Did the Eurasian Economic Union create a common domestic market for goods, services, capital and labor?

_ Jurij C. Kofner, junior economist, MIWI Institute for Market Integration and Economic Policy. Munich, 30 October 2019.

Being first and foremost an economic integration bloc, arguably the Eurasian Economic Union’s (EAEU) most important aim is to create a single interior market for goods, service, capital and labor. Over the last five years, from the signing of the Union treaty in 2014 up until 2018, to which extent has the EAEU been successful in achieving this objective?

In order to answer this question, we will first look at the single market for goods, in particular, at the customs union and at the EAEU’s product conformity system. Special attention will be given to the Union’s trade policy. Then we will analyze certain commodity and goods markets the unification of which is specifically outlined in the Union treaty: drugs and medical equipment, alcohol and tobacco products, common markets for gas, oil and petroleum products. Thirdly, we will review the integration progress in the service sector, as well as issues of public procurement and of trans-border competition. Subsequently, we will examine to which extent the free movement of capital and labor have been achieved. Then we will analyze the EAEU’s mechanism and progress of removing obstacles in the single interior economic space. Finally, we will sum up the Union’s progress in providing for the free of movement of goods, service, capital and labor within its borders.

Free movement of goods

The new EAEU customs code

The Eurasian Economic Union began its journey as the EurAsEC customs union in 2010 with its own supranational customs code. At the beginning of 2018 it was finally replaced with the new EAEU customs code. It is a comprehensive codified international treaty, during the preparation of which an audit of all previously concluded international treaties governing customs legal relations was conducted, the existing order and technology of customs operations were rethought, approaches to the use of information technologies in the implementation of such operations were changed.

The new code provides for a number of innovations: electronic customs declarations, automatic transactions, shortening the time of release of goods to four hours at most, the institution of “authorized economic operators”, and a single-window mechanism. A large list of competencies was transferred from the national customs administration to the Eurasian Economic Commission (EEC). About 70% of the proposals received from the business communities were taken into account when preparing the new customs legislation.

Common tariffs regime, but with exemptions

Average trade weighted tariffs of the EAEU have decreased over the years, yet are still rather high – at 5.6% comprehensive, 11.5% for agricultural products and 4.7% for non-agricultural products (Table 1). For comparison, the trade weighted average tariffs of the EU are only 3.0%, for agricultural products – 8.1%, and for non-agricultural products – 2.7%.

A number of significant exceptions remain from the existing tariffs regime concerning goods released for the free circulation in Armenia, Kyrgyzstan and Kazakhstan at lower import customs duties compared to EAEU rates. In case of Armenia and Kyrgyzstan, which upon their ascension have received a phasing-in period until 2025, imported goods can be freely traded subject to surcharges up to the amount of duties calculated at EAEU rates. In case of Kazakhstan, which has lower import duties due to its separate WTO obligations, the sale of such goods is permissible only within the country itself. Furthermore, certain exemptions for categories of goods are outlined in Article 29 of the Union Treaty.

Box 1. No sweet exemptionFor the past three years, sugar production in the countries of the Eurasian Economic Union has exceeded consumption. In 2018, almost 7 mln tons of sugar were produced while domestic consumption totaled only 6.8 mln tons. For 2019, the surplus of 650 thousand tons is estimated. In this regard, sugar was qualified as a “sensitive good”, on which the Union’s member states make decisions at the level of the EEC Council. In order to provide equal conditions so that domestic sugar could compete with cheaper foreign sugar, the EAEU countries agreed to impose import duties. However, despite this, Kazakhstan, which already enjoys exemptions for the import of foreign sugar, additionally bypasses the EAEU’s import tariffs by importing sugar from Ukraine and Europe duty-free through its special economic zones. Afterwards it reexports this sugar to the rest of the EAEU single market in the form of confectionery products and non-alcoholic beverages. By doing so, it violates the Union’s equal competition conditions. At a meeting of the Eurasian Intergovernmental Council (EIGC) in April 2019 the parties agreed that from 2020 on Nursultan will discontinue this practice.

Intra-Union trade

Quantification of the impacts of the introduction of the customs union is complicated by the fact that Eurasian integration has coincided with business cycle effects – the impact of the 2008-2009 recession and the crisis triggered by the collapse of the oil prices at the end of 2014. A recent analysis, conducted by the Vienna Institute for International Economic Studies (wiiw)[1], shows that the early stages of Eurasian integration following the establishment of the EurAsEC custom union were associated with generally positive average trade creation effects on the member states. According to the study, the member states de facto traded much higher relative to the levels predicted and relative to a hypothetical no-integration scenario. However, the positive effects largely dissipated towards 2015 due largely to the above-mentioned fall in oil prices and a recession in Russia made worse by international sanctions.

From 2015 to 2018 intra-EAEU trade increased again by 23.6%, which, however, is still 5.4% lower than it was in 2014 (Table 2). More importantly, during this period the EAEU hasn’t been able to increase intra-Union mutual trade in relation to trade with third parties. From 2014 to 2018 the former remained at 13.5% in average as compared to 86.5% in average of the latter (Chart 1, Table 3)

Chart 1. EAEU trade turnover structure (internal vs. external, in %, 2014-2018)

Source: Table 3.

Sanctions and trade policy disputes

Despite the relatively well functioning of the customs union, albeit with some of the above-mentioned exemptions, a major and often criticized obstruction to the free movement of goods in the EAEU is the absence of a truly unified trade policy. Firstly, quite periodically trade disputes arise between the Union member states. These most often concern sanitary and phytosanitary measures (Box 4), but also the bypassing of customs duties (Box 1 above) and trade remedies (Box 2). The disagreements are made more acute due to the structural similarity of the economies of the member states and due to a strong influence of private business interests on state policy in the post-Soviet countries.

Box 2. Anti-dumping measures on EU herbicidesThe Eurasian Intergovernmental Council in early 2019 agreed to lift the Kazakhstani veto on the EEC Board’s anti-dumping measures directed against herbicide producers and plant protection products from the European Union. Earlier, Kazakhstan did not want to adopt the EEC’s measures. Russia’s chemical industry had the prime interest in pursuing the anti-dumping measures. Nursultan, on the other hand, was interested that Kazakhstani farmers could buy better and more economical herbicides from Germany and other European countries. Now Kazakhstan has agreed with the decision of the Eurasian Commission, and anti-dumping measures may come into force. This decision can serve as a precedent that member states should respect the results of the EEC’s anti-dumping investigations. At the same time, in order to prevent similar disagreements in the future, it would be important to ensure greater precision and transparency in such investigations.

Secondly, the EAEU’s skewed trade policy is by and large a result of unilateral Russian measures against Western countries. In 2014, in response to sanctions imposed by the United States, the EU, Canada, Australia, Ukraine, Norway and various Balkan states, Russia introduced retaliatory import bans on food products originating from these countries. Additionally, in 2016 Moscow banned the transit of goods through its territory to and from Ukraine (Box 3).

Box 3. Ukrainian transitRussian countersanctions, particularly the 2016 ban on the transit of Ukrainian goods to Kazakhstan and Kyrgyzstan through the territory of the Russian Federation, have always been one of the main arguments against the sincerity of Eurasian integration. Ukraine, Kazakhstan and Kyrgyzstan have repeatedly urged Moscow to lift its restrictions. Kiev applied to the World Trade Organization (WTO) to investigate the legality of the Russian authorities’ actions. In early April 2019 Ukraine lost the dispute. The WTO Arbitration Group, which investigated the complaint made by the Ukrainian side, came to the unprecedented conclusion that the Russian Federation had neither violated the General Agreement on Tariffs and Trade (GATT), nor the WTO accession document, as it had the right to impose such restrictions for reasons of national security.

In light of this, it is quite significant that on the eve of the Eurasian Intergovernmental Council later the same month, the Russian government announced that “after consideration of the official appeal” by Nursultan and Bishkek, the Russian Federation decided to “allow transit traffic through its territory to Kazakhstan and Kyrgyzstan of a list of priority industrial goods from Ukraine”.

However, the problem has not been resolved completely. Now Kazakhstan and Kyrgyzstan are accusing Russia of de-facto quoting coal exports to Ukraine. Indeed, they now are able to supply their coal in transit through Russia, however only with special permits. Yet, the Ministry of Economic Development of the Russian Federation is constantly permitting the volume of transit lower than that requested by Bishkek and Nursultan.

Thus, Russia has had to ensure unilateral application of restrictions, including controlling the flow of sanctioned products through EAEU partner countries. After Belarus and Kazakhstan blocked Russian proposals in EAEU bodies for closer customs cooperation on the movement of embargoed foods, mobile groups consisting of Russian customs officers, border guards, police, and Federal Service for Veterinary and Phytosanitary Surveillance (Rosselkhoznadzor) inspectors began patrolling areas bordering Belarus and Kazakhstan. This development undermined the EAEU’s objective of removing controls on the movement of goods at internal borders. Moreover, systematic control at internal borders was largely ineffective at combating massive reexports of sanctioned products. The estimated total cost of embargoed food reexported to Russia through Belarus from August 2014 to the end of 2016 was $ 2.7 billion[2]. Russian systems detected less than 1% of the actual volume of products reexported via Belarus[3].

In order to return to a truly common trade policy, there now are three options. Firstly, Russia might decide to lift its food import bans. This might be done either unilaterally, as with case for transit to and from Ukraine, or in response to a lifting of sanctions by the Western international community. With the current deadlock from both sides over Crimea and eastern Ukraine this scenario seems rather unlikely. Secondly, Moscow therefore continues to agitate  other member states to join Russia’s countersanction policy. E.g., at the end of June 2019, the EEC’s minister for trade Veronika Nikishina mentioned discussions on introducing collective sanctions against third countries in response to restrictions imposed on one of the member states[4].

Since this seems no more likely than the first scenario, the third and current development is aimed at increasing the effectiveness of the de-facto two-tier customs control, i.e. for embargoed goods and for the rest of imports. The Commission and the member states have introduced plans to ensure this through the application of a digital “goods traceability system” that is currently being formed, including the signing of a corresponding agreement in February 2018. As part of this initiative the plan is to trace the import, reexport, transit and circulation of an increasing assortment of imported products and transit goods by marking them with control (identification) marks and digital tracking seals. Furthermore, in early 2019 Rosselkhoznadzor stated that Belarussian authorities have agreed to cease the certification of sanctioned fruit and vegetable products originating from third countries in transit through Belarus[5]. However, there remain technical difficulties of how to effectively trace food products (e.g. tomato imports). And most importantly, it will be very difficult to harmonize the separate national digital tracing systems, such as the Russian “Merkury” system, since they are run by private business interests. This is likely to create another difficult-to-overcome barrier to the functioning of the internal market. In the end, this development of creating a two-tier customs control still does not solve the problem of the EAEU’s inconsistent trade policy.

Product conformity and technical regulation

The basic element in the formation of the single market for goods within the Union is a common technical regulation aimed at removing technical barriers in mutual trade between member states. The EU’s technical regulation system, together with WTO agreements, serve as a model for the Eurasian Economic Union. Its member states have agreed to harmonize their policies and regulatory systems in the area of technical regulation. While the process is not yet complete, the goal of this harmonization is to ensure uniform requirements for the circulation of goods within the Eurasian domestic market through common technical regulations and standards. Over the past five years the Eurasian Economic Commission adopted 47 technical regulations, 41 of which have come into force. According to official statements, about 85% of products included in a single list are covered by a single technical regulation.

In practice, this process takes time and there remain inconsistencies, such as the simultaneous listing of common harmonized standards (interstate standards) and differing or modified national standards. Unsurprisingly, technical regulation is the field with the most obstacles – almost 1/5 out of all the obstacle registered by the EEC. Here we see a typical example of “not-enough-integration”. While the EAEU Treaty provides for the transfer of competencies in the development of technical and safety regulations from the national to the Union level, the development and application of standards, conformity assessment, state control and supervision, metrological control and liability issues are still carried out at the national level. level. Because of this, disagreements, discrepancies and inconsistencies between the parties constantly arise. The lack of harmonization of certain issues related to national competence remains a major barrier in this field, concerning, e.g. the responsibility for non-compliance with the technical regulations of the Union, as well as for violation of the procedures for assessing the conformity of products with the requirements of the technical regulations of the Union and the accreditation of national certification bodies.

Apart from that, there have been frequent cases of illegal issuing of conformity certificates. Especially often the Kazakhstani authorities identify such cases on the part of non-accredited Russian organizations offering to „buy a certificate“ without passing any testing of goods. Furthermore, certification centers in the Kyrgyz Republic are of low quality, since not all laboratories in the country managed to prepare for the end of transitional periods by the beginning of 2018. Funding for equipment of the laboratories was supplied under an agreement with Russia on the provision of technical assistance of $ 200 mln, however a large part of the sum was pocketed through corruption schemes by both sides.

Box 4. The “Milk War”In February 2018 the Russian Federal Service for Veterinary and Phytosanitary Surveillance imposed temporary restrictions on certain types of dairy products from Belarus, since certain batches allegedly did not meet Russian food safety standards. However, mutual recognition of veterinary certificates should be the norm in the EAEU. Closing off the Russian market from certified Belarusian products was recognized as a violation by the EEC. The Russian government had wanted to overrule the EEC’s decision, since, in Moscow’s opinion, it would “give the wrong signal about the possibility of abusing” the rule on the mutual recognition of veterinary certificates, since “the Belarusian veterinary service carried out the certification of products from enterprises that lacked the necessary capacity and equipment” to produce them. However, most experts familiar with the situation agree that the underlying problem consists in the duplicating and competing agro-industrial structures of Russia and Belarus and in the related lobbying activity of corporate interests. The share of Belarus in Russia’s milk imports is over 80%.

However, in April 2019 at a meeting of the Eurasian Intergovernmental Council, Moscow and Minsk nevertheless agreed: Russia will abandon the sectoral principle of restrictions on the supply of Belarusian dairy products, replacing it with a temporary ban on specific enterprises, each of which ought to undergo a thorough inspection. Overall, Belarusian dairy products, using Belarusian veterinary documents, can now again freely circulate within the Russian market. The arrangement reached at the EIGC is of importance for ensuring free trade within the EAEU as a whole since there now is a consensus that member states do not have the right to close off markets by sector and decisions should be made on specific enterprises that violate the requirements..

It is noteworthy that the Eurasian Commission autonomously has been working towards maximal approximation of the EAEU’s technical regulation system to that of the European Union. This forms the “technical framework” for a potential common economic space from Lisbon to Vladivostok. In 2017, the ECC signed a Memorandum of Understanding with CEN and CENELEC. This MoU provides for “further harmonization of interstate and national standards of the Eurasian Economic Union member states with international standards and in the absence of those international standards with European standards”. In 2018 it signed another MoU with ASTM International (USA).

Common pharmaceutical and medical equipment markets

Even though the creation of the common pharmaceutical and medical equipment market in the Eurasian Economic Union commenced only in 2017 and is far from complete, it already has been called “a great success story” by the European Federation of Pharmaceutical Industries and Associations (EFPIA)[6].

In order to ensure the functioning of the common market for medicines, 37 Commission acts were adopted that provide for the regulation of the main stages of drug circulation: development, research, production, registration, wholesale, pharmacovigilance. The harmonization of intra-EAEU standards, together with mutual recognition of “Good Manufacturing Procedures”, “Good Documentation Procedures”, clinical trials and medicine assessment, the creation of a regional pharmacopeia, as well as the uniformity of the “Common Technical Document” dossier all mean that medication registered in one of the EAEU member states can now be freely circulated in all other member states.

At the same time, the Union’s right to regulate the common market for pharmaceuticals provides for transitional periods that ensure a smooth transition from national to unified regulation, which will allow regulators and manufacturers of pharmaceuticals to plan their work and adapt as comfortable as possible to the new rules. Until 2021 a manufacturer can choose according to which rules (national or union) to register drugs. Dossiers of drugs registered under national rules before 2021 must be brought into line with the rules of the common market by 2026.  Given the established transitional periods, the functioning of the common pharma market will be fully implemented no earlier than 2026.

Furthermore, all above-mentioned regulations and standards are up to 95% aligned with their European and European-like international counterparts, e.g., the EU „good practice“ quality guidelines and regulations (GxP), as well as the guidelines from the “International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use” (ICH).

Another important aspect is the digitalization of the market, which creates opportunities, as well as new barriers. For example, Russia’s plan to implement digital tracking of medicine products using advanced QR-codes could be very burdensome to producers and there are questions as to the exact content of the regulatory data protection alignment in the EAEU. This indicates that coordination of digital standards is becoming more and more important to avoid new technical barriers to trade.

Common markets for alcohol and tobacco products

Due both to its significance for national health, as well as to its fiscal and socio-economic importance, the creation of common alcohol and tobacco markets in the EAEU with harmonized regulation is a complex matter. For example, the total amount of excise duties collected in Russia in 2018 counted for 1.5% of the country’s GDP and 4.3% of its budget income[7].

Though the negotiation process on the harmonization of excise rates began as early as 2012, all these years the question about the range of deviations from the indicative rate remained unresolved, especially for the category of cheapest cigarettes. There are two reasons for this. Firstly, the EAEU countries have different levels of economic and social development, and accordingly, differences in excise rates are conditionally a barrier to the mutual access of excisable products on the markets of the member states. In Russia a pack of cigarettes costs on average 105 rubles, in Belarus – 32 rubles, in Armenia – 50 rubles, and in Kyrgyzstan – 53 rubles. This is also the basis for their uncontrolled cross-border flow and the expansion of the shadow sector. Only in 2018 the share of counterfeiting and smuggling of cigarettes doubled: in the third quarter of 2018 it amounted to 8.4% of the total Russian market, compared with 4.5% in July-September 2017. Almost a third of all illegal cigarettes in Russia are of Belarusian origin[8].

In 2019, the governments finally managed a consensus on the range of deviations from the indicative excise rates on tobacco and alcohol products: firstly, starting in 2024, member states are to set excise rates on cigarettes based on an indicative rate of 35 euros per 1000 cigarettes with a deviation of no more than 20% above or below. Secondly, by 2024 the indicative excise tax rate on alcoholic products with a volume share of ethyl alcohol of more than 9% (in Belarus – 7% or more) should be 9 euro per 1 liter of anhydrous ethyl alcohol. The following deviation ranges were established: for Armenia and Kyrgyzstan – no more than 40% below and no more than 10% above; for Belarus, Kazakhstan and the Russian Federation – no more than 15% below and no more than 10% above. Also, the EEC Council adopted the EAEU technical regulation “On the Safety of Alcoholic Products”, which establishes the safety requirements for alcohol and the processes of its production, storage, transportation, etc., which are mandatory for use and implementation in the EAEU countries. This will allow the member states to ensure the circulation of alcohol without additional requirements.

Common energy markets

The Eurasian Economic Union accounts for 14.5% (6342 mln tons) of global oil production, for 20.2% (744,7 bln m3) of global natural gas extraction and for almost 5% (1225 bln kW⋅h) of the world’s electricity production[9]. Mineral products make up almost 1/3 of the EAEU’s internal trade and almost 2/3 of its trade with the rest of the world (Chart 2, Table 4). Duties and taxes of the energy sector contribute to a substantial part of the national budgets of Russia, Kazakhstan and Belarus. This sector also plays an important role in industrial integration within the EAEU. In 2018, production of coke and petroleum products took first place in terms of increasing cooperative supplies between member states, with a 33% y.o.y. increase. Furthermore, the cost of primary energy resources greatly affects the competitiveness of electricity producers, while many power plants operate on gas (Table 5).

Chart 2. Share of mineral products in the EAEU’s internal and external trade structure (in %, 2014-2018)

Source: Table 4.

Therefore, it is both an ambitious and a challenging task that the Union governments plan to create common energy markets: for electricity the end of 2019[10], and for gas, oil and petroleum products by 2025, all of which will be governed by a coordinated energy policy. Currently, drafts of relevant programs and action plans have been developed and partially approved. They should stipulate common regulation, removing the bulk of the existing exemptions and restrictions in the energy sector, as well as ensuring the principles of competition and non-discrimination in the emerging common markets.

The main feature that influences the approaches to creating common markets for gas, oil and oil products in the EAEU is the uneven geographical distribution of energy resources in the Union, where Russia and Kazakhstan are net exporters and the other member states are net importers. Thus, the implementation of measures is not in full, which already creates risks of violating the deadlines for launching the common energy markets. Various proposals of regulating the implementation of a coordinated energy policy within the Union are currently not supported by all member states.

In the oil sector, from 2021 to 2024 it is necessary to develop and adopt: uniform rules for access transportation systems; rules for trade and exchange trading; the information exchange system. Here the main challenge is the abolition of state regulation of prices for petroleum products, which is not done by all countries. Another issue is the non-discriminatory access to infrastructure. Furthermore, the Belarusian side is very concerned about the so-called Russian tax maneuver – the abolition of export duties on petroleum products to third countries, which previously went to the Belarussian budget, and the introduction of a tax on crude oil production. In exchange, the government of Russia offers only Russian companies compensation subsidies for oil refining. Since the EAEU operates under the principle of fair competition and common rules for the provision of subsidies, a compromise solution could be the expansion of these compensations to the Belarusian refineries (Table 6), perhaps in the framework of the BY-RUS Union State. In this regard an agenda on deep integration, including even a common taxation regime, within the Union State has been recently leaked[11].

In the gas sector, from 2020 to 2023 it is necessary to develop and adopt: gas trading rules; procedures for carrying out exchange trading in gas; protocols on compliance for ensuring access to national gas transmission systems; the information exchange system. Here, there remains one disagreement regarding how the price of gas transit will be determined. The parties have different approaches. One approach is that the price of transit should be common for all countries and should not be higher than the prices that applies in Russia. The second approach is that the method of determining the price of transit is brought to the supranational level. The third position is that the national governments, in accordance with the EAEU Treaty, have the authority to determine the cost of transit within the country. Among these approaches, a compromise remains to be found.

Free movement of services and enterprise

The EAEU Treaty sets forward the freedom of trade in services, foundation and investments. Therefore, member states are to conduct a phased liberalization of this sphere. In particular, mutual administrative cooperation of the competent national authorities has to be organized

By 2019, 52 sectors were approved in which the single market for services should apply. According to the EEC’s own assessment this counts for approximately 55% of the total volume of services provided in the Union countries. According to the liberalization agenda, another 5% of the service sector shall be covered by the common market by 2025. However, estimates by the Higher School of Economics’ Eurasian sector suggest that the single market for services in 52 sectors only affects 16.8% of the total number of positions listed in the United Nations Central Products Classification[12].

Due both to the complex nature of service markets and of their trans-border regulation in particular, as well as due to the relative importance of services in the trade and economic composition of the EAEU countries (Table 8), there has been little progress so far in creating a truly singly market in this area. Thus, from 2014 to 2018 the share of intra-Union services exports in total services exports of the EAEU member states remained relatively unchanged at a very modest average of 12.3% (Chart 3, Table 7).

Chart 3. EAEU services exports structure (internal vs. external, in %, 2014-2018)

Source: Table 7.

There are three main reasons for this. Firstly, early on temporary exemptions were established for certain service sectors for Kazakhstan and the non-application of single market rules (“horizontal” restrictions) in the field of retail and wholesale trade in certain categories of goods for all member states of the Union. Again, due to separate WTO obligations Kazakhstan does not apply the rules of the single services market in 6 sectors and a transitional period until 2025 is established for 9 other types of services. Belarus has set a transitional period until 2020 in the field of advertising. In the field of research work for all member states of the Union, a transitional period until 2020 is also set (Table 8). According to the EEC, 10% of the EAEU service sector are altogether exempt from the single market regime and another 30% are being liberalized in line with sectoral agendas under the responsibility of other Commission units, e.g. financial services, natural monopolies, energy and transport services. Secondly, the implementation of liberalization plans and the functioning of the single markets in the service sector is seriously hampered by the unwillingness of countries to mutually open their national services markets: a lack of implementation of the EEC’s decisions in the laws of the member states; non-application of the provisions of the Union by the competent national authorities and the absence of administrative cooperation between them in cases of administrative offenses; introduction of new mandatory requirements and restrictions. Thirdly, in this context the Eurasian Economic Commission and the authorized bodies of the member states have not been active enough in forming the single market for services. Despite the fact that the “Working Group on ensuring the functioning of the single market for services within the EAEU” was established in 2015, its first meeting was held only three years later. The only structural unit responsible for the single services market – the EEC department for entrepreneurship, services and investments – consists out of six clerks. There were also no research orders by the EEC on the single EAEU services market (out of 200 posted on the Commission website by December 2018).

Thus, liberalization plans for 11 further service sectors, which provide for the launch of a single market on various dates from 2020 to 2025, seem unlikely to be met either in time or in full.

Competition policy

Competition policy in the domestic market of the Union combines national and cross-border antitrust regulation, which is carried out by the antitrust (competitive) authorities of the member states together with the Commission.

Monitoring compliance with the general rules of competition and the suppression of their violations in cross-border markets, i.e. commodity markets whose geographical borders cover the territories of two or more member states, is carried out by the Commission. A systematic approximation of national legislations is also being carried out in the regulation of natural monopolies. Currently, there is a shift in emphasis from punishment to preventive measures. In order to increase the awareness of the business community about the EAEU’s competition and antitrust regulation, as well as to receive feedback consultations, from early 2018 regional and local meetings of the EEC’s Competition Admissions Unit have been held on an ongoing basis and the responsible department has published several business manuals on EAEU competition and anti-trust regulations.

Unfortunately, the Commission is not yet authorized to investigate violations of competition rules involving companies registered in third countries. Given that the managing companies of many large Russian and Kazakhstani companies are still registered in low-tax foreign jurisdictions, this situation arises quite often. Further, the EAEU Treaty does not directly specify to whose competence the key definition of “cross-border markets” referred to above belongs. Therefore, when considering antitrust cases at the national level, the resolution of the issue remains the responsibility of state bodies. Such uncertainty creates the risk of double liability. Also, the degree of specification of the norms of national legislation in the field of competition and penalties for anti-competitive actions of market entities vary. Finally, and this is perhaps the main problem in this area, all countries of the post-Soviet space are unfortunately more or less characterized by a close interweaving between state and the private interests of big business clans. Therefore, political interference in the functioning of the EAEU’s supranational bodies is another complex challenge, inter alia, for ensuring market competition (Box 5).

Box 5. The case with PJSC “Novolipetsk Metallurgical Plant”In a rather resonant case, in 2017 the EEC recognized the fact of violation of competition in the cross-border market and correspondingly applied penalties against the Russian PJSC “Novolipetsk Metallurgical Plant”. Even though more than two years have passed since the decision was made by the Commission, its entry into force is still postponed “until official consideration” by the Eurasian Intergovernmental Council. The issue has been put off the agenda by Russian PM Dmitry Medvedev, one of the five members of the EIGC, who, it is rumored to have close ties with Vladimir Lisin, the main shareholder of PJSC “Novolipetsk Metallurgical Plant”.

Public procurement

In view of the historical importance of the public sector in the economic structure of post-socialist countries (Table 9), public (municipal) procurement is one of the key areas influencing mutual trade within the Union’s internal market. The volume of the government procurement market in the EAEU, according to the Eurasian Development Bank, is an impressive $ 270 bln[13].

Russian authorities post the overwhelming share of the EAEU‘ public procurement tenders – over 90%. In 2018 this amounted to $ 1.3 bln. Purchases of state-owned companies amounted to another $ 2.1 bln[14]. Therefore, a major achievement in creating a single EAEU public procurement market was Moscow’s decision from 2018 to formally admit companies from other member states to participate in import substitution (localization) programs of the Russian Federation. In the same year the Eurasian Intergovernmental Council created a high-level “Working group on integration cooperation and import substitution in priority industries”. According to another decree by the Russian Ministry for Industry and Trade, applications for Russian state procurement tenders originating from the other member states formally receive price privileges of 15%. Even more importantly, representatives of the EAEU countries are formally allowed to take part in Russian public procurement procedures in the field of defense and security, which in 2017 made up 7% of the country’s federal budget expenses and 3.1% of its GDP[15].

However, the real results of the opening of the Russian public procurement market remain to be seen. This is clearly shown by the numbers: in 2017 out of 3.1 mln tenders, issued by Russian authorities, only 92 were won by companies from Belarus, 17 – from Kazakhstan, 14 – from Armenia, and none from the Kyrgyz Republic. One should not think that the other way around the situation is any better:  e.g., in 2015, only 0.6% of all winning applications in Belarus were won by economic agents from Russia, in Kazakhstan – only 0.02%[16]. The lack of mutual recognition of electronic digital signatures (EDS) for the mutual participation in public procurement is recognized as one of the most sensitive technical obstacles in this area. Another obstacle is the fact that the EAEU Treaty does not stipulate the obligation to provide a national regime in terms of mutual recognition of licenses and permission to participate in public procurement in certain important areas of services, e.g. road construction. Furthermore, member states have the right to establish exemptions from the national regime for a period of two years. Unfortunately, using a legal loophole, the countries can and do extend their biennial exemptions over and over again. Finally, the removal of obstacles in the Union’s public procurement market is neither aided by the small size of the responsible department in the Commission nor by the lack of a unified and systematic statistical analysis in this area.

Free movement of capital

The finance sector is like the blood stream to every national economy. Effective integration in this field is therefore of pivotal importance to the proper functioning of any economic integration bloc and its common internal market. At the same time, it is a very challenging and delicate matter, since it most profoundly affects a country’s national sovereignty through alterations on the mechanisms of monetary and fiscal policy.

According to the EAEU Treaty its member states plan to establish by 2025 a common financial market in the banking, insurance and equity sectors together with a “supranational financial regulator” to be situated in Kazakhstan. Currently, the EEC, together with national regulators and experts, are working on the preparation of a number of international agreements in this area. One of these key documents for creating the necessary regulatory framework and institutions is the “Concept on the Formation of the EAEU Common Financial Market”, which was adopted at a meeting of the Supreme Eurasian Economic Council (SEEC) in October 2019. In September 2018, the chairmen of the central (national) banks of the member states of the Union signed the “Agreement on the harmonization of the legislation of the EAEU member states in the field of the financial market”. And in June 2019, the EEC Board approved the draft “Agreement on the Establishment of an Advisory Council on the Exchange Policy of the EAEU member states”.

Relatively speaking, the banking, insurance and stock markets of the EAEU’s member states are characterized by a small number of agents, low capitalization, low liquidity and a developing infrastructure. In 2017 only 661 banks were operating in the EAEU holding $ 1.6 trln in assets, as compared to 6 250 banks operating in the EU with a total of almost $ 50 trln (€ 43.9 trln) in assets[17]. Russia counts for ca. 90% of the Union’s banking sector. In 2017 there were only 306 insurance companies operating in the EAEU with a total of $ 23.6 bln insurance premiums collected, as compared to 3 400 insurance organizations active in the EU with $ 1.4 trln (€ 1.2 trln) collected in insurance premiums[18]. The same year trading volumes in the Union’s stock markets amounted to $ 848.3 bln as compared to a staggering $ 10.2 trln (€ 9 trln) traded in total over European stock exchanges[19]. However, in the fintech segment, e.g. instant and contactless e-payments, Russia is relatively competitive in comparison to the EU[20].

Overall, from 2014 to 2018 we can see a consolidation of the EAEU’s banking and insurance sectors. During the study period the number of Eurasian banks decreased by almost 40%, the number of insurance companies by almost 45%. However, the overall capitalization of these markets remained relatively the same at an average of $ 1 458.2 bln measured by total bank assets and of $ 23 bln measured by gross insurance premiums, respectively. At the same time the trading volumes on the EAEU’s major stock exchanges did indeed increase by almost 40% between 2014 and 2018 (Chart 4, Table 10).

Chart 4. EAEU finance market (in $ bln, 2014-2018)

Source: Table 10.

During the study period the share of banks by member state remained relatively the same. Russian banks made up 86% of EAEU banks on average, with the banks of each of the other countries accounting for only 2.7% to 4.5% on average (Table 11). The concentration of the Union’s banking sector is even more pronounced when looking at bank assets. From 2014 to 2018 assets of Russian banks accounted for 91.5% on average of total assets, that of Kazakhstan and Belarus for 5.3% and 2.4% on average (Chart 5, Table 12). This asymmetric country structure is also visible in the insurance sector with Russia, on average, accounting for 73.7% of the EAEU’s insurance companies and for 92.2% of gross insurance premiums collected (Chart 5, Table 13, Table 14). Once again, the situation was different on the Union’s stock markets and where one could observe a distinct geographical diversification: Russia’s share of trading volumes on major stock exchanges decreased from 89% in 2014 to 63.8%, whereas that of Kazakhstan increased from 10% to 35.5% (Chart 5, Table 15). During that period the stock trading volumes of both countries increased, but that of Russia increased by 15.4%, whereas that of Kazakhstan by 83%.

Chart 5. Russia’s predominance in the EAEU finance market (in %, 2014-2018)

Source: Table 12, Table 14, Table 15.

Potentially due to the fact that the process of forming the common financial market is still its infancy, there are no obstacles per se registered in the EEC’s online obstacle registry. However, the implementation of harmonization procedures and of the common financial policy outlined in the agenda is likely to create various obstacles and frictions. As experts of HSE Eurasian sector noted, the following issues, inter alia, would need to be resolved: language requirements for identification and banking documents; harmonization of national payment systems of the member states (moreover, they do not exist yet in all countries) or the creation of a new supranational payment system; regulating the commission for interbank transfers; restrictions on the amount of money transfer, for example, from Russia to Kyrgyzstan; and the delicate issue of information exchange and database cooperation[21].

Neither the introduction of a single currency, nor the creation of a “Eurasian Central Bank” are included in the plans to create a common financial market in the EAEU. On the one hand, as already mentioned, member states are not ready to transfer their exclusive powers on monetary policy to the supranational level. On the other hand, at this stage there remains too much divergence and volatility of the member states’ macroeconomic indicators, so that the potential costs would outweigh the possible gains of introducing a single currency in the Union[22]. Much more important for creating a common payment space and for improving the efficiency of the national monetary policies, according to the Commission and to the expert community, would be the de-dollarization of mutual and foreign trade and of the countries’ financial markets, as well as the introduction of a single virtual (digital) settlement unit together with a unified interstate interbank clearing system.

At the same time, the EAEU Treaty foresees the creation of a single supranational supervisor of the common financial market, to be located in Kazakhstan, which, for example, could have the competence to monitor prudential regulation and revoke licenses from commercial banks. However, already the central (national) banks of the EAEU member states are inclined not to transfer supervisory functions to the supranational level. In this case, the interstate harmonization of common rules for supervision and regulation of the EAEU financial market will become a lesser alternative. Problems of the EU and Eurozone banking sector, as well as ongoing discussions on creating a European “banking union”, have shown how important this question is for the stability of interdependent financial markets. In this regard it should be noted, that in 2018 the Astana International Financial Center (AIFC) was officially opened. It is a new regional financial platform and stock exchange within which special jurisdiction has been introduced, and the regulation of relations between participants is based on the best world standards, procedural principles and norms of English common law. The same year the EEC and the AIFC signed a memorandum of cooperation on the development of financial markets, capital markets, trade and investment interaction, as well as on the protection of the rights and interests of consumers of financial services.

Common labor market

The EAEU’s achievements in liberalizing movement of labor are most pronounced, though often overlooked by commentators. As of 2019, all citizens of the five member states are free to migrate and to work within the entire territory of the Eurasian Economic Union. Generally speaking, they enjoy the same labor and social security rights, i.e. the national regime treatment, as the national citizens in the country where they decide to reside and work (Box 6), including: employment in most professions without additional documents and permits; mutual recognition of most education certificates; ambulance care and basic medical insurance for all family members; pre-school, primary, secondary and tertiary education for all family members; and the transition of tax residency to the country of employment.

Kyrgyzstan and Armenia are the main donor countries within the Union’s single labor market. During the past five years from 2014 to 2018 on average they made up almost 48% and 27.1%, respectively, of labor migrants originating from within the EAEU. Labor migrants from Belarus, Kazakhstan and Russia accounted on average for almost 13%, 9.8% and 2.7% of intra-Union migrant labor during that period, respectively. At the same time Russia was by far the main recipient country of labor migration originating from the other member states – accounting for 97.1% on average. Kazakhstan accounted for 2.4%. Each of the three other member states received less then 1% of intra-EAEU labor migration (Chart 6, Table 16). This disproportion could pose a potential threat to the proper functioning of the common labor market.

Chart 6. Intra-EAEU labor migration structure (in %, by country of origin and by recipient country, 2014-2018 average)

Source: Table 16.

Looking at migration statistics for the Russian Federation, we can see that the creation of the EAEU single labor market did indeed increase the overall number of registered migrants arriving from the other EAEU member states. Between 2014 and 2018 the number of Belarussian citizens applying for registration at the place of residence in Russia increased by 5.8%, of Kazakhstani by 18%, of Kyrgyzstani by 35.7%. Only from Armenian citizens slightly less residence applications were registered (-0.3%). Analyzing migration to Russia from the CIS region as a whole, we can observe that during that period the combined share of EAEU citizens applying for registration at the place of residence in Russia increased from 28.7% to 35.6%, whereas the share of citizens arriving from other non-EAEU CIS countries decreased from 71.3% to 64.4%. Still, the need to obtain work permits (patents) does not seem to play a significant role: Tajikistan is not an EAEU member state. Nevertheless, the share of Tajik citizens, which applied for registration in Russia, increased by almost 20% during the study period. Interestingly enough, political relations with Moscow do also not seem to be of importance: whereas the share of arrivals of citizens from Uzbekistan, a country which has very good and improving relations with Russia, fell by almost 140%, the share of arrivals of citizens from Ukraine, a country which is de-facto at war with Russia, increased by 8% (Chart 7, Table 17). Thus, the global, regional and national economic cycle seems to be the predominant driver for labor migration in the post-Soviet space. However, the situation could be more complicated, as at the same time the number Uzbekistani citizens holding a Russian work permit increased by 18.3%, whereas that of Ukrainians decreased by 55.7%[23].

Chart 7. Share of citizens from CIS countries applying for registration at the place of residence in Russia (in %, 2014-2018)

Source: Table 17.

Currently, the national governments are negotiating the introduction of the EAEU Pension Agreement by 2020, according to which the national regime in the provision of pensions for migrants is provided. Thus, when assigning pensions, the EAEU countries will have to take into account the experience that migrant workers received in another country of the Union.

Box 6. Sport as a profession

Following an official appeal by the EEC, the Court of the Eurasian Economic Union in December 2018 issued its opinion on the inadmissibility of quantitative restrictions on the participation of professional athletes from one of the EAEU member states in national sports competitions of any of the other member states. Yet, the EAEU Treaty ensures the free movement of labor within the Union and member countries, therefore, should not establish and apply legislative restrictions to protect their respective national labor markets. This principle also applies to professional sports. The only exceptions permitted are restrictions ensuring national security and public order. Earlier, Armenian soccer players complained about restrictions in force in the Russian Federation on the number of legionnaire athletes, that is, foreigners, who have the right to take part in certain sports events. Citizens from the other EAEU member states also fell under the concept of „legionnaires“, which ultimately contradicted the Union Treaty and impeded their work. The removal of this contradiction was not only a step forward in the formation of the single labor market, but, more importantly, it also raised the importance of the EAEU Court for the process of strengthening the legal foundations of Eurasian integration.

The single labor market suffers from the fact that the goal of forming a common educational space is not stipulated in the EAEU Treaty. In this regard, exceptions remain in matters of mutual recognition of educational documents concerning pedagogical, legal, medical or pharmaceutical activities. The prevailing exemptions reduce the attractiveness of these professions in the common labor market. Also, there is no automatic mutual recognition of academic degrees and academic ranks. It is worth noting that cooperation in the field of education is designated in the “Declaration on the Further Development of the EAEU” adopted by the Supreme Eurasian Economic Council in December 2018. Based on this, the “Strategy for the Further Development of the EAEU” draft is currently being developed. Furthermore, the member states are not fully implementing the EAEU Treaty regarding mandatory medical insurance for workers and their families on the same conditions and in the same manner as citizens of the state of employment, which creates asymmetric conditions for the access to medical care. Unfortunately, this requires a decision on finding financing for such assistance. The scope of medical care for migrant workers varies significantly among member states, e.g. the concept of compulsory health insurance is completely absent in Armenia and Belarus. An finally, until now the question of the mutual recognition of driver’s licenses and their use for entrepreneurial and labor activities remains unresolved. Thus, according to Russian legislation, driver’s licenses issued in Armenia is not recognized in Russia, if the vehicle is used for paid labor. Russian law prohibits citizens of other countries who have a foreign driver’s license from working on the territory of the Russian Federation, with the exception of those countries whose second official language is Russian and Armenia is the only country in the Eurasian Economic Union in which the Russian language does not have any official status.

Removing obstacles in Union’s domestic market

As already said in the beginning of this article, ensuring the single domestic space for the free movement of goods, services, enterprises, capital and labor is the most basic and simultaneously the most important objective of Eurasian economic integration. The necessary condition for this is the painstaking and systematic effort of removing the obstacles to the Union’s internal market(s), the implementation of which has to be supported with a solid theoretical and methodological base, as well as with the necessary administrative and organizational tools. Despite a growing number of obstacles and limited competencies, the Eurasian Economic Commission is trying to do just that.

To this end, in 2016 the Commission established a separate unit “for domestic markets, informatization, information and communication technologies” under the guidance of a new member of the EEC Board (minister) Karine Minasyan, matched with an intergovernmental “Advisory Committee on the functioning of domestic markets of the EAEU”. Since then, this structural unit established the terminology for categorizing obstacles in the common domestic market, which it has been determining and listing in its “White Book” (Box 7, Table 18). In 2018 the “White Paper” was transformed and made public as an open online register of obstacles in the domestic market of the Union. It is accessible under https://barriers.eaeunion.org. With its help, everyone can get acquainted with the list of barriers, exemptions and restrictions in the EAEU, as well as with the progress in eliminating them.

Box 7.  Defining obstaclesIn its “White Book” the Eurasian Economic Commission subdivided obstacles to the proper functioning of the EAEU single economic space into three categories:

·      Barriers are obstacles to free movement of goods, services, capital and labor contrary to union law.

·      Exemptions are exceptions (derogations) from the general rules of the Union’s internal market allowed by union law.

·      Restrictions represent issues that have arisen as a result of gaps in union law.

According to the e-portal, as of September 2019 there were 71 obstacles in the EAEU in total, over the half of which (53.5%) were restrictions due to gaps in union law, 26.8% were barriers contrary to the EAEU Treaty and 19.7% were permitted exemptions (Table 18). Despite the widespread perception that most of the obstacles are created by the Russian Federation, they were actually distributed between the member states more or less evenly and ranged between 46 to 55. Restrictions prevailed in all countries, accounting for about 2/3 of all obstacles, including in Russia. Most of the same restrictions are found in all of the five member countries at once, since, as already mentioned, they arise due to a lack of union law. Russia indeed had the highest share of barriers (21.8%) within the structure of its obstacles, which, however, was still lower than the share of its restrictions (61.8%) and not much higher than the average share of barriers in the other member state (17.3%) (Chart 8, Table 18). As was noticeable during the course of the article, most obstacles were found in the following four sectors: technical regulation – 24.3%; energy policy – 18.6%; transport policy – 8.6%; public procurement – 7.1% (Chart 9, Table 18).

Chart 8. Obstacle structure by EAEU member state (2019)

Source: Table 18.

Chart 9. Obstacle structure in the EAEU by sector affected (September 2019)

Source: Table 18.

Bi-annually the Eurasian Intergovernmental Council issues and reviews a Commission report on the registration of new and the elimination of existing obstacles to the functioning of the Union’s domestic market. For almost two years of the e-portal’s existence, 121 appeals about obstacles have been submitted by the business community and individuals. Since May 2018, by decision of the Supreme Eurasian Economic Council, the Commission Council has to monthly review, as a matter of priority, the most sensitive obstacles in the domestic market and discuss measures to address them; after discussion by Advisory Committee on the functioning of domestic markets of the EAEU.

Despite all these efforts, the overall number of registered obstacles increased from 60 to 71 between 2016 and 2018: restrictions increased by 11.8%, barriers by 77.7%, and exemptions by 123.5% (Chart 10, Table 19). This is due to the fact that more new obstacles were identified than existing ones could be removed. For example, in 2018, 15 new barriers were registered, while only 10 could be eliminated. Unfortunately, the effectiveness of this ongoing effort is held back by reluctant implementation by member states of the Commission’s acts aimed at eliminating obstacles.

Chart 10. Obstacles to the EAEU’s domestic market (2016-2018)

Source: Table 19.

The Commission also cooperates with the EAEU Court. For example, at the EEC’s request the Grand Collegium of the EAEU Court in October 2017 gave its advisory opinion on the determination of cases in which it is possible for member states to introduce constraints on mutual trade in goods. Three of the court’s judges expressed dissenting opinions, which contained conclusions different from those set out in the advisory opinion of the EAEU Court. This indicates the uncertainty of the provisions of the EAEU Treaty regarding the application of constraints on mutual trade in goods, as well as the need to improve union law in order to prevent obstacles in the common domestic market.

Degrees of market integration

In 2019 the Eurasian Economic Commission published a comparative study on the degrees of integration of the EAEU’s domestic markets in regard to the free movement of goods, services, capital and labor in comparison to other regional integration blocs[24].

Chart 11. Degrees of integration of the EAEU’s main domestic markets (2017)

Source: EEC (2019). Integration indicators.

According to this analysis, in 2017 the main EAEU markets were integrated by 55%, which is 8 p.p. higher than in 2015 (Chart 11). According to this indicator, the Eurasian Union ranks second in the world only after the EU, whose main markets in 2017 were 91% integrated. The EAEU is also ahead of such integration organizations as ASEAN and MERCOSUR, where this indicator was 35% and 33%, respectively.

The EAEU sub-index of integration of the domestic markets for goods and services amounted to 43%, which is 3 p.p. higher as compared to 2015. In the European Union, ASEAN and MERCOSUR this indicator in 2017 amounted to 93%, 55% and 44%, respectively.

46% of the EAEU’s common financial market were established by 2017. This represents a rather large step forward on the path to markets integration in comparison with 2015, when this indicator reached only 33%. In this regard, the EAEU was ahead of ASEAN and MERCOSUR, whose capital markets in 2017 were united by only 23% and 25%. At the same time, all three economic blocs lagged behind the EU, where this indicator amounted to 85%.

As already mentioned, one of the EAEU’s main integration successes was achieved in forming the common labor market, which in 2017 was established by almost 60%. Similar indicators of the EU, ASEAN and MERCOSUR amounted to 91%, 33% and 34%, respectively.


So, five years after its inception in 2014, was the Eurasian Economic Union able to create a single domestic market?

The short answer is “yes, but” there remain numerous barriers, exemptions and restrictions to the free movement of goods, services, capital and labor within the Union.

Free movement of goods

Between 2015 and 2018 intra-EAEU trade in goods increased by more than 1/5 and there have been visible trade creation effects early on. Moreover, in 2018 the EAEU received a modern customs code. However, these relative successes were offset by persisting tariff exemptions and ongoing trade disputes between the member states, as well as by Russian unilateral countersanctions. These issues de-facto created a two-tier customs union and skewed the Union’s trade policy. More importantly, there was no increase in the share of intra-EAEU trade relative to the Union’s trade with the rest of the world, which remain at a 1 to 7 and a 6 to 7 ratio, respectively. Currently much effort is being put into establishing a digital “goods traceability system”, which, despite being an original initiative, might not solve the underlying problem and even cause new barriers.

More than 4/5 of goods circulating on the Union’s domestic market are covered by EAEU product conformity requirements, which, too a large part, are also identical to European norms, thus creating an important technical foundation for a potential future common economic space with the EU. However, due to a lack of supranational competencies concerning certification, accreditation and the application of technical standards, technical regulation in the EAEU is at the same time riddled with inconsistencies, which make up the largest part (1/4) of all of the officially registered obstacles in the EAEU.

Nevertheless, the EEC and the member states made relatively good progress in creating the necessary framework for the proper functioning of common pharma, alcohol and tobacco markets. Concurrently, progress in the delicate matter of integrating the national gas, oil and petroleum markets remains to be seen, since the energy sector is of major economic importance for the member states and, at the same time, distributed among them asymmetrically. As for now, the stipulated deadline of creating common energy markets by 2025 is unlikely to be met, as this sector already produced almost 1/5 of all obstacles reported by the EEC.

Free movement of services

Real advances in ensuring the unobstructed movement of services within the EAEU were most likely much lower (almost 17%) than the officially declared progress (55%). In fact, integration in the service sector, which is vital for building a modern and sustainable postindustrial economy, has suffered from a serious lack of attention by the Commission and the member states – both in manpower, funding, research and political will.

In contrast, cross-border competition policy has been one of the more visible actors, with the EEC holding many outreach meetings with local business communities. However, safeguarding cross-border market competition in the EAEU has been constrained by a lack of competencies and political interference.

Recently, there were promising de-jure advances in the formation of the Union’s common market for public procurement. Yet further progress in this field will largely depend on Russia’s readiness to de-facto open its public procurement market to companies from the other EAEU member states, especially in its national import substitution (localization) and defense programs.

Free movement of capital

Between 2014 and 2018 a consolidation of the EAEU’s banking and insurance sectors in terms of the number of organizations occurred, while their overall capitalization in terms of gross bank assets and gross insurance premiums remained the same. During the same period the Union’s stock markets, however, grew by 2/5 and saw a relative structure shift from Russia to Kazakhstan, due to substantial growth (over 80%) of stocks traded on Kazakhstan’s exchanges. Fittingly, in 2018 the country launched the Astana International Financial Center (AIFC) with the aim to become the region’s main financial hub. Real progress in creating a Union-wide financial market remains to be seem, not due to a lack of effort by the EEC and the national authorities, but since integration work has only just begun in this delicate and key economic sector. In the next five years progress in harmonizing national regulations and policies will be crucial. Introduction of a single currency and of a Eurasian Central Bank neither is, nor should be an objective. Instead, the priority should be, first: on increasing stability and resilience of the member states’ capital markets; and later: on the introduction of  a single virtual (digital) settlement unit together with a unified interstate interbank clearing system and ensuring the transfer of effective regulatory powers to the planned supranational financial regulator.

Free movement of labor

The EAEU’s success was most pronounced in creating a single market for the free movement of labor with equal (national regime) treatment generally provided for all Union citizens. From 2014 to 2018 the combined share of EAEU citizens applying for registration at the place of residence in Russia, as compared to the share of citizens from the non-EAEU CIS countries, increased by almost 1/5. Adoption of a pension agreement in 2020 will be another welcomed advancement in this regard.  Further liberalization of intra-EAEU labor migration would need additional cooperation in the education sector.


Despite a systematic mechanism put in place to remove existing reported obstacles (barriers, exemptions and restrictions) in the common domestic market of the Eurasian Economic Union, the EEC is struggling with an increasing number of emerging obstacles (from almost 61 in 2016 to 71 in III 2019) paired with a lack of both supranational competencies and political will by the national governments to open their markets and to grant each other equal treatment. Progress in this respect could be ensured by implementing the following actions over the next five years: 1. by strengthening the Commission’s competencies, funding and manpower; 2. by supporting and accelerating intergovernmental consultations between the relevant national authorities; 3. by enhancing the role of the EAEU Court and giving it more powers; 4. by a generally greater effort of the member states towards ensuring liberalization and market competition.


Table 1. EAEU average tariffs regime (in %, 2017, 2018)

Armenia Belarus Kazakhstan Kyrgyzstan Russia EAEU
Simple average MFN applied (2018) 6.5% 6.8% 6.4% 6.5% 6.8% 6.8%
Agricultural products Non-agricultural products 9.2 6.1 11.3 6.1 9.6 5.8 9.1 6.1 11.2 6.1 11.0 6.1
Trade weighted average (2017) 6.2% 4.5% 5.7% 6.5% 5.6% 5.6%
Agricultural products Non-agricultural products 11.2 5.1 9.1 3.9 11.3 5.0 11.2 5.7 11.6 4.7 11.5 4.7

Source: World Tariff Profiles 2018 and author’s calculations.

Table 2. Volumes of intra-EAEU mutual trade in goods ($ mln, 2014-2018)

  2014 2015 2016 2017 2018
Armenia – Belarus 38.3 34.6 35,4 41.6 49.1
Armenia – Kazakhstan 7.3 4.9 5,5 105 17.3
Belarus – Kazakhstan 940.8 578.6 411,2 693.5 871.4
Belarus – Kyrgyzstan 95.3 61.0 52,0 130.5 127.3
Kazakhstan – Kyrgyzstan 1 206.5 756.1 702.7 785.3 882.1
Kazakhstan – Russia 20 196.2 15 413.7 13 005.6 17 104.4 18 085.4
Kyrgyzstan – Armenia 0.5 0.5 1.0 1.9 1.1
Kyrgyzstan – Russia 1 856.8 1 467.3 1 211.0 1 665.1 1 949.5
Russia – Armenia 1 397.0 1 295.8 1 337.0 1 804.3 2 007.9
Russia – Belarus 37 374.0 26 003.2 26 198.9 32 474.5 35 730.0
EAEU 63 112.7 45 615.7 42 960.3 54 711.6 59 721.1

Source: EEC Statistics Department.

Table 3. EAEU trade turnover structure (internal vs. external, in %, 2014-2018)

2014 2015 2016 2017 2018
Internal 11.7% 13.5% 14.2% 14.5% 13.5%
External 88.3% 86.5% 85.8% 85.5% 86.5%

Source: EEC Statistics Department and the author’s calculations.

Table 4. Share of mineral products in the EAEU’s internal and external trade structure (in |%, 2014-2018)

2014 2015 2016 2017 2018
Share of mineral products in intra-EAEU trade 30.7% 33.4% 27.1% 27.7% 28.7%
Share of mineral products in extra-EAEU trade 73.3% 65.6% 60.6% 62.6% 67.2%
Brent average annual oil price ($ per barrel) 99.03 52.35 43.55 54.25 71.06

Source: EEC Statistics Department and the author’s calculations.

Table 5. EAEU gas market (in %, 2017)

  Armenia Belarus Kazakhstan Kyrgyzstan Russia
Gasification levels 95% 99% 32% 22% 67%
Share of gas imports from other EAEU member states in domestic gas consumption 85.2% 100% 49% 100% 100%
Share of gas exports to other EAEU member states in total gas exports 87.1% 13.3%

Source: EEC Energy Department and author’s calculations.

Table 6. EAEU oil and petroleum products market (in %, 2016)

  Armenia Belarus Kazakhstan Kyrgyzstan Russia
Share of oil and gas condensate imports from other EAEU member states in domestic oil and gas condensate refining 100% 0% 50% 0.2%
Share of petroleum products exports to other EAEU member states in total petroleum products exports 0.6% 4.2% 0% 1.6%

Source: EEC Energy Department

Table 7. Share of intra-Union services exports in total services exports of the EAEU member states (in %, 2014-2018)

2014 2015 2016 2017 2018
Belarus 29.3% 26.9% 25.5% 28.5% 26.4%
Kazakhstan 32.4% 35.4% 29.2% 27.5% 24.1%
Kyrgyzstan 61.3% 64.3%
Russia 6.4% 8.5% 7.2% 7.3% 7.2%
EAEU 10.9% 13.0 11.9% 12.0% 13.5%

 Source: EEC Statistics Department and author’s calculations.

Table 8. EAEU service sector and permitted exemption (2018)

  Armenia Belarus Kazakhstan Kyrgyzstan Russia
Share of services in GDP composition (in %) 54.8% 51.1% 61.2% 54.2% 62.0%
Number of exemptions to the common services market in the EAEU 9 28 30 13 38
Number of horizontal exemptions to the common services market in the EAEU 4 8 11 12 12

Source: EEC (2019) Report on the implementation of the main areas of integration in the Eurasian Economic Union in 2018, CIA World Factbook. 2019. // https://www.cia.gov/library/publications/the-world-factbook/

Table 9. Share of the public sector in the GDP of EAEU member states (in %, 2000-2017)

Armenia Belarus Kazakhstan Kyrgyzstan Russia
2000-2002 10% (2002) 21.6% (2001) 13.4% (2001) 20% (2000) 18% (2002)
2010 10,9%, 13,6%, 10,8% 18,1% 18,7%
2017 14% 14,6% 11,6% (2016) 17,4% 18%

Source: World Bank and author’s calculations.

Table 10. EAEU finance market (2014-2018)

2014 2015 2016 2017 2018
Number of banks 949 840 724 661 578
Bank assets ($ bln) 1 531 1 253 1 445 1 599 1 463
Number of insurance organizations 486 415 337 306 270
Sum of insurance premiums ($ bln) 28.1 18.7 19.2 23.6 25.5
Trading volumes on major stock exchanges ($ bln) 618.4 461.3 487.6 848.3 1 019.0

Source: EEC Statistics Department.

Table 11. Share of banks by EAEU member state (in %, 2014-2018)

2014 2015 2016 2017 2018
Armenia 2.3% 2.6% 2.6% 2.9% 2.9%
Belarus 3.3% 3.1% 3.3% 3.6% 4.2%
Kazakhstan 4.0% 4.2% 4.6% 4.8% 4.8%
Kyrgyzstan 2.5% 2.9% 3.5% 3.8% 4.3%
Russia 87.9% 87.3% 86.0% 84.9% 83.7%

Source: EEC Statistics Department and author’s calculations.

Table 12. Share of bank assets by EAEU member state (in %, 2014-2018)

2014 2015 2016 2017 2018
Armenia 0.5% 0.6% 0.6% 0.6% 0.7%
Belarus 2.7% 2.8% 2.2% 2.2% 2.1%
Kazakhstan 6.5% 5.6% 5.3% 4.6% 4.5%
Kyrgyzstan 0.1% 0.2% 0.2% 0.2% 0.2%
Russia 90.1% 90.8% 91.7% 92.5% 92.5%

Source: EEC Statistics Department and author’s calculations.

Table 13. Share of insurance organizations by EAEU member state (in %, 2014-2018)

2014 2015 2016 2017 2018
Armenia 1.4% 1.7% 2.1% 2.3% 2.6%
Belarus 4.9% 5.8% 6.8% 7.2% 5.9%
Kazakhstan 7.0% 8.0% 9.5% 10.5% 10.7%
Kyrgyzstan 3.5% 4.1% 5.6% 6.2% 7.0%
Russia 83.1% 80.5% 76.0% 73.9% 73.7%

Source: EEC Statistics Department and author’s calculations.

Table 14. Share of insurance premiums by EAEU member state (in %, 2014-2018)

2014 2015 2016 2017 2018
Armenia 0.3% 0.4% 0.4% 0.3% 0.3%
Belarus 2.5% 2.7% 2.6% 2.3% 2.3%
Kazakhstan 4.7% 6.3% 4.9% 4.3% 4.4%
Kyrgyzstan 0.1% 0.1% 0.1% 0.0% 0.0%
Russia 92.5% 90.5% 92.1% 93.0% 92.9%

Source: EEC Statistics Department and author’s calculations.

Table 15. Share of trading volumes on major stock exchanges by EAEU member state (in %, 2014-2018)

2014 2015 2016 2017 2018
Armenia 0.0% 0.0% 0.0% 0.0% 0.0%
Belarus 1.0% 1.3% 1.0% 0.5% 0.6%
Kazakhstan 10.0% 25.2% 25.7% 31.7% 35.5%
Kyrgyzstan 0.0% 0.0% 0.0% 0.0% 0.0%
Russia 89.0% 73.4% 73.2% 67.8% 63.8%

Source: EEC Statistics Department and author’s calculations.

Table 16. Intra-EAEU labor migration (2014-2018)

2014 2015 2016 2017 2018
Armenia 26.8% 125 28.0% 149 27.6% 126 28.0% 130 25.0%
BY- KZ- BY 5.6% KZ 6.4% BY 4.7% KZ 14.1% BY 5.6% KZ 13.5% BY 9.2% KZ 22.3%
KG- RUS- KG 0.8% RUS 87.2% KG 2.1% RUS 79.2% KG 2.3% RUS 78.6% KG 3.8% RUS 64.6%
Belarus 6 015 11.9% 3 317 9.1% 2 947 12.8% 3 223 14.9% 5 012 16.1%
ARM 6.4% KZ 17.2% ARM 11.5% KZ 19.7% ARM 12.6% KZ 13.1% ARM 12.4% KZ 9.7% ARM 8.6% KZ 7.6%
KG 0.8% RUS 75.6% KG 2.2% RUS 66.6% KG 1.7% RUS 72.6% KG 1.8% RUS 76.1% KG 1.5% RUS 82.3%
Kazakhstan 10 340 8.2% 16 349 7.4% 25 447 9.6% 16 993 10.5% 34 619 13.3%
ARM 2.6% BY 5.8% ARM 12.7% BY 3.7% ARM 9.0% BY 3.2% ARM 17.8% BY 5.9% ARM 9.0% BY 3.4%
KG 7.7% RUS 83.9% KG 7.0% RUS 76.6% KG 11.6% RUS 76.1% KG 8.9% RUS 67.4%* KG 15.9% RUS 71.7%
Kyrgyzstan 508 51.2% 163 53.9% 47.4% 44.9% 42.3%
ARM 0.4% BY 1.2% ARM 1.2% BY 1.8% ARM – BY – ARM – BY – ARM – BY –
KZ 25.6% RUS 72.8% KZ 35.6% RUS 61.3% KZ – RUS – KZ – RUS – KZ – RUS –
Russia 711 318 1.9% 933 103 1.6% 741 105 2.8% 821 945 1.7% 806 058 3.4%
ARM 27.4% BY 12.1% ARM 28.3% BY 9.3% ARM 28.3% BY 13.2% ARM 28.3% BY 15.2% ARM 25.8% BY 16.8%
KZ 8.3% KG 52.2% KZ 7.5% KG 54.9% KZ 9.7% KG 48.8% KZ 10.7% KG 45.9% KZ 13.8% KG 43.7%

Source: EEC Department for Labor Migration and Social Security and author’s calculations.

Table 17. Share of citizens from CIS countries applying for registration at the place of residence in Russia (in %, 2014-2018)

2014 2015 2016 2017 2018 Change (2014-2018)
Azerbaijan 5.0% 4.5% 4.7% 4.9% 5.2% +1.2%
Armenia 8.8% 8.5% 8.6% 8.9% 9.1% -0.3%
Belarus 3.4% 3.3% 2.9% 4.1% 3.7% +5.8%
Kazakhstan 11.2% 12.3% 13.6% 13.7% 14.1% +18.0%
Kyrgyzstan 5.4% 4.9% 5.5% 7.8% 8.7% +35.7%
Moldova 6.1% 6.3% 6.3% 6.0% 6.0% -4.7%
Tajkistan 10.3% 8.9% 10.3% 12.1% 13.3% +19.5%
Turkmenistan 1.1% 1.2% 1.4% 1.7% 2.1% +42.5%
Uzbekistan 24.8% 13.8% 11.9% 12.2% 10.8% -137.1%
Ukraine 24.0% 36.2% 34.8% 28.6% 27.0% +8.0%

Source: National Statistics Agency of the Russian Federation (2019). Russia in Numbers – 2019. (In Russian). // https://gks.ru/storage/mediabank/rus19.pdf

Table 18. Obstacle structure in the EAEU (September 2019)

Obstacle structure by form of obstacle
Obstacles in totalthereof → Barriers (B) Exemptions (derogations) (E) Restrictions (R)
71 19 (26.8%) 14 (19.7%) 38 (53.3%)
Obstacle structure by member state
Armenia Belarus Kazakhstan Kyrgyzstan Russia
46 47 51 46 55
15.2% 13.0% 71.7% 17.0% 12.8% 70.2% 19.6% 15.7% 64.7% 17.4% 10.9% 71.7% 21.8% 16.4% 61.8%
Obstacle structure by sector affected
Sector Number of obstacles Share (%)
Agro-industrial policy 2 2.9%
Domestic market 1 1.4%
Public procurement 5 7.1%
Competition policy 2 2.9%
Tax policy 5 7.1%
Non-tariff regulation 1 1.4%
Industrial policy 3 4.3%
Sanitary, veterinary and quarantine phytosanitary measures 3 4.3%
Customs regulation 2 2.9%
Technical regulation 17 24.3%
Trade in services 3 4.3%
Transport policy 6 8.6%
Labor migration 4 5.7%
Financial markets 3 4.3%
Energy policy 13 18.6%

Source: Official EEC Obstacles Registry. // https://barriers.eaeunion.org/en-us/Pages/obstacles.aspx

Table 19. Obstacles to the EAEU’s domestic market (2016-2018)

2016 2017 2018
Barriers 9 11 16
Exemptions (derogations) 17 37 38
Restrictions 34 37 38
Obstacles in total 60 65 71

Source: Ministry of Economy of the Republic of Belarus.


[1] Amat Adarov (2019). Trade effects of Eurasian economic integration. In: wiiw Monthly Report 2019/04.

[2] Yeliseyeu A. (2019). The Eurasian Economic Union: expectations, challenges and achievements. GMF.

[3] Yeliseyeu A. (2017). Belarusian shrimps, anyone? How EU food products make their way to Russia through Belarus. GLOBSEC Policy Institute.

[4] RIA News (2019). The EAEU may begin to impose sanctions against third countries. (In Russian). // https://ria.ru/20190626/1555936362.html

[5] Reform (2019). Belarus stops re-export of sanctioned fruits and vegetables from third countries to Russia. (In Russian). //https://reform.by/belarus-prekrashhaet-rejeksport-sankcionnyh-fruktov-i-ovoshhej-iz-tretih-stran-v-rossiju/

[6] Kofner J. (2019). Connecting Eurasia Dialogue. IIASA. // http://www.iiasa.ac.at/web/home/research/researchPrograms/AdvancedSystemsAnalysis/2019-04-29_Connecting_Eurasia_Dialogue_final.pdf

[7] National Statistics Agency of the Russian Federation (2019). Russia in Numbers – 2019. (In Russian). // https://gks.ru/storage/mediabank/rus19.pdf

[8] KPMG (2019). Report on the illegal cigarettes market in the Eurasian Economic Union. (In Russian). // http://rusbrand.com/files/news/208/EEA_Illicit_Cigarette_Report_2018_RUS_web.pdf

[9] Official e-portal of the Eurasian Economic Union. 2019. (In Russian). // http://www.eaeunion.org/#about

[10] This chapter will only cover issues of creating the common gas, oil and petroleum products markets.

[11] Kommersant (2019). Tax friendship. (In Russian). // https://www.kommersant.ru/doc/4094365

[12] Eurasian sector, HSE (2018). Image of the future of the EAEU in the Eyes of the Academic Community. (In Russian). / The chapter on services was written by Muslim Khasenov, PhD, associate professor, Eurasian National University (Kazakhstan).

[13] Kofner J. (2018). Creation of the common public procurement market in the EAEU. (In Russian). // http://eurasian-studies.org/archives/10913

[14][14] Interfax (2019). The volume of public procurement in Russia in 2018 increased to 6.8 trillion rubles. (In Russian). // https://www.interfax.ru/russia/646259

[15] See note 7.

[16] EEC (2017). White Paper on barriers, exemptions and restrictions of the Eurasian Economic Union. (In Russian). // http://eurasian-studies.org/archives/6985

[17] European Banking Federation (2019). Banking in Europe: EBF Facts & Figures 2018. // https://www.ebf.eu/wp-content/uploads/2018/09/Banking-in-Europe-2018-EBF-Facts-and-Figures.pdf

[18] European Insurance and Reinsurance Federation (2018). European Insurance – Key Facts. //


[19] Official e-portal of the Federation of European Securities Exchanges (FESE) and author’s calculations. (2019). // https://fese.eu/statistics/

[20] OWC (2019). Russia is the leader in cashless payment. (In German). // https://owc.de/2019/10/10/russland-ist-spitzenreiter-bei-bargeldlosen-zahlungen/

[21] See note 12.

[22] Kofner J. (2019). Did the EAEU create proper conditions for sustainable economic development of the member states in order to improve the living standards of their population? Vienna Institute for Security Policy (IfSP Wien). // https://www.institutfuersicherheit.at/five-years-eurasian-economic-union-challenges-accomplishments-and-prospects/

[23] See note 7.

[24] EEC (2019). Integration indicators. (In Russian). // http://eurasian-studies.org/archives/12589


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