ASEAN is an important part of Russia’s foray into Asia as it breaks away from the European Union.
By Emil Avthaliani with additional commentary Chris Devonshire-Ellis
Relations between Russia and the Association of Southeast Asian Nations (ASEAN) are multifaceted and have evolved over the past decade with special attention from Moscow following the outbreak of conflict in Ukraine. This is part of Russia’s efforts to refocus its trade and supply chains to the east.
In recent years, the focus of the relationship has shifted toward economic cooperation, with Russia looking to expand its economic ties outside of its traditional markets in Europe and North America. ASEAN, with its emerging economies and strategic location, presents a lucrative opportunity for Russia. This includes areas such as energy, infrastructure and technology.
A relationship is not without its challenges. ASEAN countries have diverse foreign policy interests, with some countries maintaining close ties with the United States and its allies. Geopolitical tensions such as the South China Sea disputes and Russia’s actions in Ukraine have an indirect impact on ASEAN-Russia relations.
By 2021, bilateral trade between Russia and ASEAN countries is expected to increase by 27.5% to USD 20 billion, returning to pre-Ukraine crisis levels of 2013-2014. ASEAN exports to Russia this year consisted mostly of electrical machinery and equipment (US$3.4 billion), animal and vegetable oils and fats (US$1.4 billion), and machinery and equipment (US$1.3 billion). The Russian side mostly ships oil, but hopes to be a major supplier of metals, fertilizers and halal goods.
Despite Russia and ASEAN signing a trade and investment cooperation map by 2021, trade turnover peaked at US$23 billion in 2014 and has yet to regain those levels. Although the Russia-ASEAN Business Council in the past years set high goals such as increasing trade turnover to 100 billion USD by 2025, in 2022, trade turnover actually decreased by 4.4 percent – to 19.1 billion USD. However, as supply chains adjust in the wake of European sanctions, there appears to be a focus on progress and trade growth – Russia’s customs agency says that in the eight months to 2023, trade between Russia and ASEAN was US$15.9 billion.
The current erratic trade dynamics are also evident in trade relations between Russia and individual members of ASEAN. For context, trade between the US and ASEAN is projected to grow 17.9% to reach US$441.7 billion in 2021. Achieving just 10% of that block would be a victory for Moscow.
Russia has suggested using local currencies with ASEAN to boost trade. However, little meaningful progress has been made as Moscow has so far been unable to persuade ASEAN member states to join its MIR tariff system, the notable exception being Vietnam. However, progress has been limited. Sources in Russia say that only 40% of Vietnam’s ATM bank network accepts MIR cards.
Russia’s trade relations with ASEAN should also be seen in the context of growing cooperation between the Moscow-led Eurasian Economic Union (EAEU) and the ASEAN bloc. In March 2023, ASEAN and the EAEU held a seminar on digital transformation, which focused on sharing experiences and best practices in digitization within the two regional groups. Topics include the EAEU’s digital agenda, ASEAN’s digital economy priorities and initiatives, and cybersecurity cooperation and data governance principles. Under the Memorandum of Understanding between ASEAN and the Eurasian Economic Commission for 2020-2025, the event defines customs legislation, trade policy, commercial activities, technology and anti-monopoly regulation, energy, and the functioning of internal markets between the EAEU. and ASEAN. It should help both ASEAN and the EAEU in a possible free trade agreement aimed at improving trade and economic relations between the members of the two groups.
Even so, cooperation between individual members of the two constituencies is increasing. For example, Indonesia, as a member of ASEAN, started negotiations for a Free Trade Agreement (FTA) with the EAEU in early 2023. Indonesia’s significant role in this relationship was highlighted by the significant increase in trade turnover between the EAEU and Indonesia in 2022, which grew by almost 50% compared to 2021. Exports from the EAEU to Indonesia increased by more than 2.5 times and imports by about 16 times. %
In terms of investments, Russian investments in the region remain small. For example, in 2023, foreign direct investment from Russia to ASEAN countries reached USD 159 million. By comparison, US foreign direct investment in the region by 2022 is expected to reach US$359.9 billion. However, Russia is less of an external investor anyway, and is currently more intent on increasing its supply chain diversification.
Overall, the relationship between Russia and ASEAN is characterized by a combination of cooperation and complexities shaped by historical ties, economic interests, military cooperation, and emerging geopolitical landscapes. Looking ahead, there is potential for deeper engagement, particularly in the areas of energy, technology and infrastructure development. However, the trajectory of this relationship will be influenced by broader global geopolitical dynamics, including individual ASEAN countries’ relations with other major powers such as the United States and the impact of Western sanctions on Russia.
However, while overall progress will be steady, Russia’s current approach is to develop relations with ASEAN members on a bilateral basis. As supply chains and alternative payment mechanisms improve, and Russia and ASEAN members find viable ways to deal with Western-imposed restrictions, things will improve. There is some concern in Asia about how what is seen as a European political problem with Ukraine is being imposed by the EU as restrictive practices on their own trade and investment interests.
China’s share of Russia-ASEAN trade is also increasing, as it provides rail links to Southeast Asia, particularly through Xinjiang province to Vietnam (and thence to ASEAN), as well as China’s own border facilities with Kazakhstan. Russian goods bound for Southeast Asia are usually routed through it.
Also, Vietnam and Russia have started direct shipping to Ho Chi Minh City via the Russian port of Vladivostok, resulting in increased bilateral trade – Russia and Vietnam share a free trade agreement through the Eurasian Economic Union. These two routes positioned northern (by rail) and eastern (by sea) Vietnam as access points for Russian trade in Asia.
It will not grow into a trade worth hundreds of billions of dollars, but it will be enough to offset the loss of European markets and move forward the growth of imports and exports to Russia.
There are other ASEAN advantages for Russian investors. The ASEAN bloc is a free trade area, meaning 95% of all exports can be made between ASEAN member states at zero tariffs, thus providing access for all. ASEAN also has free trade agreements with China and India, meaning a regional base in ASEAN could be of significant interest to Asian investors.
If a solution is found in Ukraine, we can expect additional free trade agreements between Russia and several ASEAN countries via the EAEU.
Dezan Shira & Associates serves foreign investors in Asia and has offices throughout the ASEAN region. We are well aware of the issues facing Russian investors. Contact us for help [email protected] Check out our business guides below.
In these uncertain times, we must emphasize that our organization does not condone the conflict in Ukraine. We do not conduct business with authorized Russian companies or individuals. However, we are familiar with new emerging supply chains, can advise on strategic analysis and new logistics routes, and assist in unsanctioned areas. For example, Russian companies can help improve operations across Asia, including banking advisory services and trade compliance issues, and have been doing so since 1992.
We also provide financing and sanctions compliance services to foreign companies seeking access to Russia. In addition, we provide market research and consulting services to foreign exporters interested in accessing Russia as the economy aims to replace Western raw materials. For assistance, email or visit [email protected] www.dezshira.com
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