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IIASA FUTURES INITIATIVE

Challenges and Opportunities of Economic Integration

within a Wider European and Eurasian Space

Phase II Research Program

April 2017

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Contents About IIASA………………. ............................................................................................................. 4

Research guidelines………………. ................................................................................................ 5 The Phase II Research Program ………………. ............................................................................. 8 Potential sectoral and interdisciplinary research topics ………………. ....................................... 8 1. The major elements of the Agreements .............................................................................. 8

A) Free movement of goods I (tariffs, fees and charges).. ............................................. 9 B) Free movement of goods II (NTBs) ............................................................................ 9 C) Free movement of services ..................................................................................... 10 D) Movement of people linked to economic activities; labour-related issues; academic mobility ....................................................................................................... 10 E) Movement of capital (including inter-regional investment partnerships), as well as of Foreign Direct Investments ...................................................................... 11

2. The horizontal aspects of the Agreements ........................................................................ 11

3. Transcontinental transport corridors in Greater Eurasia (EU – EAEU – China) .................. 12 4. Other Cross-Border Infrastructure and industrial cooperation ......................................... 12 5. Cross-Border Cooperation .................................................................................................. 12 6. Quantitative analysis of macroeconomic impacts of the potential integration Agreements ............................................................................................................................ 12

7. Qualitative elements of the research ................................................................................. 13 8. The underlying logic, structure, and ‘Roadmaps’ to the prospective Agreements ........... 13 9.The EU – EAEU – China triangle in Greater Eurasia............................................................. 15 10. Raising the efficiency of International institutions: lessons for managing Greater Eurasia ....................................................................................................................... 16 Work program and working metods ...................................................................................... 17

Appendix 1. About Phase I ......................................................................................... 21 Appendix 2. Detailed background of the Eurasian Project and on the goals of Phase II ........................................................................................................................... 24 Appendix 3. Concepts for the 3 fast-track studies to be prepared by IIASA

during 2017 ........................................................................................................................ 34 A) Concept for the fast-track study on Foreign Direct Investements (FDI) – IIASA Eurasian project (EU-EAEU-EaP and Central Asian countries).. ........................... 34 B) Trans-Eurasian land transport corridors (EU-EAEU-PRC): An assessment of prospects and barriers ............................................................................................... 36 C) Aliging TBT and SPS policies in the EU-EAEU-CIS space ............................................ 38

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About IIASA

Founded in 1972, the International Institute for Applied Systems Analysis (IIASA) conducts policy-oriented research into problems of a global nature that are too large or too complex to be solved by a single country or academic discipline. IIASA’s research areas are energy & climate change; food & water; and poverty & equity. IIASA is at the center of a global research network of around 2,500 scholars and nearly 600 partner institutions in over 65 countries. It is funded and supported by its National Member Organizations which represent the scholarly communities in the following countries: Australia, Austria, Brazil, China, Egypt, Finland, Germany, India, Indonesia, Iran, Japan, Malaysia, Mexico, Netherlands, Norway, Pakistan, Republic of Korea, Russia, South Africa, Sweden, Ukraine, United Kingdom, United States of America, Vietnam.

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Phase II Research guidelines

Overview After completing its first research program on Eurasian economic integration between 2014-16, IIASA is planning to conduct Phase II of the international research project (IIASA Futures Initiative) “Challenges and Opportunities of Economic integration within a wider European and Eurasian Space”. The working title of Phase II:

“Long-Term Agenda for Economic Cooperation in Greater Eurasia”

Phase II of the research project will cover a period of three years: January 2018 – December 2020. 2017 is considered as a year of transition between Phases I and II, dedicated both to the detailed preparation of the deepened and expanded Phase II research program for the next 3 years, as well as to producing on a few important issues preliminary, fast-track studies. In the EU-EAEU1 context Phase II will build on the results of Phase I2, more specifically it will harvest the knowledge which has been accumulated regarding the major issues, challenges and uncertainties, as well as build on the connections which have been created in the community of policy makers and experts, and reflect the new geopolitical circumstances. The working assumption is that once the current political problems in Eastern Europe will have been sufficiently eased, the EU and the EAEU would set as an agreed objective to gradually move towards a comprehensive Greater Eurasian cooperation and integration structure. Such a structure should be in line with the WTO’s rules and obligations, as well as with the approaches and best practices of other relevant international organizations. Most probably, moves towards economic/trade liberalization will happen gradually, through various stages, as creating the necessary political-economic conditions for comprehensive integration takes considerable time. It is foreseen that the research under Phase II would also be expanded to the Greater Eurasia, involving the potential for economic cooperation and integration in particular with China, as well as other Asian countries. Thus, the research will look at the conditions, challenges and possibilities of developing the economic-trade-investment relations between each of the 3 major dimensions: the EU-EAEU context, the EU-China context and the EAEU-China context. There will be assessments and comparisons of the similar, overlapping elements of these 3 sets of bilateral relationships, as well as the differences. It is probable that not a single model will be identified for all three dimensions, rather the research would identify options, among which the policy-makers should decide.

1 EAEU stands for Eurasian Economic Union established in 2015 and currently comprising Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia (http://www.eaeunion.org). 2See: http://www.iiasa.ac.at/web/home/research/researchPrograms/AdvancedSystemsAnalysis/161018-eurasian 7.html

http://www.iiasa.ac.at/web/home/research/researchPrograms/AdvancedSystemsAnalysis/161018-eurasian%207.html

http://www.iiasa.ac.at/web/home/research/researchPrograms/AdvancedSystemsAnalysis/161018-eurasian%207.html

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General research directions

Phase II will produce objective and realistic policy-relevant research substantiating this process. It will rely on multi-dimensional analysis, quantitative and qualitative methods, which will supply policy makers a number of plausible scenarios for moving towards a Greater Eurasian integration framework. Phase I has shown that when considering the potential creation of a common economic space from Lisbon-to-Vladivostok:

- The EU side will most likely be interested in: 1) the liberalization of trade (i.e. an EU-EAEU FTA), 2), creating conditions for undistorted competition in EAEU Member-States’ markets (i.e. to stimulate trade, and create an improved environment in all areas and sectors for European companies’ business and investments), and in 3) enhancing energy supply security (in both political and economic security aspects).

- The Eurasian side, on the other hand, will most likely be interested in: 1) an FTA to be established gradually, over a longer transition period, 2) increased investments in designated areas, 3) technology transfers and access to financial resources in all areas and sectors, as well as 4) energy security, with stability of demand and transit routes.

There is a partial overlap between the goals of both sides, but several of those are interpreted and implemented in a different manner. Therefore, it is clear that various options and scenarios will have to be considered, taking into account the fast changing political and economic conditions and interests, as well as policy choices and legal considerations. The progress towards the “Lisbon-to-Vladivostok integration zone” will be gradual, with possibly different solutions and speeds in various parts of the Greater Eurasian region. In the EU-China context the development of conditions for a comprehensive integration framework will be the focus of research, building on the ongoing negotiations about a bilateral investment agreement. As this would cover one of the 4 freedoms under a Deep and Comprehensive FTA, its successful conclusion and implementation could give a boost to further steps in the integration process. Thus, the research needs to identify the ways and conditions for expanding the relationship to trade in goods and services, as well as to other forms of the movement of capital and people linked to the covered economic activities. In the EAEU-China context, a non-preferential Trade and Economic Agreement is under negotiation. It will focus on sectoral cooperation, a certain degree of regulatory approximation, as well as on launching major joint projects. The second important process in the EAEU-China context is focused on the Chinese initiative “One Belt One Road” (OBOR) which is supported by the EAEU member states. The key question here is the internal connectivity of Greater Eurasia as a condition of economic development.

1. The EU – EAEU economic integration and cooperation framework

Hence, the first aim of Phase II is to prepare a comprehensive and detailed roadmap, terms, conditions and options for a future economic integration and cooperation framework between the EU and the EAEU, with specific recommendations for policy-makers. The research work will focus on the substantive economic, legal and technical aspects of integration, leaving aside the resolution of the current political obstacles that fall outside the scope of the project. Importantly, Phase II should also study the possibilities of avoiding negative impacts of the EU’s existing Associate Agreements (AAs) and Deep and Comprehensive Free Trade Agreements

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(DCFTAs) between the EU and Georgia, Moldova and Ukraine, as well as investigating the economic-trade relations with the three other Eastern Partnership countries (Armenia, Azerbaijan and Belarus) on the possible development of EU-EAEU economic integration. In this way it could be ensured that, as originally intended by the EU, these agreements act as bridges for increasing trade and economic cooperation with both integrations, rather than be barriers to the continued normal trade relations with the EAEU and sources of tensions.

2. The EU – EAEU – China triangle in Greater Eurasia

The other major area of Phase II should incorporate the analysis of China’s economic policies and projects regarding Greater Eurasia (including the “One Belt – One Road” initiative, and China’s intention to create a comprehensive FTA relationship with the EU) into the research project, as well as consider the possible linkages with other East Asian states. This implies looking at the details of the bilateral relations among each pair of the 3 participants.

*** Overall, Phase II should:

• Give an analysis of plausible scenarios of economic integration among the core players in Greater Eurasia: the EU, the EAEU and China, with the EU-EAEU relations being the first aspect to look at.

• Provide quantitative and qualitative assessments of deeper economic cooperation and integration on the Eurasian continent with multiple players, including the EU, the EAEU, China, and possibly other East-Asian countries.

• Produce roadmaps/path-ways and cost/benefits analyses supporting each scenario, taking also into account the results and challenges identified during Phase I.

• Give an analysis of the trans-continental infrastructure, including transport, electricity grids, and telecommunications: compatibility of national and supranational development strategies, barriers to trade and investment in infrastructure-related industries, challenges of trans-borders projects.

• Provide estimates of the socio-economic implications of each scenario for all parties involved.

The detailed background and objectives of the whole Eurasian project, as well as the specific goals of Phase II are described in the Appendix, Part 2.

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The Phase II Research Program

The exact research topics, agenda and working methods of Phase II will eventually depend on the needs and interests of the potential supporters and stakeholders. Below we have compiled the list of possible research topics and outcomes which gives a guidance for potential supporters and funders for the program foreseen. Taking their views into account, the final draft to be drawn up will form the core of the Phase II research project.

Potential outputs

IIASA, together with the external researchers involved, could produce: • During the Phase II work, several preliminary research reports will be prepared, based

on dedicated workshops, about the major aspects of the Greater Eurasian project set out in point 1 and Annex 2. The details of the work program and the sequencing of workshops is to be determined based on consultation with supporters, stakeholders and the cooperating research institutes during 2017.

• A Final Report on the EU-EAEU economic integration framework (in-depth treatment of the full agenda) will be ready by the end of 2020.

• The ‘roadmaps’ for the foreseen set of both framework and (where needed) sectorial agreements, specifying their internal logic, interconnections, and the negotiations’ possible structures.

• A number of publications reflecting the research results to be published as papers in peer-reviewed journals and articles in public media.

The research reports of Phase II will be presented at a series of high-level round tables, that will be held at IIASA approximately once a year, with the participation of stakeholders, policy makers at the national and international level (government officials, officials from the European Commission and the Eurasian Economic Commission), experts of the EU and EAEU countries, as well as of other key actors, researchers.

Potential Sectoral and Interdisciplinary Research Topics The potential sectorial and interdisciplinary research topics proposed to be covered are as follows:

1. The major elements of the Agreements

The sector-specific aspects in each of the bilateral relationships among the EU, the EAEU and China covering the free movement of goods, services, labour, capital, as well as the cross-cutting rules and disciplines of a deep and comprehensive framework are to be developed.

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During Phase II of the research all these relevant elements of the bilateral relationships among the 3 major players should be analysed and assessed, with the aim of preparing practical recommendations for implementation. Both the overlaps and similarities, as well as the divergent elements should be explored, forming the basis on which various options could be developed. Due to the size of the task and the large number of issues to be covered, the possibilities of cooperation and sharing of tasks with other research partners will be explored during 2017. When elaborating the division of tasks, high-quality research done so far in relevant areas of the IIASA Phase I Eurasian Project will be taken into account. On this basis, research consortia are to be formed, setting out the respective responsibilities for each participant. Thus, not just the quality and the depth of research can be enhanced, but the sources of financing could also be increased and the possible synergies explored. The research institutes to be involved, the ways of cooperation will be clarified at the latest by the time of the formal launch conference of Phase II. On that occasion, the outlines of the complete research program could be approved, ensuring that all elements of the research listed below be covered by the end of the research program. The specific subjects proposed are as follows:

A) Free movement of goods I (tariffs, fees and charges)

Research on this topic would include the following points: • The gradual liberalization of trade in goods, including energy; • The opening up of markets in line with WTO rules, i.e. the elimination of import duties,

fees and charges; • Options for the staging and the final extent of liberalization (respecting the WTO’s

„substantially all trade” principle); • Deadline for the final stage of liberalization; • Differentiated treatment of industrial and agricultural products; • Standstill on import duties;

• Modalities for the gradual phasing out of export duties.

B) Free movement of goods II (NTBs) Research on this topic would include the following points:

• Regulatory harmonization and/or mutual recognition of regulations, the possibilities and limitations of both approaches

• Conditions for national treatment with respect to regulatory issues • Administrative cooperation in regulatory areas • Regulatory areas to be covered, as a minimum:

- Technical regulations and standards - Health-sanitary-phytosanitary regulations,

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- Environmental aspect - Protection of consumers, - Social considerations

• Staging and methods of regulatory approximation • Rules concerning administrative restrictions on imports and exports • Rules of origin, rules of cumulation for various product groups • Customs administration and cooperation • Trade facilitation, including for production cooperation, value chains • Trade defense instruments, including safeguard measures, applicable rules

C) Free movement of services Research on this topic would include the following points:

• Initial and final sectoral coverage; • Staging of liberalization of both market access and of treatment of products/producers • Rules for domestic regulations, relationship between the right to regulate and

liberalization commitments; • Differentiated liberalization of the four modes of services supply; • Specific regulations for various modes, especially for cross-border supply, for

establishment and for the temporary movement of people; • Rules for quantitative type restrictions • Regulations for cross-border electronic trade; • Rules for trade defense measures; • Regulations for natural monopolies; • General exceptions in line with WTO (GATS) rules; • Sector-specific regulations for major sectors such as:

• financial; • telecommunication; • various modes of transport;

D) Movement of people linked to economic activities; labour-related issues; academic mobility

Research on this topic would include the following points:

• Definition of the mobility-related concepts for the purposes of a future integration agreement;

• Types of persons affected; • Possibilities for quantitative limits; • Definition of the maximum length of stay/residence, if any; • Differentiated administrative requirements according the purpose of the movement

and the length of stay;

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• Possible facilitation of visa procedures for economic purposes; • Possible facilitation of residence procedures for economic purposes; • Relationship between the economic and security considerations linked to entry and

residence; • Social and labor standards linked to the movement of persons; • Recognition of qualifications; • Specific rules for regulated professions, membership requirements in professional

associations; • Limits on nationality requirements; • Issues linked to social security, health insurance and pension rights; • Possibilities and conditions for safeguards; • The cross-border mobility of pensions; • Facilitating large-scale academic exchanges.

Please note that within the EAEU most of these issues still fall under national competence. Similarly, also in the EU, while there is a larger number of aspects falling under EU competence, there are numerous aspects under national competence, exceptions and transitory arrangements.

E) Movement of capital (including inter-regional investment partnerships), as well as of Foreign Direct Investment

Research on this topic would include the following points:

• General rules for free movement of capital, possible exceptions; • Rules for investments by foreigners, limits of differentiation; • Specific rules for FDI; • Treatment of overlap between conditions for services Mode 3 and general investment

regulations; • Rules and limitations for the conditions of foreign investment, including local

procurement, localized production, export requirements and similar conditions; • Rules for the treatment of established investors; • Protection of foreign investments and investors; • Possibilities for general and special safeguards.

2. The horizontal aspects of the Agreements

There are numerous rules and obligations which have a horizontal, cross-cutting character. Even if their objectives and the underlying concepts are mostly the same, there might be different implementing provisions applicable in the different sectors and activities.

• Protection of intellectual property; • Rules for government procurement;

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• Rules for competition, both with respect to subsidies/state aid in each sector, as well as anti-trust aspects;

• Rules on sustainability, on environmental and labor standards; • Rules for government action, interference in business life and decisions. • Regulation of business activities of SOEs, with special consideration to those in monopoly

positions; • Possibilities and limits of measures justified by national security; • Dispute settlement procedures, including those initiated by companies; • Special regulations for economic relations among neighboring regions.

Last but not least, as a specific new cross-cutting issue, the relevant aspects of the digital economy should also be made part of the research.

3. Transcontinental transport corridors in Greater Eurasia (EU – EAEU – China) Research on this topic would include the following points:

• Compatibility of national and regional transport strategies (EU, EAEU states, and OBOR); • Barriers to transport flows; • Potential ways of reconciling various transport strategies; • Specific rules for transport infrastructures; • Quantifying the economic effects of trans-Eurasian transit and improving internal

connectivity in Greater Eurasia; • Potential possibilities of cooperation of development institutions of the EU, the EAEU

and China in terms of funding the trans-continental infrastructure projects.

4. Other Cross-Border Infrastructure and Industrial Cooperation The research could potentially include other infrastructure-related issues:

• Telecommunications links; transcontinental fibre-optic links. • Large-scale cooperation initiatives related to industrial development and agriculture.

5. Cross-Border Cooperation • Facilitation of cooperation among the border regions.

6. Quantitative Analysis of Macroeconomic Impacts of the Potential Integration Agreements The policy-makers are likely to require a comprehensive assessment of the economic impacts of

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the potential deep and comprehensive economic partnership under a set of scenarios. Such an assessment would employ a variety of quantitative methodologies, including CGE modelling, various econometric methods, surveys, etc. It would allow defining the winners and losers of economic integration at the national and sectoral levels – which would in turn serve the goal of negotiating a fair and long-lasting agreement.

7. Qualitative elements of the research Apart from the quantitative macroeconomic impact analysis it will be also important to include in the research qualitative elements, the assessments given by the stake-holders, especially companies, of the business and investment environment, the barriers to doing business they encounter. Therefore, it will be essential to include in the project such methods as e.g. business surveys (in the form of semi-structured interviews and/or focus groups). Conducting surveys of businesses requires specific sociological expertise and thus should be probably outsourced.

8. The underlying logic, structure, and the ‘Roadmaps’ to the Prospective Agreements An ambitious result of the Phase II could be a scientific substantiation of the broader outlines for the structure and contents of the possible future cooperation agreements between the EU, the EAEU (plus on a variety of issues relevant for their member states) and China. The overall research report will be published at the end of Phase II, summarizing the results of the 3 years’ work. This will be the culmination and summing-up of all the sectorial and cross-cutting research projects on specific issues covered during Phase II. In addition, specific reports and working papers on the Eurasian economic integration topics will be published as well. These reports would serve the following objectives:

• to analyze and outline the underlying logic of the set of agreements which would represent the basis of prospective deep and comprehensive economic partnerships;

• to substantiate the structure of the set of prospective agreements; • to provide policy recommendation regarding the structure, timetable and the methods

of the negotiations. In the EU-EAEU context, the first option would be to set, as an interim goal towards the implementation of the Lisbon-to-Vladivostok integration and cooperation, the conclusion of a broad non-preferential cooperation agreement. This could cover wide areas of the bilateral relations, from the political dialogue to scientific cooperation. The focus of the economic part of agreement would be on a gradual and selective regulatory approximation (especially concerning technical and health-sanitary rules, customs cooperation and trade facilitation). The resulting document could also aim at promoting sectoral production and investment cooperation, the development of transport and infrastructural links. An important area would be the energy

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sector, with overall modalities for the supply and demand aspects of energy security. The facilitation of the movement of people could also be included by providing for the simplification of the visa and residence formalities linked to economic cooperation. Last but not least, the document would provide the background for the establishment of formal links between the EU and the EAEU. Such an interim agreement would not yet cover preferential trade liberalization and market access, but it could still facilitate their achievement in the future, as part of the Lisbon-to-Vladivostok cooperation agenda. There are already some elements of such a document. It could build on the draft of the planned EU-Russia „New Agreement” which had been under negotiation for years but was suspended by the EU due to the Ukrainian crisis in 2014. The recently signed EU-Kazakhstan Partnership and Cooperation Agreement shows in practice the possibilities, as well as the limits, of such a framework: the limited nature of the provisions for liberalizing some aspects of the economic relations, for improving the treatment of businesses, investors and investments are certainly useful, but the economic development impact is limited. A more straightforward approach would be to first negotiate agreement(s) that provide for the regulation and liberalization of only certain parts of the mutual economic relations. An example is the ongoing EU-China negotiation about a bilateral investment agreement, which would include legal guarantees both for market access for investments, as well as for the treatment of investors. Once this document is successfully implemented, it could serve as a basis for eventually extending the liberalization to other areas – to trade in goods, services and the movement of people. It should be stressed, however, that from the EU’s point of view this model has limited applicability, as negotiating FTAs e.g. only for goods has been abandoned for many years. Finally, in the EU-EAEU context there is the theoretical possibility of moving directly to a comprehensive liberalization framework, towards a preferential agreement covering all four freedoms. However, unless there is no fundamental change in the present political and economic conditions in the EU-Russia relations, the lack of trust due to the Ukrainian crisis and the mutual sanctions make such a direct route very improbable. Moving forward in ensuring these conditions might take considerable time. Once all the necessary political, economic and legal preconditions will have been ensured, the talks about the comprehensive integration agreements could be launched. It cannot be taken for granted that this will happen simultaneously concerning all the sides of the EU-EAEU-China triangle: as mentioned, it looks more likely that it might be easier to achieve the conditions for starting talks about economic-trade cooperation, including certain aspects of liberalization, first between the EU and China, rather than with the EAEU. China seems to be more ready, even eager, to broadly liberalize its economic relations with the EU and to establish a broad preferential agreement. As mentioned, in the EAEU-China context liberalizations-type agreement are at present not on the agenda. While the major aspect of any integration idea between the EU and the EAEU will be the negotiations and eventually the agreements between both integration structures, additional national level agreements will also be needed among their member countries. There are a

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number of areas, especially in case of the EAEU (investment regimes, the movement of persons, etc.) which currently do not fall under common competence. There are also such aspects in case of the EU, especially when it comes to matters related to the movement of persons: e.g. visas and residence permits, social standards, etc. which belong to the Member States’ competence. Thus, the research has to include the possible details of such more complex institutional arrangements, too. The specific elements of the potential comprehensive agreements will be covered in the sectorial research topics. These include specific elements linked to the gradual liberalization of all four freedoms of movement, as well as the horizontal aspects which are applicable for every part of the future agreements. They also contain those economic cooperation and infrastructural aspects to be discussed at official level, among the integration structures, which are considered especially important by the EAEU, but to a certain extent also by China. Last, but not least, it is foreseen that the any agreement would serve as a platform which other countries of the region could eventually join.

9. The EU – EAEU – China triangle in Greater Eurasia Given its growing weight in the global economy, China will play an increasing role in both the EU’s and the EAEU’s external relations. Based on this a new initiative might emerge what may be called a ‘Greater Eurasia’ agenda. It would not concern only the EU and EAEU, but also the future relations with the major players in Asia, first of all with China: a direct neighbor of the EAEU and a very important trade and investment partner for both the EU and EAEU. In the recent years there were some major developments, which show the possible directions of such an extended agenda. These include China’s “OBOR” initiative as a framework idea, the establishment of the Asian Infrastructure Investment Bank and of the New Development Bank, the development of trans-Eurasian railway and road connectivity, the Russian-Chinese and Kazakh-Chinese projects for energy supplies, etc. One of the most substantive topics is the development of the transport corridors between Europe and Asia, with both Russia and Kazakhstan occupying prominent places on the Eurasian map. Many of these issues also bear high importance for other Asian economies, (especially for Japan, the Republic of Korea, and Iran but also for the ASEAN countries and India.) Phase II of the project will thus include a detailed analysis of the state and perspectives of both the EU-China and the EAEU-China integration relations. The proposed new project could thus be called a ’Triangular concept” of economic cooperation in Greater Eurasia’, covering the EU, the EAEU, and China. Thereby each of the three bilateral relations will be looked at separately and subsequently conclusions will be drawn, outlining both the common features, as well as the differences of the various aspects of the 3 sides of the triangle. Recent bilateral/regional negotiations and agreements involving China. In the recent period China has also become more active in negotiating and signing integration-type agreements. Most of its partners have been developing countries and the agreements are focused on the

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liberalization of trade in goods – often only to a partial extent. As part of these agreements China also often provides economic assistance to its developing country partners in the form of supplying turn-key projects and supporting other major investments on soft loan terms. A more recent initiative is directed at the neighboring Central Asian countries and Russia in the form of the mentioned New Silk Road initiative. It should be noted, however, that according to available information the latter is more focused on the strengthening of transport and infrastructural links among the participants, rather than on deeper economic integration. As mentioned earlier, a regional dimension is the possible linkage of other large Asian economies like Japan, India or the Republic of Korea, to the potential broader Eurasian integration framework. These aspects can be discussed in more detail once the possibilities and options for the cooperation and integration among the three core participants of the „triangle” will have been clarified. Linked to the above, the following issues need to be discussed:

• The possible forms of relationship with the future Eurasian integration zone (association, FTA, direct accession, etc.);

• Terms and pre-conditions of participation in the prospective integration zone; • Possible special rules for decision-making about accession or association; • Definition of the potential partner countries, with special emphasis on such partners with

which the EU has an Association Agreement/DCFTA, other Eastern Partnership and CIS countries which are not members of the EAEU;

• Relations to be established with other regional integration structures, such as the EFTA countries, as well as countries like the EU’s accession candidates and the EAEU’s partners.

10. Raising the Efficiency of International Institutions: Lessons for Managing Greater Eurasia

A specific cross-cutting subject will be that of the prospective institutions of economic integration in Eurasia. What could be done to manage the Greater Eurasian institutional complexity in an efficient way? In this respect it will be necessary to look at the theoretical and policy-related aspects of integration, disintegration, and economic cooperation. The regional organizations and agreements play an increasingly pivotal role in facilitating the processes of economic cooperation and integration. The agreements and implementing agencies exert a significant influence also on the policy-making and the practical steps taken. The research goal is a systemic treatment of the institutions of economic integration in Greater Eurasia, exploring their efficiency and potentials. The key questions include: How can be the inter-regional cooperation structured in the most efficient way? What are the ways to raise the efficiency of regional organizations and narrow the implementation gaps in the Eurasian context? How these institutions and the national Governments can ensure an environment stimulating

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business and investment activities, removing barriers to trade and cooperation, creating favorable conditions for the operation of companies? These aspects will be looked at in the spirit of systems analysis, based on the inter-disciplinary treatment of the issues, comprising methodologies from the fields of economics, political science, and sociology. Both quantitative and qualitative methods will be used. It may cover a number of potential research areas and issues, including:

- Rising inter-regionalism: impact and design of other interregional agreements, applied to Greater Eurasia;

- ‘Regionalism 2.0’: do regional integration organizations serve as building blocks for global integration?

- Impact of economic crises on regional integration (very relevant in the Eurasian context; - Efficiency of regional organizations in fulfilling their mandates; ways to increase overall

efficiency; analysis of the implementation gap in integration organizations and agreements.

Policy-wise, the results of this analysis will lead to recommendations on the institutional design of both the EU-EAEU economic integration structures, as well as the other sides of the EU-EAEU-China ‘triangular’ cooperation.

Work Program and Working Methods

The 3 years’ work during Phase I of IIASA’s Eurasian Project provided a solid basis for the deepened and expanded Phase II described above, and spelt out in detail in Appendix 2. The work on Phase II will begin with a preparatory conference to be organized between June 25-27, 2017, to which the major official and business supporters of the project, as well as the intended partner research institutes will be invited. This meeting will provide an opportunity to discuss the substantive aspects of the research program contained in this document, the organizational aspects of the research during the whole project, as well as to provide information to the participants about the 3 fast-track projects to be completed by IIASA during 2017.

Time schedule

Phase II of the research project is planned to cover a period of three years. The project will be officially launched in early December 2017, linked to the closing conference of the Austrian OSCE presidency. However, work on a few fast-track projects outlined below will be undertaken already during this year to be completed by November, 2017. The time schedule of the full Phase II is foreseen to run between January 2018 – end of 2020.

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It is planned that during this period, depending on the progress of research on the various subjects, partial or even full research results would be published. Both up to, as well as after the June preparatory conference, the detailed ideas of Phase II are to be elaborated jointly with the core partners, with a view to provide a solid basis for the whole project by the time of the high-level launch conference in early December (planned on December 3-4). In order to start utilizing the outcomes of Phase I at an early stage, during 2017 IIASA prepares 3 fast-track studies on issues of main interest for both the EU and the EAUE sides. The studies will focus on:

- the actual situation and prospects of foreign direct investment (FDI) in the Eurasian region;

- the trans-continental transport and telecommunication networks (covering the whole region between China and Europe);

- the non-tariff barriers (NTBs) of trade in the Eurasian region.

All 3 subjects represent important parts of the overall Phase II research program and the resulting studies will give the supporters of the project the first indications of the expected outcomes of the full project. These studies will cover only the original region of Phase I (EU-EAEU, and the connected regions). The aspects related to China and the broader Asian angle will be taken up as part of the full Eurasian Phase II project from the start of 2018.

During the 3 years of the project all aspects of the research program will be implemented, with a view of drawing up and publishing a comprehensive report by the end of 2020. The organization and management of the research work

The project would be directed and overseen by two bodies: a) The professional aspects of the research will be the responsibility of a core research group,

the Research Council, involving the experts of IIASA and those of such other research institutes which will become long-term participants of Phase II. The Council’s main task will be to give direction to, and oversee, the scientific work, ensuring that the research is done in an objective, high academic quality and impartial way, with the necessary independence of the researchers and without political interference. The first task of the Research Council will be to prepare the final research program of Phase II which will be approved at the launch conference in December 2017. Besides, it will also follow the work on the 3 fast-track projects in the course of 2017.

At the initial stage the following institutes are foreseen to participate in the Research Council:

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(The composition of the Research Council, the cooperating institutes are still under discussion, the list of research institutes from both European and Eurasian sides will be sent soon).

b) A broader supervisory body, the Leadership Council, will act as a kind of supervisory board

for the Phase II project. Its main task will be to ensure linkage between the research work and the needs and ideas of the major supporters and stakeholders of the project. In this manner the results of the research can be put to practical use as soon as possible. The Leadership Council will discuss and give its opinion about the Phase II research program before the launch conference of December. Its work will ensure that the final research program takes into account the views of the potential supporters, stakeholders and funders. The members of the Leadership Council are foreseen to be, apart from those of the Research Council, the representatives of the following institutions and organizations. (The composition of the Leadership Council, the supporters and stakeholders from both the European and Eurasian side, representing international organization, national governments, business and financial institutions will be sent soon).

Working methods Taking into account the nature and size of the Phase II Eurasian Project, the work has to be carried out in a manner ensuring that all necessary expertize is available. This can be best achieved by organizing the research in a triple matrix system: expertize will be needed from a geographical angle, i.e. based on the regions, organizations and countries involved; from a sectoral angle, i.e. linked to the 4 basic freedoms of economic-trade relations (the movement of goods, services, capital and people related to economic activities), and finally, from a cross-cutting angle, covering subjects which are relevant for both of the former aspects, like the protection of intellectual property, government procurement, the role of the state and STEs, competition policies, dispute settlement, institutional issues, etc. All major subjects are to be dealt with by a dedicated group, led by an experienced senior researcher, with the involvement of the relevant experts, representing each dimension of the triple matrix. The quantitative research tools, including general and sectoral models, as well as the qualitative methods, like collecting assessments of the major stakeholders, institutions and companies will be used for each research topic as necessary. The research work will be done both by experts of IIASA and of other members of the Research Council, as well as by such external experts who will be engaged on a case-by-case basis for shorter periods to deal with tasks requiring specialized knowledge. Thus, external commissioning would be essential for such parts of the projects as e.g. business surveys, (in the form of semi-structured interviews and/or focus groups), which require specific expertise. Similarly, some types of economic modelling or institutional analysis might also need the engagement of specialists.

Human resources The human resources required for the realization of Phase II can be divided into three parts:

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1. The part-time senior scholars of the IIASA core research group working together with senior researchers of other research institutes in the Research Council.

2. Dedicated junior researchers working in the research groups under the leadership of the senior experts. They would deal with e.g. political issues, with macro-economic/modelling aspects and the detailed trade policy analytical subjects of the potential integration schemes.

3. Specialized external experts from leading research institutes, professional organizations, etc. to work on commissioned research papers and tasks.

Dissemination The outcomes of Phase II will be disseminated to the policy makers and expert communities in the EU, the EAEU and China as well as to the general public via

• Individual meetings of the members of the project’s core group with the high-level policy makers and external experts;

• Participation of the core group members at international high-level conferences, including: Alpbach Forum, Davos Forum, Saint-Petersburg International Economic Forum, Moscow Economic Forum, Gaidar Economic Forum (Moscow), Valdai Forum (Sochi); Astana Economic Forum, east forum Berlin, as well as other major international events and relevant discussion fora to be identified in the coming period;

• Publications of articles in major newspapers and peer reviewed academic journals; • The project web-site

http://www.iiasa.ac.at/web/home/research/eurasian/EconomicIntegration.html The research reports of Phase II will be presented at a series of high-level round tables, that will be held at IIASA approximately once a year, with the participation of stakeholders, government officials, officials from the European Commission and the Eurasian Economic Commission, experts from the EU and EAEU countries as well as other key actors, notably China.

http://www.iiasa.ac.at/web/home/research/eurasian/EconomicIntegration.html

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Appendix 1. About Phase I Overview

Launched in June 2013 and carried out in 2014 - 2016, the first (pilot) phase of an international research project (IIASA Futures Initiative) “Challenges and Opportunities of Economic integration within a wider European and Eurasian Space” aimed at discussing and critically evaluating the potential and conditions for the creation of a common economic space between the European Union (EU) and the Eurasian Economic Union (EAEU; before 2015 – the Customs Union) of Russia, Belarus and Kazakhstan). This project utilized and further enhanced IIASA’s historical status as a science-diplomacy bridge between East and West. The project created a successful platform3 that lives up to the commitment of bringing together high-level policy makers and recognized scientists into a constructive dialogue despite the unfavorable political conditions, thus working towards peace and cooperation based on objective, factual and scientific methods of research, thereby also promoting science diplomacy. The project delivered for the attention of experts and policy makers in the EU and EAEU a research plan aimed at creating the conditions for a common economic space ’from Lisbon to Vladivostok’, thus supporting the IIASA’s science-to-policy efforts. The pilot phase I of the project (2014-2016) was funded by IIASA, the Eurasian Development Bank (EDB) and the Eurasian Economic Commission (EEC). A project core group has been formed to give directions to the project’s activities, including: Evgeny Vinokurov, Director of the Centre for Integration Studies, Eurasian Development Bank, and Professor of the Russian Academy of Science; Peter Balas, first, as Deputy Director General of Trade of the European Commission, now as Senior Research Scholar at the International Institute for Applied Systems Analysis (IIASA); Michael Emerson, Associate Senior Research Fellow, Centre for European Policy Studies (CEPS) and Senior Research Scholar at the International Institute for Applied Systems Analysis (IIASA); Peter Havlik, Staff Economist and former Deputy Director, The Vienna Institute for International Economic Studies (wiiw) and Guest Research Scholar at the International Institute for Applied Systems Analysis (IIASA); Elena Rovenskaya, Program Director of Advanced Systems Analysis Program at the International Institute for Applied Systems Analysis (IIASA) and a Researcher at the Faculty of Computational Mathematics and Cybernetics, Lomonosov Moscow State University, Russia; Anastasia Stepanova, Project Manager and Research Scholar at the International Institute for Applied Systems Analysis (IIASA); Jurij Kofner, a Guest Research Assistant at the International Institute for Applied Systems Analysis (IIASA). The work of this core group was directed by Proessor Pavel Kabat, Director General and Chief Executive Officer of the International Institute for Applied Systems Analysis (IIASA). Professor Kabat remains a Professor of Earth System Science at Wageningen University, and Director and Chair of the Royal Dutch Academy of Arts and Sciences’ Institute for Integrated Research on Wadden Sea Region.

3 To our knowledge, the only one in the world dealing with the issue of the EU – EAEU economic relationships involving stakeholders of so high level and relevance.

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The work carried out in 2014 - 2016 is now considered as Phase I of a more detailed, deepened and extended analysis of the subject - has so far focused on selected issues related to the potential economic integration among the existing integration structures and countries on the Eurasian4 continent.

Results

High-level dialogue

This project has been very timely. Due to the political tensions in the EU-Russia relations, caused by the Ukrainian crisis, which had an impact also on the economic relations, the interactions of the officials and experts have practically stopped since 2014. IIASA has been one of the very few remaining platforms where high-level officials and experts from the European Commission, European countries, the Eurasian Economic Commission and the Commonwealth of Independent States (CIS) countries could meet and discuss the challenges and opportunities of (re-)establishing the earlier close economic relationship and the eventual creation of a common economic space between the EU and the EAEU, covering all countries in the region.

Among the participants of the workshops were recognized policy-makers and experts, incl.: Andrey Slepnev, Member of the Board – Minister in charge of Trade, Eurasian Economic Commission; Peter Balas, Deputy Director General, DG Trade, European Commission; Stephan Nolte, Senior Economist, DG Trade, European Commission; Evgeny Vinokurov, Director, Centre for Integration Studies, Eurasian Development Bank; Rahim Oshakbaev, First Deputy Chairman of the Board, National Chamber of Entrepreneurs of Kazakhstan, Stefan Meister, Senior Policy Fellow, European Council of Foreign Relations; Paul de Lusignan, Leading Expert, Tariff and Non-Tariff Negotiations, Rules of Origin, DG Trade, European Commission, Stefanie Harter, Head, Liaison Office to the German Ministries of Foreign Affairs, Defense, Interior and Justice, German Agency for International Cooperation, Evgeny Hotulev, Director, Department of Macroeconomic Policy, Eurasian Economic Commission; Alessandro Nicita, Officer-in-Charge, Trade Policy Research Section, Trade Analysis Branch, Division on International Trade, United Nations Conference on Trade and Development; Tair Mansurov, Member of the Board – Minister in charge of Energy and Infrastructure, Eurasian Economic Commission; Jean-Arnold Vinois, Directorate General for Energy, European Commission; Stefan Füle, EU Commissioner for Enlargement and European Neighbourhood Policy (2010-2014); Tatiana Valovaya, Member of the board (Minister) on integration and macroeconomics, Eurasian Economic Commission; Thomas Kuchtik, Policy coordinator for Russia, CIS, Ukraine and The European Free Trade Association, European Commission; Jeffrey D. Sachs, special adviser to the United Nations Secretary-General Ban Ki-Moon (2007-2016) and Kofi Annan (1997-2006), Professor, Columbia University, Director, The Earth Institute, United States; Vaclav Klaus, President of the Czech Republic (2003-2013).

Workshops and workshop reports 1. The project was organized around a series of roundtables/workshops, each addressing a specific

dimension of the economic relations between the EU, EAEU and the neighboring countries: Methodological Approaches to the Assessment of Economic Impact 06 Mar 2014 - 07 Mar 2014 http://www.iiasa.ac.at/web/home/research/researchPrograms/AdvancedSystemsAnalysis/Eurasian_workshop.html

2. Trade Policy Regimes 08 Jul 2014 - 09 Jul 2014 http://www.iiasa.ac.at/web/home/research/researchPrograms/AdvancedSystemsAnalysis/eurasian_ws_2nd.html

3. Non-Tariff Barriers and Technical Regulations 20 Nov 2014 - 21 Nov 2014

4 See: http://www.iiasa.ac.at/web/home/research/eurasian/Reports.html.

http://www.iiasa.ac.at/web/home/research/researchPrograms/AdvancedSystemsAnalysis/Eurasian_workshop.html

http://www.iiasa.ac.at/web/home/research/researchPrograms/AdvancedSystemsAnalysis/Eurasian_workshop.html

http://www.iiasa.ac.at/web/home/research/researchPrograms/AdvancedSystemsAnalysis/eurasian_ws_2nd.html

http://www.iiasa.ac.at/web/home/research/researchPrograms/AdvancedSystemsAnalysis/eurasian_ws_2nd.html

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http://www.iiasa.ac.at/web/home/research/researchPrograms/AdvancedSystemsAnalysis/eurasian_ws_3rd.html

4. Futures of Energy in Eurasia in a Global Context 12 May 2015 - 13 May 2015 http://www.iiasa.ac.at/web/home/research/researchPrograms/AdvancedSystemsAnalysis/event/150512-eurasian4.html

5. Development of Transport and Infrastructure in Eurasia 15 Sep 2015 - 16 Sep 2015 http://www.iiasa.ac.at/web/home/research/researchPrograms/AdvancedSystemsAnalysis/event/150915-eurasian5.html

6. Labor Market and Migration across the Eurasian Continent 13 Apr 2016 - 14 Apr 2016 http://www.iiasa.ac.at/web/home/research/researchPrograms/AdvancedSystemsAnalysis/160413-eurasian6.html

7. EU-EAEU in Greater Eurasia: Long-Term Agenda for Economic Cooperation 22 Nov 2016 - 23 Nov 2016 http://www.iiasa.ac.at/web/home/research/researchPrograms/AdvancedSystemsAnalysis/161018-eurasian7.html

More than 200 recognized scientists, experts, stakeholders and policy-makers from numerous countries and organizations, notably, from the EU and EAEU member-states, but also from the USA, China, Turkey, South Korea, Ukraine and other states participated in the workshops. Each workshop resulted in a report synthesizing the inputs from the participants and the outcomes of the discussions; the synthesis report on the whole project “Challenges and Opportunities of Economic Integration within a Wider European and Eurasian Space”, as well as seven workshop reports can be seen here: http://www.iiasa.ac.at/web/home/research/eurasian/Reports.html In addition, a synthesis report in Russian language has been published: http://www.eabr.org/general/upload/reports/EDB_Centre_2016_Report_38_EU-EAEU_RUS.pdf Other publications include over 250 individual smaller reports and presentations prepared by the participants over the course of the seven workshops.



http://www.iiasa.ac.at/web/home/research/researchPrograms/AdvancedSystemsAnalysis/event/150512-eurasian4.html




http://www.iiasa.ac.at/web/home/research/researchPrograms/AdvancedSystemsAnalysis/160413-eurasian6.html




http://www.iiasa.ac.at/web/home/research/eurasian/Reports.html

http://www.eabr.org/general/upload/reports/EDB_Centre_2016_Report_38_EU-EAEU_RUS.pdf

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Appendix 2. Detailed background of the Eurasian Project and on the goals of Phase II Background of the Eurasian Project

The background of the Phase II has been the tendency during the last decades of international economic-trade policies to move towards regional integration. Among the most important driving forces of „regionalism” has been the inability of the WTO Members to bring to conclusion the negotiations of the Doha Round (Doha Development Agenda - DDA), launched more than 15 years ago, in 2001. Most experts agree that theoretically the global liberalization of trade in goods and services, as well as of the flows of investments and of persons related to economic activities have the greatest potential to boost economic growth. Achieving this would require proportional contributions by all participants, and in this case, the avoidance of discrimination among WTO members and of trade diversion could be ensured. However, in practice the differences of views and interests in the WTO membership have proven too big to find compromise solutions, and thereby to ensure the conclusion of the DDA. The challenges have only increased in the past years with the growing doubts about, and resistance to liberalization, the anti-globalization tendencies in many parts of the world. This fact, coupled with political and regional economic factors, has led to a general shift towards the second-best solution: regional integration. Not only has the number of regional integration arrangements increased, but also their scope and depth have expanded remarkably. This trend was apparent in all regions, but it has been especially pronounced among developed market economies, as shown by the increasing number of ongoing and completed negotiations – though recently some doubts about the benefits of globalization and liberalization have emerged in a number of countries. Still, similar tendencies could be observed also in many developing countries and transition economies. Nonetheless, the integration process has speeded up also in Europe, as well as in the broader Eurasian region. While in the earlier decades the European Union (EU) has been the major driver of integration in Western, Southern, Central and Eastern Europe, since the ’90s this process has progressed also in the Eastern part of the region. After the dissolution of the USSR, trade liberalization has initially taken the form of the CIS (Commonwealth of Independent States) framework, linking most ex-Soviet republics by bilateral Free Trade Agreements (FTAs). Subsequently, in 2009 Russia, Kazakhstan and Belarus decided to launch their Customs Union, which subsequently evolved into the Eurasian Economic Union (EAEU) (since 2015 comprising also Armenia and Kyrgyzstan). Since the 1990s, the idea of more extended regional integration in Europe has also appeared on the agenda. On the one hand, the EU has initiated, as part of its Eastern Neighborhood initiative,

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the conclusion of Association Agreements, which include Deep and Comprehensive Free Trade Areas (DCFTAs) with several countries, starting with Ukraine in 2006, later followed by Georgia and Moldova. In parallel, preparatory work started about a bilateral FTA between the EU and Russia, to be completed after the latter’s WTO accession. The creation of the EAEU created a new situation: Russia becoming the member of a Customs Union, the conclusion of a bilateral EU-Russia FTA has become impossible. A new EU-Russia (non-preferential) „Strategic cooperation agreement” (the so-called „New Agreement”) has been negotiated for several years, until in the spring of 2014, when due to the Ukrainian crisis the EU suspended the process. If the improvement of the political conditions allowed the resumption of the talks, these should be continued with the EAEU, rather than just with Russia, considering that many trade policy competences have moved to the EAEU’s level. This fact also means that the WTO accession of all EAEU members received new importance, as it is a fundamental tenet of the EU's trade policy to conclude FTAs only with WTO members. The WTO accession process of the EAEU’s members started with Russia in 2012, followed by Kazakhstan in 2015 (Kyrgyzstan has been a member since 1993, Armenia since 2003) so only Belorussia’s WTO accession is still pending. Thereby the prospective trade policy conditions started to evolve for moving towards the goal to create a large Eurasian integration zone, the «Lisbon-to-Vladivostok" program. However, the escalating geopolitical confrontation between the West and Russia due to the Ukrainian crisis interrupted all progress. According to EU official and business circles the EU-EAEU relationship is also burdened by Russia’s present, declared economic-trade policies based on import substitution, the broad use of various tariff and non-tariff measures (beyond the declared sanctions) aimed at stopping/reducing imports. These policies are supported by large-scale state subsidies, On the other hand, according to the Russian/EAEU side several aspects of the EU economic-trade policies are also considered as problematic. These complaints are focused first of all on the EU’s energy policies (the Third Energy Package) and trade defense measures. The research undertaken during Phase II should in a factual, objective and impartial manner study how these policies affect the economic interests of the other side, the broader business and investment environment in Russia/EAEU or the EU, respectively, for foreign companies and what discrepancies arise with the relevant WTO rules. The research work should be executed by the researches in an independent manner, without political interference and should aim at resulting in, if possible, agreed assessments and conclusions, including the ways how the problematic policies should be changed. If no agreed conclusions can be arrived at, either options, or the unresolved divergent positions should be indicated in the research outcomes. It will be the task of the core group to attempt to solve such divergent views. If this proves to be impossible, the research work on these aspects will be concluded with just recording the divergent positions.

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Against this background, it is generally recognized that until and unless the two fundamental problems of political and economic policy nature are not resolved, the establishment of formal contacts, and even less of any integration framework, between the EU and the EAEU is not feasible. The above notwithstanding, the time available until the improvement of the East-West relations could be used for deepened reflection and science-based conceptual work on a future broader European/Eurasian integration framework, anticipating an eventual change of the circumstances. The expert scientific and research community could already now analyze the prospects, conditions and opportunities of developing such a new economic partnership. The point of departure is the fact that should the necessary conditions appear, all sides could reap substantial economic benefits from the realization of the ‘Lisbon-to-Vladivostok’ integration. With this in mind, following the completion of Phase I, in mid- 2017 the IIASA plans to launch Phase II of the project.

The potential EU – EAEU economic integration and cooperation framework

The basic goal of Phase II will be to arrive at a detailed set of assessments, options and recommendations for the future EU-EAEU integration. This means the elaboration in a more comprehensive and detailed manner of the possible terms, conditions and options for a future integration framework between the EU and the EAEU. The further work will involve deepened, broadened analysis and assessment, as well as possible recommendations for policy-makers. The work will focus on the substantive economic, legal and technical aspects of such an integration. (It is a basic approach that the current political obstacles are considered as externalities, the solution of which falls outside the scope of the Project.) The working assumption is that once the political problems will have been resolved, the EU and the EAEU would set as an agreed objective the gradual movement towards a comprehensive Pan-Eurasian cooperation and integration structure. Such a structure should be in line with the WTO’s rules and obligations, as well as with the principles and best practices of other relevant international organizations. This integration could be implemented in the medium to long term, in several stages, eventually leading to the creation of a broad Eurasian integration arrangement.

The EU’s AAs/DCFTAs/ and EaP relations and the EAEU

The work will also need to cover the ways of linking the existing AA/DCFTAs between the EU and its three Eastern Neighborhood partners, as well as the remaining EaP countries (Armenia, Azerbaijan and Belarus) to the possible development of the EU-EAEU relations. Thereby it could be ensured that, as originally intended by the EU, these agreements act as bridges for increasing

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trade and economic cooperation with both integrations, rather than considered barriers to preferential trade relations with the EAEU, as reflected by the present position of Russia. Thus, it is assumed that as part of the process, as one of the options, the suspended CIS FTA relations between Russia on the one hand, and Ukraine, as well as Moldova on the other hand, should be restored. Under this scenario, negotiations would be launched with the participation of the EU, the EAEU and these countries about the modalities of ensuring the coordinated, parallel development of the CIS FTA framework with that of the EU-EAEU and AA/DCFTA cooperation. If, due to the rather discouraging experiences of the trilateral trade talks of 2014-15 involving the EU, Russia and Ukraine, the confidence lost can’t be immediately restored, other solutions could also be considered by the research. These could include bilateral negotiations between Russia/EAEU and the EaP countries in order to find alternative solutions, such as an FTA, or other possibilities. As a general principle, in areas where it is considered necessary and on the basis of the respective competences, ways for bilateral cooperation among the individual member states of the EU and the EAEU with each other could also be looked into. The technical aspects of the work could be helped by a CEPS project on the three DCFTAs, which resulted in the publication of this Brussels-based institute of three explanatory ‘handbooks’ in September 2016, as well as by other studies on DCFTA costs and benefits5. These could be used as inputs for analyzing what the trade policy regimes between these three countries and the EAEU would look like. Considering that the DCFTAs are based on commitments by Ukraine, Moldova and Georgia to gradually harmonize their regulations and standards with those of the EU (thereby going beyond a pure free trade agenda), the central question of the Phase II Eurasian project would be how to make the regulatory regimes of the EU and the EAEU compatible. There are also open issues on how the economic relationship of the EU not only with Russia, but with other countries of the EAEU, such as Armenia, Belarus and Kazakhstan, as well as Azerbaijan, might develop6. Deeper focus on all these aspects, including the analysis of the effects of the DCFTAs’ implementation will greatly enhance the practical usefulness of Phase II by taking into consideration the situation of all countries affected by the establishment of the EU-EAEU relationship. The goal is to ensure that the interests of all countries of the region are considered by the Eurasian cooperation, including ways to deal with any potential negative impacts.

5 Peter Havlik and colleagues at WIIW, among others, are working on a research project analyzing the costs and benefits of the 3 EU DCFTAs (see http://wiiw.ac.at/benefits-and-costs-of-dcfta-evaluation-of-the-impact-on-georgia-moldova-and-ukraine-p-4111.html). 6 Armenia now seeks to make an agreement with the EU that would be based on such elements of the abandoned draft DCFTA that are not incompatible with the EAEU. The EU and Kazakhstan have in December 2015 concluded a new Enhanced Partnership and Cooperation Agreement, yet it remains an open question how actively this will be followed through.

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In parallel, attention should be paid to the analysis of the EAEU states’ institutional relations to the three aforementioned countries.

The EU – EAEU – China triangle in Greater Eurasia

Given the growing weight of China in the global economy, it will play an increasing role in both the EU’s and the EAEU’s external economic relations. Based on this a new initiative might emerge what may be called a possible ‘Greater Eurasia’ agenda. It would not concern only the EU and EAEU, but also the future relations with the major players in Asia, first of all with China which is also a direct neighbor of the EAEU. In the recent years there were some major developments, which show the possible directions of such an extended agenda. These include China’s ‘One Belt One Road’ initiative as a framework idea, the establishment of the Asian Infrastructure Investment Bank and the New Development Bank, the development of trans-Eurasian railway and road connectivity, the Russian-Chinese and Kazakh-Chinese projects for energy supplies, etc. One of the most substantive topics is the development of the transport corridors between Europe and Asia, with both Russia and Kazakhstan occupying a prominent place on the Eurasian map. Many of these issues also bear high importance for other Asian economies, (especially for Japan, the Republic of Korea, and Iran but also for the ASEAN countries and India.) Phase II of the project will thus include a detailed analysis of the state and perspectives of both the EU-China and the EAEU-China integration relations, as well. The new project could be called a ’Triangular concept of economic cooperation in Greater Eurasia’, covering the EU, the EAEU, and China. Thereby each of the 3 bilateral relations will be looked at separately and subsequently conclusions will be drawn about both the common features, as well as the differences of the various aspects of the 3 sides of the triangle. Some expert work and studies have already been done concerning all aspects of this triangle. In the EU-China respect a recently completed CEPS study about a possible comprehensive bilateral trade agreement is based on what recently has become the standard for the „new generation” FTAs, which include the DCFTAs7. It should be noted, however, that there are also important differences: whereas the existing DCFTAs are heavily ‘euro-centric’, relying on harmonization with the EU rules, standards and norms, in case of China the study addresses a situation where the relationship is built between ‘equal partners’8. The study goes deeply into the particularities of China’s present stage of economic transition where fundamental structural economic reforms still have to be undertaken. The progress and success of these reforms will ultimately determine the possible content of a possible integration framework with the EU and other trade partners.

7 J. Pelkmans and J. Francois eds., ‘Assessing an EU-China Free Trade Agreement’, Centre for European Policy Studies (CEPS), Brussels, and (WTI), Geneva, 2016). https://www.ceps.eu/system/files/EUCHINA_FTA_Final.pdf 8 There are some similarities, albeit on a different scale, to the ongoing EU-USA TTIP negotiations. Several studies related to potential TTIP effects are available as well (see, for example, the recent WTI study by Francois et al, 2016, a compendium of papers by Hamilton and Pelkmans by CTR and CEPS from 2015, etc).

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Realistically, the time horizon for launching a conceivable EU-China DCFTA may be at least 5 to 10 years away due to the need of creating the necessary preconditions. One of those is for the EU to find a solution to China’s Market Economy Status for the purposes of Trade Defense cases. The EU – like numerous other WTO members – doesn’t consider that even with the expiry of the original 15-year deadline set at the time of China’s WTO accession, the conditions exist for considering it as a country where the internal and export prices are fundamentally set by the market. Thus, now alternative solutions are being explored – the European Commission recently published its proposal for a systemic, not country-specific solution. This pending issue notwithstanding, the experiences with China’s WTO membership are overall considered favorably. The country, based on its numerous market economy reforms, is becoming an important player in the multilateral negotiations. It actively participates in most ongoing talks, putting forward proposals in line with its interests. While China is a major target of WTO Dispute Settlement cases, it is often ready to negotiate agreed solutions, withdrawing or modifying the measure complained against. These experiences played an important role in the EU’s decision to start negotiations about at least a partial liberalization and deeper economic cooperation with China: talks have been launched about a bilateral investment agreement. If successful, it could become an important portion of a future comprehensive FTA, even if moving towards the achievement of all 4 freedoms is still quite some time away. Turning to the EAEU-China economic cooperation, it is undergoing a major transformation, as well. While e.g. the China-Kazakhstan trade and investment links have grown manifold over the last decade (China is already Nr.1 trade and FDI partner of Kazakhstan), the bilateral links with Russia likewise have expanded over the last 15 years and China became the largest Russian import partner. At the same time, Chinese investments in Russia received a major boost only in 2014, with Russia’s new ’pivot’ to the East. Nevertheless, the EAEU-China economic and institutional cooperation is still a concept in the making, developing along three major lines: First, in May 2016 the Eurasian Economic Commission has been mandated with the task to start negotiations with China about a non-preferential Trade and Economic Agreement. According to information available, it is expected to focus on sectoral cooperation, a certain degree of regulatory approximation, as well as on launching of major joint projects. The work is likely to take several years. Second, Chinese investment is now generally ’permitted’ and even prioritized in Russia’s oil and gas, as well as mining and infrastructure sectors. As a result, Chinese FDI and portfolio investments started to grow in 2015 and the process accelerated in 2016. Third, the comprehensive construction of the railway road infrastructure is discussed and partly already implemented (West China- Western Europe automobile corridor) with the dual goal of advancing the West China-Western Europe transit, as well as the internal connectivity within the Eurasian landmass. The latter is particularly important since the regions that are already relatively developed – the Central Asian states, the Russian Urals and the Western Siberian regions - lack efficient channels for the mutually beneficial trade. The goal is to unite Inner Eurasia by building links among the resources, the producers, and the markets. Thus, the key question is the internal connectivity of Greater Eurasia, as a condition of economic development.

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The summary above shows that various models of economic cooperation, infrastructural links and integration frameworks among the 3 major players in the Eurasian region are evolving. The differences show the particular interests, approaches and longer-term objectives of the EU, the EAEU and China, respectively, as well as those of the other countries of the region. The following is a basic classification of the forms of international economic cooperation in the region, ranked according to the increasing level of intensity: Relations with non-WTO member countries. Accession to the WTO is for all countries the first step towards establishing durable and solid international economic cooperation based on a set of common rules, especially in the area of trade in goods and services. While most countries of the region are WTO members, there are a few exceptions, such as Belarus, Azerbaijan or Uzbekistan. In their case the focus of cooperation is to create the conditions for moving forward towards WTO membership, thereby helping them to achieve the basic foundation for enhanced participation in international economic-trade relations. Achieving this goal requires, of course, that the countries concerned are themselves interested and ready to ensure the necessary changes and reforms in their domestic economic-trade policies as required for accession to the WTO. Economic cooperation based on WTO membership. Accession to the WTO requires the respect of the basic rules of international trade, of effective participation in globalization. Achieving membership unavoidable requires a certain level of liberalization, opening of markets for foreign goods and services. There are countries, which, at least for a while, are content to build their international economic cooperation purely on this basis and are not interested in further liberalization. However, even in such cases there are possibilities for enhanced cooperation in specific areas, e.g. by creating improved conditions for foreign investment through the conclusion of bilateral investment treaties, or by entering into broader or sectoral economic cooperation agreements. Models for WTO+ economic relations. For some countries further liberalization of their economy is not (yet) a goal, but they are interested to build a network of international agreements for broader or sectoral economic cooperation through specialization of production activities, encouraging company- and industry-level joint ventures. These might involve all kinds of economic activities, but the manufacturing of complex industrial products is a particularly frequent area. Another important solution is the conclusion of long-term contracts, underpinned by government support and guarantees, for the supply of energy or raw materials. A further way of cooperation is the signing of international agreements for the development of regional transport and infrastructural networks – the latter very often again linked to the supply of energy. Last, but not least, enhanced regulatory cooperation and harmonization are frequently considered important in order to promote regional trade and production cooperation through the application of identical, or compatible technical regulations, standards, health and sanitary measures.

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Regional integration agreements and frameworks in Eurasia. At present two broad integration frameworks exist, the EU and of the EAEU, respectively. There is, however, also a fast growing network of bilateral integration agreements, concluded not just by the EU and the EAEU but also by China. Economic integration unavoidably involves the gradual liberalization of trade in goods and services, as well as of the movement of the factors of production, i.e. capital (investment) and of persons linked to economic activities. Such liberalization processes are not guided just by the economic interests of the participants, but also by the WTO rules. A selective opening of the markets (i.e. benefitting countries, which are not parties to WTO-conform FTAs) or the partial, sectoral market access for goods or services among the EU, the EAEU and China would be considered illegal under the WTO rules. Finally, yet importantly, geopolitical considerations also play a role in negotiating economic integration arrangements. Based on the above, during Phase II of the Eurasian Project it will be important to get a clear picture about the on-going or planned negotiations and agreements both among the three major players, as well as with third partners in the broader Eurasian space. Considering that the nature of the agreements negotiated by the EU, EAEU and China, respectively, differ in a number of points, further analysis and detailed studies are needed to establish what might be the common grounds for the potential bilateral integration plans among the three of them. Currently, the most important difference is that while in EU’s trade policies the comprehensive liberalization of economic relations is the major goal, China, but recently especially Russian-dominated EAEU, have rather focused on economic cooperation agreements with a heavy emphasis on sectoral linkages, production cooperation and transport/infrastructural joint projects, without providing mutual preferential market access. Thus, it is quite possible that there will not be a single model, rather the economic relationship between the EU, and the EAEU will have different features compared to the EU-China and EAEU-China relations. It is clear, however, that even under the most optimistic scenario in the near future only some kind of three-sided, DCFTA-type integration arrangements could be imagined, while any idea of an inter-regional Customs Union is not realistic.

The impacts of other major international agreements on economic integration and cooperation in Greater Eurasia

While the focus of Phase II will be the on the regions and countries mentioned above, it is also clear that the evolution of the broader international economic-trade relations will have an impact on the integration ideas in the Greater Eurasian region. A summary of the potential major elements of the planned analysis: The WTO processes, including the DDA negotiations. As mentioned, the DDA process is not likely to be completed in the core negotiating areas of trade liberalization in the foreseeable future. Recently partial results have been worked on, be it rule making (e.g. trade facilitation, agricultural domestic subsidies) or plurilateral liberalization involving a limited number of countries (e.g. the

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extension of the ITA agreement, or the TISA negotiations on services). While Russia and China are part of the rule-making negotiations, the TISA does not involve either the EAEU members or China, thus is not expected to directly affect the Eurasian integration process. Another important area of the WTO activities, Dispute Settlement involves cases against Russia and a much bigger number of cases targeting China. Thus, the number and nature of WTO cases launched due to the claimed breaches of the WTO rules by Russia or China will also certainly influence the EU views when considering integration relations with these partners. It should be noted, however, that the situation is not fully one-sided, as both Russia and China launched cases against the EU. Recent bilateral/regional negotiations and agreements of the EU. As part of its turn towards bilateral/regional initiatives, in the past years the EU has started FTA talks with a large number of partners, including developed countries, emerging economies and developing countries. Some of the negotiations have already been completed, e.g. those with the Republic of Korea, Canada (the CETA agreement) and Singapore, as well as with numerous developing countries that used to be part of the EU’s Cotonou/Lomé system of preferential relations. Other talks with the USA (TTIP), Japan, the Mercosur and several ASEAN countries are still under way. The negotiations, especially the ones with developed and emerging economy partners, are aiming at a high level of liberalization, covering not just goods, but also services, investment and the movement of persons. With some traditional partners the original „first generation” goods-only FTAs are also upgraded to achieve both broader coverage and deeper liberalization (Mexico, Chile, South Africa, Mediterranean countries). It should be noted, however, that the recent „Brexit” referendum in the UK is expected – among others – to slow down the EU’s international trade negotiating activities. Recent bilateral/regional negotiations and agreements of the EAEU. Apart from broadening and strengthening the internal market of the EAEU, its member states embarked on developing a network of free trade and economic agreements with their partners. The first FTA concluded in November 2015 with Vietnam entered into force in October 2016. It contains detailed provisions on trade, in particular tariff reductions and special investment regulations. The non-tariff barriers will be taken up in the coming period. Talks are currently on-going on FTAs with Israel, Serbia, and Singapore. The negotiation process with the EFTA states and New Zealand has been suspended due to the Ukrainian crisis affecting the relations between the Western countries and Russia. FTAs with Malaysia, Thailand, South Korea, Syria, and India are under discussion. Finally, as mentioned, in May 2016 the Eurasian Economic Commission received the negotiating mandate for a potential non-preferential Trade and Economic Agreement with China. Similarly to the EU’s European Commission, the EAEU and its main body, the Eurasian Economic Commission, is endowed with supranational competence for regulating foreign trade issues. Thus, the EAEU is the official partner in all potential FTAs. At the same time, investment regimes generally remain within the national competencies. Recent bilateral/regional negotiations and agreements of China. In the recent period China has also become more active in negotiating and signing integration-type agreements. Most of its

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partners have been developing countries and the agreements are focused on liberalization of trade in goods – often only to a partial extent. As part of these agreements China also often provides economic assistance to its developing country partners in the form of turn-key projects and other major investments on soft terms. A more recent initiative is directed at the neighboring Central Asian countries and Russia in the form of the mentioned New Silk Road initiative. It should be noted, however, that according to information the latter is more focused on the strengthening of transport and infrastructural links among the participants, rather than deeper economic integration.

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Appendix 3. Concepts for the 3 fast-track studies to be prepared by IIASA during 2017

A) Concept for a fast-track study on Foreign Direct Investment (FDI) - IIASA Eurasian Project (EU-EAEU-EaP and Central Asian countries)

Within the broader subject of capital flows – one of the four basic freedoms of international economic relations, including the EU’s Internal Market – Foreign Direct Investment is by far the most important component of long term capital flows. While there are other forms of investment, e.g. acquiring a limited, non-controlling ownership of existing companies,9 clearly FDI has the potentially most positive impacts for the investing and even more, for the recipient countries. It is mostly FDI through which the transfer of financial resources, of technology and management know-how occurs, which results in new - often high-tech - production capacities and which results in exportable products, sales to foreign markets – often to that of the investing country. FDI by definition implies long-term relations, providing stability to the overall economic relationship, enhancing trade also in goods and services, and in the flow of people linked to investment projects.

FDI is a very important aspect of the economic relations in the Eurasian region, as well. The member countries of the EAEU, the Eastern Partnership (EaP) countries, as well as the Central Asian countries have become since the early 90s major targets for FDI from the EU Member States. The growth rate of FDI has often exceeded the development of all other forms of economic-trade relations. In the last decade reverse investment flows into the EU, especially by Russian companies, have become also more significant.

However, exactly the long-term nature of FDI makes it especially sensitive to all changes in the political, macro-economic or economic policy environment. As the investing companies enter into a long-term commitment and establish projects in the recipient countries, which fall under the latter physical and legal controls, they forcefully react to any negative turns. This was evident in the region several times, first due to the slow-down, if not drop in the economic performance of both the EU and the EAEU countries during 2008-09, and even more since 2013, with the deepening political tensions in particular with Russia due to the Ukrainian crisis and the collapse of energy prices. The earlier large inflows have turned into outflows as the investing companies not just stopped putting in more money, but often cut back, if not closed down or sold their 9 https://www.oecd.org/daf/inv/investmentstatisticsandanalysis/40193734.pdf

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assets in the East. The sanctions introduced by the Western countries, including by the EU, have in several ways affected the investment flows, too. The negative effects were enhanced by the overall deteriorating economic and business environment, especially in Russia, but also in other countries of the region. While the largest investors, multinational companies were often able to cope with the worsening conditions, investments by the small- and medium-sized companies were especially hard hit.

Due to these reasons a short-term research project aimed at exploring the actual situation, the factors influencing the development of FDI and ideas for short-term steps to reverse the negative trends is of particular importance for practically all countries of the region. The area of FDI is huge, it is by definition one of the key subjects of Phase II, thus this early harvest project will be necessarily limited in both scope and depth. It will not cover as yet the third component of the Eurasian „Mega-Project”, China, and it will deal only with the most fundamental aspects of the FDI activity, without fully exploring all relevant factors playing a role in the evolution of investment flows.

The areas of the research project:

A. Factual aspects

- Analysis of the FDI activity in the region during last 10-15 years, the investment flows in the major investor and recipient countries, as well as its sectoral composition.

- Assessment of the impacts of falling investment flows on both the investing and recipient countries.

- Summary of the major international regulatory elements of FDI, including the rules of the WTO and the OECD.

- The EU’s, the EAEU’s, as well as the individual countries’ competences and regulatory regimes on FDI.

B. Analysis of the role of various policies and measures on FDI flows

a) Political developments, including both the indirect impacts of the political tensions, as well as the effects of formal sanctions

b) Evolution of the macroeconomic situation in the major investor and recipient countries, the broader economic environment, the impacts of budgetary and monetary policies on FDI flows.

c) Assessment of the impacts of official policies and measures related both to the broader business and investment environment, as well as to specifically to the conditions of FDI, to its geographic and sectoral composition

d) Assessments by the official and business circles about the investment climate in the major investor and recipient countries of the region.

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C. Proposals for possible short-term actions to deal with the most important negative factors

While point a) strongly influences FDI flows and its impacts will be described, the resolution of these issues is outside the scope of research of IIASA’s Eurasian Project. In the macroeconomic area (point b) there might be some possibility for short-term action, but it is probably limited.

Thus, the most realistic short-term actions are to be found in the area of point c), where even limited policy changes might have major positive impacts on FDI flows. Such positive steps can also much influence the last area, the assessments about the investment climate, which then have a feed-back effect on the actual FDI activity.

Necessary human resources

The size of even such a short-term project on FDI requires the involvement of a team of researchers, as well as the support of representatives of the official business sectors. The project leader is Dr. Peter Balas, Senior Research Scholar of IIASA, working together with 4-5 research experts both from IIASA and other institutes. The output of this study would directly feed into, and provide a foundation for the full research work on FDI under Phase II.

Output

A study of 40-60 pages, plus annexes with data for first results. To be followed up in the main Phase II project.

Timetable May – November 2017 for first results. To be followed up in the main Phase II project.

A project proposal within Phase II of the international research project (IIASA Futures Initiative) “Long-Term Agenda for Economic Cooperation in Greater Eurasia”

B) Trans-Eurasian Land Transport Corridors (EU – EAEU - PRC): An Assessment of Prospects and Barriers

Physical infrastructure – in particular transport links, including transport corridors, logistic hubs, etc. – underpins international economic cooperation. Raising efficiency of land transport corridors in the Greater Eurasia context could boost the efficiency of trade and create multiple opportunities for manufacturing as well as establishing various supply chains. It is of particular importance for the land-locked countries and region (all of Central Asia, Russian Urals and West Siberia, China XUAR etc.). Many of these issues also bear high importance for other Asian economies, particularly for the Republic of Korea as well as Iran.

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The current situation with regard to the physical and regulatory barriers on transcontinental routes is complex. All countries along the China-EAEU-EU axis have partly or completely different technical and operational standards. The impact of barriers in the area of international freight transport contributes to higher tariffs and lower speed of transportation, thus effectively limiting overall efficiency and blocking various business opportunities. The transit potential of the EU-EAEU-PRC routes remains unfulfilled. The objectives of this study are to assess the prospects of trans-Eurasian transport corridors. 1. Analysis of cargo flows between EU, EAEU countries, and the PRC as well as the quantitative assessment of the prospect for the cargo turnover along the China-EAEU-EU axis. Objectives: – To analyse the current cargo turnover and goods nomenclature carried by railroad

transport/motor vehicles (with the focus on container traffic by railway), including multi-modal arrangements, along the China-EAEU-EU axis (in transit and at intermediate points between the EU and EAEU countries, and between EAEU and China).

– To identify goods most likely to generate additional cargo flows along the China-EAEU-EU axis, including under the scenario of transport and logistics infrastructure development.

2. Analysis of existing barriers to the development of international freight transport and transit along the China-EAEU-EU axis. Objectives: – To assess the existing barriers in the territory of the EAEU countries, the EU and PRC, as

well as their effects on cargo flows: • discrepancy of the requirements established by regulatory enactments (e.g. length of

trains); • inadequacy of roads to international quality standards; • different gauges; • lack of safe and high-quality roadside infrastructure; • low capacity at international border crossing points; • insufficiently harmonized procedures for crossing borders; • duration of customs and border clearance of goods; • specific regulations within the bilateral intergovernmental agreements (quoting of

transportations, restriction of a choice of routes) etc. – To propose policy recommendations for removing barriers to international freight

transport. – To analyze the existing mechanisms of administrative support for international

transportation (EAEU, EU and PRC), and how they affect the transportation tariff (for example, Chinese domestic subsidies). To assess the effect of the cancellation/introduction of administrative support measures (e.g., changing the cargo turnover, transfer of shippers to other modes of transport, other routes).

3. Assessment of the potential interest of the EU countries to increase trans-Euraisan overland transit.

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Objectives: - To assess and quantify the potential interest of the EU countries and businesses in

making use of the trans-Eurasian land corridors, including the analysis of prospective goods nomenclature (in both directions).

- To identify the potential interest of the EU investors in transport projects on the territory of the EAEU as well as the EU participation in ‘One Belt One Road’ initiative.

Methodology: survey/interviews with representatives in the EU railway and logistics community should be considered.

Necessary human resources The size of even such a short-term project on Trans-Eurasian Land Transport Corridors requires the involvement of a team of researchers, as well as the support of representatives of the official business sectors. The project leader is Professor Dr. Evgeny Vinokurov, Director of the Centre for Integration Studies, Eurasian Development Bank (EDB), working together with 4-5 research experts both from IIASA and other institutes. The output of this study would directly feed into, and provide a foundation for the full research work under Phase II. Project output

– Report (40-60 pages) – Technical attachments – A set of maps and infographics.

Timetable June – December 2017 for first results. To be followed up in the main Phase II project. A project proposal within Phase II of the international research project (IIASA Futures Initiative) “Long-Term Agenda for Economic Cooperation in Greater Eurasia”.

C) Aligning TBT and SPS policies in the EU-EAEU-CIS space

Non-tariff barriers to trade are more important these days than tariff barriers. The most important of these are technical standards for industrial products (TBT), food safety standards, or sanitary and phyto-sanitary standard regulations (SPS) and customs administration procedures. Furthermore, regional trade in goods is also strongly affected by cross-cutting legal obligations for producers, including e.g. undertaking legal liability for damages and other consumer-protection measures. In Phase I of the IIASA project there was a single seminar on the TBT and SPS issues, but this was very preliminary, and did not really get to grips with the issues of EU-EAEU relations in this domain. As regards the TBT, the EU has around 5,000 harmonized standards10, to which may be added around 25,000 other ‘European’ standards set at the initiative of the private sector by the

10 European Commission, Harmonised Standards Index (http://ec.europa.eu/ growth/single-market/european-standards/harmonised- standards/index_en.htm).

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European standards organizations11. As regards SPS, in the EU these consist of about 300 regulations12. The CIS states for their part have comparable numbers of GOST standards in both TBT and SPS domains13. In recent years the EAEU has been taking on competences in this field, building on the GOST standards and gradually modernizing their content. An important part of this modernization process has been an increasing convergence on international (ISO) and European standards. There are also some common standards set by the UN Economic Commission for Europe (UNECE), notably for the automobile sector. This convergence is of course fundamental for removal of trade barriers, but it is not all. There are further important matters of certification of conformity and cooperation between accredited agencies. The Association of European Businesses (AEB) in Moscow reports on constant struggles for these procedures to work smoothly. In the years preceding 2014 there were substantial efforts by the EU and Russia to work cooperatively together to accelerate the convergence process. This stopped as a result of the Ukraine conflict. At the same time the situation among the CIS states changed, as Belarus, Kazakhstan and Russia were joined by Armenia and Kyrgyzstan in the EAEU. On the other hand, Georgia, Moldova and Ukraine are in the course of adopting European standards as part of their Deep and Comprehensive Free Trade Agreements with the EU. Against this background the work in Phase I of the IIASA project did not clarify two important issues: - Convergence of EAEU and EU TBT/SPS. How far and fast, concretely, is the convergence

process between the EAEU and international/European standards progressing? This is a simple question to pose, but the answer requires an understanding of work on hundreds and thousands of standards, and is very difficult to synthesize. The earlier informal expert work between the EU and Russia could usefully be reviewed as a starting point. An in-depth study should be commissioned on how far the ongoing convergence process actually advances with experts familiar with Russian/EAEU and EU regulatory regimes, respectively14. New models of cooperation over certification of conformity should be reviewed, as for example in the recent EU-Canada CETA agreement. On this basis alternative scenarios should be identified for constructive progress between the EU, EAEU and other CIS countries for when the time is ripe.

11 European Committee for Standardisation (CEN), European Committee for Electrotechnical Standardisation (CENELEC), European Telecommunications Standards Institute (ETSI). 12 As conveniently listed in the SPS Strategy of Moldova in ‘Decision No 1/2016 of the EU-Republic of Moldova Sanitary and Phytosanitary Sub-Committee of 1 June 2016’, Official Journal of the EU, L 178/28. 13 For example the EAEU's list of standards governing only wheeled vehicles has over 400 items: ЕВРАЗИЙСКОЕ ЭКОНОМИЧЕСКОЕ СООБЩЕСТВО, КОМИССИЯ ТАМОЖЕННОГО СОЮЗА, "О БЕЗОПАСНОСТИ КОЛЕСНЫХ ТРАНСПОРТНЫХ СРЕДСТВ", РЕШЕНИЕ от 9 декабря 2011 г. N 877, 14 See for example: Black, Robert and Kireeva, Irina (2015), ‘Sanitary and phytosanitary issues for the Customs Union of Russian Federation, Belarus and Kazakhstan in relation to trade with other CIS countries and the EU, with special reference to food of non-animal origin and phytosanitary controls’, Journal of World Trade 49 (5), pp. 805-835.

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- TBT & SPS between the DCFTA states and other CIS states. How will the adoption of European

standards by the DCFTA states affect trade with EAEU states, going beyond the status quo where GOST standards prevail? This question was explored in a trilateral consultative process between the EU, Ukraine and Russia in 2014 and 2015. But the process failed due to its high politicization. Various formulae for compatibility should be reviewed, including the model case where based on progress in harmonization, individual exporting enterprises in CIS countries are able to gain recognition for their products in both the EU and EAEU.

In conclusion the subject of TBT and SPS could profit from an in-depth 'track 2' sub-project under Phase II to examine technical possibilities for convergence between the EU and EAEU. This would need work by a small team, with a first deadline for output by November 2017, while a full year will be needed to mature the results. The primary model of work would be through in-depth discussions with TBT/SPS officials in the European Commission and Eurasian Economic Commission, with the involvement of external experts, as necessary. This should at least at first be done bilaterally by the team interviewing officials in Brussels and Moscow. On the basis of draft papers, there should be meetings at IIASA. In addition Belarus has significant export capacity in both engineering and agri-food products (i.e. TBT and SPS sensitive products, unlike commodity trade), and their officials might have useful insights to offer. The question of inviting officials from both Brussels and Moscow together at IIASA should be approached cautiously step by step, given the failure of the EU-Ukraine-Russia trilateral process of 2014-15, which had tried to address these same issues.

Necessary human resources

The size of even such a short-term project on TBT and SPS policies requires the involvement of a team of researchers, as well as the support of representatives of the official business sectors. The project leader is Dr. Michael Emerson, Associate Senior Research Fellow, Centre for European Policy Studies (CEPS), working together with 4-5 research experts both from IIASA and other institutes. The output of this study would directly feed into, and provide a foundation for the full research work under Phase II.

Project output - Technical report - Policy report

Timetable May - November 2017 for first results. To be followed up in the main Phase II project. A project proposal within Phase II of the international research project (IIASA Futures Initiative) “Long-Term Agenda for Economic Cooperation in Greater Eurasia”.

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