The SCO as the Foundation of Greater Eurasia

03.07.2018

Today is perhaps the most difficult period for international organizations and institutions, the most important political product of the 20th century. Primarily this concerns universal institutions like the UN or the WTO, but also smaller regional organizations. The new US policy, as personified by Donald Trump, the rhinoceros of world politics, has called into question the stability of seemingly the strongest international formats based not only on common interest but also common values. Primarily this concerns the G7, the West’s most important club. Its 2017 summit in Italy was a failure, but the 2018 summit in Canada proved a veritable disaster. US allies will have to adapt to the new business approach of their long-time defenders and protectors. Against this background, many observers ask whether the West will be preserved in its traditional form at all. And if it is, will it find an internal balance to any degree or remain a rigid leader-dominated system for good?

The European Union is facing problems as well. The cozy world built by European politicians after the Cold War is crumbling. This world was unfair and enabled certain EU countries to benefit from integration to a greater extent than others. For example, German banks, according to official reports alone, derived almost 3 billion euros in profit from the interest on loans issued to Greece under the guise of European financial aid. But it made it possible for the European states to solve arising problems more or less smoothly. Today, this is no longer possible. The soft-spoken and sleek politicians of the 2000s have been replaced by aggressive personalities like Matteo Salvini in Italy or Sebastian Kurz in Austria. Like the first half of the 20th century, Italy is the first large European country where radical opposition parties, both left and right, have come to power through elections. It is clear that we are witnessing generational changes and that it is not to the benefit of the European institutions that have grown used to doing business behind the scenes based on the lowest common denominator and “constructive ambiguity.”

The activities and state of collective institutions in the “non-West” look much more festive against this background. The main ones are BRICS, a club of Brazil, Russia, India, China, and the South African Republic, and the Shanghai Cooperation Organization. Of course, they have less to offer the world than the traditional Western institutions, and this is enough for politicians and analysts from the US and Europe to refer to both in a somewhat scornful manner. Both formats have been in existence for less than 20 years and the participants are often divided by important problems and differences. There is no bloc discipline, but their functions are performed with success through a spirit of inclusiveness and equality. However, a much more important factor is that these organizations, particularly the SCO, embody the member states’ ability to develop a common outlook on most important things while retaining a diversity of interests. This may become a model for international organizations in the 21st century.

China’s year-long SCO chairmanship that ended in June has proved successful, something that came as a surprise for the majority of observers. The most important height that China had to reach was helping India and Pakistan become involved in SCO activities as full member states. The two countries were given full member status to the SCO a year ago (June 2017) but thus far, there are still more things that divide than unite them. Many experts even feared that the joining of two nuclear powers that are at loggerheads with each other would spell the end of the SCO. Today, we can say confidently that this has not happened, nor is it likely to happen in the future. The joining of India and Pakistan has been a major diplomatic success and created new conditions for both countries’ integration in the Eurasian space. In particular, this is true for India that should not be seen as an island separated from the continent by mountains and political differences.

It must be said that our Chinese friends have done much to resolve this issue. Chinese-Indian relations, which were teetering on the brink of a military crisis only a year ago, have improved greatly over the last few months. The SCO’s fate is dependent on the Chinese-Indian relations. Moreover, US pressure on China under Trump has made the Chinese, who were looking at the SCO with increasing reservations in recent years, to reverse their stance. At some point, it was cautiously assumed that the SCO had fulfilled its usefulness after accomplishing its original objectives. But then the situation changed and new vistas have opened before the organization.

Now we see that those who assumed were wrong. The SCO is going from strength to strength and is being “reset” as a broad-based Eurasian organization focused on macro-regional development rather than as a narrow regional affair. And the SCO has both the necessary potential and, at long last, an international environment favoring its implementation. An increasingly aggressive US policy is pushing other countries towards each other. America’s intention to remake the world by force requires a fitting response. The countries and institutions in Eurasia are prepared for this much more than Europe or even Southeast Asia.

Russia’s involvement with the SCO has been a highly important diplomatic undertaking accompanied by major diplomatic successes, including the accession of India and Pakistan. But the SCO has much greater potential than performing a diplomatic function alone. The Russian chairmanship, which is to begin in June 2019, will have to reply to the question about the SCO’s future as an institution for international cooperation and development. One possibility is to suggest establishing a more deeply integrated free trade area within the SCO. Some Russian economists believe that this is not a problem for Moscow.

For example, Igor Makarov of the Higher School of Economics argues convincingly that the actual exclusion of Russia, along with other EAEU countries, from economic liberalization processes in Asia, which are part of regional trends, has become an obstacle to Russia’s foreign trade, its inclusion in the world market, and, accordingly, the attainment of national development goals. He believes that “despite our Asian partners’ willingness to establish a reciprocal opening of their markets as well as assurances that an import substitution policy is no longer being practiced, in fact, the motive of protecting the Russian market from foreign rivalry remains dominant in decision-making as opposed to encouraging exports.” According to many, if an FTA of this kind is established after all, the Russian market will immediately be “overwhelmed by Chinese goods.”

Makarov claims, however, that “this argument is hopelessly outdated.” The reason is the ruble devaluation in 2014 that strengthened the position of Russian producers by an order of magnitude in comparison with their rivals abroad. Today, the ruble- renminbi exchange rate is 10 to 1. The average pay ratio is changing in the same direction due to the growing cost of labor in China. In addition, China itself consumes increasingly more than it did before and would rather relocate its production capacities abroad than encourage exports. There is less demand for raw materials and more for consumer goods for a growing Chinese middle class. Seeking to protect its market from putative Chinese invasion, Russia, and the entire EAEU, is losing in the competition with other aspirants – the US, Canada, Australia, and the Latin American countries – to gain a share in Chinese consumption. Moreover, modern free trade agreements have evolved a broad range of exemptions to protect the most sensitive industries. Even if it takes years to create a more deeply integrated FTA, we should start moving in that direction now as the international situation is right for this purpose.

Russia could begin its SCO chairmanship by effectively promoting the Greater Eurasian Partnership concept as a more ambitious agenda than just a bilateral project. An SCO Wider Eurasian Partnership would impart to Russian policy more integrity and additional distinction at both the diplomatic and foreign economic levels. This partnership should be based on the most important qualities inherent in the SCO and the regional international environment as a whole, that is, openness, equality, and inclusion of all countries in common affairs.  

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.

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