The price of Eurasian disintegration
May 27, 2020
_ Yuri Kofner, non-residential research fellow, Skolkovo Institute for Emerging Market Studies, editor-in-chief analytical media “Eurasian Studies”. Munich, 27 May 2020.Tensions over gas prices and other problemsThe incomplete results of the latest heads of state summit the Eurasian Economic Union, which took place on May 19, 2020, became another occasion for many to recall their criticism of the Eurasian integration project.This time, the parties did not agree on the pricing mechanism for the transportation of natural gas. President of Belarus Alexander Lukashenko and Prime Minister of Armenia Nicole Pashinyan consider it too high and suggest moving to a single intra-union tariff, which would be closer to the domestic Russian price.To this, Russian President Vladimir Putin made it clear that this would be possible only in return for deeper integration up to a fiscal union, which hasn’t been reached even in the European Union.From his part, Kazakh President Kassym-Zhomart Tokaev asked to discontinue this debate and reminded everyone not getting ahead of themselves, since the creation of unified energy markets was laid down in the union agreement only for 2025. In his opinion, before moving on, it is now important to first remove all remaining obstacles that impede free trade within the common markets of the Union, especially the free movement of goods.And indeed, there are enough unsolved problems. Among them:
Source: Author’s estimates.Despite all the problems of the Eurasian Economic Union, the study makes one thing obvious – without it, things would be much worse.
- Disputes over the application by national customs services of sanitary, phytosanitary and veterinary measures, for example between Minsk and Moscow on dairy products or between Nursultan and Moscow on watermelons and chicken meat.
- Pretensions on certain exemptions from the common customs tariff of the EAEU for third countries, for example, for supported foreign cars and sugar imports.
- Complaints about unlawful restrictions on cargo transit, or, conversely, on the re-export of products, which are under the Russian import ban. Examples include Kazakh coal deliveries for Ukraine or “Belarusian” shrimp.
- What will happen, if tariff duties are introduced between the member states of the “former” EAEU, i.e. if the customs union dissolved would be dissolved and free trade in goods abandoned?
- What will happen if the common economic space is dissolved, i.e. if each “former” member state introduces its own and different from each other technical regulations and standards, sanitary, phytosanitary and veterinary measures, competition and subsidization rules, anti-dumping measures, requirements for licensing suppliers, etc.?
- What are the consequences of abandoning the common labor market and the free of movement of labor?
- Bilateral trade data from 2018 for the four parties (EAEU, EU, China and the “rest of the world”) aggregated for 24 MTN product sectors from the WITS (UN COMTRADE) For the bilateral trade flows CIF recorded imports were preferred. Country effects were estimated by applying the share of each member state in intra-Union trade.
- Aggregated simple most favored nation (MFN) ad-valorem import tariffs from 2018 were taken from (WTO 2019) and the WITS (UNCTAD TRAINS)
- The AVEs of NTMs for intra- and extra-EAEU trade were taken from (Knobel et al. 2019), for China from (Niu 2018), for the EU were taken from (Berden et al. 2015), for the rest of the world from (Niu et al. 2018).
- Import elasticities were taken from (Ghodsi et al. 2016). The export supply (1.5) and substitution (5) elasticities were taken as constants across all sectors and regions.
- A matrix of bilateral data on labor migration for 2017 for four parties (EAEU, Uzbekistan, Tajikistan and the rest of the world) taken from the (World Bank) database.
- A matrix of bilateral data on personal remittances for 2017 for the EAEU member states taken from the EEC Statistics Department.
- As the “ad valorem equivalents of barriers to labor migration”, the author interpreted the reverse value of the integration index on the EAEU labor market for 2011 and 2017, developed by the EEC Macroeconomic Policy Department. The ad valorem equivalent of barriers to labor migration within the EAEU is 41%, for the CIS countries outside the EAEU – 70%, for the rest of the countries – 95%.
- The elasticity of imports, taken from (Ghodsi et al. 2016) and (Tokarick 2010). The elasticity of export supply and substitution were taken as constant values in all regions.
|Scenario 1. No Eurasian customs union||Scenario 1+2. No single economic space||Scenario 3. No common labor market||Effects of scenarios 2 + 3 together|
|Intra-union trade change||Welfare change||Intra-union trade change||Welfare change||Intra-union labor migration change||Intra-union personal remittances change||Welfare change||Welfare change|
-USD 13 bln
-70 bln USD
|-1.8 percent||-50.3 percent||-USD 5.8 bln||-0.3 percent||-2.2 percent|
– USD 76 bln
|Welfare change||Welfare change||Personal remittances change||Welfare change||Welfare change|
|ARM||-1.1 percent||-6.2 percent||-USD 1.1 bln||-8.8 percent||-15.0 percent|
|BLR||-3.7 percent||-20.3 percent||-USD 0.5 bln||-0.8 percent||-21.1 percent|
|KAZ||-0.8 percent||-4.2 percent||-USD 0.6 bln||-0.3 percent||-4.6 percent|
|KGZ||-2.6 percent||-14.2 percent||-USD 1.7 bln||-20.8 percent||-35.0 percent|
|RUS||-0.1 percent||-0.6 percent||-USD 1.9 bln||-0.1 percent||-0.7 percent|
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