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You're reading: Aslund: Push for Customs Union turns friends to foes

By pushing its plan to build a political Eurasian Union of neighboring states, the Kremlin is digging itself even deeper into a neo-imperialist hole, presumably to appeal to Russian nationalist sentiments. It is on an offensive to expand this entity of unwilling allies. This costs Russia large amounts of money, harms its economy and alienates the country from the rest of the world. Russia’s immediate aim is to hinder Ukraine, Moldova and Georgia from signing free trade agreements with the European Union at its summit on the Eastern Partnership in Vilnius, Lithuania, in late November. The Kremlin proceeds with threats and sanctions rather than trying to attract anybody. 

Since Russia is comparatively protectionist, any country that joins the current Customs Union is compelled to raise its custom tariffs, which leads to trade diversion that reduces economic welfare. Since nobody wants to join voluntarily, Russia has to pay costly subsidies to any potential member. Ironically, the post-Soviet countries with the best relations with Russia are probably Estonia, Latvia and Lithuania because they have never joined any of Russia’s post-Soviet alliances.

Nobody is closer to Russia than Belarus. Through subsidized oil and gas supplies, Belarus receives from 15 percent to 18 percent of its gross domestic product from Russia every year. Even so, Belarussian President Alexander Lukashenko’s populist economic policies put the country in financial jeopardy in 2011. Russia had to bail it out with a financial package of some $20 billion over three years. Yet with huge and unjustified wage increases, Lukashenko has driven his country into a new financial crisis while refusing to sell enterprises to Russia. At present, Belarus and Russia have entered a trade war within the Customs Union.

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