Frosty climate for Russian talks

Date: 20/11/1997

By Chris Johnstone and Mark Turner

IT IS somewhat ominous that trade tensions are likely to dominate the first cooperation council between Russia and the EU, due to be held next month.

What should have been a happy occasion, celebrating the 1 December entry into force of an EU-Russia partnership and cooperation agreement (PCA), could well be soured by fights over steel pipes, trans-Siberian overflights and even EU enlargement.

"The first session must have a significant agenda," stressed a spokesman for Russia's mission to the Union. "We wish to discuss more than a dozen anti-dumping procedures, and the impact of the EU's forthcoming enlargement."

Furthermore, neither side can even agree on a date for the meeting, which was originally scheduled for early December.

Russian diplomats are still fuming over the European Commission's recent decision to recommend imposing anti-dumping duties of around 30% on one of the country's few export earners - steel pipes and tubes - and Foreign Minister Yvgeny Primakov is unlikely to back down gracefully when he comes to Brussels.

"Companies will not be able to export a single tonne with duties like that," said one diplomat, who said Moscow was especially angry given the lengths to which it and the country's six main producers had gone to meet Commission demands.

He said Russia had offered to reduce the volume of exports and align prices with those in the Union, and to channel all of its EU sales through new subsidiaries within the Union.

That would have allowed EU officials to check that price and volume promises were met, and would have also cleverly side-stepped a constitutional and International Monetary Fund ban on Moscow imposing new restrictions on exports and imports.

But when the Commission insisted that the Russian government itself give guarantees that it would underwrite the remedies, the deal fell through - resulting in the high-profile fall-out.

At the heart of the dispute is the EU's continued insistence that Russia is not a full market economy. Although Moscow has privatised large swathes of its economy, it feels that it is still held responsible for all Russian commerce.

The Commission replies that it is perfectly willing to listen to any legitimate appeals, and has withdrawn anti-dumping duties in the past.

In recent months, Comm-ission officials have met a number of industrial leaders to explain how the rules work and are trying to instil a new legalistic corporate approach in the country.

"It is a matter of culture," said one expert. "The Chinese, for example, are extremely effective at contesting our decisions on legal grounds. We must encourage Russians to use the same methods."

But until the Kremlin signs up to World Trade Organisation (WTO) rules, and therefore becomes a 'market economy', EU-Russia disputes will almost inevitably continue to crop up regularly and may well start to undermine relations on a permanent basis.

Union officials claim that the existence of a PCA with Russia - first signed in 1994 - is a major step in the right direction, however, paving the way for freer trade and providing a forum where both sides can air their grievances.

The Union will, for example, use the PCA to raise complaints about high Russian charges for aeroplanes crossing Siberia, restrictions on lorries entering the country from Finland, and Russia's lack of a stable investment climate.

Most importantly, say officials, the agreement will help tackle the root causes of many disputes by approximating legislation and setting down rules on, for example, intellectual property, competition and energy.

The December cooperation council will try to lay down a 'road map' for the next year and debate joint approaches to organised crime and customs.

The trouble is that whatever commercial mechanisms are established, the political relationship between the EU and Russia remains on very shaky ground.

Moscow retains a profound contempt for Union officials, as clearly demonstrated by Prime Minister Victor Chernomyrdin during a recent visit to Brussels, and appears unwilling to accept the principle of European integration.

Until the EU finds a louder voice in world fora such as the United Nations, that seems unlikely to change. "Russia sharply brings home to us the failings of the European Union," said one Commission expert.