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Apr 13, 2011 | 19:37 GMT

3 mins read

Dispatch: Russia Seeks to Expand Its Customs Union

Analyst Eugene Chausovsky examines Russian designs for integrating Ukraine and Kyrgyzstan into its customs union and how that challenges the European Union and China.

Editor’s Note: Transcripts are generated using speech-recognition technology. Therefore, STRATFOR cannot guarantee their complete accuracy.

Russia has recently made moves to expand the customs union, which is an economic grouping consisting of Russia, Belarus and Kazakhstan, to two other former Soviet states, Kyrgyzstan and Ukraine. In seeking to expand these countries into the customs union, Russia is using the union as a platform to increase its influence at the expense of other outside powers. For Russia, the customs union is more than just an organization to integrate customs and tariffs. By the time the customs union is set to become the common economic space by 2012, this union will spend everything from common border control to possibly establishing a single currency between its members. In fact, the customs union represents the closest form of integration between Russia and its member states since the fall of the Soviet Union. One country that Russia has been courting to participate in the customs union is Ukraine. Ukraine has been a battleground for influence between Russia and the West, particularly the European Union, for years. Russia has been actively working against this, as this would represent a closer Ukrainian integration into the EU and would challenge Russia's interests in the country. Russia has said that if Ukraine were to join into this free trade agreement, then Russia would have to reciprocate by raising export duties on key goods, and Russia has tried to entice Ukraine to join a customs union by saying it would result in roughly $8 billion of annual benefits for Ukraine. Ultimately, Russia's goal is not necessarily to get Ukraine to join the customs union but to make sure that it stays out of further integration with the European Union. Another country that Russia has been interested in in terms of the customs union is Kyrgyzstan. Now, Kyrgyzstan is a different story from Ukraine, as it has little direct value economically speaking to Russia. It's one of the poorest countries in the former Soviet Union and is not rich in resources like oil and natural gas. However, Kyrgyzstan's location in Central Asia, and especially its border with China, has made a key hub for re-exporting cheap Chinese goods to the rest of Central Asia, like clothing. Also, because China has been slowly building its ties and influence in Central Asia, especially economically, it would be in Russia's interest to block it off from such influence and having Kyrgyzstan join the custom union would be an excellent means of doing so. Having Kyrgyzstan join the customs union would also give Russia more leverage over the U.S., as Kyrgyzstan serves as the location for an important U.S. military base meant for operations in Afghanistan. Therefore, both Ukraine and Kyrgyzstan are key countries to watch as Russia continues to build its influence in its periphery via the customs union.

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