WHY EU MUST ALIGN WITH EURASIA ?

There is a growing awareness in Germany, France, and the European Union that as US President Donald Trump pursues his “America First” policy, the Europeans are being made to pay a hefty price for their strategic interests. The EU’s long-term interests are definitely in the East with Russia and China. For Europe to survive in the medium and long run, there is no other way than to align with Eurasia.

Today, formal cooperation between the EU and the Eurasian Economic Union (EEU) is virtually non-existent. This is not for lack of vision: the idea of a common economic space between Lisbon and Vladivostok has often been articulated in the past: EU institutions –the European Parliament in a September 2014 resolution, the European External Action Service in an unpublished document from January 2015, and European Commission President, Jean-Claude Juncker in a November 2015 letter to Vladimir Putin –have suggested that closer relations with the EEU could be considered. However, according to Juncker, any decision by EU Member States to engage with the EEU should 'be synchronised with the implementing of the Minsk agreements', a position since reiterated by the EU High Representative, Federica Mogherini. With deadlock continuing in eastern Ukraine, progress towards closer EU-EEU relations is unlikely in the foreseeable future. Responding to Juncker's letter, Kremlin Spokesman, Dmitry Peskov, argued that it made no sense to tie EU-EEU cooperation to the Minsk agreements, implementation of which was being held up by Ukraine. Despite this, a common 'economic and humanitarian space', stretching from Lisbon to Vladivostok and based on alignment of EU and EEU integration processes, is identified as a strategic priority for Russia in the country's November 2016 foreign policy concept. A 2016 Eurasian Development Bank study suggests that an EU-EEU cooperation agreement could be concluded by mid 2020

It remains uncertain how wide-ranging any real cooperation between the two blocs can be. Conversation is inevitably confined to trade issues, as, for the time being, the Eurasian Economic Commission’s mandate does not cover any other areas. It is also questionable to what degree progress can be made on trade issues. Before the Crimean return to Russia, the EU had repeatedly offered to move bilateral trade relations with Russia to a new level, possibly with a free trade area, but Russia was unenthusiastic. In the EEU context, such a move would be further complicated by the fact that Belarus is not a member of the World Trade Organization (WTO) – a near-inevitable pre-condition for any further bilateral trade liberalization.

The Eurasian Development Bank has suggested that in the future the EU and EEU could be bound together by a Deep and Comprehensive Free Trade Area (DCFTA) – similar to the Canada-EU Comprehensive Economic and Trade Agreement (CETA) –which includes visa-free travel and technology exchange. The aim would be to balance the perceived asymmetrical nature of the relationship, because of EU domination, that would apply if the EU and EEU were to conclude a simple FTA. This idea – though still conditional on the internal integration of the EEU, the prospects of which remain uncertain – has potential, in theory, but there are still three stumbling blocks in the way.

First, the EEU does not function as a proper customs union at the moment. Its trade relations are not handled by a single multilateral authority (i.e. the Commission) followed by all member states. The case of Russia’s “counter-sanctions” against European food products speaks volumes - Moscow did not consult its EEU partners before imposing the measures, nor did its partners feel bound by them. The EU’s trade department, DG TRADE, could not establish a contractual relationship with a body that is a customs union in name only.

Second, EU–EEU cooperation remains hostage to geopolitical differences, particularly the lack of implementation of the Minsk II ceasefire agreement on Ukraine. The EU has made full implementation of Minsk II a condition for cooperation with both Russia and the EEU, as the EEU is largely understood as a political project of Russia to regain influence in the post-Soviet space; and trade talks in particular would work against the sanctions.

The third issue is the nature of the EEU. Many Europeans consider it to be an involuntary union, imposed for political ends. It would be difficult for the EU to lend legitimacy to the EEU without simultaneously encouraging Moscow’s instincts to forcefully expand it.

Recommendations: How should Europe respond?

Europe needs to consider its place in Eurasia. Europe will always have different stakes and approaches to the region than the US and cannot count on Washington to protect its interests. The EU must decide what its goals are in the region, and how it can best pursue them.

A platform for EU–EEU cooperation should be created to cooperate directly with the Eurasian Economic Commission and on a multilateral level. A joint working group on EU–EEU trade cooperation could be a starting point, coordinating cooperation in areas such as technical barriers to trade, sanitary and phytosanitary issues, and customs. This should involve not only Russia, but also the ENP states of Armenia and Belarus, and the Central Asia partners Kazakhstan and Kyrgyzstan – and might help strengthen their roles in the Eurasian Economic Commission.

Note

For the emerging Eurasian Economic Union, close economic cooperation with the EU is of critical importance:

• The EU is the largest trading partner of both Russia and Kazakhstan, accounting for more than half of the Russian Federation’s total trade turnover (while Russia is the third-largest trading partner of the European Union).
• The EU could play a key role in addressing Customs Union-country modernization issues.
• The emerging Eurasian Economic Union is currently initiating a series of free-trade agreements with partners of lesser importance in terms of economic size and overall significance, such as Vietnam and Israel. Yet, the very fact of these negotiations is beneficial: they help clarify priorities, shape areas of expertise and polish negotiating tactics. At the same time, it is precisely the European Union that should be viewed as the main long-term partner in this context.
• The Ukrainian problem can only be resolved within the scope of deep economic cooperation between the EU and the Eurasian Economic Union, which only serves to underscore the importance of this cooperation.

For the EU, close economic cooperation with the EAEU is also of fundamental importance:

• The EAEU is the European Union’s third-largest trading partner after the U.S. and China. The impact of Russian restrictions on food imports clearly demonstrates the current level of trade interdependence and the interest European manufacturers and farmers have in normal commercial relations.
• Security issues, including those of our shared neighborhood, can only be addressed within the scope of cooperation with EAEU countries.
• Ongoing structural dependence on “Eurasian” hydrocarbons.
• In general, the free trade regime with the EAEU will provide the EU producers with an opportunity not only to strengthen their competitiveness on this important market but also to enhance terms of trade on the markets adjacent to the Eurasian Union. The combination of the EU and EAEU competitive advantages will create a change to realize the ‘double rent’ — both technological rent for the EU and the resource rent for its Eurasian counterpart. This will lead to higher competitiveness of all economies adjacent to the Lisbon to Vladivostok framework.

Features and Contents of an EU-EAEU Mega Deal

The EU-EAEU mega deal assumes the idea of an interregional integration agreement that unites two blocks.

1. First, the party to the mega deal, irrespective of the legal form it might take, would be not Russia but the Eurasian Economic Union, by virtue of its supranational authority. National representatives (the relevant departments of economic ministries, foreign affairs ministries, etc.), would certainly be present at and, at the decisive stage — influence the course of — negotiations and final agreements, but these negotiations would formally be led by the EEC. This is an important nuance — just as new and unfamiliar to the participants of the Eurasian integration process as it would be to the European Union.
2. Second, EAEU member states would be interested not merely in a free trade agreement per se but in a deep and comprehensive agreement with the European Union. The motivation is quite simple: a “bare-bones” free-trade zone is not advantageous to either Russia or Kazakhstan, both of whose exports encompass primarily raw materials. Due to their current trade structure, Russia and Kazakhstan would have little interest in a narrowly defined free-trade regime with the EU (this holds true for Belarus as well, though to a lesser extent). That said, obvious problems in the realm of trading concessions would have to be offset by gains in other areas. Significant progress is needed in other areas of economic cooperation in order for the idea to become truly viable.
3. Third, the prototypes of such an agreement between the EU and the EAEU encompassing the broad swath of pertinent issues are numerous and diverse — from a deep and comprehensive free-trade agreement (DCFTA) to a comprehensive economic and trade agreement (CETA).
4. Fourth, it should be noted that full-fledged negotiations between the EU and the EAEU will be impossible without the WTO membership of all member states of the Eurasian Economic Union. Consequently, Russia should lend its full support to Kazakhstan and particularly Belarus in their negotiations with Geneva. Russia should become the driver of both countries’ ascension to the WTO.
5. Fifth, the scope of potential issues that could be addressed by the mega deal (whether it takes the form of a single agreement or set of agreements) encompasses dozens of items.
6. Sixth, according to the baseline scenario, work on the agreement will take several years, while the comprehensive agreement itself could be concluded sometime in the 2020s.