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Eurasian unity strained as bloc expands
From the Financial Times of Tue, 23 Dec 2014 16:34:21 GMT

Kyrgyzstan on Tuesday a signed a treaty to join the Eurasian Economic Union, expanding the membership of Moscow-led project to five even as its unity is strained by the market turmoil gripping Russia.

“We have just signed an agreement on joining the Eurasian Economic Union,” Almazbek Atambayev, Kyrgyzstan’s president, announced at a meeting of heads of state of the union in Moscow.

The Eurasian Economic Union will formally come into existence on January 1, replacing the customs union of Russia, Kazakhstan and Belarus, with Armenia set to join a day later. Kyrgyzstan’s treaty is due to come into force in May.

But its unity is already fraying as Moscow’s rift with the west and the wild gyrations in the rouble upend trade relations and imperil the ideal of the union as a counterweight to the EU.

Kazakhstan and Belarus have refused to follow Russia in imposing an import ban on western produce, effectively resurrecting trade barriers in what is supposed to be a free trade zone.

Alexander Lukashenko, president of Belarus, on Tuesday complained that the countries “still do not have absolutely free movement of goods”. “There is no point in hiding it,” he said.

Kyrgyzstan’s agreement to join the union comes after years of haggling in Moscow and Bishkek.

The move has been contentious within Kyrgyzstan, where there are concerns that joining the union will hurt the country’s ability to function as a hub for re-export of Chinese goods to the rest of the region.

Mr Atambayev said in October that joining the union could lead to higher inflation for Kyrgyzstan, but insisted that the country had no alternative. “We’re choosing the lesser of two evils. We have no other option,” he said.

On Tuesday, he said that the country’s experience of two revolutions in the past decade helped make the decision. “We know how fragile peace and harmony are, so we deliberately chose the path of integration, of neighbourliness and of friendship,” he said.

But Kyrgyzstan’s path to the union is being smoothed by Russian money.

The tiny country, with gross domestic product of just $7.2bn last year, will receive aid from Russia worth $1.2bn over two years in exchange for joining the union. The money will consist of a $1bn fund for development and a $200m grant to help Kyrgyzstan implement the “roadmap” for joining the union.

Russian companies have also become more active in the past year, with Gazprom buying Kyrgyzstan’s indebted gas company in April.

There have also been suggestions that Kyrgyzstan may be allowed some exemptions, for example by continuing to import Chinese goods for domestic consumption at the old tariff rates.

Kyrgyzstan’s economy is likely to be hard hit by the fall in the rouble, since it is dependent on money being sent home by migrant workers in Russia. Such remittances account for 31 per cent of Kyrgyzstan’s GDP, according to the World Bank.

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