1003843286

Rethinking Common Transport and Logistics Policy of the Eurasian Economic Union

_ Egor Pak, Researcher, Centre for Eurasian Studies; Ph.D.-student at Moscow State Institute of International Relations (MGIMO). Review of Economic Studies and Research, Vol.7, №3. Moscow, 2016.

In January 2015 Russia, Kazakhstan, Belarus and adjoined Armenia have established a historical integrative milestone in the post-Soviet space – the Eurasian Economic Union (EAEU). Later in August Kyrgyzstan officially wrapped up union’s first enlargement phase.

Following the integrative ladder at this stage, the parties are to form common functional policies under the umbrella of the supranational body of the Eurasian Economic Commission (EEC). However, the discourse on the viability of cooperation at communitarian level is still underway. Recent downturn in oil prices and induced economic turbulence as well as volatile fluctuations of regional currencies resulted in huge price differentiation on the same products within the Single market have again questioned the economic rationale for integration.

In this essence, the paper has identified common transport and logistics (CTL) policy as one of the most depoliticized area of integration bearing profound economic benefits for all the stakeholders involved. Transport and logistics (T&L) complexes of the member states have similar features and what is more crucial – face similar challenges involving high deterioration rate of infrastructure, lack of financing and modern technologies as well as inadequate institutional structure. Yet, the research has one obvious limitation concerning absence of T&L data from Armenia and Kyrgyzstan due to their recent joining the EAEU.

Overall, the research critically investigates the prospects of the EAEU taking after progressive experience, norms and policies of the European Union (EU) in forming its own CTL policy and building a modern regional T&L complex. It is worth mentioning that it took EU almost 50 years to make its CTL policy truly common with its cornerstone element – irrevocable liberalization at each mode of transportation – accomplished by early 2000-s only. Thus, the EAEU has a unique opportunity to evade European integrative mistakes and take advantage of its lasting expertise but with a solid regional adjustment.

On the way to common transport and logistics policy of the EAEU

Before passing to the specifics of T&L cooperation, the paper provides a brief overview of economic rational grounding the EAEU. Russian Academy of Sciences points out that by 2030 the overall trade volume between Russia, Kazakhstan and Belarus is expected to reach unprecedented $400 bn. with the GDP of the three to overlap $2.4 trln. [1]. Besides, by the same year both Eurasian Bank of Development (EABD) and Eurasian Economic Commission (EEC) estimate the cumulative integrative effect for Russia to level at $632 bn., for Kazakhstan at $106.6 bn. and for Belarus at $170 bn. [2]. The study of Union’s intra-trade picture indicated a 39.9% increase in the mutual trade metric in 2010-2012 with Russia-Kazakhstan mutual trade having peaked at $24 bn. and Russia-Belarus trade turnover rocketed by 50%. However, it is worth stating that straightaway from 2012 EAEU mutual trade decreased by 4.9% in 2013, by 9.7% in 2014 and by shocking 25.8% in 2015 [3]. Mostly such downturn is a direct consequence of the volatility of commodity prices on which the economies of Russia and Kazakhstan are heavily dependent, though it might also serve as the evidence that the member-states have not initiated a truly economic integration yet. However, in comparison to the mutual dimension EAEU trade with 3-d parties in 2015 plummeted by greater 33.6% which could be regarded as a positive sign of integration [4].

In this essence, T&L cooperation is regarded as one of the main depoliticized areas of integration that can really lead to economic goals set. The founding document that laid the basis for convergence of national T&L policies of the EAEU members is the Decree No. 284 passed by the EEC on December 25, 2012 titled Coordinated transport policy of the member states of the Customs Union and Single Economic Space. However, negotiations on coordinating T&L policies have been held for a while, albeit in vain, though the potential for such cooperation is enormous.

Vast territories and export-oriented economies, namely of Russia and Kazakhstan, logically predetermine sustainable development of regional T&L complex, however, transit potential of the Union is severely underutilized slowing down EAEU’s economic development. Rapidly growing East-West trade gives EAEU-states a unique opportunity to earn on securing transit flows. As of today it accounts for less than 1% of the East-West trade volumes, whereas in 1982 Soviet Union enjoyed a significant share of 20% [5]. According to the United Nations Conference on Trade and Development (UNCTAD), the volume of East-West trade in 2014 levelled at $800 bn. and is expected to reach $1.2 trln. in 2020 [6]. In cargo terms, the annual transit capacity of EAEU is estimated at 230 mln. tones out of which EAEU members take benefit of around 20% [7]. In this context, EEC anticipates, should national T&L policies converge by 2030 Russia will get additional $5 bn. (+0.1% to GDP), Kazakhstan – $4 bn. (+0.7% to GDP) and Belarus – $1.5 bn. (+1.5% to GDP) [8].

Another rational for T&L integration comes from a bundle of stumbling points set as ailing infrastructure, obsolete rolling stock, excessive red tape in document turn over and lack of high-tech logistics facilities that are common for all the states of the region. Inconsistent T&L policy coupled with the fact that almost 70% of the rolling stock is outdated hamper the states’ development policies lagging behind the modernization agenda announced. As a result, the aggregate input of T&L complex into the of EAEU in 2015 equals to 7-8%, whereas in Germany it is around 11.0%, in Canada and UAE levels at 12.2% and 10.9% respectively [9].

Finally, the share of T&L costs in the overall cost of goods sold for the EAEU states is around 20-25% while for the EU it is roughly 11%. Furthermore, the containerization index, which serves as a reliable measure of the level of development of T&L infrastructure, in case of EAEU equals to 37 containers per 1 thousand people compared to 127 in the EU [10].

The paper refers to such failing T&L agenda as a necessary precondition to the institutionalization of transport policy as a regional public good. This newly introduced public good could be institutionalized either as a political project or as a greater economic opportunity rooted in the initiatives of private sector at lower functional levels. Consequently, the paper doubts whether political dimensions alone have presupposed the majority of economic relations between the private actors, as business initiatives of Russia as the core locomotive of Eurasian integration clearly evolve with its regional dominance doctrine and economic, political, humanitarian and security aspirations of the region itself.

And it is here, where the integration-induced mechanisms come into the discourse. In order to achieve T&L ambitious goals the EEC has launched a massive institutional package to tune CTL policy of the Union with neat attention paid to the harmonization of regulations and safety standards on all means of transport. As of today, the highest level of harmonization has been reached on the railway and auto modes.

In 2014 governments of Russia, Kazakhstan and Belarus established the United Transport and Logistics Company (UTLC) by merging the assets of three national container operators to provide customers with straight-through transport services across the forming Single Market. By 2020 UTLC is expected to reach the level of container shipments set at 1-1.5 mln. twenty-foot equivalent (TEU) securing 2-3% of container flows between EU and China [11]. Having absorbed the assets of the Russian container operator TransService Ltd., UTLC inherited a 10% share with an option for 25% in an Austrian logistics company Far East Land Bridge Est. providing services to BMW, Samsung and LG.

Besides, on January 1, 2013 the ECC claimed the introduction of a common railway freight tariff to facilitate cargo shipments between the integrating states. Furthermore, on January 1, 2015 the ECC passed a bill granting railway freight-forwarders of EAEU of then Russia, Kazakhstan and Belarus free and irrevocable access to national rail systems of the three. Specifically, it has also been agreed to back up piggyback shipments via Saint-Petersburg leading to the reduction of delivery costs for a EAEU-based company by 15-20% [12].

Moreover, in the face of the ailing rolling stock Russia, Kazakhstan and Belarus have initiated the set up of several joint ventures to manufacture modern locomotives and wagons in Kazakhstan with Canadian Alstom and American General Electric as third parties.

Specific emphasis is also paid to the overall harmonization policies and procedures on the auto mode of transportation. EAEU has chosen a strategic focus on greater liberalization of auto cabotage operations from January 1, 2016 emphasizing the importance of international auto corridor ‘Western Europe – Western China’ which will secure trade flows not only from China to the EU through Kazakhstan and Russia, but will also link it to the South Asian direction via Uzbekistan and Kyrgyzstan. With the overall length of the corridor of 9 000 km., Kazakhstan will cover 2787 km. and Russia around 3 000 km. Expected to be put into operation in 2018 it will shorten the delivery dates for a shipment from China to Europe to 10-12 days compared to 45 days needed for a water transportation and 14 days for rail via Trans-Siberian Railway Line (Transsib) [13]. Simultaneously, the construction of this corridor logically involves creation of so needed multifunctional logistics complexes of 3 and 4 PL class.

However, the institutionalization framework needed for harmonization announced faces a number of serious hurdles that come from a rational though difficult integrative path. The major failing point in working out a Eurasian CTL policy comes from the reluctance of the integrating parties to introduce truly common mechanisms within the Single market. Similarly, today the EAEU is to overcome the following systemic challenges on creating standardized organizational and regulatory principles of the CTL policy similar to that of the EU right after the Maastricht Treaty: (1) final abandonment of national categories in favour of supranational and (2) creation of competitive nature without any exemptions in the T&L industry.

And it is here, where progressive supranational experience of the EU should come into the scene. It is worth stressing that complete liberalization of T&L market within the CTL policy of the EU was instituted only after 50 years of its de jure establishment, thus, it is too early to expect from EAEU any breakthrough integrative achievements.

Evading European mistakes

Advanced integrative legacy of the EU as well as institutional pattern in creating its CTL policy without any doubt can be set as an organizational and economic pattern for the EAEU, though the paper points at three cornerstone flaws in the European case that must be avoided.

First, it took EU members long time to start thinking in supranational categories with the integrating states being reluctant to surpass its T&L authorities at communitarian level. It was believed that a transport service must have solely national status and must be consumed exclusively within a national socio-economic infrastructure [14]. Furthermore, in 1960-s and 1970-s European T&L industries were heavily protected from competition and consequently served as a lavish source of national income for each state. Thus, the CTL policy of the EU became such once the market showed a strong need for a free movement of goods, services, capital and labour, which could be achieved provided T&L sector sees massive liberalization. This occurred straight away after the Maastricht Treaty and was accomplished in early 2000-s.

In their turn, Russia, Kazakhstan and Belarus de jure formed the Single market in 2012, however, de facto it operates with a number of serious exemptions. The major is the deferment of establishment of energy market of the three till 2025, with the economies of Russia and Kazakhstan massively dependent on energy exports and logically skeptical about soon common regulation of the regional pipeline system The same approach is captured in creating common financial and macro policy with the postpone horizon of 2016-2020 [15]. Such divergence is not solely because of reluctance of the states to lose their national control over strategic areas, but mainly due to a high-speed integration fostered by various economic and political factors in the globalized world.

Second, institutional framework of the European CTL policy implied creating technical agencies such as European Aviation Safety Agency, European Maritime Safety Agency and European Railway Agency responsible for the introduction of common mechanism, norms and rules at each mode of transport, but politically subject to control from the supranational bodies. Yet, the degree of autonomy of these agencies towards Brussels has drastically increased in recent years turning them into independent and what is more crucial ambitious actors both within the entity and globally [16]. Such institutional fragmentation may threat the holistic agenda of the EU grounded on common and unbiased notions and cause tensions with 3-d parties.

The implementation of Eurasian CTL policy was entrusted to the Department of transport and infrastructure under the Board of energy and infrastructure of the EEC with strictly defined and non-overlapping responsibilities. So, as of today in case of EAEU there is no obvious institutional fragmentation seen in the European case.

Third, the practice of public-private partnership (PPP) as a way to finance European infrastructure projects flourished in late 1990-s once the EU started developing trans-European transport, energy and telecommunication networks claiming its intermodal status. According to the estimates of Eurocommission, in 2010-2030 the overall funding of the European T&L infrastructure will rocket up to €1.5 trln. with priority trans-European projects accounting for €1 trln. already by 2020. However, out of this figure in 2012 the PPP provided insignificant €7 bn., whereas in 2005 it levelled at €15 bn. showing a drastic 46% downfall [17]. Partly it was a direct consequence of the economic crisis of 2008-2009, yet, again overlapping ambitions and initiatives of European transport agencies undermined the PPP fund raising.   

Long before creating the EAEU Russia, Kazakhstan and Belarus saw a constant motion towards the implementation of PPP in T&L sector on a build-operate-transfer (BOT) principle. In its turn, Kazakhstan has greater regional BOT expertise having constructed strategic railway projects such as «Shar-Ust-Kamenogorsk», «Yeralievo-Kuryk», «Zhetygen-Korgas» and «Zhezkasgan-Beyneu» amounting for $2.4 bn. set to foster economic development of the national economy [18]. In this essence, integrative mechanisms in cooperation with regional financial institutions will open horizons for the PPP cooperation within the EEU building a solid fundament for a sustainable T&L development.By identifying the European faults in creating a CTL policy, the paper has laid a conceptual and comparative basis for further critical research on converging T&L norms and regulations within the EAEU.

Conclusion

Eurasian integration is smoothly moving forward to setting a truly Single market without any exemptions still present in the most sensible spheres of energy and finance. However, converging various industry policies remains one of the toughest issues that requires thorough investigation and discussion at both state and business levels.

In order to succeed governments of the EAEU-states should irrevocably introduce supranational categories instead of national by conceptually changing the economic decision-making rational in the format of EAEU turning it into all-embracive and all-beneficial transparent process. The signs of such approach could be found in the convergence of institutional and technical policies on railway and auto modes of transport with the former being at the integrative forefront.

Forming a CTL policy of the EAEU could be successful should the parties take after, albeit critically and selectively, European organizational and institutional experience at communitarian level. By emphasizing flaws in the framework of the CTL policy of the EU, the paper has stressed evading way-outs and justified tangible developmental opportunities for the T&L complex of the EAEU.

Notes:

  1. Винокуров Е., Либман А. Две евразийские интеграции // Вопросы экономики, №2, 2013, сс. 47-72.
  2. Chufrin G. A Difficult Road to Eurasian Economic Integration, Russian Analytical Digest, Vol. 112 (20), 2012, pp.5-8.
  3. Пак Е., Пискулова Н. Евразийский экономический союз: время подводить промежуточные экономические итоги интеграции // Российский внешнеэкономический вестник, №10, 2015, сс. 22-34.
  4. Пак Е., Пискулова Н. Евразийский экономический союз: время подводить промежуточные экономические итоги интеграции // Российский внешнеэкономический вестник, №10, 2015, сс. 22-34.
  5. Рогов С. Доктрина Обамы: властелин двух колец [Электронный ресурс] // Российская газета, 17 апреля 2013. – Режим доступа: http://www.rg.ru/2013/04/17/rogov.html
  6. Официальный сайт премьер-министра Республики Казахстан Карима Масимова. Новый Шёлковый путь откроет для Казахстана новые возможности доступа на мировые рынки. – Режим доступа: http://www.primeminister.kz/article/view/34
  7. Цветков В., Зойдов К., Медков А. Problems of economic security in Russian transportation and intermediate carrier infrastructure, Экономика России, №1, 2012, сс. 100-109.
  8. Евразийская экономическая комиссия. Режим доступа: http://www.eurasiancommission.org/ru/nae/news/Pages/08-12-2014-1.aspx
  9. 9. Пак Е., Пискулова Н. Евразийский экономический союз: время подводить промежуточные экономические итоги интеграции // Российский внешнеэкономический вестник, №10, 2015, сс. 22-34.; Pak E., Sarkisov, S. Ideals and realities of the transport complex of the Single Economic Space (SES), The International Journal of Interdisciplinary Global Studies, Vol. 8, 2014, pp. 15-27.; Пак Е., Мешалкин В., Кантюков Р., Колесников А. Организационно-экономический анализ перспектив развития трубопроводного транспорта и транспортно-логистической инфраструктуры Казахстана в рамках Евразийского экономического союза // Менеджмент в России и за Рубежом, №2, 2015, сс. 28-40.
  10. Цветков В., Зойдов К., Медков А. Problems of economic security in Russian transportation and intermediate carrier infrastructure, Экономика России, №1, 2012, сс. 100-109.; Кузьмина Л., Повышение конкурентоспособности экономики на основе создания региональных транспортно-логистических центров, Проблемы экономики, организации и управления в России и мире: материалы III-й международной научно-практической конференции (22 октября 2013 г.) / отв. ред. Уварина Н. – Прага: World Press, сс. 139-143.
  11. Цветков В., Зойдов К., Медков А. Problems of economic security in Russian transportation and intermediate carrier infrastructure, Экономика России, №1, 2012, сс. 100-109.
  12. Pak E. Transport as the functional area of Eurasian integration, Herald of Kazakh-British Technical University, № 2, 2014, pp. 118-124.
  13. Pak E. Transport as the functional area of Eurasian integration, Herald of Kazakh-British Technical University, № 2, 2014, pp. 118-124.
  14. Винокуров Е. Евразийский экономический союз будет способствовать импортозамещению // Евразийская экономическая интеграция, №1(26), 2015, сс. 90-94.; Громогласова Е. Опыт транспортной политики Евросоюза для Евразии // Восточная аналитика, № 1, 2010, сс. 134-145.
  15. Пак Е., Мешалкин В., Кантюков Р., Колесников А. Организационно-экономический анализ перспектив развития трубопроводного транспорта и транспортно-логистической инфраструктуры Казахстана в рамках Евразийского экономического союза // Менеджмент в России и за Рубежом, №2, 2015, сс. 28-40.
  16. Громогласова Е. Опыт транспортной политики Евросоюза для Евразии // Восточная аналитика, № 1, 2010, сс. 134-145.; Dragneva R., Wolczuk K., Eurasian Economic Integration, Cheltenham: Edward Elgar Publishing, pp. 1-256.
  17. Humphreys M., Sustainability in European Transport Policy, London and New York: Routledge, 2011, pp. 1-150.; Stevens H. Transport Policy in the European Union. Basingstoke: Palgrave Macmillan, 2004, pp. 1-210.; European Commission (2015), Ex-post analysis evaluation of the loan guarantee instrument for the Trans-European Transport Network (TEN-T) Projects, Mode of access: http://ec.europa.eu/transport/themes/infrastructure/studies/doc/2014_ex-post_evaluation_of_the_loan_guarantee_instrument_for_ten-t_projects.pdf
  1. Баймухамедова Г., Алмагамбетова Ш. Железнодорожный транспорт и экономика Республики Казахстан // Проблемы Права и Экономики, №2(6), 2014, сс. 8-11.

Literature:

  1. Баймухамедова Г., Алмагамбетова Ш. Железнодорожный транспорт и экономика Республики Казахстан // Проблемы Права и Экономики, №2(6), 2014, сс. 8-11.
  2. Винокуров Е., Либман А. Две евразийские интеграции // Вопросы экономики, №2, 2013, сс. 47-72.
  3. Винокуров Е. Евразийский экономический союз будет способствовать импортозамещению // Евразийская экономическая интеграция, №1(26), 2015, сс. 90-94.
  4. Громогласова Е. Опыт транспортной политики Евросоюза для Евразии // Восточная аналитика, № 1, 2010, сс. 134-145.
  5. Евразийская экономическая комиссия. Режим доступа: http://www.eurasiancommission.org/ru/nae/news/Pages/08-12-2014-1.aspx; Vinokurov, Y. (2012) Single Transport Space: Eurasian Economic Community (EurAsEC), Eurasian Development Bank, available at: http://www.eabr.org/general//upload/reports/Full%20version_transport.pdf
  1. Кузьмина Л., Повышение конкурентоспособности экономики на основе создания региональных транспортно-логистических центров, Проблемы экономики, организации и управления в России и мире: материалы III-й международной научно-практической конференции (22 октября 2013 г.) / отв. ред. Уварина Н. – Прага: World Press, сс. 139-143.
  2. Официальный сайт премьер-министра Республики Казахстан Карима Масимова. Новый Шёлковый путь откроет для Казахстана новые возможности доступа на мировые рынки. – Режим доступа: http://www.primeminister.kz/article/view/34
  3. Пак Е., Пискулова Н. Евразийский экономический союз: время подводить промежуточные экономические итоги интеграции // Российский внешнеэкономический вестник, №10, 2015, сс. 22-34.
  4. Пак Е., Мешалкин В., Кантюков Р., Колесников А. Организационно-экономический анализ перспектив развития трубопроводного транспорта и транспортно-логистической инфраструктуры Казахстана в рамках Евразийского экономического союза // Менеджмент в России и за Рубежом, №2, 2015, сс. 28-40.
  5. Рогов С. Доктрина Обамы: властелин двух колец [Электронный ресурс] // Российская газета, 17 апреля 2013. – Режим доступа: http://www.rg.ru/2013/04/17/rogov.html
  6. Цветков В., Зойдов К., Медков А. Problems of economic security in Russian transportation and intermediate carrier infrastructure, Экономика России, №1, 2012, сс. 100-109.
  7. Dragneva R., Wolczuk K., Eurasian Economic Integration, Cheltenham: Edward Elgar Publishing, pp.1-256.
  8. European Commission (2015), Ex-post analysis evaluation of the loan guarantee instrument for the Trans-European Transport Network (TEN-T) Projects, Mode of access: http://ec.europa.eu/transport/themes/infrastructure/studies/doc/2014_ex-post_evaluation_of_the_loan_guarantee_instrument_for_ten-t_projects.pdf
  1. Chufrin G. A Difficult Road to Eurasian Economic Integration, Russian Analytical Digest, Vol. 112 (20), 2012, pp. 5-8.
  2. Humphreys M., Sustainability in European Transport Policy, London and New York: Routledge, 2011, pp. 1-150.
  3. Pak E. Transport as the functional area of Eurasian integration, Herald of Kazakh-British Technical University, № 2, 2014, pp. 118-124.
  4. Pak E., Sarkisov S., Ideals and realities of the transport complex of the Single Economic Space (SES), The International Journal of Interdisciplinary Global Studies, Vol. 8, 2014, pp.15-27.
  5. Stevens H. Transport Policy in the European Union. Basingstoke: Palgrave Macmillan, 2004, pp. 1-210.
  6. Vinokurov, Y. (2012) Single Transport Space: Eurasian Economic Community (EurAsEC), Eurasian Development Bank, available at: http://www.eabr.org/general//upload/reports/Full%20version_transport.pdf

 

 

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