Tajik Experts Worried by Imbalances in Eurasian Economic Union

Tajikistan is interested in the Eurasian Economic Union (EEU), especially after its neighbor Kyrgyzstan jumped on the bandwagon. Dushanbe is heatedly debating the virtues of membership, although the government, pundits and businesses still differ. To get a more detailed view of their expectations and concerns, we met leading Tajik experts – Saodat Olimova, Director of independent think tank Sharq and Zafar Abdullayev, Director of think tank Content.

Speaking at the Collective Security Treaty Organization (CSTO) foreign ministers’ meeting in Dushanbe on April 2, Tajikistan’s President Emomali Rahmon stressed his readiness to strengthen strategic partnership with Russia. Russian Foreign Minister Sergey Lavrov confirmed that Moscow would continue to bolster Tajikistan’s defense potential, both on a bilateral basis and via the CSTO. In years to come, Russia has pledged to provide Dushanbe with military-technical aid worth 70 billion rubles – a timely move due to the looming threat of Islamic State infiltration and snowballing instability in Afghanistan.

Russia is also Tajikistan's main commercial partner: its share in 2014 trade turnover exceeded 20 percent. The bulk of its budget still comes from remittances sent by Tajiks working in Russia. According to the Russian Central Bank, last year cash transfers exceeded USD 3.831 billion.

Tajikistan is also interested in the Eurasian Economic Union (EEU), especially after its neighbor Kyrgyzstan jumped on the bandwagon. Dushanbe is heatedly debating the virtues of membership, although the government, pundits and businesses still differ. To get a more detailed view of their expectations and concerns, we met leading Tajik experts – Saodat Olimova, Director of independent think tank Sharq and Zafar Abdullayev, Director of think tank Content.

1. How are EEU goals and objectives perceived in Tajikistan?

Saodat Olimova

Saodat Olimova: Our Ministry for Economy and Development has set up six working groups comprising members of the government, business and academia to examine the price of EEU membership. The political establishment is highly polarized. Some see huge benefits, and some fear that EEU integration will be in vain if the economies of Russia, Kazakhstan and Belarus, its founders, are immersed in crisis. Some view the plan as Moscow’s geopolitical scheme to consolidate post-Soviet countries around their former big brother and improve its competitiveness in the narrowing markets, while some think the EEU will go the way of the Eurasian Economic Community, with the process boiling down to declarations of intent and hollow ambitions of the new Russian bourgeoisie.

Zafar Abdullayev: Over half of the Tajik population favors integration processes involving Russia, which is seen as a force able to set their country on a justice-oriented course. And this stereotype serves as a basis of support for the EEU, Customs Union, CSTO and other Russia-led organizations.

Businesses and analysts, conversely, believe that integration with the EEU will deprive Tajikistan of independence and confuse relations with the outside world, affecting economic ties with other actors.

2. How can the EEU aid or obstruct the resolution of Central Asian economic problems?

SO: Economic difficulties in Russia definitely have an impact on other countries' willingness to join the EEU. However, if Dushanbe opts to become a member, our economists and businessmen hope to see the influx of funds for the re-industrialization of the hydraulic power sector via large-scale investment projects by major Russian and foreign corporations, and for improvements in agriculture. Another advantage would be cheaper hydrocarbon imports.

Eurasia is an enormous market in which Tajik fruits, vegetables, textiles, nonferrous and rare precious metals could find buoyant demand, and in which the Tajik producer will be protected.

The creation of a common EEU-wide labor market that would free Tajik migrants working in Russia from the current restrictions would also be an advantage. However, it seems unclear whether the new situation would reduce the numbers of Tajiks employed in the Russian shadow economy.

Tajikistan's noneconomic gains from entry may include improved security on its southern borders, neutralization of the detrimental effects of ongoing violence in Afghanistan, reduced drug trafficking across the country and improved resistance to Islamic State’s inroads.

The key accession-related problems relate to the harmonization of tariffs, since in Tajikistan these are more standardized than in the EEU, i.e. the Tajik scale has six levels, whereas that of the EEU has 23 different levels. Taking account of WTO requirements, in late 2013, the average Tajik rate amounted to 8.71 percent, somewhat lower than the 9.45 percent in the Customs Union. This difference in tariff regulation would harm the republic's foreign trade.

As for nontariff regulation, the EEU applies antidumping duties and import and export quotas, something Dushanbe avoids. In Tajikistan, nontariff regulation meets international standards focused on technical and quality norms. A harmonization of tariffs in line with EEU standards may damage trade with non-EEU countries, generating more expensive imports from China, Iran and Turkey, reduced state budget revenues, and problems honoring the government's social commitments.

Zafar Abdullayev

Moving the EEU customs border to Tajikistan’s borders will on the one hand cut smuggling from China, Pakistan and Iran, but on the other, will eliminate cheap goods that fill the market and meet the demands of those on low-incomes. It would also reduce Chinese re-exports and hurt small and medium enterprises and minor retailers. Hence, creating and properly maintaining the EEU’s southern customs barrier would be a high price for Tajikistan to pay for joining the group.

ZA: The EEU could help create a beneficial environment for the construction of large hydropower facilities in Tajikistan and thus alleviate its neighbors’ concerns about the ecological harm from hydroelectric stations. Another advantage would come from lifting labor migration ceilings for EEU members. On the other hand, local markets would see skyrocketing prices due to high customs duties on goods from the EEU and Customs Union.

Tajikistan sees the main problem as being the imbalance between the EEU current and potential members, with the unification process hinging totally on Moscow and partially on Astana.

3. What kind of impact could establishing the EEU have on relations between Central Asian republics, other countries and international organizations?

SO: On the one hand, by entering the EEU, Tajikistan may face some issues with its WTO membership. By joining the World Trade Organization in 2012, Tajikistan made a number of commitments that are at variance with principles set out for the Customs Union. Dushanbe may also face a tough strategic choice that would reduce its room for maneuver vis-à-vis the European Union and the United States.

On the other hand, we would be able to maintain a more effective balance between the EEU and China, avoiding excessive economic dependence on Beijing. If things go well and Tajikistan plays its cards right, the country may become a gateway for Chinese, Indian and Pakistani goods to the vast EEU market.

ZA: By entering the EEU, Tajikistan would mar relations with the United States and China. Beijing is currently Dushanbe's key trade and economic partner. The dialogue with Washington is unproblematic, with noninterference in our political system guaranteed. Tougher Kremlin control over the Tajik economy and politics would impair this equilibrium. Under this scenario, the costs would outweigh the benefits of accession. As for relations with Central Asian neighbors and integration into a single union, so far, Tajikistan cannot really afford such a step.

4. Integration means countries’ readiness to share risks. How could economic crises in other EEU countries affect Tajikistan?

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Aligned Competition or Aligned Stagnation?

SO: The Russian crisis has unquestionably damaged the Tajik economy. There was a drop in the number of Tajik migrants working in Russia and subsequently reduced money transfers back home, according to some estimates by almost 30 percent. Trade between Moscow and Dushanbe is shrinking, as are the profits of Tajik enterprises involved in Russian partnerships. Our banking system has been stricken by the devaluation of ruble deposits. Securing the balance of payments has become more troublesome because up to 80 percent of foreign currency revenues, primarily migrants' remittances, come in rubles while we import in U.S. dollars.

Slower economic growth in Russia pushes Tajikistan toward the Westerners who have stepped up their assistance to Central Asia including in financing and investments. If the Russian economy fails to stabilize, Tajikistan’s dependence on the West and China will increase, diminishing its interest in the EEU.

ZA: It is not appropriate to talk about stronger states as having some kind of responsibility toward their weaker EEU partners, because all economies are interlinked and an economic crisis in one country triggers a domino effect. Crisis resolution requires combined action, which suggests that in this regard Tajikistan would gain from EEU membership, because it would be able to rely on assistance from Russia and Kazakhstan. However, Moscow's economic aid to Central Asia may be linked to political dividends that could be unacceptable.

EEU countries would also have to share political risks, no matter how hard they may try to detach the economy from politics. The ongoing Ukraine crisis and Russia's involvement pose the main factor scaring other countries off from joining Russia within any structure. Despite participation in many integration unions, countries in Central Asia including Tajikistan prefer bilateral cooperation with the Kremlin.

5. The EEU is due to reach full force by 2025. What is your vision of the group in 10 years’ time?

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SO: The EEU’s viability for Tajikistan will depend on Russia's success materializing its integration potential, especially given the deteriorating geopolitical environment and Western sanctions against Russia. However, those same sanctions may energize EEU-wide cooperation, triggering a shift from CIS-style declarations to a practical consolidation of the Eurasian space. Within 10 years, the EEU may also present the key integration model for the former USSR.

ZA: In my view, during the 10 years to come, Moscow's economic integration efforts will hardly be viable, either fading away or remaining on paper. At this stage, Russia hardly needs unions for developing relations with its neighbors. This approach seems to relate to political ambitions. The Central Asians will gain more from economic cooperation with Russia on a bilateral basis with no damage to political self-sufficiency.

An analysis of experts' opinions indicates that Tajikistan is in two minds about EEU membership:

• By joining the EEU, the country would be able to count on more generous economic support both from Russia and Kazakhstan, although fears remain that the EEU is Moscow's project is targeted against the West, with whom Tajikistan would not want to spoil relations.
• The EEU offers Tajikistan an opportunity to lighten its dependence on China, while Russia's leadership in the group may affect its flexibility in dealing with other parties.
• Dushanbe views the EEU as an enormous market for its produce and industrial goods, as well as a source for investments. At the same time, Tajikistan is part of the WTO and would have to revise terms of membership for entering other integration groups.
• Western sanctions drive Russia to allies in the post-Soviet space, primarily to EEU countries. However, the post-Soviet states, Central Asia included, would prefer to cooperate with Moscow on a bilateral basis for fear of losing political independence.

Prepared for publication by Galia Ibragimova, Consultant at PIR-Center for Policy Studies.