TWILIGHT OF THE COMMONWEALTH: WHY THE CIS IS COMING UNSTUCK
by Yuri Shishkov, senior research fellow, IMEMO, Russian Academy of Sciences
Translated by Elena Leonova

Source: Argumenty Nedeli, No. 23, June 7, 2007, p. 6
Agency WPS
What the Papers Say Part A (Russia)
June 13, 2007 Wednesday

Objective reasons make CIS unification unviable; This year’s CIS
heads of state summit might be the last. The disintegration of the
post-Soviet economic area has passed the point of no return, and
is certain to continue. The reasons for this lie at the level of
technological and economic development, and the economic interests
of CIS countries.

This year’s CIS heads of state summit, scheduled for July, might be
the last. The disintegration of the post-Soviet economic area has
passed the point of no return, and is certain to continue.

The CIS, established in 1991 on the ruins of the Soviet Union, was
associated with hopes of preserving the economic ties between the 12
newborn states. The main aim was to establish a common economic area,
with free movement for goods, services, capital, and labor. But the
past 15 years haven’t even managed to bring about the first step:
establishing a proper free trade zone.

Tension in Russia’s relations with Ukraine and Belarus has escalated
since the gas wars. For various reasons, Russia has "frozen"
relations with Georgia. Relations between Russia and Azerbaijan have
deteriorated. Tajikistan has moved into waiting mode, looking to Iran.

Three years ago, President Vladimir Putin said: "We have reached a
certain boundary in the development of the CIS. We have to achieve a
qualitative reinforcement of the CIS, developing it into an actually
functioning, internationally influential organization. Otherwise, it
is inevitable that this geopolitical area will be diluted – with CIS
members losing any interest in CIS operations." As events have shown,
reality is developing according to the latter scenario.

Attempts to replace the CIS with more viable alliances in a restricted
format – such as the Euro-Asian Economic Community or the Common
Economic Area – haven’t been successful either.

Why has this happened? The countries in the European Union, which
were independent for centuries and frequently fought wars against
each other, still managed to unite; so why can’t the same be done by
the CIS countries, welded together until recently within the USSR?

This is often attributed to the "parade of sovereignties," or the
ambitions of post-Soviet political elites. These explanations are
partially true. But the major reasons lie far deeper: at the level
of technological and economic development, and the economic interests
of these countries.

Most CIS countries have economies based on agriculture and raw
materials exports; their output of high-tech products is negligible.

The dominant sectors are agriculture, mining, and primary processing
of mineral fuels and other raw materials. Some countries lack any
machine-building or manufacturing centers; others (Armenia, Azerbaijan,
Georgia, Uzbekistan) have them concentrated in particular regions,
with little influence on the overall situation.

This is a fundamentally important point. In contrast to agriculture
and natural resources production, manufacturing enables industry
to be diversified into an infinite number of narrow sectors and
sub-sectors. They bud off from each other, generating specialized
industries which base themselves in whichever countries offer
the most advantageous conditions. This is known as international
cooperation. Links in the chain of production are based in various
countries, but work together. Details and components move between
them, according to a strict schedule. This formed the foundation for
the European Union’s unification in the 20th Century. Within the EU,
80% of internal exports are finished or semi-finished products.

Within the CIS, that figure is only 49% – similar to the figures for
Latin America or Africa.

These production chains make cooperation in science and technology
possible. They create the prerequisites for cross-investment and
the intertwining of international capital. Banking infrastructure
grows around all this. National economies become interwoven at the
microeconomic level, like the roots of grass.

In contrast, economies based on agriculture and raw materials tend
to repel each other – because their products compete with each other.

This has led to the failure of dozens of free trade zones and customs
unions in Latin America, Africa, and Asia. It’s worth noting that
as of 1997, the import duties imposed by Latin American countries on
goods from the developed nations averaged 9%, while import duties on
goods from other Latin American countries averaged 15%. In effect,
these countries were protecting themselves against each other –
despite their statements about wanting to unite. The same applies to
Africa: protective barriers averaging 12% for external imports and 20%
for imports from other African countries.

An additional disunity factor has been the division of CIS countries
into exporters and importers of oil and gas. It might seem that energy
resources ought to bind the CIS together – but that’s an illusion. Fuel
exporters (Russia, Kazakhstan, Turkmenistan, Azerbaijan) prefer
markets outside the CIS, where prices and profits are higher. Hence
the gas wars and similar conflicts.

Meanwhile, the countries that lack natural resources are attempting
to sell finished products: Ukraine (78% of its exports are finished
products), Belarus (74%), Georgia (44%). But the quality of their
products is so low that it’s hard to sell them anywhere outside the
CIS. Thus, their priority is to protect this market from an influx
of higher-quality products made outside the CIS. On the other hand,
the importer countries want to buy higher-quality products from the
West, even if they are more expensive.

Given these diametrically opposed interests, a customs union with a
common foreign trade policy becomes impossible. Incidentally, this
is why Ukraine isn’t signing the agreement on a four-sided customs
union within the Common Economic Area.

As a result, we are seeing the flight of both kinds of countries
from the CIS market. Since 1990, the proportion of intra-CIS exports
has dropped from 60% to 18%. The leaders in refocusing on non-CIS
markets have been the producers of fuels, mineral resources, ferrous
and non-ferrous metals: Russia (86.5% of its exports go to non-CIS
countries), Armenia (81.1%), Tajikistan (80.4%), and Azerbaijan
(79.6%).

Under the circumstances, can there be any hope of integration between
the national economies of CIS countries?

The answer to that question becomes even more unequivocal if we take
note of the covert but intense rivalry between Russia, the USA, and
China for influence across the CIS. The Americans are striving to
expel Russia from the region and gain control of energy resources and
pipelines. At the same time, both Moscow and Washington are striving
to prevent any reinforcement of China’s positions or the influence
of Islamic extremists. The European Union isn’t standing aside either.

All this is destabilizing the political situation in the CIS –
encouraging the leaders of CIS member states to play upon differences
between the rival superpowers and establish sub-regional blocs such
as GUAM (Georgia, Ukraine, Azerbaijan, Moldova). And this is making
the ground beneath the CIS increasingly shaky.