Cross-purpose BRICS scheme

by Andrey Borodaevskiy

In the modern world, internationalization of economic life, aka globalization, goes hand in hand with a more far-reaching and concentrated form of international cooperation for which the term “economic integration” has been duly coined.

Among the recently created groups of countries claiming common objectives of an integrative nature is the association of five emerging economies called BRICS — the fanciful abbreviation for Brazil, Russia, India, China and South Africa. The latter joined the original grouping of four in 2011 at their third summit in Sanya, China.

Thus, today the pyaterka (“five”) includes two Asian countries, one Eurasian (“Mother Russia”), one South American and one African. The BRICS group occupies one-quarter of world land and represents about two-fifths of the planet’s population. It boasts a combined nominal GDP of $14 trillion to $15 trillion and an estimated $4 trillion in accumulated foreign reserves.

According to some estimates, by mid-century, the cumulative potential of the BRICS economies may exceed that of the “Big Seven.”

Yet, does BRICS really represent an integration system with cooperative potential of its own? Does this potential reach beyond what could be typically achieved by trading partners involved in ordinary commercial transactions?

This is doubtful. Rather, it looks like this heterogeneous grouping of ambitious world players represents an artificial construction, and its introduction has been dictated mostly by transient political considerations.

It is well known that international economic integration can take various forms. It figures first of all as a regional phenomenon such as the European Union or the North American Free Trade Agreement.

Aside from a regional (neighborly) framework, integration processes can also be seen at play in some economic sectors of countries that are divided by deep ocean waters and by centuries of quite different historical experiences.

For example, the giant economy of China has expanded and modernized with the active participation of European, American and Japanese transnational corporations.

North American auto-making and some other high-tech sectors survive cutthroat global competition only by intercontinental outsourcing, relocating some component production to China, and by massive foreign direct investment in its manufacturing. The resulting flows of goods are hardly of a traditional commercial nature. Rather, they service production cooperation ties with the help of ramified outsourcing networks.

These are cases of functional integration, or “twinning,” which represents quite a new form of international economic integration in a globalized high-tech-minded world. We cannot find any traces of such twinning within the BRICS group. Commercial trade is rather modest in volume, mutual investment flows are insignificant, and production cooperation ties are almost completely absent.

China — the world’s No. 1 trader since 2012 — has become Russia’s biggest trading partner (pushing Germany into the second position). However, the absolute size of China-Russia trade turnover ($88 billion in 2012) falls below what one might expect between the two giant Asian neighbors. By comparison, China’s trade with the Association of Southeast Asian Nations (ASEAN) in 2012 exceeded $400 billion.

Structurally BRICS represents a clear case of economic complementarity. Two countries (China and India) are net importers of various resources, while the remaining three are among the world’s major exporters of industrial materials (Russia, Brazil and South Africa). The absence of developed cooperative ties and growth in commercial turnover within the group may only perpetuate existing structural differences.

The Russo-Chinese future is often described as a “union between the horseman and the horse.” No wonder, then, that in the absence of adequate integration potential, four out of five BRICS members are involved in integration schemes in their own regions.

Brazil is one of the initiators and founding members of Mercosur, perhaps the most successful integration system in South America. China is in more than one accord of an integrative nature with ASEAN. India is involved with the South Asian Association for Regional Cooperation (SAARC) and the SAARC Preferential Trading Arrangement. India also participates in the ASEAN-Plus-Six group, which launched the Regional Comprehensive Economic Partnership talks in 2012. South Africa so far is not involved in any regional free trade-type schemes.

In the area of the former Soviet Union, many integrative initiatives have been tried with various degree of success. Among them, the Eurasian Economic Community, set up in 2000 and expanded in 2005, remains more or less nominal but has the widest membership — including Belarus, Kazakhstan, Kyrgyzstan, Russia, Tajikistan and Uzbekistan. Since 2010, they have joined forces to create a Common Economic Space, while the core — Belarus, Kazakhstan and Russia — have established a Customs Union of their own.

Additionally, in 2011, Russia signed an agreement with Kazakhstan and Belarus setting an ambitious target of establishing the Eurasian Union by 2015.

On first glance, the integration processes in the area of the Commonwealth of Independent States (CIS) look fine. The trouble is, all the participants in several Eurasian projects come out of one barrel, representing the same backward and lopsided economic pattern. To overcome these weaknesses, Russia needs different twinning partners from non-BRIC states — EU countries, the United States and Japan.

Among the BRICS, there is an ambitious intention to create a global financial institution that would rival the U.S.-dominated International Monetary Fund. Just as ambitious but much less realistic is the idea to introduce a new global reserve currency as a counterweight to the U.S. dollar and the euro. At the 2012 summit in New Delhi, the proposal to set up a joint development bank capable of rivaling the World Bank was discussed in positive terms.

Such common projects of clearly geopolitical coloring coexist with national policies that often mirror rather than contradict political interests. For example, China has repeatedly rejected backing India’s aspirations to gain a permanent U.N. Security Council seat.

True, since 2011, China seems to have given up on this negative position — a move that perhaps can be interpreted as a sign of emerging BRICS solidarity. Nevertheless, there is a lot dividing these two great Asian nations.

For one, the democratic foundations of Indian society contrast strongly with China’s rigid totalitarian system. There are predictions that India will economically overrun its main neighbor and rival by mid-century, which cannot please China’s Communist elite. A head-on military confrontation over territorial claims is regarded by both sides as something unwelcome but cannot be ruled out.

At Yekaterinburg, Russia hosted the first formal summit of the then BRIC group of four in 2009, appraising this loose association as a useful political forum.

The Russian Federation, while strongly dependent on the Chinese market for exporting its raw materials, is very afraid of eventual Chinese penetration of its Siberian and Far Eastern regions.

In Brazil, the same ambiguous attitude prevails: Investment and cheap imports from China are profitable but dangerous for the local economy while the undervalued yuan is regarded as perilous for exports.

In geo-economic terms, the BRICS countries have some common interests, but they are also ardent rivals in many markets. For such a combination, a neologism — “cooperative competition” (or “coopetition”) — was coined. They trade among each other, but more important are their ties of cooperation with world economic and technological leaders (to eventually secure twinning).

Such is the plain truth, even if some of the BRICS rulers do not realize it (like is obviously the case with Russia).

Geopolitically their interests may vary dramatically especially in the future, notwithstanding the small talk about BRICS as a “political club.”

Just look at the pairs: Russia and China with their striking disparities, tremendous Siberian riches and the world’s longest land border; India and China, the two main Asian rivals of the 21st century; Brazil and China, both obsessed with high-tech and dreams of leadership, at least in South American markets; India and Russia with very different structural characteristics and development trends. The aspirations within each of these pairs are hardly compatible; in some vital spheres, they are opposite.

A famous Russian fable written in the early 19th century by Ivan Krylov tells of a swan, a crawfish and a pike trying to move a heavily loaded cart. Quite naturally, there is no movement, because they cannot achieve a mutual understanding and a workable accord. “The swan is tearing to the clouds, the crawfish moves backward, and the pike draws into water.”

The BRICS group appears to have much in common with the characters of this instructive fable.

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