The Future of EU-Russia economy (mid-term) perspective and EU

interests

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PROs (positive forces: towards cooperation)

Strong economic interrelations: The E.U. provides 80% of cumulative foreign investment to Russia,

Russia is the E.U.’s 3rd most important trading partner.

Common security interests: Russia as a key geopolitical partner for EU. Common goals against rising India& China, world terrorism, loss of leadership in technology, illegal migration, organized crime, cyber crime, climate change, and the conflict of civilizations.

Energy issue: Russia is the most important supplier to the E.U. not only of gas and oil, but also of coal and uranium.

Russia as one of the largest holdersof euro-denominated assets in the world.

Research, education and culture: strong mutual interest in nuclear safety, education

(Bologna process), exchange of know-how. Russia needs new technologies, EU needs developed Russia to continue provide resources.

42% of EU gas comes from Russia

CONs (negative forces: towards conflict)

Inconsistent, bi-lateral policy of EU =>Russia. EU needs to restructure and act as a Unit with a certain defined position.

Russian straightforward foreign policy: Georgian conflict, unilateral recognition of Abkhazia and South Ossetia Chechnya issue

Raising concerns about stability of gas supplies: Ukrainian conflict + insufficient upstream investments in the face of expanding demand.

Old and out of date PCA, as a main strategic document. Need for a new document.

No common strategic vision on future cooperation – Russian and EU leaders DON’T SEE same reasons on WHY to closely cooperate

Example: “Partnership for modernization” by Russia, Rostov summit 2010

EU vision: political political modernization (political freedom

& human rights)

Russian vision: technical technical modernization (know-how and

investments)

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Legislative base• Agreement of the USSR and EU "About trade,

economic and commercial cooperation“ – 1989

• the Partnership and Cooperation Agreement – 1994(1997)

• 4 road maps:– On the space of freedom, safety and justice

– On a Common Economic Space

– On a Common Space of External Security

– On the common space of science and education

Exported/imported services• Transport• Travelling• Communications• Constructing• Insurance• Financial services• Computer and information services• Royalty and license payments• Personal and cultural services• Governmental services• Other business services

Export of services

Import of services

Geographic structure of Russia’s goods export

• 2000: Germany, Italy, Great Britain, The Netherlands, Finland

• 2001-2002: Germany, Italy, The Netherlands, Great Britain, Finland

• 2003: Germany, The Netherlands, Italy, Great Britain, Finland

• 2004: The Netherlands, Germany, Italy, Finland, Great Britain

Geographic structure of Russia’s goods export

• 2005: The Netherlands, Germany, Italy, Great Britain, Finland

• 2006-2009: The Netherlands, Italy, Germany, Poland, Great Britain

Geographic structure of Russia’s goods import

• 2000-2005: Germany, Italy, France, Finland, Great Britain

• 2006: Germany, France, Italy, Finland, Great Britain, Poland (new)

• 2007: Germany, Italy, France, Great Britain, Finland, Poland

• 2008: Germany, Italy, France, Great Britain, Poland

• 2009: Germany, France, Italy, Poland, Finland

Geographic structure of Russia’s services export

• 2000-2002: Germany, Great Britain, Finland, France, Italy

• 2003-2004: Germany, Great Britain, Finland, France,

• 2005: Germany, Great Britain, Cyprus, France, Finland

• 2006-2007: Germany, Great Britain, Cyprus, The Netherlands, Finland

• 2008-2009: Great Britain, Germany, Cyprus, The Netherlands, France

Geographic structure of Russia’s services import

• 2000-2002: Germany, Finland, Great Britain, France, Italy

• 2003-2004: Germany, Finland, Great Britain, France, The Netherlands

• 2005-2007: Great Britain, Germany, Finland, Cyprus, France

• 2008-2009: Great Britain, Germany, Finland, Cyprus, The Netherlands

EU countries’ investments to the economy of Russia(mln $ U.S.)

Russia’s investments to the economy of EU countries(mln $ U.S.)

Antidumping measures

• According to the article VI GATT(the General agreement under tariffs and trade) the dumping is defined as a sale method for export at which «the goods of one country are sold in another country at a price below normal».

• Now it is necessary to result some figures testifying to gravity of given not tariff restriction for Russia:

• For December, 31st, 2007 the Community applied concerning Russia 11 definitive antidumping measures and did not apply any time antidumping measure. Obligations have been accepted concerning 5 of these 11 cases. The total cost of the import mentioned by these measures in 2007, has made €167 million that makes only 1,3 % of all import of Russia. The size of the antidumping duties entered on Russian production in 2007, has made less €20 million. That means that the average level of the entered duty was somewhere about 12 %.

• For September, 30th, 2008 the Community applied antidumping measures concerning import of 12 kinds of goods from Russia. Cost of the import on which the measures were imposed during first half of 2008, has made €93 million (1,5 % of import). However the sum of the declared antidumping duties equaled only €3,4 million, i.e. the average duty was below 4 %.

Prospects• EU expansion can have for Russia a number of negative consequences in

trade - economic sphere:• - A mode of quantitative restrictions for import of the Russian steel to EU.• - 12 measures of antidumping protection concerning export of the Russian

steel products and chemical fertilizers• - Quota System for the Russian export of grain to EU. • - Losses in trading of fuel-energetic products• - Worsening the access to specialized markets

• EU expansion has variety of the essential favorable aspects for economy of Russia. Especially in the long-term plan. Here are uniform rules of a competition, trade and transit, both stability of calculations and protection of the intellectual Russian property.

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Why Partnership of Modernization?

Modernization goals driven by EU’s interest to invest in and source reliably from Russia – Russia needs know-how

Focus on stability after Gaidar-shock and crisis of 1998

Shift to modernization with the new presidency of Medvedev

“Russia forward!” Trade asymmetry WTO membership

EU highly dependent on Russian primary exports (gas, oil)

High-tech industry has been neglected, which results into dependence on manufactured goods.

Low level of foreign direct investments due to unfavorable investment climate

Tariffs and protectionism prolong WTO application procedure

Asian boom

Global markets put Russian industries under pressure

Production factors are globally mobile; modernization as local competitive advantage

vs.Modernization

Stability

The Partnership of Modernization (PoM)

Main goal and objectives of the Partnership

Russian Federation European Union

Increase business and cooperation opportunities with Russia increase commitment in international institutions concrete projects with a modernized partner improve situation of EU countries, along Russian borders

standard alignment (economy, bureaucracy, policy etc.) develop internal sectors increase commitment in international institutions increase trade attract western investments improve commitment with border countries

“to implement a concrete modernization of the most important sectors of Russian economy and society, in order to promote international multilateralism and benefit to both parts in the long run”

Possibilities of implementation in the four spheres

Implementation of the PoM

Technology Economy Policy and governance

Research and education

energy efficiency energy conservation new fuels nuclear technologies space technologies telecommunication medical technologies pharmaceuticals IT

Six projects selected by Russian Government, with high potential of cooperation for EU.

stimulate investments stimulate growth of small and medium enterprises attract venture capitals reform the very large public sector (privatization) listing of mayor companies improve financial market standards (IAS/IFRS) corporate law (premium) taxation

reduction of state controls corruption clarify tasks of public administration transparency reform bureaucracy simplify registration procedures for foreign companies visa deal (with EU)

high level research centers new modern universities in strategic areas cooperation with EU universities shared research projects with EU attract EU experts

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The Future of EU-Russia Energy Dialogue

• Russia is a major player in world energy markets• Russia is reluctant to accept EU insistence on common regulatory regime

in the energy area. • The EU is very much concerned about being over-dependent on the

Russian oil and gas imports. (The Nabucco pipeline project. transport gas from Azerbaijan, Turkmenistan and potentially Iran across the Balkans to Western Europe)

• Russia is moving from constructing transit pipelines to direct pipelines, mostly built offshore. Thus, it strengthens Gazprom’s bargaining power vis-à-vis transit countries such as Belarus, Ukraine and Moldova

• Russia will continue to be Europe’s main suppliers of natural gas• EU’s energy policy needs to address questions such as how to secure

delivery and distribution of gas and how to provide more stable demand forecasts

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Social Cooperation - 1• Program of Cooperation between the International Labour

Organization• An institutional foundation is being formed due to the absence of

the Decent Work country program in Russia • Several development projects funded by TACIS • The cooperation axis ICT for Health was added after the open

consultation campaign (January-April 2008)

• Three EU educational programs in Russia• Innovations Center in Skolkovo• The Europe 2020 Strategy for Smart, Sustainable and Inclusive

growth and the concept of long-term social-economic development of Russia to 2020

• Bologna process

• World cultural summits• Cooperation between EU and Russian artists• Proposal from Russia to extent PPC to the cultural sphere

Education

Culture

Quality of life

Social Cooperation – 2. GoalsQuality of life

•Sustainable and increasing quality of life healthcare

•The implementation of the Decent Work Agenda

Education

•largely promoting cooperation among universities and two-way mobility of students and academic staff

•coordinating and synchronising actions within the EU and Russian research EU and Russian research programmes

Culture

•improving mutual knowledge and understanding of each other’s culture

•a special focus on strengthening the European identity and opportunities for synergy

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Opportunities (what can be done to support further cooperation)

• Development and adoption of new PCA. Should be not a nominative document, as “four common spaces” is, but a detailed one, delivering common strategic vision for future cooperation

“The EU expects the New EU-Russia Agreement to provide for a comprehensive legally binding framework to cover all main areas of the relationship based on our shared interests and the international commitments which the EU and Russia have entered into, including promoting respect for human rights and the rule of law. Moreover, in order to underpin our growing economic interdependence a Free Trade Area (FTA) would be of mutual interest”.

• Acceptance of Russia into WTO - enlargement and further development of economical relations (should finish by end of 2011).

• Creation of free travel zone with Europe – visas as huge barrier for business and cultural cooperation of Russia-EU (in discussion).

• Partnership for modernization – further development of the concept in order to arrive to the common vision.

• EU continues to act inconsistently towards Russia• Russian bi-lateral conflicts with EU countries. Example:

conflict with Georgia. Georgia is opposing Russia’s acceptance into WTO, using its member’s veto right.

• US implicit or explicit intervention into Russia-EU relations

• New problems with gas supply• Results of presidential elections of 2012 in Russia

Threats (what can ruin further cooperation)

Ways to future-1• EU’s view: “The future of EU-Russia relations, a way forward

in solidarity and the rule-of-law”. February, 2009.

Basis for a better EU-Russia relationship = neither confrontation, nor isolation, nor unconditional cooperation, but a policy based on solidarity and the rule of law”. Let’s act together and influence our relationships with Russia.

• Putin’s view: “Russia and Europe: From learning the lessons of the crisis to a new partnership agenda.”, November 2010.“our joint attempt at achieving success and competitiveness in the modern

world,”– Common economic policy: free trade zone, Russia’s WTO accession, joint projects “RU

resources & EU technology”, common European energy complex (to avoid gas transit countries)– Supporting science and education– Removing barriers: visa-free regime for business and educational cooperation

Ways to future-2

• Sergey Karaganov, Chairman of the Presidium of the Council on Foreign and Defense Policy (CFDP), Dean of the School of the World Economy and International Affairs of the State University–Higher School of Economics, September, 2010:

way towards creation of Alliance of Europe in order to oppose 2 existing poles:

USA China

RussiaRussiaUkraineUkraine

KazakhstanKazakhstanTurkeyTurkey

Thank You for Attention!