By Maxfield Brown
The Eurasian Economic Union is actively working to improve its trade relationships with ASEAN members ahead of the ASEAN Economic Community’s completion this December.
Speaking on the sidelines of the 47th ASEAN Economic Ministers meeting, Russian Economic Development minister Alexei Ulyukayev revealed EAEU plans to “accelerate the (FTAs) process” within ASEAN. Following the union’s first FTA with Vietnam in May, Ulyukayev cited strong growth and confidence in the AEC’s common market as the primary reasons for the EAEU’s ASEAN focus.
Formed in January 2015, the EAEU boasts a common market comprised of five nations (Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia), 176 million people, and a gross domestic product of 2.5 trillion dollars. Trade between the regions has also been on the rise in the past years. Since 2007, volume has more than doubled exceeding 20 billion in 2014.
The size of the EAEU and its importance in world trade have not gone without notice. According to Minister Ulyukayev, “More than 40 countries and international organizations have expressed interest in establishing a free trade zone with the EAEU — China, Indonesia, Thailand and Cambodia” included.
With an FTA being discussed and trade increasing rapidly, Thailand is likely to be the next ASEAN member state to finalize an agreement with the Eurasian Union. Russia’s minister of industry and trade, Denis Manturov has indicated the EAEU is awaiting a proposal from Thailand to start “concrete discussions”, with hopes of a finalized agreement by the end of 2015. If reached, such an agreement would reduce tariffs on a trading partnership that has doubled since 2007 – reaching a total of 5 billion dollars in 2014.
Thailand’s top export to the EAEU – automobiles – would benefit greatly from a combination of decreased tariffs levied by EAEU members, and more competitive pricing on imports from the Eurasian Bloc such as iron, steel, and fuels. The specifics of these “sensitive industries are slated to be decided during separate discussions scheduled for late 2015.
With regard to taxation, Thailand currently has double taxation agreements (DTA) in place with two of the EAEU’s five members – Russia and Armenia. Limiting the potential of overlapping taxation on personal and corporate income, these agreements account for 97 percent of Thailand’s trade with the EAEU and would allow businesses to take full advantage of the falling costs of trade associated with any future FTA.
As the biggest economy in ASEAN and one its most influential members, the EAEU has been quick to realize the importance of improving trade relations with Indonesia. Following high level meetings between Belarus and Indonesia in late May, Chairman of the Belarus National Assembly, Mikhail Myasnikovich voiced confidence in the “prospects of cooperation between the Eurasian Economic Union, of which Belarus is a member, and ASEAN countries where Indonesia’s economy is one of the largest and determines the policy of the region to a great extent.”
As of 2014, trade between Indonesia and the EAEU stood at 2.8 billion dollars, having increased by 249 percent since 2007. A future trade agreement would be of particular importance for Indonesia’s top exports, such as palm oil, that already make up a large portion of its trade with the Eurasian Union. On the Eurasian side, decreasing tariffs would allow for increased assess of fertilizer, fuels, and steel to a rapidly growing Indonesian economy.
Amplifying the impacts of a future trade agreement, Indonesia has a double taxation agreement with Russia covering 92 percent of Indonesian trade with the EAEU. Ambitious efforts to increase trade with other EAEU states – such as Belarus which hopes to bring trade with Indonesia to 1 billion dollars by 2018 – may increase the prospects for double taxations agreements in additional members of the Eurasian Union.
High level dialogue between EAEU member states and Cambodia has set in motion the precursors for trade liberalization between the Eurasian Union and its South East Asian counterpart. The recent visit to Phnom Penh by Kazakh Deputy Foreign Affairs Minister, Askar Mussinov was met with enthusiasm by Cambodian officials who expressed interest in deepening their trade relations with the EAEU. Furthermore, commitment on both sides to talks aimed at deepening bilateral ties increases the prospect that double taxations agreements could be implemented in the near future.
If reached, a FTA between Cambodia and the EAEU would create significant opportunities for producers in two economies that have yet to establish close trading relationships. Cambodia’s primary export of textiles could gain traction as a lower cost alternative to Vietnamese made goods, while Eurasian energy exporters would gain greater access to an economy that has been growing at an average rate of 6.4 percent since 2007.
ASEAN and the EAEU
As the AEC moves closer to completion, it is likely that the EAEU’s efforts to liberalize trade with ASEAN will only intensify. Taking advantage of the opportunities that this presents will require a firm understanding of future FTAs as well as any bilateral arrangement that work to enhance their effectiveness. It is therefore recommended that companies hoping to expand within or service these markets gain as much knowledge as possible about existing bilateral arrangements and possibility of future agreements.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email firstname.lastname@example.org or visit www.dezshira.com.
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