Too soon to launch a dialogue on a free trade zone with the EU

During the Russia-EU summit Russia suggested to launch a dialogue on specific measures and steps towards concluding a free trade zone agreement by 2020. However, First Deputy Prime Minister of Russia Igor Shuvalov stated that the European Union has no plan to shortly began negotiations on a free trade zone between the European Union and the Customs Union Russia, Belarus, and Kazakhstan on the pretext that such an integration might be complex.


Such a response fr om the European Union to the Russia’s proposal is not a surprise, because there are several reasons why it could be difficult to even start a negotiation process on a trade and economic agreement with the European Union. 

First, the statement of a question is not quite correct. Since the inception of the Customs Union, the trade policy of Russia, Belarus, and Kazakhstan has been moved up to the supranational level of the Eurasian Economic Commission (EEC), wh ere decisions are supposed to be made on the basis of consensus. Likewise, the EU Economic Commission for Europe acts as supranational institution which signs all external trade and economic agreements. Basically, when it comes to integration between two blocks, the initiative should come from the executive body of an party of integration, and similar representatives of another party of integration should respond to this initiative. The initiative itself came from the Russia-EU summit (there is no CU-EU summit) and was initiated by the representative of a single the Customs Union member country.  

Second, negotiations to be conducted between the Economic Commission for Europe and the EEC can hardly be launched at whatever serious level, because the EU as a WTO member will be reluctant to conduct a dialogue on integration with the Customs Union which isn't notified in the WTO for obvious reasons: Russia has joined the WTO, and although Kazakhstan is expected to join the WTO in 2014, there is no guarantee that Belarus does the same until 2020. Therefore, there is no much interest in negotiating a trade agreement with a country not existing within the WTO space. 

Third, integration of developing countries of the Eastern Europe and post-Soviet countries into the European Union implies meeting specific political requirements concerning observation of human rights, judicial system, ownership rights, corporate legislation etc. The European Union will never sign even a trade agreement with a country whose regime is regarded as dictatorship, which is the case with Belarus. By the way, Ukraine has made its historical choice to sign/not sign a EU-Ukraine association agreement, participating in the Eastern Partnership program, and despite it has suspended its integration with the EU, hundreds of laws and regulations which comply with the European norms were adopted in Ukraine, in particular the law on the law enforcement system.

Fourth, not all of the Customs Union member countries will benefit from such an integration. Estimates show that in the long run a free trade zone with the European Union will be beneficial for the Russian Federation, Kazakhstan (in a lesser degree), but not for Belarus, because the structure of exports from Belarus to Russia will be adversely effected by liberalization of the trade regime with the EU and Russia’s demand shift from Belorussian goods to European ones.

 Knobel A. Y., Ph.D. in Economics, Head of Foreign Trade Department