by Andrew Kroybko
Southeast Asia is one of the economic powerhouses of the world, and its prized position in the global economy is only expected to grow in the coming future. This is why all the Great Powers are racing to (re)develop and reinforce their ties with the region, Russia being foremost among them. Ever since the onset of the New Cold War, Russia has been compelled to rapidly reorient its strategic focus eastward after witnessing firsthand how flimsy its friendship with the West really was. While most commentators rightfully draw attention to Russia’s growing full-spectrum relations with China , many of them neglect the fact that the country isn’t its sole partner or interest in the Asia-Pacific. Vietnam also forms a key lynchpin of Russia’s strategy there, and it’s through adroitly managing its social assets in the country that Russia can make its presence felt in the heartland of mainland ASEAN, Laos.
The author wrote an in-depth expose back in April about the strategic importance of Laos in forming the principal conduit of China’s ASEAN Silk Road , and the analysis holds just as firm today as it did then. The centrally positioned country connects to all the other mainland members of ASEAN and accordingly provides Beijing with an opening to extend its influence throughout the rest of the region. Not only is the country becoming land-linked through its pivotal transit relationship with China, however, but it’s also capitalizing on its historical ties with Vietnam to draw in trade and investment from the east. In fact, Vientiane and Hanoi just signed a border trade agreement at the end of last month stipulating that “import tax rates for goods made in Vietnam and Laos, as well as various products made by Vietnamese investors in Laos, will be reduced to zero.” What this basically means is that tariffs will be eliminated between both countries and a de-facto free trade zone will take its place. This is extremely beneficial for both parties, but interestingly also opens up some exciting opportunities that Russia and the Eurasian Economic Union could utilize in the coming future.
Russia’s ASEAN Pivot
In order to fully understand how Vietnam and Laos’ de-facto forthcoming free trade agreement can directly benefit Russia and appreciate the way in which this serendipitously came to be, a concise review of the country’s ASEAN pivot needs to be commenced first:
Moscow has had privileged ties with Hanoi ever since the US War on Vietnam, and despite undergoing a rough patch of relative neglect during the 1990s, they still remained among Russia’s strongest post-Cold War relationships (alongside the one with Syria ). The reason that bilateral ties managed to survive that troubling decade is because of the tourism and arms trade sectors that continued to thrive during the period, and correspondingly formed the basis for exploring the expansion of trade links even further in the past years. The result of this has been the signing of the Vietnam-Eurasian Union free trade agreement that symbolically (and substantially) shows that Russia’s Asian Pivot is about more than just China, and that Moscow has intentions to establish a more robust presence in ASEAN.
After Vietnam, ties with Thailand have also been on the upswing, especially since the change of government last year that swept Yingluck Shinawatra out of power. Prayut Chan-o-cha, the new leader of Thailand, has been much more pragmatic than his predecessor and exceptionally more eager to diversify his country’s partnerships. During Prime Minister Medvedev’s visit to the country in April, the two spoke about the possibility of a free trade agreement between the Southeast Asian state and the Eurasian Union, which set the stage for Trade and Industry Minister Denis Manturov’s recent announcement that Thailand’s formal application for such is expected to be submitted by year’s end. Taken together with the agreement already concluded with Vietnam, Russia would then be in a free trade area with the two largest mainland ASEAN economies and become anchored to Indochina’s most economically productive coastland areas.
Somewhat unexpectedly to some, Russia signaled at the Saint Petersburg International Economic Forum in June that it plans to become a major actor in Myanmar, signing a nuclear energy cooperation agreement with the country and even giving its Vice President the honor of presenting a keynote plenary speech alongside President Putin. More than likely, the country’s role has been elevated in the view of Russian diplomacy due to its enormous economic potential (despite the astounding political risks ), and it’s probable that Moscow envisions adding Naypyidaw to its list of free trade partners sometime in the future. If this comes to pass, alongside the clinching of a free trade agreement with Thailand, then it’s very probable that Russia could attempt to seal a free trade deal with all of ASEAN, or at the very least, the last two remaining mainland states, Cambodia and Laos.
* * *
Doing so with Cambodia wouldn’t be that difficult, since China’s entrenched interests in the new SCO dialogue partner and its implicit global cooperation with Moscow via the Russian-Chinese Strategic Partnership would see to it that Phnom Penh takes the natural and swift decision in this direction when the appropriate time arrives. As regards Laos, it will be described in the next section how the country is about to be in a quasi-free trade zone with Russia, whether or not this is even recognized at the moment by either side. To sum it all up beforehand, though, the reader should understand that Russia’s ultimate goal in ASEAN is to enter into a bloc-to-bloc free trade area between it and the Eurasian Union, which would then see the employment of China’s land and maritime Silk Road networks to facilitate the transit of goods between both sides. Under this vision, all sides stand to achieve major benefits, and as for Russia, one of the principal ones would be the extension of its Eurasian reach to the furthest extremity points of the supercontinent.
Getting Lucky In Laos
Having acquired a brief understanding of Russia’s grand strategy towards ASEAN, it’s now possible for the reader to adequately follow how Russia’s forthcoming quasi-free trade zone with Laos came to be. Vietnam, as it was initially mentioned, signed a border trade agreement with its neighbor that will essentially create a free trade zone between the two, and specifically give certain privileges to Vietnamese investors in Laos. At the same time, however, it was also noted how Vietnam just recently entered into a formal free trade agreement with the Eurasian Union. Connecting the threads, and considering the presence of certain strategic Russian business interests in Vietnam (most notably in this case, the tourism sector, which will be expanded upon soon), it’s conceivable to suggest that Vietnamese-based Russian businesses will be granted the same privileges in Laos as their ethnic Vietnamese counterparts in the country, the effect of which would be to open up a semi-official (albeit limited) free trade zone between Laos and Russia (or theoretically any of the other Eurasian Union member states) that transits through Vietnam.
The implications pertaining to this realization are huge, since it means that Russia can gain a strategic foothold in Laos via the overlapping free trade agreements. On the surface, mainland Southeast Asia’s least populous and most undeveloped country doesn’t seem like much of an economic opportunity for anyone, but upon closer examination (as was discussed in an earlier-cited piece ), there’s a wealth of untapped mineral and other natural resources there, to say nothing of the logistics edge that the country will have in being the pivotal connector between the Chinese and Thai components of the ASEAN Silk Road. The country also plans to amend its Constitution shortly in order to make it more business-friendly, meaning that if Vietnamese-based Russian companies can be ‘grandfathered’ into the legislation, then they’d be in a prime advantage vis-à-vis their competitors. The thing, is however, that Russia’s lost a lot of its soft power and overall influence in the country since the heyday of the Soviet era , meaning that it’s currently not in the best position to flex its economic muscle there, no matter the legal loopholes that presently work to its advantage or the constitutional urgency in doing so as soon as possible.
An innovative solution does present itself, however, and that’s the utilization of Russia’s established tourism industry network in Vietnam to serve as the vanguard for penetrating the Laotian market. Individuals employed in this field obviously have some degree of knowledge of the Vietnamese language (which is a given if they’re locals), and therein lies the first step in facilitating the return of Russian influence into Laos. According to official statistics released from February of this year, around 25% of the more than 4 million tourists that visited Laos last year were from Vietnam, and seeing as how the two languages are dissimilar, it’s reasonable to conclude that a sizeable segment of the Laotian population speaks Vietnamese to a working capacity. This means that the Vietnamese-speaking employees of Vietnam-based Russian companies can engage in market assessment operations to ascertain the social, material, and investment needs of the country, which would give their bosses valuable economic knowledge that they could either profit from themselves in diversifying their business portfolios or sell to other Russian companies interested in making inroads there. Even if Russian companies aren’t aware of or totally interested in Laos just yet, the discussion to start direct or charter flights between the two countries could make this investment (and tourist) destination much more attractive and convenient in the near future, so it’s therefore in the best interest of any Russian-owned entrepreneurial company in Vietnam to take the lead in this before others catch on.
All in all, Russia needs to be aware of the manner in which it can apply its already existing Vietnamese-based tourist industry in advancing strategic objectives in Laos. The promotion of robust business interests in the land-linked country (be they tourist, mineral, or other) via the exploitation of the overlapping free trade legislations centered on Vietnam can further Moscow’s ultimate goal of formalizing a free trade agreement with Laos and using such a development as a launching pad for promoting a pan-regional free trade area sometime in the future. As a result of such a lucky legal arrangement, Russia has a sizeable opportunity to deepen, as well as accelerate, its Pivot to ASEAN, but it must use its presently available human capital in Vietnam to bring this about. Russian-owned tourist companies in the country have the valuable language skills needed to communicate with Laotians (a significant portion of whom speak Vietnamese for historical and practical reasons), so they can form the vanguard in spearheading renewed Russian investment in the country, either through their own market discoveries or by selling such information to interested compatriots. Looked at from this perspective, Russia does in fact have a realistic possibility of expanding its economic interests into Laos, provided of course that it can harness the motivational will to take the initiative in the first place.