In recent years, the Eurasian Economic Community has developed rapidly, 1 and it has entered a substantive cooperative period. On January 1, 2010, Russia, Belarus and Kazakhstan decided to launch the Customs Union within the framework of Eurasian Economic Community, and in July the three countries adopted unified customs tariffs. They removed the customs borders between each other beginning from July 2011. Then on January 1, 2012, the three countries launched their Common Economic Space. At the same time, the supranational Eurasian Economic Commission for the promotion of the integration process of the three countries also came into effect. On December 24, 2013, the Supreme Council of the Eurasian Economic Commission meeting was held in Moscow. This meeting drew up a roadmap for Armenia and Kyrgyzstan joining the Customs Union, and set January 1, 2015 as the target for establishing the Eurasian Economic Union (EEU). On May 29, 2014, Russia, Belarus and Kazakhstan signed the Eurasian Economic Union Treaty in Astana, announcing that EEU would be formally launched on January 1, 2015. This means that the EEU is no longer merely declarations and political will of the leaders, it is now the recipient of practical efforts by the relevant parties.
While development of the Customs Union of Russia, Belarus and Kazakhstan has brought challenges to the Shanghai Cooperation Organization (SCO), it will also provide some opportunities for the development of the SCO. Current research on the Customs Union of Russia, Belarus and Kazakhstan mainly focuses on the basic framework and possible effects of its development. Its influence has been introduced, without elaborating how large the impact will be and what will be affected. In light of the defects in the current research, this paper evaluates the possible impacts of the Customs Union of Russia, Belarus and Kazakhstan on the SCO and China, and tries to explain the degrees of influence.
The Impact of the Customs Union on the SCO
Because of the special relationship between the SCO and the Customs Union, the latter will inevitably exert some influence on the development of the SCO. However, from the dimensions of when the two organizations were established, their functions, development levels and text regulations, the establishment and growth of the SCO and the Customs Union of Russia, Belarus and Kazakhstan are not fundamentally contradictory.
First, the Customs Union of Russia, Belarus and Kazakhstan was established earlier than the SCO, ruling out the possibility that the former was introduced against the latter. The predecessor of the Customs Union of Russia, Belarus and Kazakhstan was a customs union set up in 1995 between Russia and Belarus, which later grew to include Kyrgyzstan, Kyrgyzstan and Tajikistan. The SCO was not founded at that time. Now the SCO has existed for more than 10 years, yet the Customs Union has not declined, on the contrary, it has exhibited accelerated growth. If the SCO had blocked the growth of the Customs Union, the outcome would have been the opposite. It should be said that Russia has its internal needs, motivation and characteristics of behavior in the former Soviet Union regions, but that has no direct causal relationship with the SCO, so the SCO has not hindered the development of the Customs Union of Russia, Belarus and Kazakhstan.
Second, the SCO and the Customs Union of Russia, Belarus and Kazakhstan operate under different frameworks, so the existence of one is not at the expense of the other. The two frameworks are based on completely different concepts. The SCO is characterized by the cooperative needs generated from being situated in the same geographical area, and its development stresses security. The Customs Union of Russia, Belarus and Kazakhstan is based on the three countries special relationship formed during the Soviet Union period; its target and mission are promoting the economic development of the member countries. The existence of the two concepts therefore is a natural outcome of geography and history. There is no necessity to choose between the two, and the existence of one does not mean the other cannot exist. The two frameworks are not mutually exclusive; they can develop simultaneously. 2
Third, the Customs Union of Russia, Belarus and Kazakhstan has adopted unified customs tariffs (although some products have a transition period) and the Common Economic Space. Its final economic target is establishing the Eurasian Economic Union and realizing economic integration according to the agreed roadmap.
The economic cooperation goal of the SCO is boosting the facilitation of investment and trade. Seen from their development levels and long-term objectives, the two organizations are not at the same level. The Customs Union of Russia, Belarus and Kazakhstan is more developed than the SCO, and although the two organizations’ development is competitive, it is not contradictory. However, as the SCO’s economic cooperation deepens, whether the two will conflict with one another needs to be further studied.
Fourth, the text regulations of the two organizations do not clash and there are no regulations against each other. Article 2, or “Principle” of the SCO Charter clearly states that the SCO is “not directed against any other States or international organization”. Indeed, Article 14 stresses that “the SCO may interact and maintain dialogue with other States and international organizations”, while adding that “this Charter shall not affect the rights and obligation of the member States under other international treaties in which they participate”. Article 7 in the Declaration of the SCO states, “the SCO adheres to the principle of non-alliance, no opposition to any other country and region, and opening up, and it is ready to carry out various forms of dialogue, communication and cooperation with other countries and relevant international and regional organizations”. Article 2 in the Treaty on the Establishment of the Eurasian Economic Community (EAEC) clearly states, “The five Contracting Parties will continue to adhere to all the previously signed agreements on the establishment of the Customs Union and Common Economic Space. On the basis of accommodating national interests and common interests, the priority of the Community is to create necessary conditions for deepening cooperation among member countries in the economic, trade, humanitarian and legal fields”. The document put forward the EAEC institutional framework, membership, observers, legal capacity, and decision-making procedures, with no articles directed against another country or international organization.
The fact that the SCO and the Customs Union of Russia, Belarus and Kazakhstan are not in fundamental conflict does not mean that the two institutions will inevitably cooperate, in reality, they are to some degree rivals, a case in point is the Memorandum of Understanding between the SCO Secretariat and the Secretariat of the EAEC Integration Committee signed by the SCO and EAEC.
According to the analysis of the SCO Development Report (2012), three cooperative levels have existed within the SCO at present, first, the Customs Union of Russia, Belarus and Kazakhstan; second, the Free Trade Agreement of the Commonwealth of Independent States; and third, China and Uzbekistan – they are not included in the above cooperation. The Customs Union and Free Trade Agreement make the equal trading relations of the member countries more complex, and the promotion of SCO regional economic cooperation more difficult. In the future, regional economic cooperation will face a new problem coordinating the relationship of the SCO, the Customs Union members, and member countries within the free trade area of the Commonwealth of Independent States. 3
The SCO member countries have a relatively low level of economic cooperation compared to the cooperation of Russia, Belarus and Kazakhstan in the Customs Union, and it is understandable that conflicts do not exist between the two institutions. However, it remains to be seen whether the relationship of the two organizations will change should the economic and trade cooperation under the SCO framework make substantive progress in the future.
MARCH 5, 2014. Belarusian president Alexander Lukashenko, Russia's president Vladimir Putin, Kazakhstans's president Nursultan Nazarbayev, and Eurasian Economic Commission Collegium chairman Viktor Khristenko (from L clockwise) at a meeting of the Supreme Eurasian Economic Council, at the Novo Ogaryovo residence.
For the SCO and the Customs Union of Russia, Belarus and Kazakhstan, the relationship between the two leading countries is critical for the developing relations between the two institutions. Although greater competition and contradiction are likely as they develop, the special relationship between China and Russia rules out major problems in the institutional development of the SCO and the Customs Union of Russia, Belarus and Kazakhstan. After over 20 years of strenuous joint efforts, China and Russia have completely solved their historical border issue, their political relations have a solid foundation, the bilateral trading volume has increased dramatically, cultural exchanges have developed vigorously, strategic cooperation on the international stage has become closer, and the two countries have established comprehensive strategic cooperative relations.
The SCO is first and foremost an institution for Sino-Russian cooperation, other factors such as rivalry of course exist but they are not to the fore.
From the perspective of cooperation between China, Russia and the SCO, the SCO is the outcome of the Sino-Russian strategic cooperation rather than that of strategic competition. In other words, the SCO is first and foremost an institution for Sino-Russian cooperation, other factors such as rivalry of course exist but they are not to the fore. One of the crucial functions of the SCO is providing a proper vehicle for China and Russia through cooperation to enter Central Asia at an appropriate time. Because of the existence of the SCO, China and Russia have become colleagues and partners in Central Asia, which has, to a large degree, reduced the two countries’ suspicions of one another and the likelihood of a clash between them in Central Asia, laying a sound foundation for the two countries’ relationship.
Another major role of the SCO is to provide a platform so that there are more opportunities for contact and communication between China and Russia. The SCO not only creates occasions for direct Sino- Russian contact, but also brings up new areas for their cooperative agenda and new common interests between China and Russia. At the same time, the SCO acts as a “buffer” in their relations, it establishes the principles and regulations for both China and Russia to abide by, and suggests ways to coordinate on and alleviate their differences. 4
Based on the above, it is clear that further development of the Customs Union of Russia, Belarus and Kazakhstan will not have strong impact on the SCO’s economic cooperation. Those who suggest the Customs Union is being directed against the SCO are presupposed to such a notion, and have a strong subjective bias.
The Impact of the Customs Union on China
Since the establishment of the Customs Union of Russia, Belarus and Kazakhstan, China’s trading volume with the Customs Union member countries has increased continuously and is growing steadily. According to the statistics of the Customs Union, in 2012 the total trading volume between the Customs Union countries and third parties reached $939.3 billion, including import and export turnover of $114.6 billion between China and the Customs Union member countries. China has become the largest trading partner of the Customs Union, accounting for 12.2% of the total. More specifically:
Trade between China and Russia.
Trade between China and Kazakhstan.
Trade between China and Belarus.
In the investment field, according to statistics of the Kazakhstan’s Central Bank, in 2011 Kazakhstan attracted $1.1618 billion in direct investment from China, 30.7% higher than the year before, providing 20.2% of China’s aggregated investment amount in Kazakhstan, and accounting for 5.8% of all the direct foreign investment attracted by Kazakhstan in 2011. In 2012, Kazakhstan had attracted foreign investment totaling $22.5 billion. It included China’s investment in Kazakhstan of $2 billion, which made up 9.1% of the total. Compared with the current major investment in Kazakhstan by Western countries such as Europe and the United States, China’s investment amount and percentage in Kazakhstan are not high, which shows that China’s investment in Kazakhstan still has room in which to grow.
China’s investment in Belarus has a healthy trend. Although China has not invested a large amount in Belarus, there has been an apparent increase in recent years. Statistics from the Investment Bureau of the Ministry of Economy of Belarus show that in 2011 Chinese legal entities invested $125 million in Belarus. It was twice the amount of 2010, and ranked tenth in the amount of attracted foreign capita, including $44 million in direct investment. In 2012, the Deputy Prime Minister of Belarus Anatoly A. Tozik announced in the China-Belarus Governmental Economic and Trade Investment Cooperation Conference that the agreed amount of China’s investment program in operation in Belarus was $5.5 billion, and the program’s investment potential was expected to rise to $16 billion.
It can be seen from this that the positive progress of the Customs Union of Russia, Belarus and Kazakhstan has not affected the Customs Union members’ deepening cooperation with China.
As discussed previously, Russia’s accession to the WTO would bring down Russia’s customs level, or even the customs level of the Customs Union of Russia, Belarus and Kazakhstan. Russia’s decreased customs, elimination of trade barriers, and the opening up of its market would undoubtedly contribute to expanded Sino- Russian trade and investment, the two countries’ trade mode would be gradually normalized, the market management mechanism would be more regularized and transparent. The trade disputes between China and Russia could be solved within the WTO framework, the two countries’ trade frictions would decline, and the possibility of trade conflicts would be less.
In recent years, as China’s economic power and influence has increased steadily, it has become a necessary concern in the development of the Customs Union of Russia, Belarus and Kazakhstan. The three countries’ commitment to building the Customs Union is fundamentally intended to maximize their own interests, therefore, they hope to develop sound economic and trade ties with China to promote the development of their own economies. This is more evident in Kazakhstan and Belarus.
Like most Central Asian countries, Kazakhstan’s diplomacy seeks to balance different foreign relations, and it regards China as the door through which to enter Asia and the world. President Nursultan Nazarbayev would like Eurasia to become the connecting bridge between European Union and the rapidly developing economies in East Asia, Northeast Asia and South Asia and the highway transport corridor linking Europe with western China. He holds that in the future a modern logistics transport system would be built along the line of Pan-Eurasia Railway Express after its completion. 5 In his eyes, the SCO and the Eurasian Union are representations of the “Eurasian Integration Concept”. The President of Belarus Alexander Lukashenka has said, “Our integration should not be limited within the West, but be expanded to build an economic coalition with the East, and close integration with our strategic partner China should be the top priority of great importance.” 6
In March 2010, Chinese President Xi Jinping paid a state visit to Belarus, and the two sides signed several cooperation agreements covering economy, politics, diplomacy, science and technology, and nuclear power. President Lukashenka highly praised the visit, saying that the two countries’ relations had reached a historic height and would continue to develop. China-Belarus economic and trade cooperation touches upon many areas, including energy, transport, telecommunications, agriculture, automobiles, the petrochemical industry and biotechnology. According to the two governments’ agreements, China will increase its industrial presence in the Grodno region in northwest Belarus, especially in the fields of energy, petrochemicals and building materials.
On May 20, 2014, Chinese President Xi Jinping and Russian President Putin signed the Sino-Russian Joint Declaration on the New Stage of Comprehensive Strategic Partnership of Cooperation after talks held in Shanghai.
It is worth mentioning that, according to an agreement signed between Belarus and People’s Bank of China, the two countries will use their own currencies for bilateral trade, which also means that the dollar, euro or rouble will no longer be used for trading. The agreement delivers an important message that the two countries hope to be more independent economically.7 From the viewpoint of Belarus, China is playing an increasingly important role in the manufacturing and export trade of Belarus. In recent years, the EU has increased its economic sanctions on Belarus, and Belarus has been isolated politically and economically. Therefore, Belarus looks forward to strengthening cooperation and communication with China in order to address the political and economic isolation that has long troubled the Lukashenka government.
Russia has always regarded Central Asia as a zone of interest, and its diplomatic and economic activities are always of strategicsignificance. China’s expanded economic activities in the area could have an impact on Russia’s status and influence in the region. However, Russian economic interests in Central Asia are not essentially contradictory to those of China. The economic interests of Russia in Central Asia mainly lie in strengthening economic cooperation with Central Asian countries, promoting Eurasian economic integration and boosting domestic economic development.
At the same time, Russia’s economic existence in Central Asia could be used to maintain its influence in Central Asia and to raise its status as a major power on the international stage. As for China, the oil, gas and mineral resources of Central Asia are essential for China’s development, China’s products and investment are what Central Asia needs, so the bilateral economic and trade cooperation is of great complementarity.
In September 2013, President Xi Jinping put forward the idea of jointly building a “Silk Road Economic Belt” during his state visit to Kazakhstan. After temporary doubts, Russia adopted a positive approach to the concept. In the Sino-Russian Joint Declaration on the New Stage of Comprehensive Strategic Partnership of Cooperation, Russia regards China’s initiative of building the Silk Road Economic Belt as crucial, and highly praises China’s willingness to take Russia’s interests into account in its formulation and operating processes, and says that the two sides will seek an advisable converging point for the Silk Road Economic Belt and the establishment of the EEU. In the joint declaration, the two countries agree that further developing regional economic cooperation, enhancing the investment environment for the member countries and strengthening industry are prioritized tasks for the SCO.
At the same time, the two sides hold that the cooperative process of Eurasian integration is playing a critical role in driving regional economic development, strengthening regional security and stability, and boosting the building of a regional economic and cultural space with no borders, and the EEU to be launched on January 1, 2015 will promote regional stability, and further deepen bilateral cooperation for mutual benefits.
Conclusions
Under the trend of economic globalization, all countries are endeavoring to seek partners and opportunities for cooperation in order to maximize their own interests; this means it is unavoidable that one country will participate in several international organizations. It has also led to the SCO and the Customs Union of Russia, Belarus and Kazakhstan having several member countries in common and high degrees of geographical overlap. However, the existence of diverse cooperative mechanisms can be attributed to the characteristics of the institutions, and their different ways of meeting the demands of their members. The Customs Union is a typical organization for regional economic integration that was launched quickly and has leapt forward thanks to the political will of its members. There is frequent incongruity, instability and different opinions within it, but it also boasts unique political, economic, ideological and cultural advantages. The same applies to the SCO, which also has its own shortcomings and merits. Compared with the Customs Union, the economic cooperation between the SCO members is relatively low considering how long it has existed, its mechanism and legal status, but this has also left space for the SCO’s further development and upgrading. The Customs Union and the SCO should complement and promote each other.
As the second-largest economy in the world, China’s economic presence and influence are increasing; the integration process of any region must now take into account China’s growing national power. As for the three countries, Russia, Belarus and Kazakhstan, China is undoubtedly an important strategic partner.
Economic cooperation between the Customs Union members and China is beneficial for the development of the Customs Union, and the three countries should make full use of China’s economic strength to promote their own economies. Russia and Kazakhstan are both members of the SCO and the Customs Union, capable of coordinating the bilateral cooperation with China, multilateral cooperation within the SCO, and cooperation between the two institutions, therefore the advantages outweigh the disadvantages for all countries involved in the cooperation.
As a strategic cooperative partner of Russia, China supports the development path and core interests of Russia, and is ready to maintain practical political and economic relations with Russia and the future Eurasian Union. This not only contributes to decreasing the two organizations’ contradictions, but could also gain more external opportunities for China’s economic development.
Yang Shu
1 In October 2000, the Eurasian Economic Community was established by Russia, Belarus, Kazakhstan, Kyrgyzstan and Tajikistan. In addition to the five original member states, the Eurasian Economic Community has three observers, namely Armenia, Ukraine and Moldova. Ukraine joined the Eurasian Economic Community in 2006 and applied to terminate its membership in 2008.
2 Zhao Huasheng, Shanghai Cooperation Organization—Analysis and Outlook, Current Affairs Press, 2012, pp.267-268.
3 See Li Jinfeng and Wu Hongwei (eds), Annual Report on the Shanghai Cooperation Organization(2012), Social Sciences Academic Press(China). It should be noted that Uzbekistan joined the CIS (Commonwealth of Independent States) Free Trade Area on May 31, 2013 and became the ninth member state. The other eight member states are Russia, Ukraine, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Armenia.
4 Zhao Huasheng, “The Shanghai Cooperation Organization in China-Russia relations,” Peace and Development, 2012(2), pp.37-42.
5 Li Xin, “Putin’s Eurasian Union – Background, Objectives and Possibilities”, Contemporary International Relations, 2011(11), pp.4-11.
6 Ibid.
7 Richard Rousseau, “China’s Growing Economic Presence in Ukraine and Belarus,” Strategic Analysis, Vol.36, No.1, 2012, pp.18-22.