The outgoing year was a good one for Russian foreign policy, including its economic component. Moscow has managed to largely sit out the economic war against it, which began in 2014, and even profit from it. Meanwhile, Russia’s opponents have experienced a series of major internal shocks. The European Union, which caused Russia a lot of trouble in recent years, is consumed by a deep crisis. The United States has embarked on a path of internal cleansing to rid itself of the ideological blindness of the past 25 years. However, this may well present an intellectual and political challenge for the Russian government. The new tenant of the White House and his retinue are totally unpredictable. This unpredictability risks surprises for both Russia and China, who have become accustomed over a couple of decades to knee-jerk reactions and behavior from the West. One thing is for sure, though – it won’t be boring. And boredom, along with hypocrisy, has been one of the biggest irritants in relations between Russia and the West.
The agenda in Asia looks much more constructive. Russia has made its pivot to the East, which now needs to be consolidated and reinforced with practical actions. Russia’s position in Asia is unique because there’s not a single country in that region with which Russia has hostile relations. With some states, such as Japan, several ASEAN countries and South Korea, Russia maintains constructive working relations. With others, such as China and Vietnam, relations are openly warm and friendly. However, these Asian nations have been unable, for the most part, to overcome the legacy of apprehension and, in some cases, outright hostility with regard to each other. For Russia, even the territorial issue, which remains a matter of a diplomatic back and forth, has not become an obstacle to dialogue with Tokyo, which was confirmed by the latest meeting of the countries’ leaders at the highest level. There may come a time when each of the leading Asian players - China, India, Japan, South Korea and the ASEAN countries - will have better relations with Russia than with each other.
However, such a geostrategic location is both an advantage and a challenge. On the one hand, Russia can confidently hover above the fray and develop economic cooperation with little or no regard for political constraints. On the other hand, even a token gesture to one of the parties to a contentious dispute will instantly make other parties wary. Such was the case in September 2016 when Russia discreetly showed support for China in its territorial dispute over the South China Sea and then took part in joint naval exercises with China. The majority of ASEAN countries responded nervously. Everyone always expects Moscow to take a friendly stance. All the more so, since Russia persistently invites Asian investors to participate in the economic development of Siberia and the Russian Far East. Perhaps, in the future, it will have to adopt an even more balanced approach when it comes to strategic priorities such as cooperation with China and paying attention to the medium and small regional players.
Major Russian initiatives could potentially alleviate concerns of neighboring countries with regard to Beijing's intentions and capabilities. In the summer of 2016, Russia and China supported the idea of building a comprehensive Eurasian partnership. It was a Russian idea and a big plan for Asia and Eurasia, which combines deepening existing integration projects and creating a broad platform for cooperation within the EAEU, the SCO, ASEAN, APEC, and their interaction with individual initiatives, with China’s One Belt, One Road project playing the central role. This cooperation may receive an additional political boost following the One Belt, One Road countries’ summit in Beijing in May 2017.
The political events of late 2016, the most important of which was the US presidential election, could, under certain circumstances, heighten demands on the quality of China-Russia relations. Chances are that the new administration will take an assertive, if not aggressive, stance toward China. The assumption that tough times may lie ahead of China was confirmed by the great Henry Kissinger’s hasty visit to Beijing where he met with top Chinese leaders. Clearly, Beijing is seeking to enlist the support of this US political juggernaut, all the more so since 40 years ago it was Kissinger who broke the ice between Washington and Beijing and opened an era of mutually beneficial economic cooperation.
However, you can’t step twice into the same river. US-China relations are based on economic interdependence, perhaps the largest and deepest of its kind in world history second only to US-Europe relations. However, the international political circumstances that made conflict between China and America irrational have vanished. These countries no longer have a common enemy, which was the Soviet Union from the late 1960s to the late 1980s. Russia does not threaten either the United States or China, and they can afford to sort things out between themselves. The restraint exercised by Moscow and Beijing on the issue of military-political alliance between them only strengthens the US belief that it can put pressure on China.
For these reasons, it is doubtful that this time the efforts of one of the greatest politicians and pundits in history will yield equally effective result. The events surrounding the contacts between the US President-elect and the leader of Taiwan suggest that the era of relative military and strategic comfort, which China has enjoyed over the past few decades, may be coming to an end. Some observers, not without reason, believe that the new US administration may take steps that will put China in a different situation, though nothing like the harsh pressure that the West exerted on Russia, at least initially.
That is not to say that the soft version won’t come with its share of unpleasant surprises for China. We must not forget that the strategy for the peaceful rise of China was, to a large extent, dependent on the reaction and behavior of its major external partners. The new American leader can undermine this sense of relative comfort. One month after his victory, he caused a surge of renewed attention to Taiwan, which is the most complicated issue in China's foreign policy. For any Chinese government, the sovereignty of Taiwan is a matter of life and death. The fact that the newly elected head of the United States chose this issue as a trial balloon shows his willingness to play rough with Beijing. It remains to be seen whether China is prepared to play such a game. Given these circumstances, Russia would be better off supporting its Chinese partners, as they supported Moscow in 2014 – 2015, during a rough patch for Russia.
It is important for Russia, in its Asia policy, to balance its political presence with at least comparable economic ties. Historically poor Asian societies put emphasis on the ability of their respective governments to ensure stable economic development and prosperity. This is what the social contract is based on there. It is no accident that the Asian countries themselves focus on the economic presence of Russia in Asia. This presence has so far been limited. Even though economic relations have already “graduated”, as the head of a major Russian corporation aptly put it, from mere talking about customs statistics, the amount of mutual investments and, in most cases, trade volume, have been growing consistently. In 2016, Russian investment in Vietnam alone rose by 186 percent, and over 300 percent in India. A relatively successful Russia - ASEAN summit was held in May, following which the participants announced the possibility of holding talks on a free trade area between this regional association and the Eurasian Economic Union (EAEU). We can expect talks between the EAEU and ASEAN to begin in 2017. Perhaps, not all of ASEAN, but at least some of its influential members. The EAEU-Vietnam free trade area opened in the fall of 2016.
The high level of non-tariff barriers remaining in a number of leading Asian economies is still a problem. In a situation where a significant portion of the market is closed off to imports by technical regulations, talking about trade liberalization is a difficult proposition. In general, the countries of the region must make a system-wide switch to a new type of agreements, in which the opening of markets in terms of tariffs will be addressed alongside other issues of mutual interest. If the states can decide on lifting tariff constraints, by the same token, they can encourage their market players by using a portion of investments to that end. Not to mention the fact that the full reciprocal opening of markets is unlikely without standardization, quality requirements or phytosanitary regulations that are common for all members. The crowning achievement of European integration, the creation of a truly Common Market, was made possible by the removal of non-tariff barriers.
The start of talks between the EAEU and China on a new trade and economic agreement was a major success of 2016. The original decision to draft such an agreement was made in May 2015. On May 31, 2016, the heads of the EAEU states instructed the Eurasian Economic Commission to start practical work with its Chinese partners. This work is designed to help avoid spreading multilateral EAEU-China cooperation thin across bilateral tracks of the participating countries. Germany and Brussels have already run into such a problem. The underlying reason is that poor countries of Eastern and Southern Europe are chasing Chinese investments without regard to the EU investment regulations. Perhaps, the focus of 2017 will be EAEU - China bilateral consultations regarding the provisions of this new major agreement, which should, without doubt, go far beyond a simple trade agreement.
However, the start of these talks revealed an urgent need for consolidating the Eurasian integration project and its interaction tools with other mega-regional partnerships, primarily, the Regional Comprehensive Economic Partnership (RCEP) in Asia and possibly the revived Trans-Pacific Partnership (TPP) in the future. The idea for the former was advanced by a group of Southeast Asia countries several years ago. China picked it up later in an attempt to create a business and political alternative to the TPP. The latter was also originally based on the initiative of medium and small countries and later led by the United States in its capacity as superpower. The new US administration has put the need to implement the TPP into question. However, certain pundits believe that, in the medium term, the rest of the TPP members may try to save it without the direct involvement of the United States.
In addition, the partnership is such a well-designed, economically sound and forward-looking document that it definitely will be recycled later in one form or another. The future of RCEP looks more definite, although everything is far from perfect here, too. Primarily, this is because India, which is cautious about copyright protection, may cause problems.
The image of RCEP that has taken shape over the past 18 months as a China-led alternative to US initiatives may be harmful, too. The politicization of both partnerships has become a negative development in 2016, even though Beijing has never officially stated that RCEP is directed against the United States and even mentioned the possibility of eventually harmonizing them within the framework of an Asia-Pacific free trade area. In turn, the United States acted more aggressively and did not try to hide the exclusive nature of its project, and even still the outgoing administration is being criticized for showing weakness in its relations with China and failing to provide a tough response to China’s alleged growing assertiveness.
Ultimately, the difference between the still hypothetical TPP and the more realistic RCEP lies elsewhere. It is not too important who will be in charge of each partnership. Their strategic importance is determined by the fact that the TPP and the RCEP reflect different international trade and investment regulation philosophies. In the former case, the emphasis is on the leading role of corporations, the utmost liberalization of markets and creating an institutionally homogeneous environment. In the case of the RCEP, the focus is less on ambitious liberalization and more on the state retaining its ability to directly intervene in the market. In all likelihood, the rest of the regional partnerships, including the EAEU, will also have to choose between these two paths of development in the 21st century, namely, the so far failed TPP and the probably successful RCEP.
Given such circumstances, all of the EAEU countries may confront an important challenge, which is the lack of a common trade policy. Currently, the participating countries have their mandate for trade negotiations handled at the union level. However, simply granting that formal right to the Eurasian Commission is not enough. The countries of the union must use foreign trade talks to improve the international competitiveness of their respective economies, to achieve their national development targets and thus consolidate their national sovereignty. To do so, it is important to add new substance to EAEU trade policy. Astana, Bishkek, Yerevan, Minsk and Moscow must provide a real answer to the question of whether they will respond to the external and internal challenges as a team or individually.
As we know from international experience, this can be done through a more flexible and systematic use of preferential trade agreements. However, to do so, it is important to consider efforts to address internal problems of development, expanding the presence of EAEU products on foreign markets and revitalizing trade policy as an integrated collection of actions. In this regard, the EAEU is still lagging behind the leading economic associations, like the EU, and major national players, like the United States, China and Japan. The consolidation of efforts helps boost the individual capabilities of each country participating in the implementation of common trade policy.
Common trade policy is an important and, as shown by the European experience, effective tool in the hands of the states. However, it needs to go beyond foreign trade talks, to including sections on mutual investment, technical regulation and technological cooperation in agreements. The latest approach to foreign trade agreements requires a qualitatively new understanding of their nature and functional meaning. Once a simple trade liberalization tool, they have become the most important factor in the development and positioning of the countries and interstate associations in the global economic arena. Russia and its EAEU partners will be able to successfully uphold their positions during talks with larger and better consolidated players. To do so, they need to make full use of their opportunities at the national level and the EAEU level.
In 2016, Russia’s policy in Asia and Eurasia, its cooperation with allies and partners in the region reached the next level. In turn, the region was confronted with the integration and security challenges. There’s no reason to believe that these challenges will dissipate all by themselves in 2017. Most likely, they will only get worse. Unpredictable US policies will call for even more deft diplomacy. The evolution of preferential trade partnerships will force Russia and its EAEU allies to come up with their own strategy and proactive policies. However, Russia is entering 2017 in its new capacity as a recognized, active and influential regional player.
Timofei Bordachev is Programme Director of the Valdai Discussion Club.