Russia looks east for business; cool on US-led Asia trade group

By bne IntelliNews August 30, 2012

Ben Aris in Moscow -

On the eve of the 21-member Asia-Pacific Economic Cooperation (Apec) summit, scheduled for September 8-9, Russia is making it clear that it wants to scale down relations with the West and throw in its lot with the rising economies in the east.

Apec, a forum for 21 Pacific Rim countries that counts both Russia and the US as members, is a key piece in this diversification strategy. Russia won't abandon western markets, but as it exports little other than raw materials it is indifferent to where these resources go. The politics of hate that have marred the West's relationship with Russia is coming back to bite and Russia is now actively trying to build an alliance with the east that excludes the US.

Russia wants to increase business in the Asia-Pacific region through Apec, First Deputy Prime Minister Igor Shuvalov said on August 28. But Moscow sees no place in Apec for the Trans-Pacific Partnership (TPP), a grouping of nine Apec countries, championed by President Barack Obama, that are trying to negotiate an agreement which will enhance trade and investment among the TPP partner countries, promote innovation, economic growth and development, and support the creation and retention of jobs.

"We don't share the conviction of the Americans of the need to build a trans-Pacific free-trade zone," Shuvalov told a news briefing before a regional summit that Russia will host early September in the eastern coastal city of Vladivostok, reports Reuters.

The dismissal by Russia of the TPP follows President Vladimir Putin's snub earlier this year of the G8 meeting, sending Russian PM Dmitry Medvedev in his place. Obama will not go to Apec and is sending Secretary of State Hillary Clinton instead. US Trade Representative Ron Kirk has also said he won't attend the Apec event.

Trading places

The summit will mark a crystalising of two rival groups trying to build trade ties within the booming Asian region. Members of TPP now include the US, Australia, New Zealand, Peru, Chile, Singapore, Malaysia, Vietnam and Brunei, with Canada and Mexico due to join the talks in the coming months. The key to the whole game lies with China, which has yet to join the TTP talks; TPP won't have much relevance without the region's export powerhouse as a member. Russia would, of course, prefer it if China remained solely in Apec and didn't join TPP.

Trade is emerging as the key global theme for the next few decades. The growth of trade has been growing exponentially in the last two decades, according to a report from Goldman Sachs at the start of this year, and the fastest growing channel of trade runs between China and Europe, over Russian territory.

Increasingly, Russia seems to be making a play to become the highway that connects the two, and Moscow has explicitly made transport and infrastructure one of the agenda priorities of its one-year chairmanship of Apec as well as the central plank to its development strategy running through to 2020. "If we set ourselves the task of diversifying our economy, reducing our resource dependency and being much more valuable to different economies, then the balance of our trade must change," Shuvalov was quoted by Reuters as saying. "At least 50% of our trade should come from the Asia-Pacific region... because the investment and trade potential of these countries has not been one-quarter realised."

Currently, half of Russia's exports go to Europe, with Apec countries taking just under a quarter over the first half of this year, according to Rosstat. What Moscow is talking about is dramatically altering this relationship, turning it on its head. Exports within the Apec members will nearly treble to $14.6 trillion by the year 2021, according to consultants PwC, while exports to the rest of the world will only double to $5.6bn.

Russia has been investing heavily in its rail system that would link Eurasia with Europe and has even opened up the northern route ,a shipping channel that links Europe to Asia by sending ships around the top of the world and cutting the journey time to two thirds as a result.

Closer to home and part of the same strategy, the Kremlin has been pushing the establishment of a Eurasia Economic Union after 2015 as its top foreign policy item and has already established the first phase, the Customs Union amongst several Commonwealth of Independent States countries.

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