Russia and the EAEU in the Asia Pacific: key integration factors and prospects for strengthening business ties

4 September 2019

Russia and the EAEU in the Asia Pacific: key integration factors and prospects for strengthening business ties

KEY CONCLUSIONS

Trade between the countries of ASEAN and the EAEU is growing noticeably due to mutual preferences in place

“In 2018, trade between ASEAN and the EAEU exceeded USD 23 billion in value, representing a 15% increase compared to 2017. <...> An agreement between Vietnam and the EAEU on a free trade zone has led to substantial mutual preferences covering almost 90% of goods traded. In the three years following the signing of the agreement, trade between the EAEU and Vietnam grew by 100%, compared to 2016,” Trinh Dinh Dung, Deputy Prime Minister of the Socialist Republic of Vietnam.

“The agreement with Vietnam goes to show that an open trade policy is the correct course to follow. Our trade with Vietnam grew in a balanced and mutually beneficial manner. The agreement changed the mentality of businesses in our countries, which enabled us to make the next leap forward in trade policy – to sign an economic agreement with China and a temporary agreement with Iran, which will come into force in the coming days. We also plan to sign agreements with Singapore and Serbia in October. This demonstrates that our economy is not about to close to others,” Veronika Nikishina, Member of the Board, Minister in Charge of Trade, Eurasian Economic Commission.

Intergovernmental organizations can provide excellent opportunities for business

“For large private enterprises, such as Renova, it is vital to find new points of focus in a changing world. And it seems to me that organizations such as the EAEU and ASEAN offer new opportunities to expand projects and increase trade,” Andrey Shtorkh, Director of Corporate Relations, Renova Group.

“The Northeast Asian resource network makes up an important component of the global energy resource network, and will play a huge role in securing sustainable development in the region. The overall potential to develop the Northeast Asian energy resource network is enormous. The region is home to almost 1.7 billion people and its economy is USD 20 trillion in size. It accounts for 25% of total annual global consumption of energy resources. China, Japan, and Korea account for 84% of Northeast Asia’s total consumption of energy in coal equivalent,” Liu Zhenya, Chairman, Global Energy Interconnection Development and Cooperation Organization (GEIDCO).

PROBLEMS

Increasing protectionism

“Global trade is characterized by stagnation and tangible protectionism. Traditional rules of global trade are being reconsidered. Protectionism is growing faster than markets, and this is affecting competition to a significant degree. The temptation to mirror this protectionism in one’s own regulations and close oneself off is a dangerous trend. We in the EAEU are not in any way subject to these fluctuations. For us, it is clear that continuing along the path of liberalization with our partners in the Asia Pacific is key to prosperity and economic growth,” Veronika Nikishina, Member of the Board, Minister in Charge of Trade, Eurasian Economic Commission.

“We see considerable potential in the Asia Pacific. However, we need to understand that more and more often, all this open trade is becoming an instrument of conflict, confrontation, and disintegration. More barriers are being put up than before,” Natalia Stopran, Director of the Department for Multilateral Cooperation, Ministry of Economic Development.

Insufficient investment in the Asia Pacific

“According to ESCAP [the Economic and Social Commission for Asia and the Pacific – ed.], in order for countries of the Asia Pacific to meet their sustainable development goals, there needs to be at least USD 1.5 trillion of additional investment per year. The level of investment is seriously lagging behind the level of trade in the Asia Pacific,” Alexander Shokhin, President, Russian Union of Industrialists and Entrepreneurs (RSPP).

Superfluous red tape and complex legislation

“As businesspeople, we are delighted that an agreement has been signed between Vietnam and the EAEU; however, the red tape remains. We want to enter the Russian market with our budget airline, but the approvals are taking years to obtain, despite the fact that things are progressing at a high level. This affects our economic relations in practical terms,” Nguyen Thanh Hung, Chairman of the Board of Directors, SOVICO Group.

“Investors in the Far East are worried about the complexity of tax legislation and the lack of stability in it. The Far East is a leading region in Russia in terms of the number of preferential regimes per capita. This number makes it hard for a foreign investor entering the region to figure things out. <...> Conditions for organizations which have already joined projects keep changing,” Mikhail Orlov, Partner, Head of Tax and Legal, KPMG Russia.

A growing percentage of people working unofficially in the Asia Pacific

“We are witnessing an employment crisis <...> and the reality that the employment relationship – the security of working people – is breaking down. <...> When you have 60% of the world’s people working informally, including those workers now depending on the growing numbers of platform businesses, this is seeing growing despair, because workers and their working families have no security, no rights, no minimum wage, no rule of law to remedy exploitation. <...> The trade unions can help with investment <...> We need to make sure that we are engaged collectively in a bid to generate jobs and decent work for all people <...> irrespective of the nature of their employment,” Sharan Burrow, General Secretary, International Trade Union Confederation.

SOLUTIONS

Removing trade barriers

“Our cooperation has not yet reached its potential. We need to take a range of measures to reach an agreement on a free trade zone encompassing ASEAN and the EAEU,” Trinh Dinh Dung, Deputy Prime Minister of the Socialist Republic of Vietnam.

“As the rules of global trade change, so we need to take active steps to create our own trade regimes. We need to boldly and without hesitation expand our range of agreements in a proactive manner,” Veronika Nikishina, Member of the Board, Minister in Charge of Trade, Eurasian Economic Commission.

“Step by step, Russia should expand its free trade agreements with the countries of the Asia Pacific on a separate, bilateral basis. This will not achieve a full synergistic effect, <...> but it is better than nothing. <...> As well as promoting the idea of bilateral agreements with various countries of the Asia Pacific, we need to try to join two other formats – Japanese and Chinese – at least as an observer, as this could result in major economic benefits,” Pavel Minakir, Academic Policy Advisor, Economic Research Institute of the Far Eastern Branch of the Russian Academy of Sciences.

Ensuring a stable business environment for investors

“The Far East could become an experimental platform for preferential regimes, which would allow us to understand how they would subsequently operate across the whole of Russia. However, there would be no sense in doing this if business conditions and taxation keep changing. That is why we are calling on the government to ensure a stable environment,” Mikhail Orlov, Partner, Head of Tax and Legal, KPMG Russia.

We need to fix the taxation system and the general business incentive system. From a general economic point of view this is a key question. Low taxes are a nice bonus for businesses, but the main incentive for businesses in a region is the ability to access a stable market and earn steady revenue. <...> It is vital to identify high-efficiency zones in the Far East for businesses, and attempt to create a chain of regional businesses both inside and outside the country to ensure maximum efficiency,” Pavel Minakir, Academic Policy Advisor, Economic Research Institute of the Far Eastern Branch of the Russian Academy of Sciences.

Increasing the role of national currencies in trade

“It is worth raising the question of using national currencies in trade between countries of the EAEU and ASEAN. Amid the current trade wars and international sanctions <...> the dedollarization of our relations is a crucial factor,” Andrey Shtorkh, Director of Corporate Relations, Renova Group.

Implementing digital technologies

“The automotive industry is undergoing a rapid period of digitalization. Cars will cease being goods, and will become a service. <...> In 10–15 years, the landscape of the auto industry and the habitual use of cars will change, of this I am 100% sure. <...> We must immediately begin this process of digitalization,” Alexey Kalitsev — Managing Director, Hyundai Motor Company/CIS LLC.

Russia and the EAEU in the Asia Pacific: key integration factors and prospects for strengthening business ties

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