The reality of trade barriers in the internal market of the EAEU

Introduction

Eurasian integration of Russia, Kazakhstan, Belarus, Kyrgyzstan, and Armenia has faced a lot of obstacles towards the organization that is known as the Eurasian Economic Union. Through the joint efforts of institutions and member-states, the EAEU achieved a significant part of the tasks contained in their Treaty. Now the EAEU is a regional integration with advanced features of the free trade area, customs union and single market (Movchan and Emerson 2018, 1). All the steps done by the organization show a clear goal to achieve the same features as in the European Union. However, the organization still has a lot of work towards further regional integration. In comparison to the EU, the EAEU still don’t have a common vision in relation to third countries, supranationalism and harmonization of the internal market. Other historical and political factors cannot be compared between two organizations. It was officially established in 2015 but to which extent has the EAEU been successful in removing obstacles and achieving smooth internal market between member-states?

This essay will assess the process of trade liberalization within the EAEU. To be more precise, the essay will focus on obstacles such as barriers, exemptions and restrictions that negatively affect smooth integration of internal trade between member-states. The first part of the essay will focus on a formalistic part of the trade policy in the EAEU. Consequent parts will discuss the literature review on the integration process of the EAEU and will describe the de facto situation of internal trade barriers in the union. Finally, the case study of a trade conflict between Kazakhstan and Kyrgyzstan will be analyzed to support the previous arguments.

Barriers, Exemptions and Restrictions

Trade policy is an exclusive competence of the Eurasian Economic Commission of EAEU which is the same as in the EU. According to the website of the Commission, the trade department is divided into tariff and non-tariff customs regulation, internal market defense, and trade policy (Eurasian Economic Commission). The functioning of the customs union can be observed from section VI of the Treaty on EAEU. Especially, the Article 25 mentions that there should be free movement of goods between member-states and the smooth movement should be ensured without any kind of customs declarations and control on the borders (Treaty on the Eurasian Economic Union 2014, 25). In other words, obstacles between member-states should be eliminated.

In the EAEU, obstacles can be identified as barriers, exemptions (derogations) and restrictions. According to the decision on approval of the Methodology for Separation of Obstacles in the Internal Market of the Eurasian Economic Union on Barriers, Exemptions and Restrictions (2017, 2), barriers are defined as “obstacles that are not in accordance with the law of the EAEU”. While restrictions are obstacles that are raised from a lack of legal regulation of economic relations. In addition, there are exemptions that are envisaged by the law of the EAEU. They are used to the member-states that don’t apply the general rules for the functioning of the internal market of the EAEU.

As in all treaties, there are exceptions for states that should protect their internal market for various reasons. According to the Article 29, restrictions can be applied by member-states if they are required for “protection of human life and health; protection of public morals and public order; environmental protection; protection of animals, plants, or cultural values; fulfilment of international obligations; national defense and security of a Member State” (Treaty on the Eurasian Economic Union 2014, 28). Therefore, the aim of the institutions within the union is to eliminate obstacles between member-states.

Policy cycle

Concerning the policy cycle of removing obstacles in the functioning of the internal market, the EAEU has unified database in the internal market named - the Register of Obstacle (Andronova and Dyuzheva 2018, 9). This base consists of all existing obstacles that are in process. The internal market of the EAEU is modified with up-to-date information on obstacles via this base. The Register is a tool of the Commission to coordinate and plan the measures to remove any kind of obstacles regarding internal trade. Moreover, member-states can inform the Commission through this database and the process of elimination of obstacles will be started immediately.

When member-states report and obstacle to the Commission, the first step is the identification and systematization of this obstacle between borders of member-states (Portal of General Information Resources and Open Data). Further analysis is done to determine the timing of elimination of obstacles or preservation of them. These decisions are based on the Agreement on the EAEU and the laws of the union. The decision-making process in the Board of Commission is made by a qualified majority voting or by consensus if it is a sensitive case (Ministry of Foreign Affairs of the Republic of Belarus 2015). When the decision has achieved the implementation by member-states is monitored.

Since the Astana Treaty was signed, the competence of the Commission on monitoring the compliance of the member-states was eliminated (Dragneva and Wolczuk 2017, 15). If before the Astana Treaty the Commission has an opportunity to bring country for any kind of non-compliance, now it doesn’t have such power. Therefore, the responsibility for non-compliance by member-states are the competence of the member-states’ legislations (Treaty on the Eurasian Economic Union 2014, 41). In other words, it is not in the competence of the Commission to monitor the compliance of the member-states.

Literature Review

Before assessing the extent of the barriers to internal trade, it is important to observe some articles that were researched on this topic. Most of the articles on the internal market of the EAEU argue that the internal market of the union is not as smooth as it should be. As an example, Abramov et al. (2019, 127) make an analysis from 2012 till 2018 on the integration process of the EAEU. Especially, the authors discuss the mutual trade between member-states. They argue that although the time factors are considered the effect of the integration is not impressive (Abramov et al. 2019, 127). Movchan and Emerson (2018, 1) also support this argument and add that the union’s integration of the internal market is even disadvantageous economically to member-states. The reason for such results is the absence of a proper mechanism to work with obstacles between barriers. Therefore, the authors suggest improving that mechanism to overcome the existing barriers, exemptions and restrictions (Abramov et al. 2019, 127). To be more precise, the removing of non-tariff barriers will positively affect all countries in the union (Tarr 2016; Dragneva and Wolczuk 2017; Tarr and Turdyeva 2016). Tarr and Turdyeva (2016, 1) also emphasized the non-tariff barriers against imports from China and the EU. Which means that elimination of non-tariff barriers against those countries will significantly benefit all member-states.

In addition to the previous arguments, Andronova and Dyuzheva (2018, 6) find out other arguments as a barrier to a smooth integration. Their research was based on survey data of the Commission and statistical information from member-states’ official resources. Concerning their findings, they identify that asymmetrical trade between states, low level of participation between individual pairs of the member-states and a significant number of restrictions negatively affect the internal market of the EAEU. However, the authors mention that the barriers, exemptions and restrictions are not likely to be the reasons that affect internal trade between states (Andronova and Dyuzheva 2018, 10). They argue that the significant issue among all others is the absence of the common position within the union in relation to third countries.

Other authors argue that the union achieved significant results in comparison with other organizations that are working for a longer period of time (Vinokurov 2017; Adarov 2019). As an example, Vinokurov (2017, 69) assess the various factors of integration such as work of the institutions, single market, mutual trade between states, elimination of non-tariff barriers and free trade agreement. Through his research, the author observes that the situation in the union is somehow positive. He identifies that the EAEU achieved developments in the common technical regulations, common market with defined development roadmap. In addition, Adarov (2019, 14) states that positive impacts on member-states can be identified from the integration processes in the advanced sectors of the internal trade.

De facto situation of the Barriers

Concerning the reality of barriers in the internal market, the EAEU has already removed a large number of obstacles with the aim to achieve the implementation of “four freedoms”. To be more precise, since 2016 there are 59 trade barriers, 43 of them are eliminated by the Commission and member-states (Eurasian Economic Commission 2020). At the same period of time, the Commission eliminated 8 out of 45 established restrictions and 5 of 19 exemptions. The Commission has an aim to eliminate another 12 restrictions and exemptions until 2025.

However, the situation is not so positive as it can be seen from the results. These obstacles for “four freedoms” are not so easily eliminated between borders of states. Especially, non-tariff barriers are the most important challenge for integration (Dragneva and Wolczuk 2017, 19). Non-tariff barriers can be divided into two groups. While the first group considers “as sanitary and phytosanitary measures, technical barriers to trade, quotas, bans, and quantitative control measures”, the second group tends to consist of competition measures (Vinokurov 2017, 60). As a result, all the mentioned barriers negatively affect all states in the union. Thus, what are the reasons for countries to create obstacles for each other?

According to Dragneva and Wolczuk (2017, 19), the main reason for the occurrence of such barriers is the gaps in the union regime or exemptions granted under the Astana Treaty. In addition, the elimination of obstacles is hardly achieved in most cases due to the non-compliance and complex negotiations of member-states. The example can be the “trade wars” between Russia and Belarus (milk and meat) and “potato wars” between Kyrgyzstan and Kazakhstan (Dragneva and Wolczuk 2017, 19). Furthermore, problems with the recognition of certificates, quotas, import bans are another reason for countries to block trade with each other. Thus, the union lacks a dispute-settling mechanism to solve the conflicts occurred on the borders of states.

The asymmetry between states can also affect the integration process of member-states. The asymmetry can be observed from the fact that the union discriminate less-developed countries. In other words, when the EAEU develops the standards for harmonization process it doesn’t consider the difficulties for less-developed countries such as Kyrgyzstan and Armenia (Adarov 2019, 10). Consequently, the lacking of necessary infrastructure for those countries affects negatively in the short-run integration.

In addition, if we observe some statistics on the internal market of the EAEU, the reality of the “smooth integration” can be observed. For example, there are exemptions for approximately 3000 goods which shows the reality of border controls between states (Ricardo and Mdinaradze 2017, 12). It is interesting to observe the difference between intra-EAEU and extra-EAEU trade. As mentioned by Ricardo and Mdinaradze (2017, 12), member-states’ trade with third countries are counted as 88% of total exports and 83% of imports. In comparison with the EU, their external trade counts for 36% of total trade. It means that the external trade of the EAEU is more important than the internal one. In other words, we can see the low integration process from such data. Thus, the real situation of the internal market in the EAEU is not so smooth as it should be according to the Treaty.

Case study: conflict between Kazakhstan and Kyrgyzstan

The reality of trade barriers between states can be seen from the vivid example of Kazakh-Kyrgyz conflict on standards and veterinary, phytosanitary control at their borders. The situation hasn’t been changed from the beginning of Kyrgyzstan’s accession to the EAEU. Although Kyrgyzstan wanted to join the union in 2011, it was not signed till 2014 (Gast 2018, 6). The main reason was the difference or the absence of technical standards in the state. Due to the situation of the country, Kyrgyzstan was given two years to implement technical regulations and standards of the EAEU (Gast 2018, 8). This period was expired in 2017. As a result, in fact there are shouldn’t be any conflicts between states on standards of the internal market.

However, Kyrgyzstan couldn’t properly integrate into all standards and regulations which as a result lead to the conflict on borders. Due to the lack of operational laboratories and the Commission’s representatives to certify products for export, Kazakhstan introduced inspection regime for Kyrgyz heavy-duty vehicles in 2017 (Eurasianet 2020). In addition, Kazakhstan imposed restrictions on the meat and dairy products from Kyrgyzstan to Russia and the West. This protectionism was occurred due to the elimination of veterinary and sanitary control on borders after the accession of Kyrgyzstan to the EAEU. Therefore, as mentioned by to the Vice-Minister of Agriculture of Kazakhstan Gulmira Isayeva, Kazakhstan tried to prevent occurrence of viruses and diseases on the territory of the state (Enikleeva 2016, 38).

As a response, Kyrgyzstan appealed to the WTO and EEC which only resulted in Kazakhs’ accusation in smuggling of goods from China (Eurasianet 2020). The position of Kyrgyz government is understandable because the idea of the EAEU was to provide free trade area without customs checks. However, the accusations from Kazakhstan were not groundless. At that time there were documented evidence of questionable operations of the Kyrgyz Customs Service. Moreover, Kazakh governments stated that when they check the vehicles on the borders’ control, they discovered that drivers provide different documents and certificates for one goods while in the vehicles they have other products (Eurasianet 2020). Consequently, flooding the trade block with contraband goods leads to the deprivation of custom duties.

The conflict between states resulted in the decrease of trade which was amounted to 318.3 million dollars which is 10.5% less compared to 2018 (Eurasianet 2019).

Kazakhstan’s position towards this conflict can be observed from various perspectives. Most of the specialists describes it as a protectionism measures which actually should be eliminated under the EAEU. Stolper-Samuelson approach can be used to identify the interests of states towards trade policies. The theorem states that “protection benefits the scarce factor of production” (Frieden et al. 2016, 305). In regard to our case, it seems like Kazakhstan wants to protect its market from cheaper agricultural goods of Kyrgyzstan and re-exported goods from China. By contrast, fails of state to guarantee the safety of their exported products show that trade with Kyrgyzstan can be dangerous for Kazakhstan.

Currently, the supervision (veterinary control) on borders between states has not been canceled by the Commission (Portal of General Information Resources and Open Data). The Council of the Eurasian Economic Commission cannot adopt a decision because of the absence of common position between representatives from both states.

Conclusion

The EAEU has achieved significant results in the integration process in a relatively short time period. However, there are still difficulties to implement a common vision of member-states and to promote smooth integration process in internal trade between member-states. The case study demonstrated how in reality the barriers between states negatively affect the internal market of states. Moreover, it shows that the asymmetrical levels of economic development between member-states and lack of supranationalism negatively affect the integration process in the EAEU. Thus, to achieve the truly common internal market and integration, the EAEU should promote common strategy and clear legislation for its member-states.

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