EAEU, MERCOSUR and Integration

The problems and tasks faced by EAEU countries are similar to those that the MERCOSUR countries are dealing with: the search for a vector of foreign trade policy that would be both profitable and stable; re-orienting their exports toward new frontiers; and establishing new long-term strategic economic ties. Integration at the level of international bodies may also bolster ties in their domestic affairs. The destabilization of MERCOSUR that can be seen today has been provoked by many factors, most of which are external (in particular, the actions of the United States, which does not want Latin American countries to become stronger). This destabilization may be corrected by establishing new partner ties with third partners.

The EAEU’s trade cooperation with MERCOSUR, the world’s third largest and third most influential trade bloc, could become a very profitable strategic alliance. The market potential of Latin American countries is tremendous, and it is unused today.

If mutually beneficial terms of cooperation are achieved, such an economic alliance could have every chance of becoming a mega-bloc and, most importantly, the embodiment of a new model that is based on best and more advanced practices.

The EAEU’s trade and economic dialogue with a Latin American partner could occupy a unique place in the structure of global economic cooperation as a whole. It would make it possible to overcome certain limitations in inter-country economic cooperation, use regional “economies of scale” to develop economic cooperation, and decrease the risks brought about by the policy of “economic aggression” used by some states.

The actions of the EAEU member states in expanding their cooperation with individual MERCOSUR member countries serve as further proof of the significance that the Latin American market holds for the Eurasian alliance.

An integration dialogue between MERCOSUR and the EAEU would allow the EAEU to solve the task posited to all its member countries, one that is similar to MERCOSUR’s own strategic goal of finding its rightful place in the so-called “sixth technological order” where leading positions will be held by countries that actively use the “ten emerging technologies.” In other words, it means implementing a policy to modernize production and exports in order to re-orient the poorly diversified resource-based economy that is typical for most EAEU and MERCOSUR states.

In this regard, the specific features of MERCOSUR, whose member countries have historically never received large-scale technology transfer (as happened, for instance, in the United States) and consequently formed a “secondary” model of innovative development that is mostly associative and fragmentary and has large areas of stagnation, are of particular interest in terms of building business ties with EAEU companies.

It is also important to note additional factors that could slow down the process of intensifying trade and economic collaboration between the EAEU and MERCOSUR: the strong U.S. and EU presence in Latin America and the growing Chinese penetration into the region. It is crucial that the EAEU should start negotiations as soon as possible, before other countries and integration alliances have taken over the Latin American market.

The FTZ+ trade agreement format would appear to be the most suitable institutional basis for deeper economic collaboration between the EAEU and MERCOSUR. Such an agreement would involve in-depth integration, emphasizing reduced non-tariff barriers, an improved regime for trade in services and investments, measures to increase trade, regulatory alignment and standardization, and, most importantly, identifying promising areas of cooperation and creating special conditions for individual projects.

For instance, a dialogue on innovation and technology should be one of the items on the trade and economic agenda. In this regard, it would be wise to turn to the successful experience of the European Union in Latin America: the European Union’s priority cooperation areas are focused on innovations and technologies (including biotechnologies), renewable energy, healthcare and sustainable development.

The sole task for the EAEU and MERCOSUR countries is to become part of global production chains in such a way as to have the possibility of generating added value through innovations and technologies of “local origin.”

A “pin-pointed” search for possible production collaborations and bilateral investment initiatives could become an effective way for pooling the parties’ efforts.

Ultimately, the performance results of such an intercontinental trade and economic project will depend on how effectively the strategic bilateral projects that are intended to ensure cooperation synergy and liberalize mutual trade are coordinated.

The transformation of international trade has significantly picked up pace as of late. Sanctions and protectionism (and its rather aggressive variant used by the United States) prompt states to create alternative institutions and integration alliances based on the principles of liberalism, equality and openness.

Acting together is the only way for states to withstand such a disturbance of the balance in the global trade system and satisfy their interests.

Alina Shcherbakova:
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Integration initiatives emerged a long time ago and are now developing successfully: the global geopolitical space is permeated with a network of regional integration groups. The number of such groups is growing, and their trade ties are becoming deeper.

Compared to Europe, the Asia Pacific, Latin America and other regions, the post-Soviet space has far less experience of the type of integration known as “international economic integration.”

The situation is certainly changing. The founding of the Eurasian Economic Union (EAEU) and its work towards concluding free trade agreements have introduced adjustments to existing trade relations. However, since the EAEU was founded in 2015, only one full-fledged free trade agreement was signed with Vietnam.

The EAEU and MERCOSUR: Institutional Grounds for an Alliance

The agreements concluded with Vietnam, China and Iran suggest that the basis for a new stage in moving into Eastern markets has been formed.

The EAEU’s trade cooperation with MERCOSUR, the world’s third largest and third most influential trade bloc, could become a very profitable strategic alliance. The market potential of Latin American countries is tremendous, and it is unused today.

If mutually beneficial terms of cooperation are achieved, such an economic alliance could have every chance of becoming a mega-bloc and, most importantly, the embodiment of a new model that is based on best and more advanced practices.

The EAEU’s trade and economic dialogue with a Latin American partner could occupy a unique place in the structure of global economic cooperation as a whole. It would make it possible to overcome certain limitations in inter-country economic cooperation and use regional “economies of scale.”

Together with regional integration alliances, this structure could serve as the missing link in the “South–South” cooperation line and resolve the so-called “gaps” in the cooperation balance. The problem of the global economy we are now part of stems from the sharp transition from bilateral economic integration to mega projects. Countries do not have enough time to find their bearings and amend their national legislation, and this often slows down the dialogue on establishing global institutions.

The Advantages of Cooperation between the EAEU and MERCOSUR

Victoria Panova:
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An integration dialogue between MERCOSUR and the EAEU would allow the EAEU to solve the task posited to all its member countries, one that is similar to MERCOSUR’s own strategic goal of finding its rightful place in the so-called “sixth technological order” where leading positions will be held by countries that actively use the “ten emerging technologies” [1].

In this regard, the specific features of MERCOSUR, whose member countries have historically never received large-scale technology transfer (as happened, for instance, in the United States) and consequently formed a “secondary” model of innovative development that is mostly associative and fragmentary and has large areas of stagnation, are of particular interest in terms of building business ties with EAEU companies.

The advantages are mutual.

The Eurasian Economic Union started developing contacts with Latin American countries back in 2012. The first arrangements on cooperation were achieved with Chile, an associate member of MERCOSUR.

Later, the Commission signed a memorandum on cooperation with Peru, also an associate member of MERCOSUR.

In late 2018, the Eurasian Economic Commission (EEC) and MERCOSUR signed a memorandum on cooperation in trade and economy on the side-lines of the MERCOSUR summit in Montevideo (Uruguay).

Promising Areas of Cooperation

The FTZ+ trade agreement format would appear to be the most suitable institutional basis for deeper economic collaboration between the EAEU and MERCOSUR. Such an agreement would involve in-depth integration, emphasizing reduced non-tariff barriers, an improved regime for trade in services and investments, measures to increase trade, regulatory alignment and standardization, and, most importantly, identifying promising areas of cooperation and creating special conditions for individual projects

RIAC Working Paper "EAEU Development Prospects up to 2025"

Without dwelling on such obvious contractual components as zero duties, customs cooperation, technical barriers in trade and sanitary and phytosanitary measures, etc., issues are proposed for consideration that may be debatable as far as the readiness of the parties to implement them is concerned, yet at the same time constitute particularly advantageous areas for mutual development.

Both the MERCOSUR and EAEU countries are interested in developing the following areas: marine research; bioeconomics research; renewable energy sources; etc.

Given the common interest in developing the above-stated areas, the strategic tasks of tapping the markets of MERCOSUR for EAEU businesses may be implemented by building similar institutional mechanisms.

The issue of technology transfer (TT) and innovations becomes ever more pressing, both on the bilateral level and on the level of global trade relations. With increasing frequency, this item is being put on the agenda of global forums such as the United Nations (UNCTAD), the World Trade Organization (WTO) and the World Intellectual Property Organization (WIPO).

MERCOSUR countries are also actively working in this area. Initially, the general policy on technology transfer was based on the South Korean model, with innovations introduced in major companies.

The trade aspects of e-commerce should clearly become a fundamental issue. The greatly increasing data flow in the cost and supply chain and the rapidly growing digitization of global trade that now involves millions of customers make this issue a priority.

Vectors of Collaboration between the Leading Countries in the EAEU and MERCOSUR

The research activities of individual MERCOSUR countries, for example Brazil (the organization’s economic leader), creates opportunities for implementing joint investment projects (for instance, in the mining industry).

“Joint manufacturing of machine tools in Russia is another promising cooperation project that in which Russia is greatly interested.”

However, some experts note [2] that the positive dynamics in the export of technological solutions is very weak due to the outdated contractual framework for cooperation between countries. The present scale of the presence of EAEU companies and the pace at which joint projects in innovations are developing are linked to the low level of state support for exports, unstable partnerships that in many cases stem from the absence of a long-term legal basis, and inconsistencies between collaboration plans and programmes and real results.

Conclusion

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Summing up, we can confidently state that the integration cooperation between the EAEU and MERCOSUR could become an example of a radically new cooperation format based on a FTZ+ trade agreement. The advantage of such cooperation will lie, among other things, in a “technological step forward compared to territorial and exclusive regionalism.”

It is apparent that the integration of integrations requires the creation of a contractual framework for the emerging trade and economic alliance. Such a framework could develop a network of promising joint projects buttressed by independent institutional platforms for each strategic area, which will create a micro-level foundation and thus boost the macro-level potential of the integration alliance.

Fitting such collaboration formats into the traditional order of the functioning of FTZs might shift the emphasis from trade liberalization to building a foundation for integration and cooperation.

A “pin-pointed” search for possible production collaborations and bilateral investment initiatives could become an effective way for pooling the parties’ efforts. The basis for deepening existing projects and launching new ones is already in place: major Russian companies are working actively in joint projects being carried out in individual Latin American countries and the Caribbean: Rostec, Rosneft, INTER RAO UES, Power Machines, KAMAZ, Russian Helicopters and VEB.

Ultimately, the performance results of such an intercontinental trade and economic project will depend on how effectively the strategic bilateral projects that are intended to ensure cooperation synergy and liberalize mutual trade are coordinated.

References

1. Top 10 Emerging Technologies of 2015. (Eds.) World Economic Forum’s Meta-Council on Emerging Technologies, Geneva, 2015.

2. Opportunities and Limits of Innovative Development in Latin America: joint monograph // Bobrovnikov A.V., Yermolyeva E.G., Lavut A.A., Nikolaeva L.B., Semenov V.L., Simonova L.N., Tayar V.M., Kholodkov N.N., Shcherbakova A.V., Yanushpolskaya M.V. Volobuev N.V. Мoscow: Institute of Latin American Studies of the Russian Academy of Sciences , 2017. 552 p.