Putin Forms Ex-Soviet Trade Bloc to Challenge EU, U.S.

Russian President Vladimir Putin signed a treaty with his counterparts from Kazakhstan and Belarus creating a trading bloc of more than 170 million people to challenge the U.S. and European Union.

The formal creation of the Eurasian Economic Union in the Kazakh capital of Astana marks the culmination of two decades of talks between former Soviet republics. Kyrgyzstan and Armenia are seeking to join the union by the end of the year, the countries’ leaders said at the signing ceremony today.

Putin, facing sanctions from the U.S. and EU for his annexation of Crimea from Ukraine, said the three countries will “gradually align” their currency and monetary policies to facilitate trade and minimize risks. The Russian leader has pushed for Ukrainian membership in the union and, before relations soured with the EU, urged the creation of a free-trade zone from Lisbon to Vladivostok on the Pacific Ocean.

“The Eurasian Union is a realization of Putin’s geopolitical dream,” said Nikolay Petrov, a scholar at the Carnegie Moscow Center research group. “The Eurasian Union is a demonstration that Russia is not alone.”

Ukraine, a key route for natural gas exports to Europe, is seeking closer ties with Europe over Russian integration and plans to sign a free-trade treaty with EU June 27. Former president Viktor Yanukovych’s decision to suspend an association agreement with the EU in November, at Russia’s urging, kicked off months of protests that led to his ouster, while violence has spread in Ukraine’s easternmost regions.

Ukraine’s ‘Happiness’

Belarusian President Aleksandr Lukashenko lamented that Ukraine dropped out of the process of Eurasian partnership. “I am sure that sooner or later Ukraine’s leadership will understand where its happiness lies,” he said today in Astana.

Ukraine accounts for 4.7 percent of Russia’s total trade, compared with Belarus and Kazakhstan’s combined 7.1 percent, according to Russia’s Federal Customs Service.

Eurasian integration may come at a cost to Russia, which accounts for 74 percent of the union members’ combined $2.7 trillion economy. The union, effective from the start of 2015, is intended to yield a free flow of goods, capital and workers, and will level tariff and non-tariff regulations. Russia, whose economy is on the brink of recession, convinced its partners to hold off on integrating oil and gas markets, its biggest export earners, until 2025.

Russia signed a separate protocol conceding $1.5 billion of oil revenue to Belarus, or about about half the export duties the smaller country levies on oil products made from Russian crude next year. Under the current rules, Belarus returns all such export duties to Russia. Belarus may be able to keep more for its budget when the countries revise the numbers in 2016.

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