The Eurasian Economic Union is expanding, and quickly. In early September, leaders of the five member states gathered in Kazakhstan’s Borovoe resort area to sign documents making Israel and China official partners to the trading bloc.
The Union and Israel have signed an agreement authorizing the creation of a free trade zone.
“Israel’s extremely developed economy makes it a very attractive partner for the Eurasian Economic Union. In 2014 alone, this country’s per capita GDP was at US $39,100 while in Russia it was only $14,400, in Kazakhstan $14,600, and in Belarus $5,500,” says Kazakh economist Valentin Makalin.
Kazakhstan and Israel have enjoyed a decent level of bilateral trade over the past few years, he says, though he adds that the bulk of Kazakh exports to Israel were oil and gas, and due to the fall in global oil prices, the trade balance had dropped in 2014. On the other hand, agricultural products, pharmaceutical, dominate Israeli imports to Kazakhstan and food products.
“Kazakhstan regularly becomes a member of various unions that don’t make sense for the country’s economy, and this is the case now again. If we create a free trade zone with Israel it just means that this country will start shipping tax-free all of its goods to Kazakhstan. So they will benefit, but us? I don’t think so,” says Forex Market Dealing Center analyst Arman Beysembayev.
“We don’t sell them anything apart from uranium and oil, so this isn’t going to be a profitable agreement for our country,” he warns.
“As a result of such an agreement, foreign currency flow out of the country will increase. This means that the dollar will become more expensive in Kazakhstan, and this is no good for us. This means that the country will be supporting other countries’ economies but harming its own,” he says.
But free trade with Israel poses far less risk than the free trade partnership with China, another agreement reached at the gathering, says Aidar Alibayev of the Association of Financial Services.
“This time around the final agreement wasn’t signed, but next year this is likely to happen, and that kind of agreement will threaten Kazakhstan’s economy even more. This means all Chinese goods that are in transit from China to Europe through Kazakhstan will now pass through untaxed, which will be a huge blow to our economy. Especially given the extent of our economic problems already, this isn’t smart,” he adds.