The tendencies of interregional and international integration in North Caucasia

The problem of restoration of internal economic communications in the new market conditions is very important for North Caucasia as a single economic region. The economic complex of North Caucasia was formed on the basis of broad co-operation with south-eastern areas of Ukraine and the republics of Transcaucasia. As a result of collapse of the USSR North Caucasian economic region lost about 70% of connections with the republics of Transcaucasia, 50% ? with Ukraine, 30 ? 35% ? with Russia and 85 ? 90% ? with the former CMEA members which had an adverse effect on the economic activity of the region. The rate of decrease of production volume in the industry exceed the average parameters in Russia, which is also explained by the specialisation of the industrial complex of North Caucasia oriented on delivery of production to accessory manufacturers. According to Institute of National Economic Forecasts of the Russian Academy of Sciences, the factor of dependency for North Caucasian economic region is 0.75 which means that 75% of the gross regional product is made on the basis of co-operation with companies from other regions, including the supply of raw materials and electric power.

The tendency to restore the common economic space and "horizontal" economic relations, to adjust intergovernmental co-operation and the interregional exchange of goods results in different forms of integration. This is assisted by general social and economic problems and absence of financial and other resources for their solution in each of the subjects of North Caucasian economic region.

Today the following forms of co-operation and integration exist:

* bilateral contracts and trade-economic agreements between republics, territories and regions of North Caucasia, as well as with other regions of Russia;

*co-operation with adjacent CIS states, including borders states;

* legislative activity in economic and social sphere ? Inter-parliamentary Council of Adygey, Kabardino-Balkariya and Karachay-Cherkess Republic;

* creation of associations of interregional social and economic development ("North Caucasia", "Southern Russian Cities");

* Caucasian integration within the framework of organisation "Caucasian Common Market".

The practice of bilateral trade and economic connections is widely spread. More than 80 agreements and contracts (1999) are concluded between territories, republics and regions of North Caucasia. The majority of North Caucasian subjects have extremely wide interregional connections.

In 1999 North Ossetia concluded agreements on trade and economic co-operation with 29 subjects of the Russian Federation and prolonged 21 agreements with the subjects of the Russian Federation and CIS states. The most favourable trade and economic connections within North Caucasian economic region the republic has with Stavropol and Krasnodar Territories, Rostov Region and Kabardino-Balkariya, and outside the economic region ? with Georgia, Kazakhstan, Moscow, Moscow, Leningrad and Penza Regions.

Dagestan has contracts and agreements on economic and technological co-operation with 38 subjects of the Russian Federation. Within the framework of these agreements trade and production relations are established with regions on market conditions, joint companies and interregional groups are created. Dagestan actively opens trading houses in other republics of North Caucasia.

Especially close connections are established with Stavropol Territory. The relations between these two large North Caucasian regions having common border show the tendency to production integration. In June 1999 the problem of completion of construction LEP-330 was discussed. It should connect Dagestan with Stavropol Territory which will allow the republic to once again join the Unified Energy System of Russia after the connection was broken by events in adjacent Chechnya, through the territory of which the power supply was performed. The bilateral co-operation plans pay much attention to the problems of construction of railway line Budennovsk (Stavropol Territory) ? Kizliar (Dagestan) that will ensure stable transport communication between Dagestan and other regions of North Caucasia. The projects of bilateral interregional co-operation on water supply of Yuzhnosukhokumsk, financial participation of Stavropol corporations in renovation of Makhachkala commercial sea port are also of great importance. The long-term arrangements were reached on guaranteed deliveries to Dagestan of Stavropol grain in exchange for fuel and lubricant oil for agricultural engineering.

Adygey has contracts on friendship and co-operation supported by trade agreements with Kabardino-Balkariya, Karachay-Cherkess Republic, North Ossetia, Ingushetia, Dagestan, Krasnodar Territory, Georgia (Abkhazia), government of Moscow.

Kabardino-Balkariya has signed the agreements on trade and economic co-operation practically with all republics and territories of North Caucasia, as well as with Moscow, Tatarstan, Yaroslavl Region. Special attention in bilateral relations is given to maximum satisfaction of the demand of people in food and other products. Kabardino-Balkarian Republic is interested in supply from other regions of petrochemistry products, paint materials for construction industry, raw materials for light industry. The republic expects though co-operation with powerful industrial companies from other regions and partial attraction of their financial assets to restore the resort region and ready to compensate these costs by provision of places in the best sanatoriums for the employees of the investors.

Karachay-Cherkess Republic has trade and economic agreements (42 in total) with Stavropol Territory, Rostov Region, Adygey, Kabardino-Balkariya, North Ossetia, Dagestan, Ingushetia and practically with all regions of central Russia.

Stavropol Territory today occupies the main place in the system of interregional relations of North Caucasia. The territory has concluded bilateral contracts and agreements on co-operation with Karachay-Cherkess Republic, Kabardino-Balkariya, Dagestan, Ingushetia, North Ossetia, Kalmykia, and with 32 subjects of the Russian Federation. Within the framework of the concluded agreements the territory regularly holds joint commercial and industrial fairs (in 1998 ? 1999 11 exhibitions and fairs of production were held) which brought to economy of the region 13 million roubles.

Especially effective business relations are with Dagestan, and the experience of these elations is interesting not only for the North Caucasian region. In the course of development of trade and economic relations the joint Stavropol-Dagestan trade financial company "Stavdag" was organised. Today it is the co-ordinator and liaison in the process of integration of the economy of Stavropol Territory and Republic Dagestan that are going to conduct co-ordinated economic policy, implement investment projects, develop bilateral co-operation in the sphere of foreign economic relations. Pursuant to the Agreement on co-operation it is planned for 1999 to create the co-ordination executive structures for control over the regional integration process: advisory council, joint financial and enterprise structures, bilateral commercial and industrial houses, representation offices.

The co-operation with neighbour CIS states is extremely important for North Caucasian subjects of the Russian Federation. It is mainly developed by the way of recovery of the traditional economic relations lost during last years. Now the share of CIS states in the foreign trade turnover of North Caucasia constitutes only 30%, which is estimated by the experts as underuse of the existing potential, especially in borderline territories.

Priority relations for North Caucasia are with Ukraine, Georgia, Azerbaijan, Armenia, Kazakhstan and Turkmenia that have common borders on the Caspian Sea, and Byelorussia as the state that entered the customs agreement of Russia with the CIS countries. With the participation of the chambers of commerce and industry of the subjects of North Caucasia and adjacent CIS states during the last years joint exhibitions and fairs of goods are conducted and permanent business centres are opened. The positive influence on development of business relations is produced by opening of brand stores of companies from CIS countries in North Caucasia and vice versa shops of North Caucasian companies in the CIS states. For example, after the Russian-Ukrainian exhibition-fair "Commonwealth ? 97" in Lugansk area only Krasnodar Territory and Rostov Region increased the supply of goods to Ukraine for more than 50 billion roubles and have received on import for 48 billion roubles.

To encourage foreign trade relations of North Caucasian subjects of the Russian Federation with Ukraine in Lugansk and Rostov-on-Don permanent chambers with samples of production of North Caucasia and southeast areas of Ukraine (Lugansk, Donetsk, Kharkov, Zaporozhye and Dnepropetrovsk) were organised. Today because of definite complications in payments between Russia and Ukraine with the use of national currencies trade organisations of North Caucasia and frontier areas of the Republic Ukraine develop the schemes setoffs, deliveries of production on conditions of "bound" credits, etc. The regions apply to the federal authorities for legislative customs regulation for frontier co-operation, for cancellation of double taxation practice, simplification of the procedure of goods transportation between North Caucasian and Ukrainian producers. It is offered to develop a "frame" agreement on external economic co-operation of republics, territories and regions of North Caucasia with the regions of south-eastern Ukraine. Such agreement could be also open for border regions of Transcaucasia. The legislative regulation of frontier relations is important not only for trade operations, but also for more close co-operation in production, in the sphere of investments.

Development of frontier co-operation with Georgia and Armenia is strongly supported by North Ossetia. The development trade and economic relations is considered to be the shortest direct way to ethnopolitical stability. Prospective forms of co-operation with Georgia are establishing of joint industrial companies, common investment projects in power engineering and transport. Quite attractive for the countries of Transcaucasia and first of all for Georgia and Armenia, in the judgement of North Ossetia, may be the following joint projects with share financing: completion of construction of Zaramagskaya hydroelectric power station with capacity of 352 MW, construction of a new plant for production of dolomite flour with modern technology with the output of 10 thousand tons of production per year (cost of the project ? 5 million USD), construction of a plant for production of extra strong refractories. The dolomite flour plant could provide this material irreplaceable in glass and porcelain industry to dozens of manufacturing companies located in Georgia, Armenia, Azerbaijan, Ukraine. North Ossetia has frontier relations with Kazbek region of Georgia, the companies of republic co-operate directly. The Government of North Ossetia-Alania Republic has prepared a large agreement for development of co-operation with Georgia in all areas, including economy; some joint projects are developed, including joint construction work and opening of shops in Vladikavkaz and Tbilisi.

Georgia, in its turn, shows interest in establishing close relations with North Caucasia. A special committee on relationships with the peoples of Caucasia in the Georgian Parliament has determined the priorities of economic co-operation: Rostov Region, Stavropol Territory, Kabardino-Balkariya. The Georgian party is ready first of all to sell to the southern Russian regions its alcohol products, tea, citrus fruit, mineral waters, as well as to expand tourist and resort services. In Stavropol and Krasnodar Territory the Transcaucasian partners would like to purchase grain, production of poultry-farming and cattle breeding industry. To stimulate the trade it is necessary to revise the tax legislation in foreign trade and to eliminate some obstacles that made the Russian-Georgian unprofitable during the last years. For this reason the Georgian market is on the 12th place by attractiveness for the exporting companies in Stavropol Territory despite the geographic proximity, and in the list of importers of Stavropol Territory Georgia occupies only the 43rd place.

Dagestan pays much attention to international relations with CIS countries and frontier co-operation. After the collapse of the USSR it has Azerbaijan, Georgia, Kazakhstan and Turkmenia as neighbours. The intergovernmental agreements on co-operation with Azerbaijan Republic and Republic of Kazakhstan were concluded.

Dagestan is the only subject of the Russian Federation that borders on Azerbaijan. Considering the existing ethnopolitical problems, first of all "separated nations" (Lezgins live on the both sides of the border), development of economic relations is especially important. Since 1995 a permanent representative of Dagestan stays in Azerbaijan. It allows to promptly resolve many current problems. The co-operation develops in the sphere of trade and production. The joint-stock company "Dagneft" and three Azerbaijan companies (State oil company, "Azerbaidzhanenergia", "Azerbaidzhanneft") concluded an agreement on co-operation in development of reservoirs of oil in the Caspian shelf, on mining of one gas field and on scientific research.

In 1998 the Government of Dagestan cancelled limitations on crossing of the state border of Russia with Azerbaijan and Georgia, which led to decrease of tension and increase of economic relations. According to the intergovernmental agreement on trade and economic co-operation between Dagestan and Azerbaijan a branch agreement on co-operation in agriculture is prepared. Similar agreements are also prepared with the relevant ministries of the Republic of Kazakhstan. The business centre "Kazakhstan ? Russia" acts as a guarantor under a number of economic agreements between Dagestan and Kazakhstan.

The problems of frontier co-operation are developed in Krasnodar Territory that borders on Georgia and Ukraine. A major international project for the territory is restoration of railway communication with Georgia (includes settlement of relationships between Abkhazia and Georgia) through common interest in supplies of goods from the south of Russia.

Today the development of frontier relations of North Caucasia is hindered by the absence of the relevant federal law, therefore the republics and territories of North Caucasian economic region in April 1999 proposed to speed up the consideration in the State Duma of the Federal Assembly of the Russian Federation of the project of such law and to promote development of the relevant model laws in CIS countries through Interparliamentary Assembly of CIS.

One of the forms of interregional integration in North Caucasian economic region that also originated form below, i.e. under the initiative of North Caucasian republics, was Interparliamentary Council of Adygey, Kabardino-Balkariya, Karachay-Cherkess Republic. The agreement on its establishment was signed in Nalchik of May 25, 1997 under the initiative of the president of Kabardino-Balkarian Republic V.M. Kokov. At the II session in May 1998 the Interparliamentary Council approved the concept of the draft programme of economic (integration) relations of the three republics till 2000 and in November 1998 this programme was finally adopted. This programme envisages common use of natural resources, conduct of common policy in the sphere of production of goods, investment activity, ecology, promotion of co-operation of agricultural complexes of the three republics, development of close transport relations.

At the first sessions of Interparliamentary Council in 1997 ? 1998 the following issues were also discussed: proposals on creation of interrepublican leasing chamber, financial and industrial group of the three republics, creation of joint market productions, issue of a common bill of exchange or savings loan under the guarantee of the three republics with subsequent repayment proportionally from funds of each republic, etc. However, these proposals have not been implemented yet.

At the same time in the course fulfilment of the Programme the branch contracts on economic co-operation between the ministries of republics participating in the Council were concluded, including agreements in the sphere of agriculture. A decision is made on joint preparation of laws (under a common technique) in the social sphere: on living standard, target social support, modification of laws on privileges for veterans and invalids. Interparliamentary Council has also accepted an order on co-ordination of economic activity of the three republics.

In opinion of the representatives of Adygey, for more successful relations in the sphere of economy the Interparliamentary Council should include representatives of Krasnodar Territory that used to have common economy with Adygey and Stavropol Territory that used to have common economy with Karachay-Cherkess Republic.

The most effective form of multilateral co-operation became associations of interregional social and economic development including all or the majority of North Caucasian subjects of the Russian Federation. Two associations are the most influential in the North Caucasian economic region: "North Caucasia" and "Southern Russian Cities". The former develops co-operation and integration at the level of independent subjects of the Russian Federation, the latter ? at the level of local authorities which is especially important at the stage of Russian municipal reforms.

The Association of Southern Russian Cities was established in 1991. Now it unites more than 20 cities of the southern Russian regions, including all capitals of republics of North Caucasia, territory and regional centres of adjacent regions: Adygeysk, Armavir, Astrakhan, Belgorod, Vladikavkaz, Volgograd, Volgodonsk, Voronezh, Gelendzhik, Grozny, Izobilnensky region (Stavropol Territory), Kislovodsk, Krasnodar, Kropotkin, Maykop, Makhachkala, Nazran, Nalchik, Novocherkassk, Rostov-on-Don, Saratov, Stavropol, Sochi, Tuapse, Ust-Labinsky region (Krasnodar Territory), Cherkessk, Elista. Associated members of Association of Southern Russian Cities are Yerevan, Sukhumi and Kiev.

The Association of Southern Russian Cities includes several councils: economic, on health resorts and tourism, education, municipal laws.

The Economic Council of the Association of Southern Russian Cities began its work in June 1992. The most important issues developed by the Economic Council of the Association of Southern Russian Cities include:

* creation of a system of budget service the first outlines of which were determined on the basis of Volgodonsk and were implemented more completely in Krasnodar;

* establishment of intermunicipal financial and economic relations as the basis of stability of municipal economy. The first practical implementation was Intermunicipal corporation "Yuzhprodukt" established in 1995 with the functions of the budget intermediary of the Association of Southern Russian Cities, and the last, but not the final form was Intermunicipal loan investment system based on relations between Moscow and Krasnodar;

* consideration of the problem of non-tax basis of the local finances that for the first time was discussed at the conference of the Economic Council of the Association of Southern Russian Cities in Astrakhan (1996);

* control of the urban food market through the mechanism of goods interventions tested in 1994 ? 1995 during the first intermunicipal loan and considerably developed during the crisis of the autumn of 1998;

* municipal economic protectionism defined during the preparation of the South Russian business congress in Novocherkassk;

* deployment of a system of formation and allocation of the summary intermunicipal order discussed at the conference of the Economic Council in Krasnodar in February 1999.

In 1998 under the initiative of the Association of Southern Russian Cities the Congress of municipal settlements of Russia was established and the Interregional anti-crisis conference was conducted. The heads of cities participating not only in Association of Southern Russian Cities, but also in other associations, executive officers of federal authorities and Moscow government, representatives of municipal settlements of Ukraine, business and financial circles took part in its work.

The association has signed an Agreement on co-operation with the Association of Ukrainian Cities (Kiev, November 1997). In August 1998 the heads of the cities participating in these associations met in Belgorod. A decision was made to create Co-ordination Economic Council of the Association of Southern Russian Cities and the Association of Ukrainian Cities. Later this Council has developed a draft agreement on intermunicipal frontier co-operation of the cities of the south of Russia and Ukraine.

The attempt to restore co-operation and business relations was an activity of the Association of social and economic co-operation of republics, territories and regions "North Caucasia". All subjects of North Caucasian economic region and Kalmykia are members of this Association. The associated members are Abkhazia, Crimea, Lugansk Region (Ukraine) and Southern Ossetia. Since 1992 within the Association more than 80 agreements between republics, territories and regions of North Caucasia have been concluded, joint projects are implemented.

The association was created on the basis of voluntary union of representative and executive authorities. The primary goals of the Association are:

* creation of necessary conditions for effective relations of the subjects of the Federation in social and economic development of North Caucasia on the basis of combining of their material and financial resources;

* co-ordination of joint co-operation of the subjects of the Russian Federation on problems of mutual concern;

* implementation of common measures on stabilisation of the economic situation and social protection of the population;

* joint solutions on development and implementation of the regional and interregional programmes and projects on problems included in the competence of the subjects of the Federation and local government authorities; creation of necessary financial and material resources through the use of industrial, technological potential of the founders of the Association, and business activity of the structures created by the Association in these purposes;

* support and implementation of the main directions of the state regional policy aimed at strengthening of the state integrity of the Russian Federation and resistance to separatism and decentralising of the system of state authority in the Russian Federation;

* development of proposals on improvement of the regional state policy in the Russian Federation, development of different forms of national and cultural autonomy;

* organisation and maintenance of relations of regions participating in the Association with the central federal executive authorities at the local level;

* preparation of the guidelines and implementation together with the relevant authorities of the ministries and offices of the Russian Federation at the local level of measures on implementation of the federal programmes and projects, as well as regional, interregional and local agreements and programmes.

The main purpose of activity of the Association "North Caucasia" is the development of mutually beneficial economic relations between its members, creation of conditions for stable economic development of all territories of the region and, the most important, the increase of the standard of living of the population.

The association "North Caucasia" has accumulated certain experience in development of branch and functional interregional programmes.

It has developed a Programme of development of the transport complex of North Caucasia and the programme "Power engineering of North Caucasia"; the programme "Food products" is under development.

The programme on transport development defines the most important issues of the current transport complex and sets forth the priorities of the future development. The energy programme contains specific proposals and ways of their implementation to overcome the shortage of power supply in the region. The programme on food products envisages creation of interregional food market and conditions for control over prices first of all through the liquidation of the system of second-hand dealers and streamlining of the schemes of transportation of food products and raw materials for food production.

Each of the programmes contains certain investment projects (for example, there are 348 of them in the transport programme). They include short-term projects ? with payback within 2 years; medium-term projects ? with return of investments within 5 years and, finally, long-term projects ? with payback time of more than 5 years. By significance the projects are divided into federal (26% in the total number), regional (44%) and local (30%). Thus, the majority of the projects are integrational and important for the whole Caucasia or even the whole Russia. The interregional programmes are financed from several sources: budget funds ? 20 ? 25% of needs; attracted returnable credits ? 50%; investments of economic subjects ? 25 ? 30%. The share of last source of financing will probably grow since today powerful Russian companies ("LUKoil", "Gazprom") and foreign investors show interest in North Caucasia.

Pursuant to the transport programme the renovation of seaports (Makhachkala, Tuapse, Temriuk, Taganrog), airports (Maykop, Vladikavkaz, Kavminvody), automobile and railway is conducted in North Caucasia.

Within the framework of the energy programme five subprojects are implemented: energy and heat supply of the region, gas supply, petroleum supply, restructuring of the coal industry, construction product pipelines.

The association "North Caucasia" co-operates to the Russian Union of Manufacturers and Businessmen that helps work out prospective strategy for North Caucasian economic region with allowance for Russian interests. The Russian Union of Manufacturers and Businessmen offers help in implementation of the following key projects in the region: construction of a paid high-speed highway Moscow ? Northern Caucasus; development of port facilities on the Azov Sea; an effective utilisation of oil and power resources in North Caucasian economic region; production of pharmaceutical products from natural components; further development of reservoirs of lead, tungsten and molybdenum.

The association has proposed to accept the Federal target programme of social and economic development of North Caucasia till 2005 to overcome the crisis situation in the region. This proposal was approved by the Government of the Russian Federation and the relevant decrees were adopted (No. 1104 of August 28, 1997 and No. 40 of January 11, 1999). The working version of the programme is prepared. It consists of four units ? political, social, economic and administrative that include 20 programmes and about 200 projects. 6 main directions are determined: electric power industry, oil processing, gasification, transit, motorways, state and customs borders.

The programme shows the radical changes of the situation determined by the events of the last period, role of North Caucasia as border region, additional relocation of troops. The programme is mainly aimed at finding the ways of integration of the economic, social, scientific and cultural potential of all subjects of North Caucasia, creation of common interregional relations and relations within the region, support of interethnic accord and real federalism.

The success of the programme will depend on correct selection of the order of financing of the projects. The Council of the Association has defined top-priority projects of interregional market structures that create the mechanisms of programme implementation.

They include:

*Interregional fund of the programme implementation;
*Regional informational analytical centre;
*Regional deposit fund including delegated shares of deposit funds of republics, territories and regions;
*Innovation regional centre;
*Regional leasing company.

The project of creation of branch and interbranch holding companies is developed for creation of the structure of control over regional branch complexes. These mechanisms should be combined with improvement of the legislative base aimed at provision of safety of the participants of the investment process and creation of preferential mode for the investors of the programme projects.

The process of regional economic integration in North Caucasia to a unified economic self-sufficient organism cannot be imagined without serious problems. For development of horizontal relations it is necessary to overcome the ethnic conflicts. Moreover, the solution of ethnopolitical, social and national and state problems (including the problem of Chechnya) may be the programme and purpose of co-operation and integration of the regions of North Caucasia.

The problems of international co-operation and integration are also very important. The weakening of positions of Russia in Transcaucasia and vice versa increase of foreign influence in the region of the Large Caucasus affects the north part of the region. North Caucasia is in the shade of the main area of foreign investments that expands from Caspian states of Central Asia to the Black Sea countries and includes the states of Transcaucasia. In this belt the unified transport communication system is implemented, geopolitical and geoeconomic interests of the West are realised, first of all of the USA. For the last years a new regional union of countries CIS ? GUUAM was organised (Georgia, Ukraine, Uzbekistan, Azerbaijan and Moldova) the members of which in their external relations actively orient at the West and avoid close relations with Russia. This circumstance to a certain extent prevents the development of relations between North Caucasian subjects of the Russian Federation with their nearest neighbours ? Georgia, Ukraine and Azerbaijan, since Russia as a participant of the CIS finds it more and more difficult to co-ordinate of the general conditions of co-operation at the intergovernmental level.

The ideas of general Caucasian integration appear from time to time in the territory of the Large Caucasus and that is natural considering the traditional geographic, historical, cultural and psychological unity of the region that was not long ago divided into Russian North Caucasia and foreign southern part (Transcaucasia).

One of the projects of Caucasian integration is called "Caucasian Common Market". It was offered in 1997 by Chechen politicians with the support of the western states ? USA and Great Britain. This project is on the stage of implementation: in Georgia a branch of Caucasian Common Market is established, a company for insurance of foreign investments is established, an industrial construction consortium "Caucasus" is organised that apart from renovation of the port Poti plans to construct motorways and railways in Chechnya. The executive bodies of Caucasian Common Market are also represented in Baku. Caucasian-American chamber of commerce and as part of it Caucasian investment fund were organised in the USA. These organisations are going to collect 3 billion USD as the initial capital for the projects of Caucasian Common Market.

The main project of Caucasian Common Market is construction of the so-called northern pipeline route for export of the Caspian oil to Western Europe. It is planned to construct new oil pipelines and to link the existing ones on the line Baku ? Grozny ? Rostov-on-Don ? Ukraine ? Poland ? Western Europe. The part of the transit tariffs from oil transfer is planned to leave to North Caucasian republics. The Chechen ideologists of Caucasian Common market also call for creation of the North Caucasian free economic area around Chechnya and later of a customs union on the Caucasus that may include Russia.

Other ambitious project ? the project of Caucasian Economic Union that was developed by the creators of the Concept of social and economic reforms in Chechen Republic Ichkeria (1998), that proposed to create the Caucasian Economic Union consisting of Azerbaijan, Armenia, Georgia, Chechen Republic Ichkeria, republics, territories and regions of Russian North Caucasia. The purpose of the union is the creation of common economic space in the Caucasian region.

The alternative to these projects was proposed by the Council of Association "North Caucasia" in April 1999. It is offered to create a free economic area in the basin of the Black sea and probably Caspian free economic area. The idea of the projects is the development of trade relations not only within the Association "North Caucasia", but also between Russia and other CIS countries located close to the region, use of the infrastructure of the Northern and Southern Caucasus to consolidate their efforts in the solution of economic problems. This economic co-operation should encourage stability in the region and strengthening of the Russian state system.