Russia Forms Post-Soviet Economic Union With Three Other Nations

By Sergei Blagov | July 7, 2008 | 8:14 PM EDT

Moscow ( - In a move reportedly opposed by the U.S., four major constituents of the former Soviet Union have formed a new economic grouping which envisages an eventual free trade zone and, possibly, a common currency.

Russia, Belarus, Ukraine and Kazakhstan are to comprise the Common Economic Space (CES), also known as the United Economic Space (UES), following the signing of a framework agreement at a gathering in the Ukraine on Friday.

Their four leaders, Vladimir Putin, Alexander Lukashenko, Leonid Kuchma and Nursultan Nazarbayev, agreed to promote greater coordination of economic policies and trade, including a free trade zone.

Putin said more than 90 percent of Russians supported the move, which he firmly denied was in any way reminiscent of the former USSR.

Ukraine's Kuchma said the agreement was in line with his country's national interest and expressed the hope that the CES free trade zone could be set up by 2010.

But within Ukraine, there are strong differences between pro-Russia and Western-oriented political forces, with the pro-Western figures opposing the CES plan.

The U.S. also appears to be leery.

Washington's ambassador to Ukraine, John Herbst, was quoted as telling a press conference in Kiev last Thursday that the plan could complicate "Ukraine's desire to be integrated into the Euro-Atlantic community."

But, he said, ultimately it was Ukraine's decision.

According to the Texas-based independent intelligence analysis firm, Stratfor, the U.S. is opposed to the CES plan because it prefers to deal with the states individually.

"If they are united, even only economically, they will pose more of a force to be reckoned with," it said in a briefing.

"Washington might worry that one day this economic integration could lead to a political union of former Soviet states that could compete geopolitically with the United States."

For some, the CES concept is an echo of the communist-era COMECON, an economic union of former "socialist nations."

Before it fell apart with the collapse of communism in the late 1980s and early 1990s, COMECON followed policies of import substitution, protection of domestic industries and artificially high exchange rates.

These days, transactions among post-Soviet nations are in U.S. dollars, but Russia has been suggesting that its ruble should be legal tender for transactions among post-Soviet nations.

Within the past two years, Russia's ruble has experienced a period of relative stability, now valued at around 30 to the dollar.

However, memories of the currency's volatility are fresh: Within days of Russia's August 1998 financial crisis, the ruble had plunged from six per $1 to 24.

With that record, some post-Soviet nations are likely to be wary of accepting it as an instrument for international transactions. Russia has been struggling to persuade its closest post-Soviet ally, Belarus, to adopt the ruble.

The heart of the CES would be Russia, with its abundant natural resources.

With a trade surplus of more than $50 billion, by Moscow's reckoning, Russia is considered the former Soviet republic with the most economic potential.

In the first half of 2003, Russia recorded a $3.4 billion trade surplus with other former Soviet states, including $2.6 billion surplus with Ukraine alone.

If it went ahead, acceptance of the ruble for transactions among the former Soviet states could further boost Russia's economic clout.

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