Potentials for India – EAEU Cooperation: Trade, Connectivity and Public Diplomacy

_ Yuri Kofner, head, Eurasian sector, Centre for Comprehensive European and International Studies, Higher School of Economics, research assistant, IIASA. Notes from the report given at the high-level workshop “India-Russia in the 21st Century: Enhancing the Special Priviliged Strategic Partnership”. New Delhi, 14 September 2018.*

Eurasian Economic Union

The Eurasian Economic Union (EAEU) is a young, yet relatively successful and also very ambitious trade and economic block. It was founded in 2015 and combines five post-Soviet states: Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia, and Moldova as an observer-state, with an overall market of 180 mln people. The EAEU’s integration process is only second to that of the EU and is pushed forward by a mix of supranational and intergovernmental governance.

The central supranational governing body of the union is the Eurasian Economic Commission (EEC). Its main competence lies in trade negotiations, technical regulation and labor migration. However, the EAEU member states agreed to integrate in many other sectors as well. By 2025 they plan to create:

  • a common pharmaceutical and medicine equipment market (achieved in 2016);
  • a common electricity market (by 2019)
  • a common oil and gas market;
  • a common transport services market;
  • a common financial market;
  • an ambitious digital transformation agenda.

Greater Eurasian Partnership

“Greater Eurasia” – is both a Russian geographic concept covering the whole Eurasian continent as defined by German geographer Alexander von Humboldt. The “Greater Eurasian Partnership” describes the emerging nexus of transport, energy, digital and migration “connectivity”, as well as the emanating continental network of free trade zone. At the highest state and international level this new cooperation concept was put forward by the presidents of Russia Vladimir Putin and of Kazakhstan Nursultan Nazarbayev during the Saint Petersburg International Economic Forum in 2016.

However, the EAEU’s economic projection in the Greater Eurasian space is relatively limited.  According to the IMF, in 2017 the GPD adjusted to purchasing power parity of China was $23.2 trillion; that of the EU – $21 trillion; of the USA – $19.4 trillion; of the EAEU – only $ 5 trillion. Thus, in order to “stay afloat” in the global economy the EAEU needs a strong(er) partner with whom equal cooperation would be possible. Due to current tensions with the West, Russia initiated deeper cooperation with Asia, mainly China, with whom the EAEU signed a non-preferential trade and economic cooperation agreement in May 2018.

India – EAEU Trade and Economic Cooperation

In order not to become too exposed to China’s growing power, increased strategic cooperation between the Eurasian Economic Union and India, who’s GPD PPP in 2017 was $9.5 trillion, is advisable.

In 2017 India and the EAEU agreed to start consultations on the creation of a free trade area. Despite the fact that both sides are to each other potential large markets, current trade turnover is insignificant (only $10.8 billion in 2017), which means, however, large untapped potentials for trade growth.

Within a free trade zone the EAEU could sell India more grains, oils, vegetables, drinks including mineral water. In industrial area there are fertilizers, machines, equipment, vehicles, products of mechanical engineering, salt, chemicals, rubber, plastics, steel and wood products. India, in its turn, has potential capacity to increase its export of agricultural, food and textile products, including ready-made clothes, as well as chemical, pharmaceutical and other products.

Apart from reducing import tariffs, the parties should especially work on the minimization of trade remedies, as well as the harmonization of industrial product and agro-food standards. It should be noted, that the EAEU has brought its technical regulation almost completely in line with that of the EU and EU-based international standards. Unfortunately India’s technical regulation system is known for its red-tape.

Under the FTA agreement trade turnover between the parties could grow up by 30-40% from the current level depending on the depth of tariff liberalization. The total increase in the EAEU countries’ GDP can reach about $ 1.4 billion in the short term and $ 2.7 billion in the long term. Liberalization of the current trade regime could help to increase India’s GDP by more than 3%.

However, the envisaged India-EAEU partnership should go beyond a “traditional” free trade agreement and include cooperation in areas such as: services, intellectual property, digital economy, investments, transport, energy, government procurement. India is interested in advanced technologies, for instance, aircraft engineering, shipbuilding, metallurgical engineering, chemical industry or in creating “smart cities”.

India and the EAEU might consider stipulating cooperation the following fields:

  • Joint development of the “North – South” Transport Corridor along the route Saint-Petersburg – Russia – Georgia & Armenia and/or Azerbaijan – Iran – Arabian Sea – India – Mumbai-New Delhi Industrial Corridor. This comprehensive “hard” infrastructure project could contribute to an increase in the yet minimal trade turnover of the two regions. And the recently signed EAEU-Iran interim free trade agreement (May 2018) can be seen as a step towards creating the necessary “soft” infrastructure. At the same time, one should not forget that multimodal transport multiplies  freight costs.
  • Laying down of an international fiber-optic cable along the same route connecting Europe with India through Russia. Currently, all of India’s Internet connection is provided by a single fiber-optic cable along the bottom of the Indian Ocean, which poses a serious potential threat to the countries cyber security. A second cable along the “North-South” TC would be strategic supplement. Necessary investments could be raised by the Eurasian Development Bank and/or the AIIB.
  • India and the EAEU should also consider cooperating and creating joint programs between their respective digital transformation agendas.
  • Joint agro-food ventures in the EAEU member states, especially Kyrgyzstan, Armenia and the Russian Far East. For example, Moscow could consider giving Indian farmers quotas for participating the country’s program of granting free land in the under-populated Russian Far East.

Unfortunately, more detailed research on the challenges and potentials for increased trade and economic cooperation between India and the Eurasian Economic Union is still relatively rare. Special attention should be given to econometric modeling, to the analysis of bottle necks and to a stocktaking of business interests from both sides.

Delhi has thought out its strategy in the Indo-Pacific quite well. However, despite an ever growing interest in cooperation with Russia, India’s political and intellectual leadership still lacks proper understanding of the country’s role in the emerging wider Eurasian space. This also explains why India is lagging behind in the “public diplomacy competition” with China’s “Belt and Road” campaign.

*The views expressed are solely that of the author and may not represent the position of any affiliated organizations.

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