Policy: Regulation of the Single Market for Good

1. Introduction

Policy Area

Since its very establishment, the Eurasian Economic Union (EAEU) set an ambitious goal of establishing the common market. This objective has been enshrined in Article 4 of the Treaty on the EAEU, whereby the need to ensure the unimpeded movement of “four freedoms”: goods, services, capital, and labor within the Union’s territory was particularly underlined. The institutional framework of the EAEU is mainly modeled on the European Union (EU) (Rotaru, 2018, p. 3). In the model of regional integration outlined by Balassa (1961), the EU has surpassed the level of a common market, and is classified as an example of total economic integration, whereby not only tariff and non-tariff restrictions were eliminated, but also national policies were harmonized, and a supranational authority was created. While far from reaching even the level of economic union contrary to its European counterpart, the significant additional effort remains to be put in ensuring free movements of goods, let alone the rest of the four freedoms in the EAEU. Free movement of goods within the EAEU is no longer impeded by tariff fees, but by non-tariff barriers (NTBs) which have posed a considerable challenge to the establishment of the common market (Knobel et al., 2019, p. 181). These NTBs include regulations that unfairly discriminate against foreign products (Frieden et al., 2010 p. 225). Dealing with such regulations and regulatory standards, entailing technical regulation, health and safety, environmental standards among others falls under the purview of regulatory politics (Hix & Høyland, 2011, p. 190). To asses the extent of integration in the EAEU, in this paper, I will, therefore, focus on the regulation of a single market for goods within the Union.

Legal Basis

The Treaty on the EAEU remains the primary source of the Union’s law (Art. 6 of the Treaty on the EAEU), and provides a legal basis conducive to the formation of the common market for goods and identifying the competences of the Union in this policy area. Particularly, the Articles 25 and 28 of the Treaty seek to ensure unimpeded movement of four freedoms and stipulate that within the framework of the internal goods market, member states “shall not apply customs duties, non-tariff measures, special protective, antidumping and countervailing measures, except otherwise provided in this Treaty”. However, the Article 29 of the Treaty enables member states to apply restrictions, including “sanitary, veterinary and phytosanitary measures” (SPS) for public health and safety purposes, while also explicitly stating that restrictive measures ought not to be motivated by “unjustifiable discrimination”, concealing protectionist motives.

Apart from these general guidelines, the Treaty also provides a legal basis for the regulation of the single market. The Unified List of the products, which can circulate freely in the EAEU is based on the Decision №620 of the Eurasian Economic Community, established by the predecessor of the EAEU – the Customs Union (Emerson & Kofner, 2018, p. 9). In securing the safety of the products circulating within the Union, the Treaty necessitates the member states to ensure that these goods conform with the requirements of technical regulation without initiation of “additional conformity assessment procedures” (Art. 53 of the Treaty on the EAEU). Article 52 of the Treaty further stipulates that this list of the products is subject to Commission approval and that the technical regulations of these products are binding and adopted on the supranational level, forbidding member states to establish additional mandatory requirements. The application of other non-tariff measures, such as SPS, is identified as a “coordinated policy”, which implies that while these standards also need Commission’s approval, their development remains a prerogative of member states (Articles 56-59 of the Treaty on the EAEU). As such, it is worth noting that in spite of the substantive legal basis and significant delegation of the regulatory authority to the supranational level with the creation of the Union, member states still remain powerful actors in the regulatory politics of the EAEU.

Policy Cycle

To evaluate the extent of integration in the goods market, it is equally instructive to understand how the policy-making takes place in this area. In these regards, the approach, known as a “policy cycle” can be highly instructive (Young, 2015a, p. 47). Some criticize this approach for oversimplifying the empirical reality and for lacking casual power, yet it still provides a useful tool to analyze the role of institutions during each stage in the policy-making process (Young, 2015a, p. 49). Although this approach is commonly applied to the EU (e.g. Young, 2015a; McCormick, 2014), one may examine the policy-making in the EAEU through the same prism. One important caveat, however, is that contrary to the EU, where legislative process entails the participation of several institutions under the system of checks and balances, in the EAEU, the legislative acts (including decisions and orders) are adopted separately within each institution (Karliuk, 2015, p.10). This suggests that the policy cycle within the EAEU might significantly diverge from that of the EU.

Given the important role of the EAEU Commission in regulating the single market for goods, it is important to analyze how decisions and orders are adopted particularly within this institution. At the initial stage of the cycle known as “agenda-setting”, the Collegium of the Commission (the executive body) can develop initiatives and receive proposals from member states regarding the integration process (Annex 1, para. 43 of the Treaty on the EAEU). In this sense, it is similar to the EU Commission, which enjoys a monopoly on the policy initiative, albeit the Council, the EP and even member states can indirectly shape the agenda as well (Young, 2015b, p. 127). At the second stage of “policy formulation”, the Collegium can form consultative bodies (comprised of member states’ authorized representatives), which should further work on the proposals for the Commission (Annex 1, para. 44-47 of the Treaty on the EAEU). Unlike the ordinary legislative procedure in the EU, where the European Parliament and the Council are involved, the “decision-making stage” in the EAEU entails the adoption of legislative acts within the Commission only; as the Collegium submits the draft of the legislature to the Council of the Commission, which then decides on acts by consensus, according to the Annex 1, para. 29 of the Treaty on the EAEU (Emerson & Kofner, 2018, p. 11).

Ensuring the implementation (the next phase of the policy cycle) and monitoring the compliance of member states with the legislative acts of the Commission (that are directly applicable) especially those concerning the single market integration is the responsibility of the Collegium (Annex I, para. 43 of the Treaty on the EAEU). An important distinctive feature of the EAEU (compared with the EU) is that the Commission has no power to file an action against member states for non-compliance (Karliuk, 2015, p.17). Indeed, the Annex 2, para. 39 of the Treaty stipulates that only member states and economic actors can initiate disputes regarding the implementation of the EU legal acts in the EAEU Court, which (contrary to the ECJ) lacks the power to impose financial penalties on the parties (Karliuk, 2015, p.18). If the party at dispute fails to adhere to the Court’s decision, the plaintiff might apply to the Supreme Council for ensuring the enforcement of judgment (Annex 2, para. 114-115 of the Treaty on the EAEU). The final phase, which completes the policy cycle is that of a feedback, which is generated as the result of the policy implementation (Young, 2015a, p. 67). Yet, “policy feedback” presupposes a considerable duration of time to pass, thus it might be preliminary to expect this stage of the policy cycle in the relatively nascent EAEU.

Overall, the policy cycle approach was useful in demonstrating the divergences between policy-making processes in the EU and the EAEU, with the former being characterized by interactions of multiple institutions, while in the latter responsibilities are excessively concentrated in the Commission in the domain of single market regulation.

Significant Policy Output

Provided the relevant institutional and legal structure, it is further instructive to analyze the progress that the EAEU has made in creating a common market for goods. Before that, the extent of the integration of the EU in this policy domain merits consideration. In its 1985 white paper on Completing the Internal Market, the European Commission proposed to abolish custom barriers to the movement of goods (which was accomplished in 1992); whilst regarding technical regulation of the product market, it established “a new approach to technical harmonization” based on the principle of “mutual recognition”, the precedent for which was set by the famous 1979 Cassis de Dijon ruling (Hix & Hoyland, 2011, p.193). As a result, harmonization was limited to minimum standards, produced by the CEN and CENELEC – the organizations that are involved in developing voluntary standards across the EU (Hix & Hoyland, 2011, p.193). Meanwhile, the “mutual recognition” principle continues to ensure that no technical obstacles impede the movement of goods in partly or non-harmonized sectors of the economy, under the Articles 34-36 of the TFEU and Regulation (EU) No. 515/2019. (European Commission, n.d.). In the absence of physical barriers and minimal technical barriers to trade, the EU goods market, therefore, remains highly integrated.

Less optimistic conclusions can be drawn regarding the EAEU, regarding its achievements in creating a genuine single market. The origins of single market regulation can be traced back to the Customs Union (a predecessor of the EAEU), within the framework of which, the member states agreed to eliminate internal customs and set common regulatory standards (including SPS) (Knobel et al., 2019, p. 180). Since then goods move tariff-free in the Union’s territory, although a few disputes have sparked around the custom posts between Kazakhstan and Kyrgyzstan, Russia and Belarus (Knobel et al., 2019, p. 181). Compared to the physical barriers to trade, eliminating regulatory barriers, and setting unified standards for the regulation of products have proven highly daunting to achieve in the EAEU. In regulatory domain, the EAEU member states have preferred to negotiate harmonization of standards through mandatory regulations rather than relying on the principle of mutual recognition (contrary to the EU); yet their efforts in this realm have been rather slow (Knobel et al., 2019, p. 181). With many complexities around the negotiation of unified standards, it is hardly surprising that while the deadlines were set for creating common markets for pharmaceuticals, electricity, oil and gas products, latest by 2025 for the latter, the integration in these sectors of the economy has been lagging behind the schedule (Vinokurov, 2018, p. 77). Given the slow pace of harmonization, non-tariff barriers persist, posing a major obstacle to the creation of a full-fledged common market for goods in the EAEU (Knobel et al. 2019, p. 181). This shows that there is much room for progress in forming a single goods market in the EAEU.

1. Analysis

Research Question

Provided the relatively modest progress achieved within the EAEU in creating a common goods market, as shown in the previous section, this paper seeks to understand the major impediments to deeper integration within this policy area. There seems to be a broad consensus in the literature, that complexities in creating a common goods market are primarily related to the elimination of non-tariff restrictions to trade and the harmonization of standards (Dragneva & Wolczuk, 2017; Chernova et al., 2019). A similar consensus exists around the need to eliminate NTBs as means of boosting internal trade and progressing towards a genuine common market for goods (Vakulchuk & Knobel, 2018; Vinokurov, 2017). Despite the empirically demonstrated positive implications of eliminating such restrictive measures and implementing unified standards in practice, the persistence of these measures remains rather puzzling. This puzzle requires examining the reasons behind the persistence of NTBs in the EAEU, and in particular focus on the domestic determinants that make member states adhere to such protectionist measures. Hence, in this paper, I propose the following research question:

What are the political determinants behind the imposition of non-tariff barriers within the framework of regulating the single market for goods in the EAEU?

Literature Review

Before considering their political determinants, it is instructive to understand the threats posed by NTBs to the intra-Union trade, as shown in the existing literature. Prior to that, one needs to understand what NTBs entail. Vinokurov (2018) differentiates between two groups of NTBs (p. 84). The first group involves “natural NTBs”, such as “SPS, technical barriers to trade (TBT), quotas, bans” among other quantitative measures; whereas the second group, involves financial measures, such as subsidies and public procurement restrictions (Vinokurov, 2018, p. 84). The scope of this paper will be limited to the first group, as these NTBs have proven especially salient for the EAEU. Indeed, Enlikeeva (2018) based on the data provided by ITI-P, demonstrates that the most common type of non-tariff measures applied by the EAEU member states as of 2018 were SPS and TBT (p.28). The widespread application of these non-tariff measures entails serious costs to the intra-Union trade. The burdensome effect of NTBs was noted by Vinokurov (2017), who argues that these barriers comprised 15% to 30% of the total value of exports within EAEU in 2015 (p. 60). Reducing NTBs by 50% has a potential of boosting trade turnover to 11%, whereas their full elimination can more than double this effect (Vakulchuk & Knobel, 2018, p.470). The scholars thus, generally agree that NTBs have detrimental impact on mutual trade and suggest that their elimination might yield significant gains for the member states.

These gains notwithstanding, reducing NTBs and unifying standards within the EAEU have proven especially daunting. The excessively regulatory GOST standards, inherited from the Soviet Union, presented a particular challenge for the Union at the onset (Tarr, 2016, p.11). Yet, these were renovated over time, and replaced by new standards based on CEN and CENELEC (Emerson & Kofner, 2018, p. 12). Almost 6,000 product-specific standards were harmonized with international standards by 2018, marking a significant progress of the EAEU in achieving regulatory convergence (Emerson & Kofner, 2018). However, Emerson and Kofner (2018) also point to the existence of parallel “modified” standards, especially in Russia, alongside the “identical” harmonized standards within the EAEU. Another issue highlighted by Tarr (2016) is the EAEU’s reluctance to adopt mutual recognition system, and its reliance on mandatory technical regulations as a principle method of harmonization. In fact, mutual recognition is believed to be one of the main ways to mitigate the negative impact of nontariff barriers and divergent standards (Vakulchuk & Knobel, 2018, p. 461). Yet, the extant research reveals that the EAEU has made little effort in this direction, and significant challenges remain in the Union with regards to the minimization of the perverse impact of NTBs.

The negative impact of nontariff measures, however, should not be exaggerated. SPS or TBT measures not only serve important safety purposes that protect consumers, but also benefit those exporters who comply with the required standards (Enikeeva, 2018, p. 24). Meanwhile, one should acknowledge that nontariff measures, such as standards are often utilized for protectionist purposes (Tarr, 2016, p. 11). And protectionism, as a part of trade policy inevitably creates winners and losers (Frieden et al., 2010, p. 229). Given such distributional consequences, domestic factors have an important role to play in protecting certain groups, while hurting the others (Frieden et al., 2010, p. 233). To understand the domestic political determinants of non-tariff barriers, Mansfield and Busch (1995) differentiate between societal and statist theories, with the former, emphasizing the role of pressure groups and nonstate actors in determining the extent of protectionism; and the latter focusing on the ability of politicians to protect groups favoring national interests (p.723). These authors find statist and societal theories to be complementary, and argue that the highest incidence of NTBs is found when strong demands for protection on the societal level exist and policymakers enjoy high levels of autonomy (due to large size of state) from pressures for free trade, to advance national interest (Mansfield & Busch, 1995, p.747). While the authors argue that relative size of the state, pressure from interest groups and domestic institutions are major determinants of NTBs, they also acknowledge that their findings are based on the sample of industrialized democracies, which makes it difficult to generalize them (Mansfield & Busch, 1995, p. 749). My objective is to address this limitation and identify the determinants of non-tariff barriers within the context of the Union of semi-authoritarian regimes based on the existing theoretical framework.

Analytical Framework

To understand the political determinants behind the imposition of non-tariff measures within the EAEU, I will rely on a case study analysis. According to Gerring (2002) this method entails an extensive exploration of a single phenomenon to understand broader phenomena (p.342). Some criticize this approach for being excessively descriptive, lacking causal power and breadth of the scope (Gerring, 2002). However, Gerring (2002) suggests that case studies are well suited to answer What? and How? rather than Why? questions, and that the goal of this method is not to establish causality, but to understand a causal mechanism (p. 347). Provided that my research question deals with gaining insight into the determinants of regulatory policy and seeks to answer a “What?” question, this method seems compatible with the goals of this paper. Another frequently drawn criticism of the case study method concerns its lack of breadth, yet this is compensated by the depth of the examination, enabling researchers to get a holistic understanding of the subject (Gerring, 2002, p. 348). The depth of inquiry makes small-N studies particularly attractive for the study of sui generis institutions like the EU; hence, case study has been the dominant approach in the academic studies of the EU (Hix, 1998, p. 43). Its widespread usage in the EU studies (e.g. Pijnenburg, 1998; Hooghe, 2005), makes this methodological approach equally applicable to understand the processes within other regional economic blocs, including the EAEU. While acknowledging the limitations of the case study method such as low explanatory power and generalizability, it is still instructive to use this approach within the scope of this paper, as it coincides with its major objectives and is well-suited to understand the political determinants of goods market regulation in the EAEU.

Analysis

To understand the political determinants of NTBs in the EAEU, I will analyze the dairy war between Russia and Belarus of 2018 as a case study. It is worth noting, however, that disputes over dairy production have been frequent between these countries even before 2018. The most well-known occasion of Rospotrebnadzor (Russia’s regulatory agency) imposing an import ban on Belarussian milk products, allegedly based on the latter’s violation of technical norms, erupted in 2009, amidst Lukashenko’s unwillingness to recognize the proto-states of Abkhazia and South Ossetia, and the complaints from Russian producers facing competition from Belarussian subsidized exports (Svoboda, 2019, p. 4). Although the conflict was finally resolved when heads of respective states made a progress in negotiating the formation of the Customs Union, this case well illustrates how Russia utilized norms as its foreign policy tool (Svoboda, 2019, p. 4). It also reveals how the interaction between societal and statist interests served as a determinant of NTBs within a large state (Russia) with a high level of institutional insulation, in line with the findings of Mansfield and Busch (1995, p. 728). Yet, while in their research such insulation is related to the large state size with a high number of electoral constituencies (Mansfield & Busch, 1995, p. 730), for EAEU member states, this might rather be related to the authoritarian regime type, which by itself implies significant autonomy of state actors from the electoral pressure. Extrapolating these findings to the Eurasian space, I further argue, that the convergence of interest group pressures with state-level factors, including institutional insulation (albeit through a different mechanism) is a main determinant of NTBs within the EAEU.

Contrary to the trade dispute of 2009, the dairy war of 2018 erupted already when Russia and Belarus were members of the EAEU. In February of 2018, Rosselkhoznadzor (responsible for veterinary and phytosanitary surveillance) introduced a temporary ban on imports of certain Belarussian milk products, accusing them of failing to meet Russian standards on food safety (Kofner, 2019). Although Russian agency insisted that it had long warned Belarus about improving the safety of its products, one should note that the import ban was issued after the visit of Medvedev to Tatarstan, whereby the head of the region complained to the prime minister about the losses incurred by local farmers due to cheap Belarusian dairy products (Turtseva, 2018). Russia’s import ban was regarded by the EAEU Commission as a violation of Article 58 of the Treaty of the EAEU (Official Website of the Republic of Belarus, 2018). In January 2019, the Collegium of the Commission issued a Decision calling the Russian Federation to adhere to its obligations within the framework of the common market of the EAEU (Decision №11 of the Collegium of the Eurasian Economic Commission). Nonetheless, Russia disregarded this Decision, further blaming Belarus for failing to comply with EAEU regulations (Belsat, 2019). Despite Moscow’s persistence on its restrictive measures, the parties nonetheless reached a compromise on the meeting of the EAEU Intergovernmental Council in April 2019, with Russia agreeing to lift restrictions from Belarussian products limiting its inspections to certain enterprises (Kofner 2019).

Overall, this case is illustrative of the importance of both societal and state-level determinants of NTBs among EAEU member states. The importance of the societal factors is well illustrated by the timing of the import ban imposition, which coincided with the complaints by Tatarstan’s head on behalf of local farmers, disadvantaged by Belarussian dairy products. State-level factors also came into play with actors like the prime-minister and the authorized agency who demonstrated high level of institutional autonomy by quickly responding with import bans. Contrary to Mansfield and Busch’s (1995) theoretical argument, such autonomy stems not from the high number of electoral constituents, but rather from authoritarian regime type, that enables Russia not only to defy domestic, but also international pressures, as illustrated by its initial non-compliance with the Commission’s Decision. The Commission’s role in this dispute is equally noteworthy. Although this institution intervened on behalf of Belarus as the “legal guardian”, its limited power in ensuring compliance of the member states, as well as the fact that conflict was resolved only when the heads of governments convened, once again reveal a largely intergovernmental nature of the EAEU (Kariuk, 2015). The weak institutional checks seem to hardly prevent the imposition of NTBs, which is largely determined by the convergence of societal and state-level factors within the EAEU member states.

1. Conclusion

Overall, this paper aimed to shed light on the challenges that EAEU faces in establishing a single market for goods. The first section of the paper provided an overview of the single market regulation, by explaining its legal basis, the policy-making process and the progress achieved within this policy area in the Union. The paper further proceeded with a research question with the focus on understanding the determinants behind the imposition of NTBs, which serve as major impediments to the common goods market in the EAEU. This was followed by an extensive literature review that explained a role of NTBs in constraining intra-EAEU trade and their possible political determinants. The case study (which provided a main analytical framework of this paper) of the recent Russia-Belarus dairy wars yielded support for the argument that the interaction between societal pressures for protectionism and state-level factors, including the ability of politicians to enhance national interests amidst the insulation from external pressure, serves as a major determinant of NTBs in the EAEU. Importantly, these findings also reveal a primarily intergovernmental nature of the EAEU, because member states remain de facto decision-makers that often disregard the institutional constraints imposed on the supranational level. This shows that the elimination of obstacles to forming the single market, as well as the overall pace of integration remains largely dependent on the member states.

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