2182837.
8 «Несколько вопросов к украинской власти», http://vybor.ua/article/economika/neskolko-voprosov-k-ukrainskoy-vlasti.html, 03 мая 2013г.
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