How Geography Is ‘Taking Revenge’ on Eurasian Integration

13.11.2017

On November 9, 2017, the Valdai Discussion Club held an expert discussion and presentation of the report titled “The Geography of the Eurasian Economic Union: From Challenges to Opportunities.” The participants discussed the central idea of the report that geography is the main feature of the Eurasian economic system as well as the difficulties of integration in the Eurasian space, related to the peculiarities of countries’ geographical location.

One of the key points of the report is that the EAEU member states are continental powers (four of the five member-states of this integration group do not have access to the sea), which imposes certain restrictions on their economic development and creates difficulties in integration. According to Vyacheslav Sutyrin, a co-author of the report, the growth rates of landlocked countries are, on average, by 1.5% lower than those of coastal states, transport costs are by 30% higher and, despite all the talk about the digitalization of the economy, they are not decreasing. He described the EAEU countries as “the pole of transport inaccessibility.”

What can be the solution of the problems associated with this “revenge of geography?” According to Sutyrin, it should include connection of the logistics routes, removing tariff and non-tariff barriers, developing a unified macroeconomic policy. This policy should be based on the integration of two models: the eastern model (control over inflation, budget deficit and national debt) and the western one (measures to support exports of only those enterprises that clearly set goals for entering specific markets), the researcher said.

Meanwhile, the idea that the maritime countries are developing faster than the landlocked ones should not be overestimated, said Leonid Vardomsky, head of the Centre of the CIS and the Baltic States, Institute of Economics at the Russian Academy of Sciences, who also took part in the discussion as a speaker. Against this concept is the fact that the share of Central Asian countries in the gross regional product of the CIS doubled in 2005-2015, and, in general, this region is developing faster than the rest of the CIS economies. Vardomsky noted that access to key markets, such as Moscow and the Moscow region, is more important for the EAEU states than access to seas. Russia accounts for half of Belarus’ foreign trade, while Moscow accounts for half of this volume, the expert said.

Currently, cooperation in the Eurasian space is conducted through the capitals, Vardomsky said. It is obvious that the development of cross-border cooperation should become one of the directions of integration, but while the EAEU states implement sovereign development programs where “no one is allowed,” it is too early to talk about this, he stressed.

Aidarkhan Kusainov, Adviser to the Chairman of the National Bank of the Republic of Kazakhstan, who participated in the discussion via videolink, also pointed to the insufficient level of cross-border cooperation. According to him, cooperation between the border regions of Russia and Kazakhstan is going slower than between the two countries in general.

Speaking about the difficulties of integration in the Eurasian space, Kusainov pointed to the concerns of the countries of the region about the domination of Russia in integration processes. Returning to the idea of advantages of coastal countries compared to landlocked nations, he pointed out that Russia is not only the largest economy of the EAEU and the most influential country politically, but also the only state with access to the sea. Fearful of subordination of the integration agenda to the objectives of Russian politics, other EAEU countries are developing alternative scenarios. A striking example is Belarus, which studies the use of the EU Baltic ports for its transit, while Russia switches its transit from the Baltics to the ports of the Leningrad Region.

Despite these difficulties, integration in the Eurasian space is generally successful, the discussion participants noted. According to Sutyrin, overall trade between the EAEU countries is growing, and non-commodity groups of goods demonstrate greater growth than raw materials. In turn, Yuri Ivanov, Aide to Member of the Board – Minister in charge of Industry and Agro-Industrial Complex, Eurasian Economic Commission, stressed that the growth rates of cooperative supplies outstrip the growth rates of industry, while industrial and agricultural production have been growing for the last several years. These results, he said, demonstrate that in terms of Eurasian integration “everything was done right.”

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