Memorandum by Sir Andrew Wood GCMG
1. Sub-Committee C of the House of Lords
Select Committee on the European Union has called for evidence
for its inquiry subsequent to its 2002 report on "EU Russia
Relations". I submit what follows on a personal basis.
2. The EU Russia relationship is for now
both as important in principle and difficult to define in practice
as it was in 2002. If that remains the case it will be hard to
move meaningfully beyond the generalities of the existing Partnership
and Cooperation Agreement (PCA) of 1997, despite the fact that
both parties argue for the necessity of doing so. There are immediate
practical obstacles: the Russian electoral cycle and its possible
outcomes; foreign policy differences coupled with the probability
that Russia will not soon enter the WTO; and differences of approach
among EU member states. These three reflect the absence of clear
Russian or EU strategies to inform an effectively renewed and
structured relationship between the EU and Russia.
3. Both parties indeed have, as the Sub-Committee's
Call for Evidence put it, "a shared interest in maintaining
good relations on a wide variety of commercial, economic and international
issues". Nor would I question the assertion in the Call that
the dialogue between the EU and Russia has broadened, at least
in the sense that there are now more questions on the table than
were evident in 2002, and more established machinery to address
them. There is however room for debate as to what we now have
can be described, except out of diplomatic politeness, as a dialogue
between partners (which for me implies a mutual sense of common
purpose based on trust in the general idea that one good turn
will secure another in return) or that our exchanges have deepened.
Recently, we seem instead to have talked past each other.
RUSSIAN POLITICS
4. I suggested during the oral evidence
I gave to the sub-Committee in 2002 that the evolution of democracy
(as understood in EU countries) in Russia would prove a critical
factor in the relationship between the Union and Moscow. Russia
has since then moved further towards a centralised, even personalised,
system, with a greatly increased role for the state* in the economy.
In consequence Russia is now in the midst of a succession crisis.
Russia's focus is internal and its foreign policy attitudes populist
rather than dispassionate. Russia is not the only country to act
that way, and has the trauma of its last decades to confront too.
But it makes healthy and sustainable progress in the EU Russia
relationship problematic for now.
*[Words are slippery in this context. "State"
is dangerously so, Russia lacking many of the institutions that
are familiar to us in the UK but being rich in persons wielding
official power without clear public accountability. But I know
of no other shorthand to use here].
5. It will be some time before that changes,
even once the electoral cycle is over. Personalities will count,
but since no one knows who will have what position come next Spring,
the amusement of speculation about people is hardly now worth
the ink spilled on it. The only safe predictions are that March
2008 will not bring closure, and that the next Administration
will have problems in its inheritance whose resolution will over
time make it differ from what we have recently seen in Russia.
President Putin has said repeatedly that he will not stand again.
He has also said that he will remain a force in Russian politics.
That will add to the need for the next President to establish
his own independent and in the end superior authority. If the
next President is seen merely as the creature of his predecessor,
then whatever the position Putin may hold after March 2008 the
effect will be to increase still more the dependence of the system
on his personal dominance while diminishing his accountability
and further undermining Russia's institutional structure. That
is not a mixture fit to last through a full Presidential term
with what is likely to prove a complex agenda to address, or to
encourage a consistent Russian approach to the EU.
THE ECONOMY
6. President Putin has had world economic
winds at his back during his two terms, and a team to deliver
admirably responsible budget policies. Pressures to spend accumulated
surpluses have however grown, and may well increase further over
the electoral cycle, including as a new administration finds its
way. Russia's budgetary and balance of payments surpluses are
already shrinking, with the latter expected to disappear perhaps
as early as next year. The demands of state or state related corporations
make up a large proportion of the rising inflow of private borrowing.
These trends and a degree of protectionism are set to persist
beyond the elections.
7. Russia needs heavier investment than
it has so far managed to achieve. Russia's dependence on a high,
even increasing, oil price has not lessened. Diversification,
and the renewal of the country's capital stock, including its
housing and transport infrastructure, is becoming more, not less,
pressing. The recently drafted Development Programme, which covers
the period until 2020 looks to combine a significant growth of
government intervention in the economy with an innovation led
scenario to underpin annual growth rates of over 6%. This will
be a lot for the Russian bureaucracy to secure, as indeed it would
for any government machine. Experience so far is against such
ideas leading to less corruption and a more diversified economy.
There is a long term logic which points to closer integration
between the Russian and EU economies, but also a persistent Russian
tradition of fighting mutual dependence.
ENERGY
8. This tension is evident in the energy
sector, which the next President will no doubt continue to see
as "strategic" and therefore best kept in national hands.
The Russian state will find it hard to manage:
— domestic energy demand is increasing
at present at around 5% each year. Available data show that Russian
oil and gas production has not and will not keep pace with that
demand, as well as meeting increasing commitments to Western customers.
Investment in new fields has lagged, and cannot now be brought
into effective production in good time. Difficult and very expensive
decisions will be needed to ensure that the resulting strains
are not prolonged, and that competing priorities are satisfied;
— Russia already depends on Central
Asian gas, and will do so increasingly. Despite strong pressures
on these countries that may not be easy to secure;
— effective use of non-Gazprom Russian
gas, will be needed too, and will be easier said than done. It
would call for bankable understandings between the independents
and Gazprom which would conflict with that company's monopolistic
practices (or an inefficient extension of Gazprom's reach). Using
independents' gas would also call for heavy investment in processing;
and
— in pipelines. Existing ones badly
need attention, including the network linking Russia and Central
Asia. Construction capacity constraints are likely to prove as
real as financial limits.
FOREIGN POLICY
9. For EU countries therefore Russian energy
supplies may well get tighter, and the need for clear thinking
about why that may be so all the more pressing. The temptation
to ascribe difficulties to Muscovite bullying could, and maybe
should, be made worse by Russia's apparently settled and heavily
pressed policies of seeking control over the gas pipelines in
the transit countries, not least Ukraine. The EU, and its member
countries, are likely to continue for some time to have to make
their choices against the background of increased suspicion inside
Russia of Western motives, and outside it, of Russian behaviour.
Untangling that will be hard without some understanding of Russian
ideas, which are by no means limited to those at present in power.
10. Difficult as it may be for us to credit,
many Russians feel themselves to have been cheated by the West.
The argument goes that Moscow gave up its international power
and got nothing in return. That argument feeds on a tradition
of xenophobia mingled with self-pity, now compensated for by the
idea that "Russia is back". President Putin is not the
first to say that the weak are always beaten. The corollary is
the conviction that Russia needs to show strength, and surround
herself with dependable, even controllable, allies. For those
in power, and very probably for their immediate successors, this
attitude is reinforced by fear of popular pressure on similarly
organised governments within the Kremlin's neighbourhood. But
the ambition to restore Russia's position as a Great Power is
not a policy that resonates in Europe today, and its meaning is
fuzzy. It can also make it more difficult to achieve some of Russia's
objectives by heightening outside suspicions, and clouding the
country's negotiating stance. WTO entry is a good example. The
Russians have often seen this as a political matter, with their
exclusion being politically motivated. They have therefore approached
it much as they successfully did the G7 now G8. But as Pascal
Lamy pointed out on 28 September, entry is not free. It entails
opening the market and adopting WTO rules, with legislation to
back it up. Given that the end 2007 date seems now out of reach,
and that entry next year too may not happen, we have a row waiting
to happen, including in all probability with the EU—and
of course a further brake on a renewed PCA, or progress on the
Common Spaces.
CONCLUSIONS FOR
THE EUROPEAN
UNION
11. Calls for action are more attractive
than steady as she goes. But what the EU needs now is patience
and confidence, while Russia evolves. Russia may be demanding
in pressing for EU concessions, and loud in its complaints against
EU reluctance to accept state funded investment, but is for now
neither much inclined nor well placed for meaningful negotiations
with the EU over what the Union might see as substantive advance
on present formulae set out in the PCA, the rhetoric of the "Common
Spaces" and still less the Energy Charter. Moscow will continue
to look for room in the tension between the approaches of individual
member states and the EU as a whole (and who can blame it?), and
will as seems good to it lump the Union, NATO and the US together.
The EU does not have to take them over seriously when they do.
Existing EU programmes (Question 4 of the Call for Evidence) are
not likely in the foreseeable to secure more traction than they
now have, which is so far as I can tell limited. But the help
they can give to individuals, together with their symbolic value,
has merit.
12. EU countries should continue to tighten
(Question 8) their mutual understanding of how Russia may develop,
what that would mean for its policies towards the Union and Russia's
neighbours, and what the Union's long term view of the relationship
may be. This is not to say that there should or could be unanimity
of view, but greater coherence would reduce the scope for Russian
misunderstanding, and experience suggests that when the EU speaks
with one voice as it did after the Orange events it gets attention.
The EU will always carry more weight in Moscow if it is seen to
be taking US policies into account, which does not of course always
mean agreeing with them. Reaching agreement on effective EU energy
policies, and paying proper attention to Turkey's critical role
as a candidate and energy transit country are important in their
own right and in the context of managing the EU Russia relationship.
We should treat Ukraine's EU ambitions with sympathy. EU interests
(Question 9) in ex-Soviet countries have some commonality with
Russia's and we should of course look for ways to work together
in resolving frozen conflicts, if only as a way of putting across
a view and establishing our right to hold one. But the fact is
that EU ambitions to underpin the independence, including the
energy independence, of these states run counter to Russian efforts.
13. I have not tried to take the EU's further
governance agenda into account in this survey. I doubt if the
Russians have given it much thought, and its exact future shape
is uncertain.
12 October 2007
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