The Eurasian Economic Union (2017)

_ Dmitry Pankin, Chairman, Management Board, Eurasian Development Bank. Moscow, July 2017.

Eurasian economic integration has achieved meaningful results but its initial rapid progress has ended. This is proved, in particular, by difficulties in negotiating the Customs Code and the common drugs and medical products market. These were the two most important topics on the integration agenda in recent months, the consensus on which was hard to reach.

Several nascent trends that have been identified in the EAEU’s development. For example, the first signs of a “turn to the east” in foreign trade have emerged. Over the last year, the share of EU countries in EAEU foreign trade turnover has decreased by 2.3%, while the share of APEC countries has increased by 1.8 p.p. to 31.5%. This shift is even more pronounced in the geographical structure of EAEU imports where APEC countries have taken first place (42.3%), pushing EU countries down to second (40.8%). China’s share of total foreign trade turnover with EAEU member states has been steadily growing and reached 15.4% in 2016, a 1.8 p.p. year-on-year increase.

2016 became a year of accelerated development in EAEU foreign trade relations. It was decided to start free trade agreement negotiations with Iran, India, Egypt, and Singapore. The first rounds of negotiations were held with China on the execution of a non-preferential agreement. This is an agreement that does not grant tariff and duty preferences in mutual trade. The free trade agreement with Vietnam came into effect.

At the same time, certain potential effects associated with Eurasian economic integration failed to materialize. At the start of the Customs Union in 2011—2012, there was a lot of talk about the possibility of competition between jurisdictions. It would have resulted in thousands of companies moving from country to country, for example, in search of more advantageous tax regimes. Now, five years later, we must acknowledge that the umbilical cord between businesses and their home countries has proven to be stronger than anticipated. This is primarily a result of the state’s extensive involvement in the national economy and a result of still relatively high non-tariff barriers.

A number of potential effects of Eurasian economic integration remained non-fulfilled. At the start of the Customs Union in 2011—2012, there were many talks about possible competition between jurisdictions. It would have resulted in thousands of companies moving from country to country, for example, in search of more advantageous tax regimes. Now, five years later, it is clear that businesses’ anchorage to their native countries has occurred to be stronger than anticipated. This is due to the state’s significant share in economy and still high non-tariff barriers.

Negative trends in mutual trade and investments persisted. However, the rates at which those indicators declined in EAEU member states were considerably lower than outside the EAEU. The intra-Union trade fell by 6.7% (although the volume of trade in physical terms increased by 0.4%), compared to a drop of 12% in the EAEU’s foreign trade. The values of the EAEU’s mutual trade are still dependent on global hydrocarbon prices, although this correlation is weakening. The change in mutual FDI stock, albeit negative, is still considerably better than elsewhere in the CIS region.

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