EAEU Integration Plans With China, India and MENA Gain Momentum

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According to the Eurasian Development Bank (EDB), the 2022 mutual trade turnover of the Eurasian Economic Union (EAEU) countries reached a record US$80.6 billion, with the export of goods from Armenia, Belarus, Kazakhstan, and Kyrgyzstan all significantly increasing.

This is leading to further analysis of its potential integration with China and India. China signed a free trade agreement with the EAEU in 2018, however this remains operational on a selective basis, allowing tariffs to be lowered or removed as and when required as opposed to a complete preferential set of tariff reductions across thousands of products.

In hindsight, given the strength of the Chinese export market, and global trade uncertainty this has proven a wise move. India meanwhile has officially applied to have a free trade agreement with the EAEU. ASEAN member Vietnam already has one.

The EAEU remains a promising platform for economic integration in the post-Soviet space. Membership in the EAEU provides a significant number of preferences, and provides for the free movement of goods,
people, capital, and services within the bloc, which also includes Russia.

EAEU citizens can also receive their pension in any of the EAEU countries under the pension export agreement, helpful with regional migrant labor and maintaining family relationships in Russia especially – the country is the largest grain exporter in the world and the need for seasonal labor to harvest the various crops remains significant.

For example, according to official data, the EAEU enables about 100,000 Kazakhs to work in Russia, although according to unofficial data, this figure is five times more.

The Eurasian Union with its huge aggregate market allows countries to create cost-effective production, which gives development to the real sector of the economy. Companies can operate not only in their own markets, but also scale up to the EAEU countries thanks to simple algorithms for registration and unification of technical regulations. Add to this the absence of language barriers, commonality in the mentality and habits of the consumer and the EAEU is proving up to the task of unifying Central Asia in trade and fuelling wealth and regional development and infrastructure unity.

The EAEU protects its markets from an external manufacturer, enabling EAEU companies to receive unprecedented incentives and preferences, while allowing EAEU citizens to receive a huge range of food products from the EAEU countries at competitive prices, a legacy of lower logistics costs and uniform customs duties. That has been further boosted by anti-Russian sanctions. Legislation in the EAEU is synchronized, meaning that Russian businesses have been able to transfer their capacities to other EAEU nations such as Kazakhstan, which is contributing to their industrial sector development.

It has had the unexpected effects of boosting regional GDP growth rates: in their “Regional Economic Prospects” report, the European Bank for Reconstruction and Development (EBRD), analysts noted that Kazakhstan’s 2022 GDP growth reached 3.4% instead of the previously anticipated 2%.

Part of that has been due to sanctions, with an increase in income due to the re-export to Russia of computers, household appliances and electronics, auto parts, electrical and electronic components. Exports of non-energy goods from Kazakhstan to Russia in 2022 increased by 24.8% and amounted to US$18.9 billion.

Now, expectations are rising as regards the potential China and India impact on the EAEU. The integration economic processes of the EAEU countries are gaining momentum. An internal EAEU agreement has been reached and was approved in January this year that removes technical barriers to trade within the framework of the EAEU on trade with third countries. This will also contribute to an increase in the number and volume of trade operations with other countries and the possibility of expanding the union to an EAEU+ format.

The prospects here as concerns the EAEU are related to external and internal factors. Internal factors are the ability of member countries to jointly overcome new challenges, cooperate in the face of changed rules in global markets, and maintain control over compliance with sanctions by the United States and EU.

An EAEU Intergovernmental Council meeting held in early February this year showed that the economic situation in all EAEU members states is stable, and mutual trade is growing. Anti-Russian sanctions actually significantly contribute to this growth, meaning that for EAEU members especially, as well as countries such as China and India, the attractiveness of Russia as an economic partner has grown.

The position of China, which openly supports Russia in confrontation with the United States, is especially important, as well as India, for which the task of expanding its presence in Central Asia remains urgent.

As a result of this, and due in part to its development, the importance of the International North-South Transportation Corridors from India to Russia is growing. The recent brokering of a peace deal between Saudi Arabia and Iran by China is indicative of the need for this route to become successful as it also feeds into Europe via Azerbaijan and Turkiye. The same is true for the Middle Corridor, which enables EU and Russian traffic to head east via Kazakhstan to China, and vice-versa.

That has encouraged other regional countries to either sign their own FTA with the EAEU – as is the case with Iran – or to officially request a negotiated deal. These include several ASEAN members as well as a variety of MENA nations such as Egypt and the UAE. They are interested in implementing joint projects based on the norms and rules that exist in the EAEU.

The agreement between the EAEU and China is largely restrictive; at one time it was adopted to protect the EAEU market from Chinese products. However, now within the framework of this agreement, schemes are being developed to deepen cooperation in rail transportation, and specifically the China-Kazakhstan-Uzbekistan rail link. In February this year, a corresponding roadmap was signed.

Iran and the EAEU signed a free trade agreement in January. This is apparently the first step towards easing the rules of cooperation with the EAEU, which will also include Turkey, Georgia, and Azerbaijan. In addition, the Iranian experience of creating a kind of EAEU+1 free trade zone can become a support for the development of similar agreements with other countries.

The FTA agreement with Vietnam has been in force since 2015, but cooperation with Iran is not only about goods, the primary driver for the Iran-EAEU is transport and logistics infrastructure.

Kazakhstan’s Foreign Minister Mukhtar Tleuberdi made it clear at a joint press briefing with the US Secretary of State Anthony Blinken last month that Astana’s economic policy is determined by participation in the EAEU, and Kazakhstan is not going to refuse this participation. Instead, in the context of anti-Russian sanctions, membership of and cooperation with the EAEU has opened up new opportunities for growth.

It has largely gone unnoticed in the West, but the EAEU and its reach out to MENA in addition to China and India will be a regional Eurasian game changer.

Source: Yermukhamet Kasymov for Vedomosti with additional comments by Chris Devonshire-Ellis

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