The Integration Potential of the Eurasian Economic Union is Not Utilized to Full Capacity

At present, the integration potential of the EEU is not utilized to full capacity. The economies of the EEU member-states are not much integrated into global added value chains.

Inside the integration union, there are plenty of barriers which hinder mutual trade and investments. On the track of integration with far abroad countries, there is only a free trade agreement with Vietnam (0.6% of Russia’ trade volume). To make international trade in the Asian-Pacific Region more advantageous in the near future, it is necessary to take efforts to make the integration agenda more active and promote negotiations on free-trade with member-states of the ASEAN and the Shanghai Cooperation Organization (SCO). In future, the formats of cooperation with the Trans-Pacific Partnership (TPP) and the EU-US Transatlantic Trade and Investment Partnership (TTIP) are to be discussed.

In the latest Presidential Address to the Federal Assembly, such free-trade agreements with ASEAN and SCO member-states were mentioned as foreign economic priorities in the near future. What are economic advantages of such integration for Russia and its EEU partners?

According to our calculations, free-trade agreements between the Eurasian Union and the SCO (primarily India and China) could yield great benefits and promote competitiveness of the EEU. Integration within the frameworks of the SCO whose member-states aggregately generate about 28% and 20% of global GDP and Russia’s trade turnover, respectively, will have specifics of its own.

Firstly, as a result of mutual nullification of duties on trade in goods the annual aggregate macroeconomic advantage for Russia will amount to about $10bn or 0.6% of the 2015 GDP (about $13bn for the EEU). It is to be noted that advantages may vary in different industries; in some sectors (the agriculture, the food industry and some manufacturing industries) there are risks of a drop in output.

Secondly, a more comprehensive free-trade agreement between SCO member states, that is, harmonization of technical standards and sanitary regulations and reduction of technical barriers in trade may increase considerably (1.5–2 times over) the advantage for Russia and other EEU member-states.

It is to be noted that a free-trade agreement within the frameworks of the SCO does not mean a switchover to a China-centric foreign economic strategy or an irreversible “turn to the East” as it does not suggest establishment of a single customs territory and assignment of the trade policy of the EEU member-states to the competence of a supranational authority. Consequently, such an initiative, on the one side, may contribute to integration of the Russian economy into the changing landscape of the global trade and economic system and, on the other side, it does not prevent Russia from benefitting from integration with other countries and blocks, primarily, with such a prominent trade partner as the EU with which maximum development of joint infrastructure and humanitarian projects should be maintained to the extent possible due to current political limitations, while in future both sides should move towards formation of a single market.

International integration is one of the few economic growth factors available to us and it is definitely to be taken advantage of. For that purpose, it is necessary to develop a mechanism

dealing with internal differences within the EEU and prepare a common integration agenda to establish a more comprehensive trade and economic cooperation with entities which form a new generation of global agreements. Amid internal and external political limitations, the only relatively painless factor of Russian economic development – which factor is capable of yielding results in the mid-term prospect – is integration into large-scale economic processes, but there is not much time left to do that. A passive foreign economic stance entails risks of a loss both of a possibility of political positioning and economic gain.

Alexander Knobel, Head of the Foreign Trade Department

The comments were prepared on the basis of the article: The Eurasian Union and the SCO: In Search of Points of Growth by А. Knobel. The article was published by the Vedomosti daily.