Russia & the Issue of Free Trade Expansion vide the EAEU

Upama Nandy

 

Introduction


Established in 2015, the Eurasian Economic Union (EAEU/EEU), consists of five major member States. These include Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia. One of the primary reasons that promote the need for expansion of the network along this free trade area is banked on the fact that with its nominal GDP at $2 trillion ($4.5 trillion at purchasing power parity), and population of 183 million people, the Eurasian Economic Union, however sizable, is not a self-sufficient market, at least as far as concerns about higher-value-added goods stand (Evgeny Vinokurov, 2020). Any possible endeavour that attempts to achieve a 'Eurasian Fortress' (Vinokurov, 2020) would be a financially self-destructive decision for the trade union in the long run. This is majorly governed by the norms of globalization that inherently believes in everlasting and interdependent bonds that evolve into an integrated international market. If Eurasian Economic Union's inability to open doors in an era of globalization prevails, it can lead to an everlasting bout of making up for lost connections (Report, 2020). The technologically advanced future creates the scope of opportunities to export primary as well as non-primary goods at internationally sanctioned rates (Evgeny Vinokurov, 2020). A domestic market does guarantee protection from competition but fails to promise substantial growth.


The Eurasian Economic Union (EEU) is often seen as one of the foremost attempts of a premier post-Soviet initiative that has been able to conquer trade hurdles and propagate unification and collectivism in an already disintegrated and less developed area. Theoretically, the EEU is a commercial, technocratic venture that aims at promoting inter-border trading and reinforcement in tackling labour migration issues. However, it also proposes a financial risk that is propounded by raising tariff rates and potentially orienting economies away from global markets (Report, 2020). Its commercial success is still not sturdy and even though the access to the Russian market has created a lucrative expansion opportunity for the Union, the exhaustion for these post-Soviet territories has continued (Troitskiy, 2020). These economies have had to face multiple challenges including trading disputes, internal financial crises and unkempt sanctions. By 2015, internal EEU trading fell by 26 per cent, but there has been a phenomenal improvement in the legislation that promote migrant labour rights and it is believed that in the long run, the harmonization of EEU will give rise to customs beneficial to all these post-Soviet territories (Gharabegian, 2015).


Russia and the Eurasian Economic Union


When it comes to understanding the position, Russia stands in with respect to the EAEU and the fundamentals of the organisation one has to understand the stature as well as the rationale of this nation’s association with the same. Analysing history can showcase the steep fall that Russia took after the 1990s (Popov, 2017). The same fall can be established as a motivation for Russia to re- unify its associations with its neighbours. The EAEU can be predicted as a creative channel for this to happen. Needless to say, Russia’s aim towards such a union has been displayed before as well. For example, Boris Yeltsin signed a treaty to create the Commonwealth of Russia and Belarus shortly before the 1996 elections, and Vladimir Putin, in the contemporary times had outlined his vision of the EAEU in the platform of his 2011 election campaign (Inozemtsev, 2020). Despite hardships, the Russian referendum has always showcased a steady amount of positive public participation when it comes to the EAEU (Inozemtsev, 2020). Thus, the goal of enhancing this union into one that promotes financial and territorial and socio-political advantages for Russia is not sudden or abrupt.


Russia’s goals have always been diverse. The establishment of the EAEU has created an opportunity for Russia to introduce its collective approach as a Union as strong as European or Southern partnerships (Report, 2020). This has also allowed Russia to have a forefront in the Eurasian region. Moscow has favoured stricter regulation of the movement of goods across the borders of the Union, as it was unhappy with large- scale re- exports from both the West, i.e., Belarus, and the East, i.e., Kyrgyzstan (Inozemtsev, 2020). This can be evaluated as a distinctive commercial move that places Russia at a position of economic advantage. Moscow has also shown its non-oblivious stance to the crisis that migrant labourers face all across this region (Evgeny Vinokurov, 2020). This has also evolved as a successful labour integration initiative that has also enhanced the Russian prowess.

Unfortunately, the establishment of EAEU didn’t create a huge upscale for the business climates of the member states. First, it was initially believed that business would move from countries with higher taxes like Russia to countries with more liberal tax regimes, like Kazakhstan. Indeed, this process began in 2013-2014 but soon stopped completely (Inozemtsev, 2020). Russia, Kazakhstan and Belarus are regions where the government majorly taking control of the reigns of the nation’s economic investments. The government’s share in most of these regions go as high as 60% to 70%, (Troitskiy, 2020) thus they are always sceptical to open their doors to the international market of risks. A massive share of giant private companies is reliant on public acquisition schemes. For example, the total value of public procurements in 2017-2018 in the EAEU was comparable to total EAEU exports (Vinokurov, 2020). One of the major issues of the EAEU that distinguishes it from the European Union as well as its inability to sanction investment deals due to a lack of trust-building among the member states (Inozemtsev, 2020). The integration plan almost entirely lacks any discussion on the investment component which ideally should be an essential element of this Union. For example, by the end of 2018, Germany invested 91.5 % of its accumulated investment capital in other EU states (excluding the UK), while Russia placed only 1.9% of its foreign investments in EAEU countries (Inozemtsev, 2020). The Union (de facto) stays aligned as a simply customary affiliation, however, even though this scope, it doesn't showcase any active significant advantages as of now.


Russia and Free Trade Expansion


Russia did express its policy of free trade and openness as an initial algorithm that would guide EAEU (Dzarasov, 2019). However, the execution of the same was visibly delayed over the years. It has been widely agreed that the Union was initially a mechanism that would promote expansion rather than just become a weapon of integration (Wilson, 2019). The reality of the Russian aim is to establish a defence base that would prevent extortion of the Eurasian region as well as promote the enhancement of the same. Russia is constantly striving to besiege its neighbours but could not historically gain domestic dependence especially when it comes to trading and manufacturing of technological products or investment opportunities (Inozemtsev, 2020). Thus, the possible cooperation through EAEU was also established as the technocratic headquarter for Russia. The Eurasian Economic Union (EAEU), often described as Russia’s equivalent to the EU, is poised to sign off Free Trade Agreements with Egypt, Iran, India and Singapore (Devonshire-Ellis, 2018). This can be seen as a possible experiment to expand the free trade zone agreement. This trans-regional Union can allow the Russian export enterprise to benefit massively and also let it compete on an international playfield. One of the main advantages of this expansion is the powerful trading tool that can be created through the EAEU. The fact that EAEU has faced hurdles is not latent to the international community, thus this expansion can be seen as an image boost for the Union and its initiatives.


The commitment of Russia suggests this partnership venture as an alternative to a withered Trans-Pacific Partnership (Devonshire-Ellis, 2020). It is highly probable that through this venture Russia might be successful in consolidating the faltered image of EAEU and form a free-trade bloc that is also aligned with the Chinese Belt and Road Initiative (Devonshire-Ellis, 2018) thus jointly progressing towards a positive transformation in the Eurasian trading systems. This evolution of the EAEU has astonished many analysts. The initial EAEU- China Free Trade Agreement was seen as a non-specific and highly diluted agreement and wasn’t positively received by the international market (Devonshire-Ellis, 2018). However, the current developments show quite the opposite of what the world expected from this FTA. The standing point that was missed by many was the agility clause of the FTA that allows inclusion and dismissal of products and negotiations as and when deemed fit. Russia holds the banner of similar FTAs for promoting the further expansion of the Eurasian Economic Union. In terms of the additional countries being added to the EAEU FTA, Egypt already possesses a Russian financed export processing zone in Port Said, while Russian-Egyptian bilateral rose by 37 per cent in 2018 (Devonshire-Ellis, 2018). Simultaneously Russia and Iran are also strengthening their diplomatic ties through the EAEU (Connor, 2018); this can also be analysed as a prelude that can result in a probable arrangement with the USA itself, who stands in support of trade with Iran. This is indeed a lucrative prospect for the Union, however, the viability of this prospect remains undetermined.


Conclusion


The tangible advantages that a citizen procures via the EAEU are indeed massive. However, it is widely visible through the above arguments that the Union hasn't been able to fulfil most of its long-term ambitions. This trading disparity keeps getting highlighted as member states continue raising their expectations without actively amending the EAEU framework to achieve those. Russia's persistent demand to open the EEU project to the world forces is a lucrative but bold move. However, it often tries to compare the feeble EEU structure to the already established flouring structures of the European Union and others. A major way of understanding EEU is by addressing the 'birth trauma' of EEU and resolving crisis from the bottom of the barrel before opening doors to an extremely competitive world market (Troitskiy, 2020). Failure to do so can lead to stagnation and more dilution of the EEU mechanisms. The ‘tax maneuver’ (Inozemtsev, 2020) is a significant advantage that is propagated by the Eurasian Union through the direct influence of Russia. The expansion to lead to greater deals for the member states as their financial interdependence would find leverage in the international market community as well. The reason for this lack of interest outside of the bloc’s current and potential members is probably because intra-organizational trade continues to remain low and certain suspicions remain unresolved between its various members (Korybko, 2019). Thus, the resolution of these internal discrepancies is vital to promote the Russian aim of free trade expansion for the Union. Russia itself needs to elevate its domestic economy as the EAEU is guided by this nation to a major extent, the stability of Russia can be seen as an assurance for the member states to invest further into the Union. The Eurasian Economic Union needs to aspire into becoming a progressive networking and circulation platform that can allure foreign nations to indulge in, a step towards the liberal economic zone. Needless to say, the achievement of this shall be noted as a huge win for Russia in the global community. It can be argued that the Russian motive is self-invested, however, the ripple effect of this economic boost might just prove to be beneficial for the entire Eurasian region. In the era of new regionalism (Theories of New Regionalism, 2003) EAEU’s multilateralism will fail if recovery measures in the form of expansion or alignment are not propagated by the member states.


References


Connor, Tom.Russia and Iran Winning War of Influence Against U.S. With New Ties to Middle East Allies Iraq, Syria and Each Other”. Newsweek.com. [online]. 2018. [19 January 2021]. Available from: <https://www.newsweek.com/russia-iran-winning-war-influence-us-new-ties-middle-east-allies-iraq-syria-832845>.


Devonshire- Ellis, Chris. “China-Russia Great Eurasian Partnership on Development Track as EAEU Agree to Regional Free Trade”. Silk Road Briefing. [online]. 2018. [19 January 2021]. Available from: <https://www.silkroadbriefing.com/news/2019/02/12/china-russia-great-eurasian-partnership-development-track-eaeu-agree-regional-free-trade/>.