BACKGROUND: Eurasec was established in 2000. Its membership roster includes Belarus, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and now Uzbekistan. Armenia, Moldova, and Ukraine enjoy observer status. Its members account for approximately three-fourths of all foreign commercial transactions occurring among the twelve members of the Commonwealth of Independent States (CIS). Eurasec’s main function is to promote economic and trade ties among countries that formed a unified economic system during the Soviet period. Since the USSR’s disintegration in 1991, however, these states have frequently diverged in their national macroeconomic policies and imposed various commercial restrictions on their fellow former Soviet republics. The CIS has had difficulties securing implementation of many of the economic, political, and security agreements its member governments have signed. Although the institution does provide opportunities for dialogue among its members, especially among government ministries and agencies dealing with common problems such as customs and migration, the lack of effective enforcement or oversight mechanisms severely limits effective cooperation. Even Russian lawmakers ratify only a small percentage of CIS accords, making it hard to reconcile members’ conflicting legislation and policies. The problems of achieving consensus among twelve governments with increasingly divergent macroeconomic and regulatory policies – combined with the organization’s weak, opaque, and inefficient institutions – have led those states most committed to economic integration within the former Soviet space to seek other avenues for collaboration. With its smaller number of members, all favorably disposed toward Moscow’s leadership, Eurasec represents a logical alternative.

IMPLICATIONS: At the August summit, the leaders agreed to strengthen the legal basis for their planned customs union. The envisioned arrangement would eliminate duties and taxes on both imports and exports among Eurasec members. Although Eurasec Secretary General Grigoriy Rapota thought that the members would establish a legal framework for the customs union by the end of this year, he acknowledged that the union’s establishment might not occur until early 2008. Given the difficulties that Belarus and Russia alone have had in negotiating a possible currency union, the attendees prudently ignored proposals to establish a Eurasec currency union. Second, the summit attendees decided to offer full membership to Uzbekistan. For several years, Uzbekistan has been deepening its ties with the pro-Moscow bloc of former Soviet republics. This process accelerated last year after the May 2005 military crackdown at Andijan led to a rupture of relations between Uzbekistan and Western governments. Whereas Western countries criticized and subsequently sanctioned the Uzbek government for employing excessive force against demonstrators, Russian officials endorsed the Uzbek crackdown as a justifiable response to a foreign-inspired terrorist attack. Tashkent accused the United States and certain European governments of encouraging anti-incumbent “colored” revolutions in the former Soviet republics and required almost all NATO forces to stop using its military facilities. Third, the Eurasec leaders resolved to strengthen ties with the CSTO, which includes all Eurasec members as well as Armenia, a Eurasec observer. Russian President Vladimir Putin stressed the functional nexus between the two organizations when he observed: “You cannot advance the economy without having ensured security first.” Since the CSTO contains the same members as Eurasec, plus Armenia, their leaders often hold sessions of both organizations when they assemble at regional summits. This pattern repeated itself at Sochi, where the subsequent CSTO session approved Uzbekistan’s complete integration into that institution as well as Eurasec. Although Uzbek President Islam Karimov raised the idea of merging the two bodies, such integration could prove problematic given that both institutions are still developing their internal structures. From Moscow’s perspective, however, a merger would create an organization whose functional responsibilities would potentially rival and, at least in the realm of military security, exceed that of the Shanghai Cooperation Organization (SCO), in which China holds a preeminent if not dominant role. Finally, the summit participants agreed to strengthen energy cooperation, especially in the areas of hydroelectric and nuclear power. In the near-term, the members are assessing how to regulate Central Asia’s unevenly distributed water resources and exploit the region’s potential to generate hydroelectric power. Experts at the International Crisis Group and other institutions have long warned that the continued lack of an effective region-wide mechanism for managing water supplies could engender further conflicts among Central Asian countries. At the summit, Putin proposed using the recently created Eurasian Bank of Russia and Kazakhstan, which is scheduled to begin operations by the end of the year, to fund the establishment of a regional hydropower consortium. Putin also used the meeting to raise once again his vision, first laid out at the Eurasec summit in St. Petersburg in January 2006, to establish a network of international centers for enriching, selling, and storing nuclear fuel. Central Asian countries could supply natural uranium for the proposed facility in Russia. The Russian nuclear industry has been seeking deals with Central Asia’s uranium mining firms to supplement its domestic production. Russian analysts fear that their country’s own sources of natural uranium will prove insufficient to meet the government’s ambitious plans to expand use of nuclear power. At the January 2006 Eurasec summit, the governments of Russia and the Central Asian members agreed to conduct joint exploration and mining of the region’s uranium deposits. Both the nuclear and the hydroelectric proposals could yield considerable economic and nonproliferation benefits for the parties. They would, however, further extend Moscow’s influence over Central Asia’s energy resources in the face of American efforts to deepen energy cooperation between Central and South Asia, including in the hydropower sector. A novelty at the Sochi summit was the presence of Viktor Yanukovich, who attended the summit in his new capacity as Ukrainian Prime Minister. Widely considered pro-Russian, Yanukovych met with Putin and Russian Prime Minister Mikhail Fradkov, reportedly discussing Russia’s natural gas tariffs.

CONCLUSIONS: The members’ diverging status with respect to the WTO remains a major factor complicating their efforts to establish a customs union. Whereas Kyrgyzstan has been a WTO member since 1998, Belarus has not even begun formal accession negotiations. Russia, Kazakhstan, and Tajikistan are negotiating their terms of entry. Russia’s efforts to join the WTO remain blocked by several unresolved disagreements with the United States, which Moscow and Washington proved unable to resolve at bilateral meetings during the July 2006 G-8 summit in St. Petersburg. Economics Minister German Gref, presidential aide Sergey Prikhodko, and other Russian officials have made statements suggesting that they see a Eurasec customs union as an alternative, at least for a while, to WTO membership. Prikhodko explained: “We can’t sit in the waiting room at the door of the WTO forever and limit ourselves to these matters.” At the beginning of the Sochi summit, Russian President Vladimir Putin insisted in his opening remarks that “It is extremely important for virtually all of us to ensure an information exchange on our plans to join the World Trade Organization, which means our intention to step up integration processes in Eurasec, including the creation of a customs union, should be coordinated with progress at WTO talks.” Although the attendees agreed to harmonize their WTO and Eurasec integration processes, such a strategy risks slowing progress in both institutions to that of the lowest common denominator. Perhaps even more disruptive would be the possible emergence of a multi-level Eurasec—an institution in which changing coalitions of states would accept, depending on the issue, different degrees of economic integration and cooperation. A worrisome sign is that only Belarus, Kazakhstan, and Russia have thus far officially committed to joining a customs union since they alone have made substantial progress towards harmonizing the relevant legislation.

AUTHOR’S BIO: Dr. Richard Weitz is a Senior Fellow and Associate Director of the Center for Future Security Strategies at the Hudson Institute.