10.08.2004
Why Invent a New Model? — Review of the discussion at the Russian Economic Forum
№3 2004 July/September

Relations between Russia and the European Union were a top
priority for Russia’s foreign policy in the first half of 2004. The
active and constructive efforts of the two parties helped them
solve the most acute of their outstanding problems by the summer.
Russia agreed to extend the Partnership and Cooperation Agreement
(PCA) to the new EU members, while the European Union eased its
position on Russia’s accession to the World Trade Organization.
However, the parties have yet to work out a long-term model for
their bilateral relations.

These relations were the focus of discussions held within the
framework of the Russian Economic Forum, convened in London in late
April. Russian speakers at the discussions included Sergei
Karaganov, Chairman of the Presidium of the Council on Foreign and
Defense Policy and Chairman of the Editorial Board of Russia in
Global Affairs, and Alexander Livshits, Deputy Director General of
the Russian Aluminium Company and member of the Russia in Global
Affairs Editorial Board.

Karaganov told the audience that Russia-EU relations, the way
they had been developing since June 1994 when the PCA was signed,
had largely exhausted themselves. Much of what the parties hoped
for ten years ago had not materialized, while many objectives had
proved simply unfeasible. Karaganov believes that the EU bears much
responsibility for the lack of headway in relations between the
parties. The EU has not demonstrated a real interest in Russia
becoming its full-fledged partner, while it has reneged on its
policy of rapprochement with Russia, proclaimed in 1999, Karaganov
said. Europe is trying to impose on Russia its own agenda, which
does not always meet Russian interests.

In the meantime, the European Union is spending much of its
energy addressing domestic problems posed by the EU’s expansion and
complex institutional reforms. The EU itself is an overly
bureaucratized organization which has lost its dynamism.
Furthermore, it is increasingly unable to respond to growing
external challenges.

The EU member countries have made no progress in formulating
common foreign and defense policies. This poses difficulties for
their outside partners, since they do not know the EU’s position.
Brussels often says one thing, while major EU members say something
the opposite. Moreover, these members often fail to reach agreement
on fundamental issues between themselves. The EU’s expansion has
only aggravated this problem. On the whole, the European Union is
presently an inadequate partner for Russia, Karaganov summed
up.

But, he added, Russia is also responsible for the failures in
cooperation. Economic reforms in Russia have not been proceeding
the way Russia and the EU had expected them to. Furthermore, there
are some unfavorable tendencies in Russia’s political model.

Nevertheless, Karaganov expressed confidence that the interests
of both Russia and the EU coincide to a much greater extent than
they diverge; therefore the parties “are destined to find mutually
acceptable forms and methods for their cooperation.”

Terence Brown, Director General of Lending Operations of the
European Investment Bank, agreed that the EU lacks dynamism; its
overly bureaucratization is a source of concern for many Europeans.
However, he pointed out that the EU is not a static organization,
but rather a changing once, and that the European integration is a
process rather than a result. Brown admitted that European
relations with Russia have been on the periphery of Europe’s
attention over the past few years, since the EU’s primary task had
been preparing and implementing its greatest enlargement in
history. Now that the EU has more closely approached the borders of
Russia, it will redouble its efforts to develop contacts with this
country. However, he added, Russia must do its ‘half of the job’ as
well. Moscow has not always displayed enthusiasm in building its
relations with the EU as it has in recent days.

Brown described the exchange of critical statements and
documents between Moscow and Brussels in early 2004 as very useful,
noting that the parties should express their dissatisfaction
openly, instead of trying to hide it in order to make a favorable
impression. The challenges now confronting the EU and Moscow do not
know state frontiers. These are environmental and public health
problems, not to mention organized crime. Furthermore, and perhaps
most importantly, Russia and the European Union are united by a
major political issue, namely their common devotion to multilateral
approaches to the settlement of international conflicts.

Brown said that, although the present legislative basis for
Russia-EU relations (the PCA) needs some corrections, it
nevertheless offers healthy possibilities for making headway.

Alexander Livshits proposed not inventing new, unknown models
for Russia-EU relations, but choosing an already existing one. The
following are four models that the EU uses to build special
relations with its outside partners:

(1) Providing the status of a candidate member, which later
becomes a full-fledged member.
(2) The European Economic Area which unites the EU with Norway,
Iceland and Lichtenstein. The EEA Agreement binds these countries
to adopt a majority of EU norms and standards in exchange for
access to the common market.
(3) Relations with Switzerland which are built on an extensive
package of bilateral agreements in various fields.
(4) The free trade zone which unites the EU with other countries,
among them South Africa, Egypt and Israel.
Livshits said it is only the first model that cannot be applied to
Russia, as the size of this country makes any discussions about its
EU membership not very serious.

However, instead of choosing one of these time-tested models,
attempts are being made to invent something new – a fifth model for
the Common European Economic Space. Theoretically, this idea is not
bad, Livshits noted, but it lacks definite deadlines, plans and
objectives. Furthermore, it will not stimulate efforts to increase
relations. The CEES format should be preserved as a platform for
negotiations, but after Russia joins the WTO one of the above
standard models should be discussed. At that point, the one that
suits Moscow the best should be chosen, he said.

He described a free trade zone between Russia and the EU as the
most optimum model. It would provide for a very specific plan of
action that both parties should take. Russia’s entry into the WTO
will be a crucial moment, since after that time, many economic
problems in bilateral relations will be addressed on the basis of
WTO rules. Livshits noted that Russia should not hope for any
special concessions from the EU.

Laurent Ruseckas, Director of the Emerging Europe & Eurasia
Practice at Eurasia Group, made emphasis on the lack of progress in
Russia’s energy market reform, which he described as an obstacle to
cooperation. Western partners are interested in an early
liberalization of domestic energy prices in Russia and would like
to see Russia permit Central Asian fuel into the European market
through its pipelines.

Ruseckas said he was sympathetic with the Russian government’s
position that oil and gas reserves are Russia’s natural competitive
advantage on the world market. This advantage is counterbalanced by
the great distance of its pipelines, as well as Russia’s harsh
climate. Yet, Russia should not abuse this natural advantage, as
full-scale energy cooperation with Western partners is in the
interests of Russia, too.

Ruseckas pointed out that Russia-West interaction in the
post-Soviet space, which both Russia and the EU regard as their
‘near abroad,’ is of major importance for both parties. The
forthcoming elections in Ukraine, due in October, may become a
turning point. Ukraine has repeatedly declared its desire  to
integrate into the Euro-Atlantic structures, but it will have
little chance for that if its present system of government –
undemocratic and corrupt – persists. Ruseckas said Ukraine’s
integration into the Western structures is a very sensitive issue
for Russia, and it is difficult to say what Moscow’s reaction would
be if Kiev launches serious preparations for joining NATO. Russia
would more easily tolerate a Ukrainian move to integrate into the
EU.
Summing up the discussion, its chairman Quentin Peel, International
Affairs Editor of The Financial Times, supported the view expressed
by some of the speakers that it is very difficult to say what the
European Union will be in seven to ten years. Its relations with
Russia will depend on very many factors, both external and
internal.

Russia is undergoing serious changes, as well, and it is also
unclear what their outcome will be. This is the reason why it is
difficult to forecast a formula for future Russia-EU relations –
they simply run up against too many unknown factors.