RUSSIA AND THE EU: TWO BIG WORLD PLAYERS

Russia and the EU represent two very important poles and regional powers in the current world especially from an economic point of view. Several data support this assumption, such as for example:

European Union:

-The European Union has a large domestic market with an average population of 503.7 million (European Parliament data), on a geographic surface of 4,284,730 sq km.

- According to 2012 figures (Eurostat), the EU stands as the largest economy in the world, bigger than the US's, with EU GDP (nominal) amounting in 2012 to € 12,945,402 million.

-The EU is a trading power. Figures confirm that the EU is the world’s largest importer and exporter, as well as the largest trading partner of all five BRICS Countries and the largest host and recipient of foreign direct investment. With just 7% of the world’s population, the EU's trade with the rest of the world accounts for around 15% of global exports and imports in goods in 2012. Trade has been hit by the global recession, but the EU remains the world’s largest player accounting for 16.4% of global imports in 2011. The EU was also the biggest exporter, accounting for 15.4% of all exports. In 2012 it still stands as the world’s largest importer and exporter (see figures below).

Russia:

- Russia also stands as a large domestic market with 142.5 million inhabitants, as well as being the world’s largest state entity, with 17,098,242 sq km.

- According to the World Bank’s most recent ranking, in 2012 Russia’s economy (nominal GDP) stands as the 8^th largest economy in the world, with a GDP equalling $ 2,014,775 million.

- Russia is also one of the world’s most important energy power, as it is a major producer and exporter of oil and natural gas. Russia holds the largest natural gas reserves in the world and was the second-largest producer of natural gas in 2012 (second to the United States). Russia's proven oil reserves were 80 billion barrels as of January 2013 (according to the Oil and Gas Journal).Most of Russia's resources are located in Western Siberia, between the Ural Mountains and the Central Siberian Plateau and in the Volga-Urals region, extending into the Caspian Sea. Russia was the third-largest producer of liquid fuels in 2012, following the United States and Saudi Arabia.

- Russia as a regional power. It wants to ambitiously develop a new Regional Organization with its former Soviet partners as Kazakhstan and Belarus (starting from a 2010 Customs’ Union among Kazakhstan, Belarus and Russia which has already been transformed into a common economic space as of 2012) with the goal of creating by 2015 a Eurasian Union (for the moment other than these three countries, also Armenia and Kyrgyzstan are expected to join soon – by 2014-2015 – the regional integration process). This new reality has to be taken into account as it creates further opportunities for enhancing trade and economic relations and for economic and business operators.

Russia and EU economic relations

Hence, all these figures demonstrate that both Russia and the EU are two big powers and players in the world’s economy, which cannot ignore each other. On the contrary, they are very well placed (in terms of geographical proximity, shared history and values, but also strong economic and trade relations) to seize the opportunities of continuing further enhancing their bilateral relations, especially given their strong bilateral trade and investment relations, as well as energy interdependence.

Bilateral economic relations, main figures:

- Russia is the third trading partner of the EU and the EU is the first trading partner of Russia. After a brief interruption between 2008-2009 (when the trend was interrupted by the economic crisis and unilateral measures adopted by Russia, which had a negative impact on EU-Russia trade), since 2010 mutual trade has resumed its growth reaching record levels in 2012. In particular, EU-Russia trade totalled €335.9 billion in 2012.

- EU exports to Russia are dominated by machinery and transport equipment, chemicals, medecines and agricultural products.

- EU imports from Russia are dominated by raw materials, in particular, oil (crude and refined) and gas. For these products, as well as for other important raw materials, Russia has committed in the WTO to freeze or reduce its export duties.

- Russia’s main EU partner countries. Among the EU28 Member States, Germany accounts for €37.9bn (31%) of EU exports representing by far the largest exporter to Russia in 2012, followed by Italy (€10 bn or 8%) and France (€9.1bn or 7%). Additionally, in 2012, the EU Member States exported €28.2bn of services to Russia, while imports amounted to €15.2bn, meaning that the EU had a surplus of €13bn in trade in services with Russia, compared with +9.8bn in 2010 and +9.6bn in 2011. In particular, Italy represents Russian fourth commercial partner (after China, Germany and Netherland). Indeed, in 2012 their bilateral trade relations accounted for €28.2bn of which €9.9bn of exports and €18.3bn of imports.

- The EU is also the most important investor in Russia. It is estimated that up to 75% of Foreign Direct Investment stocks in Russia come from EU Member States.

Energy relations.

Oil. The majority (79%) of Russia's crude oil exports went to European countries in 2012 (including Eastern Europe), particularly Germany, Netherlands, and Poland

Gas. As for natural gas exports, Europe represents a fundamental customer. Russia sent in 2012 about 76% of its exports to customers in Western Europe, with Germany, Turkey, Italy, France, and the United Kingdom receiving the bulk of these volumes. Smaller volumes of natural gas are also shipped via the Gazprom pipeline network to Austria, Finland, and Greece

Why Russia and the EU need each other

- Relations between Russia and the EU are currently regulated by the Partnership and Cooperation Agreement in force since 1997, which establishes the political, economic and cultural framework for their relations. Furthermore, in 2005, in order to strengthen cooperation, Russia and the EU agreed to create Four Common Spaces that cover economic, freedom, security, justice, research and education issues and in the meantime in 2008 negotiations were launched to conclude a new enhanced Partnership and Cooperation Agreement (still ongoing). In particular, the Common Economic Space, if implemented, would establish a more open and integrated market between the EU and Russia, giving additional new opportunities to economic operators and reinforcing cooperation in the energy, transport, agriculture and environment sectors.

- Therefore, given the already strong bilateral ties existing between Russia and the EU (especially from an economic, trade and energy point of view), going on with the development of the Common Economic Space between Russia and EU (which seeks to establish an open and integrated market between the EU and Russia) is crucial as it is clear that such a partnership would offer important commercial and investment opportunities both to Russian and European economic players - since they could easily access to their respective markets and given the fact that they are already important economic partners (bilateral trade amounting in 2012 to €335.9 billion).

- In this regard, the prospect of bringing the EU and Russia closer together within a Common Economic Space fits within this scenario and confirms the fact that the EU and Russia should both continue to strategically work for the benefit of it. On the other hand, given Russia’s project of a Eurasian Union, the European Union should certainly also start to dialogue more intensively with the new Regional Organization Russia is building with its former Soviet partners as Kazakhstan and Belarus, at the moment (now Common economic space but with the goal of becoming a Eurasian Union by 2015). Hence, starting from further strengthening economic and trade ties with one another, would certainly open up a huge set of reciprocal opportunities. All this makes the continuing of a sustainable bilateral dialogue between EU and Russia of utmost importance.

Russia and EU ties in the aftermath of Ukrainian crisis

- The recent crisis in Ukraine could, on the one hand, have a negative impact on the bilateral economic relations between Russia and the EU, especially if the EU were to adopt a third set of sanctions with far reaching economic consequences (current sanctions adopted so far concern asset freezes and visa bans for a number of Russian officials). On the other, bilateral relations have suffered at the moment, due to the crisis, a temporary setback (EU Council recently decided to cancel the next EU-Russia Summit to be held on June 3, 2014 in Sochi). Nevertheless, these measures are temporary and this is why it is of utmost importance that the EU maintains an open dialogue with Russia in order to avoid any further hindrance to their partnership, which could lead to a gradual isolation of both economies from their respective partnership.

- But to do so, it is of utmost importance for the EU to act as a single actor and to speak with a single voice as well as understand that Russia is crucial in this process of agreements and "dependencies". This is a concept which has been also clearly stated by the European Commission Vice President Tajani, on March 25, when he argued that it is legitimate for Europe to defend its ideals but that it would be a great mistake for Europe to close its dialogue with Russia, considering that "there are too many Russian investments in Europe, and too many European investments in Russia".

di Giuseppe Scognamiglio 24 Aprile 2014

Giuseppe Scognamiglio
Giuseppe Scognamiglio, nato a Napoli il 16 luglio 1963. Diplomatico, Manager, Giornalista, Professore. Direttore della rivista eastwest

European Union:

-The European Union has a large domestic market with an average population of 503.7 million (European Parliament data), on a geographic surface of 4,284,730 sq km.

– According to 2012 figures (Eurostat), the EU stands as the largest economy in the world, bigger than the US’s, with EU GDP (nominal) amounting in 2012 to € 12,945,402 million.

-The EU is a trading power. Figures confirm that the EU is the world’s largest importer and exporter, as well as the largest trading partner of all five BRICS Countries and the largest host and recipient of foreign direct investment. With just 7% of the world’s population, the EU’s trade with the rest of the world accounts for around 15% of global exports and imports in goods in 2012. Trade has been hit by the global recession, but the EU remains the world’s largest player accounting for 16.4% of global imports in 2011. The EU was also the biggest exporter, accounting for 15.4% of all exports. In 2012 it still stands as the world’s largest importer and exporter (see figures below).

Russia:

– Russia also stands as a large domestic market with 142.5 million inhabitants, as well as being the world’s largest state entity, with 17,098,242 sq km.

– According to the World Bank’s most recent ranking, in 2012 Russia’s economy (nominal GDP) stands as the 8^th largest economy in the world, with a GDP equalling $ 2,014,775 million.

– Russia is also one of the world’s most important energy power, as it is a major producer and exporter of oil and natural gas. Russia holds the largest natural gas reserves in the world and was the second-largest producer of natural gas in 2012 (second to the United States). Russia’s proven oil reserves were 80 billion barrels as of January 2013 (according to the Oil and Gas Journal).Most of Russia’s resources are located in Western Siberia, between the Ural Mountains and the Central Siberian Plateau and in the Volga-Urals region, extending into the Caspian Sea. Russia was the third-largest producer of liquid fuels in 2012, following the United States and Saudi Arabia.

– Russia as a regional power. It wants to ambitiously develop a new Regional Organization with its former Soviet partners as Kazakhstan and Belarus (starting from a 2010 Customs’ Union among Kazakhstan, Belarus and Russia which has already been transformed into a common economic space as of 2012) with the goal of creating by 2015 a Eurasian Union (for the moment other than these three countries, also Armenia and Kyrgyzstan are expected to join soon – by 2014-2015 – the regional integration process). This new reality has to be taken into account as it creates further opportunities for enhancing trade and economic relations and for economic and business operators.

Russia and EU economic relations

Bilateral economic relations, main figures:

– Russia is the third trading partner of the EU and the EU is the first trading partner of Russia. After a brief interruption between 2008-2009 (when the trend was interrupted by the economic crisis and unilateral measures adopted by Russia, which had a negative impact on EU-Russia trade), since 2010 mutual trade has resumed its growth reaching record levels in 2012. In particular, EU-Russia trade totalled €335.9 billion in 2012.

– EU exports to Russia are dominated by machinery and transport equipment, chemicals, medecines and agricultural products.

– EU imports from Russia are dominated by raw materials, in particular, oil (crude and refined) and gas. For these products, as well as for other important raw materials, Russia has committed in the WTO to freeze or reduce its export duties.

– Russia’s main EU partner countries. Among the EU28 Member States, Germany accounts for €37.9bn (31%) of EU exports representing by far the largest exporter to Russia in 2012, followed by Italy (€10 bn or 8%) and France (€9.1bn or 7%). Additionally, in 2012, the EU Member States exported €28.2bn of services to Russia, while imports amounted to €15.2bn, meaning that the EU had a surplus of €13bn in trade in services with Russia, compared with +9.8bn in 2010 and +9.6bn in 2011. In particular, Italy represents Russian fourth commercial partner (after China, Germany and Netherland). Indeed, in 2012 their bilateral trade relations accounted for €28.2bn of which €9.9bn of exports and €18.3bn of imports.

– The EU is also the most important investor in Russia. It is estimated that up to 75% of Foreign Direct Investment stocks in Russia come from EU Member States.

Energy relations.

Oil. The majority (79%) of Russia’s crude oil exports went to European countries in 2012 (including Eastern Europe), particularly Germany, Netherlands, and Poland

Why Russia and the EU need each other

– Relations between Russia and the EU are currently regulated by the Partnership and Cooperation Agreement in force since 1997, which establishes the political, economic and cultural framework for their relations. Furthermore, in 2005, in order to strengthen cooperation, Russia and the EU agreed to create Four Common Spaces that cover economic, freedom, security, justice, research and education issues and in the meantime in 2008 negotiations were launched to conclude a new enhanced Partnership and Cooperation Agreement (still ongoing). In particular, the Common Economic Space, if implemented, would establish a more open and integrated market between the EU and Russia, giving additional new opportunities to economic operators and reinforcing cooperation in the energy, transport, agriculture and environment sectors.

– Therefore, given the already strong bilateral ties existing between Russia and the EU (especially from an economic, trade and energy point of view), going on with the development of the Common Economic Space between Russia and EU (which seeks to establish an open and integrated market between the EU and Russia) is crucial as it is clear that such a partnership would offer important commercial and investment opportunities both to Russian and European economic players – since they could easily access to their respective markets and given the fact that they are already important economic partners (bilateral trade amounting in 2012 to €335.9 billion).

– In this regard, the prospect of bringing the EU and Russia closer together within a Common Economic Space fits within this scenario and confirms the fact that the EU and Russia should both continue to strategically work for the benefit of it. On the other hand, given Russia’s project of a Eurasian Union, the European Union should certainly also start to dialogue more intensively with the new Regional Organization Russia is building with its former Soviet partners as Kazakhstan and Belarus, at the moment (now Common economic space but with the goal of becoming a Eurasian Union by 2015). Hence, starting from further strengthening economic and trade ties with one another, would certainly open up a huge set of reciprocal opportunities. All this makes the continuing of a sustainable bilateral dialogue between EU and Russia of utmost importance.

Russia and EU ties in the aftermath of Ukrainian crisis

– The recent crisis in Ukraine could, on the one hand, have a negative impact on the bilateral economic relations between Russia and the EU, especially if the EU were to adopt a third set of sanctions with far reaching economic consequences (current sanctions adopted so far concern asset freezes and visa bans for a number of Russian officials). On the other, bilateral relations have suffered at the moment, due to the crisis, a temporary setback (EU Council recently decided to cancel the next EU-Russia Summit to be held on June 3, 2014 in Sochi). Nevertheless, these measures are temporary and this is why it is of utmost importance that the EU maintains an open dialogue with Russia in order to avoid any further hindrance to their partnership, which could lead to a gradual isolation of both economies from their respective partnership.

– But to do so, it is of utmost importance for the EU to act as a single actor and to speak with a single voice as well as understand that Russia is crucial in this process of agreements and “dependencies“. This is a concept which has been also clearly stated by the European Commission Vice President Tajani, on March 25, when he argued that it is legitimate for Europe to defend its ideals but that it would be a great mistake for Europe to close its dialogue with Russia, considering that “there are too many Russian investments in Europe, and too many European investments in Russia”.