Russia’s Position amid Emerging Trade Partnerships

The Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP) – the two global trading blocs under negotiation for several years with varying degrees of success – could form an architecture for regional cooperation that benefits the United States and its partners, while excluding Russia and China.

The prospect of a reduced economic presence resulting from its exclusion from global trade agreements prompts Russia to seek alternative scenarios to sustain its influence.

The Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP) – the two global trading blocs under negotiation for several years with varying degrees of success – could form an architecture for regional cooperation that benefits the United States and its partners, while excluding Russia and China.

Launched in March 2010 in Melbourne, the TPP process engages 12 countries with GDP of almost USD 28 trillion in total, i.e. about 40 percent of global GDP, and nearly one third of global trade. The alliance’s creation is a key point on Washington's trade agenda, not only due to potential gains but also because President Obama is focused on the TPP as part of his legacy, since the pivot to Asia and the emasculation of an increasingly influential China were among his key election pledges.

Washington seems to be in for a promising time through July, as its team led by Trade Representative Michael Froman is heading for talks with Malaysia and Singapore that could possibly be into the homestretch. After bilateral contacts, the main negotiators from 12 TPP participants will gather in Hawaii on July 24, and on July 28-31 the ministers will launch a final push to try to conclude the five-year-long dialogue.

Although there are plenty of skeptical forecasts signaling the talks’ failure, and information on U.S. bilateral negotiations is scarce, progress made in unifying trade rules among 12 member states indicates that, sooner or later, the agreement will materialize, as will the idea of the Transatlantic Trade and Investment Partnership, which has been mulled over since the 1990s in various different forms.

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TTIP talks officially began in June 2013, and are intended to bring together those economies that generate over one third of global trade and have a total GDP of over USD 35 billion, i.e. about 45 percent of the world's GDP. As far as Russia is concerned, the transatlantic agreement seems more menacing, as it may significantly complicate access of Russian goods and services to the common U.S.-European market. Harmonization of American and EU trade standards is fraught with new nontariff barriers for goods from outside, while third parties would need time and resources to adapt to this new situation. Any future treaty would also align the Russia-related policies of the United States and the European Union, meaning that any punitive measures, such as sanctions, remaining in place would be much more coordinated. If U.S. LNG and oil were to go to Europe, Russia would have trouble diversifying its economy due to reduced export revenues.

According to both U.S. and European experts, the TTIP may be signed while Obama is in office, i.e. before 2017. Currently, the sides are holding their tenth round of negotiations in Brussels, with modest expectations regarding the outcome. They are due to present revised hybrid rules for access to the services markets and to discuss (for the first time) rules governing the origin of goods in individual sectors. The absence of any visible progress does not mean the talks have stalled, but rather indicates the complexity of the problems faced and Washington's focus on the TTIP.

These developments seem to provide Russia with a period of respite, during which it can assess its role in the global system of trade relations, and search for scenarios of integration into emerging blocs and entering new markets. However, the available opportunities seem limited since the West remains deeply reluctant to view Russia as an equal trading partner, while new markets can only be found in those countries that are outside these global agreements.

Does Russia have any chance for development outside TPP and TTIP limits? No clear-cut answer is apparent in the immediate term. As for the Eurasian Economic Union (EEU) and BRICS, their cooperation potential remains great, but still has to prove its economic worth.

Importantly, U.S. trade with China (USD 590 billion), India (USD 67 billion), Brazil (USD 73 billion) and South Africa (USD 14.5 billion) in 2014 was several-times Russia’s trade with the same countries (China – USD 88.1 billion, India – USD 9.5 billion, Brazil – USD 5.7 billion in 2013, and South Africa – USD 1 billion in 2013). Consequently, the BRICS will have to factor-in U.S. opinions and stand to face ever more barriers in tracks for integration.

If the establishment of the EEU slows or the market becomes ineffective, access to the U.S.-EU free trade area, with its 800 million consumers, will appear more preferable than the 180-million-strong Eurasian space. At that point, the more promising TTIP should prompt border countries to sign similar agreements with the United States and the European Union, further aggravating Russia's economic isolation.

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The TTIP is capable of checking access to European and American markets for Russia and other EEU countries and converting the nascent Eurasian association into a market for Western companies that continue operating there, mostly without much success, due to sanctions.

Such trends would weaken Russia both economically and politically. The National Military Strategy of the United States for 2015 lists Russia and China alongside Iran and North Korea as countries "undermining regional security directly and through proxy forces." All have been placed under sanctions, while new agreements would tighten the restraints on their economic presence in any regions the U.S. chooses.

The TPP may also push China toward closer cooperation with Russia and the BRICS countries both in economic and political realms, which would not be a bad outcome in the current environment, while the TTIP would inflict enormous damage on Russia.

The West would be able to strengthen its global political role through economic mechanisms, and the agreement would serve as a basis for transatlantic cooperation to emasculate Russia.

U.S. politicians and strategists such as retired Admiral James Stavridis believe that the TTIP could become a symbol of U.S. and European unity in all areas including security, politics and trade. The U.S.-EU alliance would become a de facto model of Western values and standards, including human rights and the political system, which would detach Russia from countries orientated to the Western ideology.

Against this backdrop, Russia can work to retain its influence and bolster its political and economic positions not solely through the EEU and the BRICS but also by showing more flexibility toward the TTIP via gradual adaptation of intra-Eurasian trade rules. The U.S.-EU agreement could develop into a model open market, meaning that the closer Russia and the EEU move to this standard, the smoother their economic interaction would be in the new environment.