An empty slogan. Development of economic relations between the EU and Russia offers very promising prospects. It will be said: this is no surprise, as Russia's political relations with the Western world have developed so spectacularly that the economic chapter just had to follow. It's true: but the rapprochement of the economies is not only a by-product of political rapprochement, it also responds to its own demands and a specific rationale. A distinction must immediately be made between actual potential developments and words that mean nothing. In the latter category we find Russia's future membership of the Union. It's an empty slogan, and the fact that it is a head of government that has rekindled it changes nothing. One has certainly not to believe that in European affairs, heads of State or Government always speak in knowledge of the facts and after much thought and that when their announcements or claims seem astonishing, there is a major design lurking behind them.. When Jacques Chirac announced that Poland (and some other countries of Central and Eastern Europe) would have joined in 2000, it's simply that they are unaware of the issues. When Guy Verhofstadt had written in the Laeken Declaration that that the birth of the first European Community had a s goals technical and economic o-operation, it's simply because he was unaware of the whole approach of Jean Monnet, Robert Schuman, Konrad Adenauer and other fathers of Europe. When Silvio Berlusconi maintains that the next stage in Russia/EU relations will be membership, it's simply that he has not thought or has not been provided with the elements to do so.
Russia's accession is impossible today as it will be tomorrow, for a whole series of objective reasons. Most of the Russian territory is not European but Asian, it stretches to the borders of china, Japan and the United States (by Alaska). Its size is such that Europe would be totally unbalanced. It's population would give Russia a dominant position in the European Parliament, as well (if the "dual majority" formula makes headway) within the Council. And, especially, Russia itself would never consent to the transfer of sovereignty to Brussels which membership implies. One cannot see Moscow bending to a Community decision making it abolish the dual price of energy or the fee for crossing Serbia by air or State aid regarded illegal, nor hand the Commission the management of its trade policy.
Energy, basis for co-operation. Let's move on to serious economic matters. In the crucial sector of energy, co-operation means the reciprocity of interests. For Russia, exports to the EU are vital as they represent an essential part of its income in foreign currency; without them, it's the very working of the State that would be jeopardised. For the EU, Russian oil and especially natural gas are an essential element in the diversification of energy supply: 21% of its oil imports and 41% of natural gas come from Russia. Were this source not to be guaranteed in the long-term, Europe would be subjected to all the changes of the other suppliers. It's a case of perfect complementarity, which quite naturally extends to a genuine partnership; Commission Vice-President Ms. de Palacio has just declared, following her talks in Moscow, that this partnership represents the basis of all co-operation between the two parties (see our bulletin of 31 May, p.8). The enterprise is so vast that the initiatives needed and problems to resolve are so many, meaning: the legislative framework; the security of the pipelines that criss-cross the territory (from Serbia to the heart of the Union), new infrastructures to be built (which mean not only the technical aspects and the question of investments, but also delicate political issues of interest to transit countries like Ukraine, Poland, and the region of the Caucasus); the security of supply (the delicate matter of long-term contracts and the "take or pay" system), etc.. Added to that are two Russian requests concerning: the interconnection of electricity networks (Russia would like to sell the EU not only basic products but also electricity, which means problems of reciprocity and environmental standards) and the possibility of providing it with nuclear fuel (where the problem of security standards is even greater). See, for an overview, the Lamoureux/Khristenko Report that reports both on progress made and questions to resolve (report summarised in our bulletin of 31 May).
Distortion to competition. This report does not deal with two particularly sensitive connected issues: the possibility dealing in euro (and no longer in dollars) for European oil and gas imports and the dual price of energy in Russia. For the former, it is now admitted that it is not up to political authorities to deal with it, but the companies that sell and buy the products. In practice, it is the markets that determine the possible (and maybe gradual) changeover to the euro. The case of the dual pricing is more commercial than energy-related. The price of natural gas on the Russian market only amounts to a sixth of the price of sales to the EU (thus, the world price). The EU considers that this is a distortion to competition that could not remain in the framework of Russia's joining the WTO and even less so should there be a common economic area. Pascal Lamy said that he was not asking for tbe subsidised prices to be abolished for households, or for schools or hospitals. But for industry, it is an unacceptable subsidy, and on a massive scale (experts assess it at $5 billion a year), which distorts competition. Commission circles consider that a gradual abolition of this anomaly is advantageous for Russia itself as it would contribute to reducing the appalling waste of energy prevailing in the country, heritage of a bygone age. The Russian Minister of the Economy calls for 10 to 15 years before dismantling it and for the possibility to nevertheless conserve a price difference justified, according to him by the cost of transport.
WTO membership will encourage private investment. The affair of the dual price for energy leads us to the second spectacular development in EU/Russia economic relations, that is to say the granting, by the Union, to its partner, of the status of market economy. We have already explained in our bulletin that this is not a purely formal gesture marking the end of the State economy that characterised the Soviet regime, but an act with major concrete implications, foremost - but not only - for trade (anti-dumping procedures will be based on the real and proven conduct of individual Russian firms). The new status opens the way to Russia's accession to the WTO, which, other than its commercial effects, will powerfully contribute to reassuring potential investors. Today, private investment in Russia (both foreign and national) is very low and some $20 billion (8% of GDP!) leaves the country each year. Pascal Lamy recently observed that foreign direct investments in the Czech Republic alone exceeded that of Russia, which, moreover, has an absolute need "to reduce the traditional dependency on exports of energy and raw material, to develop services and facilitate access to new technologies and skills". Membership of the WTO still requires lengthy and difficult negotiations. The counterparts demanded by the EU were judged in Moscow as being "excessive" and "unreasonable". Pascal Lamy, on the other hand, considers them as "reasonable and "voluntarily modest"; they do not represent certain requests made by the Community industry. The EU acknowledges that Russia may implement import duties on average double those by the EU for its part, and that it should grdually abolish, with derogation's, the dual price for energy. Mr. Lamy recalls that the future enlarged Europe will absorb over 50% of all Russian exports, that's is to say how important it is that Russia secure the most favoured nation clause and other advantages of the WTO regime. In exchange, it must offer guarantees and commitments regarding access to its markets, gradually abolish the dual pricing of energy (while retaining a special tax aimed at resource conservation) and align its legal framework on that of the WTO.
In the Russian Parliament, there is a tendency to consider that the aforementioned conditions to involve an excessive loss of "national sovereignty" (which confirms to what extent any idea of joining the EU is absurd); but it is only similar binding counterparts already accepted by all members of the WTO, of which Russia will benefit on accession. Despite reservations and difficulties, Pascal Lamy considers that negotiations could be completed by end 2003.
Indispensable progress by 2004.Other goal of economic co-operation have been clarified. The idea of a free trade area no longer exists, replaced by a common economic area based on more economic integration, more alignment of legislation and accelerating the abolition of obstacles to trade. . The creation of this "area" must progress before 2004, so as to avoid membership of the EU of countries of Central and eastern Europe causing the tightening of the current obstacles, by creating a new wall at the centre of the continent. The solution is not easy, as the "Schengen frontier" will pass by there.
In our bulletin of 30 May, p.3, we published an overview of the results of the latest EU/Russia Summit, including in the political field, with the definitive entry of Russia in the category of democratic countries, alliance in the fight against terrorism, organised crime and money laundering, Russia's participation in crisis management missions. This Summit had one failure: Kaliningrad. I'll say nothing, as in my opinion,, if there is an anomaly in this affair, it's that the city where Emmanuel Kant was born should have become a Russian city instead of quite naturally remaining a German city. But things are things that should not be said, and even less written. (F.R.)