PART 2: RUSSIA'S PLACE IN EU FOREIGN
6. Relations with Russia have hitherto been a
low priority for the EU. They have been regarded more as a matter
for NATO and for individual Member States than for the EU as a
7. The end of the Cold War, finally signalled
by the collapse of the Soviet regime in August 1991, did not immediately
alter that situation.
8. The EU itself has in the meantime focused
on reshaping its institutions and securing external enlargement.
In this process trade relations have taken pride of place. Up
to now, this has been understandable given that the EU accounts
for 35 per cent of Russia's foreign trade while Russia takes up
no more than 4 per cent of the EU equivalent.
9. Nevertheless, neglect of EU/Russia relations
in their generality can no longer be sustained, particularly because
there is much common ground across a range of issues, not only
in investment and trade, but also in transport, the environment,
culture and much else. Former British ambassador to Moscow Sir
Andrew Wood told the Committee: "We, in the EU, have to have
a good idea of where we want Russia to end up in relationship
to the EU." (Q252)
The Current EU/Russia Political and Legal Structures
A Partnership & Co-operation Agreement (PCA) 1994
The PCA came into force in December 1997 for an initial period of ten years. It establishes the legal basis for EU relations with Russia, in particular the institutional framework for bilateral relations, sets the principal common objectives, and calls for activities and dialogue in a number of policy areas. It covers:
- Trade and economic co-operation.
- Co-operation in science & technology (including energy, environment, transport, space and other civil sectors).
- Political dialogue on international issues of mutual concern and on co-operation relating to observing the principles of democracy and human rights.
- Justice and Home Affairs: Co-operation to prevent illegal activities, trafficking in drugs, money laundering and organised crime.
B The Common Strategy on Russia (June 1999)
The Strategy sets out the basic approach to EU relations with Russia. It is valid for a period of four years. This was the first of a series of strategies, written in response to recognition that there should be greater coherence between the EU and the Member States' foreign policies. The strategy provides an overall policy framework in the areas of:
- Consolidation of democracy, rule of law and public institutions.
- Integrating Russia into a common European economic and social space.
- Stability and security in Europe and beyond.
- Common challenges on the European continent (including environment, crime and illegal immigration).
C TACIS programme
This programme of financial assistance (created in 1991) provided Russia with assistance totalling 2.4 billion up until 2001. 90 million are allocated for the Tacis national programme for Russia in the indicative budgets for both 2002 and 2003.
Other sources of assistance are the European Initiative for Democracy and Human Rights, and the European Commission Humanitarian Office, which is active in the North Caucasus.
D Sectoral Agreements
Steel and textiles are the main industry sectors covered by bilateral trade agreements. The Steel Agreement concluded in 1997 expired at the end of 2001. Negotiations for its renewal are ongoing. A Textiles Agreement was concluded in 1998. It shall be in force for the duration of the PCA.
Partnership and Co-operation Agreement (PCA)
10. The PCA has served a major purpose. Much
progress has been made in all four policy areas (set out in Box
2). Nevertheless, neither side has been wholly content with the
agreement. The then Minister of State for Europe, the Rt. Hon.
Peter Hain MP, told the Committee that Russia was unhappy with
the PCA "as a mechanism". In turn, "the EU is constantly
cajoling the Russians to meet some of those obligations, particularly
on the trade side." (Q185)
11. Under the PCA two EU-Russia summits have
been held each year. In addition, ministerial level talks (co-operative
councils) have been held once a year and senior official level
co-operation committees have met on an ad hoc basis (though rarely
more than once a year). Nine sub-committees deal at working level
with technical issues.
A number of working groups on the Common Foreign and Security
Policy also meet Russian counterparts twice a year. A Joint Parliamentary
Committee also convenes, affording a regular opportunity for members
of the European Parliament and the Duma (the lower house of the
Russian parliament) to become better acquainted.
12. It may be, however, that the impetus for
making useful and lasting changes in overall policy has been lost
in a deluge of detail. It now seems evident that no individual
of authority in Brussels is able to present himself or herself
as fully conversant with "Russian issues". This view
was put forcefully in briefings to the Committee from the British
embassy in Moscowwith the additional point that the EU's
focus on enlargement has tended to come at the expense of attention
to Russia itself. Moreover, different aspects of the relationship
tended to be dealt with in separate compartments within the EU.
Responsibilities were divided between the Council of Ministers,
the presidency of which rotated among Member States, and the Commission.
The division further aggravated the problem.
13. We recommend that the EU sets up a Russia
office. This would, from the EU's point of view, offer a greater
degree of co-ordination within its own organisation and would
thereby better serve its interests. The Russians, on their side,
would benefit by being able to deal through an office that co-ordinates
the views of both the Council of Ministers and the Commission.
It would make for greater clarity and consistency. Although the
responsibilities of the Council and the Commission would be unchanged,
such an office would act as a "progress-chaser" and
as a good point of contactprovided it was headed by an
official at a sufficiently high level.
14. The issue of human rights in Russia also
formed part of the PCA. It has emerged in three forms: first,
in the use of force against the threat of secession of the Republic
of Chechnya; second, in discrimination against religious minorities;
and, third, in the restriction of editorial freedom in the media.
Because of human rights abuses Chechnya has received attention
from the EU since 1995, eliciting condemnation of Russia at a
high level. On 17 May 2001 the Joint Statement issued by Secretary
General of the EU Council and High Representative of the CFSP
Mr. Javier Solana, EU Commission President Mr. Romano Prodi, and
President Vladimir Putin, emphasised the "urgency" of
resolving the war in Chechnya. After 9/11, however, all "urgency"
had apparently disappeared. Chechnya increasingly slipped down
the agenda of business with Russia. The Joint Statement under
the Belgian Presidency in Brussels on 3 October 2001 referred
merely to EU support for a Russian political settlement in Chechnya.
Then, finally, the Joint Statement issued in Moscow on 29 May
2002 under the Spanish Presidency omitted reference to Chechnya
altogether. The issue in terms of human rights is not whether
to deal firmly with the threat from terrorism, but how the Russian
authorities treat the Chechen population as a whole. Since 9/11
the approach of both the EU and the United States to Chechnya
has been more oblique obviously in the interests of securing Russian
support for the international pressures against terrorism. Against
this background little progress has been made on the human rights
provisions of the PCA.
The Common Strategy
15. The forging of an EU Common Strategy towards
Russia on 4 June 1999 was the result of a recognition of the need
for change in EU/ Russia policy. It was the first Common Strategy
devised after the creation of the Common Strategy instrument under
the Amsterdam Treaty. It aimed at maximising co-ordination of
policy by decision at the highest level between the EU and other
states. In practice the Common Strategy on Russia restated the
essence of the PCA. It also recognised the change in relations
since 1994. The strategy acknowledged "that the future of
Russia is an essential element in the future of the continent."
Specifically, it argued that a "stable, democratic and prosperous
Russia, firmly anchored in a united Europe free of dividing lines,
is essential to lasting peace on the continent." The EU therefore
reiterated its staunch commitment "to working with Russia,
at federal, regional and local levels, to support a successful
political and economic transformation in Russia."
16. Co-operation between the EU and Russia has
developed since the publication of the Common Strategy in June
1999. In December of that year relations between the two were
highlighted in the Presidency Conclusions (Helsinki European Council):
"Russia is a major partner for the European Union. The Union
has constantly expressed its willingness to accompany Russia in
its transition towards a modern and democratic state."
The EU-Russia summit in Paris (October 2000) led to a joint declaration
on 'strengthening dialogue and co-operation on political and security
matters in Europe.' The Moscow Declaration of May 2001 extended
that discussion. Following 9/11 President Putin made significant
moves to further co-operation with the EU. The meeting in October
2001 approved a joint statement on "Stepping Up Dialogue
and Co-operationPolitical and Security matters in Europe."
17. There followed President Putin's controversial
decision to share intelligence with the West on Islamic terrorist
movements, which foreshadowed Russia's gradual rapprochement with
NATO. In his evidence to the Committee, former Chairman of the
U.S. Joint Chiefs of Staff General John Shalikashvili emphasised
the value of the Russia-NATO Council or "Council of 20",
set up on 28 May 2002.
It includes Russia within the parameters of NATO decision-making,
but without full membership or right to a veto. Further co-operation
was discussed at the EU-Russia summit a day later, where the Russians
put forward a proposal for "the formation of a single European
security space" and envisaged "annual separate meetings
of Defence Ministers of Russia and EU countries."
18. The expansion of NATO into Central-Eastern
Europe, important for the new Member States to enable them to
focus on domestic reform, has certainly not eased the anxieties
of Russian officers still caught in the vice of "old thinking".
Prior to 9/11, the consequence was that NATO efforts at rapprochement
were frequently neutralised. Dr Edwina Moreton, Diplomatic Editor
and Deputy Foreign Editor of the Economist, argued that
since the collapse of Soviet power the absence of personal contacts
by the military was damaging. "Some Russian diplomats and
military personnel recognise that but, if you need your commanding
officer's permission to go to the NATO bar, you are not using
the structure in any way that would be appropriate, either for
Russia or NATO." (Q128)
19. The subsequent appointment of a Russian representative
as liaison with EU Military Staff has, so far, been symbolic rather
than substantive. Much will depend on the progress of further
reform of the armed forces within Russia (see below, paras 58-60).
More recently, on 20 September 2002, the concept of Russia-NATO
peacekeeping was also agreed.
How all this fits in with the emergence of the EU's Security and
Defence Policy (ESDP) has yet to be seen. The ESDP has arisen
as a consequence of the prospect that there may in the future
emerge crises in Europe as in the Balkans in the early 1990's,
where the United States prefers to stand aside. Whether, and precisely
how, Russia can assist in such circumstances has yet to be determined.
Certainly, the Common Foreign and Security Policy has to lead
to understandings on political matters before any discussion of
military co-operation is realistic. Nevertheless, we note that
Russian assistance is currently being used on an ad hoc basis,
for example in transporting supplies by heavy lift aircraft to
20. On economic matters, Commission President
Romano Prodi and President Putin agreed on 17 May 2001 to set
an agenda towards what would be known as a "Common European
Economic Space" (CEES). A joint high level group (HLG) was
established under the chairmanship of Commissioner Patten and
Deputy Prime Minister Viktor Khristenko. Although the mandate
was further clarified at a summit that October, progress is not
to be reviewed until October 2003. Until then, the CEES remains
in dignified obscurity. True, the HLG has agreed the overall
objective of enhancing trade and investment, but it is clear that
over the long term regulatory convergence is critical to any progress.
The areas of primary interest which have hitherto been agreed
include standards, technical regulations, customs, financial services,
auditing, transport, outer space launches, public procurement,
telecoms and competition. It is not at all clear, however, precisely
what progress is required and expected by either side in these
various areas. The omission of the "social" dimension
contained in the Common Strategy remains unexplained.
21. Progress towards anything resembling a Common
European Economic Space depends upon Russian accession to the
World Trade Organization (WTO). The Russian Government first applied
for membership in 1993, but serious negotiations began only recently.
WTO Director-General the Rt Hon Mike Moore expressed a view widely
held when he announced that the accession of Russia constitutes
"a key element" in the process of reintegrating its
economy into the world economy.
Any move by the EU towards the establishment of a free trade area
with Russia has effectively been delayed until Russia joins the
WTO. This underlines EU insistence that Russian domestic reform
has to progress a good deal further before commerce can take place
unhindered. Negotiations for the WTO have, however, effectively
ground to a halt, not least due to lobbying by protectionist interests
in Russia (the car industry, banking, insurance and telecommunications)
but also political concerns (maintenance of subsidised fuel) to
keep the electorate on side. Furthermore, the strongly protectionist
tradition pre-dating 1917 should not be forgotten. President Prodi's
recent statement that the EU would treat the Russian Federation
as a "fully fledged market economy" was of importance
(also see para. 24). Nevertheless we note that although the
EU should support the goal of Russian membership of the WTO, there
is very limited scope for flexibility over the conditions and
in reality membership is still some way off.
22. The priorities laid down in the Common Strategy
caused a shift in the priorities of the TACIS aid programme to
Russia. TACIS began with no precedents to follow. It was never
intended as an equivalent to the European Recovery Program (the
Marshall Plan) which brought Western Europe back to prosperity
from 1948. TACIS always had more limited objectives and a limited
budget. Up to 2001 Russia received a total of 2.4 billion,
with a further 90 million allocated for the years 2002 and
2003. Inevitably mistakes have been made and the resultsalong
with those of other international aid effortshave been
widely acknowledged to be "mixed".
Much has been learned in practice. Nevertheless, the substantial
impact has been difficult to assess. Its strength lay in selecting
discrete areas for support and in targeting aid. These programmes
have, on the other hand, "been rather cumbersome and slow",
not least because until the end of the decade they required initiatives
from within Russia to get started. The programmes also suffered
from the harsh realities of the institutional context in which
the assistance was expected to operate.
23. The suspension of aid from December 1999
to July 2000 in protest at Russian brutality in Chechnya unavoidably
complicated matters. Nevertheless aid is expected to continue
through to the end of 2006. Since 1991 more than 500 projects
have been implemented. Energy, enterprise support and human resources
development absorbed most of the resources. As a consequence of
the shift of emphasis heralded by the Common Strategy, the 100
projects in progress have been geared to broader goals: better
transportation, improved frontier controls and environmental clean-up,
as well as training to enhance the institutional infrastructure
of democracy (notably the rule of law). There is, however, inadequate
attention in the TACIS programme given to bad management and wasteful
distribution in agriculture and the food industry (at least a
third of the population lives in the countryside), the threat
from poor nuclear safety, crime and corruption, and a low level
of knowledge of the EU and how it operates among Russian officials
(and ultimately the politically active in the population as a
24. Change in EU policy towards Russia has been
slow and the need for a substantial reworking of the political
and legal foundations has been tacit rather than explicit. Further
confirmation of that fact came when, at the EU-Russia summit on
29 May 2002, Commission President Prodi announced that the EU
would grant the Russian Federation formal status as a "fully-fledged
market economy." This gave Russia the benefit of the doubt
in anti-dumping litigation. The statement which accompanied this
announcement indicated strongly that the motive for it was inherently
a point subsequently emphasised to the Committee in Brussels.
EU/Russia and Energy
25. Oil and gas supplies were not part of the
PCA or of the Common Strategy, but emerged separately as an issue
after world oil price rises in September 2000, when Commissioner
Prodi proposed an EU-Russia "Energy Dialogue". There
was clearly a need for a coherent European policy towards energy
supplies. Since that time it has been noted that the majority
of the 9/11 terrorists originated in Saudi Arabia, which possesses
the bulk of the world's oil reserves. A more determined policy
is therefore urgently needed. Risks must be assessed, new options
sought, and a fall-back position established, either through stocks
or increased attention to alternative sources of supply.
26. Unlike the United States, the EU's ability
to influence Israel and the Palestinians towards peace, and thus
reduce the main source of instability in the Middle East, has
been very limited. The Middle East Quartet (EU, USA, Russia and
UN) met in New York on 17 September 2002 and committed itself
to settling the Israeli-Palestinian conflict. Compared to the
United States, however, the EU is not a major actor in the region.
Yet it is heavily dependent upon external sources of oil and gas.
That dependence may result in acute economic and political vulnerability.
The combination of dependence without power can and should be
avoided. Thus while the Middle East is so unstable, with potentially
serious consequences for the world economy, the EU may benefit
from looking elsewhere to secure more of its energy resources.
27. In the past the USSR neglected to sustain
investment in the oil industry. Only now has Russia re-emerged
on the world market as a major oil exporter in competition with
OPEC. Together with gas, oil accounts for nearly two-thirds of
equity on the Russian stock market. 53 per cent of Russian oil
and 62 per cent of gas is exported to the EU. Together they account
for 50 per cent of exports, 40 per cent of government revenue
and 20 per cent of GDP. The Russians are thus crucially dependent
upon their customers for energy sales. Moreover, the EU Delegation
to Russia estimates that "some 150 billion will be
required up to the year 2010, 30 per cent of which from foreign
investment" to renew ageing capital stock and sustain a 4-5
per cent growth of the national economy (which is at the lower
end of President Putin's aspirations).
In the light of this evidence, we believe that it is extremely
doubtful whether any Russian government could seriously contemplate
abusing the sale of oil and gas for political purposes.
Russian Energy Exports-(Graph)
Russian Energy Exports-(in mtoe)
The Origin of Imports into The EU in 1999Natural
Gas (Pie Chart)
28. Russia provides some 16 per cent or more
of EU oil consumption and 20 per cent of natural gas consumption
(prior to the accession of new members from Central-Eastern Europe).
Indeed, together with Norway, Russia has become a critical source
of supply from outside the EU. Norway is a diminishing resource:
existing estimates suggest that at current rates of production
it will run dry within eight years,
whereas Russia has at least twenty years yet to run (this estimate
does not include neighbouring fields in Kazakhstan and the Caspian
Sea as a whole). The flow from Russia can further increase with
improvements in drilling and delivery. At present it is estimated
that, with artificially low prices, Russians consume four times
the amount they would consume at world market prices. By adjusting
the domestic price level for oil, Russia could enhance exports
29. British Petroleum argues that decisions
on supply should be left entirely to the market.
The Committee does not agree. Indeed,
a former employee of BP, Mr. John Mitchell (now at the Royal Institute
of International Affairs) favours building up stocks. He had proposed
in the past "an emergency sharing scheme, which is based
on companies who experience force majeure." He also favours
shifting dependence, where feasible, from oil to gas, which is
one resource where "risks are quite different from those
attached to oil and can be expanded very rapidly."
The relevance to relations with Russia is clear since it is the
world's major supplier of gas; and long-term arrangements for
supply and trans-shipment need to be secured for the EU.
30. The United States has already recognised
Russia's potential. But whereas the lines of supply to the American
continent make for prohibitive cost, those to the EU are much
less problematic. Nevertheless EU and American interest in diversifying
their sources of oil and Russia's interest as a major supplier
31. The same could be said for Russian and related
Commonwealth of Independent States' oil interests in the Caspian
Sea. Here a valuable series of deposits under a common seabed,
once divided evenly between Iran and the Soviet Union by treaty
(1921 and 1940), has its ownership disputed between Iran and the
new littoral states (Russia, Kazakhstan, Azerbaidzhan and Turkmenistan).
It is in EU interests, as it is in US interests, to see the dispute
settled to the mutual satisfaction of all parties.
- In addition to those objectives laid out in the
Common Strategy and in recent acknowledgement of Russia's market
status, issues vital to the future security and prosperity of
the EU such as energy supply, as well as those related to the
CFSP and ESDP, take us far beyond the limits of the PCA. We
conclude that the time has arrived for the entire framework for
relations with Russia to be recast to take fully into account
the import of recent events for EU-Russia relations, not least
as a result of the strategic shift in Moscow's foreign policy.
4 See Box 3, page 12-EU and Russia Economic and
Trade Indicators. Back
These are: 1. Trade and Industry; 2. Energy, environment and nuclear
issues; 3. Science and technology, human resources, social co-operation;
4. Transport, telecommunications, and space; 5. Coal and steel
mining and raw materials; 6. Competition, IPR, approximation of
legislation, fight against crime; 7. Customs and cross-border
controls; 8. Agriculture, fisheries, consumer protection; 9. Financial
and economic issues, statistics. Back
Mr Javier Solana. Back
The Rt Hon Christopher Patten. Back
Official Journal of the European Communities, 24 June 1999, L
Helsinki European Council: Presidency Conclusions Annex 2. December
"Council of 20" Nations announced in the Declaration
of Heads of State and Government of NATO Member States and the
Russian Federation as the principal structure between NATO and
Russia, establishing a new level of co-operation. Back
See, for example, Shalikashvili, Q562. Back
"Russia-EU Action Plan in the Field of European Security
and Defence Policy", 29 May 2002. Back
Statement by NATO Secretary General Lord Robertson in his capacity
as chairman of the NATO-Russia Council 20 September 2002. There
was a Russian contingent to the NATO forces in Kosovo. Back
Speech to the Fifth Annual Russian Economic Forum, London, 19
April 2002. Back
For a detailed assessment of the entire spectrum of aid, including
TACIS-United States General Accounting Office Report to the Chairman
and the Ranking Minority Member, Committee on Banking and Financial
Services, House of Representatives: Foreign Assistance-International
Efforts to Aid Russia's Transition Have Had Mixed Results.
GAO-01-8 (Washington DC, November 2000). See, also, testimony
from non-governmental organisations: House of Lords Select Committee
on the European Communities, Partnership and Trust: The Tacis
Programme. The Environment of Russia and The New Independent States,
HL Paper 157, Session 1997-1998, 33rd Report (HMSO
London 1998). Back
See Dr Moreton (Q152). Back
IP/02/775-Brussels, 29 May 2002. Back
Delegation of the European Commission in Russia, "EU-Russia
Energy Dialogue": www.eu.ru/eng. Back
See Eurostat publications: EU Trade with OPEC and EU
trade in energy products (Brussels 2002). Back
Source: Mining and extraction, Statistics Norway (2001). Back
Memorandum by BP to the inquiry by the House of Lords European
Union Committee (Sub-Committee B) into Security of Energy Supplies
in the European Union. See also testimony to the Committee from
Scott Kerr and John Baldwin, 13 June 2002. Back
Testimony to Sub-Committee B, 22 October 2001: House of Lords,
Select Committee on the European Union, Energy Supply: How
Secure are We?, HL Paper 82 (TSO, London 2002) p33. Back