Assemgul Kamer, master’s student at Nanjing university of science and technology, school of economics, Nanjing, China; email: mskamer@gmail.com

Potential and limitations of new mechanisms of collective cooperation

Eurasian Economic Union: Opportunities and Barriers to Regional and Global Leadership

Eurasian Economic Union is a new integration grouping in the post soviet regions which is an increasing interest as a subject of the world economy that could potentially become a new regional and global player. The article presents an analysis of the effectiveness of Eurasian integration processes and proposes a number of measures to strengthen the economic ties between the countries - members of the EEU through the identification and creation of common economic interests.

The article notes that the geo-economic potential of the EEU is high, and although much of its part (80-87%) belongs to Russia, which once again accentuates the country's role as the core of the integration, the benefits of the EEU are unevenly distributed among the member states.

This article conducts an analysis of the interrelation and interdepеndency of national economies in terms of the mutual trade in goods and services and investment cooperation and suggests that developing and implementing a common industrial and agricultural policy would strengthen the EEU, and proposes an approach to estimate the results of such a policy.

Keywords: Eurasian Economic Union, the economic efficiency, integration grouping, the economic potential of the EEU, intraregional trade, investment cooperation, common commercial policy, common agricultural policy

Introduction

The XXI century, characterized by the interrelation and interdependence intensification of national economies, contrary to expectations, didn’t transform the world economy into a single coherent conflict-free mechanism. On the other hand, the complexity of relations, modifications in the development models of individual states determined the process of formation of a new multipolar world order based on strengthening of the economic power of some countries, especially the BRICS and others.

One of the mechanisms for implementation of the national interests of the world's key players was the formation of integration groupings. Under these conditions Russia has also chosen the path of multispeed integration. However, the progress in this direction is now more than modest. Commonwealth of Independent States, existing for almost 25 years, has not yet become a full-fledged free trade zone. The most advanced integration union in the former Soviet space is the Eurasian Economic Union (EEU).

Whether the EEU can become a sustainable integration group and represent effectively the interests of the participating countries on the world stage and become the center of attraction for neighboring countries, primarily the countries of the former Soviet Union, depends on the effectiveness of the economic development of the current member states, on the impact of the processes of Eurasian integration on the solution of their domestic economic problems and on strengthening economic communication within the EEU.

The potential of the EEU

Potentially EEU is a very powerful economic, geopolitical and ideological project.

EEU has a leading place in the world for oil - 1st place; gas production - 2nd place, coal - 6th; power generation - 4th place; steel production - 5th place; fertilizer production - 2nd place; iron production - 2nd place; collection of grains and legumes - 5th place; 3rd place for the production of potato and wheat; milk production - 3rd place, 4th for the production of meat, etc. The total GDP of the order of $ 2.2 trillion. (About 85% of the GDP of the CIS countries). In general, the EEU is the 6th in the world in terms of industrial production. It is important that Russia accounts for 80-87% of the economic potential of the member states of the Eurasian Union [Bystryakov, 2012].

But one of the major advantages of the EEU that is not found at any other integration groups in the world is its common history and experience of joint business activities. Single industrial, transport, energy complexes became the driving forces behind the process of renewal of a constructive dialogue between the newly independent countries, the transition from mutual reproaches and accusations of economic cooperation since the early 1990s. The absence of language barriers, common history and understanding of the national culture - all is now an important factor and at the same time the driving force of the Eurasian integration processes [Butorina Zakharov, 2015].

The distribution of benefits of the EEU among the participants is very uneven. Although it is difficult to give precise calculations, but, in our opinion, the EEU project increasingly brings economic benefits to Russia’s partners. So, only for signing the agreement on the establishment of the EEU the Russian Federation transferred Belarus about $ 6.5 billion. This amount was formed from a loan of 2.5 billion dollars and of 3.5-4 billion dollars from non-return duties on oil products produced of Russian oil.

Firstly, as can be seen from Table 1, after the admission of new member states in the EEU the redistribution of import duties actually occurred at Russia's expense.

Table 1. Distribution of import duties system in the EEU

State	Initial allocation of import duties, %	Distribution of import duties after joining Armenia and Kyrgyzstan	The percentage of the import duties redistribution
Russia	85,9	85,32	-2,65
Belarus	4,7	4,56	-0,14
Kazakhstan	7,33	7,11	-0,22
Armenia		1,11	-
Kyrgyzstan		1,9	-

Source: compiled by the author of the Treaty on the Eurasian Economic Union.

Secondly, the reorientation of export flows has led Russia’s EEU allies to receiving money sums of several times greater amount than those they would receive outside the Customs Union.

With free movement of capital and the differences in the business environment in the countries of the EEU (Table 2) Russian companies began transferring, primarily from the central regions of Russia and Siberia, its production and economic activity in Kazakhstan. Only in 2010 - early 2011 more than 400 Russian enterprises of small and medium-sized businesses have moved their business in Kazakhstan.

Table 2. The maximum tax rate in Belarus, Kazakhstan and Russia, %

State	Tax on profits	Value-added tax	Tax on personal income	Insurance premiums
Belarus	18	20	12	29
Kazakhstan	15	12	10	11
Russia	20	18	13	30
Armenia	5	16,67	13	5
Kyrgyzstan	10	12	17	-

Source: compiled by the author according to the tax authorities of the countries concerned.

The Eurasian Economic Union, according to the costs that the Russian Federation bears, and the advantages it receives - is a geopolitical project. The main problem today, in our opinion, is how to turn this project into a space of economic interests, and strengthen the links between the economies, as the economic benefits that helped the partners create the EEU, are unsystematic and short-term in nature.

Economic efficiency of the EEU

One of the most important indicators of development of integration processes is intra-regional trade. Concluding an agreement on free trade zone, integrating countries suggest that the terms of trade significantly affect their socio-economic development. In the more developed integration groupings such as the EU, the share of mutual trade has a consistent upward trend and now stands at about 65%, NAFTA - about 49%.

Despite the fact that EEU has just started to operate, its three members - Russia, Belarus and Kazakhstan - have five years of work in the conditions of the Customs Union. However, the share of the EEU countries in each other's trade turnover has decreased.

The share of the states of the Eurasian Economic Union in the trade turnover of the Russian Federation in 2014 was 7.1%, in the turnover of Kazakhstan - about 18.4%, Armenia - 23.8%. In Belarus, the share of the EEU countries account for nearly half of the foreign trade of Belarus - 50.6%, but in 2000 the share of data were as follows: 7.7% - Russia, 20.8% - Kazakhstan, 58.6% - Belarus, i.e. there is a clear decrease in this indicator. Besides, mutual trade in January - July 2015 showed a decrease of 26.1%, mainly due to the decline in the Belarusian-Russian (-28.1%) and Kazakhstan-Russian (-23.7%) trade.

The data show that the Russian market is a major consumer of high conversion products and added value for EEU countries. The problem is that, in spite of the development programs adopted in all countries, the share of these products in the national exports of countries, as well as its production, either remains at the same level or is reduced.

As for the development of trade in services, it is also an essential element of mutual trade of EEU countries. The share of services sector in the EEU economies represents more than half of gross domestic product: in Belarus - 44.8%, in Kazakhstan - 54,2%, in the Russian Federation - 59.7%, in Armenia - 64%, in Kyrgyzstan - 61%.

Thus, to sum up the results of any on trade in services in the free trade regime is timely. We can only note that the intra-regional services trade share within the EEU is significantly inferior to services trade share within the EU. The main trade items of the EEU countries services are: transportation, construction, travel and financial services. Because of their significance, transportation and financial services were not included in the application number 16 "Protocol on trade in services, establishment, operation and implementation of the investment."

Proposals to strengthen and improve the economic efficiency of the EEU

Analysis of the key government documents, defining the objectives for development of the member states of the EEU, showed that the goals and objectives of the countries are almost identical.

The industrial policy and the modernization of the countries - participants of EEU is exclusively due to foreign direct investment or borrowing of technologies from third countries, which is a model of catching-up development and not an innovative. The task of a single industrial policy, as well as the common agricultural - to create the conditions for the accelerated development of innovative breakthrough of industries to enter the EEU countries in the sixth technological order.

So now it is necessary to go towards the creation of joint research centers of collective use of expensive and unique equipment, the creation of large multi-national joint ventures and multinational companies, the strategic aim of which should be the entry to the TOP 500 largest corporations [Andronov, Gusakov, 2014].

For a conduct of such work, it is necessary to create a coordinating body of supranational regulation and planning of a unified industrial policy - The Ministry of industry of the Eurasian economic Union (EEU Ministry of industry). Further, it should identify a set of promising measures and activities for business development of these companies, to justify funding sources, through which it is planned to carry out the establishment of the company, in the case of a joint fund to determine the place and the proportion of each party.

With regard to the development of agriculture, it should be noted that agriculture is a strategic resource, like oil and gas. Production in this field is limited by the presence of suitable agricultural land and climate. The struggle for this strategic resource is being no less than energy. Global experience has shown that the development of agriculture as a sector, development of agricultural technologies and processing technologies is only possible in conditions of large holding associations.

Evaluation of a single industrial and agricultural policy should be carried out on an ongoing basis. One of the criteria of performance, in our view, could be indicator of the development of co-production and release - Gross allied product (GSP), which would give a detailed picture of the economic integration of the EEU.

In addition to the GSP, to evaluate the development of industrial cooperation in the framework of the EEU, in our opinion, one more indicator is needed to take into account the exchange of parts, components, raw materials and resources, i.e. index of intra-industry trade. We suggest using the indicators proposed in 2011 the WTO, - "the share of parts and components exports." But this figure will require a more detailed analysis.

Thus, the proposed package of measures is aimed at increasing sustainability and viability of the EEU. Implementation of these proposals into practice will make the EEU, in our view, not only regional but also a global leader.

References

1. Andronova I.V., Gusakov N.P. (2014a) Problemy i perspektivy prinjatija i realizacii edinoj sel’skohozjajstvennoj politiki stranami Edinogo jekonomicheskogo prostranstva [The Problems and Prospects of the Implementation of the Common Agricultural Policy on Common Economic Space]. Vestnik Saratovskogo gosagrouniversiteta, no 12, pp. 80–84. (In Russian.)

2. Butorina O.V., Zaharov A.V. (2015) O nauchnoj osnove Evrazijskogo jekonomicheskogo sojuza [About the

3. Scientific Basis of the Eurasian Economic Union]. Evrazijskaja integracija, no 2, pp. 52–68. (In Russian.)

4. Bystrjakov A.J. (2012) Razvitie integracii na postsovetskom prostranstve [The Development of the Integration in the Post-Soviet Space]. Vestnik RUDN. Serija «Jekonomika», no 4, pp. 28–33. (In Russian.)

5. http://spkurdyumov.ru/uploads//2014/12/glaziev_o-vneshnix-i-vnutrennix-ugrozax-ekonomicheskoj-bezopasnosti-rossii.pdf (accessed 12 May 2016). (In Russian.)