The EU and the Eurasian Economic Union: Dealing with a Common Chinese Challenge

_ Tony van der Togt, Senior Research Associate, Clingendael Institute. Vienna, 30 April 2020. Publish for debate.

In 2015 the Eurasian Economic Union (EAEU) became the latest version of integration in the post-soviet space, bringing together Russia, Kazakhstan, Belarus, Armenia and Kyrgyzstan in a Union, taking the European Union as its model. However, five years later the EAEU is still suffering from a number of structural weaknesses, which have restrained the organisation from becoming much more than a Customs Union with little prospects to fully implement the free movement of goods, capital, services, and labour and develop deeper economic integration between its members. As Ukraine’s refusal to align itself with the EAEU, signing an Association Agreement with the EU instead, had directly contributed to Russia’s aggressive behaviour towards its neighbour, the EU refrained from establishing any formal relationship with the EAEU. The organisation was mainly viewed as a Russian-dominated geopolitical instrument to re-establish its hegemony in the post-soviet space. In this context, the EU has restricted its relations with Russia and strongly preferred to deal with the other EAEU member states on a bilateral basis.

However, as the crisis between Russia and the West stagnated, in some EU member states, including Germany and Austria, politicians and business circles argued that a constructive relationship between the EU and the EAEU might pave the way for a broader political solution. In practice, only some informal contacts between both Commissions were established. Recently, the debate on the perspectives for dialogue and cooperation between the EU and the EAEU has returned. Most prominent was President Macron’s intervention, who referred to it in his meetings with President Putin last year. Whereas some experts have argued that it would indeed be “time to let down the drawbridge”[i], others are convinced that a Europe “from Lisbon to Vladivostok” remains an illusion[ii]. Only a few have suggested a more integrated EU-approach towards connectivity across the Eurasian continent, linking Europe to China “from Lisbon to Shanghai”[iii], although the common challenge China is posing to both the EU and Russia seemed to have been one of President Macron’s considerations to include EU-EAEU dialogue as a possible area for selective cooperation.

This article will investigate how the Chinese Belt and Road Initiative (BRI) could change both the EU’s current relations with the EAEU member states and with the Eurasian Economic Commission. In particular, it will look into possible options to merge the current parallel dialogues on technical standardisation with China and the EAEU to prevent the emergence of (new) non-tariff trade barriers across the Eurasian continent and increase connectivity. It will conclude with some recommendations for the EU to elaborate a more comprehensive strategic approach towards sustainable and rules-based connectivity across Eurasia and to include the EAEU in the EU-China Connectivity Platform.

Bilateral relations between the EU and individual EAEU member states

As already indicated, the EU has always strongly preferred to deal with EAEU member states on a bilateral basis, rather than through the EAEU. In this context, the EU has been especially successful in reaching comprehensive cooperation agreements with Kazakhstan and Armenia. Both the Enhanced Partnership and Cooperation Agreement with Kazakhstan (2015) and the Comprehensive and Enhanced Partnership Agreement with Armenia (2017) respect the obligations of these countries as EAEU member states and WTO law is used to avoid any collision between their obligations towards the EU or the EAEU[iv]. Such a bilateralisation of EU-relations with individual EAEU member states is further enhanced by two factors: the incomplete nature of EAEU-integration and centrifugal tendencies within the EAEU, which leads member states towards hedging or balancing their relations with Russia by simultaneously developing closer relations with other outside partners, like the EU and China.

As Russian EAEU-expert Vinokurov argues about the Eurasian Economic Commission (EEC): “Importantly, as of today in its negotiations to establish a free trade area with third parties, the EEC only has a mandate to discuss a trade block for goods, while the issues of investment and trade in services, which provide an FTA’s greatest economic effect, remain strictly within the competence of the member states”[v]. Whereas the EAEU (and certainly Russia) would like to fully implement the four freedoms in its internal market and become a full-fledged Economic Union, the EAEU at present mainly operates as a Customs Union in external trade relations and integration in many areas is still far from completion. In principle, this offers opportunities for the EU to develop closer cooperation with individual EAEU member states on issues, which at present would not fall within the competence of the EAEU, like developing better “digital connectivity”.

The incomplete character of EAEU-integration is also reinforced by diverging views among its members on the desirability of deeper integration with Russia. In principle, Russia would prefer to broaden and deepen integration within the EAEU, in order to strengthen its own geopolitical and geo-economic position towards its biggest trading partners: the EU and China. For Moscow, this translates into a protectionist approach and a preference to negotiate with the EU or China in the context of the EAEU. However, most EAEU member states prefer not to be locked up in a Russia-dominated framework and pursue simultaneously close relations with other external partners. This provides states, like Belarus, Kazakhstan or Armenia with additional opportunities to better serve their national interests, while using their veto powers within the EAEU to counter any Russian moves, which are viewed as not being in the interest of these smaller powers[vi]. The EU could use such room of manoeuvre to deepen cooperation with these EAEU member states on issues outside the competence of the EAEU.

However, nowadays both these EAEU-member states (especially in Central Asia) and Russia are increasingly facing a strong Chinese push for a wider Eurasian integration, serving primarily Chinese geopolitical and geo-economic interests. The Belt and Road Initiative serves as the main vehicle for these ambitions. In this context, all EAEU member states have an interest in deepening their cooperation with the EU, in order to escape the tightening Chinese grip on greater Eurasia[vii]. Even for Russia, which has recently developed a more intensive strategic relationship with China, an improvement in relations with the EU would not only better serve its interests in Central Asia, but also its broader economic interests in Europe, for which China has not offered a reasonable alternative over the past five years. In the end, “Russia and China are not and will not be able to replace the EU as the other’s indispensable economic partner”[viii]. As Moscow’s willingness seems to be diminishing to become Beijing’s junior partner in most global value chains and delivering mostly energy resources and raw materials to China, shifting power relations could assist the EU to reposition itself as a more geopolitical and geo-economic power in its own right on the Eurasian continent. This could simultaneously affect the EU’s relations with Russia and with other EAEU member states and open opportunities for the EU to bring all EAEU member states together in broader multilateral (regional) frameworks, in which the EU could act as a balancing power.

EU-EAEU dialogue on technical norms and standards

In spite of the EU’s strong preference to bilateralise relations with individual EAEU member states, the European Commission has had an informal expert dialogue with the Eurasian Economic Commission on approximation of technical norms and standards. Such a dialogue was unavoidable, as the Eurasian Economic Commission has a broad mandate on behalf of EAEU member states to modernise technical regulations and harmonise product standards to bring them in conformity with international standards and more developed EU regulations. In these areas, the Eurasian Economic Commission is fully competent and could not be circumvented by addressing individual member states[ix].

It also constitutes an area, in which the EU could profit from its leading position in setting technical product standards based on the “Brussels effect”: because of the EU’s market size and its advanced regulatory system, other countries are quite willing to adopt EU-standards as their own[x]. This effect also applies to the EAEU: about 80% of EAEU standards are voluntarily adopted EU standards[xi]. As the EAEU is presently working on a closer internal integration in additional sectors, like integration of energy markets (to be accomplished by 2025), the EU has a special interest in following these developments closely, as energy relations with especially Russia and Kazakhstan constitute a crucial area of broader economic relations with the EU[xii].

This informal EU-EAEU dialogue has enabled member states to prevent an increase in non-tariff trade barriers and avoid a binary choice between either having good trade relations with the EU or with the EAEU. In an earlier Clingendael report on EU-EAEU relations, such an approach has been called “tentative compatibility” in an attempt to prevent the emergence of diverging or even conflicting Unions and to keep the options open to establish a broader EU-EAEU Free Trade Agreement, if and when political circumstances would allow so in future [xiii].

In principle, such a dialogue could be further enhanced and institutionalised and move to a more ambitious level from approximation to increased harmonisation of technical norms and standards. This would become even more important, as such standards could be increasingly challenged by diverging norms and standards, applied by China in the context of BRI.

The Chinese challenge to global standards and connectivity across Eurasia

For the EAEU and its constituent members China poses a multifaceted challenge, especially in connection with Beijing’s BRI which is promoting wider Eurasian connectivity based on Chinese standards and rules. Beijing attempts to promote its initiative as a win-win for the global community, but in reality it is first and foremost based on Chinese economic (and geopolitical) interests, working with Chinese loans, Chinese workers and serving China-based value- and production- chains.

In order to strengthen its own geo-economic negotiating power towards China and the BRI, Russia has promoted better coordination and cooperation between the EAEU and BRI, resulting in two agreements which have been signed in 2015 and 2018, aimed at reducing trade barriers, simplifying customs procedures and creating the foundations for deeper integration. These agreements should also lead to a coordinated multi-stakeholder approach by the EAEU and its member states towards transport infrastructure projects, identified in the context of BRI. However, these agreements are still far removed from a full-fledged Free Trade Agreement, as Russia and other EAEU member states fear Chinese competition on their markets. Furthermore, most EAEU member states, like Kazakhstan, have preferred to negotiate their own bilateral deals on BRI with China instead of working through the EAEU[xiv].

A major challenge for both the EAEU and for the EU would be a divergence between European standards and Chinese ones, especially regarding new technologies, such as in digital connectivity and artificial intelligence. As two high-level Chinese experts were quoted: “Who shapes the standards, shapes the present and future” and “We need to speed up the development of Chinese standards. International market competition is competition for standards and rules”[xv].

The EU has responded to this challenge with its own EU-Asia Connectivity Strategy[xvi], in which it underlines the need for sustainable and rules-based connectivity and reaches out to China to discuss such issues in the context of the EU-China Connectivity Platform. A recent report by the Heinrich Böll Foundation recommended to push this standards dimension further within this Platform and help China to better integrate into the existing international frameworks for standardisation and refrain from setting up alternative frameworks. It also recommends to raise awareness in other countries along the BRI about the possible consequences of alternative standard-setting[xvii].

Against this background, an expert working for the German think tank DGAP has recently proposed to enlarge the EU-China Connectivity Platform to include the EAEU, which could then “focus on issues of regulatory convergence, harmonization, and standardization of customs clearance procedures for trans-continental traffic” and “could tackle the coordination of investment policies in infrastructural bottlenecks”[xviii]. Such a trilateral format could open up new opportunities for the EU and EAEU to cooperate more closely on issues of common concern and provide EAEU member states with other options than bilateral cooperation on Chinese conditions. It would be especially relevant for the EU’s Central Asian partners, as the EU and China have already identified options for jointly financed infrastructure projects, which could be extended to Central Asia in the context of the EU Strategy for Central Asia[xix].

 

Conclusions and recommendations

This article has argued that it would be in the EU’s best interest to simultaneously upgrade its relations with individual EAEU member states and with the Eurasian Economic Commission, in order to ensure that broader connectivity across Eurasia would develop in a sustainable manner and based on international standards. In this context, it offers the following recommendations:

  • The EU should continue to deepen cooperation with EAEU member states on a bilateral basis, especially in those areas presently outside EAEU-integration, like digital connectivity.
  • When EAEU integration would be further deepened, the European Commission would have to work closely with EAEU member states, using their willingness to balance or hedge against Chinese (or Russian) pressure to involve them more closely in broader multilateral (regional) frameworks to increase connectivity, like in the context of the EU’s Central Asia strategy or its updated Eastern Partnership policies.
  • The current informal EU-EAEU dialogue on approximation of technical standards should be enhanced and institutionalised and should be aimed at further harmonisation of such standards, including in those areas in which the EAEU strives to deepen integration of its internal markets, like in energy.
  • The EU should include the EAEU in the EU-China Connectivity Platform to prevent the development of diverging (Chinese) standards, especially in transport infrastructure and in digital connectivity. Central Asia could be an area where the EU and China could cooperate also in jointly financed projects.
  • The EU should develop a more integrated and strategic approach towards Eurasia as a whole, covering China, Russia, the EAEU and both Central Asian and Eastern Partnership countries. First steps in this direction could already be made during the German EU Presidency in the second half of 2020.

 

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[ii] Kluge, J. and Richter, M. (2020), The Lisbon-Vladivostok illusion, Berlin, available at: https://www.ridl.io/en/the-lisbon-vladivostok-illusion/ (accessed 19 April 2020)

[iii] Pepe, J.M. (2019), Eurasia: Playing Field or Battle Field? Defining an Effective German and European Approach on Connectivity Toward China and Russia?, Berlin, available at:  https://dgap.org/en/research/publications/eurasia-playing-field-or-battle-field (accessed 19 April 2020)

[iv] Van Elsuwege, P. (2018), Overcoming legal incompatibilities and political distrust: the challenging relationship between the European Union and the Eurasian Economic Union. In: Egmont/IERAS, The EU-Russia: the way out or the way down? Moscow, available at: http://www.egmontinstitute.be/the-eu-russia-the-way-out-or-the-way-down/  (accessed 19 April 2020)

[v] Vinokurov, E. (2018). Introduction to the Eurasian Economic Union, Palgrave, pp.111-112

[vi] Diesen, G. (2018), Russia’s Geoeconomic Strategy for a Greater Eurasia. Routledge; Dragneva-Lewers, R. (2019), Pork, Peace and Principles: the Relations between the EU and the Eurasian Economic Union, Birmingham, available at: http://epapers.bham.ac.uk/3219/1/IEL_Working_Paper_02-2019_Dragneva-Lewers.pdf  (accessed 19 April 2020); Van der Togt, Russia’s plans for a Greater Eurasia: perspectives for the Eurasian Economic Union to enhance connectivity with the EU and China. In: Kiss, A. ed. (2017), A “Strategy for Russia”- Russian Foreign Policy and Positioning in the Next Decade, available at: https://publications.ceu.edu/sites/default/files/publications/policybriefno23eufrontiersrussian-fp.pdf

(accessed 19 April 2020)

[vii] Gabuev, A. (2020), The Pandemic could tighten China’s grip on Eurasia, 23 April, available at: https://foreignpolicy.com/2020/04/23/coronavirus-pandemic-china-eurasia-russia-influence/?fbclid=IwAR3Ja92u_M9eajFcyj5sZJQ8AOZC8Iz-2hm2KK_SLWWeXMpunpsqND7X1s0# (accessed 27 April 2020)

[viii] Szczudlik, J. and Kulesa, L. (eds) (2020), How China and Russia could join forces against the European Union, Warsaw 6 April, available at: https://pism.pl/publications/How_China_and_Russia_Could_Join_Forces_Against_The_European_Union (accessed 27 April 2020)

[ix] Vinokurov, E. (2018) p.85

[x] Bradford, A. (2020), The Brussels Effect. How the European Union rules the world, Oxford University Press

[xi] Dienes, A. (2020), op.cit.; Isachenko, T. (2019), State of Connectivity with the EU, possibilities and prospects. In: Kuzmina, E. and Isachenko, T. State of the Union: Possibilities and Perspectives for the Eurasian Economic Union, Moscow, available at: https://www.fes-russia.org/de/veranstaltungen/state-of-the-union-possibilities-and-perspectives-for-the-eurasian-economic-union/ (accessed 19 April 2020)

[xii] Pastukhova, M. and Westphal, K. (2018) Eurasian Economic Union Integrates Energy Markets-EU Stands Aside, Berlin, available at: https://www.swp-berlin.org/en/publication/eurasian-economic-union-integrates-energy-markets-eu-stands-aside/ (accessed 19 April 2020) and Isachenko, T., op.cit.

[xiii] Van der Togt, T., Montesano, F.S. and Kozak, I. (2015), From Competition to Compatibility. Striking a Eurasian balance in EU-Russia relations, The Hague, available at: https://www.clingendael.org/publication/competition-compatibility-striking-eurasian-balance (accessed 19 April 2020)

[xiv] Lewis, D.L. (2018) Geopolitical Imaginaries in Russian Foreign Policy: The Evolution of “Greater Eurasia”, Europe-Asia Studies, DOI: 10.1080/09668136.2018.1515348; Vinokurov, E. (2018), op.cit. pp.130-137;  Pepe, J.M. (2019), op.cit.

[xv] Holslag, J. (2019), The Silk Road Trap. How China’s Trade Ambitions Challenge Europe, Polity, pp. 59 and 126

[xvi] Connecting Europe and Asia: Building blocks for an EU Strategy, 2018, available at: https://eeas.europa.eu/headquarters/headquarters-homepage/50699/connecting-europe-asia-eu-strategy_en (accessed 21 April 2020)

[xvii] Rühlig, T.N. (2020), Technical standardisation, China and the future international order, Brussels, March, available at: https://eu.boell.org/en/2020/03/03/technical-standardisation-china-and-future-international-order (accessed 27 April 2020)

[xviii] Pepe, J.M. (2019), op.cit.

[xix] Bosschuyt, F. (2019), Connecting Eurasia: Is Cooperation between Russia, China, and the EU in Central Asia Possible? available at: https://russiancouncil.ru/en/analytics-and-comments/analytics/connecting-eurasia-is-cooperation-between-russia-china-and-the-eu-in-central-asia-possible/ (accessed 27 April 2020)

Source: https://www.institutfuersicherheit.at/

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