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Vladislav Vorotnikov

North European and Baltic Studies Center at the MGIMO University

Igor Yurgens

President of the All-Russian Insurance Association, Member of the Board of the Russian Union of Industrialists and Entrepreneurs

Sergey Kulik

INSOR Director for International Development

Ivan Timofeev

PhD in Political Science, RIAC Director of Programs, RIAC Member, Head of "Contemporary State" program at Valdai Discussion Club

Expert assessments of Russia’s cooperation with the countries in the Baltic Sea Region, and with the Baltic States in particular, traditionally focus on bilateral relations. At the same time, they tend to overlook the membership of these countries in the European Union, with all the attendant obligations in terms of implementing common decisions. In analysing the interaction of these countries with Russia, experts usually mention the European Union within the context of energy policy, with a recent emphasis on the sanctions regime and on Russia’s countermeasures. The fact that the political voice of the countries in the Baltic Sea Region in forming and implementing the common EU policy has noticeably strengthened on the back of the Ukrainian crisis, while at the same time taking on undertones that are unfavourable to Moscow, is worth taking into consideration.

On October 22, 2016, the Baltic Forum held its most recent international conference in Jurmala, Latvia. The conference, entitled “Russia–EU: The Challenges of Interdependence and the Setting of a New Agenda,” discussed the prospects of ensuring European security, the current state of Russia–EU economic cooperation, the degree of complementarity between the economies of the EU member states and Russia, the effectiveness of the sanctions and countersanctions, and the external factors that impact Russia–EU relations (from the strengthening of the U.S.-led Transatlantic Trade and Investment Partnership to the “pivot to the east” in Russia’s foreign policy).

The conference was attended by Igor Yurgens, Chairman of the Management Board of the Institute of Contemporary Development (INSOR), and Sergey Kulik, INSOR Director for International Development.

The Russian delegation also included Igor Ivanov, President of the Russian International Affairs Council (RIAC); Vyacheslav Trubnikov, Member of the Board of Directors of the Institute of World Economy and International Relations of the Russian Academy of Sciences and former Ambassador to India; Artem Malgin, Pro-Rector the Moscow State Institute of International Relations (MGIMO); Sergei Tsyplyayev, Dean of the Department of Law at the North-West Institute of Management of the Russian Presidential Academy of National Economy and Public Administration; and Nadezhda Arbatova, Head of the Department of European Political Studies at the Center for European Integration at the Institute of World Economy and International Relations (IMEMO). The following report was proposed for discussion at the conference by INSOR and RIAC.

Expert assessments of Russia’s cooperation with the countries in the Baltic Sea Region, and with the Baltic States in particular, traditionally focus on bilateral relations. At the same time, they tend to overlook the membership of these countries in the European Union, with all the attendant obligations in terms of implementing common decisions. In analysing the interaction of these countries with Russia, experts usually mention the European Union within the context of energy policy, with a recent emphasis on the sanctions regime and on Russia’s countermeasures.

Speaking of Russia’s cooperation prospects within the Baltic Sea Region, greater importance should be attached to the EU factor and the channels between Moscow and Brussels, given the natural dependence of other countries in the region on common EU decisions. In addition to the fact that many of powers of these countries to make and implement decisions with regard to Russia have been delegated to supranational mechanisms, they also receive assistance from the European Union both to further the development of their countries, and to compensate for the various losses incurred by the recent worsening of the pan-European situation. And they expect to receive even greater assistance moving forward. Also worth keeping in mind are such factors as the European Union’s current strategy for the Baltic Sea Region, its macro-regional policies, its joint cross-border and transnational cooperation programmes with Russia, and other important EU projects.

At the same time, the fact that the political voice of the countries in the Baltic Sea Region in forming and implementing the common EU policy has noticeably strengthened on the back of the Ukrainian crisis, while at the same time taking on undertones that are unfavourable to Moscow, is worth taking into consideration. Brussels, which has found itself under this influence, finds it increasingly more difficult to work with Moscow, including in order to neutralize the growing problems. A drastic imbalance has developed between political motives and economic interests, in favour of the former; this creates difficulties in finding the required solutions with regard to Russia.

Moscow, for its part, is gradually narrowing the room for manoeuvre in establishing a dialogue, both with the European Union and with its Baltic Sea Region neighbours, by upping the stakes with regard to European security. This is also a consequence of the Kremlin's propensity towards conflicts with the West in general. This circumstance is exacerbated by the fact that a significant number of EU member states do not comprehend a number of aspects of Russia’s domestic policy.

As a result, we are approaching a point beyond which a return to the former (albeit fairly complex) state of Russia’s relations with the European Union, and with the majority of its members, will continue to be impossible for a long period of time. This reality, which is characterized by an unusually hefty tangle of challenges, as well as by mutual accusations of breaching the “fundamental rules of the game,” is unprecedented in the past quarter of a century. Therefore, one of the key objectives for politicians and experts is to have a clear grasp of this reality and to seek non-trivial approaches to rectifying the situation.

Such efforts need to be based on an interdisciplinary foundation, with a departure from the discussions of individual issues that dominate at present, no matter how pressing they may be (the growth of traditional security threats, for example). This would facilitate the creation of schemes and agendas for compromise decisions with a proper alignment of the different areas of interests, from security to humanitarian cooperation. In the Baltic Sea Region, these interests are intertwined more often, and more closely, than in other regions.

Policy and Security

The new realities of Russia–EU relations, and prospects of their directly affecting the course of events in the Baltic Sea Region, are already evident in the European Union’s fundamental documents. The approval by the Council of Europe of the draft Global Strategy in late June 2016 came as a response on the part of Brussels to the new, non-traditional challenges to foreign policy and security in the form of “terrorism, hybrid threats, climate change, economic volatility and energy insecurity.” Even though the document is not focused on the “Russian threat” (which, nevertheless, can often be read between the lines), it describes “Russia’s violation of international law and the destabilisation of Ukraine” as having “challenged to the European security order at its core.” The Russian factor also explains, to a significant degree, the heightened attention paid by the document to hybrid threats.

It is also important that, this time around, the “Russian challenge” is viewed in the context of conventional military and military-political threats. It would appear that the European Union has not had such concerns about Russia ever since the fall of the Iron Curtain, not even during the 2008 conflict with Georgia.

This is also evident from the noticeable emphasis on the securitization of the European Union’s political course for the foreseeable future. The Russian factor is increasingly accentuated in a variety of areas, including foreign policy, and can also be seen in the European Union’s Common Security and Defence Policy, which was adopted in 2003 and still remains in force.

Nevertheless, despite its refusal to recognize “the illegal annexation of Crimea” and concerns about “destabilisation of eastern Ukraine,” the document stresses the necessity of building relations with Russia. It acknowledges the “interdependence” of the European Union and Russia, and the possibility of cooperation “if and when our interests overlap”.

Among the possible areas for selective engagement with Moscow, the strategy mentions “climate, the Arctic, maritime safety, education, research and cross-border cooperation.” This “engagement should also include deeper societal ties through facilitated travel for students, civil society and business.”

Thus, in addition to the proposed wording “freedom of navigation,” the European Union’s (far from exhaustive) list of areas for “selective engagement” suggests that their potential could be used in mitigating disagreements in foreign policy. It also highlights the degree to which the Baltic Sea Region states could contribute to this potential, many of which rank much higher on the list of areas of engagement with Russia than the European average.

Along with the Russian factor, the document mentions other issues looming on the borders of the European Union (terrorism, migration, and so on) that will fuel the policy aimed at securitization. In fact, these factors may play a positive role in the European Union’s policy with regard to Russia: successful cooperation in these areas could help to reduce political tensions.

Moscow will enjoy greater freedom of actions than the European Union as long as it does not respond with a similar document. Voices are growing stronger at the highest levels in Russia calling for greater trade and economic interaction, and even for seeking integration formats in this area. This elevates the importance of non-military factors in pursuing a course that would result in resolving other problems.

In this situation, we can expect the imminent appearance of a new, unscheduled Russian foreign policy concept. This document would serve as a practicable guide to action for the coming years, and its provisions may bear the imprint of the current course of events, as well as an outlook for the future. Similar to the European Union’s strategy, Moscow's response is likely to come in the form of a selective approach that would preclude, in the foreseeable future, the “comprehensive” cooperation with the European Union that had been mentioned, with varying nuances, in previous concepts.

Unfortunately, the political and security issues related to the Russia–EU dialogue, including those connected with the Baltic Sea Region, have currently subjugated the economic and humanitarian aspects of cooperation that could serve as important instruments in rectifying the situation. This factor has affected the Baltic Sea Region far more than it has a number of other EU regions. It is here that the repercussions of the Ukrainian crisis, the cooling down of Russia’s relations with NATO and the European Union, and the introduction of sanctions have been felt particularly acutely.

Russia’s security relations with the Baltic Sea Region countries are defined by the membership of Latvia, Lithuania, Poland and Estonia in NATO, as well as by the non-aligned status of Finland and Sweden. Following the onset of the “Ukrainian crisis,” these relations have been affected by the considerable deterioration of the situation, and by the marked militarization of the region.

Russia has substantially expanded the scope of military activity near its western borders. Its neighbours, in turn, have started opening centres of excellence for cyber defence, energy security and strategic communications, primarily to counter Russia; they have also been busy setting up NATO forward command posts and hosting heavy weaponry. At the NATO Warsaw Summit, the decision was made to deploy additional military contingents in the Baltic States and Poland.

The mutual tightening of this spiral, even without significant changes in the military balance, has increased the potential for conflict, with the possibility of dangerous malfunctions and miscalculations that could lead to unpredictable consequences. At the same time, it is already affecting assessments of the prospects for the action-response principle in military and foreign political planning. The escalation to new levels of tension in security and foreign policy preferences creates additional barriers to achieving positive momentum in other areas of cooperation. As a result, NATO’s voice is beginning to sound louder on the Baltic Sea Region agenda than that of the EU, while the role of channels between these two associations is increasing.

The possibility of Sweden and Finland joining NATO, a new headache for Moscow, has added to the dangerous development of the Baltic situation.

However, even without such scenarios, events continue to develop in a manner that is unfavourable to Russia. Much more significant than the possibility of Finland and Sweden joining NATO is the behaviour of these two countries in their capacity as members of the European Union, which has a newfound emphasis on security in the Baltic Sea Region and has reached new level of cooperation with NATO.

The aforementioned EU document, which was approved at the NATO Warsaw Summit in July 2016, cannot but influence the Swedish and Finnish policies. In both countries, changes in the moods of politicians and society have gained momentum that are markedly unfavourable to Russia.

In this situation, the nature and aspects of Sweden and Finland’s cooperation with NATO without them actually joining are becoming increasingly more important to Russia. The fact that NATO has been granted permission to conduct exercises and station rapid reaction forces in Sweden indicates a new level of cooperation, along with the de-jure formalization of Stockholm’s relations with NATO.

To all appearances, Sweden and Finland will continue to strengthen cooperation with NATO against the backdrop of increasing interaction between NATO and the European Union. The latter circumstance will allow Sweden and Finland to strengthen their military potential while remaining non-aligned.

In addition, both countries have noticeably intensified their cooperation with the United States, and they are actively strengthening other channels of communication with NATO, including through the Nordic Defence Cooperation. Finally, Finland and Sweden have noticeably expanded bilateral interaction over the past couple of years.

For Russia, these developments, particularly with regard to Finland, present a new and important factor in its policy in the Baltic Sea Region, and also in using the channels with NATO and the European Union. To mitigate this additional tension, the overall situation needs to be rectified through dialogue with the European Union, NATO and the two aforementioned countries.

The most urgent goal at the moment is to mitigate the risks of military confrontation in the region to avoid various possible accidents and errors potentially fraught with unpredictable consequences. As part of the Baltic Sea Region, Russia has prior experience of constructive cooperation with NATO in the form of providing the Baltic Transit Train in support of non-military deliveries and reverse transit for the International Security Assistance Force with the use of the transportation and logistics infrastructure owned by Russia and the Baltic States, as well as in the form of mutual overflights on the basis of the Treaty on Open Skies, even during the Ukrainian crisis.

However, there are other areas of interaction that are fraught with no lesser dangers. Among these is the need to neutralize cyber threats; this is an area in which Russia has so far been struggling to find common ground with NATO, but might find it easier to do so through OSCE mechanisms. The OSCE-launched project to formulate the rules in this new trust-building area opens up an opportunity for neutralizing the differences and, beyond that, a road towards mutually acceptable agreements with the other associations (both the European Union and NATO), as well as with their individual members. The position of the European Union could play a significant role here.

However, this process is being stalled considerably by the lack of political will, especially with regard to Russia’s relations with the Baltic States, the official dialogue with which is all but frozen. The possibility of highest-level official visits is out of the question. The few working meetings that have taken place between the foreign ministers (with the exception of Latvia’s foreign minister) have been on the sidelines of international forums. For the most part, the only contacts that have been preserved are at the departmental level, between the ministries of the countries participating in bilateral cooperation, as well as between several industry working groups of intergovernmental commissions.

Russia’s channels of communication with Poland and Sweden have been put under similar constraints. There are certain favourable differences in Russia–Finland relations, but these too have grown considerably less active.

To revive these dialogues, intergovernmental commissions should resume at the high level. It would be wise to resolve certain issues in Russia’s relations with individual countries, for example, by completing the ratification of the border treaty with Estonia.

In this light, and in the context of Russia–EU relations, one important issue on the Baltic Sea Region agenda is the future of the established regional cooperation mechanisms involving Russia and EU members. These include, first and foremost, the Council of the Baltic Sea States (CBSS), the Barents Euro-Arctic Council (BEAC) and the Arctic Council (AC). Before the current crisis, Russia saw the CBSS as a priority; it still attaches great importance to the Northern Dimension Institute.

The Arctic Council, which is currently chaired by the United States, has been sending signals to the effect that it advocates the preservation of constructive attitudes, even though Russia has been actively resisting the idea of granting observer status within the association to the European Union.

The question is how to stimulate the work of these organizations in the current difficult circumstances, given their traditional focus on specific local problems. On the one hand, they have found themselves hostage to “high politics” and are forced to operate against the background of Russia’s worsening relations with the European Union and its allies. On the other hand, important aspects of interaction still remain that require constant joint efforts, including in environmental safety in the Baltic and Arctic regions.

In attempts to solve this dilemma, voices are growing stronger in favour of introducing a broader agenda, one that would allow both for the aforementioned mechanisms to be revived and for some form of substitute for the currently weakened Russia–EU channels to be provided. However, such voices mostly come from experts and not from officials.

However, this would require expanding the level of authority of these organizations and raising their status. Political will would also be required to stimulate their work so that both Moscow and Brussels would defer to their decisions.

However, such reformatting is fraught with new problems. The introduction of broader agendas, with the associated additional disagreements, might swamp truly important local problems.

To all appearances, the current situation calls for smaller-scale regional policies, which could help achieve a synergy of all the parties’ interests. This would help minimize the damage caused by the broader challenges in Russia’s relations with its Western neighbours, while mending the bridges between Moscow and Brussels. Such policies could address common environmental challenges, intensify cross-border and humanitarian cooperation, and revive projects and programmes in Russia’s Northwestern Federal District, etc.

Trade and Economic Relations

Mark Entin, Ekaterina Entina:
Enviable … stagnation

It would be advisable for politicians and experts specializing in the Baltic Sea Region to pay closer attention to how the situation in the region could be changed through interaction between Moscow and Brussels. The mutual foreign economic interests of the European Union, its members in the Baltic Sea Region, and Russia should be disentangled from the current musings on military-political threats. This is because international political differences have exceeded the level of propensity towards conflict in foreign economic relations in the past, whereas the latter have had a significant role to play in neutralizing the former.

If we proceed from the desire of Moscow to improve its relations with the European Union in general, and with its individual members in particular, the ingredients required would include reconciling mutual foreign economic interests and identifying the degree of their influence on the relations in general and on possible future alignments. This is required for the purpose of reducing political tensions and bringing the general dialogue back on a mutually acceptable track.

Such efforts should take the new realities that emerged after the introduction of the sanctions (and which are not going to change fundamentally even after the sanctions are lifted, at least not initially) into account. They should also reckon with the changes that have taken place on the (regional and global) markets of supply and demand for commodities and services; the impact that the sanctions and the Russian countersanctions have had on the long-term priorities of Russia and the European Union; and the consequences that Russia’s “pivot to the east” will have for cooperation following the possible lifting of the sanctions and the associated removal of a number of political differences. These circumstances should be viewed through the prism of the new priorities set by Moscow and Brussels, and should be matched against the prospects of Russia’s relations with the other Baltic Sea Region states.

Let us mention several new realities for the European Union; this will be helpful in determining the points at which a return to the previous status quo is impossible, as well as potential variants of further cooperation development in the Baltic region.

Whereas previously, the European Union and Russia had officially proclaimed a course towards a “comprehensive development” of relations, in the near future, the two will have to stick to “selective cooperation” on a markedly shorter list of matters. And this also applies to foreign economic interaction. Even if the sanctions are lifted, in full or in part, following a resolution of the conflict in the southeast of Ukraine and with the “Crimean factor” preserved, the selective trend is going to stay, mostly at the insistence of the European Union. The only real question here will be the nature and scale of this trend.

This development is dependent on a tangle of mutual concerns, from foreign political issues to developments within Russia and the European Union. This “tangle” is mentioned in the five principles underlying the EU policy related to Russia, which were adopted in March 2016.

One of these principles envisages “selective cooperation,” both on foreign political matters and on “other issues of interest to the EU.” The “other issues,” to a certain extent, include foreign economic matters.

The situation involving the foreign political issues appears clearer: here we have the settlement of the crisis in the Middle East, the situation in North Korea, migration flows, the fight against international terrorism, and climate change. We would also mention the first principle, which has to do with the observance of the Minsk Agreements.

As for the “other issues,” experts should be more thorough in choosing the possible areas of cooperation. However, such an analysis should proceed from the feasibility of the likely roadmap for interaction, without escaping to the well-trodden path of declarations.

As we have already noted, signals from both sides indicate the need to expand the interdisciplinary approach on international discussion platforms devoted to interaction both between Russia and the European Union, and within the Baltic Sea Region. The current and understandable “fixation” of numerous platforms on security challenges should be complemented, and gradually supplanted, by interdisciplinary agendas. The role of foreign economic topics in this process should grow. Such agendas would allow for a better assessment of the situation and the prospects for the future [1], as well possible areas of “selectivity,” and also for seeking mutually acceptable compromises that would include ancillary political and economic factors.

The “selective” approach attaches greater significance to the problem of the “point of no return.” It calls for the areas of interaction in which this point has already been passed to be identified, if we are to speak about the expectations linked to the possible lifting of the reciprocal sanctions, or the areas in which all the parties involved are rapidly approaching that point. Looking at the list of the European Union’s priority foreign economic partners, it appears that it has already started identifying this point of no return.

The trade policy for the observable future adopted by the European Commission in October 2015 places Russia at the lowest position in terms of significance; in previous documents, Russia always ranked third or fourth.

Furthermore, in contrast from the aforementioned six regional and country blocs, Russia is not mentioned in that policy in the context of any distinct prospects for the future. It is only mentioned in the section on energy, and not even in the context of industrial cooperation with the European Union and its member states, which is an important for Russia. All this sends a strong signal that Russia’s ranking on this list will continue to decline, both in statistical terms and in terms of its priority to the European Union’s long-term trade and economic policy outside its borders.

At the same time, the fairly oblique references to Russia give the EU a certain room for manoeuvre, depending on how the situation will develop. This is reflected in the document in the following wording: “The EU’s strategic interest remains to achieve closer economic ties with Russia. The prospects for this will, however, be determined primarily by the course of Russia’s domestic and foreign policy, which so far gives no signs of the necessary changes.” This message, which is contained in the trade and economic section, is then reiterated in “tangle” of the five principles.

Similarly to these principles, Brussels in its foreign economic policy did not dot all the i’s, but rather took a wait-and-see position, one that would depend on Russia's “behaviour” in the future. This indicates that a lot will depend on how Brussels appraises future changes in Moscow’s domestic and foreign policy. It appears that in the near future, Moscow’s policy will inform the European Union’s foreign dimension and influence any possible alignments on a number of international and bilateral issues. On the one hand, such alignments will stimulate positive change in addressing foreign economic objectives, while on the other hand, a reverse process will also be observed.

For the time being, if no serious positive developments emerge, the European Union’s wait-and-see (read: less rigid) foreign economic position, in contrast with its political stance, will continue to escalate internal conflicts of interests among the EU members, which have differing preferences as to the nature and scale of their cooperation with Russia. In this situation, the “mediating” role of the European Union’s governing bodies, with all their mechanisms and channels of influence, will continue to grow. This will be equally true of the Baltic Sea Region countries.

Moscow, for its part, continues to regard the European Union as a key strategic foreign economic partner, despite the Russian economy’s “pivot to the east” and the Western sanctions. This is a given for the preservation of the scale and balance of foreign economic cooperation in Russia’s interests. The emphases made in Russian official statements indicate that there are hopes for the restoration of at least some degree of cooperation, and for the reinstatement of Russia on the list of the European Union’s leading foreign economic partners, to be accompanied by the lifting of the mutual sanctions.

However, in addition to the foreign economic problems, these aspirations will greatly depend on the future development of the domestic situation in Russia, and on how this development is assessed by the European Union. On the one hand, Brussels might be hoping that the worsening economic situation will increase the probability of Moscow initiating political, economic and humanitarian changes that would be favourable to the European Union. On the other hand, it might be counting on the fact that Moscow will continue to toughen its domestic policy, with associated anti-Western foreign political goals, which is something that experts have been warning about with growing concern. This dilemma goes a long way towards explaining the oblique wording of the European Union’s official documents.

For Moscow, domestic problems will increasingly stimulate its other key interest in cooperation with the European Union (besides energy), namely, investments. The European Union has historically led the other regions in direct investment in Russia, accounting for over 70 per cent of the total. The sharp decrease in this share following the closure of EU production facilities in Russia has seriously affected the prospects for Russian economic development. However, without clear and understandable rules of the game for investors, and without measures aimed at improving the investment climate, the “point of no return” in this area of interaction with the European Union could be passed fairly quickly.

At the same time, the “point of no return” in the energy sector, the most sensitive area for Russia, has obviously been passed. Moscow will now have to adapt to the new situation, which is related to the changes on the global and regional energy markets. There appears to be little point in hoping for the sanctions to be lifted, for a growth in oil prices, and for an increase in trade with the European Union as a key consumer of Russian energy exports. The real interests of all the EU members with regard to so-called energy security are far from limited to the fear of a “Russian threat.”

The reality is such that the EU member states have other long-term interests, which are largely linked to the global challenges to competitiveness, especially in the industrial and technological sectors, as well as to environmental and climate concerns and many other factors. Therefore, the European Union is unlikely to revise its policy of introducing energy conservation technologies, renewable energy sources and other similar solutions. Similarly, it is unlikely to revise its course towards diversifying energy supplies, with the associated impact on energy prices, including for th

e purpose of reducing internal costs related to production and the everyday needs of the population.

In this respect, it would make sense for Moscow to read the EU documents on the Energy Union more thoroughly. The creation of the Energy Union is a matter of formats and names, and not development, which has already been chosen, and in which a departure from the European Union’s dependence on Russia is but one of the motives.

Therefore, Russia, an appraisal of the intentions of the European Union and its Baltic Sea Region members with regard to energy policy might benefit from an interpretation of their motives, and not only in the context of “anti-Russian sentiment.” Moscow should realize that the European Union’s interest in energy supplies from the East, although substantial, will continue to decrease.

At the same time, Moscow should certainly realize that, despite all the aforementioned objective interests of the European Union, the events is Ukraine have given a significant boost to the formation of a common energy policy within the EU, which is one of the few areas in which the sovereign rights of the EU member states still prevail over the powers of Brussels. The European Commission has managed to alleviate the disagreements between the member states, although it has yet to remove some fairly high barriers.

Given the significant share of energy supply and transit in Russia’s foreign trade balance with the other Baltic Sea Region states, it would be advisable to identify the possible future mutual foreign economic interests. For example, in the long run, Russia will certainly become interested in energy efficiency programmes, in which the European Union and its individual members are world leaders. Therefore, the European Union’s energy policy, with its emphasis on “clean technology” and the “green economy,” would be of great importance to Russia. As applied to the Baltic Sea Region, cooperation in this area with Finland, for example, has great potential.

Russia, for its part, has substantial experience in Arctic exploration, as well as in technologies used for tackling man-made and natural disasters. This experience, which is already in demand on certain markets, could become a promising aspect of Baltic Sea Region cooperation.

Thus, cooperation with the European Union and the Baltic Sea Region countries has significant potential in terms of ensuring an energy trade balance and modernizing the Russian economy through the large-scale introduction of energy conservation technologies, renewable energy sources and other technological solutions. Just like in the EU documents on the Energy Union, this cooperation should proceed from Russia’s desire to boost competitiveness, etc. We should note that the Russian leadership has been paying special attention to these goals recently.

In searching for compromises that would address political and economic issues and influence interaction with the European Union and within the Baltic Sea Region itself, Russia should show greater interest in establishing cooperation between the Eurasian Economic Union (EAEU) and the European Union. This would motivate Moscow to cooperate in other areas. Apart from stressing the need for intensifying trade and economic interaction, Moscow has recently been emphasizing the importance of developing contacts between the Eurasian Economic Commission (EEC) and the European Commission (EC) as a driver for improving the overall climate. Certain positive reactions to such interaction have been emanating from European capitals. Overall, however, the European Union has been rather sceptical as to the EAEU’s prospects. These moods are similarly characteristic of certain Baltic Sea Region countries.

We are talking, first and foremost, about an instrument that would help to overcome a number of differences. For as long as the sanctions last, developing contacts between the EEC and the EC appears to be important for improving the current atmosphere.

It would be advisable for European experts to abandon their sceptical attitude towards the prospects of the EAEU, and their view of that association as a political bloc rather than an economic one. It would help if they were more objective in appraising all the benefits and costs of this association, along with the pluses and minuses of establishing cooperation channels with the European Union. This would require a comprehensive approach, with due regard not only for foreign economic interests, but also for the requirement to unravel the “tangle” of the European Union’s five principles, as well as other long-term goals.

Such contacts are directly related to the interests of the Baltic Sea Region states in the framework of their cooperation with Russia. Of no less importance is the establishment of the EAEU’s interaction with other countries and associations, especially in the East; this could directly affect the interests of both the European Union and its members in the Baltic Sea Region.

Other important issues in the framework of Russia–EU relations which directly affect Russia’s cooperation in the Baltic Sea Region relate to agriculture and transport.

Even if both Russia and the European Union lift the sanctions, and if the dialogue between Russia and the European Union improves, Russia’s demand for agricultural produce from the EU countries, while still substantial, will most likely continue to shrink. Russia’s responsive actions have already gained momentum in the form of government import substitution programmes. In addition, new markets have been identified, fairly quickly, to replace the EU agricultural imports (not forgetting “grey re-export” of EU produce to Russia). It appears that here it is Russia that has already passed the point of no return.

Nevertheless, Russia will continue to be interested in agricultural imports from the European Union, albeit on a smaller scale than before. Apart from the possible lifting of the sanctions, much will depend on the competitiveness of costs, on the exchange rate of the rouble to the euro, and on other factors. Overall, the European Union would do well to focus on the “new reality” on the Russian agricultural market.

This reality appears to be particularly hurtful to the Baltic Sea Region countries, primarily the Baltic States and Finland. By contrast, some other EU members have adapted better to the Russian countermeasures.

Against the current unfavourable background, Russia has intensified efforts to lessen its dependence on the transport infrastructure of the Baltic States. A clear-cut policy in this respect was first announced at the turn of the century, but it has not been implemented to the extent that was originally intended for various reasons.

It is clear that in this area, too, the point of no return has already been passed at Russia’s initiative, although with certain reservations. Cooperation in this sphere will continue, but at a much lesser scale than before.

The exact scale of this cooperation will depend on more than the state of relations as a whole between the parties. Transport cooperation has been maintained at a certain level all this time due to Russia losing access to a number of Ukrainian ports, the country’s financial capabilities with regard to implementing the agreed development plans for the north-western seaport infrastructure (including progress in seeking non-European foreign partners), the tariff policy, and so on.

An important aspect in analysing the future of Russia’s foreign economic relations with the other Baltic Sea Region countries is the need to identify possible niches for the interim period while seeking new cooperation partners, and to assess the impact that this shrinking cooperation would have on the economic development of all the countries in the region.

It is in the interests of both Russia and the other Baltic Sea Region countries to seek compromises in trade and the economy based on promising niches in the new conditions. This appears to be a necessary condition for neutralizing political differences.

At the same time, it would be advisable for Russia to take a more objective approach to assessing its influence on the economic development and interests of the other Baltic Sea Region countries. Official statements and media reports attach great importance to the crisis processes within the European Union, which also affect the Baltic Sea Region countries. However, as compared to the negative economic dynamics in Russia, these countries have seen, and are projected to see in the near future, a certain GDP growth, albeit on a small scale.

For Russia, in the light of the serious upheavals on the energy markets and the country’s firm intention to strengthen its food security by way of stimulating domestic manufacturers, it is extremely important to identify new niches of cooperation within the Baltic Sea Region, and also with the European Union in general, beyond the areas affected by the sanctions regime. However, this dialogue will be hampered by the absence of a development programme for at least the next couple of years; if Russia had a serious industrial and technological modernization programme, it could avoid the “flip-flopping” in its foreign policy.

Russia’s “pivot to the east,” however modest so far, indicates that there may be serious barriers to such modernization, even if such a programme is adopted through a strong political will. At the same time, the Baltic Sea Region should pay more attention to the growing competition on the Russian market of the leading Asia-Pacific countries, including the non-energy sectors. Following a certain lull, Japan and South Korea have started voicing concern about Russia’s increasing cooperation with China. Brussels, too, is taking these changes into consideration.

It appears that the Baltic Sea Region countries, given their progress in innovative economy as compared to many other EU members, would benefit from identifying possible future areas and projects for cooperation with Russia. Finland appears to be best positioned in this respect, seeing as it is one of Russia’s key technology partners.

Cross-Border, Transnational and Humanitarian Cooperation

Cultural cooperation has always been the least problematic area of Russia’s relations with the other Baltic Sea Region countries. In the case of the Baltic States, however, it too has come to be viewed as a projection of Russian influence in recent years, an instrument of “cultural imperialism” and “propaganda.” Cancellations of music festivals, bans on tours by Russian artists, and the discontinuation of Russian TV broadcasts are not conducive to the positive development of the cultural dialogue between Russia and the Baltic States.

Furthermore, visa statistics indicate that the number of visits to Russia by scientists and cultural figures from the Baltic States has been shrinking, as has the number of students from those countries (with the exception of Estonia) enrolling at Russian educational institutions. This is a worrying sign.

Humanitarian cooperation exerts virtually no influence on the contemporary political situation. It can, however, create a favourable background and help in forming a critical mass of people who advocate positive developments and mutually beneficial cooperation.

In this light, the priority objectives include resuming the operation of joint history commissions; preserving and, if possible, building on the current level of cultural cooperation in the form of theatrical and musical tours, exhibitions, etc., as well as expanding academic exchange programmes and abandoning the practice of cultural figures being put on sanctions lists.

The Baltic Sea Region has long been characterized by highly developed transnational cooperation. Joint projects in different areas aimed at facilitating the development of long-term cooperation mechanisms have a significant role to play here. In the current complicated situation this cooperation is becoming particularly important to positive developments in the region, not forgetting the processes of its institutionalization and the creation of sustainable networks. The Kremlin used to mention this in its fundamental documents in far less troublesome times.

Cross-border cooperation historically plays a special part in the broader Russia–EU dialogue, seeing as it is virtually unaffected by the international political situation and continues to be a very important driver in the development of Russia’s relations with the European Union and the Baltic Sea Region countries. The goals and objectives in this area of interaction are exclusively practical in nature. They are related to addressing concrete, region-specific problems, rather than claiming to be quick solutions for overcoming political differences.

It is partly due to the aforementioned factors that this area has suffered less from the deterioration in the current climate. All of the European Union’s regional cooperation programmes with Russia continue to be in effect, even though funding has been curtailed for a number of projects, including scientific and educational programmes.

The European Union has adopted or approved new cross-border cooperation programmes for the period 2014–2020, and Moscow is in talks with Brussels over an agreement on how to fund and implement them. Moscow recently signed up to the Interreg Baltic Sea Region transnational cooperation programme for 2014–2020 and decided to continue with the joint funding of the Northern Dimension project.

Small-scale cross-border movements between Poland and the Kaliningrad Region may be resumed shortly, and the Kaliningrad regional authorities are planning to launch new Russia–EU cooperation projects in 2017. The Russian-Finnish Intergovernmental Commission on Cross-Border Cooperation has resumed its work.

Cross-border and transnational cooperation is of great importance to Russia and its neighbours. Among other things, it facilitates the development of small and medium-sized businesses, drives improvements to the transportation, logistics and customs infrastructure, helps to introduce best practices in the implementation of projects in Russia’s Northwestern Federal District, assists with the development of industrial cooperation, and provides support for cluster initiatives.

Against this background, the main objective of all the participants in the process should be to preserve cross-border cooperation at its current level. Interaction with the Baltic countries through the Euroregion format, and also the implementation of bilateral cross-border cooperation strategies, objectively remain a resource for maintaining working relations in the areas of mutual interest, and they are also an important tool for smoothing over the problems in other aspects of Russia’s relations within the Baltic Sea Region and the European Union.

The escalation in tensions across Europe, which is also noticeable in the Baltic Sea Region, has a significant influence on the current state and the prospects of Russia–EU relations. It is vitally important to mitigate or eliminate this problem, which should be addressed jointly and promptly, with the use of the interaction channels with the European Union, NATO and the Organization for Security and Co-operation in Europe (OSCE), as well as with other important mechanisms.

However, the implementation of this task would require more than just dialogues on security; it would be advisable to engage other significant areas of cooperation as important ingredients of the broader set of mutually acceptable agreements aimed at improving the political climate in Europe. These areas include developing foreign economic ties; furthering humanitarian and transnational contacts; overcoming non-traditional threats to security (including migration flows); implementing environmental programmes; tackling climate change; and so on.

This approach appears to have sufficient potential for helping to neutralize security risks. It is particularly noticeable in the Baltic Sea Region, where Russia enjoys a strong presence in a multitude of cooperation areas.

One possible method of addressing high-level political differences, which have subjugated the regional interaction agendas, is via “grassroots mobilization,” i.e. by engaging business circles, local self-administration bodies and non-governmental organizations. These bodies should work more actively with government agencies, regional mechanisms and Brussels.

Economic interests, the preservation of humanitarian and scientific ties, and the possibility of positive change in the current extremely unpleasant situation are on the line here. This applies not just to Russia and the other countries of the region, but also to all the EU member states.

Such developments could be substantially stimulated through Russia–EU channels, Russia’s bilateral contacts with the other Baltic Sea Region states, and also in the form of positive signals from the Baltic Sea Region capitals to Brussels. This might be extremely difficult to achieve in the current situation, but it must be done.

In order to alleviate tensions and return to the former scale of mutually beneficial cooperation in Russia’s relations with the West, and with the Baltic Sea Region countries as part of the broader West, it is absolutely necessary for both parties to demonstrate actual political will – and not just at the highest level, but also at all the other levels of interaction. However, this will be impossible to achieve without a clear, detailed and sober realization of the potential and the inner workings of each individual channel of interaction. This report outlines the general approaches to this problem, which leaves a broad field for expert work. Moscow, Brussels and the Baltic Sea Region capitals need to demonstrate an insistent and urgent interest in such work.

Russia’s Trade and Economic Relations with the Baltic States

Table 1. Russia’s Place in the Export Structure of the Baltic States (%)*

  2008 2009 2010 2011 2012 2013 2014 2015
Latvia 10,6 (3) 10,7 (3) 10,0 (3) 8,6 (3) 9,5 (3) 8,4 (4) 8,1 (4) 8,4 (4)
Lithuania 29,9 (1) 29,9 (1) 32,6 (1) 32,8 (1) 32,3 (1) 29,2 (1) 21,6 (1) 16,9 (1)
Estonia 7,6 (6) 8,2 (6) 8,2 (5) 8,3 (5) 7,3 (6) 5,7 (7) 6,2 (7) 5,8 (7)

Sources: http://www.stat.gov.lt (Lietuvos statistikos departamentas); http://www.csb.gov.lv/ (Latvijas statistika), http://www.bank.lv/ (Latvijas banka); http://www.stat.ee/ (Eesti statistika). .

* The figures in brackets indicate Russia’s position among the countries importing from the given Baltic State

Table 2.Russia’s Place in the Import Structure of the Baltic States (%)*

  2008 2009 2010 2011 2012 2013 2014 2015
Latvia 10,6 (3) 8,8 (3) 10,6 (3) 10,6 (3) 11,5 (3) 11,6 (4) 10,8 (4) 8,0 (4)
Lithuania 16,1 (1) 13,2 (1) 15,7 (1) 16,6 (1) 18,6 (1) 19,8 (1) 20,8 (1) 13,7 (1)
Estonia 10,4 (3) 9,3 (4) 9,7 (3) 11,0 (3) 12,1 (3) 11,5 (3) 9,8 (4) 6,7 (4)

Sources: http://www.stat.gov.lt (Lietuvos statistikos departamentas); http://www.csb.gov.lv/ (Latvijas statistika), http://www.bank.lv/ (Latvijas banka); http://www.stat.ee/ (Eesti statistika). .

* The figures in brackets indicate Russia’s position among the countries exporting to the given Baltic State.

As a result of the sanctions, Russia saw the volume of trade with the Baltic States decline year-on-year in 2015. Specifically, trade dropped by 44 per cent with Latvia, 30 per cent with Lithuania, and 25 per cent with Estonia. Russian exports to these three countries continues to be largely represented by mineral products.

The transit and logistics sector in the Baltic States was particularly hardly hit by the sanctions, which has been exacerbated by the general trend in Russia towards more extensive use of its own seaport transit capacities in the Leningrad Region. At the same time, the dynamics of the Baltic States’ seaport freight turnover are ambiguous. In particular, the volume of freight transhipments via Lithuanian ports is growing, whereas the Latvian and Estonian ports have reported a decline in freight turnover for the second year in a row. This is forcing the two countries to make special efforts to attract partners, not just from Russia, but also from Asian countries (in the light of China’s work to implement its Silk Road Economic Belt strategy).

Table 3. Freight Turnover at the Baltic East Coast Seaports for 2014–16

Port Total, tonnes change Total, tonnes change
Jan–Dec 2014 Jan–Dec 2015 Jan–Jul 2015 Jan–Jul 2016
Total 368 196,4 368 550,0 +0,1% 215 465,0 212 196,6 -1,5%
Ust-Luga 75 692,1 87 868,3 +16,1% 50 093,2 52 952,4 +5,7%
Primorsk 53 656,3 59 606,1 +11,1% 34 251,0 37 669,0 +10,0%
St. Petersburg 61177,6 51 513,2 -15,8% 30 370,7 27 846,4 -8,3%
Freeport of Riga 41 080,4 40 055,8 -2,5% 23 707,5 21 230,1 -10,4%
Port of Klaipeda 36 410,6 38 507,1 +5,8% 22 216,9 23 150,3 +4,2%
Butinge Oil Terminal 7 332,2 8 678,6 +18,4% 5 017,1 5 204,7 +3,7%
Ventspils 26 206,0 22 524,0 -14,1% 14 828,0 11473,0 -22,6%
Port of Tallinn 28 321,4 22 431,3 -20,8% 13 705,3 12 335,3 -10,0%
Vysotsk 17 428,1 17 483,6 +0,3% 9 896,5 9 626,1 -2,7%
Kaliningrad 13 897,3 12 712,1 -8,5% 7 478,7 6 971,9 -6,8%
Liepaja 5 299,8 5 611,4 +5,9% 3 071,1 3 023,4 -1,6%
Vyborg 1 694,6 1 558,5 -8,0% 829,0 714,0 -13,9%

Source: Port of Klaipeda website.

In addition, the post-Soviet redistribution of interests between Russian economic entities and the Baltic States appears to have continued (as witnessed by the departure of Gazprom and Lukoil from the region). This process has apparently reached a stage at which new common ground could and should be sought once again. In this sense, we may say that the sanctions regime has had a certain positive effect in that it highlighted those areas of cooperation in which Russia and the Baltic States find themselves particularly interdependent.

The statistics for Russian business visas issued in the Baltic States indicate that Lithuanian and Latvian business activity connected with Russia has taken a significant plunge, whereas the number of such visas issued to Estonian citizens has been growing in the past few years, despite the crisis.

Table 4. Certain Types of Visa Issued by Russian Diplomatic Missions and Consular Services in the Baltic States in 2006–2015

Country

Visa types

2009

2010

2011

2012

2013

2014

2015

Latvia

Total

Business

Student

Humanitarian

72 494

22 612

302

5 461

77 520

29 861

337

7 166

85 680

32 890

304

8 463

82 237

31 641

279

9 366

76 325

29 011

308

10 165

72 347

27 575

375

8 910

70 328

26 648

386

7 764

Lithuania

Total

Business

Student

Humanitarian

73 377

33 179

435

4 314

78 254

35 296

255

6 580

81 406

38 483

229

8 038

79 708

40 801

309

7 888

79 893

40 351

364

8 091

67 979

33 864

253

6 176

53 071

23 650

196

3 983

Estonia

Total

Business

Student

Humanitarian

121 860

30 099

306

8 917

70 632

17 407

208

9 857

66 976

16 906

254

14 205

74 041

22 590

283

15 621

74 420

25 116

240

13 803

73 216

25 954

338

12 915

77 953

27 942

721

14 007

Source: Consular Department, Ministry of Foreign Affairs of the Russian Federation.

In the absence of political constraints, the economy is capable of generating opportunities for business activity on its own, provided that such activity brings profit to all the parties involved. Several examples are sufficient to illustrate this point. Latvia continues to be a safe haven for Russian capital, with over 53 per cent of all deposits in Latvian banks belonging to non-residents, 80 per cent of whom hail from the CIS countries, primarily from Russia [2]. There is no reason to believe that this situation is going to change. Of all the patents registered in Latvia, 80 per cent belong to Russian citizens, since this allows them to bring their innovative products directly onto the EU markets. Finally, Riga airport has long been used as the base of choice by Russian business aviation operators: it is cheaper to pay for aircraft storage at Riga and fly to Moscow as required than keeping the airplane at one of the Moscow airports.

1. “Trade for All. Towards a More Responsible Trade and Investment Policy.” Russia comes after the United States and Canada, the Asia-Pacific Region, Africa, Latin America and the Caribbean, Turkey and the countries

2. “Non-residents and the ‘Golden Age’ of Latvian banks” – The Baltic Course, May 19, 2016; http://www.baltic-course.com/rus/kruglij_stol/?doc=120918

 

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