Shanghai Cooperation Organisation Moscow Summit Implies A New Eastern Bloc

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Op/Ed by Chris Devonshire-Ellis 

Russia made the most of the Shanghai Cooperation Organisation’s Moscow meeting of member state Foreign Ministers, as Sergey Lavrov, the Russian Foreign Minister, helped broker a peaceful retraction of troops from China and India over their Ladakh standoff.

In the first face to face dialogue between India’s Subrahmanyam Jaishankar and China’s Wang Yi, both China and India agreed to step down their military positions in Ladakh. A joint statement said the two sides had agreed to de-escalate. “The border defence forces of both countries should continue dialogue, disengage as soon as possible, maintain the necessary distance, and ease the situation on the ground,” the statement said. China and India also agreed to “avoid actions that may escalate the situation”.

While the China-India issue dominates the SCO Moscow summit headlines, there were other, longer term issues concerning the development of the SCO that came to the fore. With Russia, China and India essentially the senor partners, Lavrov took time out to state that “Robust experience of equal and fruitful cooperation in politics, security, economics and humanitarian issues and efficient mechanisms enable SCO to adequately respond to new risks and threats. The significance of SCO’s huge potential is growing further under the current circumstances that require collective efforts and cooperation to overcome political and socio-economic effects of the COVID-19 pandemic.”

Buried in that paragraph is the reference to ‘new risks and threats’ which also includes the Russian position concerning the United States, which Moscow views as being unnecessarily aggressive about the use of sanctions as a trade weapon, and often using excuses to justify their real use.

Coupled with that is an underlying desire to expand the membership of the SCO. That is likely to happen in the case of Iran, which is expected to be elevated to full membership from being an Observer. Should that happen with other observer states such as Turkey, the SCO will effectively be a coherent unit encompassing much of Eurasia with significant borders with the EU.

Other Observer states and dialogue partners include the ASEAN South-East Asia bloc of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam, along with the Caucasus nations of Armenia, Azerbaijan and Georgia, Mongolia, and Eastern European nations of Moldova and Ukraine. When put together, the bloc with all its members, observers and dialogue partners looks like this:

In terms of trade, the obvious bloc to look towards would be the developing Eurasian Economic Union, which includes Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia but has been busy agreeing Free Trade deals with Cambodia, Singapore, and Vietnam in ASEAN, China, whose FTA tariff concessions have still to be worked out, Serbia, another foothold in Europe, while India, Indonesia, Turkey, Israel, and Egypt among others are negotiating trade agreements.

In many ways the emergence of the SCO as a political bloc has gone under the radar, however when one adds in the potential of the Eurasian Economic Union as well, in terms of trade it becomes a significant power.

The impact of Covid-19 meanwhile has changed the landscape; Russia has been among the first countries to trial a vaccine, and is cooperating with China, India and other SCO members on the Phase Three tests which involve hundreds of thousands of people. Russia is also likely to be sharing that technology – and providing vaccines, at apparently 1/3 of the cost of those likely to be available from the West – to SCO members. That will provide Russia with the kudos of being a reliable regional strategic partner while being much derided in the United States and EU. This again will strengthen the SCO as a bloc.

Another potential element to sew the SCO together is technology, where China’s 5G network is finding less resistance than in the West. Other technologies compatible with 5G, including A.I. and other advances will follow on from this, with SCO nations enjoying interconnectivity.

On top of this scenario is risk reduction – where all countries face the possibility of sanctions from the United States and being cut off from the US-led global financial system. De-dollarisation limits this risk and also encourages sovereignty as SCO member states trade in their own, rather than someone else’s money.

These issues will take time to evolve, however the SCO is a powerful entity and is gaining traction. The emergence of the SCO, armed with the Eurasian Economic Union and China’s Belt & Road Initiative infrastructure will be very much a part of Eurasian strategic development over the coming years. Dealing with that, and the intertwined strengths of the SCO bloc is an issue that diminishes regional influence from Brussels and Washington. How to restructure engagement under the looming presence of the SCO requires intellect and insights that at present are only now being understood.

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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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