Russia’s cooperation options for design of a trade scheme

by Andrey Borodaevskiy

Nowadays the trend toward trade and investment liberalization is developing under restraints of the opposite — protectionist — tendency strengthened by the shaky and unpredictable world situation, which in turn was created by the global financial and economic crisis.

In search of free trade options, the global economic community has worked out various approaches — multilateral (first via the World Trade Organization), regional (as in the European Union or the North American Free Trade Agreement) and bilateral (between individual countries of the same or of different regions).

Thus, nowadays, each country has at its disposal a choice of policies — some traditional and some quite new and sometimes unusual.

For example, for decades Japan has given absolute preference to the widest WTO approach and practically ignored all other options. As a result, by the turn of the century it found itself in the precarious position of the one and only major industrial nation without “its own” free trade system crated on a regional or bilateral basis.

Building up its mighty production capability spread offshore, Japanese manufacturing firms have relied on the general conditions established by the WTO and International Monetary Fund. The bilateral approach manifested itself only in rare cases of open and acute disputes — as in the several “trade wars” between Japan and the United States during the 1990s.

Even when a new era of “minilateral” trade pacts dawned on East Asia in 2000, Japan — initially — showed reluctance to follow suit.

However, since the shaky start of the Doha round of multilateral negotiations in 2001 and the hopeless procrastination since then, Japan has resolutely changed its approach. Even before the financial crisis broke out and the exchange rate of the Japanese yen soared to unheard-of heights, considerations of price competitiveness began pushing Japan to quickly add to the “spaghetti bowl” of bilateral free trade arrangements.

On this note, the economic partnership agreement (EPA) between Japan and the 10-member Association of Southeast Asian Nations (ASEAN), concluded in 2007, looks somehow less important — from the standpoint of practice — than the bilateral pacts. Its real meaning can be better understood in a geopolitical context, as part of Japan’s strategy for Sino-Japanese rivalry in Southeast Asia and beyond.

In this context we should also analyze the invitation of Japan to the Trans-Pacific Partnership negotiations. The TPP initiative is — for Japan at least — mostly about its relationship with the U.S. All in all, it is a risky enterprise in which not only Japan’s agriculture may suffer but also some services such as health care, legal services (barristers) and dozens of other sectors.

One thing, however, that explains a lot about Japan’s positive stance toward this new multilateral arrangement (like the Japan-ASEAN EPA case) is the fact that China is not among the countries invited to discuss TPP membership.

In contrast to the Western world, the Soviet Union mostly ignored the historic trend toward multilateralism, practicing a Moscow-centric approach to international economic relations.

The Council of Mutual Economic Cooperation (the notorious COMECON) served as a tool of strict administrative control over economic processes in what used to be called the “Eastern Bloc.”

After the sudden disintegration of the Soviet empire (together with COMECON), Russia and its former “brethren” came in for chaotic ad hoc trading policies. Centrifugal forces within the former “Socialist camp” have reigned supreme. Schemes for naturally integrating within the Community of Independent States (CIS) were adopted, but they were skidding. Those were trade agreements, almost exclusively bilateral, that created the legislative base for Russia’s foreign economic relations.

Almost two decades of halfhearted attempts to join the pre-WTO and current systems have not brought results. During the current year, however, Russia’s leadership has introduced a renewed and more active approach to the country’s foreign economic relations.

In the past two months, Prime Minister and soon-to-be-President (again) Vladimir Putin has demonstrated a tour de force in international politics by arranging several important collective steps toward tighter economic cooperation within CIS, as well as by preparing an eventual breakthrough in the intricate challenge of obtaining WTO membership. Since the initial signing on Oct. 18-19 of an entire package of documents related to integration, developments within the framework of the CIS have been gaining new momentum.

On Nov. 18, the presidents of three CIS countries — Belarus, Russia and Kazakhstan — entered an agreement to create a Eurasian Economic Commission — a supranational body that will gradually take over national regulating functions and thus contribute to the establishment of the Eurasian Economic Union.

In a television interview, Belarus President Alexander Lukashenko boasted that this goal can be achieved ahead of schedule — by 2013 (instead of 2015). Thus Putin’s political focus on the framework of CIS has been reconfirmed.

At the same time, there still are no signs of “twinning” between Russia and any major world economic power — neither in the Western (European) direction nor in East Asia.

Trade with China is rapidly growing but remains mostly commercial by nature and structurally lopsided. As a result, it hardly can lead to full-scale industrial cooperation and the emergence of a genuinely integrated system. Geopolitical elements in Russia-China relations visibly prevail over geoeconomic considerations.

Generally, Russia is very much interested in widening its eastern contacts, including through enhanced intraregional cooperation in East Asia.

Describing Russia as a “Euro-Pacific” country, the Russian Council for Security Cooperation Organization in the Asia-Pacific has put forward the slogan “Lean on the West, stabilize the South and go East.”

It seems that the Kremlin prefers a multidirectional foreign policy and foresees further “Asianization.”

As of late, Russia — together with the U.S. — has joined the 18-county-strong East Asia Summit. And in 2012, Vladivostok will host the next Asia-Pacific Economic Cooperation forum meeting.

Both events manifest Moscow’s attempts to better define its role in the Asia-Pacific super-region and to avoid the risks of being sidelined.

Obviously, Russia would like to become a flexible player in setting up the future regional architecture. In addition to contacts within the newfangled “BRICS” group — Brazil, Russia, India, China and South Africa — and the already well-established Shanghai Cooperation Organization, Moscow has been studying opportunities offered by the concepts of the East Asian Community (put forward by Japan), the Asia Pacific Community (a term coined in Australia), and the “ASEAN Plus Three” product (which adds China, Japan and South Korea, with China emerging as the major driving force).

In my view, it would be wise for Moscow to design its own international cooperation scheme along the lines of a “Russian Asia mega-project,” already partly discussed in these pages. At the same time, it is obvious that, in order to achieve real success in the “eastern” direction, Russia must secure a long-overdue normalization of its relations with Japan.

Andrey Borodaevskiy (annabo36@mail.ru), an expert on world economy and international economic relations, was a professor at Seinan Gakuin University, Fukuoka, in 1994-2007.