Characterizing Integration within the Eurasian Space

Continuous globalization of the world economy is the background for the new regional integration entities, the number of which is constantly increasing.

Regionalization has become an integral feature of the contemporary international economic relations. Each of the major geographic regions is witnessing the emergence of the regional economic integrations that are being created with the geopolitical or economic goals that vary considerably from region to region.

The states of the former USSR have been engaged into numerous integration processes of the both regional and global scales. This paper presents the results of the analysis of Kazakhstan's involvement into these integration processes. The major focus is on their impact on the domestic developments in Kazakhstan. More specifically,

the paper is aimed at understanding the reasons why the numerous efforts to push for further integration of the post-Soviet states of Central Asia failed while the attempts with the broader composition of the participants were successful. Structurally, the paper first deals with the issues of the Central Asian integration; it, then, proceeds to the analysis of the economic integration within the EurAsEC; finally, it discusses the case of the integration of the regional transport infrastructure.

Integration Initiatives in Central Asia

Since gaining their independence, the former Soviet Republics of Central Asia, namely Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan have differed much in terms of their economic and political development.

Kazakhstan is internationally recognized as the most successful of the other Central Asian states. The apparent achievements may be credited, among other things, to the fact that the leadership of the country worked out the coherent Kazakhstan - 2030 Strategy of its economic and social development. So far, Kazakhstan has gone a long way in terms of the economic growth, living standards, financial sector, healthcare and

education. As for HDI, GDP and GDP per capita, Kazakhstan's performance is the best in Central Asia (Table 1) and the second best among the other post-Soviet countries after Russia.

Table 1. Social and Economic Indicators of Central Asian Countries in 2013

Sources: Human Development Report* and the World Bank World Development Indicators

^* Available on http://hdr.undp.org/sites/default/files/hdr14-report-en-1.pdf

Importantly, unlike some of the Central Asian markets and has done better than the other CIS states, Kazakhstan has been oriented to the and Central Asian nations in terms of the world maximum economic engagement in the world trade (Table 2).

Table 2. Share of the CIS, Central Asia and Kazakhstan in World Trade in %

Source: authors' own calculations based on data from UNCTAD

Apart from making considerable efforts to improve the economic and social performance domestically, Kazakhstan has been quite active internationally participating in or trying to promote a number of integration structures within both the CIS and Central Asia. These are the EurAsEC, EES, CAEC, SPECA, TRACECA, INOGATE, CAREC, EEU (Table 3).

Table 3. Regional Organizations in Eurasia

Source: [3, p.51], updated by the authors.

Note: "-" means that the country is not involved in the merger, but was involved;

* Kyrgyzstan signed an agreement on joining the Eurasian Economic Union (EAEC), but membership is expected in May 2015

One of the illustrative examples of the integration attempts in Central Asia is the Central Asia Regional Economic Cooperation (CAEC) between Kazakhstan, Kyrgyzstan and Uzbekistan. The respective treaty on the CAEC, signed in 1994, stipulated the formation of a common economic space. After the end of the civil war in Tajikistan, Ashkhabad joined the CAEC in 1998.

However, the parties to the treaty did not take any practical moves aimed at its actual realization.

The geopolitical situation changed a decade later. In 2002, the CAEC member states resumed their integration efforts to create a common economic space and transformed it into the Central Asian Cooperation Organization (CACO) with the additional considerations to pursue a coordinated foreign policy in the relation to the situation in Afghanistan. However, this attempt was not a success either (Laruelle and Peurouse, 2012).

After the accession of Russia into the CACO in October 2004, the organization lost its capacity of an independent integration association of the states in the region. On October 6, 2005, the Central Asian Cooperation Organization merged with the Eurasian Economic Community. As Syroejkin put it (2010), it became apparent that the purposes of both the CACO and the EurAsEC coincided. In 2007, President Nazarbayev of Kazakhstan initiated the establishment of the Central Asian Union. Yet, according to Peyrouse (2012), the proposal was rejected by Uzbekistan and Turkmenistan.

There have been a number of integration structures initiated elsewhere where Kazakhstan has been a rather active and enthusiastic participant. The United Nations Special Program for the Economies of Central Asia is one of them. It was established under the Tashkent Declaration on March 26, 1998 and signed by Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan as well as the Executive Secretary of the UN Economic Commission and the Economic and Social Commission for Asia and the Pacific (ESCAP). Later

Afghanistan, Turkmenistan and Azerbaijan joined the SPECA^[9].

It has been reported (Laruelle and Peurouse, 2012) that by 2004, the SPECA had formed six working groups to tackle a number of problematic issues in the regions, namely the transport, water, energy resources, trade, statistics, education and economy. All in all, the SPECA facilitated the implementation of the 28 projects (Laruelle and Peurouse, 2012).

But, despite the fact that the SPECA was the institutional organization established to boost the trade cooperation among the Central Asian counties, its achievements were minimal mostly because of the lack of self-financing mechanisms.

The other reason was that some member states distanced themselves from the full-fledged participation. For example, Uzbekistan and Turkmenistan would ignore the meetings of the SPECA Council.

Paradoxically, the SPECA resulted in dividing the countries of Central Asia rather than uniting them. Moreover, the SPECA failed to fill the vacuum left

by the ineffectiveness of the CACO. Some experts believe that if the CACO had been a success there would not have been any need in establishing the SPECA in the first place (Pomfret, 2009).

Therefore, it would be sensible to maintain that the integration initiatives in Central Asia were impeded by the reluctance of some states to cooperate. The Central Asian states, being rather opportunistic, often used the agreements on the trade cooperation and other matters of economic nature as the instruments of political pressure in order to gain some short-term benefits.

The disputes among certain states in Central Asia, especially those about the water resources, impeded the chances for successful integration. The existing disagreements did not motivate the states concerned to negotiate in order to find the

common solutions. The other reason for the integration initiatives not being a success is that some countries in the region made strategic choices in favor of self-isolation, namely Turkmenistan and Uzbekistan. The uneven socio-economic development of the countries of Central Asia may be considered as an additional factor that prevented the countries of the region form economic integration. Finally, the establishment of the Eurasian Economic Union (EEU) with the participation of Kazakhstan and Kyrgyzstan suggested that the Central Asia should no longer be considered as a single economic and political region. Indeed, it can be named a "region" only in geographical terms.

Integration within the EurAsEC

The Eurasian Economic Community (EurAsEC) was established in 2000 on the initiative of President Nazarbayev of Kazakhstan. According to Mukhamedzhanova (2012), the EurAsEC was an international economic organization created to effectively promote further moves towards the formation of the Eurasian Customs Union (ECU) and the Eurasian Economic Space (EES) as well as to facilitate the achievement of the other goals in further integration in the economic and humanitarian fields. The treaty establishing the EurAsEC came into force on May 30, 2001 (Mukhamedzhanova, 2012).

The main objectives of the EurAsEC were to form the free trade area, to introduce the common customs tariff and non-tariff regulation system, to build the single financial energy and transport services markets with the eventual launching of the single transport system. The EurAsEC was also supposed to facilitate the work aimed at reaching an agreement on the principles for the transition to the common currency (Laruelle and Peurouse, 2012).

The fact that the Treaty on Eurasian Economic Community was signed signified the willingness of the states concerned to participate into deeper integration. It is apparent that the Eurasian Economic Community created the preconditions necessary for the establishment of the Eurasian Customs Union and the Eurasian Economic Space of Kazakhstan, Belarus and Russia that, otherwise, would have been impossible.

The question remains, however, why it took ten years for the ECU to start functioning. The reason for the delay is the economic history of the Eurasian Economic Community itself. In October 2000, the "Union of Five " was renamed the Eurasian Economic Community under the treaty signed in Astana, which entered into force in May 2001. The treaty stipulated the enhanced institutional interaction among the member states to deepen their integration. The emphasis was made on the free trade area, the single market of labor and capital as well as the harmonization of general economic policy.

An important idea within the EurAsEC was to coordinate the actions of the member states aimed at the joint entering the WTO. The idea was not realized as Kyrgyzstan had already become a member of the WTO. Some experts argue (Pomfret, 2005), that, unlike its predecessors, the Eurasian Economic Community began to function as a genuine economic integration association. In 2003, Kazakhstan initiated the discussion about necessity for further integration. That was responded quite unenthusiastically and the cooperation within the EurAsEC deadlocked (Pomfret, 2005).

The ECU states, namely Belarus, Kazakhstan and Russia, signed the Agreement on the Common External Tariff in February 2000. The approval and adoption of the list of the common tariffs was scheduled for 2005. In 2007 the further integration within the EurAsEC was drastically interrupted by the world crisis. However, despite numerous difficulties and obstacles, the EurAsEC was the first

time when the member states were united within a genuine economic integrated structure and, therefore, may be considered as a successful move forward towards deeper integration that eventually resulted into the establishment of the EEU.

Integration of Regional Transport Infrastructure

Kazakhstan, as the other Central Asian states, is a landlocked country. There are considerable empirical evidence that this impedes the country's potential for foreign trade making its cost too high (Raballand, 2003). Therefore, having a developed transport infrastructure in the region of Central Asia is a vitally important.

In 1997, the Central Asian Economic Cooperation (CAREC) was launched to adress that issue^[10]. Alongside with the TRACECA and INOGATE, the CAREC was an attempt to develop the transport infrastructure of the region. In 2010. Turkmenistan and Pakistan joined the CAREC. The project itself had a broader goal; the side effect of its functioning should be the additional stimuli for the economic development and decrease of poverty in the region. In 2006 - 2008, the states, participating in the project, signed a series of agreements on cooperation in the fields of transport, energy and trade. By 2011

CAREC had been worth $15,046^**.

The CAREC Transport and Trade Facilitation Strategy (TTFS) and the Action Plan for its implementation were aimed at improving the competitiveness of the region and expanding of the mutual trade within the CAREC as well as increasing the foreign trade with the rest of the world. The Strategy contained the instruments for measuring and monitoring the effectiveness of the six CAREC corridors that connected the key economic centers of the region within each other and linked the CAREC countries with the broader Eurasian and global markets. The strategic location of the region covered by the CAREC project made it a land bridge connecting the Caucasus, Middle East, East Asia, Europe, Russia, and South Asia. It offered tremendous opportunities for transport and trade with the rapidly developing economies of these regions.

The Eurasian Customs Union of Belarus, Kazakhstan and Russia facilitated further expansion of the market of 168 million people. Within this configuration, Kazakhstan had become the access

point to penetrate the markets of Russia and Belarus for the other participating states. At the same time, the ECU challenged CAREC because the adjustments Kazakhstan made in respect of the customs procedures, tariffs and other related measures created difficulties for the countries that were not members of the Customs Union (CAREC, 2012a).

The Eurasian Customs Union of Belarus, Kazakhstan and Russia, which entered into force on January 1, 2010, abolished the customs barriers by July 2011 and, therefore, the time heavy lorries needed to cross the border between Kazakhstan and Russia decreased from the average 7.7 hours in 2011 to 2.9 hours in 2012. Consequently, in 2011, the volume of the trade between the two countries increased by 66%. On the contrary, the time needed to cross the border of Kazakhstan on the countries that were not the members of the ECU increased from 8,6 hours in 2011 to 21,5 hours in 2012 (CAREC, 2012b).

Thus, the CAREC was especially relevant for Kazakhstan. It brought a number of positive changes in terms of the investment, facilitated the access of the Kazakhstan-made goods to the regional and world markets, pushed the development of the transport infrastructure and reduced the transportation costs. Thus, the competitiveness of Kazakhstan goods and the competitive capacities of Kazakhstan manufacturers increased. The corridors expanded and, more importantly, transformed their nature from being merely transit into economic ones creating additional jobs in Kazakhstan.

Conclusion

President Nazarbayev of Kazakhstan made a number of integration initiatives for Central Asia that have not been realized. The Central Asian states were unable to form an integrated economic region. The major reason for that is the lack of the political will in the countries concerned. The fact

that the numerous treaties signed by the Central Asian countries were not implemented proves this point. Moreover, the provisions and purposes of the treaties on regional integration overlapped and were merged by one another. This also signified that the major players were neither ready nor willing to proceed towards a genuine economic integration.

In the meantime, despite a number of problematic issues, the integration within the EurAsEC laid the foundations for the establishment of the EEU (the idea had been articulated for the first

time by President Nazarbayev as well). Thus, the EurAsEC became the dialogue platform that facilitated the agreement on the common customs tariff and non-tariff regulations to stimulate the mutual trade and coordinated work to formulate the common approaches to the economic policies. Unlike its predecessors, the EurAsEC was able to function as an economic integration entity. Therefore, the EurAsEC is rightly considered as a major facilitator of the establishment of the EEU.

There were a number of the side projects Kazakhstan was involved in. The CAREC aimed at integration of the transport infrastructures of the countries of the region of Central Asia had some positive effect on the economy of Kazakhstan providing the access to the commercial centers and the world markets beyond the EEU. The CAREC implementation enabled Kazakhstan to use its transit potential, transformed its transit routes into the full-fledged economic corridors and stimulated employment.

To sum up, it would be sensible to conclude that the integration projects, which were aimed at facilitating the economic development of the all their members in the longer run, proved to be beneficial for Kazakhstan in terms of the im provement of the living standards. Whereas, the sporadic moves aimed at gaining political benefits rather then at building a standing economic integration entity are harmful for the relationship of the countries of Central Asia decreasing the trust and increasing the tensions among them.

REFERENCES:

CAREC. 2012a. Strategic Framawork for central Asian Economic Cooperation Program for 2011 – 2020 (Стратегические рамки для Программы Центральноазиатского регионального экономического сотрудничества на 2011 – 2020 годы), [online] Available at: http://www.carecprogram.org/uploads/docs/CAREC-Publications/2012/CAREC-2020-Strategic-Framework-ru.pdf

CAREC. 2012b. Changing and Monitoring of Corridors Effectiveness, 2012 Annual Report (Измерение и мониторинг эффективности коридоров. Годовой отчет. ЦАРЭС 2012), [online] Available on http://cfcfa.net/images/downloads/CPMM-AR2012-RUS.pdfLaruelle, M. and Peyrouse, S. 2012. Regional organizations in Central Asia: Patterns of interactions, Dilemmas of Efficiency. University of Central Asia, Institute of Public Policy and Administration, Working Paper №10.

Mukhamedzhanova, D. 2012. International Integration structures and Kazakhstan: Cooperation amidst Regionalization (Мировые интеграционные объединения и Казахстан: сотрудничество в условиях регионализации). Almaty: KazISS.

Pomfret, R. 2009. Regional Integration in Central Asia. Economic Change and Restructuring, 42(1-2), 47-68.

Pomfret, R. 2005. Trade policies in Central Asia after EU enlargement and before Russian WTO accession: Regionalism and integration into the world economy. Economic Systems, 29(1), 32-58.

Raballand, G. 2003. Determinants of the negative impact of being landlocked on trade: an empirical investigation through the Central Asian case. Comparative Economic Studies, 45(4), 520-536.

Syroejkin K.L. 2010. Kazakhstan and China: from Border trade to Strategic Partnership. (Казахстан – Китай: от приграничной торговли к стратегическому партнерству). Almaty: KazISS.