Eurasian Economic Union Plans For More Free Trade Agreements

Op/Ed by Chris Devonshire-Ellis  

The Supreme Eurasian Economic Council, the Heads of State decision making body for the Eurasian Economic Union (EAEU), has been making considerable progress with plans to accelerate the number of Free Trade Agreements it has with other nations, and to speed up alignment with China’s Belt and Road initiative.

The Supreme Eurasian Economic Council is the highest supranational body of the Eurasian Economic Union (EAEU) and is composed of the Heads of State or Government of member states of the EAEU, with meetings by the heads of state at least once a year. Decisions are taken by consensus and are binding on all States, which include Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia. An online meeting of the Council took place on May 21.

To date, the EAEU has signed Free Trade Agreements with Vietnam, Singapore, Serbia, and Iran. An FTA with China has also signed off but at present remains ‘non-preferential’ – meaning no tariff reductions have yet been agreed. However, both Russia as the largest EAEU market, and China have committed to boosting their bilateral trade and stated they intend to double it by 2024 to S$200 billion per annum. Enacting the China-EAEU FTA would be the simplest way to do this – yet negotiations over product tariffs are a delicate matter and need to be handled carefully – certain industry sectors are still largely protected from competition by regional governments, and Chinese manufacturers are known to be highly competitive. An agreement is likely to have to be phased in for certain sectors to allow them time to adapt.

It is not just China that is interested in the EAEU, and the Supreme Council is also looking to include the CIS member states of Azerbaijan, Moldova, Tajikistan, and Uzbekistan as well as beyond Eurasia’s borders. The map below gives the current situation as concerns specific countries known to either have an EAEU FTA or be discussing the possibility:

The Belarus President, Aleksander Lukashenko stated “Despite all the complexity of the international political situation it is necessary to continue working to position the EAEU as one of the centers of the integration contour of the great Eurasian partnership, including through the alignment with China’s Belt and Road initiative. I call to intensify work in this area.”

Lukashenko also stated that he believes that at the current stage of the dialogue with China, it is advisable to focus on the development of digital transport corridors. “It is also necessary to promote the export of our products to China. Concerning food it is necessary to optimize veterinary, sanitary and phytosanitary control” the Belarusian president said.

Negotiation processes on free trade zone agreements should be intensified as well, Lukashenko added. “This is especially true in respect to Egypt, which can become a springboard for the EAEU countries to promote their trade and economic interests in Africa”. Our examination of the potential for Russia-African trade can be found here.

Western media and analysts have tended to be dismissive of the Eurasian Economic Union, and it is true that industrial protectionism among members can make the effective implementation of tariff reductions and the subsequent loss of fiscal duty revenue and vested commercial interests, difficult barriers for reform. However, other pressures are also growing, with the United States openly using sanctions as a trade weapon to boost its commercial intentions. This impacts China and Russia to a large degree, making the likelihood of a China-EAEU FTA more rather than less likely. Other EAEU member countries will be keen to access a China market with a middle-class consumer base of some 550 million – more than double the population of the EAEU nations themselves – a scary thought for some regional politicians and political dynasties concerned about losing influence, yet one that can be catered for by moving into new areas of trade such as investing in digital infrastructure revenue streams.

It remains to be seen how the EAEU nations and politicians will react to the current negotiations concerning FTA with other countries. The Vietnam agreement, now five years old, appears to have been a success for both sides, and has been expanded into other market sectors. But Vietnams export capability is rather smaller than China’s massive industrial export sector. Nonetheless, while there may be short-term pain for some EAEU industrial sectors concerning a Free Trade Agreement with China, the longer-term benefits – including technology transfer, improved domestic productivity, and a huge China export market that the US and EU are both stepping away could be the key to a long overdue Eurasian boom. With the confidence such a trade adaptation would inevitably bring to the EAEU, renewed vigor could see its Eurasian and global trade influence become increasingly significant.

About Us

Russia Briefing is written by Dezan Shira & Associates. The firm has 28 offices throughout Eurasia, including China, Russia, India, and the ASEAN nations, assisting foreign investors into the Eurasian region. Please contact Maria Kotova at russia@dezshira.com for Russian investment advisory or assistance with market intelligence, legal, tax and compliance issues throughout Asia.

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