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02.11.07
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Russia Profile Weekly Experts Panel: The Summit Of The Disenchanted
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Introduced by Vladimir Frolov
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Contributors: Stephen Blank, Eugene Kolesnikov, Sergei Shishkarev
President Vladimir Putin went to Portugal last week for his last Russia-EU summit as Russia’s president.
The summit boasted little in the way of a substantive agenda. The agreements reached – one to improve cooperation for combating drug trafficking and the other one to increase EU trade quotas for Russian steel pipes – are important, but reflect a narrow agenda that does not put the Russia-EU relationship on a qualitatively higher level.
There is still no agreement on when talks may start on a new Russia-EU Strategic Cooperation Agreement that would replace the Partnership and Cooperation Agreement (PCA) that is due to expire Nov. 30. Poland is still blocking the internal EU decision to provide the European Commission with a mandate to launch negotiations on a new agreement with Russia. A breakthrough could be expected soon, given the formation of a new Polish government under Donald Tusk, who won last week’s parliamentary elections on a ticket that included promises to improve relations with Russia.
Politically, the Russia-EU relationship seems to be at an impasse, while the commercial relationship is booming – trade turnover has increased five fold since 2000 and currently stands at 180 billion euro ($260 billion). The EU is Russia’s number one trading partner while Russia is the EU’s third-largest trading partner.
It is interesting that a substantial part of the discussion at the recent summit was devoted to the EU’s concerns over the prospects of Russia using its hard currency reserves, the world’s third-largest, for investments in industrial, energy and real estate assets in Europe. This is a reflection of a larger discussion within the G8 and the International Monetary Fund (IMF) on whether limits should be imposed on the freedom of investment of state-controlled funds on international capital markets, with China and Russia, which are sitting on huge currency reserves, singled out as potential destabilizing factors.
But overall, Russia and the EU have been treading water, unable to make a serious breakthrough. Perhaps, this reflects the ambiguity in the political environment created by Russia’s political transition and the EU’s internal debate on its new internal structures. Putin welcomed the signing of a new EU treaty that would introduce a presidency and give more muscle to the EU Foreign Policy Representative.
Where is the Russia-EU relationship heading? How will the EU’s concerns over Russian investments in energy and other industrial assets in Europe affect the relationship? How could Russia meet those concerns? And should it? Will the new European structural lineup be more effective in dealing with Russia? And indeed, would there be another Russia-EU summit with Vladimir Putin representing Russia?
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Sergei Shishkarev (Krasnodar Territory, United Russia), Deputy Chairman, State Duma Committee on Energy, Transportation and Communications
Moscow is expecting progress on the new agreement with the EU after the new government in Poland is formed. It is clear that the Kaczynski brothers have done considerable harm to EU cohesion and have substantially weakened the EU’s negotiating position with Russia.
A more serious issue in EU-Russia relations is the new EU policy that limits foreign investment in its energy sector. The policy is likely to affect Gazprom’s plans for expansion into downstream energy assets in Europe. Russia is unlikely to respond to this policy by opening up its energy sector to foreign investment and talk about ratifying the Energy Charter will remain just that – talk.
Russia is prepared to chart a new future in its relations with the EU, but Russia’s vision for this future involves building a special relationship that is based on reciprocity and a willingness to undertake commitments that are equal in scope. Russia has little interest in “integrating into Europe” if it means shedding a significant part of Russia’s sovereignty. It would be irresponsible for Russia to maintain that illusion of “integration,” since such a policy would serve to disorient our European partners and the Russian public.
Russia finds it bewildering that the EU would create a roadblock on the path of Russian investments in Europe, while demanding complete freedom of access to the Russian domestic market, including investment in industrial and transportation assets. We should demand the same treatment for Russian investors in Europe and European investors in Russia. Russia has no incentive to settle for anything short of this.
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Eugene Kolesnikov, Private Consultant, the Netherlands
There are two main drivers of the Russia-EU relationship, and these can work in synergy or in conflict with each other. The primary driver is the ever-increasing dependency of the EU on Russian energy resources, enhanced by other mutual economic interests and geographic factors. This driver presupposes the inevitability of a close Russia-EU partnership in the long term. It would be strategically insane for the EU to alienate Russia. The rupture would be too painful, if not suicidal. It is important to note at this point that the United States completely lacks a comparable primary driver with regard to Russia—there is no dependency on Russian energy resources and no economic links to speak of. Russia represents just 1 percent of U.S. foreign trade.
The implementation of the primary driver is influenced by the more volatile and subjective secondary driver—the geopolitical power game between the United States, the EU and Russia. This geopolitical game is currently in a suspended mode due to the upcoming Russian and U.S. elections. Europe cannot embark on a path towards deepening its partnership with Russia, even if it wanted to, as this would signal endorsement of the new, assertive Russia before the post-election configuration of Russian politics is clear. This hesitance is influenced even more by the upcoming elections in the United States. The attitude and behavior of the world’s policeman and de facto master of the transatlantic alliance after November 2008 can range from sensible to absurd, especially considering John McCain's promise to abolish the UN and kick Russia out of the G8. All this in turn is exacerbated by the EU's own post-expansion schizophrenia.
Russian strategic direction to partnership with the EU is quite clear. Putin has been an active advocate for integration with Europe. Russia is ready to go as far and as deep as Europe is ready to accept, albeit as an independent and equal partner. The EU, however, is paralyzed and has to wait until George W. Bush leaves office. Meager results of the last EU-Russia summit are thus no surprise.
Nevertheless, we can be cautiously optimistic about the Russia-EU partnership since the primary driver is not going to disappear. The speed, scope and depth of cooperation, however is not yet discernable. Everyone will have to wait and see.
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Professor Stephen Blank, The US Army War College, Carlyle Barracks, PA
(Dr. Blank’s views as contributed to Russia Profile do not represent the position of the U.S. Army, Defense Department or the U.S. Government)
Not all of these questions can be easily answered, but at least some of them are of profound importance. It is clear that the EU-Russia relationship is at an impasse and a large part of this is due to energy. Europe demands the right to invest in Russian energy firms, while Russia insists on an increasingly autarchic approach to its ever-expanding list of strategic sectors and instead demands that the EU open itself up to Russian state takeovers of key European energy firms. Obviously this is an impossible arrangement. But it would be in Russia's national interest if this logjam was broken by mutual opening up of investment opportunities to private firms on both sides to eliminate fears on either side of state takeovers. The experience of European investments in non-strategic sectors like light industry and consumer goods has been quite successful for Russia, and there is not a priori reason to think that it could be otherwise in energy (for example there is easily understandable rationale behind shielding defense firms). European investment and management would bring in vitally needed capital to increase production, know-how and sound management so as to overcome the rampant corruption, asset-stripping, and rent-seeking that characterizes the Russian energy industry. Indeed, Russia's energy economy is in danger of failing to keep pace with the growing demand for its product in Europe, Asia, and most importantly at home due precisely to the management failures inherent in a closed, autarchic, rent-seeking system. However, opening this up to Europe completely contradicts the interests of Putin's bureaucratic oligarchs who are determined to preserve this dysfunctional system as long as it works for them: Russia's true national interest be damned as long as they batten on its natural resources and retain their power. Until such circumstances change, a united front from the EU to prevent state takeovers of key economic sectors by the mafiocracy that is the Russian state is imperative. For example, I was recently told of a German oil executive who, upon negotiating in St. Petersburg for oil shipments to Germany sat opposite the mayor, a high-level representative of the oil company in question and the head of the Tambovskaya gang who openly said that he and his associates controlled the harbors and ports so that their participation was essential to guarantee timely deliveries to and from St. Petersburg. Until and unless this system is changed, it really matters very little who represents Russia, since no real progress with the EU in terms of maximizing Russia's economic opportunities is possible. In a real sense, the greatest obstacle to Russia's full participation in Europe, not to mention its prosperity and real security, is its government and governmental system. Opening up investments, though unlikely, would benefit everyone. It could also serve as a point of departure for a genuine dialogue between Brussels and Moscow on the key issues of European security and economic development, such as resolution of frozen conflicts and Ukraine. Russia only loses by shunning such a development. But its oligarchs make out very well indeed, so it is unlikely that any profound change will occur anytime soon regardless of who runs the Kremlin. If this system is retained, its consequences are entirely predictable. The only question will be when the new period of stagnation and entropy will set in, followed by a new awareness that Russia has once again missed its chance. |
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