What are the main forces shaping economic diplomacy? Looking at the Eurasian Economic Union through the lens of the state and power as well as institutional design approaches.

Introduction

In August 1991 the world saw the fall of the communist empire. The empire had lasted for nearly a century and controlled the key functions between several states in Eastern Europe and Central Asia. On the ashes of the communist regime, new states ought to adopt the western economic model, thus, comply with the rules of the international structure. The

western dominated structure exposed the newly independent states to greater economic competition and arising challenges.

From the establishment of the Commonwealth of Independent States in 1991 to the initial call from Kazakhstan for the supranational regional organisation, the Eurasian Economic Union (EEU or EAEU) came into force in January 2015. The EEU was comprised of ex-soviet states, including Russia, Kazakhstan and Belarus later joined by Armenia and Kyrgyzstan. This newly emerged regional body aimed for deeper economic integration among the member states and prospects for further developments in geopolitical matters. The primary focus of the Eurasian Economic Union lies in the smooth functioning of market forces for goods, services, capital, and labour (Vinokurov 2017, p.51). Like any other international institutions, the EEU is not isolated from the outside forces which shape the economic diplomacy among the member states. Since the EEU is comprised of different states with different leverage tools they might have at their disposal, the functioning of this institution depends on forces these members exert. In this paper, using the political economy literature I am looking at the two main approaches which shape the decision-making process in economic diplomacy among the member states.

The first approach discussed in the context of the EEU is the state power approach. Drawing from the scholarly literature, the paper discusses power in terms of traditional economic capabilities and power asymmetry among the member states. Dan Drezner’s (2014) analytical framework which defines power as ‘states’ ability to affect, alter, or resist these structures in a way that advances their interest is also a clear sign of their power’ (p. 113) will be applied to the context of power relations of the EEU members. More importantly, this paper focuses on the role of Russian power within the context of this regional institution. This is because the Russian state remains a regional hegemon, thus, possessing and exerting the most influence on economic diplomacy in terms of its state power.

However, it is important to point out that economic power is not a single-use force that acts within the institution. The paper also looks at the role of asymmetrical power relations within the institution. Russia is a key driving force for deeper integration and enhanced ‘spill-over effect’ of integration. This leaves less economically powerful member to balance within the institution. Therefore, looking at the power balancing process and how asymmetrical power status affects economic diplomacy is equally important.

The second approach the paper adopts for the analysis is the institutional design. According to the realist approach of international relations, anarchy is a prevailing system where the actors, thereby states, have to interact with one another. Within these anarchical conditions,

institutional arrangements enable states to pursue their interests and possible alter or preserve their status quo. A regional institution, like any other global institution, can be seen as a mean to influence economic diplomacy among the member states. The design, membership, centrality of the institution as well as the information available within the given institution are important factors in the analysis of the institutional approach in acting on economic diplomacy. Considering these institutional strategies when designing the EEU and later operating within it, the institutional approach becomes an alternative to the state power approach as well as a supplement to the ideas of power.

The paper aims to discuss the state power approach by observing the relations of regional dominant economic power and how soft power balancing strategies are adopted to counterbalance the regional hegemon. Besides, applying the institutional design approach, the paper presented the alternative factors which shape the decision-making process in economic diplomacy.

Main Body

The state power and its role in shaping the outcomes of the decision-making processes is a debated topic among scholars. The concept of power seems to adopt different dimensions. The power, in a traditional realist view, takes the form of military capabilities and economic supremacy over the other international members. To be precise, the sovereign states are the main keepers and users of the various forms of power. The economic power is defined

by the single nation GDP and the financial leverage which enables to shape the talks and use its power to influence the decision-making on economic rounds. The EEU was built to encompass the post-Soviet states with various economic power capabilities to raise their joined influence over economic matters outside the regional structure. The economic power of the state can be observed as a ‘means of constructing and enforcing the rules of the game’ (Drezner 2014, p. 103). The control over the means that enable a single state to shape the flow of trade talks within the institution is a clear projection of economic power capabilities. Taking Drezner’s (2014) analytical framework which was adopted to look at state power on a global scale, the definition of power becomes clearer as it is ‘states’ ability to affect, alter, or resist these structures in a way that advance their interest is also a clear sign of their power’ (p. 113). Putting into the context of the EEU, we notice the power dynamics which define the relations between the members. The concentration of power which is discovered by Drezner (2014) as well as how this concentration informs the ruling governing structure can also be seen in power relations among member states of the EEU. Russian Federation accounts for 87% of the total Union’s GDP (Vinokoruv 2017, p. 57). The noticeable economic power of the Russian states gives leverage to structure the institutional design of the EEU. Having the

economic power at its disposal, we are seeing that it is more likely that ‘the most powerful party often attempts to exploit less powerful counterparts’ as the market share of weaker states lead to marginalisation in negotiations (Landau 2000, p. 11). A clear example that can be found within the Eurasian Economic Union is the relationships between

Armenia, Belarus and Russia. For both countries, their ‘survival directly depends on Russian subsidies and security guarantees…’ (Roberts and Moshes 2016, p. 554). This economic power influence is not exclusive to Armenia and Belarus. Central Asia countries such as Kazakhstan is dependent on economic relations with Russia. The Russian market is the largest market of the union. Kazakhstan possesses the largest volume of commodity trade with Russia, due to the production, transport, and processing of hydrocarbons, and the electric power industry’ (Sergi 2018, p. 57). Thus, the economic power at the disposal of a single state enables to shape of the relationships between the members. It is more likely that the

smaller states are unable to exert enough leverage to counterbalance the economic giant as we see in the case of the EEU. Therefore, we see from the analysis state power, in particular economic power, plays a crucial role in influencing economic diplomacy.

With the change in international structure and the rise of new issues, it is important to look at the emerging strategies of soft power balancing. As it was mentioned above, having a dominant economic power, the weaker states are integrated into asymmetrical relations. This asymmetry does not guarantee that the weaker states are unable to influence the economic diplomacy within the given institution. It is important to take from Hopewell’s (2015) analysis that there are different sources of power of rising states which are not always purely economic, but how ‘they have also exercised different forms of influence’ (p. 314). Needless to say, that the members of the Eurasian Union are not homogeneous in their position. The position is dependent on their size, power to influence politically and economically, and how strategically they are placed. Thus, we see a mix of actors tied in one net.

From Hopewell’s (2015) account,

‘the prevailing view is that current changes taking place in the global economic governance institutions are a reflection of structural changes in the distribution of economic power among states’ (p. 315).

Looking at the structural changes which consequently, as Hopewell (2015) argues, inform the distribution of economic power, with these changes weaker states find new ways to balance in the international arena. To enhance this point further, Landau (2000), for example, makes a claim that ‘weaker parties using different strategies to advance their interests’ (p.11).

For the clarify of this paper, the Russian state is considered to be a strong state in comparison to its member states as Russia’s economic level prevails over the rest of the EEU members. Besides, Russia also exerts political power within the institution which partly, this paper argues, reinforced the economic influence of the Russian state. Thus, weaker states, facing unequal power distribution within the union. Again, in asymmetrical power relations, weaker states adopt the strategy of ‘soft-power balancing’. According to Nurgaliyeva (2016), the strategy of soft power balancing aims to keep under control the tole of individual state ‘within the framework of integration’ (p. 95). Without the need to establish new bilateral negotiations among former communist states as well as find new ways to connect with outside actors without having extensive loses, weaker states create allies on the pressing issues, giving them more power to stand for their interests. For example, Kazakhstan applied this strategy of soft-power balancing to promote its national interest in the oil sector by having internal support within the union as well as enabling it to balance with the larger economic power like Russia.

As we can see, the forces of power, either in a form of economic state power which equip states with leverage tools in influencing economic diplomacy or the strategies of power balancing which are developed under the unequal power distribution environment all have effects on the way how the economic diplomacy is shaped.

The second approach which is adopted to discuss the forces that influence economic diplomacy within the context of the EEU is the institutional design approach. The vast number of scholars present a different view on the effects of institutions. For the purpose of this paper, we are focusing on selected areas that are covered within the main institutional design theoretical approach. With the rise in numbers of international institutions, we are noticing a greater share of traditional state functions being party adopted by alternative actors. The global environment, as this paper continues to suggest, is anarchical in its nature. There is a rise of multidimensional challenges which more often cannot be singularly resolved by traditional nation-states.

The EEU had originated from the Commonwealth of Independent States (CIS) as a by-product of the vacuum created after the fall of the Soviet system. With the need to fill in that space, a regional institution like the EEU came into force. The approach was taken by Koremenos et al. (2001) is highly applicable for this paper. The authors ‘treat institutions as rational, negotiated responses to the problems international actors face’ (Koremenos et al. 2001, p. 768). To expand on this point, Koremenos et al. (2001) go on to suggest that some institutions are more favoured by the state as ‘they are better suited to new conditions or new problems’ (p. 766). The design of the EEU did not remain the same since the first actions towards the establishment of a Eurasian regional body. The design of the institution influences the possibility of successful functions of the organisations, thus, the effectiveness of the decision-making apparatus. For example, as was mentioned previously, the CIS was an ancestor of the EEU. However, the organisation failed to ‘move its decision-making procedure to the supranational level’ (Konoplenko 2018, p. 3). Following years, we see the attempt to expand on the agenda from regional security and bilateral talks among the Central Asian nations, Eastern European countries and the Caucasus to move to more integrated formats. Eurasian Economic Community (EurAsEC) a product of multilateral economic cooperation among Belarus, Kazakhstan, Kyrgyzstan, Russia, and Tajikistan which addresses the questions of economic cooperation and giving a start for a new institutional format (Konoplenko 2018, p. 4).

The events which were followed from the CIS in 1991 to the establishment of the EEU in 2015 ally with the explanation of Jupille et al. (2013) on institutional choice. Building on the literature of institutional design as well as cooperation theory, the authors assume that states are ‘boundedly rational’ which informs their institutional choice (Jupille et al. 2013, p. 19). The way a state might choose institutional strategy as a response to ‘interactions between cooperation problems and the institutional status quo’ (Ibid., p. 19). What we are seeing is that the previous institutional arrangements were ineffective in handling the problems the states were facing. The events which followed the annexation of the Crimean Peninsula and economic sanction imposed on Russian Federation impacted on the economic state of a country. On the other hand, Kazakhstan proposes deeper economic integration which depends on ‘continues access to Russian transit corridors and the huge Russian market of 145 million people’ (Roberts and Moshes 2016, p. 554). The institutional design is an important factor that influences the outcomes of cooperation strategies and economic diplomacy overall. The states apply the tactics of using and selective the previous institution if they can resolve the arising issues. At the same time, states apply the notion of rational choice to change or create a new institution.

Moreover, the institutional design is not an exclusive factor that informs the decision making of the member states. Linking to the arguments on the importance of state power such as economic power and the conditions of power asymmetry, institutional arrangements enhance these factors which also influence economic diplomacy among the member states. The membership of the institution is also an important factor to consider under the institutional design approach. Speaking of the importance of the membership within the EEU, Landau (2000) acknowledges that ‘the structural configuration of the game between asymmetrical players has deep implications for the practice and outcome of negotiations…’ (p. 11). This means that under certain institutional arrangements, asymmetrical powers can be empowered to get through the negotiating rounds as the arrangements of the Union enable them to press against the dominant state. The arrangements of the EEU, for example, enable Kazakhstan and Belarus to apply soft power balancing strategies, forcing ‘Russia to change the strategy, which should correspond to such concepts of the union as “equal union”’ (Nurgaliyeva 2016, p. 96). The institution which is designed to promote the economic integration among the former soviet states benefits the less economically powerful nations in a way that under this regime they have more leverage to balance against the powerful bloc. For example, Russia was unable to persuade the EAEU countries to ‘adopt the sanctions that Russia has imposed on Ukraine’ (Vinokurov 2017, p. 59). Similarly, after the rounds of negotiations among the member states which are required under the EEU format, the EAEU Cargo Transformation Information System was adopted to continue the trade with Ukraine, Kazakhstan and Belarus, despite deteriorated relations between Ukraine and Russia (Ibid., p. 59). Weak states enter in instructional arrangement with more powerful states as, ‘…institutions create spaces for alliance-building and leadership that can enhance the influence of economically or military weaker states’ (Hopewell 2015, p. 315 cited from Drahos, 2003; Hampson, 1990; Higgott and Cooper, 1990; Narlikar, 2003). Therefore, institutional design can be an effective mechanism that influences economic diplomacy among weak and powerful states.

Conclusion

The Eurasian Economic Union presents an example of a regional institution. The example of EEU helped to apply the approaches of power and institutional design as the main forces that shape economic diplomacy. The paper adopted two main approaches in exploring the forces which shape the economic diplomacy within the Eurasian Union. Looking at the effects of the economic power of strong regional power, in this case, being Russian state, on how it influences the outcomes of the economic negotiations, we notice that this traditional form of power remains one of the crucial components in determining the outcomes. The concept of power was extended in the institutional design approach which discusses the status of the EEU members. The asymmetry of power among the members can be a form of empowering weaker states as they can build an effective coalition or the institutional arrangements encapsulate this inequality, thus guarantee the dominance of powerful members. At the same time, the institutional design approach presented strategies that tend to adopt by all states in deciding on the format of the institution which effectively influences the outcomes of economic diplomacy. Both approaches were applied within the context of the EEU. Looking at the evidence, there is no single force that influences decision making. Instead, as presented in this paper it is a combination of factors.

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