Keywords: Public choice, Necro Economy, Homo economicus, Market Failure, Post-Communist Capitalism, Homo transpormaticus, Deep and Comprehensive Free Trade Agreement (DCFTA), Customs Union, Routine, mutually exclusive Economic system, mutually complementary economic system.
Irakli Danelia (born July 4, 1990) is PhD candidate In Economics at Tbilisi State University, Head of Economic research department at TSU Center for Analysis and Forecast (since January 2015) and Commercial Manager At EVERGREEN MARINE CORP./Evergreen Line(since April 2014). Danelia graduated Tbilisi State University bachelor degree in 2011and Master in 2014. In 2013 advanced National Security and Public Policy course at RAND Corporation/US State Department. In 2014 graduated Master course in Fiscal Decentralization at Erasmus University Rotterdam, in 2015 Estonian School of Diplomacy-Policy Development. Irakli has worked as Economist for The Ministry of Internal Affairs; GFSIS/The Ministry of Defense; AFBA.
მე-20 საუკუნის მეორე ნახევრიდან მსოფლიოში აქტიურად დაიწყო ახლი საერთაშორისო ეკონომიკური სისტემის ფორმირება, სხვადასხვა საერთაშორისო ორგანიზაციებისა და გაერთიანებების ჩამოყალიბება. გლობალიზაციის პირობებში ცალკეულ სახელმწიფოთა მნიშვნელობა სულ უფრო შემცირდა და წინა პლანზე წამოიწია სახელმწიფოთა ისეთმა გაერთიანებებმა, როგორიცაა უკვე დიდი გამოცდილების მქონე ევროკავშირი და ახლად ფორმირებადი ევრაზიული კავშირი.
წინამდებარე რეფერატში გაანალიზებულია ევროკავშირისა და ევრაზიული კავშირის ეკონომიკურ-პოლიტიკური საფუძვლები, უპირატესობები და ნაკლოვანებები. განხილულია აღნიშნულ გაერთიანებათა ურთიერთშემავსებლობისა და ურთიერთგამომრიცხავობის შესაძლებლობები და მათი მიზანშეწონილობა საქართველოს მაგალითზე.
ნებისმიერი ქვეყნისთვის ყველა ბაზარი კარგია, ევროკავშირი იქნება ეს თუ ევრაზიული კავშირი, მაგრამ მნიშვნელოვანია გაანალიზდეს თითოეულ მათგანში გაწევრიანების ეკონომიკურ-პოლიტიკური შედეგები და პერსპექტივები. აუცილებელია ქვეყნების გადაწყვეტილება, შეუერთდეს ამა თუ იმ ეკონომიკურ ან/და პოლიტიკურ გაერთიანებას, გაანალიზდეს საზოგადოებრივი არჩევანის თეორიის ჭრილში. ამის გათვალისწინებით, ნაშრომში მოყვანილია პოსტსაბჭოთა სივრცის ევრაზიული კავშირის წევრი და არაწევრი ქვეყნების მაგალითები, რომელთა არჩევანი ეკონომიკურ ინტერესებზე მეტად, პოლიტიკურმა ფაქტორმა განაპირობა.
სტატიის მიზანს წარმოადგენს პასუხი გაეცეს კითხვას ევროკავშირი და ევრაზიული კავშირი ურთიერთშემავსებლები არიან თუ ურთიერთგამომრიცხავები.
დამოუკიდებლობის აღდგენის შემდეგ, საქართველოს ხელისუფლებამ ერთ-ერთ უმთავრეს ამოცანად ევროპულ სტრუქტურებში, მათ შორის, ევროკავშირში გაწევრიანება დაისახა. ამ მიზნით, ქვეყანამ სხვადასხვა ეტაპზე პოლიტიკური და ეკონომიკური ხასიათის მრავალი რეფორმა განახორციელა, მაგრამ საკითხი კვლავ აქტუალურია და რაც უფრო ცოტა მანძილი რჩება ევროკავშირში გაწევრიანებამდე, მით უფრო მატულობს დისკუსიები და საზოგადოებრივი განხილვები ამ საკითხზე. ქართული საზოგადოებისთვის ევროკავშირი და ზოგადად ევროპული გაერთიანებები ასოცირდება ცხოვრების მაღალ დონესთან, პოლიტიკურ პლურალიზმთან, დემოკრატიასა და კულტურულ იდენტობასთან და ამ მიზეზით მომხრეთა რაოდენობა გაცილებით აჭარბებს ევრაზიული კავშირის ქომაგთა რაოდენობას. თუმცა უკანასკნელ პერიოდში საზოგადოების გარკვეული ნაწილი მაინც აქტიურად განიხილავს რუსეთის მიერ ინიცირებულ ევრაზიულ კავშირში საქართველოს ინტეგრაციის შესაძლებლობასაც. მიუხედავად იმისა, რომ საქართველოს მკაფიოდ აქვს დასავლური კურსი არჩეული მაინც უნდა ითქვას, რომ ევრაზიული კავშირი, რა ფორმითაც არ უნდა იარსებოს, ანგარიშგასაწევი ძალა იქნება, როგორც რეგიონში, ისე საერთაშორისო არენაზე და მნიშვნელოვანი გამოწვევების წინაშე დააყენებს მის მეზობელ და არამეზობელ ქვეყნებს.
After the second half of 20th century globalization decreased importance of particular states and unions such as the EU having huge experience and newly forming Eurasian Union took the leading role. Before making choice whether to enter in any economic-political union, consequences should be analyzed from the perspective of theory of the “public choice” . Taking into account the above-mentioned, below essay discusses examples of members and non-member states of the Eurasian Union which made respective choices mainly due to the political factors rather than economic interests.
After the second half of 20th century, formation of new international economic system, establishment of different international organizations and unions has actively commenced in the world. Globalization decreased the importance of particular states and the unions such as the European Union having huge experience and newly forming Eurasian Union took the leading role.
For each country any market is good being European Union or Eurasian Union, however, political and economic consequences and perspectives of entering into such unions shall be analyzed. Before making choice whether to enter in any economic and/or political union, the consequences should be analyzed from the perspective of theory of the “public choice” . Taking into account the above-mentioned, the below essay discusses examples of members and non-member states of the Eurasian Union which made respective choices mainly due to the political factors rather than economic interests.
After regaining independence, the Georgian government determined as one of the main objectives to become part of the European structures including European Union. For the purpose, the Country undertook many political and economic reforms on different stages. However, the issue is still actual and closer we get to the European Union, public discussions on the matter increase. In General, for the Georgian society European Union is associated with the high standards of living, political pluralism, democracy and cultural identity and this is why, EU integration supporters are much more than the people willing to become members of Eurasian Union. However, in the last period, certain part of the society actively discusses the possibility to be integrated with the Eurasian Union, which has been initiated by the Russian Federation.
Despite the clear Western direction chosen by Georgia, role of the Eurasian Union, in whatever form it will exist, shall still be taken into account in the region as well as on the international level putting important challenges for its neighboring and other countries.
The historical basis for the creation of the European Union, the advantages and disadvantages
European Union represents large political and economic union of European countries. It is built on the ground of unity of European cooperation aimed at establishment of peace, welfare and freedom for their citizens in the fair and safe environment.
Nowadays, the EU is the multi-level economic-political integration model composed of 28 European States. The Union has unique institutional structure, where the independent bodies do fill each other functionally having exclusive decision-making authorities and responsibilities. Such bodies are: European Council, European Parliament, European Commission, European Court of Justice, European Central Bank, European Investment Bank, Committee of European Regions etc. They are located in different European cities and do not have political center. However, Brussels is considered as an unofficial capital of the EU.
In the primary period of creation of the EU, the member States were ensuring the stabilization of national economies by employing own macroeconomic policy and markets were managing to function with own resources. During crisis situations, central banks of the member States were decreasing the interest rates to support the investment processes and development of the consumer market, while the States were decreased taxes and/or increasing State expenses for development of infrastructure and social security as well as administrative costs within their fiscal policy. Harmonization of the economic legislation strengthened among the countries integration of the Europe on the markets of goods, services, labor and capital encouraging division of the labor markets, enhancement of the industrial powers and decrease of the manufacturing costs.
Mentioned economic policy made the EU as the leading economy in the world having greater success than such great economies as the USA and Japan. In the European economic integration process, while establishment of common market, economic and currency unions, neoliberal approaches emerged in the economy that minimized the member States’ intervention in the market processes. State function in the economy was determined to be elimination of so called “market failures” (John O. Ledyard – 2008) (Krugman, Well, 2006) only. Consequently, Governmental expenses were decreased on infrastructural development as well as social welfare projects, however, the administrative expenses even increased.
It is important to note that taking into account the modern approaches, the main objective of the monetary policy was to avoid inflation. Amount of money is increased with the increase of production. Accordingly, the State does not use different instruments of monetary policy for influencing economic cycle, while the objective of fiscal policy is to determine the supply factors in the economy.
Nowadays, the EU takes the leading place in the world per the gross domestic product and foreign trade capacities. It is one of the largest markets of the world unifying 28 States with 3.892 thousand square meters total area and around 500 million populations. As to the common market and common economy, the EU member States are free from the customs, import or export taxes and additional fees within EUCU . In addition, by concluding the treaty, the member States agree that, by increasing awareness of the fundamental principles of the relevant economies, elaboration and implementation of economic policy, they will support the process of economic reforms.
The European Union attempts to develop trade relations with different economic instruments with the neighboring regions, non-neighboring partners to strengthen its economic hegemony on the world market. EU concludes trade agreements and cooperates with not only the Eastern Partnership member States, but also with the Mediterranean countries. The Union carries active negotiations with the USA for establishment of free trade area.
We should emphasize that due to the member States having equal rights and equal resources there is a balance of powers in the EU and the decisions are made with consensus. Independent fiscal policies of the member States considers the needs of domestic economies and make decisions effective. Based on the market economy principles, the EU member States unify “Homo economicus” (Rittenberg and Trigarthen. Principles of Microeconomics: chapter 6 June 20, 2012) type people who are oriented at gaining maximum benefit and are not expecting the State aid. Therefore, the advantages of the EU are as followings:
• Unique institutional arrangement.
• Common big market.
• High level of economic and social development.
• Trade agreements with the neighboring countries.
• Balance of powers during decision-making.
• Financial aid system; fiscal decentralization.
• Existence of effective mechanisms for regulating competition on market.
• Legislative enhancement; high level of technologic development.
• Homo economicus type society.
Despite many advantages, EU economic system has certain deficiencies. This is evidenced by the economic crisis in the Union member States, which still suffer with consequences.
EU member States experienced significant losses due to fluctuations of their own currencies in the common market resulting in establishment of common currency Euro in Maastricht 1991. Unification of currency policy was one more important step in the process of economic integration. Euro exchange rate does not provide guarantee for avoidance of the fluctuations, however, it does in general ensure foreseeability in the countries of Eurozone. Nowadays, 12 EU member States benefit from the advantages of the common currency and share its negative effects. For example, when the US Federal Reserve System publishes information about increasing unemployment level, decrease of mortgage loans and increase of number of bankrupt business corporations, the US dollar rate rapidly drops. The same happens to the European currency relying on the information provided by the European Central Bank. Forex traders make decision on purchase of Euro around the world taking into account economic indicators of the leading countries of the Eurozone. For example, if there are negative signals in France and/or Germany, the Euro exchange rate falls down despite the positive economic signals coming from the remaining countries of the Eurozone.
One more deficiencies of the European Union economic system is lack of coordination of fiscal policy and absence of flexible mechanisms of mutual agreements that creates significant fiscal instability. It is important to have the fiscal policy coordinating center in parallel to the European Central Bank that would monitor and regulate the existing fiscal policies in the unequal economies of the EU countries for avoiding crisis. It is very important problem that the existing mechanisms for the budgetary policy control of the EU countries are not effective and does not ensure avoidance of false information from the member States. In spite of creation of Stability and Growth Pact (SGP) member states try to lie to the EU and manipulate with numbers. Therefore, the EU disadvantages are: no coordination of fiscal policy; ineffectiveness of budgetary control systems; partial common monetary policy.
Eurasian Union a Background basis, the advantages and disadvantages
Eurasian Union is the economic-political union of the post-soviet countries established by Russia, Belorussia and Kazakhstan. Kirgizstan and Tajikistan entered the Union later, while Armenia was the last to make the decision in 2014. The Union was initiated by the former Primer-Minister of Russia Vladimir Putin whose efforts in 2011 resulted in signature of the goal agreement on creating of Eurasian Union by 2015 by the first persons of Russia, Kazakhstan and Belorussia. Based on the action plan given in the agreement, Eurasian economic commission was established with its own regulations and Eurasian economic area was formed since January 1, 2012. Unified economic area aims at ensuring free movement of goods, services, capital and labor resources between the member States and coordinating State policies in the macro economic, financial, transportation, energy and trade fields. In parallel to the economic integration, almost all spheres of living will be connected and the political integration will be ensured finally.
Before reestablishment of the Eurasian Union, there is an on-going process of deepening of the integration between member States by the customs union and unified economic area. Establishment of such ultra-national bodies as the Eurasian Parliament, Coordinating Council for Foreign Political Actions, permanent executive and controlling bodies, education, science and culture and others are planned. In the economic direction, there already is Eurasian Economic Commission. There is a plan to establish both ultra-national institutions and institutions subjected to the sovereignty of the States in the fields of finances, investment, and military. Union is actively working on establishment of unified body regulating the financial markets of the member States and financial market regulatory body is planned to be created together with approximate of the legislation on financial markets by 2025. If we closely observe, the Eurasian Union is established based on the EU model but there still huge differences between them.
While talking about the Eurasian Union, mainly economic issues are emphasized; however, everybody agrees that the main goal of its creation is political. We may also observe that unlike the EU membership, by entering the Eurasian Union, countries do get not only free market, common legislation and need-based financial aid, but also cooperation in the security matters based on the Collective Security Treaty Organization and establishment of common military and political forces for solving internal conflicts. Moscow was determined to be the defense center of the Eurasian Union.
We should also mention that unlike the EU having the long-history, assessment of the Eurasian Union, determination of the advantages and disadvantages is difficult since it is still in the process of formation and no future plans are defined clearly. Despite the fact, taking into account the member States, we may still make certain assessments and forecast.
Despite the institutional similarities, the Eurasian Union will still be significantly different type Union. EU unifies the States having equal economic possibilities and political influence those results in consensual decision-making process within the EU, while in the Eurasian Union, Russia will have a clearly dominant role and interests of other countries will not be given due consideration. Russia has constant disputes and problems with all the countries mainly because of the relationship based on unequal distribution of rights.
While analyzing advantages of the Eurasian Union, one of the most important factors is common market and decrease of expenses that will improve the consumer and manufacturer conditions and develop trade. The Union member States will be able to enjoy beneficial treatment and create network of export goods that will support their active and coordinated activities on the world export market. The deepened regional integration will develop their internal economic and political institutions, will support liberalization of service market, decrease prices of goods and develop competition. However, creation of customs union was not necessary since the CIS member States are already trading without the custom tariffs. The fact does once again prove the opinion that the initiative of the Russian Federation has political reasons and is not oriented at economic benefit.
While talking about the Eurasian Union, very important factor is an access to the natural resources. According to the president of Russia, the Union member States will be offered Russian gas and oil in beneficial tariffs. This was the proposal used by Russian Government to entice the Ukraine offering two alternatives: to refuse the EU integration, become full member of the Eurasian Union to get gas in discounted tariff or to increase existing tariff if the request was not fulfilled. Therefore, advantages of the Eurasian Union are: big common market; decreased expenses; access to natural resources.
One of the deficiencies of the Eurasian Union is the internal political regimes of the member States that diminishes their international image. This is the reason why the West considers the Eurasian Union as an attempt to reincarnate the Soviet Union and carries out negative policy against it. It is also important to note that there is quite an imbalance between the levels of economic resources and political influences of the member States that means big probability of sole decision-making by single members. Creation and entering into the Eurasian Union is not a will of the population of the countries, but the decision of politicians. Since the authoritative regimes do necessarily fail sooner or later, there is a natural question as to the strength of the Union and its ability to be adapted in the new political area. Moreover, the Eurasian Union has no ideological basis. It does not strive for compliance with certain criteria and loyalty to the common values. The main goal of the Union is to integrate the post-Soviet area at any expense and establishment of the power countering the EU. In addition, the economic systems of the Union member States are characterized with corruption that does not give the economy possibility to develop in the free conditions and supports increase of shadow economics. Since all five member States of the Eurasian Union are in the post-communism capitalism (Papava, 2009), Vladimer Papava (Papava, 2011) believes that the main factor of economy is so called “Homo-transformaticus” type human who is developed partially, based on privatization and mainly on the basis of the newly formed private structures. Such people do still have fear for the State. They still try to maintain dependence on the State and expect its aid. They are gradually adapting with the principles of the market economy. Greater part of entrepreneurs in the Eurasian Union member States is Homo-transformaticus type people. Their behavior is determined with the communism routine that was tried in the time of overbearing economy. This is why the business is not competitive in many cases. This fact creates unhealthy environment even between the Homo-transformaticus type entrepreneurs and their relations with the State. However, nowadays part of the Homo-transformaticus type people request the freedom of choice and action and arrangement of the society based on democratic principles.
It is important to note that in the Union member States there are still the necro-economic (Papava, 2000), elements that has not been privatized with any touch of foreign investment. Consequently, the technological underdevelopment and ineffective style of governance creates important hindrances that would become even more difficult to overcome taking into account the isolation from the outside world. Eurasian Union member States generate greater part of revenues from the export of natural resources (oil, gas, corn, iron etc.) indicating on the weak diversification of the market.
• Deficiencies of the Eurasian Union are as follows.
• Lack of ideology basis.
• Misbalance of powers in decision-making.
• High level of corruption; unforeseeable future.
• Necro-economy elements; low level of market diversification.
• Monetary fragility.
• Technologic underdevelopment and ineffective style of governance.
• Low democracy level; alarming parameters of social-economic development.
• Uncompetitive market.
• Limited freedom of ownership, business and investment.
• Homo transformaticus type society.
Economic viability of the EU and Eurasian Union for Georgia
European Union as the economic union provides much greater platform compared to the Eurasian Union. EU is a market with 500 million populations having the GDP of approximately 12900 billion Euro representing one fifth of the world GDP. While the current customs union is a market with170 million populations with 1400 billion GDP, EU GDP expressed in the parity of the purchasing ability is approximately 6 times greater than the same indicator of the Eurasian Union.
After regaining the independence, as mentioned earlier, Georgia always tried to integrate with the Euro-Atlantic structures. The Country undertook important reforms for the EU membership on different stages. This emphasizes the fact that the condition for EU integration is to carry out certain economic and institutional reforms and meet the criteria established for membership, which is not the case in the Eurasian Union. It invites any country, especially from the post-Soviet area without the pre-conditions and additional requirements. This can be both, good and bad at the same time depending on the abilities and goals of the Union and the States willing to become members.
Georgia was benefiting from preferential treatment by the World Trade Organization, EU and other economic unions for implementation of reforms. Since 2000, Georgia benefits from the Most Favored Nation regime with 158 WTO member States. Our Country has free trade regimes with all the CIS countries and the neighboring Turkey. Except for this, Georgia is a beneficiary of the Generalized System of Preferences of the US, Japan, Canada, Switzerland and Norway. In 2014, Georgia signed the agreement on Deep and Comprehensive Free Trade Area with the US. Despite the existing benefits, the studies showed that Georgia still fails to fully use the benefit, however the potential is huge and by due economic policy, the available benefits may become the ground for rapid economic development of the Country.
In case of the EU integration, Georgia will not have to cancel the above listed agreements. Although the EU member States follow the common trading policy in internal trade, each Member State has a right to carry out independent trade policy with the third countries. Unlike the other free trade agreements executed by Georgia, DCFTA does not only provide for the free movement of goods, services and capital, but also is extended to food safety, competition policy, financial services and other matters . The agreement also requires approximation of the trade related legislation with the EU legislation. The agreement supports increase of foreign investments in the Country from both, the EU member and other States and creation of new employment opportunities. The agreement will increase existing export markets and support development of new export potential. According to the studies, DCFTA will increase Georgia to EU export with approximately 9% in short term, while in long run – 12%. As to the import, 4.4% increase is estimated in short-term and 7.5% in long-term. It is expected that the DCFTA will increase Georgia GDP with 4.3% (292 million Euro). In the short-term perspective, the free trade area will increase revenues with 114 million Euro and GDP with 1,7%. It is important to note that greater part of increase is expected to be generated due to liberating non-tariff barriers (88 million EUR). Business entities providing services will have opportunity to establish branches in certain fields in the EU member countries or provide services to the European consumers directly from Georgia without opening branches (ECORYS/CASE, 2012). As a result of service sphere in the EU, 31 million Euro benefit is estimated in the short-term. In the long-term perspective, liberalization of non-tariff barriers will be one of the important results of the free trade area that may benefit the Country in approximately 257 million EUR. In the long-term perspective, average salary is expected to be increased with 3,6%, while the consumer prices are estimated to be decreased with 0,6%. This means that the Deep and Comprehensive Free Trade Area with the EU will increase the purchasing ability of the Georgian citizen especially in the long-term perspective.
For comparing justification of Georgia’s integration into the EU and the Eurasian Union, we should mention that in 2005, before Russia put a ban Georgian products due to sanitary reasons and Georgia was still a CIS member country, Georgian export into the EU was much greater than to Russia, namely: EU export was approximately 216 million USD in a year when in Russia it was only 153 million USD a year (Georgian Statistics office of Georgia). Turkey was slightly below Russia in export indicators being one of the main partners of Georgia especially after 2008 (Georgian Statistics office of Georgia).
Since 2006, Georgia managed to diversify markets, entered new markets, improved the quality of products and became more competitive. The above-mentioned numbers gives us an estimate of the costs the Country may have if entering the Eurasian Union. Georgia will get access to quite a big market by membership in the Union but with Russian conditions and will lose the achievements on international market gained for the last 15 years as well as the financial and economic independence.
In case of the Eurasian Union membership, the Country will have to provide preferences to the import of the products of member States that are significantly replaced now with the European, Turkish and Chinese products. This will definitely restrict competition on Georgian market and will probably result in increase of prices and drop of the quality of the consumed products. Price of the products coming from the non-member States having different customs regime may inadequately increase. This will consequently limit choice at the expense of the products coming from the Eurasian Union member States, mainly from Russia. The risk is even higher since the Union member States will have common tariff policies and regulations while dealing with each other and with the third countries. Consequently, Eurasian customs union membership will at least means refusal of the benefits by Georgia that were obtained as a result of such a huge work including DCFTA. World Bank studies that are confirmed by the data gathered by the European Bank for Reconstruction and Development showed that the customs union “will be such framework that will result in GDP decrease and negative results of trading will outweigh the positive results. “ In general, GDP will go down and many enterprises will suffer negative consequences due to the events (despite the invoked arguments), while the common external positions of the Union member countries will be worsened. In case of entering the Eurasian customs union from the multi-national trade integration, Turkish market, which is one of the largest trade partners of Georgia, will no longer be available with the existing conditions since the common conditions for all member countries is on the one hand, requirement of the Eurasian customs union and on the other hand, the pre-condition of the EU. This means that Euro integration and the Eurasian customs unions are mutually exclusive unions. If we take into account the fact that Russian market is well aware of Georgian products, we may presume that in short-term Eurasian Union may get greater economic effects for Georgia from trade capacity perspectives than the DCFTA trading. However, in the world of global market economy, Eurasian customs union offers the members trade and economic rules based on the geographic borders. This will not be profitable for the country like Georgia, which is already integrated in the world trade area. Consequently, in long-term perspective economic integration with the EU has no alternative.
Decisions based on Public choice theory
Theory of Public choice is well-known in the economics as the part of economic school. however, the fact is that it is more a part of the political sciences. Theories developed by J. Bruchenen and Arrow, holders of the Nobel award, do not study operation of economics, but rather the theories apply economic methodology and instruments for studying the State and politics. Economic development level is importantly determined by the democratic state not by the market mechanisms, but with interaction of interests of different social groups that is realized by voting. Consequently, political decisions play an important role in the development of economy together with the economic decisions.
Considering the above-mentioned, we may, based on the theory of public choice, assess decisions made by the post-Soviet countries on integration in different economic unions. It is important to note that the free trade area existing in the CIS ensures trade liberalization between the customs union member States and Eurasian Union membership does not provide additional trade benefit that indicates on political, rather than economic reasons for creation of the Union. That’s why part of experts find the Eurasian Union as an ambition of Russia to restore the Soviet Union dissolution of which was recognized as a geopolitical disaster of the century by Vladimir Putin. According to the second opinion on the matter, the Union aims at creating the international player equivalent to the EU and strengthening the Russian influence in the region and outside.
The European Union establishes pre-conditions and requirements for the countries seeking Union membership and provides such countries with sufficient financial aid and experience. This is not a case in the Eurasian Union, which attempts to entice post-Soviet countries to enter the Union by coercion and different political or economic mechanisms.
Middle Asian countries of the post-Soviet Union area (Kazakhstan, Tajikistan, and Kirgizstan) entered the Union because of purely political taste. The countries like the Russian Federation have dictatorial regimes and except for some areas of dispute, they all understand each other quite well. Geographic location is one of the most important factors that make the Middle Asia countries to keep close ties with Russia. This is not a case for Belorussia, however, it is economically depended on Russia and has no other option but to cooperate with the Eurasian Union in at least short term period. Despite the EU proposing different beneficial conditions including the EU membership in long-run, based on the public choice theory, Belorussia decided to enter the Eurasian Union. As mentioned earlier, the Central Asian countries have the most difficult position since they don’t have actual right to choose. For Kirgizstan and Tajikistan, Eurasian Union membership is somehow profitable as well. As to the restricted political sovereignty, there are no such big problems since after gaining independence the countries were depended on Russia and never had opportunity to have independent policy.
Ukraine is particularly important country for the Eurasian Union due to its territory size, population, transit capacity and strategic location. The country was on European track for the entire period, however, due to the significant economic dependence of Ukraine on Russia, Russian pressure on the Country by increasing Russian gas tariffs and imposition of trade barriers on different products, made Ukraine to refuse conclusion of association agreement with the EU and it lost an opportunity to benefit from DCFTA. However, public choice of Ukraine was to integrate in the EU and the choice was such strong that the government was changed and EU relations resumed. Despite the fact that in short-term perspective cooperation with Russia might have been more beneficial for Ukraine rather than with the EU, based on the theory of public choice, the Country refused to collaborate with Russia through the Eurasian Union.
Similarly to Ukraine, Armenia was also having negotiations with the EU on gradual integration. However, due to the difficult economic, political and military situation in the country, Armenia was obliged to enter the customs union that, as already mentioned above,it is to be established as the Eurasian Union this year. Armenia has military conflict with Azerbaijan and does not have diplomatic relations with the neighboring Turkey and is therefore, isolated. Consequently, for ensuring military and energy security, the only actual perspective was to deepen relations with Russia and enter the Eurasian Union. Despite the fact, not a small portion of the Armenian society still strives to the EU integration; however, membership of both unions is not possible since the custom union member States are prohibited from negotiating with any country or other economic unions independently. We may therefore presume that had Armenia chosen to integrate with the EU, Armenia will have same problems as Ukraine had. It is difficult to say how economically justified would the Armenian decision be in long-term perspective; however, it may have avoided significant political and military problems. Main motif of the Armenian decision could be politics, since according to the classic economics; the EU is the best economic system with the respectable experience of half century, while the destiny of Eurasian Union, despite the declared ambitious plans, is not clear yet.
As to Azerbaijan, it follows the strategic balance policy. The country is rich with energy resources and does not plan to enter any union in the short future, trying to keep a balance and stay equally important for the West and the North.
Political and economic strategy of Georgia is remarkable. Russia is the most important market for Georgian products. After the new government, economic relations were partially restored and it appears that 2006 trade ban was even forgotten. However, Georgia still maintained its European direction and refused the Eurasian Union membership despite the fact that the Union would have been economically more beneficial in short-term perspective compared to DCFTA trade with the EU. The decision can be explained with the theory of public choice. Georgian economy had to choose the EU due to the political processes despite the fact that restrictions on the Russian and Armenian markets will be important loss for Georgian economy especially if our other partner countries will be actively involved in the Eurasian Union. The country is still suffering from the consequences of 2008 Russia-Georgia war. Therefore, Russia is still unreliable partner for Georgia. Consequently, the country has to seek for partners in the West and other regions.
Georgian choice was determined by both, economic factors and tense political relations with Russia. If the political relations between the countries are improved, within the due neighboring relations, possibility of change of the public choice in favor of the Eurasian Union cannot be excluded.
Based on the above-mentioned, we may conclude that the EU and Eurasian Union are not mutually supplementing unions. Country may not be part of both unions simultaneously. In order to better illustrate this, we should distinguish between the free trade area and customs union. Any customs union grants an exclusive authority to make decisions about the trade policy i.e. regulation of import and export fees and common foreign tariffs. Moreover, regulatory regimes related to the trade may also be centralized in certain directions in the union. For example, phytosanitary, veterinarian, industrial and technical regulations etc. Contrary to this, free trade area regulates only the trade tariffs within the area, while each country retains the right to carry out its tariff policies independently with third parties. Reason for the two unions being mutually exclusive is their structural similarities as well. Both of the unions create common market, common financial system and determine common trade-economic policy. It is very important to note that the absolute majority of the EU member States are followers of so called the Western values and the Union itself is based on political pluralism and diversity of opinions. Eurasian Union like any other Russian initiative is and will be a tool to gain an economic influence and political control over other countries.
Despite the EU and Eurasian Union being mutually exclusive, they may also have mutual supplemental functions. As mentioned above, the States seeking the EU membership are obliged to meet set of requirements and criteria. In return of the free trade with the EU, the country takes obligation to undertake specific economic and institutional reforms in parallel of harmonization of relevant legislation with the EU legislation. There are no similar conditions in the Eurasian Union. Therefore, the countries failing to meet the EU requirements will have a chance to enter the Eurasian Union waiting for new members without any criteria.
With two giant unions on the Eurasia continent, it will be difficult for any country to resist temptation of beneficial treatment, to stay independent from both and to play on international market independently.
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