Greater Eurasia: deliberations on the EU – EAEU – China triangle

_ Yuri Kofner, head, Eurasian sector, CCEIS, HSE; research assistant, IIASA. Moscow, 12 November 2017.

The  Lisbon to Vladivostok common economic space ought to be thought about within a wider Eurasian context, and that this should be kept in mind when conducting further research on potential EU - EAEU cooperation. This is necessary both due to Russia’s geo-economic “Turn to the East”, and even more so, due to the growing influence of Asia in the global economy, especially the Chinese “One Belt One Read” (OBOR) and “Silk Road Economic Belt” (SREB) initiatives.

“Greater Eurasia” is both a geographic concept covering the whole Eurasian continent as defined by the famous German geographer Alexander von Humboldt, as well as a way of describing the emerging nexus of continental “integration of integrations” and the network of FTAs within the EU – EAEU - China “triangle”, as well as with other regional players.

The Greater Eurasian agenda thus concerns not only the EU and the EAEU, but also the future relations between the main players in Asia, in particular with China, as a direct neighbor of the EAEU. There are some major developments: China’s “One Belt One Road” as a framework idea, the development of railway and road connectivity, large investments projects, including projects related to energy supplies, as an example of possible content.

Negotiations on the conclusion of a non-preferential trade and economic cooperation agreement between the Eurasian Economic Union and the People’s Republic of China (PRC) are being held since the Decision of the Supreme Eurasian Economic Council of May 8, 2015.

It is expected that this agreement will include several mutual obligations, including: “Horizontal and legal matters”, “Transparency”, “Market protection measures”, “Technical barriers to trade”, “Sanitary and phytosanitary measures”, “Customs cooperation”, “Intellectual property”, “Competition”, “Public procurement”, “Sectoral cooperation” and “E-commerce”.[1]

The non-preferential trade and economic cooperation agreement between the EAEU and PRC is similar to the EU - Russia Partnership and Cooperation Agreement from 1997. It is only about economics and not about politics. Within this agreement, the establishment of the free trade zone is not considered. However, the aim is to decrease non-tariff barriers, thus giving Eurasian companies a better access to the Chinese market and facilitate the possibilities for commodities exports to China.

The question arises what will be the role of the European Union in this Greater Eurasian triangle.

Switching the EAEU’s pivot to China will not be easy. China, rather than EAEU, is the more important (and growing) trading partner for the EU. There are deeper and more complex economic relations between the EU and China, than with the EAEU, and even liberalization talks about some aspect of the economic relations (investments) have started. At the same time, China is the single most important and rising trading partner for the EAEU/Russia (in particular for imports).

The EU - China economic and trade relations develop quite fast, but on the other hand there are also tensions. One of the most important problems is the same as with Russia, the direct influence and support by the government in the economic area, causing distortions. Thus, in the EU there are disputes about China's market economy status and there are also concerns about the lack of reciprocity when it comes to investments: China heavily controls foreign investments, while actively investing also in strategic sectors in the EU countries. These factors also show up in the negotiations about the bilateral investment agreement, which move ahead, but on these problems acceptable solutions need to be found.

In 2013 the EU and China launched negotiations for an Investment Agreement. The aim is to provide investors on both sides with predictable, long-term access to the EU and Chinese markets and to protect investors and their investments. [2]

Another important point to consider in the Phase II research would be the inclusion of Mongolia into the Greater Eurasian triangle, since this country is quite important for companies, operating in Siberia. Potentially interesting would be to include trans-Mongolian transport and energy corridors, hydropower generation in Siberia, trans-Eurasian electricity networks.

The concept of the EU – EAEU - China “triangle” entails enhanced economic cooperation and eventually economic-trade liberalization in the bilateral relations between each pair of the three major economies, however – at least in the foreseeable future - not an overall trilateral agreement among all three of them. Still, there are a number of challenging opportunities for economic cooperation, including such areas as trade, cross-border transport infrastructure and transit, telecommunications.

Table 1. GDP shares in Greater Eurasia (EAEU, EU, China), in % of total (at PPP, 2016)

Source: World Bank.

The economic imbalances, to a far lesser extent in the European Union than in the Eurasian Economic Union, and even more within the EU-EAEU-China triangle in Greater Eurasia (see Table 1), raise the following questions: How these structural differences may affect future negotiations between the EC, the EEC and the Chinese government? To what extent will the imbalances shift in China’s favor if it enters the Greater Eurasia integration process?

The takeaways from these imbalances are the following: The EU is less dependent on EAEU/Russian markets than vice versa, especially regarding exports, yet for the EAEU/Russia, the EU market will remain crucial. In addition, there are major structural asymmetries in the composition of EU-EAEU trade.

Hence, even without geopolitics and sanctions, the economic, technical and institutional obstacles to Greater Eurasia integration are and will be formidable.

Still, a closer integration of the EU27, the EAEU, other Eastern Partnership countries and China could boost trade, investment and economic growth in a Greater Eurasia.

One should be cautious when using the Greater Eurasian “triangle” concept, i.e. referring only to Europe, the Eurasian Union and China, since Greater Eurasia is rather a multi edged geometrical shape than a mere triangle. This means, that when considering the future architecture of the Greater Eurasian partnership, one should always take into account the interests and potentials of other important players on the continent, such Japan, Korea, India, Iran, Turkey and others.

Notes:

[1] http://greater-europe.org/archives/3138

[2] http://ec.europa.eu/trade/policy/countries-and-regions/countries/china/

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