Russia’s New Frontiers in Economic Alliances: Keeping Options Open

Throughout the past several months Russia’s authorities have issued a flurry of important statements on the priorities of Russia’s economic alliances in the world economy.

In particular, Russia’s President Vladimir Putin called for building economic alliances between the Eurasian Economic Union, members of the Shanghai Organization for Cooperation as well as ASEAN countries. Earlier, in November the First Deputy Head of the Russian Government Igor Shuvalov declared that Russia together with its partners in the Eurasian Economic Union would seek to forge a trade alliance on the basis of an FTA with Singapore. The overall vector in the formation of these alliances points towards Asia and likely signals rising activism on the part of Russia in building its network of integration blocks.

To some degree this delineation of foreign economic policy priorities may be seen as a response to the recent breakthroughs attained by the US in creating such formidable trade alliances as the Trans-Pacific Partnership (TPP) in a region that is the most dynamic not only in terms of economic growth, but also in terms of the scale of formation of trade blocks. The creation of TPP as well as the likely subsequent emergence of the Transatlantic Trade and Investment Partnership (TTIP) leaves both Russia and China outside of this combination of megablocks, which is fraught with losses in terms trade and investment flows. According to Petri and Plummer study (2012) among the countries left outside of TPP China will sustain the greatest losses, while other countries vulnerable to future losses from trade diversion include India and Russia.

In this respect, Russia’s choice of the Shanghai Organization for Cooperation (SOC) as one of the key trajectories in developing economic alliances is particularly noteworthy as it points to the importance of India and China as key allies in developing a new set of alliances that could counterbalance megablocks such as the TPP. Indeed, a look at the membership of SOC reveals precisely the set of countries in Eurasia that is largely left outside of the TPP and that may sustain losses from being excluded from the formation of US-led megablocks. The preference accorded in Putin’s recent statements to SOC rather than BRICS (which could have also featured in the set of integration priorities) likely reflects greater emphasis on the part of Russia in spearheading its economic integration efforts towards Eurasia. Another important conclusion is that SOC may take on greater economic importance going forward, which could render this organization as a platform for closer trade and investment integration among its members.

The decision to also focus on ASEAN is understandable, given the headway attained in forming an FTA between the Eurasian Economic Union and Vietnam. A successful progression towards an even deeper and more comprehensive alliance with Singapore would go a long way towards strengthening Russia’s position in South-East Asia. The creation of an FTA with Singapore will likely test new ground in Russia’s efforts to develop bilateral economic alliances across the globe as this agreement is likely to focus more on issues of “deep integration”, with a particular emphasis on sectors such as services and mutual investment flows. Alliances with key ASEAN countries could also facilitate greater cooperation on the part of Russia with the rest of the ASEAN block as well as with other trade blocks in the Pacific, including TPP, which includes Vietnam and Singapore as its members.

As a result, Russia’s multi-track approach to building alliances seems to be aimed at securing optionality in response to the pressures and risks emanating from the global economy. While SOC may feature as an alternative track to pursuing economic integration in order to counterbalance TPP, closer cooperation with ASEAN may be exploited to forge stronger links with TPP. Keeping all options open seems to be a good strategy – the main issue is for the key goals to be reached amid the multiplicity of integration projects emerging in the Eurasian space.
Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.