At a time when India is pursuing an ambitious trade deal with the US, the prospect of a free trade agreement with the Moscow-backed Eurasian Economic Union (EAEU) would appear somewhat odd. The EEU comprises Russia, Belarus, Kazakhstan, Kyrgyzstan and Armenia – former republics of the Soviet Union. Western critics have maintained that the EAEU serves an important geopolitical purpose for Russia, with its leader Vladmir Putin seeing it as part of his drive to re-establish the Russian sphere of influence lost by the dissolution of the Soviet Union.
The trade bloc is dominated by Moscow and maintains an active dialogue with BRICS, which challenges US-led global dominance, in the main areas of its international activities – trade regulation, digital economy, customs administration, industrial co-operation, transport, logistics and energy.
China and India are the largest trading partners of the EAEU. An agreement on trade and economic co-operation has been signed with China and there is a roadmap for its development. A free trade zone is now being contemplated with India.
Talks on such a deal could begin soon. “Negotiations on the free trade agreement should start this year,” said Andrey Sobolev, Russian Trade Commissioner to India, at an event in New Delhi recently. In the past few months, the terms of reference (ToR) for a potential FTA between India and the EAEU have been under discussion.
A trade agreement with the bloc would give India access to a resource-rich region, while also creating opportunities for Indian exports such as electronics and engineering goods. It would also allow India to counter China’s growing influence in the region.
The announcement comes at a time when an FTA between the EAEU and Iran has been operationalised. More than 9,000 categories of export goods from Iran are now subject to zero customs duty when supplied to EAEU member states. Representatives of the Islamic Republic are confident that, with adherence to standards and regulations, the agreement will lead to success.
The EAEU is working to establish a common financial market, independent payment infrastructure and stable settlements between Eurasian enterprises. In theory, it is an ambitious project for economic integration in the former Soviet region. Its formal objectives are to create a common market much like the European Union (EU), another trade bloc with which India is striving to seal a trade deal.
Modernising economies
It aims to achieve this by co-ordinating economic policy, eliminating non-tariff trade barriers, harmonising regulations and modernising the economies of its five member states.
A trade agreement with the bloc would give India access to a resource-rich region, while also creating opportunities for Indian exports such as electronics and engineering goods
However, western analysts say, the reality of integration between the five member states is cumbersome and patchy. The commission’s power is limited. Member states disagreeing with its judgements can appeal to other bodies, and the commission has no power to bring a member state before the court in a case of non-compliance. Disputes are often resolved bilaterally rather than via EEU institutions.
The type of technocratic infrastructure and common market that underpins the EU – and which the EEU sought to replicate – still does not fully exist. Generally, the ambition to progress towards a more sophisticated economic union has not been realised.
Russia is by far the largest member state and dominates the Union. This means that the trade model is a ‘hub and spoke’ with most trade taking place between Russia and each of the four other nations as opposed to between all five. This domination means that Russia is easily able to act unilaterally within the union.
Moscow has been pushing the idea of an India-EAEU pact for some time now. In fact, Moscow and New Delhi first discussed a potential trade agreement with the bloc in July last year, shortly before Indian Prime Minister Narendra Modi’s visit.
The need for an FTA with the trading bloc gained some salience within the commerce ministry, given India's substantial imports of petroleum from Russia, which have withstood American sanctions. Russia is India's top trading partner in the bloc. India exported goods and services worth $4.26 billion, while imports stood at $61.43 billion in the financial year ended March 2024. During the recent four-day war with Pakistan, Russian military hardware like the S-400 air defence system, the jointly produced Brahmos missile and the Sukhoi fighter jets played a key role.
It appears New Delhi’s dependencies have played a role in taking the trade pact with EAEU seriously.