Russia’s Choice Should Provide for Liberty of Action

16 may 2003

Timofey Bordachev - Director of the Center for Comprehensive European and International Studies at the National Research University–Higher School of Economics, and Director of the Eurasian Program at the Valdai Club Foundation. He holds a Doctorate in Political Science.

Tatiana Romanova is Associate Professor at the European Studies Department, Saint-Petersburg State University; and Head of Jean Monnet Centre of Excellence, Russia.

Resume: While negotiating with the EU for a common economic area, Moscow must realize that it will have to waive part of its political independence in exchange for the benefits of a common market.

The cooperation between Russia and the European Union often resembles an idyll. Even a recent controversy – sparked by a change of transit rules for Russians traveling between the Baltic enclave of Kaliningrad and other parts of the country – has not diminished the image. However, the real scale of Russia-EU cooperation remains a token act, since the EU has been unable to formulate a clear-cut plan for cooperation with Russia, while the Russian government has failed to keep its contractual commitments.

The trade balance between Russia and the EU remains clearly disproportional, with the 34 percent of Russian exports totaling a mere 3.8 percent of European imports [1]. There are good reasons to believe that this trade imbalance will continue to grow as long as the countries of Central and Eastern Europe are reorienting their markets toward the West.

Nevertheless, the two trading partners continue to search for mutually acceptable forms of cooperation. President Vladimir Putin stated in his 2002 address to the Russian parliament: “We will continue our cooperation with the EU in a search for ways to build a common economic area.” The concept for a Common Economic Space (CES), a discussion of which is now underway, has set the ambitious goal for Russia’s greater integration into the United Europe [2]. The debates surrounding this question began rather recently, and many crucial issues remain unexplored thus far. Is it possible for Russia to accept some preferable aspects of European integration, while rejecting others at the same time? What will be the political repercussions for Russia if there is an intensified level of economic cooperation with Europe? Does Moscow have other viable options on how to promote its integration into the European Union? The answers to these questions are essential for making well-grounded decisions on the strategic goals of Russia-EU cooperation.

Experience Of The Partnership And Cooperation Agreement

The official history of relations between Russia and the EU could be said to have begun with the establishment of regular summits in 1998. Despite this rather short history Russia has already gained some illustrative experience in its relations with the EU. For a general overview, let us analyze the Partnership and Cooperation Agreement between Russia and the EU, signed on the Greek island of Corfu in 1994.

A number of the provisions set forth in this agreement outline certain conditions which must be met before economic activity may take place on the territories of partner countries. One qualification for the successful realization of Russia-EU cooperation is that Moscow must meet serious requirements, like opening up Russian markets to European businesses [3]. The various steps toward bridging the gap between the Russian and European markets aim to set up a free trade zone in the future. The European Commission stated in its policy documents that the goal of the Partnership and Cooperation Agreement was to bring Russia into conformity with the legislative formats of the European market and the World Trade Organization [4]. Specifically, it provides for more active cooperation in developing the Law of Competition and gradual transition to market principles in the field of natural monopolies and state support. Article 55 of the Agreement stipulates that “Russia shall endeavor to ensure that its legislation will be gradually made compatible with that of the Community.” It also lists specific rules of law where approximation was necessary [5].

The Partnership and Cooperation Agreement is far from the most advanced legal form for establishing mutual relations between the EU and its immediate neighboring countries, although it is a much more binding document, of course, than the Agreement on Trade and Cooperation endorsed by the Soviet Union in 1989. However, the Partnership and Cooperation Agreement appears to take a lower position in the hierarchy of the EU foreign policy instruments than the more integration-oriented agreements with third world countries, which provide for gradual extension of the EU’s four basic privileges – free flow of goods, services, capital and investment. One may recall the Agreement on a European Economic Area which the EU signed with Norway, Iceland and Liechtenstein in 1994, or the so-called next-generation agreements with Central and East European countries, which are aimed at preparing candidate countries for full accession to the EU [6].

Russia has difficulties in fulfilling even the Partnership and Cooperation Agreement, which has caused several complaints from the European Commission. One of them came in March 2002 from EU Trade Commissioner Pascal Lamy. His letter to Russia’s Deputy Prime Minister Alexei Kudrin insisted that Russia should open up its market for European insurance companies [7]. Furthermore, the EU brought legal action against Russia’s natural monopolies, in particular against the Gazprom company which received the strongest protests from the EU.

Some observers rightly argue that the Partnership and Cooperation Agreement was the result of an overestimation of a high potential for a Russo-European rapprochement [8]. It is no secret that in the early 1990s Russia sought membership in various prestigious clubs of particular nations, or at least hoped to establish the closest possible relations with them. However, this objective was pursued without considering how difficult it would be for Russia to meet its obligations to those countries. On the other hand, European officials, too, cherished overblown hope over actual concrete reforms in the former Soviet republics.

The political section of the Russia-EU agreement reflected the Union’s willingness to link economic relations with Russia in accordance with the rate of Russia’s transition to the European model of democracy – a manifestation of the “principle of political conditionality,” which the EU developed in the late 1980s [9].

After the agreement entered into force, Brussels observed the pace of its implementation in order to measure Russia’s readiness for consistent and fruitful cooperation [10]. EU officials made it clear to Moscow that they were not prepared to go beyond the goals stipulated by the agreement, and that more ambitious plans could be discussed only after the agreement was fully implemented.

What Does The Compatibility Of Legislation Entail?

The Common Economic Space, proposed at the Russia-EU summit in Moscow in May 2001, might be a promising project for both Russia and Europe [11]. The official goal of the CES was to unite the interdependent and permanently interacting economies of Russia and the EU. The parties declared that the coordination of their state legislation was the cornerstone of the concept. In keeping with their joint declaration the CES concept was to be worked out within the old framework of the Partnership and Cooperation Agreement. Even the agendas prepared for the ad hoc working groups matched the main sections of the 1994 document. These factors prompt a conclusion that the EU’s CES concept was nothing more than pretty new gift wrapping for an old package of requirements for Moscow.

Nevertheless, the current discussions between Russia and the EU do not rule out the possibility that the parties may endorse a new agreement which is more precisely oriented toward integration, as well as featuring a somewhat different concept of rapprochement [12]. This is precisely why the very discussion concerning new forms of cooperation is important.

Interestingly, these types of discussions may bring about unpredictable results. For example, the so-called energy dialog, initially a very limited project, ultimately resulted in very serious negotiations. These centered on the possibility – and even the necessity – of a special Russia-EU agreement which would be more narrowly focused, yet still open up new prospects for increased economic cooperation.

Returning to the focal idea of the CES (harmonizing national laws and working out common regulation rules): the fact that this question was raised already at the time of drafting the Partnership and Cooperation Agreement and the importance attached to it now proves that even a moderate scope of Russia’s cooperation with the EU goes far beyond the gas-for-food formula and requires essential changes in Russian legislation. The harmonization of Russian and European legislation in this context means bringing Russian laws into line with EU standards, without discussing specific aspects of legislation or amending certain legal acts – something that might help protect Russian companies’ interests.

Some Russian experts propose implementing the EU’s best attributes, such as free movement of people, capital, goods and services, while jettisoning what the Russian government or businesses cannot afford at this time: social policies, natural conservation policies, protection of consumers’ rights and health, etc [13]. However, an approach of this kind seems improbable for at least three reasons.

In the first place, this approach is impossible since the EU’s legislative format was not a result of simple political decision-making, as was the case in the Commonwealth of Independent States, or in the pseudo-integrated alliances of Latin America. Rather, it came into being through a long process of adjustment to different areas of human activity, where one dimension of integration cannot exist without the second, third, fourth, etc. Some analysts speak of a possible cumulative effect, meaning that the alignment of corporate laws and policies in the field of competition may eventually force Russia into adopting other parts of acquis communautaire (EU secondary legislation), including the more unpopular ones, like environmental protection and the protection of consumer rights [14].

Secondly, the EU is unlikely to encourage its companies to operate in a territory which fails to aspire to the level of European legal norms. It would prove difficult to convince European businesses to enter into a market where environmental laws, as well as certain aspects of its social welfare legislation, fall below the EU norms. This sentiment was strongly supported by Chris Patten, the European Commissioner in charge of External Relations, who stated that no one insisted on Russia’s remodeling its laws to comply with the EU norms, but Russian companies would find operations on the EU internal market much easier should Russia adopt the same legislative format [15]. The issue is especially topical now that the international formation of particular anti-monopolistic laws and competition mechanisms has moved center-stage, and different countries are also unifying their laws on ecological issues.

The harmonization of these “unpopular” aspects of law would make it easier for Russian companies to operate on the EU internal market. The sale of electric power, for example, would be more profitable to Russia than the export of crude fuel resources. However, this issue immediately brings up the questions of compliance with particular ecological laws; there would have to be investment made into pollution control, economical efficiency, and the overall ecological safety of the thermal power plants. Moreover, the sensitive subject of Russia’s nuclear reactors would probably be drawn into the debate as well.

Thirdly, Moscow currently finds itself in a somewhat subordinate position in the financial sphere. After the reform initiatives of 1999 and 2000, the EU has been earmarking funds via its TACIS program to finance the activities – specified by the Partnership and Cooperation Agreement – to introduce acquis communautaire into Russia. The stabilization of the political regime in this country has made Russia-EU relations more constructive and has prompted the participants to shore up areas of cooperation that have been independent to date. Brussels is increasingly inclined to honor the provision of technical aid upon the passage of certain laws strictly prescribed by the EU. The proposed bills are based on the EU’s internal regulations, while the supervisory positions in the TACIS program are held by Western experts who are best acquainted with the European legal codes.

The above strongly suggests that any form of cooperation with the EU that involves elements of integration will inevitably produce a cumulative effect on the entire legal system of the EU’s partner. This has been plainly witnessed in the nine years since the signing of the 1994 Partnership and Cooperation Agreement, and closer economic integration is most likely to make that effect even more pronounced. The chances that Russia will be able to make the best “acquisition” by integrating with the EU and share only the best qualities of European life are very slim. Therefore, those who speak in favor of the CES, or other similar ambitious plans, must admit that Russia will have to adapt its legislation to that of the EU in order to conform to the economic rules and regulations of the common market countries.

Political Consequences Of Economic Integration

A heightened level of economic interdependence between the EU and Russia will obviously result in a partial loss of Moscow’s political independence, while it will continue to have no levers by which to influence the decision-making process in Brussels.

Russia is now skilfully positioning itself on the international stage as an independent player, albeit less influential than it was in the past. However, after its interdependence with – or, rather, dependence on – the European Union reaches a certain point, such strategic positioning will become almost impossible. In that situation, three scenarios are possible.

A worst-case scenario may bring to mind the EU’s “development policy” toward developing countries in Africa, the Caribbean and the Pacific. As their economic dependence on the EU increased, Europe’s political demands acquired a dominating role in their relations.

The best example is provided by the 1975 Lome agreements which initially focused solely on humanitarian aid and technical assistance to the least developed of their former colonies [16]. However, political conditionality – a principle which allows the Europeans to suspend aid or even impose sanctions on a country if it violates the principles of democracy or human rights – gradually started to appear in EU documents on humanitarian cooperation. This principle was first introduced into the Lome agreements in the mid-1990s. The version of the document now in effect features political conditionality in all of its provisions, thus limiting the political maneuverability of the EU’s partners.

Of course, comparisons between the EU policies toward Russia and developing countries in the Caribbean, Africa and the Pacific are highly relative. Unlike Russia, those nations can hardly hope for close economic relations with the EU, or for an approximation of their legislation with that of Europe. What is more, their very survival is often totally contingent on European aid. Relations between the EU and the Lome signatory countries are undoubtedly the epitome of the political conditionality principle, while Russia possesses certain elements of persuasion over the Europeans. Furthermore, the EU makes this principle applicable only to countries seeking accession to it. Yet, economic integration may have extreme political consequences for Russia if reform initiatives are conducted under the influence of technical and financial aid from the EU, and do not come about as a matter of conscious choice.

The second scenario also provides for a domineering role of the European economy in case Russia-EU economic integration becomes so intensive that Moscow will simply be unable to make independent foreign-policy moves. Any challenge to the West – and Brussels will have the exclusive power to decide whether a move on Moscow’s part would constitute a challenge – may prompt the EU to “tighten the reins.” Turkey and the EU provide an illustrative example of such relations: any political initiative by Ankara that does not conform to EU policy guidelines meets with strong opposition from Brussels.

With Russia, the situation would be more complex as, due to its high military potential, this country has traditionally possessed a far more independent political line than Turkey. Moreover, Turkey has the military backing of NATO and the U.S., without which the EU is unable to ensure its security or even manage crisis situations. Washington, on its part, insists on closer relations between Turkey and the EU, as well as Turkey’s full admission to the Union. A powerful ally like the U.S. gives Ankara some room for maneuvering – something that Russia lacks.

In the third scenario, Russia may acquire the same status with Europe that Norway and Switzerland enjoy today. Those two countries refrain from joining the EU for different reasons – disagreement on economic issues, historical orientation, fear of losing independence, and so forth. Nevertheless, the degree of their integration into the EU is so great that they must follow the logic of the decision-makers in Brussels and adapt their domestic laws to European legislation. The decisions coming from Brussels are worked out without their participation, and do not always meet with their interests. The Norwegians and the Swiss, however, maintain a certain difference of approach toward the process. While Norwegians have been aligning their laws with the EU on the basis of the CES agreements, the Swiss have been doing this voluntarily to maintain the traditional magnitude of their economic ties with other Europeans [17].

In Norway – whose relations with the EU have been institutionalized by agreements and are thus more suitable for Russia as a model – the adoption of legislative procedures designed in Brussels may occasionally trigger conflicts. If the Norwegians determine that a particular European bill runs counter to their interests (cf. the 1992 directive for licensing oil fields), the EU may proceed with legal actions against Oslo, thus resulting in Norway’s compliance with the EU’s decision. This is what transpired when the 1998 directive for the liberalization of the natural gas sector was enacted [18]. The European Economic Area rules make a provision for non-member countries to veto mandatory adaptation of one or another law, but the actual use of the veto power is tantamount to a breakup of economic relations or a threat to their normal functioning.

The third scenario looks most beneficial for Russia. One must realize, however, that tight economic integration of this kind will inevitably necessitate a closer coordination of foreign policy initiatives and the development of a unified stance on key international issues. To make this relationship solid, the partners must possess an equal economic status, together with identical rates of development. Another important requirement is that Russia should receive no technical or financial aid from the EU (Norway itself contributes funds to the EU budget). At the moment Russia does not meet any of the three criteria.

Whatever the situation, efforts to fit into the EU legislative framework – in the absence of even a hypothetical prospect of joining the union – will amount to reducing Russia (not unlike Ukraine, Belarus and Moldova) to the position of a satellite nation within the newly renovated European Union. Given Russia’s geopolitical ambitions, this discriminatory status will unavoidably spark tensions between Moscow and Brussels. Therefore, the model of economic rapprochement proposed by Brussels and accepted by Moscow, which provides for Russia’s adaptation of EU legislation, will entail political problems.

Besides, the Kremlin has no powers or opportunity to influence the CES legislative parameters, which may cast doubts over the actual democratic legitimacy of Russia’s “cohabitation” with Europe. If the Russian executive office and, moreover, its legislative bodies, are denied participation in drafting unified legal resolutions, then the legitimacy of the latter will be brought under scrutiny.

Areas Of Choice

EU policymakers are unlikely to ease their rules with regard to their outside partners, especially if these partners decide to share the advantages of the EU’s four freedoms –free movement of people, capital, goods, and services. Yet the situation is not at all hopeless.

First, there have been past incidences of the EU finding compromises to exceptional cases. Its reckoning with Russia’s natural gas monopoly, Gazprom, stands as a very good example. The EU filed a lawsuit against this company, charging it with infringing on the EU’s laws on market competition. However, the European Commission found it possible to seek a compromise. It convened a conference of officials from the General Directorates for External Relations, Energy and Transport, and Competition and Gazprom’s chief executives to work out a solution which would observe EU legislation on the one hand, while respecting the interests of Gazprom on the other. So it is possible that Brussels may waive its principles and make concessions in some cases, however, this is rather an exception than the rule since the import of energy resources is virtually the only field where Europe depends on Russia.

On the whole, the degree to which Russia is interested in a rapprochement with the EU prompts the latter to stand firm on most issues. In this context, Russia must seriously analyze its overall development potential in light of integration with the EU, and assess the three patterns of partnership discussed above.

Obviously, in order to enjoy the benefits of a partnership with the EU, while retaining as much freedom and independence in global affairs as possible, Russia should orient toward the third relationship scenario with Europe, i.e. the model of the European Economic Area, upon which the EU is presently developing its relations with Norway and Switzerland.

Can Russia influence the decision-making process in Brussels when it is not present at the European Council? Any decision to use the veto, as is provided by the European Economic Area agreements, is a measure of last resort and rarely used. This is why Russia will have to find somewhat milder levers of influence.

It has at least three of these levers of influence at its disposal. First, Russian companies, manufacturing associations and various consumer advocates have offices located in Brussels. It would be their responsibility to inform the European Commission and the European Parliament on the regulation of various sectors of the Russian economy, the opportunities for fulfilling obligations before the EU, and the special interests of Russian industries, as well as lobbying functions. At the same time, those offices could update the industries at home on particular developments inside the EU, and help draft decisions acceptable to Russian businesses.

Secondly, Russian interests in the EU can receive a real boost if Russian experts join various workgroups at the EU commission in charge of legislative drafting. In this case information on current and future developments in Russia will reach the EU by official channels, rather than through lobbyists. Other opportunities to engage in dialog on issues which demand more focus may be explored by the Russia-EU parliamentary sessions. Parliamentary contacts may be helpful at the stage of drafting legislative amendments, as well as during debates on legislation in the European Parliament.

The veto option may be implemented if insurmountable differences arise between Russia’s interests and the European legislation. It would stand to reason to include the veto provisions in the CES legislation. These measures will provide, at least, a partial solution to the problem of democracy deficit.

Finally there is a third way of defending Russia’s interests. This would entail gathering supporters among the EU member-countries who have identical positions with Russia, or who are ready to lobby on behalf of their interests. This approach would be instrumental in Russia’s relations with the East European nations since economic and cultural ties in this region would help to promote Russia’s interests. Furthermore, the East and Central European countries will soon take seats in the European Council and the European Parliament. The decision-making process of these states will inevitably have an impact on Russia.

Russia should bear in mind the above three mechanisms for protecting its interests when working on the regulatory details of the common economic area. Negotiations on the CES have already entered the conclusive phase, therefore Russia has very little time left to ensure legislative guarantees of its rights. The situation also calls for a large-scale campaign in Russia to inform domestic businesses on how they should do business in Europe. They will require assistance on how to shape their relationships with European executive bodies, as well as with the Russian officials who are responsible for ties with the EU.

Russia is not the only country to encounter problems while implementing the existing agreements. We have already mentioned court cases in Norway over its failure to bring its laws into line with the EU legislation. Some of the EU countries themselves have run into the same sort of problems. To solve these issues, the EU has set up the European Court for member countries, as well as the Joint Committee, the Court and the Surveillance Authority for the European Economic Area countries. Other special agencies could be set up as well to monitor the approximation of Russian and European laws.

Following the accomplishment of its eastward expansion plans, the EU will remain every bit as interested in the inviolability of its acquis communautaire as it is now, and will hardly make any concessions on it. Although the EU’s planned enlargement, together with the simplification and operability of its structures, has brought about marked changes in the Union, the results of the forthcoming inter-governmental conference will have little effect on the issues discussed herein. There are no indications that the EU will ease its stringent position on economic regulation, so Russia must establish influential methods to deal with the European lawmaking process.

Summary

The record in fulfilling the Partnership and Cooperation Agreement and the current strategy of Russia-EU relations prove that a harmonization of the two parties’ legislation is inevitable. Importantly, there is no possibility for Russia’s integrating into Europe along desired directions while discarding others. The establishment of a Common European Economic Area will take away part of Russia’s sovereignty, as the country will have to assimilate legislative acts which it did not assist in drafting.

The voluntary restriction of one’s sovereignty is difficult for any country, and the ongoing debates in EU member states and candidate countries over the existing rules, new legislative acts and further reform initiatives of the European Union provide ample proof of the inherent problems. For Russia, partial loss of sovereignty will be particularly difficult given its historical traditions and perception of the world. Unlike most European nations, Russia has a special approach to the sovereignty concept, which provides for its indivisibility.

Although Russia can scarcely hope for full-fledged EU membership over the long-term prospect, even small-scale rapprochement will require very serious concessions from it, which will necessitate changes in its concept of sovereignty. As was mentioned above, there are three options for building Russia-EU relations, depending on Russian economic growth rates and Russia’s reliance on European funds and expertise. It is highly desirable for Moscow to make a conscientious choice in favor of the third option, and build its relations with the EU in the manner of Norway and Switzerland. The move will require much effort from Russia to develop its economy and will yield results only in the long term, yet orientation toward this model of relations will help keep Russia from falling into full dependence.

Moscow must realize that it will not be able to wall itself off from its “difficult” neighbor and pursue its policies without regard to what is happening in Europe. “Obviously, Russia no longer is facing a dilemma whether or not it should integrate into the world economy,” President Vladimir Putin told Russian MPs. “The world market has come here, and our own market has merged with the world system.”

There are only a few months left before the CES negotiations are scheduled to be concluded (October, 2003). Russia must make the best of this period of time and work out a legal mechanism for influencing the European law-making process so that it does not inadvertently turn itself into a powerless satellite nation.

1. Havlik P. Relations Between Russia and the European Union in the Context of the EU Expansion. RECEP Papers, Moscow, 2002, pp. 2-3.

2. Cf.: Mau V., Novikov V. Russia-EU Relations: Area of Choice or Choice of Area. Voprosy Ekonomiki, 2002, pp. 133-143; Havlik P. Relations Between Russia and the European Union; Samson I. Common Economic Area as a Factor of Steady Growth in Russia. RECEP Analytic Reports, Moscow, 2002.

3. Cf.: Agreement on Partnership and Cooperation.

4. Country Strategy Paper 2002-2006. Russian Federation. P. 3, EC 2001.

5. The European Union On-Line

6. Hillion C. Partnership and Co-operation Agreements Between the European Union and the New Independent States of the ex-Soviet Union. European Foreign Affairs Review. 1998. Vol. 3. No. 3.

7. EU Complains to Kudrin, Vedomosti. Apr. 4, 2002.

8. Leshukov I. Russia and the European Union: A Strategy of Relations. In: Trenin D. Russia and Major Security Institutions in Europe. Moscow, 2000, p. 43.

9. Smith, K.E. The Use of Political Conditionality in the EU’s Relations with Third Countries: How Effective? EUI Working Papers, No. 97/7. Florence: European University Institute, June 24, 1997.

10. Cf.: Implementation of the EU/Russia Common Strategy: EU Trade Policy Priorities in the Short to Medium Term, Official Journal, L/157, 1999.

11. Joint Statement by V. Putin, President of the Russian Federation,

G. Persson, President of the European Council, assisted by J. Solana, Secretary-General of the EU Council/High Representative for Common Foreign and Security Policy of the EU, and R. Prodi, President of the Commission of the European Communities. Moscow, May 17, 2001. The European Union On-Line.

12. Russia has made tentative signals to that effect. Cf.: Ivanov I. Unification or Disunity? Izvestia, Jan. 11, 2003.

13. Mau V., Novikov V. Russia-EU Relations: Area of Choice or Choice of Area. Voprosy Ekonomiki, 2002, pp. 141-142.

14. Samson I., p.16.

15. Patten Ch. Economic Space and Beyond: EU Enlargement Will Help Build Closer Economic Ties Between Russia and the Rest of Europe. Financial Times, Dec. 5, 2001.

16. For the development policy see: The European Union On-Line

17. Also see: Sverdrup U., Kux S. Balancing Effectiveness and Legitimacy in European Integration: The Norwegian and the Swiss Case. Arena Papers, Oslo, 1996; Church C. Switzerland: An Overlooked Case of Europeanisation? Queen’s Papers on Europeanisation, Cantebury, No. 3/2000.; Andersen S. Norway: Insider AND Outsider. Arena Papers, Oslo, No. 4/2000; Claes D.G., Fossum J.E. Norway, the EEA and Neo-Liberal Globalism. Arena Papers, Oslo, No. 29/2002.

18. Claes D.G. The Process of Europeanization. The Case of Norway and the Internal Energy Market. Arena Papers, Oslo, No.12/2002.

Last updated 16 may 2003, 13:10

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