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How effective is the Eurasian Economic Union Commission in monitoring compliance of the member-state

Name of institutions: The Eurasian Economic Commission

The Eurasian Economic Union is the entity established in 2015 to unite post-Soviet states for effective economical collaboration among them (Dragneva & Wolczuk, 2017). The Union consists of several institutions including the Eurasian Economic Commission, which is a regulatory body of the Union (Eurasian Economic Commission, 2016a).

Legal basis

The Eurasian Economic Commission is the supranational body that ensures alignment of member states’ interests (Eurasian Economic Commission, 2016a). It is also considered to be a technocratic body that controls the integration process (Dragneva & Wolczuk, 2017). The Treaty on Eurasian Economic Union gives a legal basis for the institution to carry out its obligations, which was signed by Russia, Belarus, and Kazakhstan in 2014. Later this was signed by Armenia and Kyrgyzstan in 2015 (Eurasian Economic Union, 2016a). The Treaty states that The Union has an international legal personality in article 1 (Treaty on Eurasian Economic Union, 2015). Hence, the Commission also has the power to decide and adopt based on this treaty as it is written in Article 6. Article 8 dedicated to the bodies of the EAEU claims that the institution can act according to their assigned power and principles. According to article 18 of the Treaty on the EAEU, the Commission is a regulatory body, and thus, has means to carry out regulatory actions on a legal basis (Treaty on Eurasian Economic Union, 2015).

Composition/structure

The Eurasian Economic Commission is composed of two bodies, Council and Board as it states in Article 18 of the Treaty on the Union (Treaty on Eurasian Economic Union, 2015).

The Eurasian Economic Commission Council consists of Deputy Prime Ministers, who are assigned by member states. This body approves decisions within the Commission competence and controls the Board (Treaty on Eurasian Economic Union, 2015). This body is quite like the College in the European Commission. The College is also composed of Commissioners from each member-state. The Eurasian Economic Commission Council also has the presidency, which is determined in accordance with paragraph 4 of Article 8 of the Treaty that states the chairmanship is on a rotational basis in Russian alphabetical order for one year (Treaty on Eurasian Economic Union, 2015). One of the similar features of the Commission with the European Commission College is that they have a collegial basis (Eurasian Economic Union, 2016a).

The Eurasian Economic Commission Board consists of 2 members from each state. They are assigned by the Supreme Council and carry out executive functions. The chair of the Board is determined on a rotational basis for four years, the same term as the members of the Board, who are appointed by the Supreme Eurasian Economic Council (Treaty on Eurasian Economic Union, 2015). Similarly, the President of the European Union Commission is appointed by the European Council. Each of the Board members has its own economic portfolio. The meetings are held at least once a week (Treaty on Eurasian Economic Union, 2015).

There are also 25 different departments responsible for completing the work of the Council and Board. They monitor compliance of member states, prepare proposals, and write documents and act as the bridge for communication between the member states (Treaty on Eurasian Economic Union, 2015). They act similarly to the Directorate Generals in the European Union Commission. Both are administrative departments dedicated to a specific area.

Key functions

The EEC has 19 specified areas of activities in the Treaty in Annex 1 ‘EEC’, paragraph 2 (Treaty on Eurasian Economic Union, 2015). Some of them are customs regulations, technical regulations, competition policy, macroeconomic policy, monetary policy, intellectual property, labor migration, and industrial subsidies (Treaty on Eurasian Economic Union, 2015). According to Annex 1 ‘General Provisions’, the Commission can create advisory bodies for issue-specific consultations. The Commission is also responsible to ensure the implementation of international treaties of the Union (9th point in General Provisions, Annex 1). Submitting the main direction for integration for approval to the Supreme Council, submitting annual reports to the Intergovernmental Council are also the Commission’s obligation as stated in Annex 1 on the Council of the Commission (Treaty on Eurasian Economic Union, 2015).

This framework is quite limited compared to the Commission of the European Union. For example, while the European Commission is responsible to adopt regulations and issue directives (Blockmans, Kostanyan & Vorobiov, 2012), the Eurasian Commission can only propose ways for economic integration. The European Commission can start an infringement procedure for noncompliance with the treaties whereas the Eurasian Commission is deprived of this executive function (Blockmans, et al., 2012). In the budgetary area, the Eurasian Commission can propose its own budget plan (Article 9, 18, The Founding treaty), the European Commission is entitled to draft the whole budget of the Union Article 203, the Rome treaty (Blockmans, et al., 2012). As a result, it is quite clear that even though the Eurasian Commission is granted similar functions, the power to carry out these functions is weak compared to the European Commission. The fact that the Eurasian Commission can only be given the right to negotiate deals with the third parties on behalf of the Union is also one of the indications (Blockmans, et al., 2012).

Decision-making

The Commission is entitled to adopt orders, binding decisions, and non-binding recommendations as written in Annex 1, ‘General Provisions’, 13th point (Treaty on Eurasian Economic Union, 2015). Making decisions in the Boards requires the qualified majority vote (⅔ of the member states). While decisions on particularly sensitive issues, that were listed in Appendix No. 2 of the EEC Rules and Regulations need consensus from the Board, the Commission Council makes decisions strictly by consensus (Treaty on Eurasian Economic Union, 2015), and all of the political issues are directed to this Council (Dragneva & Wolczuk, 2017).

Inter-institutional dynamics and accountability

Article 6 of the Treaty on the EAEU claims that decisions of the Supreme Eurasian Economic Council and the Eurasian Intergovernmental Council overshadow the decisions of the Commission (Treaty on Eurasian Economic Union, 2015). The Supreme Council determines the responsibilities among the members of the Board. If consensus cannot be reached in the Council of Commission, these kinds of questions need to be addressed to the Supreme Council or to the Intergovernmental Council. The Council or any member states can submit a suggestion to change the Board’s decision. The head of the member state’s government is entitled to challenge the decision of the Commission (Treaty on Eurasian Economic Union, 2015). In that case, the state is required to submit a proposal signed by the head of the government to direct the issue to the Supreme Council or/and to the Intergovernmental Council in accordance with Annex 1 on the Council of the Commission (Treaty on Eurasian Economic Union, 2015).

Second Part

The primary executive body of the Union is intergovernmental with some elements of a supranational institution (Karliuk, 2015).

The main reason why the Commission is looked at as the supranational body of the Union is the existence of the Board. The Commission Board is the technocratic body (Eurasian Economic Commission, 2016a) that contains two representatives from each member-state. These representatives work for the mutual interest of the Union (Van der Togt, Montesano & Kozak, 2015). They are the officials who speak on behalf of the Union to deepen the solidarity among the nations regardless of the national preferences. The Board is entitled to decide on approximately 25 economic areas. The decisions are for the common good because this institution is designed in a way that eliminates the possible effect huge states might have over the decision making. It is stated in Annex 1 ‘General Provisions’ of the treaty on the Eurasian Economic Union, that every vote in the Council and in the Board is equal to one vote diminishing the possibility of power abuse by the states (Treaty on Eurasian Economic Union, 2015). That is why, having the biggest economy around the members, Russia has only 20% of voting power (Vinokurov, 2017).

Moreover, the Commission’s acts are directly applicable in the Union’s territory and have normative character (Karliuk, 2015) giving the institution the supranational power. For example, according to the Russian and Kazakhstan Constitutions, ratified international treaties and their acts overrule the national law (Karliuk, 2015). As a result, the states are obligated to follow the decisions of the Commission, which aim to facilitate the integration process, regardless of their own national interest. This is the explicit example of the Commission exercising its supranational power. While Kazakhstan and Russian allow the decision of the Commission to overrule their national laws, the Constitution of the Republic of Belarus easily allows its own national law to be higher in status than the Commission’s decisions (Karliuk, 2015). At the same time, The Kyrgyz Republic did not include international treaties’ place in the list of hierarchy “on normative legal acts of the Kyrgyz Republic” leaving it open for the implementation of the Union’s supranational decisions (Karliuk, 2015).

The Boards of the Commission, which is considered to be the supranational body, is limited in its power, mainly because the Board members are appointed by the Supreme Eurasian Economic Council (Treaty on Eurasian Economic Union, 2015), the body that consists of the heads of the state governments. As a result, this creates a good point of impact for the government heads to influence the activities of the board’s members and to push the national interests through them. Even though they are responsible for decisions in various economic areas, if the national interest is at risk, their decision is easily overruled by the member state’s appeal or by the Union’s other intergovernmental institutions whose decision making procedure requires unanimity (Van der Togt, et al., 2015). In other words, this is the ‘Belarusian elevator’ that allows challenging the decisions of the Commission at a higher level (Karliuk, 2015). This also involves the vertical system, which is the lack of the Commission’s independence will instead prepare drafts for the higher-level institutions (Dragneva & Wolczuk, 2017). For example, the Board’s decision to fine Russia for violation of competition laws in 2017 was successfully stopped due to Medvedev's appeal to the Intergovernmental Council (Kirkham, 2016), which shows that the Commission’s attempts to exercise the supranational power at the expense of the member-states usually fails revealing its intergovernmental nature. This is the ultimate example that the Commission lacks supranational power.

Additionally, in the Commission’s regulations (point 2), its fundamental principle is to respect the national interest (Karliuk, 2015) over the Union’s, which constrains the Commission’s supranational power. In 2013, Kazakhstan president expressed its concerns about the influence Russia has over the Board. As a result, the Astana Treaty was promising to give more independence for the Board enhancing its supranational power. Yet this attempt failed at the final draft of the Treaty, which limited the Commission’s gatekeeping power (Dragneva & Wolczuk, 2017). Considering that the member states do not have the right to file a complaint in case of disobedience, this function to start the infringement process is no longer available after the Astana Treaty for the Commission and is a clear loss for a supposedly supranational body.

The Commission’s supranational power is also limited by the Commission Council, which contains Deputy Prime ministers from each member state that represents the national interest (Treaty on Eurasian Economic Union, 2015). Thus, this brunch is accountable for the state members that potentially disapproves of any decisions to further integrate at the expense of the national interests. The Council can also amend the decisions of the Board in 10 days (Treaty on Eurasian Economic Union, 2015) and thus, eliminate the power of possibly the only supranational body.

The Commission is rarely an autonomous actor that promotes integration unless they create the circumstances for the national interest to be untouched due to the weak formal commitments. As a result, this intergovernmental body helps to shape the integration in a beneficial way for the member states (Dragneva & Wolczuk, 2017).

The principal-agent theory investigates the relationships between actors and institutions to explain this intergovernmental dynamic and why actors might delegate their power to others. It is assumed that actors give powers expecting others to perform certain tasks (Delreux & Adriaensen, 2017). The relationships can be formal or informal but require the act of delegation, which involves principals that give authority to the agent, which is obligated to carry out certain functions. In this way, the agent is expected to perform the tasks on behalf of principles more efficiently than the principals themselves. The tasks need to have functional and beneficial importance for principals (Delreux & Adriaensen, 2017). As a result, an agent provides incentives for principals to delegate power. For example, acknowledging collective action problems, solving them by monitoring the compliance of principals, and taking responsibility for agreements are the reasons for the necessity of an agent.

Principals face the problem of asymmetric information and different preferences. The cost of committing to an agent pushes principals’ preferences to align with the agent’s interest (Delreux & Adriaensen, 2017). However, sometimes the principals possess better information or have different interests, which creates a situation where the agent works against the principals’ preferences due to opportunistic behavior (Delreux & Adriaensen, 2017). This cost is usually exceeded by the long term benefits the agent offers making an agent-principal relation last.

To prevent these situations, principals assign control mechanisms for an agent. The mechanisms might involve monitoring the agent’s behavior or having the possibility to sanction (Delreux & Adriaensen, 2017). There are two types of general control. The first involves principals’ directive control over an agent, and the second one is taking the information about an agent’s behavior from the third parties. The mechanisms are called ‘police control’ and ‘fire alarm’ respectively (Delreux & Adriaensen, 2017). As a result, principals manage two sides of this relationship, the cost of delegating the power and benefits they get in return.

There are scholars that criticize this theory based on misunderstandings between ‘trustees’ and agents (Pollack, 2007). According to Pollack (2007), theoretical disagreement is a more complex critique, which arises from two distinct reasons for power delegation. He highlighted that Majone’s differentiation of trustees and agents are not applicable to the theory, because they are ultimately the same. Majone’s analysis claimed that the principal-theory cannot explain “discretionary authorities‘ and “instrumental agents”, which according to Pollack (2007), is, in fact, relevant to the theory because it considers the limitation those two types of agents can have.

There are also other limitations of the theory. They mainly arise from a misunderstanding of the principal-agent theory, and thus, those cannot be counted as true limitations (Pollack, 2007). For example, the theory claims that agents can act opportunistic but will avoid sanctions from principals. Others state that the agents will be guided by professional norms, and thus, it is constrained by a belief of worthy behavior rather than by the risk of sanctions (Pollack, 2007).

According to Moravscik (1998), the supranational power is delegated to the agent to decrease the cooperation cost as mentioned above. In this case, the Commission is an agent that consistently aims to acquire the power to influence principals, the member-states. The agent gives benefits to the countries in terms of deeper integration. As Hancock and Libman (2014) mentioned some argue that interdependencies between those member states are too strong, that some of the issues require deep cooperation if not integration. Thus, given that the commission's decisions have “binding legal status” (Dragneva & Wolczuk, 2017), and it is the body, which is designed to deepen the solidarity among the member-states is economically beneficial for the states. For example, the Commission successfully negotiated the free trade agreement with Singapore in 2016, which could have taken longer to reach for separate states (EEC, 2016b). This cooperation strengthens the position of each state during the negotiations compared to them being separate actors in the region. The Commission also reduced the cost of import customs duties for raw materials in food production (EEC, 2020a). This allowed to decrease the food production cost, raise the number of productions, and enhance the competitiveness of the local market. Therefore, the principals binding themselves to the institutions get the benefits.

However, these principals give up their power under certain conditions (Moravscik, 1998). Preserving the state member’s interest is an essential condition. There are cases when the principals’ preferences did not match with the Commission, and the benefit that the Commission provided was too great to abandon the Union. As a result, the member states used their influence over the institution to affect the body as Medvedev did in 2017 Council (Kirkham, 2016). Therefore, it is safe to assume that since the Commission of the Eurasian Union is a weak supranational body, the principals easily influence its decision. Thus, the constraints on the behavior of the principals are weak as well, which is supposed to be one of the agent’s powers in principal-agent theory.

The divergence of the principal’s interest caused by the commitment issue (Moravscik, 1998). The problem arises when the principals’ interest is not fixed. In the Eurasian Economic Union, the principal’s commitment was weak from the beginning. According to Dragneva and Wolczuk (2017), the member states agreed to formally participate in the integration without the commitment. This is worsened by the fact that non-democracies cannot establish credible commitments as Hancock and Libman (2014) claims.

The Commission is the guardian of the treaties which according to the principal theory, should solve the problem of ‘incomplete contract’. The body that monitors compliance with the Union's laws in various areas such as agriculture, single market, and industry. For example, the Commission’s function to monitor the competition rules in transboundary markets was advanced. After the annual report on March 4, 2020, the implementation of “soft'' mechanisms to prevent violations instead of punishing them was set, which shows the agent’s decision is in principals’ interest (EEC, 2020b). As a result, it is expected the violation of competition rules decreases, and thus, the agent is maximizing state members’ compliance. For now, the Commission considered 17 violation applications that lead to proceedings (EEC, 2020b).

According to the report by the Commission on Agricultural Policy (2018a), in the case of the violation, the Council Commission established the procedure that obligates to pay compensation to others in proportion to their share in the trade. Article 95 of the Treaty claims that the Commission is entitled to conduct the comparative legal analysis of the legislation (Treaty on Eurasian Economic Union, 2015). The report of the analysis is presented in the annual Board meeting and is offered to the Union members to enforce compliance, one of the ways the agent overcomes the incomplete contract problem. The procedure also creates stronger incentives for the principals to delegate the power to the Commission because they are aware that the Commission maintains fair trade by enforcing the treaties’ laws. So far, the Commission’s agricultural unit has evaluated member-states’ 500 agricultural legal acts and determined whether they comply with the Union’s law (EEC, 2018a)

The agreement on harmonization of specific industrial subsidies was signed jointly with the Commission, and in the Commission’s competence. It monitors compliance with the rules for giving industrial subsidies by relying on 7 acts (EEC, 2018b). This involves the direct negotiation among the states and the Commission, and the right to appeal to the Commission to start proceedings. This allows the Commission to be the third party to evaluate the situation of giving a subsidy. In the case of damage, the state is required to solve the problem by providing subsidy (EEC, 2018b). As a result, the agent reduces the cost of policymaking by monitoring compliance and avoiding the insufficient legislation of member governments. It maintains the consistent and efficient mutual trade and ensures that the trade is according to the Treaty on the EAEU (2015).

The Commission also considers the violation of competition policy that affected two or member states. It usually can be considered as a result of an application by other bodies or the Commission can initiate it. There are a variety of fields such as smartphones, car tired, and solid-rolled wheels, where the violation was suspected (EAEU, 2019). The only measure that can be done by the Commission is to request the information. The Commission can request information, documents, and expert opinion from the government or from the antimonopoly authorities (EAEU, 2019). For example, The Commission reviewed the case of Kazakhstan, which filed an application in 2018 suspecting the Russian company, Delrus in violation of competition law. Upon the investigation of the Commission, it was found that the companies Delrus and Delrus RK had an anti-competitive agreement. As a result, the Commission fined the companies (EAEU, 2019).

Another example of the Commission’s executive function is the case of the Novolipetsk Steel Plant (NLMK). This case was initiated by the Kazakhstan consumer claiming that they have an unfair price. The Commission concluded that this accusation is true, and the company completely occupies the market. Even though the violation was identified, the Commission does not seem to be implementing any punishments. It held workshops, which involves both sides, to discuss the interest of consumers and producers (EAEU, 2019). The two cases reveal that the Commission can identify non-compliance among national companies, which does not lead to serious consequences. This might be an indication that the agent, the Commission, is afraid to cause annoyance to the principals since the commitment to the Union is quite weak, and they can easily bail out in case of discomfort to their national interest.

Even though the Commission, as an agent, has power delegated by member states, it still chooses to refrain from harsh punishments. In 2018 there were 27 violation applications that were considered by the body. The six of them were solved voluntarily by the member states themselves, and only the three of them were solved by the Board. The rest of them are still under investigation (EEC, 2018c). One of the proposed improvements for 2019 was to grant more power for the Commission to execute and monitor the compliance and assign punishments, which does not seem to be completed.

The recent amendments of the Union were focused on the Commission’s executive function to monitor compliance. One of them involves precautions and warnings aimed to avoid antimonopoly prevention. The precautions inform about the actions that can lead to violations, and warnings are about the necessity to stop the actions that violate the rules (Tarkhova & Kayukova, 2020). The Commission was also granted a right to free companies from the consequences of the violation if they are voluntarily informing about it. The violations are now can be reviewed only by the Commission or by the state member’s antimonopoly authorities, which eliminates the Commission’s power in the region (Tarkhova & Kayukova, 2020). These mechanisms are like the mentioned above ‘fire alarm’ and ‘police control’, but in this case, the agent is constraining the principals’ behavior to ensure compliance. The motivation behind them is quite similar. The principals set ‘fire alarm’ and ‘police control’ to ensure that the agent stays loyal to their preferences, and the agent is imposing these precautions to carry its responsibility to eliminate the collective action problem arising from the violation of treaty rules.

Applied to the Eurasian Economic Commission, the principal theory suggests that the body is becoming a more autonomous agent, that oversees regulating not only the relation between the member-states but cooperation among market companies. It seems that the Commission is successful at identifying the violation of treaty rules but not at enforcing compliance. In fact, the past years have proved that the Commission’s function is mainly focused to prevent the possibility of violations rather than imposing punishments, which illustrates that the Commission truly lacks the legal basis for the punishments. Consequently, the state members do not have strong incentives to comply with the treaties along with delegation power, which makes the Commission ineffective agent with symbolic power.

References

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