The Eurasian Economic Union: Trade Prospects and Strategy For 2021-22
- The EAEU achieved US$622.8 billion foreign trade in 2020
- Upcoming FTA will significantly boost its Central and South Asian effectiveness
The Eurasian Economic Union – comprising Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia – has been the focus of comments by the EAEU Chairman, Mikhail Myasnikovich at the Moscow Higher School of Economics recently. Giving strategic insights into 2021 developments he discussed ‘Three key principles’ that should become the ideological linchpin of Eurasian integration in the near future.
“It is necessary to build up trust in the Eurasian Economic Union, its institutions and integration processes as a whole among national agencies, entrepreneurs, and members of the general public of the member states. We don’t want gaps between the political will and the practical realization. Only unity and unconditional mutual trust of our countries and joint work for the benefit of the population of the member states will secure the successful development of the union.”
“It is of fundamental importance to make transition from the psychology of competition to the psychology of cooperation,” Myasnikovich stressed. “At its heart, the economic policy should contribute to the complementarity of the national economies. It is the key to the success of the Eurasian Economic Union. Competition in manufacturing the same product groups is a losing tactic from the very start. The countries should pool efforts and offer merchandise together on the home market and abroad.”
“The coronavirus pandemic has demonstrated the vulnerability of the humankind and contradictions between the leading economies,” Mikhail Myasnikovich pointed out. “In order to effectively compete with economic giants’ smaller economies, need to unite and build up institutional cooperation. There is no other alternative. The self-sufficiency of the Eurasian Economic Union, its growing appeal and innovative activity will contribute to the development of the economies of the member states.”
In addition to these comments, Myasnikovich stated that 2020 introduced some serious changes into the logic of world development. In his opinion, last year’s global economic crisis was prompted by changes in technological paradigms and the world economic system. The pandemic only accelerated negative processes. “The pandemic and the crisis exacerbated a number of other problems, too: growing protectionism and the crisis of the multilateral trade system, unilateral rejection of long-term commitments, and the eagerness to move away from the cooperation agenda to the self-dependent development of the world’s leading economies.”
Myasnikovich remarked. “I believe all the mentioned things represent a step backwards. In the evolving situation deeper regional integration and the creation of a renewed architecture of international economic relations on its basis represent one of the most effective ways of development.”
“In the first five years the Eurasian Economic Union’s GDP rose by 21% and was close to US$2 trillion in 2019. In the same period the Eurasian Economic Union’s industrial output rose by 13.2%, with the output of the processing industry up by nearly 15%. The figures are higher than those, for instance, of the European Union where industrial output rose by 5.4% and the output of the processing industry grew by 6.1%. Mutual trade of the Eurasian Economic Union member states rose by 27.7%. The union is ranked 29th out of 190 economies in the World Bank’s annual Doing Business report, an improvement by 12 positions.”
The Eurasian Economic Union has a common merchandise market. Considerable progress has been secured in forming the common services market (it covers 53 sectors). A common Customs Code has been passed. Freedom of movement and social guarantees of working people are secured. For instance, the agreement on pensions came into force in January 2021. As many as 49 common technical regulations have been passed. Over 12,000 international standards are in effect. This is why about 85% of the goods are already certified for compliance with the unified technical norms.
Areas for Improvement
Myasnikovich said he believes that the Eurasian Economic Union economies could have developed faster in 2014-2019. The integration potential in the manufacturing sector was not fully realized: there is no orientation for the specialization of economies, the level of manufacturing cooperation is insufficient, the quality and the competitive ability of Eurasian Economic Union goods leave much to be desired. The low level of fixed-capital investments is to blame as well. There was no effective transformation of savings into investments and innovations in the Eurasian Economic Union member states in the past. The investments and innovations are crucial to bolstering the economic potential.
Another reason is the lack of balance between internal trade and external trade in the Eurasian Economic Union. The export of raw materials plays a major role in the EAEU’s foreign trade. In 2020 foreign trade totaled US$622.8 billion, with export at US$364.4 billion and import at US$258.4 billion. Trade inside the union amounted to US$54.9 billion in 2020. The ratio is 11 to 1, Mikhail Myasnikovich noted. The poor inclusion of the private sector in integration processes is the last reason. “The private sector has yet to find its place in the Eurasian Economic Union. It does not use integration advantages and does not create new transnational value chains.”
To counterbalance these weaknesses, the EAEU has signed a Free Trade Agreement with China, however tariff reductions and exemptions are still being negotiated meaning the FTA is not yet effective.
However, the EAEU has a successful FTA with Vietnam, has recently signed one with Singapore, and is currently negotiating Free Trade deals with India, several other ASEAN members, has a temporary FTA with Iran and is negotiating with several African countries as well as courting Uzbekistan and Turkmenistan in Central Asia. It remains a work in progress however when completed will provide a substantial boost to Eurasian and South-East Asian multi-lateral trade.
- China-Russia Great Eurasian Partnership on Development Track as EAEU Agree to Regional Free Trade
- The Greater Eurasian Partnership: Connecting Central & South-East Asia
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 email@example.com for Russian investment advisory or assistance with market intelligence, legal, tax and compliance issues throughout Asia.