[ Consultations and summit meetings ]

Russia comes home to Europe

In geopolitical terms, Russia is an Eurasian state that is interested in fully developing its relations with all it neighbours. Its leading partner in Europe is the European Union (EU). In 1994 the Russian Federation (RF) concluded a comprehensive Partnership and Cooperation Agreement with the EU, which came into force in 1997. The accord regulates the relations between Russia and the EU (and its current 15 member countries) and with the future 10 new Central and East European accession states. To complement the agreement, both sides adopted “Common Strategies” to develop their relations in 1999. For Russia, the focus is on furthering economic cooperation, while the EU’s main interest is promoting the reform processes in Russia (for instance by technical cooperation within the framework of the TACIS programme).

In the meantime, a well-functioning mechanism of joint consultations and summit meetings has developed. Both sides are actively engaged in implementing the idea of the Common European Economic Area (since 2001) and the dialogue on energy (since 2000). They cooperate closely in implementing joint regional initiatives such as cross-border cooperation in Northern Europe. The Kaliningrad (formerly Königsberg) region takes an active part in the regional cooperation in the Baltic area. From May on it will be a Russian enclave surrounded by EU territory, so Russia is currently developing special cooperation models with the EU, particularly on visa and transit issues.

In May 2003, Moscow and Brussels decided to deepen their bilateral cooperation. Common areas with uniform rules between the RF and EU are to be created not only in the economic sector but also in the academic, cultural and educational fields. There is especially great potential for cooperation in the security sector. Russia is working intensively with NATO (there is even a Russia-NATO Council) in fighting international terrorism, and also cooperating with the EU countries and responsible EU offices in combating organised crime in Europe.

So altogether an efficient institutional mechanism of cooperation has been developed in recent years. It guarantees Russia's integration in the Common European Economic Area (CEEA) in the sectors of trade and industry, energy, academia, the environment, transport and politics. However, the process has so far not developed as dynamically as hoped for.

Russia has in the last ten years achieved impressive successes in implementing extensive economic and political reforms and has laid the foundation for stable general conditions for trade and industry based on the market economy and the rule of law. Its Civil Code and reforms of commercial law deserve a special mention here. A new tax law and a Property Act were passed and put into force. The government is also reducing gradually the tax burden on companies and employees. For instance, the corporate profits tax was cut from 35 per cent to 24 per cent, and the income tax rate of 13 percent is now the lowest in Europe.

The RF National Bank uses the modern instruments of market economy-based monetary policy. The development of the capital market is making good progress. Standardisation of federal and regional legislation is continuing. Public administration is working more transparently and also in greater harmony with the market economy system. At the same time, Moscow is developing various integration models in the CIS area. The founding of a Common Economic Area by Russia, Belarus, Ukraine and Kazakhstan in the autumn of 2003 can be seen as a future model of EU-East cooperation.

Besides the generally positive appraisal of its internal reform and modernisation processes, however, there are also some factors that are slowing Russia's integration in Europe. What are they? In introducing the market economy, Russia has not yet managed to create stable and efficient market institutions on which the principles of market-economy behaviour are based. That applies first of all to the reform of the courts and public administration. In addition, far-reaching reforms of the banking and insurance sectors are necessary, as well as further reforms in the area of monopolies of natural resources and telecommunications. This is precisely one of the main obstacles to integrating Russia in the CEEA.

Related closely to it are the problems of Russia's accession to the World Trade Organisation (WTO). Brussels made that a condition for creating a free trade zone between Russia and the EU back at the end of the 1990s. The EU negotiating partners have also presented Russia with an extremely strict list of demands – particularly in the energy sector. Among other things, the list calls for the abolishment of different charges for energy on the domestic and foreign market, the gradual adjustment of the domestic price for gas to the world market rate and free access for all to the pipelines, meaning for foreign prospective buyers as well. Russia agrees in principle that such measures should be taken in future, and most of them conform with the spirit of liberal reforms in Europe – such as the liberalisation of the gas market.

The Russian government, however, rejects speedy realisation of the demands. It says precipitate steps are economically unsuitable and could result in the collapse of the country's economic reforms. Predicting the timeframe of the ongoing restructuring on the Russian energy market is difficult. The causes are not only the macroeconomic conditions. The energy reforms touch upon the interests of many monopolies of natural resources (mainly that of Gasprom and the open limited company 'Russian Unified Energy System'.) Against this background, the energy dialogue has so far hardly got beyond the initial stage. However, there is also progress, as the recent agreement between the EU and Russia on synchronisation of the electricity markets by 2007 demonstrates.

The events connected with the largest Russian oil corporation, Jukos, in the autumn of last year have put the question of the sustainability of the country's reforms and the irreversibility of its privatisation process on the agenda. Although many of the methods used by the public prosecutors against the major shareholders in Jukos are unacceptable, the case will scarcely lead to an about-turn in Russia's economic policy. That is proved not only by the generally low-key reactions to the events by the Russian business world, but also by the attitude of most of the foreign entrepreneurs in Russia and abroad. For instance, following the arrest of the major shareholders in Jukos, Moody's Investors Service ratings agency did not downgrade the rating it had given Russia at the beginning of October 2003.

Foreign business people see the emergence of a new generation of Russian managers as a positive factor for the development of Russia's relations with the West. As its leading trade partner, Germany plays an especially important role here. Berlin promotes the “President's Programme for Advanced Training of Young Managers” (see D+C, November 2003, pp. 430-431). Germany recently decided to extend its engagement to 2007. With the support of InWEnt, some 2,200 young Russian managers have completed advanced training in their homeland and a traineeship in Germany since 1998. This figure will rise significantly in the next three years.

So Russia is slowly but surely coming back to Europe. At the same time, the Russian Federation does not intend to join the EU in the near future. Rather, at present it is more concerned about a consistent adjustment of its economic, institutional and political systems to the norms, rules and customs of the EU and its member countries. Russia will, of course, preserve its uniqueness and many of its peculiarities during this process. The convergence is aimed primariliy at achieving a new quality in the economic and political cooperation. That would strengthen the international performance of the entire European continent.