Valdai Club

There may be a case for filling the regional void via the creation of a North-Pacific Partnership (NPP), which would bring together some of the key players in the region such as Russia and the US.

The process of globalization is largely driven today by the formation of bilateral and multilateral regional trade arrangements (RTAs), whose number by now is in the hundreds, with virtually all of the globe now being covered by regional blocks as well as more recently trans-continental mega-blocks. The pace of the creation of RTAs has not decelerated significantly even despite the global economic downturn, with the emergence of new integration groups increasingly concentrated in the dynamic Pacific basin. One case in point is the headway in launching the Transpacific Partnership (TPP) as well as the plans harbored by ASEAN and China to create the Regional Comprehensive Economic Partnership (RCEP). But amid the frenetic activity in the creation of new regional arrangements, there are voids of integration in the global economy, including in the Pacific region, with the North Pacific being one case in point.

Indeed, if one were to examine the region of the North Pacific in its narrow definition (as opposed to the geographical definition that largely includes the Pacific basin north of the equator) that comprises US, Russia, Canada and Japan, what becomes evident is the lack of integration links that connect Russia with its partners in the region. This relates not only to the formal connections via comprehensive free-trade areas, but even to micro-regional arrangements that establish lines of economic cooperation at the regional/sub-national level. Furthermore, a look at investment and trade patterns in the region reveals a significant degree of under-investment and under-trading compared to potential levels based on geographical proximity and the size of the economies of member countries (economists use the so-called gravity model to calculate the discrepancy between actual and potential trade). This is particularly pronounced with respect to Russia’s economic ties with the US and Canada and has been the case for decades with Japan, though in recent years Japan has entered the group of Russia’s top-10 trading partners.

Apart from the fact that the North Pacific harbours significant untapped potential in the sphere of economic cooperation, it is a region at the cross-roads of regional and global issues such as security, cooperation in the Arctic, energy, environment and ecology, high-tech cooperation and development of “human capital”. It is also a potential link between the maritime integration projects in the Pacific and the continental integration of Eurasia, as well as between the dynamic economy of the Pacific basin and the Arctic. To put it succinctly, it is the region with the greatest imbalance between the economic/strategic opportunity and political realization.

There may hence be a case for filling this regional void via the creation of a North-Pacific Partnership (NPP), which would bring together some of the key players in the region such as Russia and the US, and that would serve to achieve the following goals:

- A regional arrangement that could complement the Trans-Pacific Partnership (TPP) and serve as a bridge between Russia, the Eurasian Economic Union, as well as the Shanghai Organization for Cooperation on the one hand and the Trans-Pacific Partnership on the other hand. NPP could serve as the regional arrangement that serves to harmonize standards and rules between Eurasia and TPP, with the potential for closer economic cooperation and integration.

- A re-launch in the relations between Russia and the US through a comprehensive and durable regional cooperation framework, which would emphasize economic cooperation in the North Pacific and improve on the pattern of Russia’s relationship with the North Atlantic.

- An arrangement that offers US, Canada, Japan a greater economic presence in Eurasia, with Russia and its partners from the Eurasian Economic Union receiving greater scope in raising their economic presence in TPP countries.

- A group that provides TPP with further gateways for expanding cooperation with other parts of the Pacific, rendering the process of regional integration more inclusive and open to outside members.

- NPP would serve to revitalize projects such as APEC, making it possible to multilateralize the trade benefits exchanged in the Pacific region via numerous RTAs. The new regional arrangement should adhere to APEC’s principles of “open regionalism” and recognize the pre-eminence of the international norms of the WTO.

- Provision of a gateway between the Pacific and Arctic regions, which would improve the prospects of greater economic participation of Asia Pacific countries in the economic development of the Arctic.

- An arrangement that would serve to bolster energy ties in the region and to lower energy dependency of countries such as Japan, South Korea, China on deliveries from the Middle East.

- An integration arrangement that lays the foundation for improving mutual investment flows and the regional investment climate. In line with the experience of NAFTA and the WTO, a dispute settlement body may be envisaged to resolve investment and/or trade disputes.

- World’s “intellectual powerhouse”, which would create the conditions for exploiting synergies in R&D as well as in the development of high-tech sectors; it would allow to take advantage of the complementarities in the operation of high-tech/educational centers in the Pacific.

- Regional cooperation that provides the conditions for developing the territories with a high potential for catch-up growth (Russia’s Far East being one case in point) via micro-regionalism (economic cooperation and liberalization at the level of municipalities and regional/sub-national authorities).

- A comprehensive version of the NPP project that includes China would have the benefit of raising NPP’s potential to link the continental projects such as the Eurasian Economic Union and China’s One Belt-One Road with the maritime projects of TPP and TTIP.

- An extended version of NPP that focuses on addressing security issues in the Pacific could include both Koreas and would involve all key players involved in the discussions on regional stability.

One of the key factors in the implementation of the NPP project would be the proper sequencing, with the initial steps likely to focus on “soft integration” issues, such as cooperation between regions and municipalities, building micro-regional economic networks, harmonizing environmental and technical standards, etc. In the longer term, this could be then followed by measures envisaging trade and investment liberalization, which may also be pursued in stages and with sufficient flexibility granted to member countries.

In the end, NPP may be the missing piece of the jig-saw puzzle that brings greater accord to the Pacific, allowing it to fully stand up to its name. Perhaps one of the first steps is simply to realize that just as with the EU, Russia is a neighbor and a regional partner with the US, Canada and Japan in the Pacific with the potential for building a common regional integration project. While the current conditions render the implementation of the NPP project problematic at best, it is clear that the North Pacific region needs to have a vision of a common goal, a grand project for the future that serves to focus mutual cooperation in a way that is not lost in the minutiae of secondary issues as has been the case with Russia-EU relationship and the plans of a Russia-EU FTA. And as illustrated by the creation of the EU itself, the ability to refocus from the past to the future may generate the virtuous interplay of economic and security benefits. Post nubila Phœbus.