Can Russia and China Reach the Trans-Pacific Partnership’s Level?

Russian Minister of Economic Development Maxim Oreshkin has announced that Russia and China have mapped out the areas of focus in drafting a major agreement aimed at liberalizing Russian-Chinese trade in services and investment, protection of investments, e-commerce, the movement of people, etc. “It is a very important document. The level of topics it addresses is comparable to the Trans-Pacific Partnership,” Oreshkin said in an interview with a Russian newspaper.

The minister’s high estimate of the current stage in Russian-Chinese cooperation and its future prospects is an accurate reflection of the expectations nurtured by the Russian political establishment that would like to take bilateral trade and economic cooperation to a fundamentally new level.

However, in comparing the agreement discussed by Russia and China with the TPP, Maxim Oreshkin considerably simplifies the matter and exaggerates the importance of the document in question.

First, unlike the TPP, the Russian-Chinese agreement cannot include provisions liberalizing trade in goods. Following the establishment of the Eurasian Economic Union (EAEU), customs import duties in the context of Russian-Chinese trade are regulated by the EAEU unified customs tariff. Today, talks on the possible reduction of the customs duties should be conducted between China and the Eurasian Economic Commission rather than on a bilateral basis between Russia and China. Moreover, Russia has never considered in earnest a free trade agreement with China or meaningfully lowering customs barriers in bilateral trade despite China’s efforts to the contrary over almost 20 years.

Second, the Russian-Chinese agreement in question is unlikely to include provisions on the governments involved assuming meaningful commitments on procurement, operations of state-run businesses, protection of intellectual property rights, and environmental standards, the provisions that make TPP such a distinct and “high-quality” agreement. It is these steep demands on participating countries that prevented China from joining TPP negotiations. The requirements were so exacting that China, whose economy is still closed and subject to state regulation in significant ways, was unable to assume such obligations even faced with the threat of being marginalized in the APR.

In its bilateral and multilateral preferential trade agreements, China predominantly seeks to remove barriers to trade in goods and services. As demonstrated by its record of signing preferential trade agreements (as of now, it has signed 16 free trade pacts), these rarely include clauses on intellectual property, competition policy, environment, or movement of people.

At the same time, the Russia-China agreement is likely to include some highly important provisions, such as liberalizing the investment regime, creating a favorable investment climate (in Russia), and regulating e-commerce. Removing barriers in the investment and e-commerce areas could enable the breakthrough in bilateral trade and economic relations that the two countries are so eager to achieve.

For example, there are still strong constraining factors, mostly legislative, in the investment sphere, despite certain positive shifts like the growth of Chinese investment in Russia since 2013. Peculiarities of Russian law and discrepancies in Russian and Chinese legislation often make Chinese investment in Russia impossible. Chinese investors complain of an unfavorable investment climate in Russia. Boosting Chinese investment in the Russian economy has become a priority against the background of the continuing confrontation with the West and Russia’s reduced ability to borrow on foreign markets.

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If current growth rates continue for another decade or so, China will outpace the US by the end of the 2020s, and the Asia Pacific Region will be able to steer world economic development and dictate the global political agenda.

Regulating e-commerce and creating a unified space for online trading can energize reciprocal commodity flows via online trading channels. This is all the more important because, given some other pertinent measures, Russia will thus be able to gradually move beyond raw materials in its trade. Facilitating e-commerce can help Russian food and agricultural producers, to name a few, find a foothold on the Chinese market.

Generally, although comparing the Russian-Chinese agreement under discussion with the TPP pact is misguided, such an agreement can lay a solid foundation for deeper bilateral trade and economic relations. The current international situation, characterized by sanctions imposed on Russia by a number of Western countries and the US-China trade war, makes Russia and China equally interested in intensifying cooperation. It also increases the likelihood of the two countries reaching compromises on difficult issues and opens up broad opportunities for reaching a new level of trade and economic cooperation.

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