To realize where it is better – in Russian or European Union – easiest is to visit any “brotherly nation” like Kyrgyzstan, where you can still see Lenin’s big statue and hear to the Stalin’s mythology that Lenin had an important role in creating of their national identity. This article is for those who need more arguments.
I remember that day of 2011 when it was announced about of launching of official negotiations for Deep and Comprehensive Free Trade Agreement with EU. Journalists were astonished when they heard a positive opinion from me. Before I had been criticizing deeply and comprehensively the agreement and the government, in its part, was very careful taking new obligations, although worked very hard to achieve the agreement.
Today the issue is to sign the Association Agreement which in addition to the free trade included some more requirements, though the abovementioned agreement is the major part. Association is offered also to Ukraine and Moldova, there is coming also Azerbaijan. Armenia and Belarus, it seems, lost their chances at this stage.
Russia was not offered the agreement. Opposite to this, meanwhile, in parallel of the careful movement of European leaders, Russia decided to hurry up the process of creation of the Customs Union with the former soviet republics, to re-organize it later into the Eurasian (political) union. It is not worth to bring here all the dates – the fact is that, after the failure of the CIS project Russia is interested in establishing of such a union to restore its control over the 1/6 of the land (many Russians still believe the territories are their own. Some readers could ask what for they need more territories – they can’t take care of what they have).
I decided to write this article because of two reasons, one, because former prime minister left a rhetorical-secret saying – that we don’t know what entering the Customs Union could bring to us; two – the conference ay the Heritage Foundation in November, – there I presented these ideas and then I decided to share with Georgian readers.
Georgian Ambassador to the US calmed the attendees of the conference that 80% of the voters of last presidential elections in Georgia supported European integration. It would be uneasy to predict what would be a result in Ukraine. Ukrainian people are in front of the choice – continue the “brotherly” union with Russia or to return to the Europe and establish more civilized relationship with the same Russia. So called Russian market has much bigger economic meaning for Ukrainians than for Georgia. We can assume that the association agreement with the EU can put Ukraine a “shock therapy” conditions. Maybe Russia will again maintain energy penalties and economic sanctions too. Georgian people have been strongly reinforced during last 22 years by the Russian sanctions – we passed all types of shocks and have now diversified foreign trade. But let’s still think what would Georgia, moreover Ukraine lose if instead moving towards of Eurasian Union went into direction of Europe? Let’s base our assumptions on the neutral sources:
Russian market is not only, it is neither biggest and nor wealthiest (even if including of its “own brothers”). Let’s compare the population and economic numbers (CIA Fact Book 2013, GDP-ppp, Table 1):
Or, European Union is almost three times bigger with population and has five times bigger economy (please keep in mind that more than half of the GDP of the Eurasian union nations are in the oil and natural gas and other sectors are less developed). There are also North America and other continents where half of the World’s GDP created.
“Russian (Eurasian) markets” are difficult to be reached. Official barriers are described (for instance) in the annual study of the World Bank of easiness of Doing Business. We can compare the 2014 rates of Cross-Border Trade component of chosen three nations of each European and Eurasian unions (Table 2):
Let’s now check the Index of Corruption for the same nations (Corruption Perception Index, 2012, Table 3):
It is easy to compare also other economic freedoms between the same nations (Index of Economic Freedom, Heritage Foundation, 2013, Chart 1):
Obviously, the EU promises much more openness, economic and trade freedoms. More important is how easy it is to overcome unofficial trade barriers: most difficult internal state regulations are accompanied by huge bureaucracy, centralized economy, corruption and mafia clans, who directly control wholesale and retail. It maybe that overcoming of such barriers is easier for Ukrainian big firms but for the smaller scale ones, if even their goods are of high quality, working in such conditions would be very uneasy.
No secret that European Union is also an overregulated economic area. Exactly this was a basis for carefulness of the Georgian government when it worked on the DCFTA with the EU. But if we compare this to the politicized regulations and bureaucracy of Russia, I think it will be very easy to find out what we prefer. It is also famous how the Russian government has treated the Georgian people since the independence – economic blockades, energy torturing, war; we can also recall the stories banning of Moldovan wines, Ukrainian chocolates, Lithuanian and Polish meat and dairy products. I think what Russia does with Ukraine now is a good prove that 2008 Russo-Georgian war was unavoidable – Russia would not tolerate Georgia’s economic independence and all what is written in this article.
Any Georgian businessman who decides to export goods to Russia will face:
1. Corrupted and bureaucratic customs;
2. Corrupted police, which is just waiting for him (on the road and at the place of destination) for robbing and criminal deals.
3. Corrupted, super-bureaucratized and super-regulated local and central governments (permits, licenses, inspections and bribes)
4. Criminal gangs and clans, which are promising to help with all abovementioned problems and finding a place in the market.
There are probably some more challenges I missed. A businessman who wants to deal with these challenges has to himself become a criminal. He has to bribe everybody – it is unbelievable to make business without this. Those who still believe in Russian market can try, but this shouldn’t be a public policy issue.
Returning to the Eurasian union there are two things clear and important:
First – Russia will try hard to restrict foreign and trade policies to the union member nations. This means the policies and economies of those members will be chained to the Russian one, they will lose again chances to trade in the global markets and improving of qualities of goods, stop any independently developed trade links. This means that if in future they demand again independence (as I mentioned above) they will face again a shock therapy and a long and difficult period of transition to the global markets.
Second – experienced in soviet and post-soviet era Russia will try its best to firmly restrict the members of the Eurasian union chances of leaving it, formally and informally. For instance it can demand from the members all the assisted/subsidized amounts, organize workers mass-demonstrations etc.
Agreement with the European Union is also costly – it is expected that economy will slow down more followed by European financial assistance, an economic-political narcotic slaves of which we can easily become. Therefore it is very important government to be very careful with taking new obligations we can’t bear and which can trap us for a long period of time.
Simultaneously, it is easy to assume positive effects of the Agreement, especially, if we continue offering the free trade agreement to other wealthy nations. This action together with improving of economic freedoms is necessary to kick the economy forward and neutralize all the foreign and local risks. In a result Georgia can really become an economic hub but not just transport corridor, -promising investments, improving of standard of living for everyone.
Association of Ukraine, Georgia and Azerbaijan with the European Union could create a wider zone for spreading this type of cooperation, in direction of Central Asia, for instance. I assume this is well-understood in European capitals and Moscow too.
Ukraine is crucial also for Belarus government which should decide with whom it wants or doesn’t want to continue relations. By today’s positions distancing of these two nations from Russia can create similar type of collapse as we faced in 1990s. This will also shake political order in these countries. This must not be hidden but still, although, nobody has to be afraid of this situation Georgia once overcame though it was costly.
Georgia itself has to recall all its powers and skills to make this step and leave the non-civilized world where a human is not a highest value. European Union has to make its job in time without hesitation, not to create opportunity and ground for Russian activeness and aggression, especially towards Georgia which is now a champion of economic reforms and opened its trade borders even wider than the EU itself.
The article is a description of the author’s speech given at the Heritage Foundation in November 2013.
It was published in Tabula Magazine web-site in November 2013.