Russia and the EU: rebooting relations?

On 26-27 February 2013, a conference was held in Vienna, Austria on “EU-Russia economic relations and how to reboot them?” The conference was attended by members of the Russian, EU and Austrian diplomatic corps, businessmen, leaders of trade associations and academics. The conference was held as part of the Vienna Process, one of a series of meetings between EU and Russia to promote commercial and political ties. It was sponsored by the ICEUR-Vienna, an independent think-tank, which specializes on analytical research on matters of business, economy and policies in the EU and its East European partners.

On 26-27 February 2013, a conference was held in Vienna, Austria on “EU-Russia economic relations and how to reboot them?”

The conference was attended by members of the Russian, EU and Austrian diplomatic corps, businessmen, leaders of trade associations and academics.

The conference was held as part of the Vienna Process, one of a series of meetings between EU and Russia to promote commercial and political ties. It was sponsored by the ICEUR-Vienna, an independent think-tank, which specializes on analytical research on matters of business, economy and policies in the EU and its East European partners.

Conference program

The event was attended by Ivan Timofeev, RIAC programme director, who made a presentation at the opening of the conference.

Mr. Chairman, ladies and gentlemen,

It is a great honour for me to take part in this conference with such an interesting and professional attendance. I am representing the Russian International Affairs Council, a Russian non-governmental think-tank established two years ago. It brings together prominent members of Russian international affairs community, as well as representatives from some of the major universities and corporations.

At the RIAC we are proud to be able to present multifaceted views and approaches to international relations and Russia’s foreign policy, and this is only natural since our members include government officials, business people, representatives from the media and NGOs. Each of these institutions adds its own perceptions of international processes while the RIAC is uniquely placed to be able to combine these different “pictures of the world”.

Europe is one of the RIAC’s priority areas. Nothing could be more logical, given the role and significance of the European Union for the Russian foreign policy agenda. Let me try to share with you my observations and considerations pertaining to Russia and the EU and their relations, presenting them, as I should in my capacity, from different points of view.

An Optimist’s View

My first observation has to do with the attitudes that tend to prevail in the debates on Russia and the EU. In other words, which way has the pendulum swung – has it moved towards optimism or pessimism? Currently, I believe, discussions are fairly well balanced, although this statement needs a few caveats. Let me elaborate on them.

Optimists tend to operate with a long-established set of arguments. They point to the growth in economic interdependency and trade volumes as well as the positions of both the EU and Russia in their reciprocal investment, export and import. Progress in the energy dialogueis often used as an optimistic argument. Much is being said about common values. Grassroots contacts over the past two decades have become so extensive, it is now hard to believe it was not always like that.

At the conceptual level this optimism is reflected in the idea of a Greater Europe stretching from Lisbon to Vladivostok. It is in no way a novel idea, but it has featured quite prominently,for some time, in both the doctrine papers and in speeches of politicians and diplomats. Russia’s accession to the WTO may well be taken as a step towards the ideal of a Greater Europe. It is the belief of both parties that without mutual cooperation they could hardly continue as important players on the international scene in the long term.

Pessimists: “It may be true, but…”

It is ironic that pessimists usually accept all the above arguments. Issues with the pessimists start to emerge at the level of details. Saying ‘yes’ toeachoftheabove, pessimiststendtoadd ‘but’ or ‘however’.

Yes, the economic interdependency of Russia and EU has been growing. However, it is always asymmetric. The EU’s contribution to the mutual trade is much more diverse and high-tech, whereas Russian participation has been limited, to a significant degree, to the energy sector. As a result, we have relations which resemble rather relations between a regional hub and a semi-periphery than relations between two centres.

Yes, the energy dialogue has been a success, and both parties have benefitted. For at least next two decades, Russia and the EU will remain key partners. However, Russia should be mindful of the EU’s willingness to diversify its suppliers and to contain prices, let alone the implications of the Third EU Energy Package coming into force.

Yes, Russia and the EU have many common values. However, there are frequently voices in the EU doubting the quality of Russia’s political and legal institutions, and such views in the Russian media are often considered politically manipulated and reflecting double standards.

Yes, the sheer number and intensity of contacts at the level of civil society, academia and business have increased dramatically; however, the issue of visas remains a stumbling block.

Yes, the idea of a Greater Europe stretching from Lisbon to Vladivostok has been regarded favourably both by Brussels and Moscow. However, it is still more theory than practice. Russia’s accession to the WTO is a landmark event, but its implication for Russia-EU relations is far from obvious, particularly, in the context of the Eurasian initiatives.

S-shaped Curve?

Russia-EU relations follow an S-shaped curve, and the economists in the audience will know exactly what I mean: it is a common scenario for many economic processes. And this is my second observation.

Let us forget,for a minute, about Russia and the EU, and suppose we have a product or service. We also have a market where we want to sell it. If we have chosen our niche and strategy right, we would be successful in this market. However, no matter how good the strategy, sooner or later we would have to face the limitations of this market, as there is no such thing is a limitless market. Sooner or later we would reach stagnation. At the stagnation point our efforts would become disproportional to the results - we would invest a lot, but get little in return. To move on, we would need to do one of the two things: we either have to look for a new market, or we need to improve our techniques in the current market.

Now, why may this hypothetical case be relevant to Russia and the EU? Because we seem to be right at the tip of the S-curve, which is the stagnation phase. The stagnation is, in and of itself, not a tragedy or absolute evil. We need to remember two things, however.

Firstly, in the near future our relationship could well lose its dynamism and impact, although the scale of effort might be growing. In this situation, the worst thing to do would be to punish the innocent and reward third parties. It is the logic of the moment, and we should accept it as it is.

Secondly, stagnation may deepen, and to move up to the new stage. It is essential, now as never, to think of new “markets” for our relationship (those spheres of cooperation that so far have been neglected), or improve the current areas and tools of collaboration, in other words, work on new “techniques” in our relationship.

There are aspects of tactics and strategy to this process. Tactically, we are talking, first and foremost, about a new fundamental (or comprehensive) agreement. Russian and EU diplomats have been working hard on the new agreement, and I am convinced it will be made in a few years.

The strategic issue is more of consequence: how efficient will the new agreement be? Ideally, this document should be fairly universal, for it not to become obsolete with all the rapid changes in life. But it also should be sufficiently specific, to boost real demand for cooperation at the level of business and civil society, rather than only among governments. It is here, in my view, that future points of growth are to be found. Governments and officials have been and continue making huge efforts, but these efforts alone are not sufficient. It is necessary to mobilize, or push into the proper channel, the huge potential of commercial and non-government institutions. And then we could get ourselves back to the base of the S-curve, followed again by dynamic growth.

Russia - EU: independent variables

It is my belief that strategically, relations between Russia and the EU would be dependent, as a minimum, on the following independent variables, and this is my third observation. Let me briefly describe them.

First is the pace of change in the European Union and the degree of consolidation among its members, particularly in foreign policy. All present here would understand what I mean.

Secondly, it is institutional changes in Russia. Political institutions are not of such critical importance, as they tend to think. We are talking here about a very broad range of “rules of the game”, which would make Russia globally attractive, would lower the risks and uncertainty for business and enhance trust in our country. A good indicator of the adequate quality of such institutions is the environment enjoyed by small and medium enterprises. While they may have a huge and untapped potential, they are most sensitive to the “rules of the game”, formal and informal.

Thirdly, it is the impact made by the global environment of cooperation between Russia and the EU. We are talking here about external challenges (from the Arab Spring to the financial crisis) as well as new capacities and innovations (for instance, the “shale revolution”). I would like to mention separately the role and influence of the Asia-Pacific Region. The Russian Presidency in APEC has increased the popularity of the debate about Russia’s drift towards Asia. One needs to remember that our Asian partners are at least as much, if not more, pragmatic than Europeans. The European Union too has been keeping a close eye on the APR, trying effectively to become part of the regional wave of development.

Fourthly, it is the generation change. It is a psychological factor that has been largely ignored. We see a new generation of politicians, diplomats, businessmen and reporters. They are people with a different set of values and preferences. More importantly, they have a different set of competences. There may be new opportunities intrinsic in the information-age generation. But it is also fraught with problems. My colleagues in the audience have already mentioned the issue of human resources in the Russian modernisation effort and the shortage of skilled workers with relevant levels of qualifications and competences. The skills of navigating social networks will hardly compensate for the lack of fundamental knowledge.

Finally and fifthly, it is the ability of political elites to recognize and use the opportunities that the historic moment may be offering. As the theory of international relations suggests, interaction between agents on the international stage is defined by a combination of fear, trust and solidarity. The political wisdom of our leaders and the efficiency of our institutions would determine which components will play the key role in improving relations between Russia and the EU.

Thank you for your attention.