Toespraak van Peter Mandelson over Rusland en WTO

SPEECH/07/192

Peter Mandelson

EU Trade Commissioner

Russia, its future and the WTO

Joint Event Association of European Business (AEB) and the Russian Confederation of Business Industries (RSPP)

Moscow, 27 March 2007

EU Trade Commissioner Peter Mandelson calls on Russia to renew its commitment to a strong trading relationship with the EU and membership of the WTO and to ensure that trade is not treated as a "political commodity". Speaking to an audience in Moscow on 27 March 2007, Mandelson argues that Russia's long-term economic interests can only be safeguarded by moving beyond a dependence on commodity trade, greater diversification and transparent conditions for trade and investment. WTO membership for Russia he says is "not about pleasing international opinion, but the pursuit of its own economic interests". He argues that the voices calling for "Russian isolationism can only lead Russia in the wrong direction". Mandelson concludes: "President Putin has overseen significant achievements and brought Russia to the threshold of full integration into the global economy. Now it is time to take the final steps".

Mandelson argues that while Russia has made strong economic progress under President Putin, it remains economically vulnerable to swings in commodity and energy prices: "82% of Russia's exports are related to hydrocarbons and metals. Although no one is predicting a drop in oil and gas prices in the short term, no one predicted the current hike either. And the risk, therefore, is of a false sense of security, especially if high energy prices are not so much the economic icing on the cake as a large part of the cake itself... If self-assurance were to turn into over-confidence, it would risk becoming a brake on reform, or worse, a rationale for turning away from the huge sustained effort Russia needs to make to diversify and integrate fully into the global economy."

Mandelson argues that WTO membership remained a vital step in diversifying the Russian economy and attracting new trade and investment: "It is true that the new Russian economy was built without the advantages of WTO membership. But that's an economic picture of the status quo. If Russia's only ambition is to be a hydrocarbon power, then it probably doesn't need the WTO. But Russians want more for their country".

Mandelson argues that after 14 years of accession it was "not the time for Russia to despair of the journey and lose faith". He says that WTO membership would impose new obligations: "The WTO is not like the UN or the G8 - it's not simply about statehood or size. It is a contract based on commercial terms, creating legal obligations to openness and a commitment to transparent and proportionate regulation of trade. But he insisted that it would be "hugely shortsighted to see trade rules as simply binding Russia without benefiting her too".

Mandelson notes: "Russia is not just the largest economy outside of the WTO, it is the only large economy still outside of the WTO. Every other major emerging economy has chosen the economic benefits and international standing that comes with WTO membership, over the deceptive autonomy of standing apart".

Mandelson argues that WTO membership would give the EU and Russia an important framework for controlling the politicisation of trade disputes. "Recent and current frictions in EU - Russia trade show the importance of de-escalating disputes. Trade should never be treated as a political commodity by either side".

To commemorate the 50th anniversary of the European Union, President Putin wrote over the weekend: "Today, building a sovereign democratic state, we share the values and principles of the vast majority of Europeans". He went on: "a stable, prosperous and united Europe is in our interest. Europe's integration is an integral part of the emerging multi-polar world".

Many reading these words in the European Union will be heartened by the fact that, in Mr Putin's view, Russia and Europe share a similar vision and outlook. When he goes on to say "the development of multifaceted ties with the EU is Russia's principled choice", he makes clear his desire to anchor Russia's and the EU's fortunes in an inter-dependent and mutually beneficial partnership.

This, too, is the preference of the European Commission which, from Brussels, plays a central role in the day to day running of the EU. We are both the custodians of much of the EU-Russia partnership and the body dealing with its inevitable periodic irritants. The more the Commission acts in concert with the Russian government, the easier we will find it to overcome the irritants and focus on our shared long term goals. The European Commission and the Russian government, therefore, need to know each other better and work even more closely.

I reject the caricature that says that the EU-Russia relationship is driven by pragmatism on the Russian side and idealism on the European. That Europe wants a relationship driven by values and Russia wants one driven by interests. Both sides want a partnership of values. Both sides want that partnership to preserve and reflect their core interests. But there are differences in approach and emphasis, and there will be plenty of debate.

The EU-Russia relationship tells us a lot about the EU's need to adapt to the global age in which we now live. Using Europe's combined, continental strength to deal with global challenges is key to the EU's role in the 21st century. It certainly tests our unity. And it causes the EU - Russia relationship to grow more complex. Yet Europe has been a strong partner in reform and a friend at every stage of Russia's transition since 1991.

It's in that spirit today that I have a fairly simple point to make, and I think it is the right time to make it.

You often hear voices in Russia arguing that Russia doesn't need the EU, that the country is growing well enough by itself, the investment climate is fine, the oil and gas cushion a sufficient insurance against downturn, and that Russia has no need to be "exploited" by European companies. I want to explain today why I believe those voices are mistaken, and why their picture of what we might call Russian isolationism can only lead Russia in the wrong direction.

Russia's new economic strength

How should we view Russia's economic evolution?

Russia has endured a decade and a half of tumultuous change. Clearly, the legacy of the soviet economy could not be discarded overnight. The task of building democratic institutions and a market economy is so enormous that it is the work of a generation, not a decade. The politics of the moment, encouraged I should add by the West, also dictated that the reforms be implemented in haste. Inevitably, some mistakes were made, and the record is one of advances and reversals. I think we would all accept that the period of the early liberalisation in the 1990s needs some repair.

At the same time on the economic side Russia has entered a phase of strong growth. Following the rouble devaluation a process of economic reform and fiscal belt-tightening has started to show results. Russia is doing well thanks to high energy prices, which has enabled it to take away the sting of reform and strengthen public finances.

But there is an inherent risk if 40% of GDP is tied to a mineral resource with a volatile international price. 82% of Russia's exports are related to hydrocarbons and metals. Although no one is predicting a drop in oil and gas prices in the short term, no one predicted the current hike either. And the risk, therefore, is of a false sense of security, especially if high energy prices are not so much the economic icing on the cake as a large part of the cake itself.

Clearly, Russia's economy needs to diversify much more - only 20% of its GDP is tied to small and medium sized businesses. They are the building blocks of developed economies and in Europe account for more than 60% of GDP.

This underdevelopment suggests that confidence in Russia's growing strength needs to be balanced with the recognition that this performance masks significant vulnerabilities. If self-assurance were to turn into over-confidence, it would risk becoming a brake on reform, or worse, a rationale for turning away from the huge sustained effort Russia needs to make to diversify and integrate fully into the global economy.

Russia taking its place in the multilateral economic system is not about pleasing international opinion, but the pursuit of its own economic interests. In the case of the WTO, Russia requires this platform from which to branch out and develop its global trade strategy.

Russia has the human resources, technical capacities and scientific tradition to shift towards an advanced modern economy - where knowledge and services determine your ability to compete.

I believe the Russian government is driving towards this goal and, if I may suggest, could focus on three key elements to capitalise on its strengths.

The first is the role of the state, and whether it is a guiding hand or a dead hand in the country's economic advance. This starts with strong and impartial institutions - including the judiciary - investment in education, and the development of a modern regulatory system.

The Russian government clearly wants more state-controlled companies to lead projects in core industrial sectors. That is its prerogative. But it also needs clear rules for its strategic partners to rely on, without which it will be much harder to open up the economy and attract foreign investment and know how.

Second, how state and private sector action can be combined to promote research and development in Russia. This depends on many factors: the quality of the workforce, the predictability of regulations, the level and complexity of the tax burden. But on a par with all of these must be the effective enforcement of property rights, including in the field of intellectual property, which are a prerequisite to capture the culture of innovation you seek to develop.

The importance of WTO accession

The third key element in Russia's advance is trade and WTO accession. Russia started negotiating its accession to the GATT 14 years ago - even before the WTO was created.

This process has taken too long and should have been completed by the end of 2005. There have been further bumps in the road since then, some avoidable, some not.

But it is not the time for Russia to despair of the journey and lose faith. Russia and the WTO need each other.

It is true that the new Russian economy was built without the advantages of WTO membership. And that Russia still exports mostly commodities, which are barely taxed when exported to most economies.

But that's an economic picture of the status quo - which, I would argue, is not sustainable. If Russia's only ambition is to be a hydrocarbon power, then it probably doesn't need the WTO. But Russians want more for their country, as they are entitled to. The argument for Russia's place in the WTO is about making a choice. WTO membership is the minimum investment to integrate in the global economy, in rules and openness. It's a guarantee of open markets for the goods and services you export, including steel, chemicals, fertiliser, spirits, and much more later

The argument for Russia's place in the WTO is about making a choice. WTO membership is the minimum investment to integrate in the global economy, in rules and openness. It's a guarantee of open markets for the goods and services you export, including steel, chemicals, fertiliser, spirits, and much more later.

It means cheaper inputs for your companies and lower prices for your consumers to stimulate Russia's consumer demand growth.

It's the bottom line for more risk-averse investment capital outside the energy sector - the guarantee that gives others the confidence to sell in your market.

This is how an economy starts diversifying. And it is especially important for the growth of services which are the essential backbone of any modern economy.

It's a bit like the quality label on a product: perhaps you would buy it without the label - but perhaps you wouldn't. And in a highly competitive global economy, it's easy enough to take your business elsewhere.

As President Putin has said "countries compete in the attractiveness of their business climate, development of economic freedoms, quality of state institutions and effectiveness of the court and legal system". WTO membership reflects all these things. It's harder to make a case for any of these things in an economy that has chosen to put itself outside the multilateral trading system.

WTO membership is also an anchor for domestic reforms. It would be a barrier for anybody trying to revoke Russia's achievements and take its economy backwards. It will give Russia a seat at the negotiating table when global trade rules are developed further.

Russia is not just the largest economy outside of the WTO, it is the only large economy still outside of the WTO. Every other major emerging economy - China, India, Brazil, South Africa - has chosen the economic benefits and international standing that comes with WTO membership, over the deceptive autonomy of standing apart.

Accepting the constraints, reaping the benefits

But WTO membership does bring rules and constraints - that is also true. The WTO is not like the UN or the G8 - it's not simply about statehood or size. It is a contract based on commercial terms, creating legal obligations to openness and a commitment to transparent and proportionate regulation of trade.

In trade terms, WTO exchanges the battlefield for the negotiating table, providing machinery for settling disputes without politicization and contamination of the wider inter-state relationship.

Recent and current frictions in EU - Russia trade show the importance of de-escalating disputes. Trade should never be treated as a political commodity by either side and should not give the impression of being used in such a way.

So my message for those who think Russia doesn't need the WTO is pretty simple. It would be hugely shortsighted to see trade rules as simply binding Russia without benefiting her too.

I fully accept that WTO members should respect the difficult transition of the last decade and the distance Russia still has to travel.

After the uneven success of the Yeltsin reforms, the administration of President Putin has overseen significant achievements and brought Russia to the threshold of full integration into the global economy. Now it is time to take the final steps.

There is no commercial or political argument I can think of that favours further delay in WTO membership. On the contrary, the longer Russia waits, the greater the risk that one or other trading partner will want to prolong negotiations, or that the domestic constituency in favour of open trade loses hope and influence. I very much hope that President Putin finishes what he started and enables Russia to reap the benefits of the seeds he has sown.

WTO membership is also a stepping stone for the further development of our bilateral relations, on which Minister Gref and I are reflecting. That will cement an even stronger investment relationship allowing Russia's ever more successful companies to expand further into the EU, and vice versa.

Conclusion

As Russia's neighbour and biggest trading partner - the market for more than half your exports - the European Union has an important role to play in being a constructive ally of reform in Russia. We need a single clear Russia policy based on our common interests, not multiple Russia policies based on the mistrusts of the past.

Near the top of any list of those shared interests should be a stable open trading relationship that benefits both sides. That is why we want to use the Partnership and Cooperation negotiations to deepen our trade and investment ties. These will start with seeing Russia in the WTO. So, in my view, does the next chapter in Russia's economic and political history.