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Select Committee on Foreign Affairs Appendices to the Minutes of Evidence - Sixth Report


Memorandum submitted by the European Commission


  The relative remoteness of Central Asia and the Caspian Basin has not prevented their emergence as a region of importance to the European Union. Exploitation of the huge oil and gas reserves in the Caspian and Northern Kazakhstan became a practical possibility only after the break-up of the Soviet Union, and Central Asia is also a major supplier of cotton, uranium and other minerals. Competition for economic influence there is likely to intensify, provided that the present relative stability in most of the Newly Independent States (NIS)—including the cease-fires in the regional conflicts—can be maintained. But the transition from relatively poor Soviet Socialist Republics to potentially wealthy modern nation states is proving, for various reasons, a difficult one.

  The eight republics have a number of political characteristics in common. Especially in Central Asia, it has not been an easy task to establish the institutions of independent statehood: they are ethnically diverse, with arbitrary borders drawn up in the Soviet era for which little historical justification exists. Amongst some ethnic groups strong regional or tribal affiliations exist. All have highly centralised power structures, but the fabric of state and government remains weak. In the South Caucasus, ethnic problems lie at the heart of the three unresolved conflicts in Nagorno-Karabakh, Abkhazia and South Ossetia.

  The Presidents of the four energy-rich republics (Azerbaijan, Kazakhstan, Turkmenistan and Uzbekistan) have all opted for strong Presidential government as the antidote to the fissile tendencies which characterise the region. The EU has serious political concerns over the respect of human rights and democratic principles in almost all the NIS.

  It also remains to be seen whether the eight republics will continue to view their interests as compatible with Russia's conception of its long term role, Already, Russian policies have led to a cooling of relations with some of them and groupings within the CIS have emerged which could exacerbate regional tensions.

  The EU is already a significant actor in both regions. For the resource-rich states the Union remains their single most important potential market outside the CIS; it is also a very important supplier of the capital, know-how, goods and services they require to realise their potential. For the South Caucasus, Kyrgyzstan and Tajikistan, it is an important aid donor. All the NIS are beneficiaries of the EC's technical assistance programme, Tacis. All in all, since independence the EC has provided assistance to Central Asia and the Caucasus of some 1.4 billion Euros in grants alone. The EC and its Member States have taken significant initiatives to create an international framework for the eight republics' eventual integration into the global political and economic structures. They have negotiated Partnership and Cooperation Agreements (PCAs) with all the countries of the region, except (for the moment) Tajikistan, and have encouraged them to prepare for membership of the Council of Europe, the World Trade Organisation and other international organisations.

  Through the PCAs and Tacis, the EU has devoted particular attention to assisting regional cooperation, which it sees as an important tool for building confidence and realising the NIS' economic potential.

The EU's long-term, strategic interests in the South Caucasus and Central Asia

  In its working paper of February 1994[6] the Commission put forward the view that even though Russia will for the time being continue to play a major role in both regions, there will be competition between the EU, other Western partners and the regions' neighbours to exercise economic influence there. It noted that the new republics will need time to realise their potential and that infrastructure investment will be essential for this; and it concluded that the EU has an interest, over time, in encouraging investors to enter these markets and in providing services and equipment. The EU, unlike Russia, US and Iran, also has an interest as a major potential consumer of energy products from the region, and especially of natural gas. At present near to 50 per cent of its consumption of imported gas is of Russian origin, and if forecasts are accurate a growing share of domestic demand will, within the foreseeable future, be covered by imports. The EU is also an important consumer of uranium—produced by all the Central Asian republics, except Turkmenistan—and proposes to negotiate sectoral trade agreements with them. It is in the EU's interest to ensure that its voice is heard in matters concerning extraction, pipeline routes and on related issues, eg jurisdiction in the Caspian Sea.

  Apart from these geopolitical and energy-related interests, Central Asia and the Caucasus represent a not insignificant market of more than 65 million consumers situated astride potentially important land routes between Europe and the markets of the Far East and the Indian subcontinent. Of these, some 16 million live in Kazakhstan and 22 million in Uzbekistan, the traditional cultural and economic heart of the region.

  The Union's security interests are above all linked to the (as yet hypothetical) dangers of increased instability in the region. These go wider than the loss of markets and damage to EU investments. In economic terms, access to resources may in the long term prove to be a yet more significant factor. In geopolitical terms, the emergence of rifts between ethnic or regional groupings could lead to conflicts such as has occurred in the Caucasus and Tajikistan becoming more widespread, bringing with it the risk of outside involvement and ultimately the possibility of confrontation involving third countries.

  The EU also has security concerns relating both to the production and marketing of, in particular drugs, and the threat to its economic operators and its citizens resulting from organised crime activities in general.

  Finally, it should be noted that despite high levels of emigration, there remain substantial number of citizens in the five republics claiming ethnic links with Member States. However, fears that instability could fuel pressures to emigrate have not, as yet, been borne out by events.

  Thus, the EU has an interest to:

    —  reduce the two regions' remoteness from Europe;

    —  build up its presence there through trade and investment and through bilateral and regional political contacts;

    —  reinforce the stability of the regions through:

      —  the evolution of broadly-based, representative, democratic institutions;

      —  the reduction of the scope for further conflict and facilitating the search for peaceful settlements to existing conflicts;

      —  the continuing promotion of economic and administrative reform;

      —  support for the integration of the republics into global political and economic structures and generally for the adoption of international (including European) norms and standards;

      —  support for the development of infrastructure (energy, transport, telecommunications) so maximising the economic potential of the two regions, linking them with European and other markets and boosting regional cooperation;

      —  mitigate environmental threats, eg the EU's proposals to assist Armenia to close down its nuclear power station;

    —  assist the eight republics to further improve the business climate, in particular for EU companies;

    —  improve the EU's own economic security through access to energy, minerals and other raw materials from the two regions;

    —  stimulate regional cooperation in combating illegal activities, eg drugs trafficking.

  Moreover, cooperation in all these areas can foster good neighbourly relations and contribute to political rapprochement on a number of outstanding regional issues. This must be a key EU objective.

Prospects for development of political and economic relations

  In recent years, and despite frequent changes in the NIS' administrations, the Commission has tried with some success to build up close relations with all their governments. A number of Joint Committees have been held with each of the republics (except for Tajikistan, where the special circumstances relating to the civil war and its aftermath have until this year impeded the development of closer relations). The EC's aid and assistance programmes have greatly facilitated the development of relations generally.

  We expect six Partnership and Co-operation Agreements (with Georgia, Armenia, Azerbaijan, Kazkhstan, Kyrgyzstan and Uzbekistan) to enter into force on 1 July 1999. The seventh, with Turkmenistan, has been signed and transmitted to the European Parliament and the Parliaments of the Member States for ratification.

  The PCAs provide, for the first time, a common platform from which to address political, trade and investment, and co-operation issues (see separate brief, attached at Annex A, on the nature of the PCAs.). They will be overseen by a Co-operation Council at Ministerial level, meeting in principle once a year; a Co-operation Committee which will, inter alia, continue the work of the previous Joint Committees and prepare the Co-operation Councils; and a Parliamentary Co-operation Committee composed of MPs from the partner countries' parliaments and from the European Parliament.

  The Co-operation Council may formulate recommendations. There is a dispute settlement mechanism providing for (non-binding) arbitration in case of disputes over issues covered by the Agreements.

  The PCAs are all based upon three "essential elements": respect for democracy, human rights and the principles of the market economy. If these are breached (ie presumably to the extent that the PCA is effectively rendered inoperable) the PCAs may be suspended.

  Since the PCAs contain detailed provisions on trade, the establishment and operation of companies, capital flows and intellectual property protection, they reinforce bilateral investment treaties and double tax treaties negotiated by the Member States and provide an additional level of political coverage for the activities of European traders and investors.

  In addition, sectoral agreements (eg on trade in steel, textiles and nuclear products) may be negotiated and there is provision for such agreements in service sectors also, notably transport.

  The prospects for the further development of political and economic relations depends in a number of factors, eg:

    —  prospects for peaceful resolution of the ethnic conflicts in the South Caucasus and for the acceleration of the peace process in Tajikistan;

    —  the willingness of the NIS to reflect representations made by the EU, through the PCA mechanism, in their policies, notably as regards the "essential elements";

    —  the NIS' success in implementing political and economic reform, and in meeting the criteria for accession to organisations such as the Council of Europe, World Trade Organisation, World Intellectual Property Organisations, etc; and

    —  progress in enhancing trade and investment between the EU and the NIS.

  For the future, cooperation with these countries on justice and home affairs questions will become increasingly important in bilateral and regional contacts. Such cooperation will include not only the war on drug trafficking and money laundering, but on organised crime and other illegal activities and on illegal immigration.

How does the EU pursue the different elements of its policy towards the South Caucasus and Central Asia, in the context of a "single strategy"?

  The Commission considers it of the greatest importance that the EU's various instruments be coordinated in the context of a general approach towards each of the two regions. Their circumstances are not identical, although there are a number of common themes. It has therefore, since 1994, submitted a number of "Communications" to the Council with this objective in mind:

    —  "The EU's future contractual relations with the Newly Independent States" (COM(94)258)

    —  "Towards an EU Strategy for relations with the Transcaucasian republics" (COM(95)205)

    —  "The EU's relations with the Newly Independent States of Central Asia" (COM(95)206)

    —  "Regional Cooperation in the Black Sea Area" (COM(97)597)

    —  "EU contractual relations with Uzbekistan" (COM(96)41)

    —  "EU contractual relations with Turkmenistan" (COM(96)1774)

  On the basis of the second and third of these, the General Affairs Councils (GAC) of 12 June and 17 July 1995 formulated conclusions on future policy orientations towards these regions (attached at Annex B).

  The last two communications referred to above addressed only the issue of opening PCA negotiations with Turkmenistan and Uzbekistan. They followed the GAC's request to the Commission to hold explanatory talks with each of these countries and to report back to the Council.

  The German Presidency of the Council has invited the Presidents of the three South Caucasian States to a regional "Summit" with the EU in Luxembourg on 22 June 1999. With this event in mind, and in view of the impending entry into force of the PCAs with these countries, the Commission has updated its strategy towards the South Caucasus and a new Communication will be available shortly.

  The instruments which the EC has at its disposal include:

    —  The mechanisms for dialogue foreseen in its bilateral agreement with the NIS; the EC's technical assistance (know-how) programme, TACIS. TACIS includes:

      —  "national" allocations, ie biannual "Action programmes" containing a number of projects agreed with each of the NIS governments.

      —  "regional" or "interstate" programmes which apply to a number of partners. Infrastructure projects (transport, energy or telecommunications networks) are particularly suited to this kind of programme, but projects on questions such as drug-trafficking are also funded in this way.

      —  "Small projects" of a thematic nature which may be made available to interested partners (eg TEMPUS, an academic exchange programme.)

      —  nuclear safety programmes.

    —  Humanitarian aid, through NGOs funded by the EC's Humanitarian Office, ECHO. This aid is intended essentially for targeted, emergency relief actions.

    —  Food security assistance, intended to help some of the NIS to feed themselves. This was by way of follow-up to two major EC operations to provide the South Caucasus, Kyrgyzstan and Tajikistan with structural food aid in 1994-96. The assistance is in the form of budgetary support channelled towards agricultural reform and relevant technical assistance. It is conditional upon implementation of an agreed programme of reform, upon compliance with IMF requirements and upon correct administration by the NIS' authorities.

    —  Rehabilitation support: this instrument provides limited assistance, notably for post-conflict reconstruction.

    —  Financial assistance. This is exceptional in nature. So far only Georgia and Armenia, which have had difficulty in meeting their financial obligations to the EU, have benefited from balance of payments support in the form of a mixture of loans and grants; again, this is conditional upon continued respect of commitments in IMF programmes.

  Whereas these instruments have been used throughout the South Caucasus and in Kyrgyzstan and Tajikistan, in Uzbekistan, Kazakhstan and Turkmenistan the dialogue mechanisms and Tacis are virtually the only instruments the EC currently deploys. Tacis's activities in Tajikistan have had to be suspended for the time being due to the unstable situation in that country, but essential humanitarian aid continues.

  Since independence, the Community has spent some

825 million in the Caucasus and

556 million in Central Asia in grant aid alone (see table attached at Annex C) not including regional Tacis programmes and the Democracy Programme (see below).

  Under the PCAs, the Commission would like to accelerate the process of moving the EU's relationships with the NIS away from aid and towards trade and investment. The EC is already using Tacis to assist our partners to press ahead with large-scale privatisation, adoption of international standards, and modernisation of the administration—including mechanisms for the transparent collection and expenditure of revenue, a key objective throughout the region. At the same time interstate projects are preparing the ground for investment in key communications infrastructures, while also enhancing regional co-operation which is essential if these countries, whose communications with each other are difficult and few of which have easy access to European markets, are to derive full benefit from economic reform. The EC's key initiatives in this domain are TRACECA (Transport Corridor Europe-Caucasus-Central Asia) and INOGATE (Interstate Oil and Gas to Europe); regional projects in the field of justice and home affairs are currently being launched. These initiatives are funded under the Tacis Interstate programme.

  A fortiori the EU's instruments should, whenever possible, be used to support efforts in international fora (UN, OSCE) to negotiate peace settlements in the conflicts over Abkhazia, South Ossetia, and Nagorno-Karabagh and to press ahead with the inter-Tajik peace process. Without conflict resolution, it is difficult to envisage political "normalisation" in the Caucasus and Central Asia. Indeed, the present stalemate in these conflicts institutionalises an abnormal situation. Borders and communications remain closed. 1Ö million refugees continue to live in conditions of extreme poverty and squalor. Business operate under particularly difficult constraints, and are not able to access regional markets. Organised crime flourishes due to shortages and interruptions of supply.

  Apart from these economic questions, the existence of the conflicts preserves an effective state of emergency which in turn hampers an open debate on the democratic institutions of state. There are also concerns about emigration; some of the best brains in the region have left.

  Moreover, whereas the UN has sponsored an ongoing, if difficult, peace process in Tajikistan, the inability of the three Caucasian countries to make progress means that they will continue to rely upon international assistance, while at the same time that assistance is less effective than it would be under more favourable circumstances.

  In short, in the South Caucasus in particular, any policy which addresses only bilateral assistance issues and does not touch upon the source of the problems will not bring the "dividend" which PCAs implementation should imply. It follows that the EU will need to fashion its policy under the PCAs in such a way as to ensure that its actions and its assistance become an incentive for positive change.

Key priorities for cooperation

  Some of these are referred to above, but broadly speaking the Commission would single out measures which can assist with:

    —  conflict resolution and post-conflict reconstruction (Caucasus, Tajikistan);

    —  weaning the NIS off international aid (Caucasus, Kyrgyzstan: for Tajikistan this is a more distant goal) and building up a viable productive base (all);

    —  rolling back government intervention in the lives of citizens and promote freedom of choice and opportunity (all);

    —  political reform and the development of pluralist, parliamentary democracy and the civil society (all);

    —  improving the efficiency of government administration and reducing corruption (all);

    —  improving the business climate for both privatised entities and EU investors (all);

    —  promoting further diversification in the economy (all, but especially resource states);

    —  preparing the NIS to accept the obligations and commitments of participation in the international community, including adoption of international and European norms and standards (all); and

    —  drawing partners closer to the "European space" ie the EU and its neighbours in Central and Eastern Europe and around the Black Sea (all).

How do EU policies encourage best practice in public policy and standards of good governance eg in the environment, democratic development and human rights?

  The PCAs specify that:

  "Respect for democracy, principles of international law and human rights as defined in particular in the United Nations Charter, the Helsinki Final Act and the Charter of Paris for a New Europe, as well as the principles of market economy, including those enunciated in the documents of the CSCE Bonn Conference, underpin the internal and external policies of the Parties and constitute essential elements of partnership".

  The political dialogue foreseen under the Agreements is intended to support political and economic change in the partner countries. The Parties undertake to endeavour to cooperate on (inter alia) the observance of the principles of democracy and the respect and promotion of human rights, particularly those of minorities. They agree to hold consultations as necessary on these matters.

  In advance of the entry into force of the PCAs, the Commission has been using Tacis programming, and also the Democracy Programme (which is now separate from Tacis) to provide technical assistance in these areas. The impending entry into force of the PCAs in itself provides leverage in this respect. Projects have been, or are in the process of being, launched to help all partners whose PCAs are about to enter into force to prepare for implementation. In addition, well-funded projects (at least £1 million each) are under way on directly democracy-related issues in Georgia (assistance to the Parliament and to the judiciary) in Armenia (judiciary) and Uzbekistan (democracy generally).

  Civil society projects are funded under the Tacis "Lien" programme.

  The Democracy Programme has mounted a number of smaller projects, some of which in cooperation with the Council of Europe and OSCE/ODIHR, in all NIS. Total expenditure under the DP since independence has been of the order of 6.5 mn Euros in the South Caucasus (61 projects) and 5.3 mn Euros in Central Asia (56 projects).

  The EU monitors developments in the fields of democracy and human rights carefully, and has addressed a number of diplomatic de«marches to the NIS' governments. Some of these have been presented jointly with the US. EU-US-OCSE cooperation in this field may be expected to intensify in the run-up to parliamentary and/or presidential elections due this year or next in Armenia, Georgia, Kazakhstan, Turkmenistan, Uzbekistan and Tajikistan.

  These activities will also form part of the political dialogue, at various levels, foreseen under the PCAs.

  The EU is also hoping to negotiate a joint statement or declaration with the South Caucasian countries which should make specific reference to the importance of the rule of law and good governance, and to EU support for the efforts of the governments to strengthen democratic institutions and protect individual human rights.

  In the field of environment, the EC has for some years been funding, in coordination with other donors, regional programmes related to pollution in the Black and Caspian Seas and on water management in Central Asia (linked to the dessication of the Aral Sea).

  Moreover, EC has provided assistance to raise public environmental awareness and develop environmental media, assisted in the development of National Environmental Action Plans, prepared environment investment projects and is helping to set up a New Regional Environmental Centre in Tbilisi.

  It has also, as part of the Tacis action, programmes, designed projects for some of our partners in the energy field with a strong environmental impact—for example, the rehabilitation of land contaminated by hydrocarbon production. Our projects aim to assist these countries to progressively introduce modern standards, including environmental ones. Each PCA also contains an important chapter on cooperation in this field.

How are EU relations with the Central Asian and South Caucasian countries coordinated with relations with neighbouring countries?

  In the case of Russia and other East European countries, co-ordination is facilitated by EU policy being normally decided by the same Council Working Groups. The instruments at our disposal (PCAs, Tacis) are for the most part similar. Within the Commission and most Member States policies are also administered within the same directorate. The Tacis interstate programmes cover variously all or most of the NIS.

  In the case of INOGATE and, for the future, TRACECA, there is also considerable interest among Black Sea and Central European countries. Romania and Bulgaria are the first Central European countries to become beneficiaries of a programme originated within Tacis (INOGATE). Projects in these countries are, however, funded through PHARE. Turkey is an observer at TRACECA and INOGATE working groups.

  In its Communication on "Regional Co-operation in the Black Sea Area" presented to the Council in November 1997, the Commission drew attention to the EU's policies and assistance projects towards the former USSR and Central and Southern Europe, including Turkey. The Black Sea has been identified as a "Pan-European Transport Area", so emphasizing the important of links between TRACECA and Trans-European "transport corridors" terminating on the Western shores of the Black Sea. For the future, more contracts between the European institutions and those of the Black Sea Economic Co-operation Organisation are envisaged.

  In the case of Iran, Afghanistan and China EU policies are of a different nature, in each case sui generis. EU political co-ordination is assured at the level of the Council's "Political Committee" attended by the political Directors of each Member State and of the Commission, which prepares the General Affairs Council meetings on CFSP questions.

  In terms of regional co-operation there have been contacts with the Economic Co-operation Organisation, of which the members are Turkey, Iran, Pakistan, Afghanistan, Azerbaijan and the five Central Asian republics. The effectiveness of this body is however as yet limited, especially given the political differences between some of its members.

Do EU policies differ in their approach and emphasis from the bilateral policies of Member States, in particular the UK, and how is coherence assured?

  EU policies are proposed by the Commission and decided by the Member States in the Council. For certain proposals, eg those which have implications for the Community's budget, the European Parliament must also be consulted.

  Draft policy initiatives are transmitted by the Commission to the Council, where they are usually discussed in the Working Group on Eastern Europe and Central Asia. In most cases a consensus is worked out there before going on to COREPER (Committee of Permanent Representatives, which prepares Council meetings). If the issue concerns the Common Foreign and Security Policy, it will first go to the Political Committee.

  The legal bases for EC instruments are also determined in this way.

  Member States also follow implementation of the instruments in question by the Commission through their participation in management committees. Such committees have been set up under the Tacis, rehabilitation, food security and other relevant Council Regulations.

  It is for the Member States attending these meetings to ensure that what is being proposed is coherent with their own policies. In addition there are informal contacts within the NIS between EC delegations and Member States' embassies.

  Unfortunately, there is as yet no other mechanism for the regular distribution of information regarding Member States' policies within their individual competences. Now that the PCAs are entering into force, and given that they are mixed agreements (ie each Member State is a Party in its own right, as well as through the EC) the Commission feels that the establishment of such a mechanism would be timely.

May 1999

6   "The EU's future contractual relations with the NIS of the former Soviet Union: and assessment of strategy" (SEC(94) 258 of 10.02.1994). Back

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