The Eurasian Economic Union & ASEAN. How The Blocs Intra-Regional Trade Is Developing

Op/Ed by Chris Devonshire-Ellis

Implications for emerging Central Asian and South-East Asian supply chain developments

The Eurasian Economic Union (EAEU) is a trade bloc that includes Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia. While that appears an eclectic group, is has huge geopolitical and trade potential significance as it essentially extends from the borders of the European Union to the borders of China. The Association of South-East Asian Nations (ASEAN) includes the countries of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, & Vietnam.

In terms of basic statistics we can compare them as follows:

Both have FTA with China, although the China FTA agreement in terms of goods with the EAEU is still be worked on. ASEAN also has an FTA with India, which is still negotiating with the EAEU. When the China and India FTA are signed off with the EAEU and include goods and services, the common area of the ASEAN and EAEU nations will change significantly in terms of the development of new supply chains, product availability, the movement of people, and their overall economic development.

Russia, while the principal member of the EAEU, is also a dialogue partner with ASEAN, giving it a seat at the table and therefore able to understand the mechanisms and dynamics of South-East Asia. Russia actively participates in ASEAN-led multilateral mechanisms, including the East Asia Summit, and the ASEAN Regional Forum amongst others.

Meanwhile, ASEAN and the Eurasian Economic Commission, the main body of the Eurasian Economic Union, have signed off an MoU on Economic Cooperation in November last year. That document can be downloaded here and details customs procedures, e-commerce, technical regulations, trade, investment & finance, and assistance for micro-businesses and SMEs. ASEAN itself is also considering the possibility of a full FTA with the EAEU, an ASEAN-EAEU FTA proposal is currently being studied.

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These efforts are having some effect, as we can see in the graphs below.

In terms of FDI, this has been relatively small, with principally EAEU members Kazakhstan and Russia contributing collectively about US$15.4 billion, mainly in the oil, gas and tourism sectors. In return, it is ASEAN members Malaysia, Singapore, Thailand and Vietnam that have invested the most in the EAEU, about US$9.3 billion, mainly in agriculture, food and tobacco. There are some blips though – Vietnam is currently the only ASEAN member that has a full FTA with the EAEU; that experience, now entering its third year, has seen mainly Russian investment enter Vietnam, and is now at about US$10 billion. Thailand is also a beneficiary of Russian money as it continues to attract increasing numbers of Russian tourists. Some of these are investing in property and small businesses in the country, a recent phenomena that exists elsewhere across South-East Asia, including regions such as Goa in India and Sri Lanka. That trend will spread further throughout ASEAN.

It is not an uncommon experience now at Moscow’s two main airports to see Vietnamese traders, laden up with shopping bags, checking in Russian manufactured electronics and smoked foods en route back to Vietnam.

There remain significant issues, and like the EAEU trade position with the European Union, there remain issues concerning standards and compliance. However, unlike the EU, ASEAN is far more trade influenced – it wants to do business and cut the politics to a rather greater extend than Brussels. There is also less pressure exerted from Washington to do its bidding. While there are bureaucratic bridges to cross, and negotiations concerning trade to be completed, the emergence of an EAEU and ASEAN alliance should not be taken lightly, processes are underway to line up the trade protocols first to allow an expansion of intra-bloc commerce. As mentioned, with China a significant presence in both, this will provide opportunities for the development of new supply chains. That will impact upon foreign companies currently operating in China who may wish, for cost or US tariff reasons, to establish operations elsewhere. Of the countries involved, Vietnam, Indonesia and the Philippines are the best bets at present, with Singapore as a regional financial and services hub. However, Armenia and Belarus offer access to the EU, and Kazakhstan offers logistics access to both east and west. These countries also show up well in the global Ease of Doing Business Rankings, as follows:

In short, at first glance, an alliance between the EAEU and ASEAN doesn’t make a lot of sense. But that is because it hasn’t been considered before. However, the mutual trade in goods is relatively well-balanced and complimentary, while the reach of infrastructure being built as a result of the Belt & Road Initiative impacts positively upon both. While a lot still remains to be done; for foreign investors in Asia, the emerging supply chain potential to and from the EAEU into ASEAN, China and India and all permutations of that need examining. There are costs to be saved and money to be made in doing so, and being the first on the scene. Is your Russian, EAEU and ASEAN business and supply chain potential being recognized?

Related Reading:

Russian Businesses Expand into Vietnam, ASEAN via the Eurasian Economic Union

EAEU & ASEAN Deepen Trade, Economic and Investment Cooperation

A Eurasian Central Clearing Bank Is The Next Logical Step For China, Eurasia And The Belt & Road