The EU-Russia Partnership for Modernisation – key to ...



The EU-Russia Partnership for Modernisation – key to unfold the full potential of EU-Russia relations

Introductory statement by Mr. Gunnar Wiegand, Director, European External Action Service

EU-Russia Partnership for Modernisation Conference

Moscow, 12 October 2012

Dear Minister,

Dear Colleagues,

Ladies and gentlemen,

I would also like to welcome you to today’s conference as EU coordinator for the EU-Russia P4M. It is the first time that we have brought colleagues from different Russian administrations and Ministries together with representatives from the EU Member States, the Brussels institutions, industrialists and business associations, as well as international financial institutions and the Russian Public Chamber. I regret however that it was not possible to have here today with us representatives of the EU-Russia Civil Society Forum. We value highly the input of civil society to our work.

We shall discuss ways in which the EU and Russia can cooperate in our modernisation strategies. I am grateful to Minister Belousov and to my colleague Deputy Minister Likhachev, and his team, for making today’s meeting possible.

The agenda indicates already where we both believe our cooperation can bear positive fruit – improving investment conditions, improving legal security and the rule of law, aligning the regulatory environment, supporting SMEs and addressing the skills gap.

So let us look at the situation in which we cooperate today. We have all been hit, to a greater or lesser extent, by the financial sector and sovereign debt crisis. However, despite this crisis, the rationale for our cooperation has not changed: Russia remains a resource-rich country, which needs to diversify its productive base. The EU has the know-how, the worldwide competitive companies, both in services and manufacturing, and the regulatory framework that Russia needs. We are economically closely linked and interdependent.

How does Europe tackle the challenge of the Eurozone?

The Eurozone countries together and the EU are determined in taking bold steps to address the triple challenge of creating a stable financial services framework, addressing fiscal imbalances and improving joint decision making. Some EU countries have to reform more to be able to address the crisis. The problems some countries are facing should however not block the view to the wider picture: the EU remains a success story, based on solidarity and the political will to overcome difficulties through ever closer union.

Europe accounts for almost 40% of the world’s merchandise trade, and for 47% of the world’s commercial services exports. Over the last two decades, Europe’s GDP increased at about 2% per year. Since 1990, Central and Eastern Europe’s EU members have grown faster than the rest of the world, with the exception of China. They have become success stories, thanks to membership in the EU and to the free flow of capital inside the EU which directed savings in richer economies to productive investments in economies in transition. Poland raised its GDP per capita in purchasing power terms from around 6,000 USD in 1992 to more than 21,000 last year – and this without any resource wealth. It shows how much good regulation and convergence inside the EU’s internal market can do.

Many Russians like travelling to Europe, invest their savings in EU countries, have their children educated there and acquire property. This is the best proof of the continued attractiveness of the European way of life.

Now let me turn to Russia.

Your President recently stated his goal to propel Russia from 120th place last year in the World Bank’s doing business ranking to 20th place by 2018.

To achieve this aim, the arguments to open up, attract investments, and diversify the Russian economy in cooperation with the EU are compelling. Russia needs to reduce its resource export dependence.

The EU is the natural partner for this diversification: after all, the EU is the largest and most successful internal market in the world, world leader in many technological and engineering fields. The convergence of central and Eastern Europe in economic terms shows how beneficial it can be for both parties to cooperate.

As EU coordinator of the Partnership, who has seen its development from the very start, I have to say that over the last year we have not realised the full potential that our modernisation partnership offers. Concepts of societal and economic development still differ at times. Over the last few months we have seen some developments in Russia that are not corresponding to what we consider is necessary to build a successful and diversified economy.

In spite of WTO accession we have witnessed a number of protectionist and restrictive measures in the trade field. State control of the economy remains high; controls on how so-called strategic companies can interact with foreign entities have been issued by decree; the space for civil society in general and more specifically for those advocating alternative ideas has been reduced through new laws. Corruption still remains one of the biggest thorns in Russia’s side, as well as red tape through bureaucracy. Capital flight continues to be high, around $ 80 bn in 2011 (about $ 60 bn in 2012 referred to by the Minister).

We remain convinced that we have to build trust and establish a positive agenda. Not sticking to agreements undermines trust and reduces the scope for cooperation. That is why we are so concerned at the failure so far by the Russian side to implement our agreement on Siberian overflights.

Let me give another example: the Eurasian Union has become a priority for the Russian leadership. Tremendous effort and resources are being invested. Sometimes this is presented by the Russian side as an alternative to the partnership with the EU. Integration with the EU internal market of 500 million consumers offers much bigger opportunities. Should Russia not invest at least the same amount of political energy into cooperation with the EU?

To be sure, we are not against regional economic integration schemes: we are ourselves a successful example of one. But this has to be based on the free will and sovereign decision of states and peoples, has to make markets more open, and should aim at a win-win situation with the EU. An example for this can be found in the technical regulations and standards fields: we should have the same norms and standards, and the same system for ensuring the safety of products. We are working with Russia and the Eurasian Economic Commission on this, and are ready to do more.

A common market from Vladivostok to Lisbon remains a long-term vision for the moment. An EU-Russia free trade area - an objective enshrined already in the PCA in 1997 and reiterated by President Barroso and then Prime Minister Putin at the last visit of the Russian government to the European Commission in February 2011 – is closer at hand but is also not yet on the agenda. To conclude, let us make sure that our respective regional integration efforts are done within the WTO framework, and do not create obstacles to trade and investment.

Back in 2010, our Presidents agreed the basis for our modernization work: a pragmatic framework for making progress where both sides see an interest. This will not replace the legal basis which we also need: the WTO accession of Russia bears witness to this, as well as our desire to conclude a New Agreement including meaningful trade and investment provisions. The New Agreement is not about new market access (no WTO+). Rather what we are talking about is regulatory convergence, and energy, where our mutual dependence is strongest and which cannot be excluded from our New Agreement.

WTO membership and the adherence to both its rules and its spirit will make Russia a better place for business. It has short-term costs in some sectors, and short-term gains in others. But the longer term effects will be of more competition and clearer and more predictable rules, leading to higher growth rates and diversification and competitiveness of industry.

So where do we see room for more cooperation under the Partnership for Modernisation framework? I would like to list 4 points: rule of law, business regulation, investment in technology transfer, education and vocational training.

The rule of law

As President Barroso said at UNGA on 24 September: ”Without deep democracy and an independent and reliable judiciary, the legal system is only an instrument in the hands of rulers”. Russia and the EU have common commitments to human rights, democracy, and the rule of law. We are very concerned by recent developments in Russia in this respect. We should work jointly, also within organizations we both are members of, such as the Council of Europe and the OSCE, on the fight against corruption and an independent and functioning judiciary appeal system, as well as on a transparent public procurement system. Without those, modernisation will not benefit the citizens or those wanting to create new businesses.

The regulatory framework for business

As I have mentioned before, we can still do more to align our systems and regulations in many technical areas. The EU has the most advanced regulatory system in the world. Part of this is covered by the WTO of course, but we should establish convergence rules in a new agreement to replace our PCA from 1997. Indeed, we should advance on the trade and investment chapter of the new agreement and put genuine efforts into concluding these negotiations soon.

Investment and technology transfer

As for investments and technology transfer, these are mainly for business to decide. We have put our respective technology platforms in contact. The IRT and the Association of European Businesses has done much to increase business contacts and intensity. It is important that this continues and I encourage the representatives of these associations present here today to keep up the good work. The role of international financial institutions is crucial in this respect as well. We look forward to the presentation of new investment projects which fulfill the aims of the Partnership for Modernisation by the EIB, EBRD and VEB.

Education and vocational training

The EU has spent over the last 7 years around 125 million euro to allow Russian students and university teachers to study in the EU or to implement joint projects – through the Erasmus and Tempus programmes. We are ready to continue this cooperation, but Russia should provide a similar amount of money to allow EU students to study in Russia, and our universities to cooperate. We also could do more in the area of vocational training, an area which has proven to be a bottleneck for investors in your country.

We will have to increase our efforts to obtain input from civil society to these and other priorities of our partnership.

To conclude, the EU will remain a strong and attractive market for Russia, and vice versa. The EU will stick to its values and the successful framework of democracy and free market economy – even in the current crisis we have not resorted to protectionist measures.

We invite Russia to look at our cooperation as a win-win game. We are ready to cooperate pragmatically, using our Modernisation Partnership to the fullest. Let us not waste this opportunity. This conference is proof of the dynamism we can unleash together, if we want to seize our full potential.

END

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