Examination of Witnesses (Questions 1
- 19)
THURSDAY 19 JULY 2007
Sir Mark Lyall Grant, Mr Michael Davenport and Mr
Jasper Thornton
Q1 Chairman: Sir
Mark and Mr Davenport, welcome to the Committee. We are just beginning,
as you know, an inquiry into relations between the European Union
and the Russian Federation and we very much wanted to start taking
evidence from the Office on some of these broad themes. You will,
I think, know already quite a number of members of the Committee
who have met you at various stages in your earlier career and
we are very pleased to see you this morning. I would like to start
with the first question. I wonder whether you would like to characterise
the state of the EU-Russian relations at present and say something
about the extent to which Russia's interests and those of the
European Union converge or diverge not only in political and economic,
but also wider international, affairs. What interests does Russia
have in developing a co-operative relationship with the European
Union?
Sir Mark Lyall Grant: Thank you, my Lord Chairman.
Michael Davenport is the Director for Russia and Central Asia
and behind him is Jasper Thornton who is the real expert on EU-Russia,
so, if you throw me some really difficult questions, I might have
to ask him for some help. I think the relationship between the
European Union and Russia is an important one because there are
clearly some important common strategic economic and political
interests. A great deal is made about the amount of dependence
that there may be on the European Union side on Russian oil and
gas and it is true that around a quarter overall of EU oil and
gas imports do come from Russia, much less obviously for the United
Kingdom, but for the EU as a whole, and some countries in the
European Union receive all their gas essentially from Russia.
The converse is also true and the European Union is by far Russia's
largest export market and the gas exports in particular are a
very high percentage of the contribution to Russia's GDP. Russia
also needs European Union direct investment, particularly in the
technology in the hydrocarbon sector. The City of London has become
the centre of choice for Russian business in terms of capital
and we are seeing in London a record number of initial public
offerings by Russian companies, so there is a very strong coincidence
of interest. There are also the wider political reasons why the
EU and Russia need to co-operate, and one can talk about Iran
or Kosovo, the Middle East, Sudan, climate change, the global
challenges in terms of counter-terrorism, in terms of non-proliferation
and in terms of drug-trafficking and organised crime. All those
issues, I think, are common challenges for both the European Union
and Russia. We have based the overall strategic relationship,
as, my Lords, you will know, on the Partnership and Co-operation
Agreement which is now 10 years old. It started in 1997, which
sets a reasonably good framework for that sort of engagement across
the board between the European Union and Russia. However, I think
it is fair to say that there are difficulties, that there is an
increasing concern within the European Union about some of the
trends in Russian policy, both internally and externally, which
we can come on to, and also the number of bilateral disputes that
Russia now has with members of the European Union, one of which,
the ban on Polish meat imports, is actually preventing the conclusion
of the mandate for a new Partnership and Co-operation Agreement
which has been discussed over recent months within the European
Union. The final point I would make, my Lord Chairman, is that
of course, although the European Union-Russian partnership is
important, there are quite a number of other important fora in
which to engage with Russia on these issues, to name but a few,
the G8, the UN Security Council, the OSCE, the Council of Europe,
and all of these are important fora in which we engage with Russia
on the strategic and global issues. In addition to this, there
are a number of ad hoc groupings, such as what is called the "E3+3"
dealing with Iran or the contact group dealing with Kosovo and,
in addition to all that, all the major EU Member States, or really
all the EU Member States, have their own bilateral relations with
Russia, given the strong people-to-people links they may have
and cultural links they may have or indeed commercial links they
may have which do not come under the wider EU umbrella. So the
EU-Russia partnership is a subset of that wider Russian relationship.
Q2 Lord Anderson of Swansea:
Sir Mark, welcome. Do you think that perhaps there is a greater
danger of misunderstanding of Russia by the West because of an
attempt to create Russia in our own image and to forget the history
of Russia, the few windows of democracy, Kerensky query Yeltsin,
that the prevailing history has been that of authoritarian rule
and that equally the geography suggests that they are going to
have major interests which diverge from our own? Should we not
perhaps, rather than expect in these grand fora to reach agreements
across the board, focus rather more on areas where there is a
perceived and certain common interest between ourselves and the
Russians in areas like counter-terrorism and other areas like
that?
Sir Mark Lyall Grant: I think that is a very
fair point, my Lord. We are very conscious of Russia's history,
which is different from that of most European Member States, but
equally Russia does see itself as a European country. Certainly
the leadership in Moscow does see itself as a European country
and it does aspire to be a member of many of the same international
groupings as countries in the West, such as the G8. The G7 was
enlarged to the G8 precisely to bring Russia on board, despite
the fact that its economy in real terms would not have justified
Russian membership of the G8. Even now, although the Russian economy
is doing very well, the Russian economy is only the same size
as Spain's, about 40 per cent of the UK's economy, so that in
itself would not justify Russian membership of the G8, but the
G7 was expanded to the G8 in recognition of the fact that Russia
did have this wider strategic global role. However, together with
the rights of membership of these international organisations,
comes responsibilities, so I think it is reasonable for other
members of the groupings to expect Russia to abide by the essential
values of those groupings, and of course some of those do go to
questions of democracy and human rights. So, although of course
we have to see that in the historical context, and it is right
to do so, I do not think it would be right for the European Union
to ignore concerns that we have on trends in democracy or trends
in human rights in Russia simply because there were other important
strategic issues to discuss. I think within the all-encompassing
Partnership and Co-operation Agreement clearly it will be easier
to make progress on some issues than it will be on others. There
has been good progress on counter-terrorism, there has been good
progress on energy issues and there has been good progress on
co-operation on some of the global issues. There has perhaps been
less progress on questions of democracy and human rights, as an
example, but I do not think we should compartmentalise too much.
I think what we are looking for in the new Partnership and Co-operation
Agreement is an agreement that is comprehensive and sets a framework
for discussion of all of these issues, even if some of them are
quite difficult.
Q3 Lord Hamilton of Epsom:
Economic ties are going to be very important between the EU and
Russia. We are very much bemused at the moment by the oil and
gas situation which gives the impression of a booming economy,
but that is about all there is really at the moment. I would really
like to know how you view the Russian economy. It is extremely
lop-sided, so where is it going and what role can we play in helping
that along?
Sir Mark Lyall Grant: My Lord, the Russian economy
is doing quite well obviously on the back of the hydrocarbon sector,
there is no question of that. It is not perhaps as diverse as
the Russian authorities would like it to be, but there are other
sectors. The defence sector is very strong and there are quite
a lot of state-owned industries that are also doing quite well
in other sectors, so it is not entirely based on hydrocarbons,
although it is true that the recent rapid growth has been largely
fuelled in that area. I think we can help in diversifying that
economy. It is in our interests that Russia should have a strong,
expanding economy because that will help to bring the sort of
predictability and stability that we, as neighbours of Russia,
would like her to have. What we are doing is helping with the
transfer of technology, we are helping with direct investment
not just in the hydrocarbon sector, we are helping through the
instruments that the European Union has, TACIS, and there are
about 30 million euros a year to go in terms of helping with capacity-building,
helping the NGO sector, civil society, et cetera, in support of
the Partnership Agreement, so there are some mechanisms and levers
that we can use to help the Russian economy. Equally, our economies
are increasingly based on the private sector and private business
make their own decisions on investments and of course will make
those decisions in the light of what they see of some of the recent
trends in Russian centralisation and taking greater control in
the Kremlin of the state-owned sector and the pressure that is
being brought to bear on some foreign companies that have invested
in Russia, particularly in the hydrocarbon sector, so clearly
that will affect the investment climate as a whole in Russia.
Q4 Lord Lea of Crondall:
President Putin is often referred to as a superb poker player,
looking long-term and all the rest of it, and his assessment of
who has got whom over a barrel is presumably different from ours.
We may think he is overplaying his hand and a point which has
not been mentioned, so would you agree, is that it is not just
a matter that we rely on them for energy and they rely on us to
pay for it and all the rest of it, but the medium-term position
on energy is that they have got huge reserves and they are more
stable than the Middle East and, therefore, they have got us over
a barrel? Would you say that that is more important than any statistic,
as you said, of 40 per cent of UK GDP? That is strategically not
the point.
Sir Mark Lyall Grant: Well, it is part of the
point, if I may say so, my Lord. Of course as more European Union
countries become increasingly dependent for their oil and gas
supplies on Russia, obviously that gives Russia a degree of leverage,
if you like, but, equally, they need markets and I think it would
be wrong to suggest that this is an entirely one-sided relationship.
They need security of demand as much as we need security of supply.
There are simply not enough outlets for them to sell their gas
and oil elsewhere without the European Union buying these products,
and their economy would be in as much difficulty as ours would
be, if that was interrupted so I think it is a slightly more balanced
picture than you are suggesting. Having said that, Russia is a
very important, strategic country. It is a nuclear weapon power,
it is a member of the United Nations Security Council, its economy
is growing, it has got a declining population and its economy
may not be as strong as some others around the world, but, nonetheless,
it is in our neighbourhood, it is a very important country and
we need to have a strategic relationship with it. I would not
want to suggest in any way that we can dismiss Russia or treat
Russia as though it were a small country in the Middle East. It
is not, it is a European country, it is on the edge of Europe,
it sees itself as a European country and it should be, correctly
I think, a strategic partner both bilaterally and with the European
Union.
Q5 Lord Hannay of Chiswick:
Do we think that there is a level playing field between the European
Union and Russia in economic and commercial dealings or do we
think that the situation is not quite as rosy as that?
Sir Mark Lyall Grant: My Lord, it slightly depends
on what you consider a level playing field. There have been well-publicised,
recent negotiations, negotiations of contract with high-profile,
international, including British, investors in the hydrocarbon
sector, and those companies declare themselves satisfied with
the outcome. It is not for the British Government to say that
they should not be satisfied with the outcome. Clearly, they feel
that they can do business in Russia, they are making profits in
Russia and they will want to continue to invest and do business
in Russia, and that is really a decision for them to take in which
the Government will get involved as and when those companies ask
us to get involved and try and help out, as they frequently do
on specific issues, but the recent discussions on these issues
have been done between the companies and the Russian Government
rather than with the involvement of the British Government.
Q6 Lord Swinfen:
Can Russia feed itself, bearing in mind that it has had terrible
problems in the past?
Sir Mark Lyall Grant: I find it difficult to
answer that question, my Lord. I might ask my colleague as he
may know more about the ability of Russia to feed itself. I have
not myself heard of any potential difficulties in the short term.
Mr Davenport: No, I am not aware of any current
issue regarding that.
Q7 Lord Chidgey:
It is good to see you again, Sir Mark, in a different venue of
course and on a different subject. I have two things quickly.
You mentioned in some of your comments that Russia sees itself
as European and I just want to test that a little bit because
in my recent dialogue with counterparts in Moscow it was quite
clear that that part of Russia sees itself as European and wants
to be European, but is there not a much wider dimension which
has a bearing on EU-Russian relations and how Russia wants to
develop those in the sense that it is a huge, huge country, beyond
our imagination, and ethnically so vast and so varied that it
is again unquantifiable. I am really going to the point that,
yes, the western part of Russia is clearly in every way more connected
with Europe, but the eastern and Far Eastern part of Russia is
far more tenuous and, therefore, from the point of view of governing
Russia and its relations especially with the EU, it is far more
difficult and far more threatening internally for the Russians
to exercise some form of governance throughout this huge domain.
Where does the EU sit in Russia's thinking about how to help them
govern what could almost be considered to be an ungovernable continent,
if you think about the Chinese infiltration on the borders in
the east because there is no one there, apart from Chinese immigrants
in their tens of thousands probably, but who knows? That is the
sort of problem that Russian politicians were explaining to us
when we last visited.
Sir Mark Lyall Grant: I have just a couple of
comments on that. Firstly, of course Russia is a vast country
and part of Russia is not in Europe clearly, but I would make
the point that I made earlier, that it is a very centralised system
and Moscow is in the western part of Russia and the thinking of
most of the Russian leadership is in European terms and they do
see themselves as European, even if those in Siberia perhaps do
not. Secondly, I would assess that the Russians see the European
Union primarily through the economic and commercial prism. It
is the largest economic bloc in the world by quite a long way
and it is, therefore, extremely important for Russia to have commercial
and economic links with the European Union. I think they probably
find it quite frustrating dealing with the European Union because
it is a union of 27 different Member States and, therefore, when
it comes to dealing with political issues, it is much easier to
deal with the United States than it is to deal with the European
Union. Also, and again it is more for the Russians to say than
for me, but I would suggest that they would not want to put all
of their eggs into the EU basket. They have a strategic relationship
with the United States which is extremely important obviously
to them both for status and for strategic reasons, and also they
need to manage their relationships with the East. They are members
of the Shanghai Co-operation Organisation, for instance, and they
are very concerned about the threats that may come from the south
and the east. I am not suggesting that the EU dominates President
Putin's waking thoughts, I am sure it does not, but I think they
would probably see the European Union, as I say, as a commercial
and economic power more than they see it in straight political
terms.
Q8 Lord Anderson of Swansea:
Have the Russian perceptions of the EU changed to be more negative
latterly? At one stage, they appeared to see the EU almost as
a counter to the United States and possibly developments within
the EU as different from NATO. Since that time, former parts of
the Soviet empire and of the Soviet Union have joined NATO. Have
they gone cold on the EU compared to what they were and the views
they had in the past?
Sir Mark Lyall Grant: I think it is difficult
for me to judge that, my Lord. I would not have said so. President
Putin, at the recent Samara EU Summit in May, emphasised the importance
of the relationship and that he wanted a new Partnership and Co-operation
Agreement and was frustrated that it was taking time to negotiate.
He was frustrated that, as he saw it, the EU was being held to
ransom by individual bilateral disputes and he did not, I think,
fully understand the importance of EU solidarity and how important
that is to individual EU Member States and how that is one of
the guiding principles of the European Union. I think he has found
that frustrating, but I have not sensed that they see the European
Union as less important. Indeed, there are some signs that they
would like the EU to have more responsibility for some of the
issues which we believe should be dealt with more naturally in
the NATO-Russia Council, for instance, questions of disarmament,
questions of security, which we would not see as a primary focus
for the EU-Russian relationship, but for the NATO-Russian relationship
or possibly the OSCE forum, and which they would quite like to
see discussed in the European Union perhaps because they feel
there would be more understanding of their position in the European
Union than there might be in NATO.
Q9 Lord Anderson of Swansea:
How do you see the evolution of the Russian political, legal,
economic and social systems? Clearly, our own businesses, for
example, have been highly critical of some of the failure of safeguards,
for minority shareholders and so on. With what has been characterised
as greater authoritarianism, the way that the centre has taken
over, that the economic life of the private sector has decreased
and the legal sector still has as many pitfalls for business people,
do you believe that these institutions are evolving positively
or negatively from the Yeltsin era?
Sir Mark Lyall Grant: You have taken an interesting
benchmark which is the Yeltsin era. I think that obviously since
the Soviet times there has been a great deal of positive progress
in terms of democratic structures and institutions and I think
that Russia does have those structures and institutions now in
place, but we do have concerns, as I mentioned, and the European
Union has concerns about some of the elements of that democracy
agenda in terms of the equality before the law, the independence
of the judiciary and in terms of freedom of the press and effective
checks and balances, so we do have concerns, but, if you compare
it to obviously the Soviet time, there has been very significant
progress. If you compare it to the Yeltsin era and the first flush
of democratic reform, perhaps there has not been as much progress
as ideally we would have liked.
Q10 Lord Anderson of Swansea:
It is not just democratic, but it is also in terms of the economic
sector and of the private sector declining very markedly.
Sir Mark Lyall Grant: Indeed, there has been
greater state control of the business sector, but there have been
some prevailing trends the other way, such as the growth of a
middle class which, I think, is very positive in terms of the
long-term prospects for Russian development, so clearly it is
sort of work in progress. There was a very rapid reform process
economically and politically following the break-up of the Soviet
Union and it is not surprising if in market terms there was some
correction for a while.
Mr Davenport: From the point of view of firms
operating in Russia, we of course talk to British companies, as
I am sure members of the Committee do, and the message we are
getting is a very mixed picture. On the one hand, companies are
concerned about the levels of corruption which exist, for example,
in the judicial system at all levels, but often pronounced at
the lower levels and, on the other hand, they will point to improved
efficiency of, for example, the courts dealing with commercial
cases, from a low base of course, although there is some measure
of growing confidence there, but there is also a concern about
the opportunities for political control and manipulation at that
level, so it is a very mixed picture.
Q11 Lord Hannay of Chiswick:
I just wonder whether you do not think that is a little bit couleur
de rose, given the criticisms of, for instance, Mr Illarionovich,
who was President Putin's own sherpa and who resigned in disgust
and despair at the direction in which the economy was being led
and who clearly has levelled since in public a large number of
rather perceptive, it seems to me, criticisms of the way in which
politics has intruded into the management of companies and that
the rule of law does not really prevail, et cetera. Are not some
of those criticisms rather well-founded and should they not be
of concern to us?
Sir Mark Lyall Grant: Well, they are of concern
to us, my Lord, and I have not tried to hide that, but one of
the worrying trends that we do watch very carefully is precisely
the greater centralised control of the business sector and the
distortions that some businesses do face in terms of access to
justice, et cetera, in Russia. These are issues, but, as my colleague
was saying, when we talk to British companies, they see the picture
as mixed. It is not all black, it is not all white and the fact
that they are there and doing business and wanting to stay there
and do business shows that they can operate in that environment.
We hope that the trend that there is towards the greater centralisation
of the economic power in Russia is a sort of temporary phenomenon
and will not become a permanent phenomenon because we believe
that the greater capitalism and devolution of that economic power
is going to be a good thing for Russia in the long term and good
for our companies too.
Q12 Lord Chidgey:
Sir Mark, you have mentioned a number of areas which are of interest
to HMG in regard to our relations through the EU with Russia and
what you feel are important issues. Can you give the Committee
any idea of the main areas of policy that should be dealt with
between the EU and Russia now and perhaps over the next five years,
and you are familiar with the question, I think, and I want really
to couple that with a comment you made earlier about the feeling
of being European in Russia, political establishments, if you
like, and could we consider in that context how Europe-orientated
the institutions are. How do you see Russia, if we were to compare
it with the requirements of the Copenhagen criteria and the acquis,
in your dealings with the issues that matter most to us in the
next five years because, if Russia took part in the test, it would
not become an accession candidate for the EU?
Sir Mark Lyall Grant: No, I think it is safe
to say that Russia would not meet the Copenhagen criteria.
Q13 Lord Chidgey:
So, consequently, we cannot consider it on equal terms as a state
which works well with the European states, by definition. It is
a different set of rules.
Sir Mark Lyall Grant: No, if Russia were to
be a candidate for membership of the European Union, which obviously
they are not, there would be a hell of a lot of work for them
to do to reach the Copenhagen criteria standards, but in terms
of the sort of policy areas, and I outlined some of them in my
earlier replies, one of the reasons that we are enthusiastic advocates
of a new, updated Partnership and Co-operation Agreement is that
over the last 10 years there have been some trends which we think
need to be responded to in terms of energy, economy, justice and
home affairs, migration issues and counter-terrorism which perhaps
need to be given a rather sharper focus in the new agreement than
was given in the old agreement, so those are some of the areas
of policy which we would like to see covered in the new agreement
so that we can sharpen up our dialogue with Russia on those key,
critical issues. Another area of importance is a stronger dispute-resolution
mechanism, because the current PCA has not got a very strong dispute-resolution
mechanism. The new mandate, as agreed within the European Union,
would have such a dispute-resolution mechanism and that would
help us to resolve some of these common issues between the European
Union and Russia before they became full-blown crises, so I think
that is important, and also perhaps to give the relationship a
stronger legal underpinning and framework than the current agreement
does. Those are some of the areas where we would like to see the
relationship develop.
Q14 Lord Chidgey:
In that context, what effective levers does the EU have in terms
of negotiating with the Russians on these key issues, levers that
obviously our Russian counterparts would recognise as well? It
would be interesting to know how duality sees these critical aspects
of the relationship.
Sir Mark Lyall Grant: I think it is difficult,
my Lord, to talk about levers. If Russia does not want an updated
Partnership and Co-operation Agreement, then obviously we shall
not have one, but the indications are that Russia does want to
have an upgraded Partnership and Co-operation Agreement, that
they do value the relationship with the European Union which is
quite heavy in terms of investment of time now on both sides.
We are talking about two summits a year, structured relationships
all the way down the political chain, joint commissions, et cetera,
so there is really quite a heavy bureaucratic process underpinning
the EU-Russian relationship and, we would argue, perhaps slightly
too much process and not enough substance, but, nonetheless, the
process can be important in making sure that we do have a framework
for dialogue and tackling some of the difficult issues. The fact
that Russia has invested in that and is prepared to invest time
and effort in that suggests to me that Russia does see that it
has an interest in a good, stable, secure and strategic relationship
with the European Union. I think it is that as much as anything
that we can talk about as leverage. We cannot force Russia to
look to the European Union rather than the United States or China,
but we have to show that there are advantages to Russia in having
that sort of secure and stable relationship.
Q15 Chairman:
How substantial is the Russian Federation mission to the EU in
Brussels? Do they have a significant number of people working
there?
Sir Mark Lyall Grant: I do not know. I might
have to ask for advice on that.
Mr Thornton: They do. It is one of their most
substantial missions and they have invested an enormous amount
of time and resources in it.
Sir Mark Lyall Grant: We can write to you with
the numbers.
Q16 Chairman:
It is something we can pursue when we are in Brussels, but it
is quite interesting, in just thinking of the way in which they
perceive us, to get some idea of what sort of mission they do
have there.
Mr Davenport: Certainly the mission in Brussels
is closely involved in the structures for the EU-Russia partnership
in terms of monthly meetings and so on.
Q17 Lord Hamilton of Epsom:
The founding fathers of the EU were obsessed by the concept of
a third world war in Europe between France and Germany. That concept,
I think, looks a bit dated now. The only threat actually to European
security is from Russia, but of course everybody in the EU is
absolutely appalled at the idea of Russia coming into the EU and
they keep on saying it is unthinkable. Should we not, as a long-term
objective, say that we would like to have Russia in the EU, and
I am talking about 20 years hence, but should we not be actually
talking to the Russians in terms that they are a hell of a long
way from qualifying today, but in time we would like to see them
as members of the EU because, if we are worried about security,
that would actually do more to secure the security of the Europeans
than anything else?
Sir Mark Lyall Grant: I think I would take issue,
my Lord, with your premise that the only security threat to Europe
was from Russia, but that is perhaps a debate for another day.
I am not sure I would share your conclusion either, my Lord. I
do not think it is realistic to think of Russia becoming a member
of the European Union, and this goes back to the earlier question
about the size of Russia and the eastern extent of Russia. I think
it would change the nature of the European Union very, very dramatically,
and some would say it has been changing dramatically anyway.
Q18 Lord Hamilton of Epsom:
How about the membership of Turkey?
Sir Mark Lyall Grant: Well, Turkey is another
issue, but Turkey does not extend quite as far eastwards into
Asia as Russia does. I think you would be looking at a very, very
different European Union construct if Russia were a member, so
I think in the longer term, even in the 20-year timescale, we
would see Russia as a key, strategic partner of the European Union
rather than as an aspirant member.
Q19 Lord Swinfen:
You have already, I think, covered quite a lot of my question,
but how, in your view, does Russia perceive the EU and what are
the underlying principles of Russian foreign policy towards the
EU?
Sir Mark Lyall Grant: It is a difficult question
perhaps for me, rather than the Russian Government, to answer,
but my belief is that Russia does see the European Union mainly
through the commercial and economic prism, although they would
like to develop a political and security relationship with the
European Union because I think they feel that they would get more
understanding perhaps from members of the European Union than
they would from membership of NATO and perhaps even the OSCE.
They do find the EU's principles and values of solidarity, for
instance, frustrating, they do find it difficult to understand
why the European Union will base its position on an individual
Member State's bilateral issue with Russia and I do not think
they have internalised that that is one of the fundamental attributes
of the European Union, so I do think they probably find that relationship
frustrating at the political level, but my primary response would
be that they do see it through an economic and commercial prism.
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