Valdai Club

Over the past several years, there has been much talk about the crisis affecting the Western-centric models of globalisation that have developed since the end of the Cold War. Towards the middle of the 2010s, the US, which had once provided the impetus for globalisation, had come to the realisation that its main beneficiary was its ideologically alien and increasingly ambitious trading partner China. The result was a rise in protectionist sentiment in the Washington establishment, as reflected in the policies of the Donald Trump administration. But at the same time, global institutions such as the WTO and the IMF are experiencing a crisis of their own; the regional trade agreements and development banks are playing an increasing role.

According to the latest WTO data (January 2019), there were 291 regional trade agreements in the world and their number is constantly growing. There is every reason to say that a new era of regionalism is coming – a process which has not bypassed Eurasia.

The processes of regionalisation in Eurasia, which directly affect Russia, differ in their nature. There is the EAEU, a classic integration association; the SCO, a forum on cooperation with a particular emphasis on security; the CSTO, a military-political bloc; the Belt and Road, a large-scale initiative to improve connectivity infrastructure; and the ABII, a regional development bank.

“Different integration projects in Eurasia are focusing on different vectors and areas of cooperation,” says Yaroslav Lisovolik, programme director of the Valdai Club. “The EAEU integration agenda goes far beyond transport connectivity and includes trade and financial integration. The Belt and Road Initiative largely concentrates on transport and infrastructure development and integration, while the Indo-Pacific Community is likely to pool various integration formats orientated toward rebalancing the alignment of forces in the Eurasian space. This integration triangle has elements of both cooperation (primarily between the EAEU and Belt and Road) and rivalry (between Belt and Road and the Indo-Pacific).”

For Russia, the most high-priority vector for regional cooperation is the alliance being forged between its integration project, the Eurasian Economic Union (EAEU), and the Silk Road Economic Belt (part of China’s Belt and Road initiative). In 2016, Moscow proposed a broader umbrella initiative. “Now we propose considering the prospects for more extensive Eurasian partnership involving the EAEU and countries with which we already have close partnership – China, India, Pakistan and Iran,” President Putin said at a plenary session of the St. Petersburg International Economic Forum. This idea was supported by China. According to a joint statement made by the two countries dated June 5, 2019, the BRI and the idea of ​​the Greater Eurasian Partnership “can develop in parallel and in coordination, will contribute to the development of regional associations, and bilateral and multilateral integration processes for the benefit of the peoples of the Eurasian continent.”

For Russia, transport contingencies play a special role in the integration agenda. This is not surprising; a unique feature of Russia’s geographical position in northern Eurasia is that its internal regions are located at a great distance from the seacoast and, consequently, from world markets. The same can be said about its partners in the EAEU, all of which are landlocked. “It is owing to regional economic integration that Eurasia’s landlocked developing countries, including Russia’s hinterland, may turn these geographical factors from obstacles to advantages,” says Yaroslav Lisovolik. “Deeper integration makes it possible for Eurasian countries to increase their competitiveness by redistributing investment and commodity flows between East and West within such projects as Belt and Road and EAEU. For the Russian hinterland, geographical remoteness gives way to the possibility for mediating the growing trade and financial flows between Eurasia’s West and East.”

It is important that the EAEU and the Silk Road Economic Belt are complementary, says Valdai Club expert Evgeny Vinokurov, director of the Centre for Integration Research at the Eurasian Development Bank. “In the alignment of the EAEU and the Silk Road Economic Belt, Russia has two tasks,” he notes. “The first is to develop the transport and logistics infrastructure in order to encourage the transfer of goods by land instead of by sea, so sending goods from China to Europe (or vice versa) can travel via Russia. This is a good business niche for logistics companies and railways. The second (and main) task is to develop logistics and improve economic conditions. This is especially important for landlocked regions like Kazakhstan and Russia’s Urals and Siberia. The Belt’s transport corridors make it possible to sew our region together by ensuring links between resources, production lines and markets. The development of transport corridors and infrastructure is essential not only and not so much for transit as for the consolidation of socio-economic links with cross-border areas and better use of industrialized centres.”

The expanded Eurasian partnership is being built to unite countries with different cultures and civilizations within its framework. Therefore, it is unlikely that economic processes here can be regulated by a single set of measures and rules, Valdai Club experts believe. “For now, it is necessary to create a kind of mosaic of various concepts and decisions,” says Timofei Bordachev, programme director of the Valdai Club. According to Yaroslav Lisovolik, the development of common rules and principles should not become an end in itself. “In the final analysis, when we take into consideration the differences between the economic systems and cultures in Eurasia, common integration rules are likely to apply to a rather limited number of factors. The process of unifying the rules of operation for regional development banks, which often have their own standards and rules for working with projects, will also be difficult, the expert emphasises. “Aa successful integration model must not be aimed at standardising all rules on a grand scale, leaving enough room for socioeconomic and political distinctions in the context of integration.”

According to Valdai Club experts, the regionalisation processes in Greater Eurasia have been characterized by a high degree of pragmatism, in part because of the heterogeneity of the participants in these processes. The initiatives which have been launched primarily serve the goals of economic development; political goal-setting is a background element. If we’re talking about the EAEU, the long-term goal includes “the creation of a favourable environment for using the potential of economic ties within the region, upgrading national economies and enhancing global competitiveness,” emphasizes Yevgeny Vinokurov. According to him, the core of the Eurasian integration process is the single markets for goods, services, capital and labour. Similarly, the Belt and Road initiative has been implemented through the application of economic mechanisms; these include direct investment, portfolio investment, trade loans, infrastructure projects and transportation subsidies.

However, both the EAEU and, to an even greater degree, the Belt and Road initiative are suspected of having a political agenda. Indeed, both projects in one degree or another serve to expand the sphere of political influence, respectively, of Russia and China, but membership in an integration bloc with Russia does not in itself indicate an expansion of the Russian presence. As Piotr Dutkiewicz, Director of the Center for Governance and Public Policy at Carleton University, reminds, the members of the EAEU “calculate their benefits not only in economic terms, but also on their own ‘sovereign scale of independence’ from Russian influence”. Under these conditions, the expert believes, the step towards closer partnership with China and the expansion of key regional organisations (SCO and CSTO) is for Russia the most pragmatic and, quite possibly, expedient (although not entirely risk-free) strategy.

It is a pragmatic approach, in which integration is not an end in itself, but a means by which participating states may modernise their economies and gain a more lucrative place in the international division of labor, and will ensure that the regionalisation processes maximize their effect, experts are convinced. Yevgeny Vinokurov and Piotr Dutkiewicz have proposed the term “pragmatic Eurasianism”, which includes the following elements:

• Attitude towards integration as a means, not a goal;

• Emphasis on “integration from below”;

• The multiplicity of states as the locomotives of integration;

• The primacy of economic integration;

• Principle of subsidiarity;

• Socio-cultural integration;

• Open regionalism.

The latter implies an openness towards regional groupings and the development of institutions, both within developed and developing countries. Numerous benefits can be derived from deeper economic integration with the West (European Union) the East (China, South Korea, Japan, Southeast Asia) and with southern Asia (India, Iran, Turkey), Vinokurov notes. According to Dutkevich, Russia sees great potential in establishing interaction between the Eurasian structures and the EU.

“The geo-strategic and geo-economic gamble is that economic and diplomatic gains from this shift will enable – in time – a strengthened Russia to return in its new incarnation as a ‘Eurasian power house’, to new bargaining processes with the EU as an indispensable partner in an even Greater- Greater Eurasia (including the EU)”, the expert says. 

Given the interest in developing economic relations with China, the EAEU could serve as the main line of communication between Europe and Asia, but at present the EU prefers “not to notice” the Eurasian initiatives of Russia. However, it cannot be excluded that this situation will not change in the future.

As for the regional institutions, experts believe that development banks such as AIIB and, in part, the BRICS’ New Development Bank (which is not a purely Eurasian project) are of the greatest interest. This is logical: after all, the tasks associated with establishing transport contingencies are very costly, which in turn necessitates the unification of regional development banks and other development institutions. As Yaroslav Lisovolik explained, these institutions are just beginning to reach their “design capacity”. On the other hand, he notes, they have the advantage of using the accumulated experience of the established, highly efficient development institutions used by developed countries, such as the European Investment Bank, the EBRD and a number of other organizations.

“As a rule there are fewer geopolitical obstacles to joint initiatives and projects at the level of development institutions,” he explained. “Interactions between ‘new’ development institutions and development institutions involving developed countries can be based on joint participation in regional projects as well as on coordination of efforts to promote global initiatives, including the UN Sustainable Development Goals.”

At the same time, it is possible to propose not only common rules, but also a single platform for implementing large-scale infrastructure projects in Eurasia, says Lisovolik. A reference point for Eurasia can be the “syndicated regionalism” formula, within which the interaction between regional integration groupings of Eurasia, as well as between development banks and regional financial organizations, is built.

When speaking of regional institutions in Eurasia, one cannot avoid mentioning the Shanghai Cooperation Organization, which, after India and Pakistan joined in 2017, became the most important security forum capable of effectively settling disputes between its member states. Today it is one of the most attractive integration platforms for the developing countries of Eurasia.

Regional integration projects which involve developing countries are a sign of our time. In Eurasia, in addition to the regional associations mentioned above, there are a number of other blocks, including the Association of Southeast Asian Nations (ASEAN), the Gulf Cooperation Council of the Arab States of the Persian Gulf (GCC), the free trade zone in South and Southeast Asia, the South-East Asian Association for Regional Cooperation, or the Gulf of Bengal Initiative on Multidisciplinary Technical and Economic Cooperation (BIMSTEC). There are also plans to create a General Regional Economic Partnership (EPEA) with the participation of China, Japan and South Korea.

However, it is worth remembering that the weakening of global institutions does not lead to a guaranteed strengthening of regional ones. An increasing role is played by bilateral agreements between major powers, particularly if one of them is the United States. “Trump is compelling all of America’s major trading partners to negotiate bilaterallywith the United States, although most of them, including China, the EU, Japan and India, prefer multilateral agreements,” says Valdai Club expert C Raja Mohan, director of the South Asian Institute at the National University of Singapore. “Nevertheless, taking into account the size of the US economy and the scale of interdependence with the US, they have all agreed to engage bilaterally with Washington.

Regional Trade Blocs as Supporting Structures in Global Governance Yaroslav Lissovolik, Anton Bespalov, Andrei Bystritskiy
What is missing in the current system of global governance is a global coordination mechanism among the largest regional integration arrangements from both the Global North and the Global South. The G20 is probably the best forum to launch discussions on the creation of such a platform. The set of regional alliances within such a platform could include those regional integration blocs in which the respective G20 members are leading economic powers. The resulting grouping that may be designated as R20 (“Regional 20”) would bring together some of the largest regional trading blocks in the world economy.

Nevertheless, the significance of regional agreements continues to grow. Amid these conditions, attention is drawn to the lack of horizontal interaction between regional blocks (and development banks and financial associations) and vertically, between them and the institutions of global governance, such as the WTO or the IMF. Perhaps the next stage in the development of regionalism will be the establishment of such interactions. It is difficult to say in what format, but the G20 seems to be the logical platform for this as the most representative forum for dialogue between the developed economies of the Global North and the developing countries of the Global South.