At the Shanghai Cooperation Organization (SCO) Head of Governments summit in Bishkek on November 4, China urged the building of a free trade zone within the SCO that will help to remove trade barriers. Premier Li Keqiang, the head of the State Council of China, said that China is open to the setting-up of an SCO free trade area, and would like to see an FTA feasibility study among SCO members. He highlighted the ongoing efforts to enhance synergy between China’s Belt and Road Initiative and the Eurasian Economic Union and urged member states not to close doors but establish a free trade zone that gives impetus to relations.
However, China’s free trade zone initiative seems to be untimely, taking into account that some SCO members have already entered the Eurasian Economic Union, established and dominated by Russia. Moscow simply is not in a position to deal with a new free trade zone within the SCO, since it is already struggling to deal with the EEU’s internal tensions and problems. It is obvious that there is a clash between the EEU and China’s idea to create a free trade zone in the SCO. Moscow fears that cheap Chinese goods might invade its markets through Kyrgyzstan and Kazakhstan. Furthermore, as Prime Minister Dmitry Medvedev noted, Russia has to think about WTO tariffs as well, having entered the World Trade Organization after long years of waiting. Thus Medvedev spoke about difficulty of the SCO free trade question, noting the issue is complicated.
A new free trade zone proposed by China might become a new burden for Russia, whose economy is already stagnating thanks to low oil prices and international sanctions. Moscow first must deal with those member states that have not yet felt the benefits of the EEU, gains often overwhelmed by economic turmoil and tariff disputes. Tensions among the EEU members further deepened when Kazakhstan became a WTO member, due to the accession conditions that demand lower tariffs then those adopted by the EEU. Kyrgyzstan, which entered the WTO in 1998 and for many years enjoyed low tariffs and cheap goods from China, is currently in the most difficult situation. The EEU’s increase in customs duties on goods from China was painful for Kyrgyzstan as the country lost its ability to re-export these goods, which had been an important source of income. Kyrgyzstan, with a pro-Russian president, now relies on ad hoc financial assistance from Moscow, however the promised EEU miracle has not happened yet.