The Eurasian Economic Union Free Trade Agreements: Latest Progress

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Discussions and negotiations are taking place concerning EAEU free trade agreements with Egypt, Iran, UAE, Indonesia and China

The Russian Union of Industrialists and Entrepreneurs (RSPP) has been holding an Integration Forum titled “Pushing the Horizon: Strategy of Eurasian Economic Integration in the New Conditions and the Role of Business” this week and has been privy to updates on the Eurasian Economic Union (EAEU) push towards internationalization and the opening of new markets. The EAEU is a free trade bloc that includes Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia and fills the northern Eurasian landmass from the borders of Eastern Europe to Western China.

The EAEU has taken on additional significance for Russia since its foreign trade has been increasingly limited by the sanctions of Western developed countries. However, this is partially offset by EAEU trade. Armenia, Belarus, Kazakhstan, and Kyrgyzstan increased their exports to other EAEU members by US$9.8 billion in 2022, a 40% year-on-year increase, of which Russia imported the vast majority at US$9.5 billion worth, good news for the smaller EAEU nations as their exports increased by a significant amount.

There is some criticism that part of this is related to parallel imports into Russia of Western produced products and is not fully representative of real trade growth – EAEU members have simply taken the role of buying goods from Western countries and reselling them to Russia at a small markup. Alexander Shokhin, the Chairman of the RSPP, stated that this did not go unnoticed in the United States and European Union, adding that “We believe that it is one thing to control sub-sanctioned dual-use goods and another thing to produce and invest in domestic EAEU manufacturing,” he added, saying that EAEU companies must start manufacturing replacement products to occupy the vacant market left by Western companies who exited Russia.

Sanctions on Russia and the tightening of control over their implementation have pushed the EAEU into becoming a supranational association of countries, in which Russia plays a key role, and is now one of the most important tools for ensuring Russia’s foreign trade. Russia’s trade turnover with EAEU member states is growing, while the Eurasian Economic Commission (EEC, the governing body of the EAEU) is preparing new Free Trade Agreements (FTA) with countries that can sign them.

Upcoming almost immediately are the finalizing of the EAEU FTA with Iran, which is in place and active but requires some additional work, as well as an FTA with Egypt. Negotiations are also well underway with Indonesia and the United Arab Emirates.

The EEC Trade Minister Andrey Slepnev stated that “The prospects of the West strengthening secondary sanctions against companies working with Russian counterparties also intensified negotiations between the EAEU and third countries on the creation of new free trade zones. The number of applicants has grown over the past year.”

EAEU-Egypt Free Trade Agreement

The EEC is waiting for the completion of FTA negotiations with Egypt. According to the negotiators on both sides, the agreement should become a gateway to Africa: goods produced by residents of the Russian industrial zone at Port Said, with localization of products agreed at 30%, will be labelled as “Made in Egypt”, which will make it possible to export these too countries which Egypt has trade agreements.

Egypt is a signatory to several multilateral trade agreements, including the African Continental Free Trade Area (AfCFTA), the Greater Arab Free Trade Zone Turkiye, and the South American MERCOSUR bloc.
Egypt and China also have a trade agreement, while Egypt has also signed an economic treaty with Russia. In June 2001, Egypt signed an Association Agreement with the European Union (EU) which entered into force on June 1, 2004. The agreement provided for immediate duty-free access of Egyptian products into EU markets.

EAEU-Iran Free Trade Agreement

The EAEU already has a temporary trade agreement with Iran, providing for reduced duties on 360 goods and covers trade volumes to about US$5 billion while zeroing rates for more than 90% of the product range. Slepnev stated that negotiations to finalize a permanent FTA with Iran are almost complete. “A month ago, we completed formal, meaningful negotiations with the Iranian side, and now we are already polishing the agreements reached with the national governments,” he explained.

EAEU-UAE Free Trade Agreement

The RPSS also announced the start of the first round of negotiations on an FTA with the UAE. The EEC negotiating group will try to complete the preparations and come to the signing in the next twelve-month period.

The EAEU’s trade turnover with the UAE surged 60.9% over 2022 to US$6.3 billion, with imports decreasing 6.8% to around US$418 million and exports soaring 69.4% to US$5.9 billion.

The UAE is party to several multilateral and bilateral trade agreements, including with partner countries in the GCC. As part of the GCC, the UAE has strong economic ties with Saudi Arabia, Kuwait, Bahrain, and Oman, meaning the UAE shares a common market and a customs union with these nations. Under the Greater Arab Free Trade Area Agreement (GAFTA), the UAE has free trade access to Saudi Arabia, Kuwait, Bahrain, Qatar, Oman, Jordan, Egypt, Iraq, Lebanon, Morocco, Tunisia, Palestine, Syria, Libya, and Yemen.

The Russian Ministry of Economics has stated that there are plans to sign two new agreements between the EAEU and UAE on trade, and on services and investments as part of bilateral negotiations. The Ministry expects that this will not only reduce duties, but also simplify the issuance of licenses and guarantee access to the UAE market for business from the service sector (including Russian transport and financial companies), provide guarantees for the transfer of funds and ensure the protection of Russian investors. The Russia-UAE business community hopes for improvements in related services payments, invoices, certification, as well as the opportunity to enter the markets of third countries of which the UAE has agreements with.

EAEU-Indonesia Free Trade Agreement

Negotiations between the EEC and Indonesia are also scheduled to take place at the end of this month (March 2023). Slepnev stated that Indonesia has a great interest in the negotiation track with the EAEU. Indonesia is a market of 274 million and has a GDP in excess of US$1 trillion. It is a member of the ASEAN free trade bloc which also includes Bahrain, Cambodia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. The EAEU already has an FTA with Vietnam. ASEAN also has FTA with China, India and the RCEP group of countries.

EAEU-China Free Trade Agreement

The EEC is also preparing to revise its current agreement with China. The countries share in EAEU total trade increased by 23% in 2022. The current, non-preferential agreement entered into force in October 2019 and does not provide any reduction in duties. Both the ECC and China are planning to discuss the depth, ambitions, and industry directions in terms of expanding cooperation between China and the EAEU. To date, the EAEU roadmap with China has three sections: the digitization of transport corridors, dialogues on foreign trade policy issues, and a joint scientific study of various scenarios for deepening cooperation, including trade liberalization.

Should these agreements come to fruition, they will further link the EAEU to Asia, and vastly expand the volume of trade in goods between MENA, ASEAN and China. It should be noted that other interested parties, including India are also negotiating an EAEU FTA, although this may take time to realize. However, these moves do underline that Russian trade and investment is moving well away from the EU, and that a new Russia – one with a decidely new focus towards Africa and the East is rapidly emerging.

Source: Tatiana Edovina and Diana Galieva for Kommersant with additional trade data by Chris Devonshire-Ellis

Dezan Shira & Associates assist foreign investors, including Russian businesses throughout Asia, and have done for over 30 years. The firm has offices in the UAE, Indonesia, Vietnam and China and partner firms in Egypt and Iran. For assistance with market and business intelligence, corporate establishment, tax advisory and overall trade compliance please contact Maria Kotova at asia@dezshira.com

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During these uncertain times and with sanctions in place, our firm helps Russian companies relocate to Asia. We also provide financial and sanctions compliance services to foreign companies operating in Russia. Additionally, we offer market research and advisory services to foreign exporters interested in doing business in Russia as the economy looks to replace Western-sourced products. For assistance please email russia@dezshira.com or visit www.dezshira.com