Select Committee on European Union Third Report


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 whole.

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.[4]

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)
Box 2

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.[5] 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 Moscow—with 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,[6] the presidency of which rotated among Member States, and the Commission.[7] 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 contact—provided 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."[8]

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."[9] 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-operation—Political 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"[10], set up on 28 May 2002.[11] 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."[12]

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[13]. 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 Afghanistan.

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.[14] 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 results—along with those of other international aid efforts—have been widely acknowledged to be "mixed".[15] 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",[16] 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 whole).

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 political,[17] 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).[18] 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 1999—Natural 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:[19] existing estimates suggest that at current rates of production it will run dry within eight years,[20] 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 significantly.

29.  British Petroleum argues that decisions on supply should be left entirely to the market.[21] 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."[22] 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 coincide.

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.

  1. 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 IndicatorsBack

5   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

6   Mr Javier Solana. Back

7   The Rt Hon Christopher Patten. Back

8   Official Journal of the European Communities, 24 June 1999, L 157/1. Back

9   Helsinki European Council: Presidency Conclusions Annex 2. December 1999. Back

10   "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

11   See, for example, Shalikashvili, Q562.  Back

12   "Russia-EU Action Plan in the Field of European Security and Defence Policy", 29 May 2002. Back

13   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

14   Speech to the Fifth Annual Russian Economic Forum, London, 19 April 2002. Back

15   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

16   See Dr Moreton (Q152). Back

17   IP/02/775-Brussels, 29 May 2002. Back

18   Delegation of the European Commission in Russia, "EU-Russia Energy Dialogue": Back

19   See Eurostat publications: EU Trade with OPEC and EU trade in energy products (Brussels 2002). Back

20   Source: Mining and extraction, Statistics Norway (2001). Back

21   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

22   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

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