Russia and EU: scenarios for the future

1. Russia and EU: scenarios for the future Institute of World Economy and International Relations (IMEMO) Prof. Alexander A.Dynkin

2. Russia is an important partner for the EU Russia is a growing market for goods from the EU Growth of Russian direct investments in the EU (excluding Cyprus) • Russia doesn’t give up high share of euro in foreign-exchange reserves (more 40%) • Russia builds pipelines to the EU suggesting the future growth of the EU’s economy • (though it might switch over to other countries and home market) • Russia still insists on speedily abolition of short-term visas to Schengen area that will lead to the growth of tourism to the EU.

3. Exports from the EU to Russia (2006-2012), million euro Imports from Russia to the EU (2006-2012), million euro

4. IMEMO Forecast GDP, 2009 PPP bln USD GDP, 2009 current USD, bln USA EU China Russia Source: «Strategic Global Forecast to 2030», IMEMO, 2011 4

5. Perception of the same facts may be optimistic or pessimistic depending on what we want to demonstrate. For example, the decline of Russian’s share in EU’s import of natural gas can be interpreted in different ways. Russia loses its leadership in EU gas imports Despite the crises Russia is still the leader

6. World Oil and GasProduction and Import Oil Gas Source: BP Statistical Review of World Energy 2013

7. Core areas of cooperation between Russia and the EU Commodity trade Investments in technologies Energy cooperation Humanitarian contacts (tourism, science, culture, etc.) However, there are both optimistic and pessimistic scenarios in each area

8. Commodity trade Optimistic scenario: EU + Eurasian Union Free trade agreement after Russian adaptation to WTO’s accession Road map to the common Eurasian economic area Pessimistic scenario: EU’s expansion in Ukraine and Belarus Trade wars between Russia and other European countries New non-tariff trade borders across Europe

9. Detailed elaboration of WTO’s norms in mutual Russia-EU trade Customs administration and customs procedures(unification of forms and rules of the authorized operators, “one window” principle for submission of papers, “one customs”principle on the border) Sanitary and phytosanitarymeasures (an exchange of information, unification of forms, a mutual recognition of documents)Technical regulation (joint development and acceptance of new rules and standards for products of biotechnology and some other new industries, gradual unification of operating rules and procedures)Special protective, anti-dumping and compensatory measures(unification of procedures: regulation of consultations, initiating an anti-dumping duty investigations, granting of proofs, definition of damage, regulation of responding to anti-dumping investigations, etc.)

10. Investments in technologies Optimistic scenario: Competitive EU-Russian global value chains Modernization of Russian economy Growth of efficiency and sustainability in the EU’s and Russian economies Pessimistic scenario: Only market-seeking and resource-seeking EU’s direct investments in Russia Investment protectionism against Russian high-tech MNEs in the EU

11. Distribution of foreign assets of 20 top Russian non-financial transnational corporations by regions (USD billion, end of 2011) The share of the EU is 39% (1st place). Main assets are in Italy, Germany, Bulgaria, etc. The share of the CIS is 28% (2nd place), but more than 1/3of this volume is in Ukraine. The share of the US and Canada is 17% while the share of Sub-Sahara Africa is 6%. The share of China, Mongolia and Vietnam is 4%.

12. Russia 1989 123 2152 17023 China 3724 France 769 Direct investment, stock, 2012 mln USD Source: Bank of Russia, 2013. China Statistical Yearbook 2013.

13. Russia supplies 31 percent of EU gas imports, • 27 percent of crude oil imports, • 24 percent of EU coal imports, • 30 percent of total EU uranium imports • The EU is the market for 88 percent of Russia’s oil exports, • 70 percent of its gas exports, • 50 percent of its coal exports Current Russia-EU energy ties Significant investment cooperation in the energy field

14. Energy cooperation Optimistic scenario: Current achievements will produce a solid base for new fields of cooperation under EU/Russia Roadmap for Energy Cooperation until 2050 (signed in March 2013) • Energy efficiency • Renewables • Remote oil and gas fields exploration • Investments in LNG-projects Pessimistic scenario: Key challenges for cooperation will weigh down all opportunities Different goals for the energy markets will lead to extreme politicization of energy issues by both sides The lack of legal basis for Russian long-term investment projects

15. Humanitarian contacts Optimistic scenario: Common Eurasian higher educational and scientific areas and Pan-European touristic boom Various cultural contacts as a base for strategic political and economic EU-Russia partnership Pessimistic scenario: Visa regime against Russia and the growth of xenophobia in the EU Significant decrease of the EU’s global competitiveness; Crisis of multiculturalism

16. The importance of cooperation between Russian and French specialists in international relations Scholars can produce more positive agenda of cooperation in comparison to politicians Cooperation between scholars can overcome many stereotypes in EU-Russian relations Joint policy reports will have more influence on EU and Russian officials