Where is heading Putin’s Russia?

Angela Merkel, German Federal Chancellor and Vladimir Putin, President of Russia
attending the EU-Russia Summit

Russia is the third trading partner of the EU and the EU is the first trading partner of Russia. This simple fact tells the whole story, about the relations between the two largest economic volumes of the Old Continent. Not much of Europe is left outside the two heavyweights. Energy, food, machinery and equipment, raw materials, precious metals and every conceivable goods and services, plus huge investment flows and financial transactions constitute the constellation of the economic relations between the European Union and Russia. The EU is the most important investor in Russia. The EU Commission estimates that up to 75% of Foreign Direct Investments in Russia come from EU Member States.

Moscow cannot find another trade partner and long term investor in its doorstep, more trustworthy and affluent, with an insatiable thirst for energy imports, than the EU. For the European Union, Russia represents a huge market for its exportable goods and services, but of greater importance for Western Europe is the immense Russian universe of investment opportunities. The two, could make the world go round, but there are still some impediments like the American missiles and the Russian tendency for authoritarian governance.
Of the main European powers, Germany is the most prone to develop closer economic and political relations with Russia, followed by Austria, Italy and Greece. All those countries have actively supported the installation of the North and the South Russian Gas corridors, despite cries from Washington, to reduce the European dependence on Russian energy sources.

Russia and WTO

Last August Russia entered officially the World Trade Organisation, after of more that eighteen years of negotiations. “Today’s WTO accession is a major step for Russia’s further integration into the world economy”, said EU Trade Commissioner Karel De Gucht, on 22 August 2012. “It will facilitate investment and trade, help to accelerate the modernisation of the Russian economy and offer plenty of business opportunities for both Russian and European companies. I trust that Russia will meet the international trading rules and standards to which it has committed.”

Russia’s accession in the WTO was a major breakthrough for the relations with the EU. The idea is that trade is goods but investments are better. Simple exchanges in goods and services have no such a great need for protection from WTO rules as have investments. West European, mainly German aspirations about Russia go far beyond bilateral trade.

While the Anglo-Americans and to a much lesser degree the French, profited from the “Yeltsin open door policy” and bought their way cheaply into the Russian oil reserves, the Germans did not have this opportunity. Berlin could not promise advanced technology in oil drilling and development of crude sources. Germany however can undertake the upgrading of any other business in Russia, supplying both the needed ingredients, technology and capital. The adjacent geography of the two countries is an absolute advantage. Manufacturing and transports will be the strong asset of Germans.

As mentioned above however Russia has a traditional tendency of authoritarian governance. This reality presents serious impediments, mainly to foreign investments. The European Commission says in an announcement: “The WTO accession will have a positive impact on the conditions of trade and investment between Russia and the European Unio …. Of particular importance will be regulations on customs procedures, the use of health and sanitary measures, technical standards and the protection of intellectual property.

Russia will be subject to WTO rules in all these areas, including its monitoring and enforcement mechanisms. The EU, together with its international partners, is in contact with Russia to ensure that it respects these WTO commitments. Certain recently implemented or proposed legislation seems to be at odds with Russia’s commitments and would stand in the way of other WTO members fully realising the benefits expected from Russia’s WTO accession”.

Negotiating again WTO commitments?

In short, if Russia decides to apply a la cart  its commitments stemming from the WTO accession, the whole affair will be voided of any prospect. The question comes to what are the true aspirations of the ruling Russian elite, concerning its own future and the future of the Russian people in general?
If the Putin oligarchy chooses to protect primarily its own interests by barricading again Russia from the world, its relations with the West will return to the pre-WTO era. And the joint development potential of the EU-Russia duo will remain largely untouched.