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CIS: Common Economic Space May Yet Run Aground

At a CIS summit in Yalta last week, Russia, Ukraine, Kazakhstan, and Belarus signed an agreement aimed at forming a single economic space. The four former Soviet republics committed themselves to creating a unified space for the free movement of goods, services, capital, and people, akin to what currently exists in the European Union. Who stands to benefit from the agreement and to what extent is it likely to be implemented? RFE/RL gets the views of two experts.

Prague, 24 September 2003 (RFE/RL) -- The four largest countries in the Commonwealth of Independent States (CIS) signed an ambitious accord last week in Yalta on creating a unified economic zone stretching from Europe to Central Asia.

Russia, Belarus, Ukraine, and Kazakhstan agreed to push for the establishment of what they termed a "Single Economic Space," with the ultimate goal of abolishing tariffs and harmonizing markets in key areas such as transport and energy. The space could be expanded to include other CIS countries.

If realized, the plan would be the boldest initiative to come out of the CIS since its founding in 1991. But given the track record of previous CIS resolutions and the conflicting interests of the various participants, independent analysts are skeptical that much will come out of the idea.

Perhaps most interesting is the fact that Ukraine has decided to sign up to the Single Economic Space. Ukraine, second in population only to Russia in the CIS but economically much weaker, has usually stood apart from similar collective initiatives, anxious not to jeopardize its independence.

President Leonid Kuchma's acquiescence to the deal has raised hackles among opposition politicians in Kyiv, and even Kuchma's own foreign minister sounded less than enthusiastic after the signing.

Stephan De Spiegeleire, a CIS analyst at the RAND Europe think tank, sees two principal factors in Kuchma's decision: the need to shore up domestic support among pro-Russian elements and direct pressure from the Kremlin.

"There are a lot of cleavages in the country and Kuchma obviously has to gather all the support that he can. And for a certain part of his constituency, getting closer to Russia obviously is a very good thing. So yes, those are the domestic considerations in Ukraine. But I also think that leverage by the Kremlin, which seems to be quite a bit more assertive recently in international relations and also in integration issues, may have a lot do with that. Obviously, Ukraine is still in a very weak position, both in terms of the energy dossier but also with respect to foreign investments. Obviously, Russian capital is much more powerful than Ukrainian capital, so there are a couple of issues where the Kremlin has a lot of leverage and I think Putin has decided to use that for his own electoral considerations and has been able to exert more pressure over Kuchma and that part of the Ukrainian political establishment that supports a pro-Russian course," De Spiegeleire said.

Putin's motivation is clear, De Spiegeleire said. With Russian parliamentary polls less than three months away and his own re-election bid coming three months after that, Putin needs to point to some foreign-policy successes -- something that has proven elusive with other partners, such as the United States.

"Putin has given quite a few concessions and has gotten very little in return, so I think the Kremlin establishment thinks that they need some big coups in foreign policy. And of course, integration is the perfect target for that, especially these noncommitment types of engagements, which we saw again last Friday, which don't really seem to amount to much, but which may give Putin some brownie points with his own electorate," De Spiegeleire said.

Alex Vatanka, editor of the British-based "Jane's Sentinel: Russia and the CIS," told RFE/RL that economic factors are also at work, with Putin seeking to further the recent expansion of Russian firms in Ukraine and Belarus. "The Russians -- Putin and his team -- certainly want to emphasize the importance of economic expansion and if you look at it realistically, it would be illogical for them to seek to expand economically whilst ignoring their immediate neighbors, i.e. the CIS states," he said.

In the short run, RAND's De Spiegeleire said, all participants in the Single Economic Space may believe they have something to gain from resuscitating their once common market. "There is still a manufacturing sector in a lot of these countries, which is noncompetitive internationally, but given the low energy prices and given the fact that there is a relatively large market in terms of purchasing power, and certainly the Russian market is becoming very interesting -- a lot of Western companies are now also interested in that," he said. "So, purchasing power is certainly a big attraction for all sorts of manufacturing industries in the former Soviet Union. And so this particular agreement might certainly stimulate that even further."

But De Spiegeleire warned that this seemingly easy solution could ultimately be a trap. Lowering internal trade barriers and recreating a Soviet economic trading space, especially among sectors that remain heavily state-subsidized, such as energy and transportation, could make participating states even more dependent on each other and less internationally competitive.

"The idea is always: 'Let's do this temporarily, we'll get better and then in time we'll be able to compete internationally.' But frequently, these separate deals that are struck decrease your competitiveness even more," De Spiegeleire said.

Especially for Ukraine, which has built links to Western institutions such as NATO and the European Union over more than a decade, entering into a Single Economic Zone with Russia, according to Alex Vatanka, could torpedo those efforts. "Ukraine, unlike Belarus, has invested quite a lot of energy as far as integration with the European Union and NATO goes," he said. "I don't know if they can afford to turn their back on all these years of hard work. Ukraine, for instance, was the first country [of the CIS] to sign the Partnership for Peace with NATO. [And] Ukraine has really lobbied for closer cooperation with the European Union."

The EU's commissioner on expansion, Guenter Verheugen, indirectly warned about the potential harm of such an agreement during a visit to Ukraine earlier this month, as did the new U.S. ambassador in Kyiv, John Herbst.

There are other problems with the creation of a Single Economic Space, according to analysts. Chief among them is the provision for an open labor market. Already, Russia has passed laws to restrict the inflow of migrant laborers from poorer CIS states. The issue is very sensitive and can take years to resolve, as demonstrated in the European Union, De Spiegeleire said.

"This document contains the four freedoms: [freedom] of goods, of services, of capital and of people. Well, of those four freedoms, the freedom of labor has always been the trickiest one in the European Union. Even in the accession agreements of the Central European countries, that's the one that's postponed for a long time and that a lot of people still have difficulties with. The same logic applies to Russia. Russia still is a sort of magnet -- especially certain parts of Russia -- which makes it even harder, because there are certain regions in Russia that really are magnets and that are trying to basically close their own borders to these former Soviet 'gaestarbeiter' and this particular agreement would even stimulate that. And there's nothing the could do about that," De Spiegeleire said.

The creation of a Single Economic Space also presupposes the eventual creation of a single currency. With Russia unable to agree on the terms of such a union with Belarus, analysts say it is hard to imagine how the agreement could be extended to other states.

Meanwhile, Moldova's president said at the Yalta meeting that his country was more interested in looking West than trying to recreate a common market with its CIS partners. Moldova, like Armenia, Kyrgyzstan, and Georgia, is a member of the World Trade Organization (WTO). It is unclear how entering into a preferential agreement with non-WTO states could affect their status.

Ultimately, De Spiegeleire said, he does not expect the agreement to win rapid ratification in the four signatories' parliaments. But even if it is ratified, he says the will to implement its provisions will likely flag after the Russian presidential election next March.