Russia and APEC: Increased Cooperation Will Aid Russia’s Modernization

The 2012 APEC summit – which formally opened on 2nd September in Vladivostok and will culminate in the meeting of the member countries’ leaders this weekend – is an occasion for Russia to demonstrate its status as an integral part of the global economy. Russian President Vladimir Putin is due to deliver the keynote speech of the summit on 7th September. For his part, US President Barack Obama is expected to be conspicuous by his absence. 

Comprised of 21 countries – which, besides Russia and the US, includes rapidly growing China – APEC accounts for about 40% of the global population and well over 50% of global GDP. By the year 2020, the group’s internal trade is projected to nearly treble to $15 trillion. The fact that Russia is hosting the summit for the first time in the group’s history is itself an acknowledgment of Moscow’s readiness to play a more active role in the Pacific Rim’s economy, while hoping to reap significant benefits for Russia itself. 

Moscow’s strategic interests in the Far East 

Following the collapse of the Soviet Union, Moscow’s writ over the Russian Far East (RFE) has weakened while its economy has been severely hit by the discontinuation of federal transfers. Vladivostok itself has suffered from the sharp decline of Russia’s Pacific Fleet and related industries. The city’s population has fallen from 650,000 in 1991 to 580,000 today, while the population of the RFE has sunk from 8.1 million to 6.4 million. Moscow is keenly aware that these trends must be reversed, lest the security of the federation’s eastern borders be compromised. In his pre-election article on foreign policy, Putin noted that the development of the RFE is Russia’s "most important geopolitical task”. In May a new ministry was established to promote the development of the region and a blueprint drawn up anticipating total federal investment of more than US$100bn over the next decade. 

Improved cooperation with APEC is the key component of this strategy. Apart from addressing the need to attract investment – Russia is unable to develop the RFE and Siberia on its own – Moscow’s opening up to the APEC countries, in particular China, Japan and South Korea, is bound to go some way towards overcoming persistent frictions in the Far East, especially between Russia and Japan, whose economies are highly complementary. At the same time, the prospect of improved living conditions should reverse the outflow of Russian population from the region, while alleviating fears that the region will be overwhelmed by ethnic Chinese. 

With China becoming the powerhouse of a new economic system in Asia as well as the pillar of global growth, Russia cannot afford not to engage with it. On the contrary, its strategic objective of reversing the decline of the RFE can best be realized by harnessing these trends to Russia’s advantage (or, as Putin put it in his pre-election article on foreign policy, "catch the Chinese wind in the sails of [the Russian economy]”). Indeed, there is significant room for Russia to benefit from these trends as the current level of Russo-Chinese trade is well below its potential. During his visit to China in May, Putin and Chinese President Hu Jintao set the target of raising bilateral trade to US$200bn by 2020 from US$84bn last year. 

The global context . . . 

Looking beyond its relations with China, Russia’s upgraded relations with APEC will aid its objective to become a heavy-weight player in the global economy. As international trade has grown exponentially over the last two decades, trade between China and Europe has increased most rapidly. Russia, bordering the EU in the West and the APEC giants in the East, has the opportunity to act as a transport conduit between these two enormous trading blocs. Recently it has been investing heavily into modernization of its railways and has raised the possibility, through the help of global warming and new technology, of shipping goods along the (Arctic) Northern Sea Route, a significantly shorter channel than overland or existing sea routes. To advertise its infrastructure prowess, the Russian government has spent almost US$9bn on Vladivostok’s infrastructure ahead of the summit, with private investors contributing a further US$13bn (the showcase exhibit is the 9 km long cable-stayed bridge from Vladivostok to Russky Island, which cost US$1.1bn). 

Ifskilfully managed, the development of Russia’s eastern regions would also promote the much-needed diversification of the Russian economy. Apart from its immense natural resources, the region has considerable potential in engineering (such as aerospace, instrument-making, automotive and electronics) and shipbuilding. Investment judiciously channelled to these sectors would alleviate concerns that Siberia and the RFE are destined to become a raw materials appendage of the emerging Chinese giant. Such a model has been successfully deployed by Australia, and there is no reason why Russia should not follow its example. 

Russia’s intensified participation in APEC coincides with its long-delayed entry into the WTO. While there have been various estimates of the impact of WTO membership on the Russian economy (with World Bank, for example, seeing an annual benefit of about 3% of GDP), the real long-term effect is incalculable: WTO membership signifies the opening up of the still relatively insulated Russian economy; over time this is bound to reduce corruption and finally blow away the cobwebs of Soviet-era backwardness. Increased interaction with APEC must be seen in the same light – namely as a precondition for Russia’s globalization-assisted modernization. 

. . . and Putin’s Eurasian vision 

Finally, President Putin’s proposal for the creation of a Eurasian Union by 2015 is wholly in keeping with these developments. Misleadingly viewed as an attempt to recreate an inward-looking Soviet Union, such a structure would in fact facilitate the optimal integration of the former Soviet economy with the global system. Russia’s shift toward the other countries of the former Soviet Union and APEC in no way reduces its economic relationship with the EU. It merely corrects the current anomaly whereby a mere quarter of Russia’s exports are tothe APEC countries. The Russian government, for its part, believes that at least 50% of the country’s external trade should eventually be conducted withthe group. 

In short, Russia is not moving away from Europe. It is merely adding a Eurasian leg to its economy – a development to be welcomed all round.