EAEU as a factor of stress resistance of the Russian Federation in Greater Eurasia

The expert opinion was prepared following the WEF-2022 session “Great Eurasian Partnership: Pathways for Economic Development”.

The military-political crisis in Europe and the large-scale economic war launched against Russia by Western countries have a direct impact on the entire configuration of foreign economic relations between Russia and the Eurasian Economic Union. This association was originally created as a tool to increase the international competitiveness of the participating countries based on the main institutions and practices of the international order based on universal openness and globalization.

Now these basic conditions are fundamentally changing — attempts to "turn off" Russia is one of those production-investment and financial-logistics chains on which the US and EU countries can exert a decisive influence. In this regard, the financial, trade, economic, institutional, transport and logistics opportunities associated with the development of the EAEU and its common market, the continued participation of Kazakhstan, Kyrgyzstan and Armenia in those institutions of globalization from which the West is trying to separate Russia are acquiring new significance.

If earlier cooperation within the framework of the EAEU was considered rather as an additional opportunity, now it is through it that it is possible to solve problems that are relevant for increasing Russia's resistance to sanctions and its scientific and technological development, expanding trade with third countries, gaining access to technologies, logistics solutions and financial markets. Eurasian economic integration can bring real benefits to Russia in modern conditions. The institutional and regulatory framework of the EAEU is currently less toxic compared to the jurisdiction of individual member countries of the Union and may be politically more acceptable for the Russian Federation in terms of sanctions restrictions and foreign economic and regulatory formats of interaction with foreign partners.

In addition, it is the EAEU that currently, thanks to its infrastructure and regulatory resources and the ability to absorb sanctions and other external economic shocks, represents the core of the Greater Eurasian Partnership (BEP) concept and a key tool for enhancing the integration potential of the BEP. This was actively discussed during the WEF-2022 session "The Greater Eurasian Partnership: Pathways for Economic Development". In the case when we are talking about the direct possibilities of using the EAEU, it would be advisable to consider the following areas for enhancing cooperation: the development of alternative financial mechanisms, the conclusion of new preferential agreements with friendly countries, the development of institutional mechanisms for Eurasian integration and the formation of a common transport and logistics system of the EAEU.

Financial instruments

The introduction of new tough financial sanctions against the Russian Federation, including the disconnection of a number of national banks from the SWIFT system, leads to losses in the national financial jurisdiction. In this regard, we should expect more close attention to transactions from the US supervisory authorities, and the expansion of the list of sanctioned companies of the Russian Federation as the special operation continues. In addition to the fear of foreign partners of the Russian Federation to fall under the "secondary" US sanctions Another tangible challenge for the Russian Federation in connection with sanctions in the financial sector is the technical impossibility of companies and organizations from third countries to carry out financial transactions or enter into commercial transactions in dollars and euros with sanctioned banks and Russian enterprises.

For this reason, a promising direction for increasing the stress resistance of the Russian financial system through the infrastructure of the EAEU is the development of alternative financial mechanisms using settlements in national currencies, including the creation of a Eurasian payment system for further settlements with third countries. The development of such mechanisms will allow the financial systems of the EAEU countries to be more resilient to external economic shocks.

In addition, in the context of tightening sanctions pressure, it is critically important to provide alternative mechanisms for investing in infrastructure projects and replacing the falling investments of international institutions. This is possible, first of all, by strengthening cooperation within the framework of the EDB by strengthening the pool of national foreign exchange reserves both within the institution and in partnership with third countries, and by creating a digital bank for settlements between the Union member states and corporations of the economic space, which will act as a tool for the implementation of joint projects.

Trade and economic instruments

Unilateral sanctions from unfriendly countries are forcing the EAEU to more systematically reorient itself towards non-Western partners, primarily Asian ones. Given the current trends, there are objective prerequisites for China to oust the EU in the near future and become the largest trade and economic partner of the EAEU. This circumstance will become a new long-term factor influencing the dynamics of Eurasian integration. In this regard, an important task for Russia and its partners in the EAEU will be the structuring of inevitable relations with China and the regulation of trade, economic and investment ties with it in new formats. One of these could be the signing of an Interim Agreement leading to the formation of an FTA with China, similar to the deal with Iran, which has already entered into force.

Earlier, the EAEU member countries, especially the smaller ones, have repeatedly torpedoed the idea of concluding a preferential agreement with China, fearing an influx of cheaper and more competitive Chinese products on national markets. These concerns persist today, as does the problem of using various protective and anti-dumping measures against goods from third countries. In this regard, it is already important for Russia to carry out systematic work to reduce these fears in the EAEU countries and lobby for a deal with China, appealing to potential gains and protective mechanisms to hedge possible risks.

Institutional Instruments

Expansion of foreign trade competencies of the EEC

After February 24, 2022, the issue of expanding competencies within the framework of the EAEU institutions will be different. If earlier talk about the importance of empowering the EEC with new competencies in the field of foreign trade was reduced to promoting the general idea of strengthening the supranational component of integration, now this is becoming a real way to support the foreign economic interests of the Russian Federation. Instrumentally, the key task of such a step — maintaining the inflow of FDI from foreign countries and the export of services to the Russian Federation. The logic behind this solution is simple — currently, negotiations on services and investments with third countries are within the national competence of the member countries of the EAEU.

The conclusion of an FTA between Russia and a number of friendly countries on investment and services in a bilateral format will be complicated due to the states' fears of falling under the fire of "secondary" sanctions. Apparently, things will be different with partners from the list of unfriendly countries. The negotiations started in 2019 with the Republic of Korea on services and investments are questionable. In all likelihood, at least indefinitely, they will be frozen. A similar scenario could happen with Singapore, which in the same 2019 signed a preferential agreement on goods with the EAEU with an eye to further signing an FTA on services and investments with each member country of the Union separately. However, after the introduction of sanctions and generally harsh rhetoric against the Russian Federation by Singapore, this issue will apparently be removed from the agenda. For these reasons, the transfer of negotiations on services and investments to the supranational level fully meets the foreign economic interests of Russia and allows us to count on the continued inflow of FDI and technology from friendly countries with a lower risk of falling under sanctions.

Transport and logistics tools

Due to sanctions pressure, the transport and logistics system of Russia, in particular the northwestern seaports, as well as the ports of the Black Sea basin, faced various restrictions. The main one — most of the cargo that cannot be sent to Europe due to sanctions may be in demand in the Asian direction. However, the redirection of goods to Asia is hampered by a set of problems, primarily the lack of infrastructure in the eastern and southern directions. In such a situation, the importance of building up the transport and infrastructure potential of the EAEU countries through the formation of a common transport and logistics system of the Union is growing.

In particular, the development of border crossings, the modernization of transport corridors, new logistics facilities in Russia and the EAEU countries, as well as the integration of the transport and logistics complex within the Union, are of critical importance in the new conditions. In the development of transport corridors, emphasis should be placed on improving the logistics infrastructure of multimodal container transport, combining sea and land transport. Of the land transport options, the best option is the development of rail transport. There is also a need to use targeted instruments to ensure the potential for integration between Russia and the EAEU in the field of transit container transportation, with a focus on rail transport.

Conclusion

Summarizing, the unprecedented increase in sanctions pressure against the Russian Federation by the collective West creates direct and indirect risks for the Russian economy and building foreign economic relations with foreign partners.

The first group of risks is associated with the deterioration of the socio-economic situation in the Russian Federation, disruptions in the supply of export and import products, the continued high dependence on imports of a number of goods and components, primarily products with high added value. The second group of risks is associated with the fear of friendly countries to fall under the "secondary" sanctions in the event of an increase or continuation of trading operations with companies from the Russian Federation, as well as technical difficulties during transactions as a result of the introduction of financial restrictions on a number of Russian banks.

The totality of the presented restrictions forces Russia to build alternative directions and mechanisms of interaction in the shortest possible time both in the domestic market along the lines of «state — business entities" and with the outside world to reduce the negative impact of sanctions. For political reasons, the further development of a business dialogue with Western countries becomes practically impossible in the foreseeable future, and the activation of a bilateral track with friendly countries, at least for a while, will be difficult for these reasons. In this regard, there is a growing demand for Russia to use the EAEU tools in its foreign economic strategy due to the formal positioning of the association as an alternative platform and the established infrastructure of the Union. However, it is important to understand that the Union is only one of the tools, the skillful use of which will help the Russian Federation to partially solve a number of the most sensitive tasks.