11.11.2016 Author: Dmitry Bokarev

The Eurasian Economic Union – a New Power in the Asia-Pacific Region

3423423231The Free Trade Zone Agreement between the Socialist Republic of Vietnam (SRV) and the Eurasian Economic Union (EAEU) came into effect on October 5, 2016. It was signed by the heads of the governments of the SRV and all the EAEU Member States – Armenia, Belarus, Kazakhstan, the Kyrgyz Republic, and Russia in May 2015, but it could only come into effect after its ratification by the Parliaments of the countries listed above.

The EAEU has been trading actively with Vietnam for many years. Over the period from 2010 to 2014, the trade volume increased by more than 60%, exceeding $4 billion. The establishment of the free trade zone is a logical step in this cooperation. According to the Eurasian Commission’s forecasts, it may lead to more than a twofold growth in trade turnover by 2020, and Russia will enjoy no less than 80% thereof.

The total population of the EAEU is 183 million people and the total GDP exceeds $2 trillion. Privileged access to such an extensive market is surely a boon to Vietnam’s economy. The EAEU also stands to make gains: SRV’s population exceeds 95 million people and its GDP amounts to $192 billion. According to data gathered in recent years, the country’s economy is rapidly developing.

Thus, the Free Trade Zone Agreement is advantageous for both parties. According to the document, most goods from both the SRV and the EAEU are subject to complete or partial exemption from import duty for the next ten years. This should lead to a reduction in their cost and rapid trade development. In addition, the Agreement also focuses on intellectual property protection, cooperation in e-commerce and in public procurement. It also covers competition protection. Alongside imports and exports, the Free Trade Zone Agreement will facilitate mutual investment.

Vietnam’s leadership sees a lot of potential in the trade partnership with both the EAEU and Russia in particular. According to data as of 2016, Russian-Vietnamese trade turnover amounted to $3.7 billion. Owing to the establishment of Free Trade Zone, it is expected to exceed $10 billion by 2020.

Alongside the provisions that are common to all the Members States, the Free Trade Zone Agreement primarily included sections related only to the SRV and Russia. They specify additional terms and conditions, which facilitate trade, investment, and the movement of individuals between the two countries. After the Agreement was signed, the Russian-Vietnamese “Intergovernmental Protocol on supporting motor vehicle production in the territory of the Socialist Republic of Vietnam” came into effect. This document was signed in March 2016 by Vietnam’s Minister of Industry and Trade Vũ Huy Hoàng during a visit to Russia. D. Manturov, the Russian Minister of Industry and Trade, signed the Protocol on behalf of Russia. According to the document, joint ventures will be established in the SRV between Vietnamese firms and Russian companies such as the GAZ Group, KamAZ, Sollers, which will produce various types of automotive vehicles.

Concluding the Free Trade Zone Agreement with Vietnam is beneficial to the EAEU and Russia in particular. However, its significance is greater than simply gaining a good trade partner. It may be posited that the Russian economy has reached a new level: Russia has not had such agreements with countries outside the former Soviet Union before. Furthermore, this is the beginning of the large-scale promotion of the EAEU and Russia in the Asia-Pacific Region.

Since the EAEU’s inception in 2015, it has been trying to establish trade relations with countries in the Asia-Pacific Region. It is well-known that Vietnam is an important member of the Association of Southeast Asian Nations, which unites a number of states in the Asia-Pacific Region. It is quite probable that the free trade zone with Vietnam is a step towards establishing free trade zone will all other Member States of the ASEAN. Many ASEAN Members are favourably disposed towards this idea. Negotiations are being held with Indonesia, the Kingdom of Cambodia, Malaysia, and Singapore. Furthermore, the possibility of establishing free trade zones with non-ASEAN states in the Asia-Pacific Region, such as India, China, and New Zealand is under consideration. Thus, it can be said that the EAEU’s position in the Asia-Pacific Region is gradually strengthening. This was also confirmed by Mongolia’s statement in November 2016 on its desire to join the EAEU.

At first glance, it may seem that the EAEU’s presence in the Asia-Pacific Region will lead to the competition with China, now one of the major players in the region amid the weakening position of the USA. In fact, the growing influence of the EAEU is more profitable for China.

It is well known that the opposition between China and the USA currently dominates the Asia-Pacific Region. America’s economic and political influence in the region has weakened considerably in recent years, but it is still great. America is trying to maintain its power as much as it can and win over as many countries as possible. For example, the Trans-Pacific Partnership (TPP) agreement was signed in February 2016. The TPP includes Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the USA, and Vietnam. All these states are united by a free trade zone and a number of common rules.

It is undoubtedly difficult to compete with such a union as about 30% of global trade is undertaken by TPP Member States. Moreover, negotiations are under way regarding the creation of the Trans-Atlantic Trade and Investment Partnership (T-TIP). The USA hopes to attract the European Union’s involvement. The probability that these negotiations will be successful is small: the project is too disadvantageous for Europe. However, if this happens, major and rich unions may appear on both sides of Eurasia, which will account for about 80% of the global trade. What’s more, the USA will control each of them.

Therefore, the TPP and T-TIP member states may considerably reduce the trade volume with the rest of the world, including the People’s Republic of China, which is currently the largest trade partner for most of them. In addition, one of China’s major projects, which it is laying high hopes – the New Silk Road – will be exposed to risk. It should connect Europe and Asia and become a free trade zone itself in the future. This scenario is surely unacceptable for both China and many other countries in Eurasia and the Asia-Pacific Region.

In order to successfully compete with the TPP and T-TIP, the EAEU states and the states of the Asia-Pacific Region should put great effort into mutual integration. This integration would allow Russia, China, India, ASEAN and Central Asia to be more confident in the face of competition. However, many states that do not wish to cooperate with the USA have fears about a powerful and expansive China. This is an obstacle to regional unification. Perhaps, the emergence of a third power, such as the EAEU, will be a solution to the situation and will help establish a successful partnership.

Dmitry Bokarev, political observer, exclusively for the online magazine “New Eastern Outlook.

 


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