The Eurasian Union is Strengthening its Position in Southeast Asia

Eurasian integration is continuing its advance toward Southeast Asia. At the meeting of the Ministers of Economy and Trade of Russia and the ASEAN member countries, it was decided to set up a research group to assess the prospects for creating a free trade zone between the Eurasian Economic Union and the economic and political community, which includes 10 countries: Thailand, Singapore, Indonesia, Malaysia, the Philippines, Brunei, Cambodia, Laos, Myanmar and Vietnam.

The parties have been moving toward this decision virtually since the Eurasian Economic Union became operational. Vietnam was a sort of test run: on 29 May 2015, the EEU and Vietnam signed a free trade agreement, the first document of its kind in the EEU’s history. Pursuant to the development plans for cooperation between the EEU and Vietnam, the trade volume turnover between the two parties should grow 2–2.5 times in the short term: from USD 4 bn to 8–10 bn. For the EEU exporter countries, 0% customs duties on dairy products, linseed, potassium fertilisers and several other commodities will be introduced immediately, without any transition period, and customs duties on petrol, trucks, liquor and other commodities will be removed over the next 10–12 years. Including issues of trade and intellectual property protection, opening of the government contracts market was an important feature of the agreements between the EEU and Vietnam. Ratification procedures concerning the FTZ between the EEU and Vietnam are to take place by the end of the summer of 2016 and, in the autumn, the Agreement comes into force.

EPA/NYEIN CHAN NAING/Vostock Photo

49 встреча министров иностранных дел стран АСЕАН, 26 июля 2016 г.

The EEU has never made it a secret that the FTZ with Vietnam is not just a goal in and of itself, but also a means for approaching the entire ASEAN economic space, which has a population of over 600 million. ASEAN member countries also observed the Vietnam–EEU dialogue’s dynamics: for instance, Indonesia’s Ambassador to Russia Djauhari Oratmangun noted that this dialogue could “be an example of both regional and bilateral cooperation for other ASEAN member countries.” As a result, in May 2016, at the Russia–ASEAN summit held in Sochi, the movement toward an FTZ between the EEU and ASEAN received political support from the parties.

Yet it should be acknowledged that the Vietnam’s pilot project does not fully guarantee a successful cooperation with ASEAN as a whole. The problem is that the ASEAN space is quite heterogeneous in economics, politics and culture. For instance, Vietnam’s economy is only a tenth of the size of those of Indonesia or Thailand but it is ten times greater than the economy of Laos or Cambodia. The economic structures within the community and the interests of the member countries differ accordingly. Determining how far harmonisation of the economies of the ASEAN and the EEU countries could go will be the task faced by the newly-formed research group, but already, in a first approximation, one could say why the EEU may be interested in integration with ASEAN.

First, Southeast Asia is one of the global economy’s growth points. The ASEAN countries’ combined GDP is USD 2.3 trn, and it has been growing steadily over the last 20 years, since the 1997 Asian financial crisis. Given the instability in the Middle East and the problems plaguing the EU, such partners are particularly valuable for the EEU.

Second, the ASEAN space is a growing consumer demand market. According to Forbes, over the last 15 years, public income in these countries has grown by an annual 5 per cent on average and, by 2025, the number of consumers in the region is expected to double. The consumption growth is buttressed by increasing urbanisation: almost a quarter of the ASEAN countries’ population lives in cities of over 200,000 people and, by 2025, 54 more million people will be living in cities.

Third, ASEAN countries are big exporters of raw materials, but their raw materials exports do not compete with those of the EEU’s countries. ASEAN countries have significant reserves of coconut oil and palm oil, abacus hemp, tin and chrome ore.

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Fourth, new technologies: Singapore, Malaysia and Thailand are among the world’s largest manufacturers of high-tech products, vehicle parts and home appliances. Given the restrictions on technological cooperation with western countries, cooperation with developed countries of Southeast Asia is undoubtedly of interest.

Fifth, the very fact of working on an FTZ Agreement with such a promising and dynamically developing group of countries bears witness to the viability of Eurasian integration and of its appeal to other successful countries.

Yet there are still potential strategic problems linked with creation of the Trans-Pacific Partnership (TPP) of four ASEAN countries: Brunei, Singapore, Vietnam, and Malaysia. The TPP envisions (at least for now) neither the EEU's participation, nor that of China, yet another East Asia’s power centre. It is difficult thus far to predict ways for overcoming these difficulties owing to the processes still being incomplete and the TPP’s lack of transparency. Consequently it is possible that the economic integration of the EEU and ASEAN is only the first step down a road leading later to regional competition between the Eurasian economic bloc (understood broadly as including China and countries of East Asia) and the Trans-Pacific Partnership headed by the US.