MOSCOW. (Alexei Shurubovich, Ph.D., for RIA Novosti) -- A huge gap exists between the economic potentialities of CIS nations, and the level of their cooperation in this major area of public life.
These countries have substantial natural and economic resources, and if they used them to their full potential, they could become a very powerful and influential economic community.
They own 16.3% of the world's territory, five percent of its population, 25% of its natural resources, and 12% of its scientific and technical potential. Relatively cheap labor and energy carriers make CIS nations competitive in the world arena.
Their economies are dependant on each other, although much less than during the time of the U.S.S.R. Long-term industrial and technological co-existence within a single country, and similar cultural and language backgrounds are facilitating their close cooperation and integration.
But economic contacts in the CIS have gone down since its formation. Trade between CIS countries dropped three times in the period from 1992-2003; its share in their total foreign trade diminished from 79% in 1991 to 26% in 2003. Meanwhile, one percent in CIS mutual trade equals more than 100 million in value terms.
The majority of CIS nations, Russia above all, have reoriented their foreign economies to third countries. The CIS share in Russia's foreign trade decreased from 54.6% in 1991 to 18.3% in 2004, while its trade with CIS partners dropped almost three times. Russia accounts for more than two thirds of the CIS total economies, and in general this decline has had an adverse effect on CIS cooperation. Scholars have estimated that CIS nations are using a mere 35%-40% of their mutual trade potential. Their competition in third countries' markets costs them 1.3-1.5 billion dollars a year.
Having signed an agreement on economic alliance in 1993, they have not turned it into reality. CIS trade and economic contacts are mostly bilateral, and in many cases they are handicapped by outstanding problems, such as rules of commerce, debts, and transit tariffs.
A failure of the integration project has led to the formation of four groups, within which cooperation is closer than in the CIS as a whole:
the Union of Russia and Belarus, the Eurasian Economic Community (EURASEC) consisting of Belarus, Kazakhstan, Kyrgyzstan, Russia, and Tajikistan, and based on their Customs Union, the Central Asian Cooperation Organization (CACO) uniting Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan, and the informal GUAM (Georgia, Ukraine, Azerbaijan, Moldova). In October 2005 EURASEC and CACO decided to unite, but have not yet given it official seal of approval.
There are many reasons behind this situation: a switch to the market, which has made inter-CIS contacts ineffective, lack of proper cooperation at macro- and micro levels, and vast territory, which makes mutual trade unprofitable in many cases, especially considering transportation costs and the absence of effective clearing arrangements.
However, starting in 2000, a number of centripetal factors have emerged and started offsetting the centrifugal trends, which prevailed in the 1990s. These factors primarily included an obvious economic growth (about 30% in 2000-2004.) Although most CIS nations have not yet matched the pre-reform level in major economic indicators, they have overcome a decline in production (37.2% in 1992-1999), a major reason for deepening disintegration in the first 10 years of its existence. For all the problems, the CIS economies are rapidly growing and need foreign markets, including traditional ones.
In the last few years the following factors have come into play: general improvement of the macroeconomic situation (reduction of inflation, stabilization of national currencies, etc.), implementation of market reforms, completion of initial privatization in most countries, and the growing need for foreign investment.
There are also important political prerequisites for CIS economic alliances. As new EU members, Central and Eastern European countries (including the Baltic states) have introduced visas for their CIS neighbors. This fact has helped CIS nations realize that they will not join the EU in the foreseeable future, and Russia's role in their political and economic policies abroad has become more important. Some CIS countries (Belarus and Uzbekistan, for example) have been encouraged to upgrade their ties with their CIS partners, Russia above all, because of their deteriorating relations with the West.
A trend toward CIS economic alliances is primarily manifest in a more than two-fold growth of mutual trade in 2000-2004, which has surpassed 100 billion dollars. Russia's trade with its CIS partners went up by 40% in 2004, and reached 47.1 billion dollars.
CIS nations have done much about the formation of a free trade zone. They have reduced all kinds of barriers. Out of almost 12,000 items on the CIS market only 27 are subject to tariffs in 10 bilateral agreements. In addition, there are non-tariff limitations on about 200 items. Liberalization has been a major factor in promoting trade within the CIS.
Combined with the advance of market reforms, economic growth in the CIS has brought about new forms of cooperation, particularly in Russia's ties with its partners. These include cross transformation of industrial facilities and infrastructure into joint-stock companies, direct mutual investment of enterprises, purchase of property in partner states, transfer of production to their territories, purchase of shares of indebted businesses, formation of vertically integrated transnational companies, bank subsidiaries, etc. New forms of cooperation create prerequisites for integration at the level of individual businesses.
The Union of Russia and Belarus, and EURASEC have made major steps towards integration by unifying about 90% of exports and imports duties. EURASEC (which now includes Belarus, Kazakhstan, Kyrgyzstan, Russia, and Tajikistan, and may be joined by Uzbekistan in December if it unites with CACO) has virtually become a free trade zone without any restrictions, and is forming a customs union. It is planning to set up energy, agrarian, and currency markets in the next few years.
In summing up, the recent years have seen positive trends in CIS economic and political cooperation. It is still too early to speak about integration on a CIS scale. For the time being it is limited to individual countries, and is facing serious difficulties within regional groups. It would be more appropriate to describe the trend towards alliances as "consolidation," whereby CIS nations are defining common goals and pooling efforts towards their implementation.
Alexei Shurubovich, Ph.D. (Econ.), a leading expert at the Center of the CIS and Baltic States.
