Feasibility study of deeper trade and economic cooperation between the Azerbaijan, Moldova, Uzbekistan and Tajikistan and the Eurasian Economic Union

_ Yuri Kofner, editor-in-chief, Eurasian Studies. Munich, January 2020. First published by the Vienna Institute for Security Policy.

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Introduction


Under the influence of Russia ‘s presidency in the organs of the Eurasian Economic Union (EAEU) in 2018, the Eurasian Economic Commission (EEC) began looking into ways of enhancing trade and economic cooperation between the EAEU and its neighborhood countries. The overall intention is to strengthen trade and economic ties, as well as mutually beneficial economic cooperation, of the peripheral countries of the post-Soviet region with the Eurasian Economic Union and to create the prerequisites for their possible ascension the Union in the next 5-10 years.

Currently the EAEU has the following “menu” of legal instruments at its disposal in order to foster international cooperation with third parties: MoUs, observer status, free trade agreements (FTAs), trade and cooperation agreements, comprehensive economic partnership agreements (CEPAs), accession to the Union (Map 1).

In addition to the existing Commonwealth of Independent States Free Trade Agreement (CIS FTA) from 2012, the CIS Executive Committee and the EEC concluded a Memorandum on deepening cooperation in November 2018. In May of the same year Moldova officially received observer status with the EAEU.

The purpose of this analytical note is to prioritize the feasibility of enhancing trade and economic cooperation between the EAEU and four selected CIS countries: Azerbaijan, Moldova, Uzbekistan and Tajikistan. Ceteris paribus, out of all the other post-Soviet states these are the ones, which might be relatively more inclined towards a potential deeper cooperation with the Eurasian Economic Union, given their political relations with the Russian Federation.

This feasibility study will be conducted by comparing the following indicators: trade complementarity; level of processing; trade diversification; geographic structure of trade; trade complementarity weighed by geographic structure of trade; economic and demographic size; trade “gravity”; public support; average tariff regimes.

Map 1. EAEU international cooperation with third parties in the wider Eurasian space (November 2019)

Source: EEC and author’s illustration.

Trade complementarity


Trade complementarity indices (TCI) measure the extent to which two parties are “natural trading partners” in the sense that what one party exports overlaps with what the other party’s imports. The higher the trade complementarity between two parties, the more sensible trade liberalization and economic integration between them becomes.

cij = 100 [1 – ∑mk=1 │mik – xjk│/ 2]

Using a simple HS data set on product trade aggregated at the 2-digit depth[1] for 2017 we see that the EAEU’s export commodity structure best fits the import commodity structure of Moldova (43.3%), Tajikistan (41.5%), then, after that Azerbaijan (38%) and finally Uzbekistan (36.6%). The Union’s import commodity structure is best matched by the export commodity structure of Moldova (almost 55%), then Uzbekistan (36%) and Tajikistan (25.2%). Azerbaijan’s exports match imports of the EAEU by only almost 7% (Chart 1, Table 1).

Chart 1. Trade complementarity indexes for EAEU trade with Azerbaijan, Moldova, Uzbekistan and Tajikistan (2017, in %)

Source: EEC Statistics Department, OEC database and authors calculations.

Trade complementarity between the Eurasian Economic Union and the four selected CIS countries is generally below 50% due to the fact that their foreign trade structure is quite similar, with exports generally consisting to a large part of energy carriers and raw materials and imports of machinery equipment and transport vehicles.

In 2017 the EAEU’s main exports were mineral products (62.7%), mainly oil, gas and petroleum products, then metals and metal products (10.6%), as well as machinery and transport vehicles (ca. 12.1%, including arms sales by Russia).  Main imports into the Union consisted out of machinery and transport vehicles (44.7%), chemicals (18%) and agro-food products (12.2%).

Azerbaijan’s exports almost entirely consisted out of mineral products (94.4%), largely crude petroleum and petroleum gas. The country’s largest imports were machinery and transport vehicles (almost 39%), agro-food and chemical products – almost 18% and 14.4%, respectively.

Moldova’s main exports were agro-industrial produce (41%), textile goods (20.4%), and machinery (17.6%), mainly insulated wire. The country’s import structure was rather diversified with machinery and transport vehicles (26.5%), chemical and agro-food products, 18% and 15%, respectively, as the main import items. Tajikistan’s exports were concentrated in metals and metal products (40%), as well as various mineral ores (over 35%). Here also imports were more diversified than exports. In both countries, mineral products, mostly refined petroleum, made up a significant share of their imports – 13.5% in Moldova and 13.1% in Tajikistan.

More than half of Uzbekistan’s exports consisted out of metals and metal products (54.4%), for the most part gold, as well as mineral products, after that textile goods and shoes were the main export item (15.6%). Imports were made up of machinery and transport equipment (almost 40%), chemical goods (over 16%), as well as metals (14%), largely iron products (Charts 2 and 3, Table 2).

Chart 2. Commodity structure of external trade of the EAEU (export) and Azerbaijan, Moldova, Uzbekistan and Tajikistan (import) with third parties (2017, HS2, in %)

Source: EEC Statistics Department, OEC database and authors calculations.

Chart 3. Commodity structure of external trade of the EAEU (import) and Azerbaijan, Moldova, Uzbekistan and Tajikistan (export) with third parties (2017, HS2, in %)

Source: EEC Statistics Department, OEC database and authors calculations.

Level of processing


Using the WITS database and MTN classification we see that out of three CIS countries (Tajikistan’s last data update was in 2000) in 2018 Moldova had the highest share of processed goods in its export structure to the EAEU – almost 60%. The share of processed goods in Uzbekistan’s exports to the EAEU was 18.5% and that of Azerbaijan only 13.5% (Chart 4, Table 3). Tashkent had also a higher share of semi-processed products in its shipments to the EAEU – 23.4% as compared to 14.3% by Azerbaijan.

Chart 4. Level of processing share of merchandise exports from Azerbaijan, Moldova an Uzbekistan to the EAEU (2018, in %)

Source: Author’s calculations using WITS and MTN classification.

In 2018 the top-3 export items of Moldova to the Eurasian Economic Union were fruits and vegetables (mainly nuts) for over USD 81 mln (33.3%) of total exports to the Union, beverages and spirits (mainly red wines) for USD 65 mln (26.6%), as well as clothing at almost USD 20 mln (8.1%). That of Uzbekistan were raw mineral products, precious stones and metals with almost USD 1130 mln (36.2%), fruits and vegetables with USD 623 mln (20%) and clothing for USD 352 mln (11.3%). Azerbaijan sold to the EAEU fruits and vegetables for USD 490 mln (66.4%), semi-processed metals (iron, steel, aluminum) at USD 58 mln (almost 8%) and refined petroleum for USD 24 mln (3.3%) (Tables 4, 5, 6).

Within the Eurasian Union’s exports to Moldova was the highest share of processed goods – 60%. Semi-processed and processed goods made up almost 90% of Eurasian exports to Moldova. The EAEU’s export structure to Uzbekistan and Azerbaijan showed a relatively similar level of processing: with 43.6% vs. 43.2% for processed products and 38.8% vs 31.1% for semi-processed products (Chart 5, Table 7).

Chart 5. Level of processing share of merchandise exports from the EAEU to Azerbaijan, Moldova an Uzbekistan (2018, in %)

Source: Author’s calculations using WITS and MTN classification.

In 2018 the three largest items in the EAEU’s export structure to Moldova were semi-processed mineral products and precious stones and metals for USD 94 mln (15.4%), refined petroleum products for USD 88.6 mln (14.5%), as well as raw mineral products and precious stones and metals for almost USD 46 mln (7.5%). Uzbekistan bought from the Eurasian Economic Union semi-finished metal manufactures (iron, steel, aluminum) for USD 1213.6 mln (25.6%), transport equipment at almost USD 461 mln (almost 9%) and non-electric machinery for USD 406 mln (8.6%). The EAEU sold to Azerbaijan semi-finished metal products (iron, steel) for USD 325 mln (14.5%), semi-processed wood products for USD 268 mln (12%), as well as grains for USD 224.5 mln (10%) (Tables 8,9, 10).

Trade diversification


The Herfindahl-Hirschman index (HHI) can be used to measure the level of trade diversification by adding the squares of sectoral shares in total export t. It can range from 1 to 0. The lower the index, the higher the level of diversification.

hi = ∑k (sik)2

Uzbekistan and Moldova had approximately the same level of export diversification towards the EAEU with a Herfindahl-Hirschman index of ~ 0.18. Azerbaijan’s exports to the Eurasian Union were more concentrated with a HHI of 0.233 (Chart 6, Table 11).

Chart 6. Export diversification of Azerbaijan, Moldova and Tajikistan to the EAEU (HHI, 2018)

Source: WITS database, HS4 classification author’s calculations.

Out three post-Soviet stats the EAEU’s export structure to Azerbaijan was the most diversified with a HHI of 0.068. After that came exports to Uzbekistan with a HHI of 0.08. The export structure of the Eurasian Economic Union was the most concentrated with a HHI of 0.13 (Chart 7, Table 11).

Overall, exports from the EAEU to Azerbaijan, Moldovan and Uzbekistan is relatively more diversified than vice-versa.

Chart 7. EAEU’s export diversification to Azerbaijan, Moldova and Tajikistan (HHI, 2018)

Source: WITS database, HS4 classification author’s calculations.

Geographic structure of trade


We also see a significant asymmetry in the geographic structure of external trade of the EAEU and the four other post-Soviet states.

On the one hand, Azerbaijan, Moldova, Uzbekistan and Tajikistan play a very small role in the external trade structure of the Eurasian Economic Union. In 2017, only Uzbekistan’s share in the EAEU’s exports were slightly above 1% and only 0.8% of the Union’s imports. After that came Azerbaijan, Moldova and Tajikistan, in that order, with only 0.6% to 0.3% and 0.3% to 0.1% in the EAEU’s external export and import structure, respectively (Chart 8, Table 12).

Chart 8. Share of Azerbaijan, Moldova, Uzbekistan and Tajikistan in the external trade structure of the EAEU (2017, in %)

Source: EEC Statistics Department.

On the other hand, Tajikistan, Uzbekistan and Moldova, in that order, are much more dependent on trade relations with the EAEU; with Azerbaijan being the exception. The Eurasian market plays the most important role for Tajikistan. In 2017 the EAEU bought 36.5% of the country’s total exports. Almost 23% and over 14% of Uzbekistan’s and Moldova’s exports flowed to the Eurasian Union. Only Azerbaijan didn’t rely on the EAEU as a buyer of its exports, the share of which amounted to less than 2%, The country’s overwhelming dependence on the export of mineral products (94.4%), i.e. largely of oil and gas, mirror that of the EAEU (62.7%).

Tajikistan and Uzbekistan where even more reliant on imports from the EAEU, which, respectively accounted for almost 40% and 36% of their geographic import structure. 11.2% of goods shipped to Moldova from abroad came from the Eurasian Union. Interestingly enough, while the EAEU is a rather insignificant market for Azerbaijani exports, the Union still accounted for over 20% of the country’s total imports (Chart 9, Table 13).

Chart 9. Share of the EAEU in the foreign trade structure of Azerbaijan, Moldova, Uzbekistan and Tajikistan (2017, in %)

Source: OEC database and author’s calculations.

Trade complementarity weighted by geographic structure of trade


The trade complementarity index in itself gives a rather simplistic indication on the advisability of potentially deeper trade and economic cooperation between two parties. A more realistic evaluation on the expediency of closer trade and economic cooperation can be given by weighing the TCI with the geographic structure of trade, in other words by putting trade complementarity and relation to the significance of existing trade flows between two parties.

cijgeo = cij [xij / xiw]

The analysis undertaken above indicates that within the four Commonwealth states, overall, first Moldova and then Tajikistan show the most trade complementarity with the EAEU, after that Uzbekistan, and Azerbaijan the least (Table 1). Accordingly, policy makers from the Eurasian Economic Commission, Chisinau and Dushanbe should be more inclined on moving trade and economic cooperation, or even integration, forward, than policy makers from Tashkent and Baku.

However, when the TCI estimations are weighed with the geographic structure of trade, a different prioritization emerges. This can be done for two sides. Firstly, by weighing the TCIs with the share, i.e. importance, that the four other CIS countries have in the EAEU’s external trade structure. Secondly, the other way around, by weighing the trade complementarity estimations with the share, i.e. significance, that the Eurasian Union has in the foreign trade structure of the four post-Soviet states.

Taking into account the low share of Azerbaijan, Moldova, Tajikistan and Uzbekistan in the EAEU’s external trade, their complementarity indexes become even less significant. However, for the purposes of this analysis, more important are the TCIs’ “order of magnitude”, not their overall weight. Thus, we see a rearrangement of prioritization: The Union’s commodity exports are best matched by the imports of first Uzbekistan (0.4%), then Azerbaijan (0.2%), and afterwards only Moldova and Tajikistan – both 0.1%. The Union’s import structure is best matched by exports from Uzbekistan (0,3%), then Moldova (0.1%), and only very slightly by shipments from Tajikistan and Azerbaijan – 0.04% and 0.02% respectively (Chart 10, Table 14). Accordingly, taking into account the significance of bilateral trade flows, the Eurasian Economic Commission might give priority to negotiations with Tashkent and Baku on deeper trade and economic cooperation.

Chart 10. Trade complementarity index for external trade of the EAEU with Azerbaijan, Moldova, Uzbekistan and Tajikistan weighted by the share of Azerbaijan, Moldova, Uzbekistan and Tajikistan in the geographic trade structure of the EAEU (2017, in %)

Source: EEC Statistics Department, OEC database and authors calculations.

The significant share that the EAEU has in the foreign trade structure of Tajikistan and Uzbekistan makes their trade complementary, relatively speaking, even more pronounced. Thus, the Union’s exports matched imports into Tajikistan by 16.6% and to Uzbekistan by over 13%. Eurasian exports matched the import structure of Azerbaijan by almost 8%, surpassing trade complementarity weighed with the relatively low trade importance of EAEU exports to Moldova, which were only almost 5%. At the same time imports to the Eurasian Economic Union were matched by exports from Tajikistan by 9.2%, then from Uzbekistan by 8.2%, after that from Moldova by 7.7%, and from Azerbaijan only by 0.1% (Chart 11, Table 15). Therefore, out of the four studied countries it might be reasonable, first of all, for Tashkent and Dushanbe to think about deepening trade and economic cooperation with the Eurasian Union.

Chart 10. Trade complementarity index for external trade of the EAEU with Azerbaijan, Moldova, Uzbekistan and Tajikistan weighted by the EAEU’s share in the geographic trade structure of Azerbaijan, Moldova, Uzbekistan and Tajikistan (2017, in %)

Source: EEC Statistics Department, OEC database and authors calculations.

Briefly summarizing the above made results, priority should be given to a potential deepening of trade and economic relations of the EAEU with, firstly, Uzbekistan, then Azerbaijan, after that Tajikistan and finally with Moldova. Please note that this prioritization is not meant in terms of timing potential further feasibility studies or negotiations, i.e. one after the other, but in terms of their relative importance for both sides based on their trade complementarity and geographic structure of trade. Potential feasibility studies or negotiations between the EAEU and some or all the four studied CIS countries could full well be conducted at the same time or as part a single initiative, e.g. not dissimilar to the EU’s “Eastern Partnership”.

GDP and population comparison


Uzbekistan and Azerbaijan are relatively more important markets to the EAEU, and vice versa, which is also backed by looking at their economic and demographic size. Uzbekistan’s GDP by PPP and population are almost 5% and a significant nearly 18%, respectively, that of the Eurasian Economic Union. Azerbaijan’s GDP by purchasing power parity is almost 4% that of the EAEU, and its population 5.4%. Moldova’s and Tajikistan’s economies are less then 1% than that of the Eurasian Union, with a population size of nearly 2% and 5% that of the EAEU, respectively (Chart 11, Table 16).

Chart 11. GDP based on purchasing power parity and population size of the EAEU and Azerbaijan, Moldova, Uzbekistan and Tajikistan in comparison (2017)

Source: EEC Statistics Department, World Bank and author’s calculations.

Trade “gravity”


Although in 2018 Azerbaijan’s economy was almost 23% smaller than that of Uzbekistan, due to the second’s longer distance from the EAEU (measured by train travel distance between their respective administrative centers) their respective “trade attraction” index was roughly the same – 341.3 and 330.2. The trade attraction between the smaller economies of Moldova and Tajikistan with the Eurasian Union was much lower: 77.8 and 34.7 respectively (Table 17). The very simplistic “trade gravity” index is measured the following way:

Fij = G * Yi * Yj / Dij

Popular support


Social polls indicate that a potential deepening of trade and economic cooperation, i.e. in the form of a free trade agreement, or even accession to the Eurasian Economic Union would indeed be most favored by the population of Uzbekistan (72%). After that 68% of the Tajik population would support this. The Moldovan population is more divided on this matter – slightly less than 50% would be in favor. The approval rating is the lowest, although not really low, in Azerbaijan, where almost 40% of the business community would support stronger economic ties with the Eurasian Union (Chart 12, Tables 18 and 19).

Chart 12. How would you assess a potential deepening of your country’s cooperation with the EAEU? (2018, positive rating, in %)

Source: Analytical Center under the Government of Russia. In each country, about 2.000 people and 200 companies took part in the survey (18 644 people and 2 703 organizations in total).

Comparing average tariff regimes


All four of the studied CIS countries, together with the EAEU, are already participants of the common CIS free trade agreement from 2012, which, however, has (too) many exemptions. A further strengthening of trade and economic relations could therefore be conducted by concluding comprehensive economic partnership agreements, such as the one between the EAEU and Singapore, signed in October 2019. Here special attention should be given to reducing non-tariff barriers, harmonizing technical regulations and standards and sanitary-phytosanitary measures for agro-food products, as well as creating the necessary framework for increasing trade in services, mutual FDIs, industrial and digital cooperation.

The last and final stage of deepening regional economic integration in northern Eurasia would be accession to the EAEU. As part of this process, which would include many steps towards conformity of national regulations with supranational ones, the future member state would have to align its tariff profile with that of the EAEU customs union. The greater the difference between them, the more difficult alignment would be and the less feasible a potential accession would become. At the same time, it should be noted that this alignment process usually takes several years, sometimes even decades, and that both parties usually negotiate on phasing-in periods and exemptions, depending on the sensitivity of each sector for each side.

The simple average MFN applied tariff regime of the EAEU has decreased over the years yet is still rather high: in 2018 it was 6.8% comprehensive, 11.0% for agricultural products and 6.1% for non-agricultural products.

Chart 13. Comparison of average tariff regimes between the EAEU and Azerbaijan, Moldova, Uzbekistan and Tajikistan (2018)

Source: World Tariff Profiles 2019, UNCTAD, ITC and author’s calculations. *Data for 2017.

Moldova is the only country, that would have to increase its simple average MFN tariffs by 1.5 percentage points overall, and by 1.7 p.p for non-agricultural goods in particular. In the sensitive agricultural sector, it would have to lower slightly tariff protection by 0.2 p.p. It should be noted that the country’s average tariff regime is already very close to that of the European Union, with which it has initiated a DCFTA in 2014 and with which is in the process of “eurointegration”. In 2018 the EU’s simple average MFN applied was 5.2% in total, 12% for agricultural and 4.2% for non-agricultural products.

If Tajikistan were to become a member state of the Eurasian Union it would have to lower its tariff protection by less than 1 p.p, that for non-agricultural products by slightly above 1 p.p. In the agroindustry sector tariffs would have to be increased by 0.4 p.p.

In case Azerbaijan were to join the EAEU customs union it would have to take down tariffs in average by 2.2. percentage points, in particular by 2.3 p.p. for agricultural and by 2.2 p.p. for non-agricultural products.

Until recently, Uzbekistan had one of the most protectionist tariff profiles in the region. In 2015 its simple average MFN applied was almost 15%, for agri-food products even almost 20%. However, since Shavkat Mirziyoyev took office as the Uzbek president in 2016, he undertook many reforms to modernize the economy, including a liberalization of currency control and overhauling the customs system. Within a year the average level of tariff protection dropped to 6.4% in total, which is 7.2% for agricultural products and 5.9% for non-agricultural goods. This liberalization of the country’s foreign trade policy would make a possible joining the Eurasian Economic Union easier. The overall tariff protection would have to be raised again by only 0.4 p.p. and only by 0.2 p.p. for non-agricultural products in particular. Only in the agro-industrial sector average tariffs would have to be lifted again by almost 4 p.p. (Table 20)[2].

Conclusion


According to the overall results of this analytical note, it would be most advisable for Uzbekistan, Tajikistan and Moldova to consider deeper trade and economic relations with the Eurasian Economic Union. For example, judging by the market size and the imports composition, Azerbaijan would also provide interests for Eurasian exports. And in the mutual trade of Moldova with the Eurasian Union, there is the highest share of goods with higher added value. However, the significance of this fact is reduced by the small size of the Moldovan market.

Simple trade complementarity with the EAEU is the highest for Moldova (almost 50%) and Uzbekistan (~36.3%). It is also considerable for Tajikistan (~33.4%). Moldova also had the highest share of processed goods in its export structure to the EAEU – almost 60%. The share of processed goods in Uzbekistan’s exports to the EAEU was 18.5% and that of Azerbaijan only 13.5%. Tashkent had also a higher share of semi-processed products in its shipments to the EAEU – 23.4% as compared to 14.3% by Azerbaijan. The Eurasian Union’s exports to Moldova also showed the highest share of processed goods – 60%. Semi-processed and processed goods made up almost 90% of Eurasian exports to Moldova. The EAEU’s export structure to Uzbekistan and Azerbaijan showed a relatively similar level of processing: with 43.6% vs. 43.2% for processed products and 38.8% vs 31.1% for semi-processed products.

Uzbekistan and Moldova had approximately the same level of export diversification towards the EAEU with a Herfindahl-Hirschman index of ~ 0.18. On the one hand, Azerbaijan’s exports to the Eurasian Union were more concentrated with a HHI of 0.233. On the other hand, the  EAEU’s export structure to Azerbaijan was the most diversified with a HHI of 0.068. After that came exports to Uzbekistan with a HHI of 0.08. The export structure of the Eurasian Economic Union was the most concentrated with a HHI of 0.13. Overall, exports from the EAEU to Azerbaijan, Moldovan and Uzbekistan is relatively more diversified than vice-versa.

There is also a significant asymmetry in the geographic trade structure of the Eurasian Union and the four studied Commonwealth countries. On the one hand, they make up only a miniscule share in the EAEU’s external trade structure, with only Uzbekistan accounting to slightly more than 1% of the Union’s exports. On the other hand, the Eurasian Economic Union, with a GDP based on purchasing power parity of over $ 4 trln and a population of 147 mln people, is an important trade partner for Tajikistan, accounting for over 38% of its foreign trade volume, then Uzbekistan (almost 30%). Only 12.7% of Moldova’s foreign trade are with the Eurasian Economic Union, whereas around 70% are with the EU. Though less than 2% of Azerbaijani exports go to the EAEU member states (more than half goes to the European Union), over 1/5 of the country’s imports originate in the EAEU (same as with the EU). In any case, judging by market size in terms of GPD by PPP and population, only Uzbekistan and would be somewhat interesting trading partners for the Eurasian Economic Union.

Although Azerbaijan’s economy was almost 23% smaller than that of Uzbekistan, due to the second’s longer distance from the EAEU their respective “trade attraction” indexes were roughly the same – 341.3 and 330.2. The trade attraction between the smaller economies of Moldova and Tajikistan with the Eurasian Union was much lower.

Consequently, after taking into account the small share of the four post-Soviet states in the EAEU’s external trade, the Union’s commodity trade structure on the export side is best matched by Uzbekistan (0.4%), %), then Azerbaijan (0.2%), and afterwards only Moldova and Tajikistan – both 0.1%. On the import side it is best matched by Uzbekistan (0.3%) and Moldova (0.2%).

Considering the large share that the EAEU has in the foreign trade structure of the four studies CIS countries, exports from Tajikistan are best matched by the Union import composition (above 9%), then from Uzbekistan (over 8%), after that from Moldova by 7.7%, however almost not from Azerbaijan (0.1%). Imports into Tajikistan (16.6%), Uzbekistan (13%) and Azerbaijan are best matched by commodity shipments from the EAEU member states.

Simply speaking, comparing geographically weighed TCIs, the Eurasian Economic Commission, on the one side, would be most interested in deeper trade and economic cooperation with Uzbekistan and Azerbaijan. On the other side, Tashkent should also be inclined towards stronger ties with the EAEU, but this should be even more true for Dushanbe. This interpretation is also supported public opinion polls, which show that overt 2/3 of Uzbek and Tajik citizens would favor closer economic ties with the Eurasian Economic Union.

Average tariff protection in Uzbekistan and Tajikistan is also closer to the EAEU’s average tariff profile, followed by Azerbaijan and Moldova, which therefore would make a potential accession to the Union more feasible.

It is noteworthy that the Ministry of Economy and Industry of Uzbekistan in October 2019 unveiled a draft “Concept on the comprehensive socio-economic development of the Republic until 2030”, where it is planned to conclude a free trade agreement with the EAEU by 2021 and to “evaluate the country’s joining the EAEU and WTO” by 2025.

To the author’s opinion the Eurasian Economic Commission should follow a “multiple-speed integration” strategy in the Eurasian region, according to which it should offer different modes of cooperation and various depths of integration to the both the EAEU’s member countries, as well as to the other post-Soviet states, depending on their national interests and the existing level of convergence.

The first step would be to invite Baku, Dushanbe and Tashkent to become observer states with the EAEU, along with Moldova, which already formally has such as status since May 2018.

The next step would be to study in detail the feasibility of concluding comprehensive economic partnership agreements (CEPAs) with -, in the following order of priority: Uzbekistan, Tajikistan, Azerbaijan and Moldova. These agreements should focus on reducing non-tariff barriers, harmonizing technical regulations and standards and sanitary-phytosanitary measures for agro-food products, as well as creating the necessary framework for increasing trade in services, mutual FDIs, industrial and digital cooperation. The EEC together with Tashkent and Dushanbe might also consider implementing these partnership agreements as part of a wider cooperation roadmap with the final potential aim of joining the Eurasian Economic Union. Possible closer ties between Azerbaijan and Moldova with the EAEU would also strongly depend on their capacity to resolve political issues, mainly between Azerbaijan and Armenia, and between Russia and the EU, respectively.

Annex


Table 1. Trade complementarity indexes for EAEU trade with Azerbaijan, Moldova, Uzbekistan and Tajikistan (2017, in %)

AZE export matches EAEU import 6.9% EAEU export matches AZE import 38.0%
MDA export matches EAEU import 54.9% EAEU export matches MDA import 43.4%
TJK export matches EAEU import 25.2% EAEU export matches TJK import 41.5%
UZB export matches EAEU import 36.0% EAEU export matches UZB import 36.6%

Source: EEC Statistics Department, OEC database and authors calculations.

Table 2. Commodity structure of external trade of the EAEU, Azerbaijan, Moldova, Uzbekistan and Tajikistan with third parties (2017, X = export, M = imports, HS2, in %)

EAEU AZE MDA TJK UZB
X M X M X M X M X M
Agro-food products 5.3% 12.2% 1.5%

 

17.9%

 

41.0% 15.0% 7.7% 17.4% 8.4% 10.0%
Mineral products 62.7% 1.3% 94.4% 6.4%

 

2.5% 13.5% 35.1% 13.1% 9.1% 8.6%
Chemical products 6.0% 18.0% 1.0% 14.4%

 

4.4% 18.0% 0.5% 10.8% 9.6% 16.1%
Wood and paper products 3.0% 1.6% 0.0% 5.5%

 

0.9% 4.2% 0.2% 4.4% 0.3% 5.8%
Textiles, textile products and shoes 0.3% 6.4% 0.6% 3.6%

 

20.4% 11.3% 13.9% 18.7% 15.6% 4.7%
Metals and metal products 10.6% 6.5% 1.7% 10.7%

 

7.6% 9.0% 40.0% 10.0% 54.4% 14.0%
Machinery and transport vehicles 3.8% 44.7% 0.8% 38.9%

 

17.6% 26.5% 2.4% 21.1% 2.5% 39.2%
Other goods 8.3% 9.3% 0.0% 2.6% 5.6% 2.5% 0.2% 4.5% 0.1% 1.6%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

 Source: EEC Statistics Department, OEC database and authors calculations.

Table 3. Level of processing share of merchandise exports from Azerbaijan, Moldova an Uzbekistan to the EAEU (2018, in %)

Raw materials Semi-processed Processed
AZE 72.7 14.3 13.5
MDA 39.5 1.5 59.0
TJK
UZB 58.1 23.4 18.5

Source: Author’s calculations using WITS and MTN classification.

Table 4. Top-10 export items of Azerbaijan to the EAEU (2018)

Nr. Product Level of processing Value (USD mln nominal) Share of total exports to the EAEU (in %)
1. Fruit & vegetables fresh or dried Raw materials 490.3 66.4
2. Metals semi-finished manufactures Semi-processed 57.8 7.8
3. Refined petroleum Processed 24.0 3.3
4. Mineral products and precious stones and metals raw materials Raw materials 20.5 2.8
5. Textiles & clothing, semi-finished Semi-processed 18.5 2.5
6. Beverages & spirits Processed 17.7 2.4
7. Chemicals, semi-finished manufactur Semi-processed 14.1 1.9
8. Textiles & clothing, finished manuf Processed 14.0 1.9
9. Mineral products and precious stones and metals semi-finished manufactures Semi-processed 13.1 1.8
10. Tobacco unmanufactured

 

Raw materials 12.5 1.7

Source: Author’s calculations using WITS and MTN classification.

Table 5. Top-10 export items of Moldova to the EAEU (2018)

Nr. Product Level of processing Value (USD mln nominal) Share of total exports to the EAEU (in %)
1. Fruit & vegetables fresh or dried Raw materials 81.4 33.3
2. Beverages & spirits Processed 65.1 26.6
3. Textiles & clothing, finished manufactures Processed 19.7 8.1
4. Non-electric machinery Processed 10.7 4.4
5. Chemicals, finished manufactures Processed 10.5 4.3
6. Dairy products processed Processed 8.6 3.5
7. Grains Raw materials 8.0 3.3
8. Meat, prepared or preserved & other Processed 6.9 2.8
9. Fruit & vegetables prepared or preserved Processed 6.1 2.5
10. Metal manufactures Processed 4.3 1.8

Source: Author’s calculations using WITS and MTN classification.

Table 6. Top-10 export items of Uzbekistan to the EAEU (2018)

Nr. Product Level of processing Value (USD mln nominal) Share of total exports to the EAEU (in %)
1. Mineral products and precious stones and metals raw materials Raw materials 1128.8 36.2
2. Fruit & vegetables fresh or dried Raw materials 623.1 20.0
3. Textiles & clothing, finished manufactures Processed 352.3 11.3
4. Textiles & clothing, semi-finished Semi-processed 332.9 10.7
5. Chemicals, semi-finished manufactures Semi-processed 258.8 8.3
6. Metals semi-finished manufactures Semi-processed 81.1 2.6
7. Mineral products and precious stones and metals semi-finished manufactures Semi-processed 53.6 1.7
8. Transport equipment Processed 52.9 1.7
9. Electric machinery – Processed Processed 39.6 1.3
10. Beverages & spirits Processed 25.6 0.8

Source: Author’s calculations using WITS and MTN classification.

Table 7. Level of processing share of merchandise exports from the EAEU to Azerbaijan, Moldova an Uzbekistan (2018, in %)

Raw materials Semi-processed Processed
AZE 22.7 34.1 43.2
MDA 10.4 29.5 60.1
TJK
UZB 17.6 38.8 43.6

Source: Author’s calculations using WITS and MTN classification.

Table 8. Top-10 export items from the EAEU to Azerbaijan (2018)

Nr. Product Level of processing Value (USD mln nominal) Share of total exports to AZE (in %)
1. Metals semi-finished manufactures Semi-processed 324.9 14.5
2. Wood, pulp, paper & furniture, semi Semi-processed 267.7 12.0
3. Grains Raw materials 224.5 10.0
4. Mineral products and precious stones and metals raw materials Raw materials 187.8 8.4
5. Transport equipment Processed 164.8 7.4
6. Refined petroleum Processed 107.1 4.8
7. Mineral products and precious stones and metals semi-finished manufactures Semi-processed 91.4 4.1
8. Non-electric machinery Processed 81.7 3.7
9. Chemicals, finished manufactures Processed 77.3 3.5
10. Electric machinery – processed Processed 74.1 3.3

Source: Author’s calculations using WITS and MTN classification.

Table 9. Top-10 export items from the EAEU to Moldova (2018)

Nr. Product Level of processing Value (USD mln nominal) Share of total exports to MDA (in %)
1. Mineral products and precious stones and metals semi-finished manufactures Semi-processed 94.1 15.4
2. Refined petroleum Processed 88.6 14.5
3. Mineral products and precious stones and metals raw materials Raw materials 45.9 7.5
4. Wood, pulp, paper & furniture, semi Semi-processed 39.5 6.5
5. Non-electric machinery Processed 35.6 5.8
6. Chemicals, finished manufactures Processed 35.5 5.8
7. Transport equipment Processed 34.4 5.6
8. Mineral products and precious stones and metals finished manufactures Processed 25.0 4.1
9. Chemicals, semi-finished manufactur Semi-processed 24.9 4.1
10. Electric machinery – Processed Processed 22.5 3.7

Source: Author’s calculations using WITS and MTN classification.

Table 10. Top-10 export items from the EAEU to UZB (2018)

Nr. Product Level of processing Value (USD mln nominal) Share of total exports to UZB (in %)
1. Metals semi-finished manufactures Semi-processed 1213.6 25.6
2. Transport equipment Processed 420.6 8.7
3. Non-electric machinery Processed 406.0 8.6
4. Refined petroleum Processed 344.2 7.4
5. Grains Raw materials 301.5 6.4
6. Oilseeds, fats and oils processed Processed 211.9 4.5
7. Crude petroleum Raw material 192.1 4.1
8. Mineral products and precious stones and metals semi-finished manufactures Semi-processed 184.3 3.9
9. Chemicals, finished manufactures Processed 176.0 3.7
10. Chemicals, semi-finished manufactur Semi-processed 169.5 3.6

Source: Author’s calculations using WITS and MTN classification.

Table 11. Trade diversification between the EAEU and Azerbaijan, Moldova and Uzbekistan (HHI, 2018)

Export to the EAEU from Export from the EAEU to
AZE MDA UZB AZE MDA UZB
HHI 0.233 0.183 0.179 0.068 0.130 0.080

Source: WITS database, HS4 classification author’s calculations.

Table 12. Share of Azerbaijan, Moldova, Uzbekistan and Tajikistan in the external trade structure of the EAEU (2017, in bln $ and in %)

EAEU exports to third countries

(in bln $)

Share of country in EAEU exports

(in %)

EAEU imports from third countries

(in bln $)

Share of country in EAEU imports

(in bln $)

World 387.0 100% 247.3 100%
AZE 2.2 0.6% 0.7 0.3%
MDA 1.0 0.3% 0.5 0.2%
TJK 1.3 0.3% 0.4 0.1%
UZB 4.1 1.1% 2.0 0.8%

Source: EEC Statistics Department.

Table 13. Share of the EAEU in the foreign trade structure of Azerbaijan, Moldova, Uzbekistan and Tajikistan (2017, in bln $ and in %)

Share of the EAEU in country exports

(in bln $)

Share of the EAEU in country exports

(in %)

Share of the EAEU in country imports

(in bln $)

Share of the EAEU in country imports

(in %)

AZE 0.3 1.8% 1.7 20.2%
MDA 0.4 14.1% 0.6 11.2%
TJK 0.3 36.5% 1.2 39.9%
UZB 1.9 22.9% 4.1 35.8%

Source: OEC database and author’s calculations.

Table 14. Trade complementarity index for external trade of the EAEU with Azerbaijan, Moldova, Uzbekistan and Tajikistan weighted by the share of Azerbaijan, Moldova, Uzbekistan and Tajikistan in the geographic trade structure of the EAEU (2017, in %)

EAEU export matches AZE import 0.2% AZE export matches EAEU import 0.02%
EAEU export matches MDA import 0.1% MDA export matches EAEU import 0.1%
EAEU export matches TJK import 0.1% TJK export matches EAEU import 0.04%
EAEU export matches UZB import 0.4% UZB export matches EAEU import 0.3%

Source: EEC Statistics Department, OEC database and authors calculations.

Table 15. Trade complementarity index for external trade of the EAEU with Azerbaijan, Moldova, Uzbekistan and Tajikistan weighted by the EAEU’s share in the geographic trade structure of Azerbaijan, Moldova, Uzbekistan and Tajikistan (2017, in %)

AZE export matches EAEU import 0.1% EAEU export matches AZE import 7.7%
MDA export matches EAEU import 7.7% EAEU export matches MDA import 4.8%
UZB export matches EAEU import 8.2% EAEU export matches UZB import 13.1%
TJK export matches EAEU import 9.2% EAEU export matches TJK import 16.6%

Source: EEC Statistics Department, OEC database and authors calculations.

Table 16. GDP based on purchasing power parity and population size of the EAEU and Azerbaijan, Moldova, Uzbekistan and Tajikistan in comparison (2018)

EAEU Azerbaijan Moldova Tajikistan Uzbekistan
GDP by PPP (in $ bln) 4 730.0 179.1 25.9 31.3 231.4
GDP by PPP (in % of EAEU) 100% 3.8% 0.6% 0.7% 4.9%
Average annual population (mln people) 184.0 9.9 3.5 9.1 33.0
Average annual population (in % of EAEU) 100% 5.4% 1.9% 4.9% 17.9%

Source: EEC Statistics Department, World Bank and author’s calculations.

Table 17. Simple Isegard trade gravity indexes (ITGI) for Azerbaijan, Moldova, Tajikistan and Uzbekistan with the EAEU (2018)

Train distance to Moscow in km GDP by PPP EAEU GDP by PPP Isegard trade gravity index (ITGI)
AZE 2482 179.1 4730 341.3
MDA 1574 25.9 4730 77.8
TJK 4271 31.3 4730 34.7
UZB 3315 231.4 4730 330.2

Source: EEC Statistics Department and author’s calculations. Train travel distances are taken from https://poezd.ru/.

Table 18. Do you believe that it would be desirable for your country to accede to the EAEU? (2017, positive rating, in %)

Azerbaijan Moldova Tajikistan Uzbekistan
Population 48% 69% 67%*

Source: Eurasian Development Bank (2017). 8240 questionnaires were processed as part of the survey. *Data for 2014.

Table 19. How would you assess a potential deepening of your country’s cooperation with the EAEU? (2018, positive rating, in %)

Azerbaijan Moldova Tajikistan Uzbekistan
Population 48% 66% 72%
Business community 39% 68% 68%

Source: Analytical Center under the Government of Russia. In each country, about 2.000 people and 200 companies took part in the survey (18 644 people and 2 703 organizations in total).

Table 20. Comparison of average tariff regimes between the EAEU and Azerbaijan, Moldova, Uzbekistan and Tajikistan (2017, 2018)

Simple average MFN applied (2018) Agricultural products Non-agricultural products Trade weighted average (2017) Agricultural products Non-agricultural products
EAEU 6.8% 11.0% 6.1% 5.6% 11.5% 4.7%
AZE 9.0%* 13.3%* 8.3* 6.8% 6.2% 6.9%
Necessary change -2.2 p.p. -2.3 p.p. -2.2 p.p.
MDA 5.3% 11.2% 4.4% 4.3% 10.9% 3.3%
Necessary change +1.5 p.p. -0.2 p.p. +1.7 p.p.
TJK 7.7%* 10.6%* 7.3%* 5.0%
Necessary change -0.9 p.p. +0.4 p.p. -1.2 p.p.
UZB 6.4%* 7.2%* 5.9%* 5.3%
Necessary change -8.1 p.p. -8.0 p.p. -8.1 p.p.

Source: World Tariff Profiles 2019, UNCTAD, ITC and author’s calculations. *Data for 2017.

Notes:

  1. A shortcoming of the trade complementarity estimation used in this analytical note is that it is rather simplistic, since HS data is used at a very shallow 2-digit depth. Using more complex HS data at a 4-digit or 6-digit depth would make the results much more sophisticated and practical.
  2. Here we should admit that the simple average MFN applied tariff rate is a rather rudimentary indicator for comparing customs profiles. A more accurate understanding could be given by comparing the trade weighted average tariff rate. Moreover, as part of possible further feasibility studies the negotiating parties would compare the number of harmonized and diverging tariff lines for each product in detail.

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