Towards a New EU-Russia Agreement: Key Challenges Vienna Process, 6 th Meeting Vienna, February 27, 2013 Sergey Afontsev Institute for World Economy and International Relations EU-Russia Industrialists Round Table

Presentation Structure 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?

Kyrgyzstan  Potential (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

Tajikistan  Potential (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  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 New EU-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