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The EAEU 2025 Mission: regional center for economic development and pillar of Greater Eurasia

The EAEU 2025 Mission: regional center for economic development and pillar of Greater Eurasia

3/23/2021

Mikhail Myasnikovich,

Chairman of the Board of the Eurasian Economic Commission, Doctor of Economics, Professor, Corresponding Member of the National Academy of Sciences of Belarus

In 2020 the EAEU celebrated its 6th anniversary. Over the past years it has gone through institutional development and transformation to an international organization for regional economic integration. The Eurasian integration project is based upon a solid historical and political foundation. In addition, project implementation is conditioned primarily upon objective economic and socio-cultural reasons. Emergence of the EAEU is the outcome of a rapid (from the historical perspective) but yet consistent transition to a qualitatively new stage of integration of the post-Soviet States. The Union is based upon the quest for capacity consolidation of the regional economies with certain structural differences by means of convergence or unification of regulatory principles, elimination of internal administrative obstacles and barriers to trade and improvement of cooperation efficiency. The main objective is achieving the synergies, leveling out the various-speed development pathways, promoting the economic growth of the sovereign Member States and increasing competitiveness of the economies. This is a brand new model of integration that takes into account the tendencies towards freedom from detailed international regulations and long-term agreements that are typical nowadays for a number of large economies and global trends in development. We believe that this model will be the subject of special scientific research.

Vladimir Kovalev,

Advisor to the Chairman of the Board of the Eurasian Economic Commission, Master of Laws, Postgraduate Student of the Department of European Law, MGIMO (Moscow State Institute of International Relations) under the MFA of Russia


 

Abstract. The article provides a comprehensive assessment of the work performed on the coupling of the Eurasian integration, the Belt and Road global initiative (BRI) and the Greater Eurasian Partnership. It considers cooperation aspects in such spheres as transport and logistics, project cooperation, regulatory control of the coupling process. The article demonstrates the need for intensifying activities and involving not only government agencies but also the business environment and the Eurasian development institutions. The authors express their viewpoint on the prospects and mechanisms for implementation of the Greater Eurasian Partnership, including development of a regulatory model by means of adjusting the legal framework of the EAEU’s foreign economic interaction.

 

Key words: Eurasian Economic Union (EAEU), European Union (EU), China (PRC), Belt and Road Initiative (BRI), Greater Eurasian Partnership, Eurasian economic integration, international cooperation, rail transportation.

 

For citing: Myasnikovich M., Kovalev V. The EAEU 2025 Mission: regional center for economic development and pillar of Greater Eurasia // Nauka i innovatsii. 2021. No. 1. P. 4-11. https://doi.org/10.29235/1818-9857-2021-1-4-11

 

International trade has always been a unifying factor for Eurasia. The most important transport corridors and commodity flows used to pass through its territory and still do nowadays. Due to this special geographical position the region has traditionally benefited from competitive advantages. However geopolitical conflicts gave rise to disunity whereas constant reallocation of zones of influence led to region's fragmentation. It resulted in emerging a long-lasting focus on short-term benefits, lack of strategic approaches or a consolidating core. Formation of the Eurasian Union has offered a platform for mutually beneficial economic cooperation of the Member States, as well as promotion of integration trade and economic initiatives throughout the region. As the Russian President Vladimir Putin noted in his article published in the Izvestia newspaper in 2011: “we propose a model of a powerful supranational association that can become one of the modern world poles simultaneously acting as an efficient “link” between Europe and the dynamic Asia-Pacific region” [1].

Eventually, appropriateness of the proposed strategy has been confirmed in many ways. According to the Eurasian Economic Commission (EEC), industrial production throughout the EAEU from 2015 to 2019 grew by 12.2%, including 13.8% increase in the manufacturing industry. At the same time, production of pharmaceuticals increased by 20.1% and production of electronic and optical goods grew by 12.7%. Most importantly, these are science-intensive areas and growing sales markets.

The new five-year plan seeks to move away from the formation stage and shift to the project integration stage. The EAEU’s development is associated with its formation as one of the most significant modern world centers which is provided for in the Strategic Directions for Developing the Eurasian Economic Integration until 2025. The Union needs to be organically integrated into the economic architecture of the macro-region. It is expected to become the center for economic development and the pillar of Greater Eurasia. The Union already has things to offer for partners both in the West and in the East.

Recent changes in traditional trade balances of the Union are obvious: the sales volume between the EAEU and the APEC (Asia-Pacific Economic Cooperation) and its share in overall trade turnover is constantly rising, while the mutual trade between the EAEU and the European Union is steadily declining.


 

For example, the trade turnover between the EAEU and the EU in 2019 dropped by $166 billion in absolute terms compared to 2013. Over the first six months of 2020, trade volumes with two key partners for the first time in history became virtually equivalent (37.7% for the EU, 37.02% for the APEC). Although in 2018 the gap exceeded 14% in favor of the EU. At the same time, we witness independent growth of sales turnover between the EAEU and China that already accounts for 20.1% of the Union's total foreign trade volume, which is actually comparable to aggregate indicators of trade with four key European partners (Germany, the Netherlands, Italy, Poland). Thus, the Eurasian Union has gained equivalent trade balances with key economic poles and has become sort of a "link" between them, which is a positive factor for further sustainable development. In the meantime, the EAEU’s share in global trade is still low and amounts to approximately 2.4%, whereas the EAEU's share in global GDP is 3.7% (according to the EEC). Our ultimate task is using the existing potential and achieving significant increase in current indicators in order to reach the ambitious goal: the EAEU to become one of the top five leading economies of the world.

Improvement of integration mechanisms across the Union is systematic and comprehensive, which is also true for the EAEU’s external affairs. Coordinated work is underway to couple the Eurasian integration, the Chinese Belt and Road Initiative (BRI) and the Greater Eurasian Partnership (GEP, Greater Eurasia) concept, which provides tremendous potential for mutually beneficial development, strengthens the positions of the EAEU countries both in Eurasia and globally.

 

The Eurasian Economic Commission ensures formulation of the problem and proposes its solution in such a way as to include the maximum number of participants into the process, make use of all available centers of competence and tools of efficient cooperation.

Discussion of practical approaches was carried out during the EEC-launched video format forum “Coupling the Eurasian Economic Union and the Chinese Belt and Road Initiative (BRI)”, which took place on October 26-27, 2020.

Preparation and holding of the Forum was managed by A.A. Slepnev, Member of the Board — Minister in charge of Trade of the EEC. Significant interest towards coupling was demonstrated by government officials, academic organizations and business communities of the PRC, those of the EAEU Member States and other European and Asian countries. Total number of participants exceeded 2,000 people.

The mentioned work involves not only integration structures and authorized government agencies but also scientific communities, including first of all the Russian Academy of Sciences and the National Academy of Sciences of Belarus. Large research centers (including those from the PRC) took part in the online conference “Which path will the EAEU countries and China choose?” held on September 16, 2020. On behalf of the EEC, conference coordination was carried out by S.Yu. Glazyev, Member of the Board — Minister in charge of Integration and Macroeconomics of the EEC, Academician of the Russian Academy of Sciences.

Taking into account the vast distances and current market features of the PRC, the APEC, the EU and the EAEU countries, certain efforts are required to develop the transport and logistics infrastructure. As noted by A.U. Mamin, Prime Minister of the Republic of Kazakhstan, at the meeting of the Eurasian Intergovernmental Council on August 9, 2019: “Goods transportation via overland routes compiled by the PRC and other Asian countries with destination points in Europe and the EAEU countries is most appropriate. Currently, about half of the containers from Europe come back down to the PRC empty. The mentioned facts are determining factors for building up the transit capacity. We have significant development potential which will ensure really good incomes for our transport companies and help utilize our infrastructure”.

THE EAEU NEEDS TO BE ORGANICALLY INTEGRATED INTO THE ECONOMIC ARCHITECTURE OF THE MACROREGION AND BECOME THE CENTER FOR REGIONAL DEVELOPMENT AND THE PILLAR OF GREATER EURASIA


 

Currently, there is a significant logistical imbalance between the two largest economic poles of Eurasia: China and Europe. Rail transportation is minor and amounts to 2.5%-3.5% of trade turnover. At the same time, more than 95% of goods are transported by sea. However, according to experts, share of the goods transported by rail between China and Europe is expected to grow, which is also caused by changes in China's export pattern towards a more high-tech segment. It is the railroad transportation that has great potential due to its distinguishing features (speed, stable pricing environment) [2].

Considering the four main rail transit corridors between Europe and Asia, the route across the EAEU (Belarus, Russia and Kazakhstan) holds by far the leading position with a share of more than 90% which was achieved based on the results of the first six months of 2020. At the same time, there is a significant disproportion in goods transportation. In 2017-2018 the China to Europe route demonstrated an approximate ratio of 10/90% for unladen (empty) and laden (loaded) containers respectively. In addition, over the first six months of 2019 the share of unladen containers amounted to only 1.8%. On the other hand, the situation was considerably worse on the Europe to China route: about 45% of containers came back empty in 2017-2019. The COVID-19 pandemic has acted as a certain trigger for rail transit growth. In April 2020 alone, the volume of container rail transportation on the China-Europe-China route doubled compared to the same period of 2019. In the first 5 months of 2020, mutual EU-China trade via rail transportation increased by 21% on a year-on-year basis. During this period its share increased from 2.9% (in 2019) to 3.5% (in 2020). Transport efficiency has also faced some positive changes: the share of unladen containers on the Europe to China route fell by more than half and amounted to 20.6%. The first six months of 2020 have also revealed several other trends: further reduction in transit times, speeding-up of train movement, twofold increase in the number of routes between Europe and China (75 in 2019, 150 in 2020), expansion of the list of locations of goods dispatch and goods receipt, extension of commodity nomenclature [3].

This allows us to draw a number of conclusions. Direct transportation between China and Europe has significant potential and prospects for each and every party, which was confirmed by the growth in 2020. The crisis events have only prompted the development but did not change its direction. As the global economy recovers and restrictions are lifted, efforts are needed not only to maintain the achieved results, but also to boost them. However, Europe has not yet adopted a strategic approach to development of transport and logistics corridors in Eurasia, initiated by China. Despite the attempts to formulate their own vision of the Europe-Asia coupling in response to the BRI, Europeans still lack both a balanced position and a practice-oriented action plan. This is confirmed by low efficiency transport communication on the Europe to China route (despite the 2020 trends). The approach proposed by the Chinese partners to unite separate economic activity centers in Eurasia into a single chain, utilizing among others the rail transportation network, has not been implemented in practice. There are significant difficulties even in crossing borders. Within the European region, freight trains cross the borders rather slowly due to the lack of flexibility in control mechanisms [2]. At the same time, China plans to increase investments in relevant projects to create comfortable conditions for its manufacturers.

Having the current situation in mind, the EAEU should take an active and constructive position on development of infrastructure and related processes. Certain steps have already been taken by both the Russian Railways (OJSC RZD) and the Belarusian Railway. The latter is working on modernization of track and station facilities and development of cargo-handling operations both across the country and at the Belarusian-Polish border (i.e. the place where the broad-gauge railway tracks and the European standard gauge railway tracks meet). UTLC ERA (Eurasian Rail Alliance), a single Eurasian rail operator, has been founded. The shareholders on a parity basis are the Belarusian, the Kazakhstan and the Russian railways.


 

The Eurasian Rail Alliance transits goods from China to Europe and back through the territory of three countries as part of regular container train transportation. The Eurasian Rail Alliance Index, a dedicated index of transit rail transportation, has been developed to better inform customers about delivery details. At the same time, the pace of work at both governmental and commercial levels could have been faster.

A thorough scientific and methodological study of the transport connectivity issues throughout the Eurasian region is carried out within the framework of the megaproject "United Eurasia: Trans-Eurasian Belt of Development" (TEBD). Its authors and developers are the Russian Academy of Sciences (RAS), Lomonosov Moscow State University, Russian Railways (OJSC RZD), M.V. Myasnikovich together with S.Yu. Glazyev, Member of the Board — Minister of the EEC, Academician of the RAS, and A.M. Sergeev, President of the RAS, who take part in the scientific support of the project at its current implementation stage. The National Academy of Sciences of Belarus has also joined the work. The project is a global plan for long term economic development of the macro-region. It provides for modernization of the Eurasian transport corridors of international importance with their further integration into a single network, formation of multimodal logistics centers in the form of strategic and interregional hubs, as well as creation of modern science-intensive production sites. The system will be supplemented with energy, information and communication infrastructure facilities for appropriate support and management. A dedicated Coordination Council has been created at the Lomonosov Moscow State University for consistent implementation of the megaproject.

Special attention should be paid to implementation of the mechanisms provided for in the Strategic Directions for Developing the Eurasian Economic Integration until 2025. Implementation of top-priority integration infrastructure projects will make it possible to unleash the transport and transit potential of the Union in practice. Development of world-class transport hubs will help reduce logistics costs, introduce international standards for cargo transportation and develop intelligent transport systems. It is crucially important to ensure full and coordinated participation of all Member States and foreign partners (China in the first place), to diversify investment flows, to achieve a balanced approach that combines both national priorities and development interests of the entire Union.

This will lead to growth of income of national carriers and transport hub operators as well as increase in the level of employment and income of the population.

Participation of the neighboring countries, including those from Europe, is highly urgent. M.V. Myasnikovich held relevant consultations in the Government of Poland in the past. The tasks set by the Government of the Republic of Belarus to involve German partners are currently being addressed. For example, a high capacity trade, transport and logistics hub is being formed at the premises of the "Great Stone" industrial park (China and Belarus project) with the involvement of investments from Belarus, China and Germany. An agreement on launching the mentioned investment project was signed in September 2020, parts of which are Duisport (Germany), operator of the world's largest inland port, Chinese partners, the Belarusian Railway and Hupac Intermodal SA (Switzerland), leading network operator of intermodal transport in Europe. Belarus makes substantial practical contribution to promotion of the coupling concept. The key areas outlined by the President of the Republic of Belarus A.G. Lukashenko to be addressed in the near future include: creation of digital transport corridors with the use of modern satellite navigation seals, abolition of authorization system within international road transportation, active strengthening of infrastructure interconnection [4].

 

IT IS IMPORTANT TO ENSURE FULL AND COORDINATED PARTICIPATION OF ALL MEMBER STATES AND FOREIGN PARTNERS (CHINA IN THE FIRST PLACE), TO DIVERSIFY INVESTMENT FLOWS, TO ACHIEVE A BALANCED APPROACH THAT COMBINES BOTH NATIONAL PRIORITIES AND DEVELOPMENT INTERESTS OF THE ENTIRE UNION


 

Successful development of the integrated transport and logistics space throughout the Eurasian region shall be attributed not only to specific infrastructure and administrative procedures, but also to a more global strategic objective which is creation of interconnected inter-regional and trans-regional value chains based on a new technological concept. Over the past decades, the key centers of economic activity have become significantly closer to each other in geographical terms thus reducing the distance between European and Asian consumers and suppliers and respective production centers. This was made possible due to the focused strategies that were still geopolitical in nature. There is no full-scope integration of regional production chains and transit channels into trans-regional value chains. The positive "spillover effect" remains minor due to the lack of massive promotion and support in the West [5].

The Eurasian region nowadays lacks long-term trade and economic agreements whereas the existing ones are fragmentary, uncoordinated and non-universal. This is compounded by the obvious crisis of the multilateral trading system. The situation requires responsible decision making and perseverance in decision implementation.

As noted by A.G. Lukashenko at the 2nd "Belt and Road" Forum for International Cooperation held in China in April 2019: “if we want to expand our economic cooperation, to kick start development of the economies, we need to work more efficiently to eliminate all types of barriers. However, if applied on the territory of a single State only, this can be compared with removing a traffic jam at only one crossroad in the context of a big city. You more likely make it to the next one. Our common task is to coordinate the actions of the States throughout the Belt and Road... The strong will overcome the obstacles, the wise will overcome the whole path”[4].

 

                A Comprehensive Agreement on Trade and Economic Cooperation between the EAEU and the PRC was signed in May 2018. It aims to create an institutional and legal framework for efficient interaction in order to facilitate access to the markets for the parties and implement joint cooperation projects. The Agreement reflects the idea of coupling the Eurasian integration and the BRI. One of the most important areas is the launch of a dialogue mechanism between the EAEU and the PRC. For these purposes, the EEC plans to use the Joint Commission platform stipulated in the Agreement. Its first meeting took place on October 28, 2020. Contact points covering certain areas have already been launched, including SPS measures, antitrust regulation, public procurement, customs cooperation and trade facilitation. A broad sectoral agenda is being formed. The next step shall be filling up the joint pool of integration projects which means transition to the investment cooperation format.

China pays great attention to the investment and project component within the framework of the BRI. The Asian Infrastructure Investment Bank and the Silk Road Fund have been established for earmarked (special-purpose) financing. Sub-funds involving local structures and private business are being created to finance regional programs. However, the EAEU should primarily rely on itself. One of the priority issues is intensification of the investment component.

THE EURASIAN DEVELOPMENT INSTITUTIONS ARE MEANT TO BECOME A REAL INTEGRATION DRIVING FORCE WITHIN THE UNION AND A TOOL FOR PROMOTING THE UNION’S INITIATIVES IN THE REGION


 

This requires strengthening of the Eurasian development institutions. They are meant to become a real integration driving force within the Union and a tool for promoting the Union’s initiatives in the region. Involving large state and private corporations, companies and investment funds would also be useful. In turn, co-financing of joint projects by financial institutions of the BRI and the EAEU will have certain positive effect on implementation of the coupling concept.

Whereas the EAEU managed to find ways of conducting further systematic work in the East, cooperation on the European track has not yet attained a clear and understandable structure. Since the very moment of its foundation, the Union has been sending clear messages about the need for a dialogue which can result in consolidation of agreements in the format of a framework document. This would make it possible to fill the legal and organizational vacuum on the western track and organically complement the existing agreements concluded with Asian partners. Unfortunately, current work is largely affected by the political situation and is limited to technical advice arrangements on selected issues of regulation and exchange of information, which, of course, does not meet the interests of the economic actors. The EU remains one of the Union's key trade partners and the leader in investment cooperation: about 70% of all foreign direct investment in the EAEU come from the EU.

The EU and the EAEU are natural partners with respect to their institutional nature. Both of them are integration associations with real supranational powers. Lack of clear game rules between them has a contradictory effect on formation of "economic connectivity" of Eurasia. The EU still lacks large-scale agreements with the PRC, despite the intensification of discussions on concluding an investment agreement. The EU-Japan Economic Partnership Agreement entered into force on January 1, 2019. However, the EU has not yet reached any comprehensive or synchronized accommodations on the Asian track. In turn, the ASEAN Member States together with China, Japan, South Korea, Australia and New Zealand are launching the Regional Comprehensive Economic Partnership (RCEP) to become, in fact, the world's largest free trade area. In these circumstances, the EAEU could have acted as a unifying link ensuring a balance of interests and proposing specific ways to consolidate efforts in Eurasia. Such a responsible mission is considered to be feasible and realizable within the framework of the GEP concept.

The GEP initiative was announced by V.V. Putin at the plenary session of the St. Petersburg International Economic Forum in 2016: "The Eurasian Economic Union can become one of the centers for formation of such a wider integration contour."

At a conservative estimate, the Greater Eurasia region is home to about 59% of the world's population. At the same time, it accounts for over 60% of the overall global GDP. It is reasonable to consider the GEP as a network of dialogues between the key actors in Eurasia, both large national economies and regional economic associations. It reflects the "integration of integrations" concept. Promotion of the concept is seen as identification of mutual economic interests, joint and interrelated development of transport and logistics, energy and digital complexes, implementation of large infrastructure and production and innovation projects. Such interaction should be founded on a flexible, synchronized and clear regulatory model that is based on long-term agreements and international law.

SUCH INTERACTION SHOULD BE FOUNDED ON A FLEXIBLE, SYNCHRONIZED AND CLEAR REGULATORY MODEL THAT IS BASED ON LONG-TERM AGREEMENTS AND INTERNATIONAL LAW


 

Today one can already say that the EAEU has reached visible results in formation of the GEP. By using the international legal personality contemplated by the Treaty on the EAEU, the Union has concluded Free Trade Agreements with Vietnam, Singapore and Serbia, an Interim Agreement with Iran, and the abovementioned Agreement on trade and economic cooperation with the PRC. Negotiations with India continue, and it has been decided to consider the feasibility of concluding agreements with Mongolia and Indonesia. The EAEU has established direct relations with the key regional associations – the ASEAN (includes 10 regional States) and the CIS (5 Member States are not part of the EAEU). Formalization of the dialogue with the SCO (Shanghai Cooperation Organization) has been arranged, interaction in the format of memorandums with the governments of more than 10 Eurasian countries has been established. The EEC is systematically working in this direction. During the meeting of M.V. Myasnikovich with Lim Jock Hoi, Secretary General of ASEAN, in February 2020, agreements were reached on extending the cooperation program between the EAEU and the ASEAN until 2025. Priority attention was paid to trade relations, improvement of the investment climate, cooperation in the field of technical and antitrust regulation, expansion of scientific and technical cooperation. The EEC is also working on expanding cooperation with the Organization for Economic Cooperation and Development. A review of the Union's competition law is planned to be conducted in 2021, which will also cover some related aspects of trade and logistics.

As for the existing base, its further adjustment in the future could be useful with an eye to spreading it over the entire region. Arranging a sectoral dialogue with key partners in the format of “the EAEU+” could also be helpful.

Due to a number of circumstances and various-speed principles of implementation of national priorities, the EAEU Member States frequently implement global-idea-based industrial and transport and logistics projects or programs on a bilateral basis. The EEC believes that further work on implementation of the Greater Eurasia concept should be based on a strategic and comprehensive approach in the interests of the Union Member States and neighboring countries. Such framework ensures complementarity of the participating economies, creates an organizational, practical and economic platform, promotes the Union as a reliable and predictable international partner.

 

This research and analytical article captures only part of the problem. Still it is essential for understanding the substance of the issue and making necessary governance decisions, it sends a message to the authorities, financial sector and business community to develop their own action plans. The authors do not impose any administrative decisions, they rather invite prospective participants to join the megaproject.

 

 

The editorial office received this article on November 17, 2020

 

SEE: http://innosfera.by/2021/01/Greater_Eurasia

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