Djoomart Otorbaev is a former Prime Minister of Kyrgyzstan having also formerly served as a Senior Adviser in the European Bank for Reconstruction and Development. This essay is an adapted excerpt from his latest book entitled Central Asia’s Economic Rebirth in the Shadow of the New Great Game (2023).

The only economic union that is presently operating in the Central Asian region is the Eurasian Economic Union (EAEU), which includes Kazakhstan and the Kyrgyz Republic. The agreement, signed on May 29th, 2014 in Kazakhstan’s capital Astana, marked the launch of the Union. There are five member countries: the Russian Federation, Kazakhstan, Belarus, Armenia, and the Kyrgyz Republic. At the same time, three other states hold observer status: Moldova, Uzbekistan, and Cuba.

The EAEU is an international economic union for the free movement of goods, services, and financial and labor resources. The Union has become the successor to the previously established customs union but represents the next, higher level of supranational integration. Under the Charter of the Union, its member countries jointly develop and implement a unified strategy in key sectors and contribute to the modernization and strengthening of the competitiveness of national economies. 

The main governing body of the Union is the Supreme Eurasian Economic Council (SEEC), which includes the heads of its states. It meets at least once a year and takes major decisions on the development goals and strategy of the union. The Eurasian Economic Commission (EEC) is the executive body of the EAEU, headquartered in Moscow. The EEC adopts decisions of a legal nature, the execution of which is mandatory for all participating countries. The Union has a judicial body, the Court of the EAEU, located in Minsk. The organization’s governing bodies are financed based on the budget agreed by the member states. The EAEU is open to new members who share its principles and primary goals.

The customs union created in 2011—which included Russia, Belarus, and Kazakhstan—and then its legal successor, the EAEU, is the first post-Soviet initiative with the characteristics of a supranational political institution. Until 2010, the post-Soviet countries achieved close economic cooperation only in a few select areas, such as rail transportation, aviation security standards, and electrical networks. On the one hand, the EAEU is not a flawless success story. After an initial rapid growth phase in 2009-2015, progress slowed down and became largely formal. On the other hand, the EAEU can boast a few achievements in functioning institutions, common goods and labor markets, several dozen standard technical regulations and its first free trade zones.

 

History 
A formal proposal for economic integration in the post-Soviet space was made in a speech by the then President of Kazakhstan, Nursultan Nazarbayev, in March 1994 in a lecture at the Moscow State University. The crux of his thesis was that breaking economic ties between the republics of the former Soviet Union had been a mistake. Natural geographic proximity, deep cultural ties, shared transport and energy infrastructure, similar legal and regulatory frameworks, and the absence of language barriers are a solid basis for restoring economic ties that will benefit everyone. In his speech, President Nazarbayev presented the idea of a union, emphasizing the importance of establishing the EAEU with a focus on restoring and developing historic economic ties. From the very beginning, the idea received Russia’s support. Russia lost its former imperial greatness and influence over the former Soviet republics, and its economy suffered the most from the rupture of economic ties. Naturally, together with Russia, the idea was supported by Belarus, which has close relations with its eastern neighbor. However, it took a long 20 years before the member countries managed to turn this idea into reality.

As a result of initial discussions, several international treaties aimed at restoring lost economic ties were prepared and signed. In 1995, Belarus, Kazakhstan, and Russia signed an agreement on establishing the Customs Union. This tool was designed to remove barriers to economic interaction, promote the free exchange of goods, and ensure fair competition. In 2000, the Kyrgyz Republic and Tajikistan joined the Customs Union, and these five states created the so-called Eurasian Economic Community (EurAsEC). More than 100 additional agreements have been signed under the auspices of this structure, and the Customs Union Commission has become the executive body of the community. The EurAsEC was officially dissolved on January 1st, 2015, due to the creation of the EAEU.

There were also other, less successful attempts at economic integration of the post-Soviet countries. For example, in 2003, the Presidents of Belarus, Kazakhstan, Russia, and Ukraine signed an agreement on creating the Common Economic Space. However, Ukraine’s 2004 Orange Revolution put an end to this endeavor. 

 

Trade 
The volume and dynamics of trade between union members and other partners are particularly important economic indicators. The foreign trade volume of the EAEU member states with countries outside the EAEU in 2021 reached a record of $844.2 billion, 35.1 percent more than in 2020. There was an increase in exports of goods, which reached $525.7 billion with a rise of 44.1 percent, and imports, which amounted to $318.5 billion, with an increase of 22.6 percent. According to official data of the Eurasian Economic Commission, the foreign trade surplus amounted to $207.2 billion against $105 billion in 2020. A low base partly drove this strong growth in trade compared to 2020 due to the coronavirus pandemic. At the same time, the trade balance increased due to a favorable ratio of prices for exported and imported goods with countries that are not members of the EAEU.

Exports from the EAEU member states to countries outside the EAEU grew in 2021 by 46.3 percent due to an increase in prices for exported goods. At the same time, the physical volume of supplies of goods decreased by 1.5 percent. In 2021, compared to 2020, exports from Belarus increased by 47.8 percent, from Russia by 47 percent, and from Kazakhstan by 25.8 percent. The physical volume of imports increased by 13.9 percent, and their cost by 22.6 percent. The Eurasian Economic Commission recorded an increase in imports due to the growth of import of goods by 60.6 percent to the Kyrgyz Republic, 26.5 percent to Russia, and 14.8 percent to Armenia.

The European Union has become the primary buyer of goods exported by the EAEU member states. The share of exports to these countries amounted to 42.2 percent (37.6 percent in 2020); 24.7 percent of all goods were exported to Asian countries (26.5 percent in 2020), of which 15.1 percent were exported to China, and 3.6 percent to South Korea. Exports to the United States were only 3.6 percent.

Import deliveries mainly came from Asian countries, with their share being 41.5 percent (40.1 percent in 2020), while the EU’s is 33.8 percent (compared to 35.5 percent in 2020). Of the Asian countries, the largest volumes of imports were accounted for by China (with 27.4 percent in 2022 and 25.5 percent in 2020), and South Korea (whose goods made up 4.4 percent of the 2022 imports and 4.7 percent in 2020). Imports from the United States accounted for 6 percent (relative to 5.7 percent in 2020). The volume of mutual trade between the EAEU member states in 2021, calculated as the sum of the value of export operations of the EAEU member states in mutual exchange, amounted to $72.6 billion, or 131.9 percent of the 2020 level. Russia became the leader in mutual trade with a volume of $45,806.4 million (an increase of 34.3 percent compared to 2020). Russia was followed by Belarus ($17,464.0 million, an increase of 24.7 percent), Kazakhstan ($7,648.9 million, 34.9 percent), Armenia ($888.8 million, 25.2 percent), and the Kyrgyz Republic ($803.2 million, 44.9 percent). The increase in average prices for goods determined 58 percent of the total growth in the cost indicator, while the volume of goods grew by 42 percent.

 

Labor Rights
Along with some successes in economic development, quite noticeable results have been achieved in creating a common labor market. The participating countries have removed all barriers that prevent citizens from the EAEU countries from finding work in other countries of the union. Migrant workers and members of their families receive the same labor rights and social guarantees as citizens of the host countries. Employers from member countries could hire workers from other countries without restrictions in their national labor markets and no licensing or quota obligations remain.

Workers from member countries are not required to obtain work permits. If labor migrants are officially employed, their children can freely attend kindergartens and schools, and all family members get health insurance. The problem of pension provision for labor migrants—where each country has its own national pension legislation—has also been resolved.

During the accession of the Kyrgyz Republic to the EAEU, public opinion paid particular attention to the rights of its labor migrants. It could be suggested that EAEU membership has dramatically improved the work and life of Kyrgyz labor migrants. It is especially noticeable when they are compared to migrants from Tajikistan and Uzbekistan, non-EAEU states. The differences have been discerned to the extent that the citizens of these countries want to obtain citizenship of the Kyrgyz Republic en masse to enable them to enjoy the same labor and social rights in Russia and Kazakhstan as the citizens of the Kyrgyz Republic. Comparing the dynamics of the volume of remittances to the countries of Central Asia in recent years, one can notice a more stable growth in remittances from Kyrgyz migrants compared to migrants from other countries.

 

Public Opinion
It is imperative that, on the whole, the public in the EAEU countries and Tajikistan (which is seen as the next potential member of the union) support Eurasian integration for the project to be a success. According to public opinion monitoring conducted by the Eurasian Development Bank (EDB) since 2012, the public approval rating of the Eurasian integration project ranges from 50 to 83 percent in the EAEU member states. In Tajikistan, it reaches 69 percent. At the same time, public opinion surveys taken in recent years suggest that the positive attitude towards Eurasian integration is slightly decreasing.

In the first three years of the EAEU’s existence (2015-2017), the most visible decline in public support for participation in the union occurred in Russia (from 78 to 68 percent of the population) and Armenia (from 56 percent down to 50 percent). In other EAEU countries, public support for Eurasian integration has also declined—in Kazakhstan from 80 to 76 percent, in Belarus from 60 to 56 percent. Since 2015, the Kyrgyz population has shown the most positive attitude toward EAEU membership and has only changed slightly over this time—from 86 to 83 percent. Compare this to 2014, when only 50 percent of the country’s population supported its entry into the union, and 30 percent opposed it.

One of the reasons for the decline in public confidence in Eurasian integration is the slowdown in economic growth, high inflation, and the devaluation of national currencies, which were associated, among other things, with economic sanctions imposed by Western countries against Russia in 2014-2015, and then again in 2022.

The EDB report’s authors consider the high level of social ties between the countries and trust in each other “phenomenally,” which is regarded as indispensable integration capital. Answering the question of which entities are friendly and able to support their country in difficult times, the majority, as in the last five years of observations, spoke in favor of the Commonwealth of Independent States (CIS) region (which, until recently, included all former republics of the Soviet Union). The highest confidence in neighbors is expressed by the populations of Tajikistan, the Kyrgyz Republic, and Kazakhstan (scoring 95, 94, and 90 percent, respectively in 2017). At the same time, Russia continues to be the leader in being perceived as a friendly state by all respondents. Seventy-six percent of citizens from all six countries surveyed named it the friendliest. In second place was Kazakhstan with 31 percent, and in third was Belarus with 21 percent.

The countries of the EAEU and Tajikistan showed the highest result in the penetration of mutual social ties. Depending on the country in question, 51 to 80 percent of the EAEU’s population (excluding Russia) stated that they regularly keep in touch with relatives, friends, and colleagues from the CIS countries. This is the highest level of inter-state social connections in the world. In 2017 the highest rates were recorded in the Kyrgyz Republic with 80 percent, Armenia with 79 percent, and Tajikistan with 66 percent. Thirty-one percent of the Russian population also maintains social contacts in neighboring CIS countries. Given the very different cultural, educational, and social statuses of the peoples of these countries, these figures are also relatively high.

A business community survey conducted by EDB experts among 337 commercial companies operating in the EAEU countries also showed positive results. On average, 73 percent of companies believe Eurasian integration makes it easier to do business in the EAEU. This opinion was shared by 79 percent and 78 percent of respondents in Kazakhstan and Belarus, respectively, 75 percent each in Russia and Armenia, and 60 percent in the Kyrgyz Republic.

 

The EAEU and the BRI
When analyzing the prospects for developing Eurasian economic cooperation, it is not possible to ignore its interaction with the Belt and Road Initiative (BRI), promoted by China. This topic has become more actively discussed since 2014 due to the deterioration of relations with Western countries. Russia has intensified the development of its economic ties with Asian countries and, above all, with China, which has become Russia’s closest ally in many areas of activity—from joint investments in hydrocarbon development projects in Siberia and the Far East to the laying of new sea transportation along the Northern Sea route in the Arctic. Evidently, the Sino–Russian partnership should have some effects on the cooperation between China’s BRI and the EAEU, where Russia plays a leading role.

In May 2015, Vladimir Putin proposed to “coordinate” or match the BRI through economic integration within the EAEU. Russia and China signed a special agreement, which describes the initiative of cooperation between these projects. Under this agreement, China and the EAEU decided to work on joint infrastructure and trade facilitation projects. Interestingly, this document was signed by the Russian President himself, not by the representative chairing the EAEU, which directly indicates the Russian interest in developing such cooperation. This fact is not however crucial since, in 2013, all EAEU member countries supported the BRI.

The first Russian proposals for coordinating the BRI and the EAEU, especially in Central Asia, have undergone a few changes over time. First, in his speech at the 70th session of the UN General Assembly, President Putin proposed to involve the EU in this cooperation, which he called an “integration of integrations.” Then the idea was further developed and included in the collaboration of ASEAN and the Shanghai Cooperation Organization (SCO) while excluding the EU. Another iteration of the Eurasian partnership occurred in 2016 when in his speech at a meeting of the St. Petersburg International Economic Forum, President Putin presented the concept of a “Greater Eurasian Partnership” that would include the EAEU, China, India, Pakistan, Iran, and the CIS countries. In his speeches, President Putin stated that other members of the EAEU fully supported the idea of partnership since all members share a common vision of what Eurasian integration should look like. Indeed, in their statements, the presidents of the EAEU member states have repeatedly supported the idea of an “integration of integrations.”

The countries of Central Asia welcome economic interaction with their powerful neighbors, Russia and China, aimed at developing the entire region and individual countries alike. Although there are speculations about a rivalry between the two countries for dominance in the area, they are probably exaggerated. It is unprofitable for either of these two influential neighbors of Central Asia to have weak and poor neighbors complaining about their fate and asking for help. This is even more the case with neighbors who pose security threats in the form of terrorism, nationalism, or extremism. On the contrary, it is beneficial for both Russia and China to have predictable and prosperous neighbors pursuing effective domestic and foreign policies. It is not a short-sighted competition between influential neighbors but effective interaction that will bring beneficial and fruitful results to our region.

 

Uzbekistan and the EAEU 
Regarding the prospects of the EAEU, full membership of Uzbekistan in the union would be a real breakthrough. In 2020, the country obtained observer status; since then, it has been analyzing the pros and cons of joining the union as a full member. Uzbekistan is the most populous country in Central Asia, with a population exceeding 34 million (or 18 percent of the EAEU countries’ population), and the second-largest economy in Central Asia, with a GDP exceeding $60 billion, according to World Bank data. The country is rich in natural resources and has a developed industrial base. The GDP of Uzbekistan is equivalent to about 3 percent of the total GDP of the EAEU countries and is comparable to that of Belarus. Until 2017, even the most optimistic predictions did not consider the country’s membership in the EAEU possible. However, that year President Mirziyoyev started a policy of openness, structural transformation, and economic reforms, and soon announced the need to study the issue of joining the EAEU. In his address to the nation in January 2020, Mirziyoyev made it clear that the government was looking to cooperate with the EAEU. He also stressed that, apart from investment and broader economic benefits, “integration means better conditions for our migrants in Russia and Kazakhstan.”

According to calculations by the EDB, the potential annual volume of infrastructure investments from the EAEU to Uzbekistan could amount to $1-1.5 billion. This would provide an additional annual GDP growth of 0.3-0.4 percent. Access to the common labor market of the EAEU will bring an additional inflow of remittances to Uzbekistan of $1.5-2 billion per year. According to the report’s authors, the additional contribution to GDP growth from a greater flow of remittances could be around 0.3–0.4 percent. In addition, labor migration will mitigate potential socio-economic tension caused by unemployment. An essential advantage of deepening integration for Uzbekistan will be the chance to increase exports to EAEU countries by an additional $1.2 billion. According to the same report, exports to the EAEU member states in 2020 amounted to $3 billion.

In addition to the direct benefits of Uzbekistan’s accession to the EAEU, the economy of Central Asia will also receive an additional impetus for regional development. There will be additional funding for transport and energy infrastructure and the implementation of new cross-border projects. Existing components of the transport infrastructure, which have a predominantly latitudinal orientation (West-East), will be supplemented by new meridional branches (North-South), which are currently underdeveloped. According to estimates, the necessary annual financing for transport infrastructure in Uzbekistan until 2030 may reach about 2.1 percent of its GDP.

Not yet a full member of the EAEU, Uzbekistan has still begun to promote initiatives to involve the countries of the Union in joint infrastructure projects. “We are ready to cooperate with partners in the EAEU in the implementation of the construction project of the Trans-Afghan railway from Termez to Pakistani Peshawar, which will provide the shortest access to South Asia with a market of two billion consumers,” President of Uzbekistan Shavkat Mirziyoyev said during a speech on the video link at a meeting of the Supreme Eurasian Economic Council on May 27th, 2022.

The entry of Uzbekistan into Eurasian structures would contribute to the harmonization of Central Asia’s water and energy balance. Considering the complementary architecture of the power grid economy, the design of generating capacities and the water resources management system, the development of the region’s water and energy complex has broad development prospects. Uzbekistan and other countries of Central Asia need modern integration approaches to the formation and regulation of the regional water and energy market based on modern technological and digital solutions. If Uzbekistan does become a full member of the EAEU, Tajikistan may be encouraged to follow suit to avoid isolation.

 

Criticism of the Union
It is worth recognizing that many experts still express fair criticism regarding the formation and functioning of the Eurasian Economic Union, especially when compared to the development of the EU. But, as discussed, we must recognize that the history of each of the unions, the time of their formation, the economic scale, and the quality of their members differ greatly. One union includes developing economies, and the backbone of the other is made up of the most developed countries. Therefore, it is more appropriate to compare the EAEU with similar unions that include developing countries such as ASEAN, Mercosur, the Gulf Cooperation Council, or the South African Customs Union.

The most common criticism of the EAEU is that its members are unequal and economically and politically dominated by Russia. But firstly, the union is not called ‘economic’ for no reason, and secondly, all decisions are made by consensus, with each country having a veto. Secondly, if we are talking about the dominance of one nation over others, the role of the United States and South Africa in successful associations such as NAFTA and the South African Customs Union, is no smaller than Russia’s in the EAEU.

Moreover, various studies show that it is small economies that have benefitted the most from their memberships. The Kyrgyz Republic is benefitting greatly from the increase in remittances from migrant workers and the growth of foreign investments and exports. Starting in 2016, exports from the Kyrgyz Republic to the EAEU countries greatly increased. In 2019, exports reached $621 million, 48.8 percent higher than in 2016, which was $417 million. After joining the EAEU, Armenia more than tripled its exports to the countries of the Union—from $236.5 million in 2015 to $746.1 million in 2019. Russia was the primary sales market, but an increase in exports was observed in all EAEU countries. As a result, after accession, the weight of Armenian exports to the EAEU countries increased from 16 percent in 2015 to 28.5 percent in 2019, as EDB’s Chief Economist Evgeniy Vinokurov notes in his 2020 analysis.

What can we already note from these early stages? Public opinion towards the union in member countries is positive, and its institutions have been established and are functioning. A common labor market is being successfully formed, and the social protection and pension systems are starting to bear fruit. There is progress in technical regulation and the development of unified technical norms. The EAEU is a single market for foreign investors: a single market with quite different characteristics on the territory of five countries. Also noteworthy are specialized initiatives, such as scientific and educational cooperation, unification of norms in construction, infrastructure, energy and more. The new economic reality of the post-Soviet space is just being born.

Back to Table of Contents