Veronika Nikishina, minister of trade of the Eurasian Economic Union, discusses a new free trade agreement with Vietnam, as well as plans to expand the Union’s relationship with Singapore, China and other nations within the Asia-Pacific region.

Russian President Vladimir Putin meets with Vietnamese Prime Minister Nguyen Xuan Phuc on the sidelines of the ASEAN -Russia summit in the Black Sea resort of Sochi, May 19, 2016. Photo: Pool photo via AP

In late July, the Eurasian Economic Union (EAEU) ratified its first-ever free trade agreement with a country outside of the Union, Vietnam. To see what this development might mean for Russian plans to expand trade with Asia, Russia Beyond the Headlines talked to EAEU Minister of Trade Veronika Nikishina, who outlined what the Union has achieved in terms of cooperation with Asia-Pacific countries.

Recently the EAEU has received around 40 proposals for free trade agreements (FTAs) and quite a few of them from Asia-Pacific countries. Interestingly, practically all the countries of the Asia-Pacific region have FTAs with each other, a fact that encourages them to take a preferential trade regime for granted. Therefore, there is a certain interest of those countries in the EAEU market.

As Veronika Nikishina notes, “The fact that the EAEU market is not yet as deeply integrated into global economy as many others makes it rather attractive for numerous trade partners across the globe and in the Asia-Pacific region in particular.”

Despite no Asia-Pacific country having such a free trade agreement with the EAEU, they are interested in pursuing such an arrangement. “If the current rather protectionist regime is replaced with a more liberal one, the EAEU market would have a great potential for trade. This is perhaps what attracts Asia-Pacific countries,” suggests Nikishina.

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The FTA with Vietnam

In recent years, the EAEU has been concentrating on integration within its own borders, while integration with third countries was not a priority. The FTA with Vietnam, which was ratified only on July 28 (and will come into effect in October), became the first agreement of its kind for the EAEU with a third country. Nikishina characterized such development as a “mindset revolution,” as now the EAEU has started to change its approach and pay more attention to the markets of third countries.

However, critics of such an approach have been advocating against it even before this free trade agreement was signed. They warned that opening the EAEU market to Vietnamese goods would be a disaster for domestic manufacturers. Understanding such risks, Nikishina underlined that the EAEU took necessary measures to minimize them: “We decided not to cancel duties for commodities that are the most sensitive for EAEU countries. Duties on them either remain the same or are reduced with lengthy transition periods.”

She argued that before signing such an FTA with Vietnam, the EAEU had absolutely no competitive advantages on the Vietnamese market because other key trade partners – China, India, the U.S. and others – had signed similar agreements with Vietnam before the Union. “Once the FTA comes into force, the average level of duties on EAEU goods will drop from 10 to 1 percent. Thus, our goods will enjoy terms on the Vietnamese market that put us on par with our competitors,” argues Nikishina.

In particular, Vietnam has reduced or eliminated its import duties for the EAEU on 91 percent of its goods. Zero duties will apply to beef, dairy products, tinned fish, flour, cereals as well as to rolled steel, pipes, asbestos, ships, petroleum products and many other categories of goods. The duty on petrol will be reduced from 19 to 0 percent with a transition period; on cables, from 20 to 0 percent over a period of 10 years; for large goods and vehicles, from 17 to 0 percent. 

Vietnam has also agreed to partially liberalize access to its market for tobacco products from the EAEU, while automobile industry companies will be given exclusive access to the Vietnamese market.

In return, the Eurasian Union will eliminate its import duties on 88 percent of goods immediately or with a transition period of 5 to 10 years. Thus, Vietnamese producers will get preferential access to many consumer goods markets of the EAEU including clothes, shoes, fish, rice, fruits, vegetables, and consumer electronics.

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Prospects with ASEAN market

After signing the FTA with Vietnam, the EAEU is looking forward to expand its ties with other Asia-Pacific countries. “We are developing our integration roadmap and prioritizing potential partners guided by our advantages and risks and also with a view to smoothly adapt our countries’ industries to a new foreign trade regime. We have no intention of integrating for integration’s sake or doing it in retaliation for the establishment of regional trade blocs. As for the next countries on the list, this year we have signed memoranda of cooperation with Cambodia and Singapore,” says Nikishina.

Looking at the ASEAN as a potential economic partner, EAEU wants to extend its cooperation to its member states. With that in mind Eurasian Union sent an offer to sign a memorandum on cooperation to the ASEAN Secretariat but so far it found such a proposal not interesting. However, Nikishina argues that, “We have seen interest from individual member states. We are just at the start of this journey, but we are giving it our all.” The EAEU is currently carefully identifying individual countries, a set of bilateral agreements, which in the future might lead to a multilateral agreement.

With regard to Singapore, the EAEU intends to launch a joint feasibility study group before the end of this year in order to identify potential benefits for both sides, says Nikishina. Under the EAEU rules, before starting negotiations on a free trade zone, the results of this group’s work have to be presented to the leaders of the five EAEU member states and receive a mandate for further talks.

Although there are good prospects for cooperation with Singapore there are certain peculiarities that come along with it. The bulk of the EAEU member states’ relations with Singapore are based not in the transfer of goods but in services and investment. That is why a simple reduction of duties with Singapore will not benefit EAEU countries.

The EAEU’s exports to Singapore mainly consist of energy goods, says Nikishina, and duties in Singapore either already amount to zero or are very low. That is why there are actually no tariff barriers for the EAEU’s goods; there is nothing for Singapore to reduce any further. “Talking about Singaporean goods – albeit they are not very numerous on the EAEU market – they do need to have duties on them reduced,” argues Nikishina.

“We would be more interested in a free trade agreement with Singapore to include – in addition to duties – provisions on services and investment. However, under EAEU rules, services and investment fall under the competence of member states and the EAEU does not have a mandate for holding these talks,” resumes Nikishina.

Having said that, Nikishina suggests that it is probably the right time for the EAEU to evolve and to ask the leaders of the five member states whether they consider it possible to expand the EAEU mandate, perhaps not systemically but for individual cases, like with Singapore.

Will the EAEU open to China?

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During Vladimir Putin’s visit to China in June, the EAEU signed a cooperation agreement with Beijing. China, as the biggest economy and market on the Asian continent, is a very important economic partner for the Union.

At this stage the EAEU is preparing an economic cooperation agreement with China, not an FTA. Nikishina argues that the EAEU member states are not yet in a position for a deep market opening, so better starting positions must be created first, including greater transparency, and mechanisms to tackle high non-tariff barriers that are currently affecting EAEU exports. 

In fact, the EAEU did not have any regulatory relations with China since each member state resolved such issues individually, so the simple streamlining of dialogue with China will be a huge step forward. “First, we need to understand our differences with China when it comes to non-tariff regulations, and then find access routes and only then start discussing a free trade agreement,” suggests Nikishina.

“In terms of technical regulations, the issue is that our standards and procedures significantly differ and for our producers it happens to be a challenge to meet all the regulations of the Chinese market. Yet we lack a developed mechanism for trade facilitation in this regard. In order to address this problem, we will explore possibilities to elaborate on our standards and procedures in order to facilitate trade flows. Therefore, only after such mechanisms will be developed, the EAEU and China could start discussing a reduction in duties, otherwise it would be pointless,” concludes Nikishina.

Read the full version of the interview with Veronika Nikishina at Russia Beyond The Headlines.