The EU and Russia: our joint political challenge

The EU and Russia: our joint political challenge Speech by Peter Mandelson Bologna, 20 April 2007 Summary In this speech, EU Trade Commissioner Peter Mandelson argues that the EU-Russia relationship contains a "level of misunderstanding or even mistrust we have not seen since the end of the Cold War". Citing Europe's role in debates about political culture in Russia, its engagement with countries of the former Soviet Union, Russia's WTO accession and energy issues Mandelson warns: "unless we comprehend our different perceptions of what has happened since the end of the Soviet Union we risk getting the EU-Russia relationship badly wrong". Mandelson calls on European Member States to show greater unity in dealing with Russia. Mandelson will say that the incoherence of European policy towards Russia over much of the past decade has been "frankly alarming no other country reveals our differences as does Russia". Europe, as seen from Moscow Mandelson notes that Russia often interprets Europe's engagement in the former Soviet Union "not as the concern of a friendly partner, but the encroachment of a self-interested neighbour". He argues that the EU needs to "recognise Russia's interests in the former Soviet Union and its sensitivities, even sense of vulnerability. But that is not the same as accepting spheres of influence or private reserves of power over parts of the European continent." He says that Europe faces similar distrust intervening in Russia's internal political debate. He insists: "on the key issues pluralism, rule of law, freedom of speech, economic freedoms I am sure that EU policies are correct and that we should say so (but) effective engagement is surely as much about understanding how you will be perceived as choosing what to say." Recognising Russia's long term interests Mandelson argues that Russia should see greater engagement and integration with the EU, and the global trading system, as serving its own interests, even where it creates some constraints on Russian action. This includes trade in energy. He insists that clear, transparent rules could create a stable and open environment for diversifying Russian trade and attracting investment. This, he says, "will deliver greater strength for Russia's economy than any tightening of the government's control of the economy." They could also ensure that trade and trade disputes between the EU and Russia did not become heavily politicised. -------------------------

The relationship between the EU and Russia is one of the biggest and most complicated challenges in European politics and foreign policy. It affects every significant European and Russian interest energy, climate change, trade, security, crime, migration, the Middle East, Iran, the Balkans. In the twentieth century, that relationship went through many phases: the emergence of Soviet Communism, the common fight against Nazism and the nuclear confrontation of the Cold War. In the twenty first century our enduring goal must, I believe, be a deep partnership, built around far-reaching economic integration embracing the European continent - including Russia. To achieve that sort of partnership will not be easy or straightforward. We must take a longterm, strategic perspective on the relationship. But relations between the EU and Russia are going through a difficult period. Indeed, they contain a level of misunderstanding or even mistrust we have not seen since the end of the Cold War. Tensions and uncertainty are running high both within Russia, amongst her neighbours and in her relations with the European Union and its Member States. Each suspects the other of double standards. Both believe the other is using the energy weapon as an instrument of politics. Neither thinks they enjoy the respect and goodwill from the other they are entitled to expect. Given what is at stake I want to ask today why this is and what we can do about it. The legacy of the Soviet Union The end of the Soviet Union was a landmark in history an almost bloodless revolution in an incredibly bloody century. It was a victory for political freedom and liberal democracy over an oppressive political system and a stultified economy. But the Cold War left a hot legacy: the break up of Yugoslavia and the brutal wars in Bosnia and Kosovo; conflict in our shared neighbourhood and the border states of the former Soviet Empire; the explosion of conflicts and state failure around the world, as superpower clientelism came to an end. Nevertheless, for most Europeans it was a time of positive change. It allowed the spread of freedom, democracy and prosperity across a previously divided European continent. And it saw significant progress in the spread of human rights and pluralistic, democratic government around the world. It helped unleash the current phase of economic globalisation. But it does not necessarily look that way from Russia. I am sure that most in Russia would share the view that the end of the Soviet Union was a good thing. But the psychological legacy of the end of the Soviet empire, and its associated super-power status, is still difficult for many in Russia. European and Russian views of the world We, in Europe, see the 90s as a decade of reform, transition and rising prosperity. But for many Russians, the 90s can only have been a period of disorder and uncertainty, with Russia's economy subjected to shock therapy and its assets sold off at knock-down prices in deals which served the interests of the few, not the many. We see the reuniting of Europe. We see NATO and EU enlargement as the extension of stability, prosperity and democracy. But from Moscow the same process is associated with 2

Soviet territory dismembered; its previous sphere of influence eroded; Russia's influence in the world diminished. The vast scope of the Soviet empire gone in the space of half a decade. And these perceptions endure. The Orange Revolution in Ukraine a positive development for Europeans looked very different for many Russians. They feel increasingly encircled by the West and wedged up against a rising China. Many in Europe today see Russia as increasingly authoritarian turning its back on the political progress made in the 1990s, and even on the economic progress of the first Putin term. That while Russia has succeeded in restoring order, it has not yet done so fully by imposing the rule of law even-handedly and consistently. Yet I can understand why many Russians take a different view. For many of them, to judge by the President s popularity, Mr Putin has extinguished chaos while making Russia once more respected in the world. National confidence is returning on the back of strong economic growth. When we in Europe raise our concerns, when we talk about the spread of values, including in Russia and in our shared neighbourhood, their experience of the past 20 years leads many Russians to hear not the concern of a friendly partner, but the encroachment of a self-interested neighbour. Indeed, many in Russia actually believe that when we say "values" we only mean "interests", that we are somehow seeking to undermine Russia at home and put her down abroad. What I have described is, of course, a deliberate simplification. I do not want to reduce the recent history of Europe and Russian relations to caricature. And European and Russian experiences of the 1990s are not the only reason for tensions between us. But that experience has had a profound effect. It colours the memories of many Russians and fuels scepticism about the benefits of western-style democracy and the market economy perceptions which will take years to change. I am not defending this view of Europe or making a relativist argument. On the key issues pluralism, rule of law, freedom of speech, economic freedoms I am sure that EU policies are correct and that we should say so. But effective engagement is surely as much about understanding how you will be perceived as choosing what to say. Unless we recognise our different perceptions of what has happened since the end of the Soviet Union we risk getting the EU-Russia relationship badly wrong. Implications for relations between the EU and Russia I do not expect everyone to agree with all of this, but I do expect most would share the fundamental analysis that the relationship between the EU and Russia is critical to both. So what do we do to get it right? In Europe, we need, above all, unity of purpose. As we celebrate 50 years of the EU, the incoherence of European policy towards Russia over much of the past decade has been frankly alarming. No other country reveals our differences as does Russia. This is a failure of Europe as a whole, not any Member State in particular. But it does our interests no good. And by feeding misunderstanding about the nature and condition of the EU, our divisions lead to disappointment and disillusion in Russia, which does not serve Russia s interests either. A 3

strong partnership between Russia and Europe can only be based on a strong Russia and a strong EU. Europeans must also do a better job of explaining what we in Europe mean by the rule of law and why it matters. It is indispensable to the long-term development of Russia economically and politically. Some in Russia are not convinced of that, confusing the rule of law with the law of the ruler. They believe that energy is the key to economic and political strength, and that all so-called strategic sectors of the economy should be run by the state or with its approval. They will not be easily persuaded of an alternative view of economic strength based on the state as market guarantor and arbiter, rather than economic owner and actor. But case by case, we should seek to explain why the rule of law must be the highest goal in Russia if the country is not to become trapped in the false strength of a petro-state. Europeans must also explain our commitment to a relationship based on mutual interdependence, guaranteed for both sides by predictable rules. We will not advance far if we give the impression that the primary objective of EU energy policy is simply to avoid energy dependence on Russia. And we must have a mature discussion about our shared neighbourhood. Security and prosperity on the European continent will not be advanced by the EU and Russia pursuing opposing objectives or by seeking to carve out spheres of influence in the near abroad. We in the EU must recognise Russia's interests in the former Soviet Union and its sensitivities, even sense of vulnerability. But that is not the same as accepting spheres of influence or private reserves of power over parts of the European continent. For its part, Russia should accept that its legitimate role as a global power is entirely consistent with a deep and privileged partnership between Russia and the EU - because that partnership is needed to deliver the long-term growth and stability which Russia seeks. And because it can do so in ways which set predictable, transparent terms for managing the interdependence of the EU and Russia in the 21st century. And Russia should accept that a return to order after the disorder of the 1990s is part of the answer to building Russia's position in the world but it is only part of it. Russia's strength in the 21st century will be built on a dynamic, diversified economy in which the state gets out of not in to the business of business. Let me pick out two critical issues in my area of responsibility where we need to put these principles into practice. WTO Accession The first is Russian accession to the WTO. While the case for entry is strengthening in Russia, I know there are some who no longer believe or never did believe that WTO membership is in Russia's interests. It is true that the new Russian economy was built without the advantages of WTO membership. And that Russia still exports mostly commodities, which are barely taxed when exported to most economies. If Russia s only ambition is to be a hydrocarbon power, then it probably doesn t need the WTO. But a diversified Russian economy, attracting investment and growing trade, can only be built on the back of full integration into the international trading system. WTO membership is also an anchor for domestic reforms, and the foundation for closer economic ties between the EU and Russia. 4

WTO membership does bring rules and constraints that is true. It creates legal obligations to openness and a commitment to transparent and proportionate regulation of trade. But this will deliver greater strength for Russia's economy than any tightening of the government's control of the economy. And recent and current frictions in EU Russia trade show the importance of depoliticising trade and de-escalating disputes. There is also something incongruous about the fact that Russia is not just the largest economy outside of the WTO, but the only large economy still outside the WTO. I believe that reflects a simple reality about the benefits of being within the system over the deceptive autonomy of standing apart. So my message for those who think Russia doesn't need the WTO is pretty simple. It would be wrong to see trade rules as simply binding Russia without benefiting her too. Russia needs to be in the WTO and we have a duty to assist this which is why I am frustrated by our continuing bilateral disagreement on a number of issues. Energy politics The same sort of argument applies to Russia's role as an energy trader. Energy is not just a good but a need, and yet its trade and supply effectively takes place in an international legal vacuum. I have argued before that international energy trade needs a legal framework the same is true for Europe's energy trade with Russia. Europe wants security of supply Russia wants security of demand. Russia needs European upstream investment in its energy sector, while seeking itself to invest in downstream markets in Europe. Rules that allow investment to flow both ways would interlock producer and consumer markets and deepen stability. This would not in any way deny Russia's legitimate right as a state to benefit from oil and gas reserves it would not stop them doing so. The European call for security of supply implies security of demand. Russia can be a key beneficiary perhaps the key beneficiary of this. Clearer rules and explicit obligations on both sides would remove the political dimension of our energy trade in a way that can only ultimately benefit both sides. Conclusion I am convinced that the EU needs a strong partnership with a confident and stable Russia. And I also think that in the modern age, the essential characteristics of a country with Russia s huge potential cannot be heavy, centralised political control, and an economy based on the rents from energy resources. I think there is no long-term alternative for Russia to pushing ahead with reform so as to implement the rule of law in a transparent, impartial manner; in pursuing diversification, openness and innovation. Since the end of the Soviet Union, European attitudes to Russia have tended to swing between wild optimism and deep pessimism. We need to steer a steadier, more even course. We must not allow our shared misunderstandings to prevent us from finding a way to pursue our common interests in a stable, prosperous Eurasian community, bound by rules but, above all, united by values. That is what is in both our interests to pursue. 5