Trump Needs to Beware as Moscow’s EAEU Could Step in Place of NAFTA

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Recent threats by US President Donald Trump to tear up the North America Free Trade Agreement (NAFTA) with Canada and Mexico are likely to trigger increased interest by these two countries in making free trade deals with the Moscow-backed Eurasian Economic Union.

Although such a deal would be completely different to that with the United States, both Canada and Mexico could seek to lessen their dependence on US trade by sourcing products elsewhere. With the EAEU already making serious overtures in South America and Asia, such a scenario may be rather more plausible than it initially appears. The EAEU already has a free trade agreement with China, while India is expected to agree an FTA later in the year. Although at present these agreements are not extensive in trade terms, it would be a relatively simple exercise to amend them. Both China and India of course possess massive consumer markets and have the highest GDP growth rates in the world. Emerging Asia, rather then North America, is also the wealthiest region in the world with some 52 percent of global wealth now based there and that trend is increasing.

In fact, low-level discussions concerning the possibility of a Canada-EAEU trade agreement have already been held. In April 2015, the Canada-Russia-Eurasia Business Association stated that Canadian businesses are interested in cooperation with the Eurasian Economic Union. This led to a seminar in Montreal at which the ambassadors of Russia, Belarus, Kazakhstan, and Armenia all spoke, and expressed their detailed view to the Canadian business community of the possible future cooperation between Canadian businesses and the EAEU.

In terms of Mexico, Mexican Deputy Foreign Minister, Carlos de Icaza told students at the Russian Foreign Ministry Diplomatic Academy in June 2016 that “Russia and Mexico should focus on development of economic ties”. Hinting at a dialogue going on at a higher level, the minister emphasized the importance of establishing trade ties in between the two nations. He stated, “Our trade turnover with Russia amounts to about US$2 billion. I think that our two counties are lacking knowledge of each other. It is necessary to search for ways of building contacts in order to know in what areas we can trade.” De Icaza also met with Russian Deputy Foreign Minister Sergey Ryabkov and President of the Russian Union of Industrialists and Entrepreneurs Alexander Shokhin. Mexico is interested in cooperation with the Russia-led Eurasian Economic Union (EAEU) as in an opportunity to expand presence in the region, according to the Mexican official. Mexico has also launched a special Mexico/EAEU website to promote and gauge interest in trade ties.

While at early stages, the pertinence of these discussions could become more apparent should the United States follow up on threats to leave the World Trade Organisation. If that happens, then a global scramble to replace it could well ensue. In which case, the Eurasian Economic Union, with its close ties and connections to both Moscow, Beijing and Delhi – all representing huge and growing consumer economies – could well step in to fill the gap.

Whatever the immediate trade future holds, it is becoming obvious that a new world trade order is in the process of emerging. It may take time to begin to see the impact of this, however, the mechanisms are being put in place. Businesses throughout the region need to keep abreast of these developments as they progress as new trade corridors and opportunities begin to open up.

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