Whereas Armenia is often seen as illustrative case of Russian pressure on the issue of EAEU accession, Belarus and Kazakhstan – the EAEU’s founding member states – are normally taken as natural followers.

Although Belarus never began negotiations over an association agreement with the EU – unlike Armenia – its engagement into the EAEU was not smooth either. Significant stages of Eurasian integration were accompanied by notorious disagreements between Belarus and Russia.

Setting the Stage

In 2009-2010, when entry into the common Customs Code and ratification of the agreements on establishment of the Common Economic Space were at stake, the two countries went into a lengthy row over energy rents.

Alexander Lukashenko

During that period Russia cut energy subsidies to Belarus and ran a brief anti-Lukashenko information war. In turn, from 2010-2012, Belarus resorted to importing oil from Azerbaijan and Venezuela in its quest to secure more beneficial terms for oil deliveries from Russia. Consequently, in 2014, Russia and Belarus bargained heavily over the oil rents when it came to the signing and ratification of the EAEU Treaty.

Whereas, in the aforementioned cases, developments associated with the establishment of the EAEU and its predecessors defined the state of Russia-Belarus relations and their energy agreements, occasional bilateral disputes likewise affect the EAEU.

This was the situation when Alexander Lukashenko did not show at the December 2016 EAEU summit amid this dissent over gas prices. More recently, Belarus began blocking the work of EAEU bodies as a result stemming from the unresolved issue of compensations to Belarus for the losses associated with changes in Russian oil industry’s taxation.

Generally, the principal reasons behind Belarus’ incremental integration with Russia, including the membership in the EAEU, are the high degree of Belarus’ economic dependence on Russia. To a large extent, Lukashenko’s political longevity stems from economic support that Russia has given to Belarus in exchange for its ally’s allegiance.

First and foremost, Belarus’ expectation from EAEU membership was the preservation of beneficial terms of Russian oil and gas deliveries.

According to some estimates, profits associated with low gas prices, oil processing and the re-exporting of Russian oil and oil products, has occasionally accounted to up to 10% of national GDP and even more.

Belarus also aimed at preserving access to Russian markets for its goods, services and labour force, and to expand its transit potential as a gateway between the EU, on the one hand, and Russia and China, on the other.

The latest turn

As a result of the unexpected drop in oil prices in 2014, Belarus’ gains coming from oil deals with Russia turned out to be much less than projected. Another serious concern for Belarus became Russian tax reform in the oil sector which increases the price of oil and brings heavy losses for Belarus’ oil processing industry.

The EAEU summit in Saint Petersburg on 6 December 2018 became a turning point for the latest Russia-Belarus row over energy deals.

At the meeting, Alexander Lukashenko voiced his discontent about “unequal conditions” for Belarusian enterprises due to high price for Russian gas. He publicly confronted Vladimir Putin’s arguments and stated that the current price of USD 127 for 1000 cubic meters of gas for Belarus is unfair against USD 70 which Russian Smolensk region bordering Belarus has to pay.

At first look, references to unfair gas prices by Belarus seem odd as the price is regulated by bilateral gas contract valid until 2020. Requests for compensations through the oil sector would seem more pertinent.

However, the fact that Russia-Belarus oil and gas deals have become increasingly intertwined comes as explanation.

In April 2017, as part of the resolution of a year-long bilateral disagreement over the gas prices, Russia made concessions to Belarus in the oil sector. Therefore, the gist of Lukashenko’s argument was very simple: if you are not eager to compensate us for the losses by concessions in the oil sector, you can provide us energy subsidies by lowering the gas price.

The statements promoting the Russian-side of the argument as well as two fruitless meetings between Alexander Lukashenko and Vladimir Putin that followed in December 2018 indicated that Russia is unwilling to give Belarus significantly larger energy subsidies without Belarus’ concessions, such as a unified excise policy, an effective fight against the re-exporting of embargoed western food to Russia or even deeper integration in other spheres as defined by the 1999 Treaty of the Union State.

Russian prime minister Dmitry Medvedev’s statement on Russia’s readiness to proceed with building the Union State including the establishment of a single money emissions center provoked Alexander Lukashenko’s accusations of Russia in attempts to “incorporate” Belarus.

In order to make Russia more compliant with Belarus’ requests for concessions, Belarus began disrupting the work of the EAEU bodies, as implicitly acknowledged by Russian minister for economic development Maksim Oreshkin in February 2019.

This strategy is consistent with Belarus’ official line of argumentation which points to Russia’s alleged promises for Belarus not to worsen the economic conditions for the country after EAEU accession. In essence, this was the substance of a vague statement that the Belarusian parliament adopted as a special statement attached to the ratification of the EAEU Treaty.

It is not yet clear to what extent the negotiations which Lukashenko and Putin held on 13-15 February 2019 were successful for either side.

Hopes to expand transit

The removal of the internal customs posts on the Russia-Kazakhstan border allowed for the integrated supply chains through the Eurasian customs area. Transit rail freight from China to Europe reportedly increased already by 2013. Within the Belarusian state program on development of logistics system, 15 new logistics centers were established by 2015.

However, experts point out that mass-scale construction of the logistics centers in Belarus is economically unjustified. They suggested that an investment boom in the construction of logistics infrastructure is likely to result in a series of logistics providers’ bankruptcies.

Development of logistics in Belarus is restrained by the so-called residence principle in the EAEU, which does not allow companies registered in one EAEU country to submit customs declarations to the customs authorities of another EAEU member state.

Belarus can promote its trade relations with the EU by developing its contractual relations with the EU, but it still lags behind other EAEU countries in this respect.

Armenia and Kazakhstan have already established themselves as test springboards for cooperation between the EU and EAEU by concluding enhanced partnership agreements with the EU.

The Enhanced Partnership and Cooperation Agreement (EPCA) between Kazakhstan and the EU and the Comprehensive and Enhanced Partnership Agreement (CEPA) between Armenia and the EU, each covering many fields of cooperation, entered into provisional application in May 2016 and June 2018, respectively. At the same time Belarus lacks even basic cooperation agreement with the EU.

Access to Russian markets

The lion’s share of Belarusian industrial and agricultural products is exported to Russia. Hence Belarus’ aspiration to keep unrestricted access for its goods to the Russian market thanks to the freedom of movement of goods within the EAEU.

The same is true for Belarusian services especially in construction and transportation fields, and Belarusian migrant labourers in light of the deficit of working places in Belarus and larger wages in Russia in a number of economic sectors.

The recently declining number of Belarusian exports to Russia has mainly been attributed to the increased level of competition that Belarusian industries have met on the Russian market since Russia’s accession to the WTO.

Sergey Dankvert

Occasional restrictions that Russia imposed on Belarusian meat and dairy products played a very insignificant role. Despite a stiff dispute between Alexander Lukashenko and Sergey Dankvert, head of Rosselkhoznadzor, in 2016-2017 over Russian bans on Belarusian exports, in reality the cost of banned agricultural products accounted for less than 1% of total Belarus’ exports to Russia.

Belarusian authorities claimed that the Rosselkhoznadzor restrictions were baseless and dictated by political reasons. Nevertheless, at times Belarus failed to provide factual counterarguments to the Rosselkhoznadzor allegations.

It was also speculated that Russia retaliated for massive flows of re-exported embargoed food which Belarusian authorities deny despite strong evidence supporting it.

Belarusian officials often publicly call for the removal of barriers to the freedom of movement of goods and services. In reality, however, the country does not stand out among other EAEU countries in this respect.

First, Belarus secured nearly as many exceptions from the single market (28 out of total 96) as Russia and Kazakhstan on the eve the EAEU Treaty went into force. They give exclusive rights to export certain goods such as potash fertilizers to enterprises defined by national authorities, prohibit foreigners from exercising the activities of lawyers and other categories of legal professionals, etc.

Second, Belarus keeps nearly as many additional obstacles to EAEU single market as other EAEU member states as the public register by the Eurasian Economic Commission shows. As of February 2019, Belarus stands at 50, while for Armenia, Kazakhstan, Kyrgyzstan and Russia the figures are 48, 51, 48, and 58, respectively.  What this means is that EAEU member states have different approaches to, for instance, the state regulation of air transportation services, the requirements for the labour migrants to follow national recognition procedures for the documents authorizing scientific degrees, not to mention absence of single markets of oil, oil products, gas and electricity.

Conclusion

The establishment of the EAEU has brought another dimension to Russia-Belarus association, which is important to take into account in analysis of bilateral relations.

So far, the EAEU membership largely allowed Belarus to keep the earlier economic benefits from their previous relationship with Russia rather than to get an updated benefit package.

Although the EAEU has pegged Belarus even closer to Russian institutionally, it has also given Belarus some leverage over Russia. Therefore, scenarios of developments in Russia-Belarus relations should be elaborated taking into account the factor of the EAEU.

 

This article is part of the #DemocraCE project organised by Visegrad/Insight. 

Research Director at the EAST Center.


Report

The EU is at a critical juncture. For the first time since the launching of European integration, doubts about the future of the EU have been raised by mainstream politicians and large swathes of the European public. Read about four political directions that Europe may follow after the EP elections in 2019.

Visegrad Insight is published by the Res Publica Foundation. This special edition has been prepared in cooperation with the Konrad Adenauer Foundation and with the kind support of ABTSHIELD.

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