15.06.2008
Options for the EU-Russia Strategic Partnership Agreement
№2 2008 April/June

The 10-year Partnership and Cooperation
Agreement (PCA) between the Russian Federation and the European
Union, which served to deepen and broaden relations between the
parties, expired on November 30, 2007. Since neither party had
notified each other in writing about its withdrawal from the
agreement at least six months before it expired – i.e., before June
1, 2007, as is required by Article 106 of the PCA – it was
automatically renewed for one year, as was demonstrated by the
latest EU-Russia summit in Mafra, Portugal in October
2007.

Formal negotiations on a new agreement
have not yet begun due to the Polish position, which may soon be
revised and made more constructive. But sooner or later a new
document must replace the PCA.

Section 9.2. of the Medium-Term
Strategy for Developing Relations of the Russian Federation with
the European Union for 2000-2010, which was presented by the
Russian government at a Russia-EU summit in Helsinki in October
1999, said that Russia would pursue a line toward a new agreement
with the EU. This implied a mutual obligation to jointly work out
and conclude a “new framework agreement on strategic partnership
and cooperation in the 21st century,” which would replace the PCA.
Of course, politics is the art of the possible, therefore it is
important to find out how realistic this goal is in the light of
present Russia-EU relations, putting special emphasis on the
economic aspect of this issue. And which is more realistic – a
Strategic Partnership Treaty or Partnership and Cooperation
Agreement-2?

A
NEW EDITION
OF “PEACEFUL
COEXISTENCE”?

Relations between
Russia and the European Union are going through difficult times, if
not to say a crisis, which obviously started with the last but one
enlargement of the EU on May 1, 2004. On that day, the EU was
joined by several countries that traditionally showed no liking for
Russia and sometimes even no formal courtesy. At that time, the EU
– in contrast to its friendly rhetoric – began to freeze its
rapprochement with Russia and adopted a de facto policy of
“peaceful coexistence” and rigid, if not hostile, competition in
the economic sphere. In particular, it started petty bargaining
over terms for Russia’s accession to the World Trade Organization;
tried to impose on Russia an agreement on Kaliningrad, which was
humiliating for Russia; and thwarted a Russia-proposed plan for
settling the situation in Transdniestr region, which had been
approved by all the conflicting parties. Finally, it launched
undisguised anti-Russian activity during the Orange Revolution in
Ukraine, and tried to pressure Russia into ratifying the Energy
Charter, which Moscow found unacceptable and which it had no other
choice but to sign in 1994 when it was on its knees both
economically and politically before the West. There are many more
grounds for such an assessment of the EU’s policy toward Russia,
given by Sergei Karaganov in the fall of 2005.

These developments have
been taking place amid a deep structural and adaptation crisis in
the EU, which is assuming increasingly grotesque forms – against
the background of its integration successes of 1986-2002. This
could be seen in a serious dissonance between the processes of
enlargement after May 1, 2004 and the aggravation of problems
involved in the EU reform caused by the rejection of the EU
Constitution. The crisis has markedly lowered the quality of
European integration and its homogeneity as an integrational
association, and narrowed the possibilities for conducting a truly
“communitarian” policy toward third countries, including
Russia.

It is now much more
difficult for Russia to deal with the EU as a “solidarity
community,” as the other party always requires. Unlike the Soviet
Union, post-Soviet Russia has always met this requirement and never
sought to incite discord within the EU. The EU Treaty of Lisbon –
also known as the Reform Treaty signed in October 2007 – will
undoubtedly help to strengthen the “communitarian” solidarity and
European consolidation and to overcome the aforementioned crisis.
But this may require at least two to three years – the treaty is
scheduled to be ratified by all EU member states by the end of
2008.

For the chill in
Russian-EU relations to give way to warming, the two parties must,
first of all, set clear-cut strategic benchmarks for their
partnership and give profound and adequate assessments to their
mutual expectations, considering their positions in the world and
their domestic political situations. This is vital also for the
solution to the issue of the nature and quality of a New Framework
Agreement that will sooner or later replace the PCA.

First of all, Brussels
must realize that over the years of Putin’s presidency Russia has
given up the unsavory role of a beggar at the doors of the EU and
the West in general, as it used to be in the past decade, and has
ceased to be a secondary co-participant in relations, when it was
addressed as “partner” only out of kindness. In this new situation,
Russia does not and will not recognize the validity of the EU’s
claims to the role of senior partner, the more so mentor. In
addition, several strong reasons make the EU the least suitable for
this role compared with the beginning of the post-Soviet period of
Russia’s development.

Russian and even
Western experts agree that in the next 10 to 15 years Russia will
develop at a higher rate than the world average. The EU’s growth
rates will be much more modest – even if they are maintained at the
level of the EU’s relatively successful years of 2006 and 2007.
According to our forecast, Russia’s share in global GDP at
purchasing power parity (PPP) will increase from 2.5 percent in
2006 to 3.7-3.8 percent by 2017. This will enable it to consolidate
its positions in the system of international economic relations and
exert more active influence on them and on the processes of
globalization in general.

In the foreseeable
future, amid relatively high stability in global demand for Russian
energy resources – due to an expected growth in global energy
consumption from 16 billion tons of fuel equivalent in 2005 to 22
billion tons of fuel equivalent in 2020, mostly owing not to the
EU, but the United States, China, India and some other countries –
Russia’s relative interest in the EU as a market for its fuel and
energy resources may decrease slightly, although it will remain
high. This could happen especially if the EU continues to put a
great deal of emphasis on the need to reduce its energy dependence
on Russia and if it impedes direct investment in its fuel and
energy sector by Russian companies, such as Gazprom and others.

It should be emphasized
that Russia is ready to guarantee meeting the EU’s energy needs in
amounts commensurate with its own resource base. Russia’s economic
stability and security depend on the prospects for its energy
exports to the EU as much as the EU’s economic stability and
security depend on energy imports. The EU accounts for 90 percent
of Russian energy exports – not factoring in the CIS. Therefore,
any major limitation by Russia of its energy exports to the EU for
considerations of political pressure would inevitably be an act of
“economic self-mutilation” for itself. So this is a merely
hypothetical issue.

Of course, Russia is
interested in preserving the European Union as its number one trade
and economic partner, as it has been throughout the post-Soviet
period and will continue to be at least until 2015-2020. This
policy would only help maintain the solid base, developed for
years, which stimulates further development of Russia’s
foreign-economic ties. Relying on this base, Russia could move
forward in the field of foreign-economic activity, including in
other markets and sectors. At the same time, the EU currently
accounts for about 50 percent of Russia’s foreign-trade turnover
and this will gradually decrease within the next 10 to 15 years –
possibly to 40 percent. The reason is that in other parts of the
world – above all in the Asia-Pacific region – there are more
favorable conditions for Russia to build up its foreign trade, and
not only in energy resources. It is the Asia-Pacific region
(Asia-Pacific Economic Cooperation) – not the European Union – that
has the greatest potential for Russia to increase the export of
finished products, especially machinery and hi-tech equipment, for
which Russia has long been striving.

The above and other
circumstances will make the European Union’s role in the world
increasingly less significant – particularly in the absence of an
effective strategic partnership with Russia. The same refers to
Russia. The question is how to organize Russia-EU strategic
partnership.

From the point of view
of the vital and long-term interests of both partners, it would be
more preferable for them to conclude a Strategic Partnership and
Cooperation Agreement (SPCA) than a modified and improved PCA in
the form of PCA-2. However, in the last three to five years
Brussels has been less inclined to look for mutually acceptable
compromise solutions. It interprets various aspects of Russia’s
political and social-economic systems in its own way and will not
accept the serious growth of Russia’s role in the world. Moreover,
it has turned into a much less predictable partner as it is going
through a critical phase in the reconstruction of its own
government system.

In a situation like
this, sometimes exacerbated by tactical failures of the Russian
state and businesses, both parties find it difficult to jointly map
out and take measures that would fill their cooperation with really
strategic content. This explains the obviously amorphous nature of
the road maps adopted at the Russia-EU summit in May 2005, which in
fact are mere declarations of intent, marking certain stages on the
way to four common spaces for Russia and the EU, which were not
even clearly defined. Therefore, a new basic agreement – be it SPCA
or PCA-2, as well as sectoral agreements specifying it, will
essentially enrich the road maps’ content. But one way or another,
the parties have not yet formulated their positions on a new
agreement, so they may have taken the Polish veto as an unexpected
opportunity to take a timeout for reflection.

In the context of
working out economic provisions for a new basic agreement, it would
be interesting to see what could be borrowed from such agreements
between the EU and third countries.

THE EU’S AGREEMENTS
WITH THIRD COUNTRIES – A SOURCE FOR “CREATIVE PLAGIARISM”?

Of major importance for
Russia are the European Union’s agreements with post-communist
countries in Central and Eastern Europe on their association with
the EU – to date, these countries have already joined the EU or are
negotiating accession. Such documents are known as European
Association Agreements (AAs). One should also name the EU’s
agreements for economic, scientific and technological cooperation
and partnership with India and Brazil, which international experts
classify, along with Russia, among countries with fast-developing
markets. The positions of India and Brazil in the global economy,
as well as in science and technology, are largely comparable to
Russia’s. However, the agreements with these nations have far less
international-legal content than AAs, have a pronounced framework
nature, almost do not contain directly applicable provisions and
therefore are of less interest – in the context of this article –
than AAs, although they are worthy of notice as well.

AAs basically differ
from the PCA because they provide for the association of Central
and Eastern European countries with the EU as an interim stage on
the way toward future EU membership. However, Russia’s full
accession to the EU does not seem to be possible or expedient from
the point of view of the interests of both parties, for whom this
issue is, perhaps, equally unimportant now. The EU is based on a
balance of interests of mid-sized and small countries, whereas
Russia’s accession to the EU would upset this balance. Obviously,
the European Union would be unable to “cope” with the Russian
economy, as it would have to extend to it all procedures immanent
in it. Indeed, even in a nightmare one cannot imagine all regions
of Russia, except for Moscow, Kazan and Khanty-Mansiisk, laying
claims to subsidies from the Brussels budget.

For Russia, full
membership in the EU would be problematic as well. Russia would be
constrained in its relations with third countries by the rules of
EU foreign trade policy and would be unable to conduct an
autonomous policy. This would greatly complicate, for instance,
Russia’s relations with countries grouped in the APEC, where not a
single EU member state belongs and cannot belong by definition.
Therefore, the issue of Russia’s association with the European
Union is not relevant either.

Of greatest interest –
as a source of ideas and possible wordings for a new basic
agreement between the EU and Russia – are trade provisions of AAs,
particularly those aspects that relate to the formation of a free
trade area (FTA). Although the creation of a Russian-EU FTA is not
on the agenda now – the situation with Russia’s accession to the
WTO must be cleared up first – this issue may acquire importance in
the foreseeable future. As the author earlier analyzed the problems
involved in the establishment of a Russian-EU free trade area in
this journal, let me refer the readers to that article (see Russia
in Global Affairs 2/2007; pp. 113-123) and offer some additions
confirming the conclusions made in it.

First of all, it is
also essential that in AAs procedures for establishing a free trade
area were linked to the rules and regulations of the GATT/WTO, so
any movement in that direction without membership in this
organization was actually ruled out. Even if countries had
well-developed trade relations, the establishment of a free trade
area was preceded by a very long transition period. For Slovenia,
for example, with which an agreement was signed in 1996 and entered
into force in 1999, a six-year period was established for achieving
that goal, even though by that time the country had already been
closely integrated into the EU economic space. Another important
aspect of AAs was the establishment of an initial level for custom
duty rates, from which the parties were to reduce these rates. If
the duties were cut in accordance with GATT/WTO requirements after
the agreement entered into force, it was the latest WTO tariffs
that were used as a starting point for their subsequent
liberalization.

Investment provisions
of PCA-1 and AAs are approximately at the same qualitative level
based on the fundamental documents of the Organization for Economic
Cooperation and Development (OECD), and differ only in details and
nuances. It would be useful to include in the investment section of
a new basic agreement, which would refer to the application of
national treatment and most favored nation treatment to mutual
investments, clear-cut provisions that will not allow loose
interpretations – such as those in the Stabilization and
Association Agreement between the European Union and Croatia. For
example, Article 49, Sections 1 and 2 bind both parties, upon entry
into force of this Agreement, to grant companies of the other party
“treatment no less favorable than that accorded to its own
companies.”

In other words, in the
sphere of mutually migrating capital in the form of direct
investment, both parties, upon entry into force of AAs, shall
provide national treatment or most favored nation treatment for
companies of the other party without any reservations. It must be
added that Article 60, Section 1, provides that “from the entry
into force of the Agreement, the Parties shall ensure the free
movement of capital relating to direct investments.” This wording
(Articles 49 and 60 of the Stabilization and Association Agreement
between the EU and Croatia), adapted within the frameworks of a new
basic agreement, could be of more use for Russia and the EU as
regards investment and open broader prospects for them than
PCA-1.

At the same time, the
implantation of the above provisions of the AA between the EU and
Croatia into a new basic agreement between the EU and Russia would
not be enough – especially if the EU and Russia really plan to set
themselves the strategic goal of creating a free investment area
patterned, for example, after a European Economic Area established
under the EU’s agreement with the European Free Trade Association
or the North American Free Trade Agreement, which entered into
force in 1994. To agree on the formation of such an area, both
parties must first find a mutually acceptable approach to the
limitation of foreign direct investment in some strategic sectors
of their economies. Relevant bills are now being prepared both in
the Russian State Duma and the EU Commission and Parliament. There
are grounds to believe that a European document of this kind will
largely resemble a similar law recently put into effect in the
United States, which has created many problems for Russian
businesses – above all, for companies with state participation.
Therefore it cannot be ruled out that this issue will become a
stumbling block for efforts to draft the investment section of a
new basic agreement at a qualitatively new level required for
stimulating truly strategic cross-sectoral cooperation in the field
of mutual investment.

In the area of labor
migration, one should also take into account relevant provisions of
AAs, as well as the PCA-1 experience. It is important that PCA-2
ensure free movement for professionals who repeatedly enter the
country (not on private business, but within the framework of staff
turnover at international corporations that have offices in
Russia), as well as the migration of professionals with exceptional
abilities. At the same time, a new basic agreement could ensure the
solution of such issues as the transfer by relevant bodies of EU
host countries of pension contributions from Russian citizens
working there – at least from those who have been sending
contributions for compulsory pension insurance for several years
not exceeding the period of time required for receiving the minimum
pension at least – in EU countries, this period does not exceed 15
years, as a rule.

On the whole, a new
agreement, especially if it is concluded as a Strategic Partnership
Treaty, must have a social dimension, which is completely absent in
PCA-1 and other instruments still regulating EU-Russia
relations.

A comparative analysis
of PCA-1 and the EU’s agreements with third countries as regards
the protection and implementation of intellectual property rights
shows that they are oriented toward the same basic international
legal documents on this issue and are of about the same quality.
Differences between them arise mainly at the details stage, which
should be taken into account when drafting a new basic agreement.
Thus, the Russian draft of a new basic agreement should give
priority to the further adaptation of Russian norms and standards
in the field of intellectual property to corresponding attributes
of the European Union. There is no doubt that this approach will
meet with full understanding from the other contracting party. And
it can hardly be otherwise as this will be a transition to a more
advanced phenomenon. At the same time, this process should not be
allowed to be made into a “one-way street.” The positive experience
gained by Russia, as well as by third countries, should also be
taken into account here.

It must be emphasized
that special norms relating to intellectual property rights
(Article 54 of PCA-1) are declarative and do not have any special
legal weight. At the same time, Appendix 10 to this Article
contains several very important provisions with Russia’s
international legal obligations in the field of intellectual
property rights. In it Russia pledged by the end of the fifth year
after the entry into force of PCA-1 (2002) to “provide … for a
level of protection similar to that existing in the Community,
including effective means of enforcing such rights.” The
obligations placed by this provision on Russia are alleviated by
the reservation that it should seek to guarantee only a “similar”
level of protection, which is a softer requirement compared with
the EU level of protection.

The detailed
elaboration of issues pertaining to scientific and technological
cooperation in the EU’s agreements with third countries and in
PCA-1 suggests that this issue should be given due attention in
PCA-2, as well. On the other hand, the very nature of this
elaboration does not give grounds for active borrowing, the more so
for “plagiarism.” In the EU’s agreements with Brazil and India on
scientific and technological cooperation, which are of a
pronouncedly framework nature and are not really binding, the
author has not found any ideas that could enrich the respective
section of the future PCA-2 between Russia and the EU – except,
perhaps, for some wording.

AAs are also largely of
a framework nature – but to a much lesser degree than the general
agreements with Brazil and India – especially as regards provisions
on scientific and technological cooperation. They outline the goals
and forms of this cooperation, but do not set forth in detail the
parties’ obligations concerning the development of specific
mechanisms of cooperation, especially as regards its financing. In
this sense, AA provisions on scientific and technological
cooperation do not go any further than those of PCA-1.

In drafting a new basic
agreement, it would be useful to provide for a set of specific
measures that would fill with content the fourth of the
aforementioned Road Maps, which concerns research, education and
cultural exchanges. This would ensure close and systematic
cooperation in fundamental and applied sciences through joint
years-long framework programs and co-financing; the harmonization
of legislation guaranteeing, in particular, intellectual property
rights; and the formation of a pan-European educational area based
on the Bologna process, including the convergence of educational
systems, broad exchanges of teachers, students and post-graduate
students, and mutual recognition of diplomas from higher
institutions.

It would also be
advisable that the economic, scientific and technological
provisions of a new basic agreement should have broader legal
frameworks for Russia-EU cooperation in research and production at
the level of business and under government auspices. These advanced
synthetic forms of international economic relations, which go
beyond the framework of traditional trade and which play a key role
in economic ties between companies in developed countries, are not
yet developed on a priority basis in Russia-EU relations, and there
are just a few cases of cooperation in research and production.

* * *

It can be expected that
by the next Russia-EU summit in June 2008 there will be no formal
obstacles left – such as the hackneyed Polish veto – to Russia-EU
negotiations on a new basic agreement, which could be started in
the second half of the year. The very decision on such negotiations
would make this summit more fruitful than the last summit in
October 2007 and would bring its participants certain political
dividends.

There are so far no
grounds to expect that these negotiations will result in the
conclusion of an ambitious and large-scale Strategic Partnership
Treaty within a reasonable and agreed timeframe. Instead, the
answer to the question formulated at the beginning of this article
will be PCA-2 – with more definite strategic goals than PCA-1.
Thus, the economic section of a future agreement could include a
provision on a free trade area as a promising goal, specifying that
negotiations on this issue will complete international legal
procedures for Russia’s accession to the WTO. As regards a specific
date for the establishment of a free trade area, perhaps the
parties should follow the example of APEC, which back in the last
decade set a relatively soft timeframe for that until 2020.

It should be kept in
mind that once the transition period preceding accession to the WTO
is completed, Russia will take every measure to establish a free
trade area without concluding a special agreement on such an area
with the EU. This will help to substantially liberalize the
“European half” of Russia’s foreign trade. In particular, the
expected decrease of the average weighted import rate of the
customs tariff for industrial finished products by three percentage
points will have a particularly strong effect in this respect. This
may prompt the EU to reciprocate with symmetric measures to meet
Russia’s interests.

Russia should think
over in advance in what areas this will be more desirable for it.
In addition to the repeatedly raised issues of the visa regime and
direct investment access by Russian companies to the EU fuel and
energy sector, these areas could include mutually advantageous
harmonization of actions toward third countries, for example CIS
members, that would meet the latter’s interests as well. In any
case, one can hardly dispute the fact that Section 1.8. of the
above-cited Medium-Term Strategy for Developing Relations of the
Russian Federation with the European Union for 2000-2010 still
remains on paper. This section says that “the development of a
partnership with the European Union will contribute to
strengthening Russia as a leading force promoting the formation of
a new system of interstate political and economic relations in the
CIS.” However, the EU is still acting in the opposite direction,
and not always in its own interests.

Leading Russian and
“communitarian” experts differ on the issues pertaining to a new
basic agreement between Russia and the EU. All the issues discussed
in this article have been considered by experts from different
points of view. This difference in opinion was particularly
manifest at two representative international conferences organized
in February and December 2007 by the Moscow State Institute of
International Relations and the Russian Academy of Sciences’
Institute of Europe jointly with Germany’s Bertelsmann Foundation
respectively. The discussions revealed polar views on the nature of
a new basic agreement – ranging from proposals to adopt and ratify
a directly applicable strategic document according to the 1+1+27
formula, to proposals on concluding a political declaration of
intent, with many intermediate options. These differences, which
reflect the real state of affairs in Russia-EU relations, may
manifest themselves at future negotiations on a new basic agreement
and thus cause them to drag on. However, one should not dramatize
the possibility of delay.

The present situation
does not require speeding up these negotiations at any cost to the
detriment of their quality and future results. The procedure of
extending PCA-1 for one year is not limited in time, while about
half of the agreement’s 112 articles have not been implemented yet.
So the beginning of negotiations on a new basic agreement will not
put the partners out of work, even if they confine themselves to
the implementation of the other half of PCA-1.

As regards the Russian
draft of a new basic document, it should be worked out in detail by
a high-level working group specially set up to include leading
experts. There is no need to say that it should not be necessary to
set the task of taking “momentous” moves in a situation where there
is a tight timeframe.