House of Lords - European Union

Select Committee on European Union Fourteenth Report

CHAPTER 8: CONCLUSIONS AND RECOMMENDATIONS

283. Russia is a country of substantially European history and culture whose government and many of whose political elite regard it as a European country. However, most Russians do not think in these terms because they regard themselves as Russians, first and foremost. Russia shares a border with the European Union, with which it is bound by numerous ties of practical interest. Consequently, the EU and Russia have a mutual interest in building a close relationship, and the need for a practical cooperation with Russia in areas such as border controls is greater than with, say, India or China.

284. The EU should resist any attempts to isolate Russia, which would not be in the interests of the EU, but should rather pursue a policy of engagement at all levels and in all policy areas. In practice what matters are the concrete measures for developing that cooperation between Russia and the European Union which both know is necessary. The EU should recognise that the illusions entertained in the 1990s about the speed of Russia's transition to democracy have hampered the EU's efforts to deal with a newly assertive Russia. The current difficulties in the relationship should not weaken the EU's determination to build a long-term partnership with Russia, based on dialogue, trust and common interests.

Recent Russian History

285. For Russians of all classes the 1990s were a time of national and personal humiliation. For many of them, it was also a time of deep poverty. However unfairly, many Russians attribute their troubles to the attempt to impose on them a system which they now consider as unsuited to Russian conditions. They put the blame not only on the Russian politicians of the 1990s and their Western supporters, but on Western ideas of democracy.

286. President Putin brought stability back to Russia. Associated with this has been an increasing trend to restrict the freedoms of political opponents and the media. Russia is not going back to the days of Stalin, or even to the days of Brezhnev. It is now more open than ever before. For many Russians the restrictions on political freedom have been a price worth paying.

287. Russia's failure to fulfil the high hopes of the early 1990s that Russia would become a democracy, working under the rule of law, and with human rights, a free media and civil society have led to disappointment in the West. The changes needed to transform an authoritarian continental empire need to go very deep, and are likely to take decades if not generations. The sense of disappointment is mutual. For many Russians the West's moral standing has been severely diminished. They are disillusioned by their experience of the market economy and the Western model of democracy and see little reason to listen to western criticism or prescriptions.

288. All indications are that the initial period of Mr Medvedev's presidency will be characterised by a high degree of continuity with the policies of President Putin. Mr Putin, whom Mr Medvedev has appointed as Prime Minister, will continue to exercise substantial power and influence. The extent to which Mr Medvedev will follow up his recent statements, including those on strengthening the rule of law, with concrete action remains to be seen.

The Economic Situation in Russia

289. The Russian government has not abandoned its consistently declared objective of modernising the Russian economy so that it can compete with the best. However, the pressure to take painful reform measures has diminished.

Problems for the Economy

290. The Russian economy is currently growing, buoyed up by high energy prices, but the prospect for the medium and long term is uncertain. Many questions remain about potential weaknesses and the threats these hold for its future prospects. Among these are demographic decline, which has implications for both Russian economic and security policy; the failure so far to diversify away from reliance on natural resources; and the failure to press ahead with market reform. The EU should continue to support Russian reforms in the economic sphere, which should be of benefit to both Russian and EU firms.

291. The Russians are unlikely to change their views on the need for substantial state involvement in the economy in the near or medium term. They seem, however, to accept that large parts of the private sector should operate free from state control. Both of these aspects of Russian policy have implications for EU policy and they are important for European business, which has largely and enthusiastically invested in the private sector of the Russian economy, and is generally making large profits as a result. The EU should where possible encourage further Russian steps towards improving the climate for foreign investment to provide the best environment for continued investment by European businesses in Russia.

Chapter 3: The Institutional Framework for Russia-EU Relations

The Institutions involved in EU-Russia relations

292. We agree with our witnesses in both the Council Secretariat in Brussels and the Commission Office in Moscow that the passage of the Lisbon Treaty should make it easier to co-ordinate and execute the Union's policies towards Russia, and therefore make them more effective. A modest increase in numbers in the Moscow office would provide the additional skills needed. In addition, the mechanisms for cooperation between the Council Secretariat, the Commission, and the Member States missions in Brussels should be strengthened.

The Partnership and Cooperation Agreement

293. It is not clear to us how much interest the Russians will have in negotiating a new legally binding agreement similar to the current PCA with normative aspects on human rights. Although it will not be easy, we believe that negotiations on a replacement Partnership and Cooperation Agreement should be started in 2008. An attempt should be made to enshrine the principles of the Energy Charter Treaty and the Transit Protocol in the new agreement or as a Protocol to it (See Chapter 5). Meanwhile the present PCA should continue to be rolled over.

Chapter 4: Building Closer Cooperation through the Common Spaces

The Common Economic Space

294. The European Union should actively promote the widest possible engagement of Russia in international and multilateral institutions; it should resist any attempt to remove Russia from the G8; it should call for the early entry of Russia into the WTO. Any remaining minor disputes can be dealt with under the WTO's dispute resolution mechanisms after Russia has joined the WTO. The European Union should in due course promote Russia's membership of the Organisation for Economic Cooperation and Development (OECD).

295. It is in the interests of the EU to engage the Russians on climate change to a greater degree than at present, despite the Russian reluctance to engage fully.

The Common Space of Freedom, Security and Justice

296. The European Union can help to ensure that ethnic Russians living in the Baltic states are given equal treatment under both national and EU law. The EU can help to manage these understandable sensitivities.

297. We welcome the solidarity that the EU has shown with the UK on the question of the extradition of Andrei Luguvoi.

298. In the last few years, progress has been made in several areas of EU-Russia cooperation on justice and home affairs issues. However, serious questions remain about the commitment of the Russian authorities to the rule of law and the independence of the judiciary, especially in politically sensitive cases. The EU should continue in its efforts to promote Council of Europe, OSCE and other relevant standards with regard to the rule of law, the independence of the judiciary, and judicial processes in Russia. These are standards which Russia has accepted and is committed to upholding.

The Fourth Common Space: Research and Education, including Culture

299. We deplore the attacks on the British Council and its staff and consider that they are not motivated by its activities, but are a part of a wider political strategy to pressurise the UK and the EU into giving ground on other, unrelated issues. Russia's approach is unacceptable and violates several bilateral and multilateral agreements that Russia has ratified. It is moreover not consistent with a desire to make genuine progress under the Fourth Common Space. The Russian position that this is a purely bilateral matter between them and the UK is neither convincing nor sustainable. The EU should continue to support British efforts to find an early solution over the status of the British Council.

300. We welcome the efforts by the EU and Russia to further research cooperation under the Fourth Common Space. The European Union should continue actively to facilitate all forms of contact with the Russian people, including the provision of scholarships and exchanges and the further simplification of visa procedures for students. EU Member States, and in particular the UK, should encourage the teaching of the Russian language in its schools and universities.

Chapter 5: Energy

Russian Oil and Gas Production

301. There are serious concerns about whether Russia can supply sufficient gas and oil to meet its current and foreseeable domestic demand and international commitments. In the face of this probable shortfall Russia will need greater efficiency and foreign capital. It is unlikely however that these needs will force the Russians to change their ways and there is little chance at present that foreign companies will be allowed by the Russians to acquire ownership of Russia's strategic oil and gas resources. However, this has not deterred, and should not deter, European companies from seeking opportunities to invest in the country.

Energy Politics

302. In the current situation it is uncertain whether Russian policy is the action of a country simply pursuing its economic and commercial interests in an old-fashioned and mercantilist way, or whether Russia intends to use its energy exports as a political weapon to impose its will on neighbours and partners. Since a number of gas pipelines run through countries such as Ukraine whose bilateral relations with Russia can affect supplies to Western countries, the EU Member States should therefore take active and coherent measures, involving common funding where necessary, to diversify both sources of supply and transportation routes, including pipelines such as Nabucco, even where these are not obviously commercial (though recognising that Nabucco will not on its own solve the problems).

303. The market will sort out many problems for the supply of gas, as it did after the first two oil shocks. However, on its own the market will not rapidly produce the right results, and considerations of security of supply need to enter into the equation.

Improving the EU's security of supply and The Third Energy Liberalisation Package

304. For the EU as a whole secure and competitive energy supplies are a highly desirable objective. The EU should further formulate its own energy policy, using the Commission's proposals on energy liberalisation as its basis. There are ways in which security can and should be improved, notably by having a better internal market in energy, with grid inter-connections and storage, so that if one country has an energy problem with Russia or another country, there are alternative sources for electricity or gas.

305. The creation of genuinely competitive energy markets within Europe and the creation of Europe-wide energy grids should be a primary objective of EU policy. Even those countries (including the UK) that do not import significant quantities of Russian gas directly are vulnerable if supplies to their continental partners are interrupted; or if there is a prolonged period of cold weather. Exposure to a volatile spot market, without adequate storage facilities, and without long term contracts, mean that they could find themselves with soaring energy prices and gas supplies severely curtailed. Alternative supplies from Norway, even where they are available in sufficient quantity, will not be price competitive. Germany may be reluctant to surrender the competitive advantage it receives from its well developed gas and electrical systems and long term contracts, or France its relative security arising from the scale of its nuclear industry, but agreement between the UK, France and Germany will be a pre-requisite for a genuinely effective market combined with grids and storage systems.

306. Implementing the Commission proposals on the Third Energy Liberalisation Package will not be easy, given the diversity of view among Member States. The collective negotiating strength of the Member States is at present seriously undermined by the willingness of each of them to go its own way. A degree of structured cohesion is necessary if EU energy policy towards Russia is to be effective.

A European Energy Policy towards Russia?

307. We doubt whether the ECT and the Transit Protocol are the right vehicles to achieve the EU's objectives because of Russian objections. There seems little point in expending further political capital on trying to persuade the Russians to ratify the Energy Charter Treaty and the Transit Protocol as they stand: they are not going to do so.

308. If negotiations get under way later this year for a new PCA the EU should be prepared to explore with Russia whether that instrument could provide a legally binding framework for incorporating energy provisions such as those contained in the ECT.

Chapter 6: The Common Neighbourhood and International Security Issues

EU-Russia Relations—The Wider Context

309. The official Russian view of the international developments of the last two decades is very different from the West's. Russians draw the conclusion that Russia's interests do not necessarily coincide with those of the West. They believe that it is up to them to defend their interests, as they understand them, by the best means at their disposal. Most Russians no longer accept that Western countries represent a valid model to follow, both in terms of Russia's domestic affairs and in terms of its foreign policy.

310. The Russia-United States relationship has always been a key determinant of EU-Russia relations. The attitude of the new US administration will be extremely important and the EU will need strong and direct dialogue with the new administration on Russia.

311. The EU should also listen more carefully to what the Russians say. The EU's policy-making will be less effective and it will be unlikely to develop its policies towards Russia successfully if it does not understand their views and bear them in mind. That does not of course mean that the EU should not challenge Russian policies and actions if it thinks it necessary.

The Common Neighbourhood

312. The common neighbourhood in the Russian "near abroad" is an area in which both the Russians and the EU have close geopolitical interests. It is therefore a particularly sensitive area and should be treated as such by both parties.

313. We believe the EU should consult in depth with the Russians over all aspects of the European Neighbourhood Policy with regard to countries which were formerly part of the territory of the USSR, but should not give them a right of veto over EU policy.

314. While Russia may see the EU merely as an unwelcome newcomer and rival in Central Asia, the EU should take account of Russia's interests and concerns in the formulation of its policies towards the Central Asian countries. Beyond this the EU should seek to engage the Russians in a constructive dialogue about the mutual relationship with the Central Asian countries, and persuade Russia that democracy and prosperity in these countries—which are likely to be strengthened by their relationship with the EU—are also in Russia's interest.

International Issues

315. Russia's steadfast backing for Serbia, including in the UN Security Council, contributed to Serbia's intransigence over the final status of Kosovo. This was one of the factors leading to the failure of the Serbs and Kosovars to reach an agreement through the UN-brokered process in 2007. The EU should recognise that Russia has expressed concerns about separatist movements in Russia and in countries near Russia. The EU should seek to persuade Russia to moderate its position and to encourage the Serbian authorities to show greater flexibility on the status of Kosovo.

316. The Russians may regard the lack of unity between EU Member States on the question of recognition of Kosovo as some justification for their position, despite the decision to proceed with the EU mission to Kosovo. The sooner this disunity is ended or is reduced, therefore, the better.

317. The Russians can be co-operative where there is an identifiable common objective: to some extent this is true in Iran where the negotiations are perhaps the most striking example of the CFSP machinery at work with the Russians. There has also been good cooperation with the Russians over anti-terrorism, and this needs to continue in the future. In general, however, the Russians have not been much impressed by the CFSP. Over Kosovo the best that can be hoped for is an agreement to disagree which does not spill over into other areas.

Chapter 7: Managing the EU's Strategy towards Russia

Common Values: Human Rights and Democracy

318. Progress on democracy and human rights in Russia will be slow. Meanwhile the European Union has no choice but to deal with Russia as it currently is, imperfect though it may be in many ways which the EU considers of fundamental importance. Criticism may well be necessary from time to time if the Russian government falls short of the standards which both sides have accepted, for example in the Council of Europe and the OSCE. However, the European Union should consider carefully before issuing strongly critical public statements about Russian actions of which it disapproves, as it would do with any other country.

Negotiating with Russia

319. The EU does have considerable leverage in its dealings with Russia deriving from its position as Russia's largest trading partner with a market of almost 500 million people. Other links, particularly in the economic and investment field, but also through human and social ties, add weight to the EU's hand. The mutual dependence in energy (as supplier and customer), is an additional important factor, as we have noted.

320. The EU will always be more effective when it can agree a united approach in its dealings with Russia. This particularly applies when it is negotiating on a basis laid down in Community law (e.g. the common trade provisions of TEC Article 133). When the EU's leaders stand together, as Chancellor Merkel and President Barroso did at the Summit with Russia in Samara in May 2007, the EU can make maximum impact. Too often, however, Member States act in a way which allows the Russians to drive wedges between them. In future the Member States need to give a much higher priority to standing together than they have done in the past. Once they have drawn up a new strategy for relations with Russia, they should be consistent in applying it.

321. Without allowing any one state or group of states to dominate EU attitudes towards Russia, the European Union and its members have a duty to support vigorously and by all diplomatic means any Member State which Russia chooses to pressurise in an unreasonable and overbearing way.

322. We consider that the importance of building a stable and strong long-term relationship between the EU and Russia based on mutual trust and understanding is greater than ever. This, combined with a hard-headed and unsentimental approach by the European Union can help to ensure that the relationship is productive rather than the opposite. The Russians should thus be able to see that it is in their own interests to work productively with the EU.

323. The EU's attitudes and policies towards Russia have an uncoordinated character. In order to better design and coordinate its overall strategy towards Russia, the European Union should rethink its current policy towards Russia as a matter of priority. An updated approach should be drafted as a collaborative project between the Commission and the Council Secretariat and approved by the Council of Ministers. It should be discussed by the European Council at one of its forthcoming meetings.

Russia membership of the EU?

324. The issue of Russia's potential membership of the EU does not currently arise. In the unlikely event that Russia did eventually apply, and if it was judged that Russia qualified, the European Union would need to consider the application on its merits at the time. The EU should continue to insist that Russia meet the standards it has agreed to under the Council of Europe and the OSCE, which are not EU standards but would be relevant in considering Russia's application if it did eventually decide to apply. The prospect of closer relations with the EU, even if not linked to eventual membership, does serve as an incentive for the building of a free trade area with the EU and for political reforms in Russia aimed at meeting European standards on democracy and human rights. Therefore it would be counterproductive for the EU to rule out Russian membership as a matter of principle.

The Importance of a Long-term Perspective

325. The sensible approach for the EU is to situate its relationship with Russia in a long-term perspective. The European Union is not facing a new Cold War but EU-Russia relations are perhaps in a negative phase in a long process of transition which could last for some time. Despite the difficulties, Russia cannot avoid dealing with the European Union on trade, on competition, on customs and frontier controls, and on a variety of other issues involving the European Union's common standards and regulatory procedures. Even when either side loses sight of it, they are bound by an inescapable common interest.

326. In an increasingly interconnected world, both Russia and the EU have an interest in co-operating on long-term global issues, such as the environment and climate change, as well as on key foreign policy issues, such as Iran, which have a direct impact on their interests.