The Customs Union: Is There a Place for Asia?

When talking about the desire of a number of countries to expand their cooperation in trade and manufacturing with the countries of the Customs Union and to sign a free trade zone agreement with it, we should note that official talks on this subject are currently only taking place with Vietnam. According to Cao Quoc Hung, Vietnam’s Deputy Minister of Industry and Trade, the two sides have already reached the agreement on issues concerning the exchange of investment and services.

When talking about the desire of a number of countries to expand their cooperation in trade and manufacturing with the countries of the Customs Union and to sign a free trade zone agreement with it, we should note that official talks on this subject are currently only taking place with Vietnam.

According to Cao Quoc Hung, Vietnam’s Deputy Minister of Industry and Trade, the two sides have already reached the agreement on issues concerning the exchange of investment and services. And the Russian Federation’s Deputy Minister of Economic Development, Alexei Likhachev, believes the document itself could be signed by the end of 2014 [1]. It is worth recalling that these talks are proceeding with the agreement of ASEAN, since according to its Charter a member country may not create a free trade zone with another state without the approval of the bloc’s member states and of the Association’s leadership. The Russian side assumes that a free trade zone with Vietnam would not only make it possible to achieve a substantial increase in mutual investment and trade networks (trade between the countries amounted to only about 4 billion dollars in 2013) but also be a “bridge” for more active development of the Customs Union countries’ economic ties with the other ASEAN member countries. The Vietnamese side is also interested in modernising its port and railway network, as well as in building a railway between Vietnam and Laos. Underlying geopolitical considerations are also playing quite an important role in these talks. Vietnam is sandwiched between China and the USA and its allies (Japan, South Korea, Taiwan) and, not wishing to side with either of them, it is trying to strengthen its cooperation with third parties. Russia and the other countries of the Eurasian Economic Union, in turn, are interested in expanding their trade flows into East Asia.

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President Nursultan Nazarbayev of Kazakhstan stated during the 24 October 2013 meeting of the Eurasian Economic Council in Minsk that Turkey’s Prime Minister Erdogan was showing interest in joining the Customs Union [2]. At a meeting in St Petersburg in November 2013 Erdogan confirmed at least his desire to sign a free trade zone treaty with the Customs Union [3]. It would seem that the economic interests here are huge – primarily the need to transport at least part of Russia and Kazakhstan’s hydrocarbons to the EU via Turkey. But these mainly go in the direction of China, and their quantities will only rise in view of the contracts signed with the PRC in 2013–14. Only Russia can achieve a partial increase in its gas exports to Europe via Turkey. Thus the two countries’ leaders confirmed the construction of the maritime section of the South Stream pipeline in the Turkish economic zone in 2015, which had previously been postponed because of Mr Erdogan’s stance [4]. Another major economic interest has recently emerged – nuclear power. Construction of the first Turkish nuclear power station in Mersin Province has already been agreed. The chief contractor is Russia, with the main investment in the project of 22 billion dollars [5]. In geopolitical terms this step by the Turkish prime minister also makes complete sense. It could serve as an answer to the European Union for its refusal to consider Turkey an equal partner. Ankara’s position on many global and regional political issues coincides with those of the other Customs Union countries, and in view of the Turkish prime minister’s visit to Iran there may be some common ground on Syria too. And if Moscow proposes a clear programme of cooperation using the potential of the Eurasian Economic Union, Turkey may start the process of creating a free trade zone and perhaps a wider cooperation format. The main pressure points in this could be Armenian–Turkish relations and the confrontation between western countries and Russia over the Ukrainian question.

At the 17th St Petersburg Economic Forum in June 2013 the Indian delegation also initiated a process of negotiations on India’s entry into the Customs Union. However, no documents were signed. India is very interested in expanding trade and economic cooperation with Russia and Kazakhstan primarily. There is also talk of cooperation in the fuel and energy sector, the military-industrial complex and other fields.

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It is a feature of this cooperation with the Customs Union that these countries do not share borders with the new trading association. The world has never yet seen a Customs Union without a shared land border, between countries linked only by the sea. This will possibly be a format for cooperation of a new type.

According to Viktor Khristenko, Chairman of the Eurasian Economic Commission, this will not be partial integration, and it really is about India and Vietnam fully joining the Customs Union, including bringing their internal legislation in line with the Customs Union’s regulations, and about them becoming members of the Eurasian Economic Union as this integration deepens [6]. These are long-term prospects, however, and the mechanism for such cooperation has not yet been designed or legislatively prepared within the Customs Union or moreover within the Eurasian Economic Union. It is possible that the processes of setting it up will be accelerated in view of the changed situation in the international economy and politics – the development of processes in the BRICs, the emergence of partial trade in national currencies in regional energy markets, etc.

It would be premature to speak of other countries displaying an intention to sign free trade zone treaties with the Customs Union (Israel, Egypt, New Zealand etc). The possibility of this happening is tied up not so much with economic interests as, primarily, with the resolution of complex regional confrontation issues, for example the Ukrainian problem, Middle East issues, etc.

1. Baliyev, A, “A bridge to ASEAN”, Rossiyskaya biznes-gazeta, 2014. 20 May, No. 948 (19). // http://www.rg.ru/2014/05/20/torgovla.html

2. Turkey has not yet submitted an application to join the Customs Union. Kursiv. kz. 2013 7 Nov. // http://www.kursiv.kz/news/details/vlast/Turtciya-ne-podavala-zayavleniya-o-vstuplenii-v-TS/?auth_service_id=Twitter&auth_service_error=1

3. Erdogan stated Turkey’s desire to join the Shanghai Cooperation Organisation. Baltinfo. 2013. 22 Nov. // http://www.baltinfo.ru/2013/11/22/Erdogan-poprosilsya-u-Putina-v-Shankhaiskuyu-organizatciyu-sotrudnichestva-392603

4. Skabeyeva, О. Turkey moving closer to Russia. Vesti.ru. 2013. 22 Nov. // http://www.vesti.ru/doc.html?id=1158659&cid=9

5. Idem

6. “A new global empire: India and Vietnam want to join the Customs Union”. HeadLines news channel. 2013. 13 Aug. // http://365news.biz/news/analitika/64-novaya-mirovaya-imperiya-indiya-i-vetnam-hotyat-vstupit-v-ts.html