Towards a NewEU-Russia Agreement:

Key Challenges

Towards a NewEU-Russia Agreement:

Key Challenges

Vienna Process, 6th MeetingVienna, February 27, 2013

Sergey AfontsevInstitute for World Economy and International RelationsEU-Russia Industrialists Round Table

Presentation Structure

1.

2. CU/CES Project

3. Business Perspective

Russia’s WTO Accession

WTO Accession: What About Exports?

Just to compare: Ruble appreciation in 2011 was roughly equivalent to a once-for-all drop in import duties by 4.7 percentage points.

WTO Accession: What About Imports?

CEFIR-TML-ZEW study using SUST-RUS computable general equilibrium model (2011): Industry Effects

WTO Accession: What About Output?

Substitution of tariff barriers with ‘compensatory measures’ (‘utilization fee’ on cars, bans on meat imports, etc.) to protect specific industries.

Despite moderate economic implications of the WTO accession, politicians insist on temporary moratorium on ‘WTO+’ deals.

Strong opposition to services liberalization (esp. financial services).

WTO Accession: Political Implications

Deep Integration: Customs Union / Common Economic Space (CU/CES). Russia, Belarus, Kazakhstan, anybody else?

Preferential Trade Arrangements: CIS Free Trade Agreement (CIS FTA). Signed by Russia, Belarus, Ukraine, Kazakhstan, Kyrgyzstan, Tajikistan, Armenia, and Moldova on October 18, 2011 (fuels & energy and metals are exempted). Operative since September 20, 2012 (Kazakhstan and Moldova fully join in December 2012, Tajikistan still pending).

Key Integration Projects in the CIS Area

CU/CES Trade Structure, 2011 (per cent)

CU/CES Project:Whither Economic Rationale?

Economic consequences of Ukraine’s accession, ‘optimistic estimate’ (Institute for Economic Forecasting, 2012).

CU/CES Project:Whither Enlargement?

KyrgyzstanPotential (but problematic) CU/CES candidate.

The only WTO member in the region with 5.1 per cent weighted tariff rate in 2011 (as compared with Russia’s 10.3 per

cent before and 7.1 per cent after the WTO accession).

Highly fragile political system with a nomadic-cycle April peak of political protest.

Drug production (esp. in Fergana valley) and trafficking.

Potential Integration Partners

TajikistanPotential (but highly problematic) CU/CES candidate with a tiny contribution to total CU/CES trade.

Highly fragile political system with civil war memories and risks of terrorist infiltration from Afghanistan .

Drug production and trafficking.

Potential Integration Partners

Despite dubious economic and political prospects, creation of Eurasian Economic Union is scheduled for January 2015.

Russia-EU FTA is postponed for indefinite future.

Kazakhstan’s WTO accession can change a lot (with much political struggle expected), but Belarus under Lukashenko is a political invariant poisoning prospects for EU-CU/CES cooperation.

CU/CES Project: Political Implications

Not the form (‘Basic Agreement’ or ‘Comprehensive Agreement’) but timing matters.

The New Agreement should target bilateral issues and rely on ‘Russia first’ principle in dealing with issues delegated to the CU/CES level.

Problem- and field-oriented agreements should be signed wherever/whenever possible.

Interest-based approach should dominate value-based one (business needs rules and projects, not disputes over gay/lesbian rights).

Business Perspective on the NewEU-Russia Agreement

Development of a unified legal framework for commercialization of innovations (including simplification of the cooperation regime in dual-use technologies)

Accelerated convergence of technical standards and regulations, with the special emphasis on high-tech products and markets

Strengthening property rights protection and the convergence of the respective legal norms used in Russia and the EU

Exempting cross-border trade operations with goods under technology transfer projects from customs duties, and improving custom clearance procedures

Promoting joint R&D projects, including those implemented by Russian and European companies in cooperation with scientific and educational institutions.

EU-Russia Industrialists’ Roundtable: Toward a Common Technology Market

Given the fact that the leadership of both Russia and the EU prioritize the development of high-tech industries, technological cooperation is the most promising area where regulatory rules can be successfully harmonized during the next few years.

Negotiations on Common EU-Russia Technology Market can work as a success story paving way for broader regulatory cooperation to move from field-oriented (sectoral) agreements to the New EU-Russia Agreement.

EU-Russia Industrialists’ Roundtable: Toward a Common Technology Market