European Affairs

Spring 2003

 

Book Reviews
A Special Deal for Russia: The EU and Russia: The Promise of Partnership
By John Pinder and Yuri Shishkov
Reviewed by Anthony Jones

 

When he was in power, like De Gaulle before him, Mikhail Gorbachev used to talk about a Europe stretching from the Atlantic to the Ural Mountains. An heir of the Westernizers who have popped up from time to time in Russia, he shared their belief that the nation was best served by opening up to European technologies and practices.

And yet his vision was different in an important respect: unlike previous reformers from Peter the Great on who wanted just to import Western practices, Gorbachev wanted to make Russia a part of the West. It was this “new thinking” that made the hallmarks of the Gorbachev era the removal of barriers to integration into the global economy, and the creation of cooperative relations with the major powers.

While progress has been made on both these fronts since the collapse of the Soviet Union, Europe does not yet stretch to the Urals, although EU enlargement is moving it closer all the time. Is it possible, then, that one day Europe will reach from the Atlantic across Russia all the way to the Pacific?

Possible, yes, but highly unlikely. Even the most ardent advocates of expansion see no real prospect of Russia becoming a full member of the European Union in the foreseeable future, if only because of its huge size. It is likely, though, that Russia will have a special relationship with the European Union, one that brings many of the benefits of membership without all the restrictions. It is this possibility that is the focus of The EU and Russia: The Promise of Partnership.

Pinder and Shishkov have set out to look at the ways in which both Russia and the European Union could benefit from a closer partnership, at attempts so far to create such a partnership, and at the policies needed to further the process. As they show, the foundations of a partnership have been decades in the making, and have taken many forms.

The problem has been that greatly different levels of development have made it difficult for both sides to feel they are going to benefit from closer ties. As a result, the degree of stability that has been reached rests on an inherent inequality, with Russia providing raw materials and the European Union providing value-added goods and services.

For the moment, both sides benefit, with Europe meeting a significant part of its oil and gas needs from Russia, and Russia importing goods it cannot produce for itself. But hard times may be around the corner, when energy prices fall, and when Russia’s exports to countries such as Poland, the Czech Republic, and Hungary face new standards and regulations after they join the European Union. Since fully one third of Russia’s exports goes to Central and Eastern Europe, and only about four percent to the present EU member countries, the degree of damage that can be done is obvious.

But aside from these problems, there is also a danger of Russia putting too much investment into too narrow a range of export industries. The solution, say Russian leaders, is membership in the World Trade Organization, which is currently under negotiation, and closer links with the European Union. Both these moves would open up new markets for Russian goods and services. They would also, it is argued, force the Russian economy to be more competitive than is possible as long as Russia faces barriers to trade.

And what can Europe bring to Russia? Clearly, investment and technology are high on the list, along with high-quality industrial equipment and consumer goods. But there are also some “soft” exports that Europe can provide, such as the legal, ethical, managerial, scientific, and educational assets that support modern economies.

The problem is that the numerous cooperation agreements concocted by the European Union over the years have yet to show concrete results. The endless procession of partnership programs, common strategies, cooperation agreements, common economic areas, and so on have become bogged down in bureaucratic and political wrangling.

What Russia desperately needs is a substantial increase in foreign direct investment, which will only occur when confidence increases. Today, foreign direct investment in Russia still lags behind the levels achieved by its former satellite states in Central Europe, even further behind China and way behind Brazil.

Ultimately, entrepreneurs will invest where the returns are best. Unless Russia can become competitive in sectors other than energy, membership in international agreements alone will not have the necessary positive effects. It will also be crucial to make internal changes, such as dealing with the rampant corruption and illegality that is so commonplace in Russia. That, of course, is easier said than done.

Large corporations can find ways to lessen the impact of crime and corruption, but small and medium sized companies are completely at the mercy of those with whom they have to deal. While financial institutions and individual governments can help the flow of capital to Russia (though they have not always fulfilled their promises in this respect), only businesses can provide the kind of investment needed for Russia to become a full player in the global economy.

This book is a good primer for those looking for a short account of the problems facing a new partnership, but not especially helpful when it comes to proposing policies and actions. The solutions, I think, lie more in Russian hands than in international agreements or aid. WTO membership would overcome a major hurdle for Russia, but in current conditions it could make things worse. While many see the removal of barriers that WTO would bring as a stimulus to Russian growth, it could also expose already weak enterprises to competitive pressures they have little hope of resisting.

The key is to move quickly to develop domestic industries prior to WTO membership. What is needed is to channel the windfall profits from inflated oil and gas prices into domestic investment, especially into infrastructure (it is still not easy to move goods and people in Russia, or to communicate cheaply and reliably), agriculture, financial services, and manufacturing.

This would not only cushion some of the shock following WTO accession, but also soften the blow to Russian trade when the Central European countries join the European Union.

At the current time, however, I see little evidence that this policy will be followed.

The recommendation that Pinder and Shiskin make is to invest heavily in high tech industries. This has a modern ring to it, and is a policy that has many supporters, but I think it would be a mistake. The high tech industry, as we have seen, is not immune to disaster, and without a broad based economy such a course could be dangerous. As part of the mix, it is worth pursuing, but more basic investments would provide greater results.

For the longer term, Russia will need to set up an EU-equivalent of its own. The policies of the Soviet period have left the now independent states of the former Soviet Union very unbalanced internally, with too much specialization in some areas and not enough in others. This means that there are enormous benefits to economic reintegration, based not on power and ideology but on economic and financial self-interest. The small steps that are being taken in this direction could, if successful, help to provide Europe with a stable market to the East, as well as more cooperative partners.

In the shorter term, there are many areas in which Russia and the EU countries could construct a mutually beneficial partnership. Not least among them are joint efforts to deal with problems such as drug smuggling, trafficking in human beings, terrorism, forgery, the spread of weapons and uncontroled migration.

As the European Union expands, it will find it harder to police its frontiers. As their borders draw closer together, Russia and the European Union will be forced to engage in an unprecedented degree of cooperation and partnership. Rapid progress will be necessary. Achieving it, however, will be as great a challenge as economic partnership, and perhaps even greater.