EU-Russia trade relations and the importance of the WTO membership

The European Union and Russia have a strong trade relationship. Bilateral trade and investments continue to grow rapidly. Since 1997 the Partnership and Cooperation Agreement has been the framework of the EU-Russia relations, regulating the political and economic relations between the EU and Russia. One of the main objectives of this agreement is the promotion of trade and investment as well as the development of harmonious economic relations between the EU and Russia. EU imports from Russia are, however, to a very large extent not subject to any restrictions.

The recent WTO accession of Russia will prevent Russia from adopting unilateral tariff hikes as has been the case in the past. The new EU-Russia Agreement - currently under negotiation - should provide a comprehensive framework for bilateral relations with stable, predictable and balanced rules for bilateral trade and investment relations. It will focus on improving the regulatory environment by building upon the WTO rules and strengthen bilateral trade relations. The EU was a strong supporter of Russia's WTO membership since the start of the process to the actual accession on 22 August 2012.

Russia's WTO membership will gives a major boost to further development of the economic relationship between the EU and Russia. Slide 5 Russia is the third trading partner of the EU and the EU the first trading partner of Russia. Trade between the two economies showed steep growth rates until mid-2008 when the trend was interrupted by the economic crisis and unilateral measures adopted by Russia that affected EU-Russia trade. Since 2010 mutual trade has resumed its growth reaching record levels in 2011. EU exports to Russia are dominated by cars, medicines, car parts, telephones and parts and tractors.

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EU imports from Russia are dominated by raw materials, in particular, oil (crude and refined) and gas. For these products, as well as for other important raw materials, Russia has committed to freeze or reduce its export duties. The EU is the most important investor in the Russia. It is estimated that up to 75% of Foreign Direct Investment stocks in Russia come from EU Member States.

Directions:

1. Energy sector
2. Human resources
3.  FDI
4. Technologies Slide 7-8 Russia and the EU still disagree primarily over the issues surrounding the energy sector.

Russia is the most important supplier to the EU not only in gas and oil, but also of coal and uranium. Its oil and gas exports account for around two thirds of overall export earnings and revenues from this sector, and this contributes to over forty percent of the federal budget income. On the other hand, the EU is a major buyer of energy products what makes the EU over-dependent on Russian oil and gas, which undermines the EU’s political confidence. This anxiety is a result of Russia’s efforts to use this insecurity not only for economic objectives, but also for political purposes what give a rise to concern about future supply.

The energy partnership within the EU-Russia Energy Dialogue  aims at improving the investment opportunities in the energy sector to ensure continued energy production, to secure and expand transportation infrastructure as well as to reduce the environmental impact. Other important objectives are to encourage the opening up of energy markets, to facilitate the market penetration of more environmentally friendly technologies and energy resources, and to promote energy efficiency and energy savings on the way to a low-carbon economy.

A well-educated but cheap labour force – could provide Europe with an important boost to its competitiveness as a complex global economy emerges. Russia offers access to a skilled and well-educated human resource pool, letting companies recruit where they work. Russia has one of the most highly skilled workforces in the world, backed by an educational system with a solid global reputation and producing professionals who take up leading positions in areas such as natural and pplied sciences, programming, R&D, engineering, etc. (7th in the world with 75 million workers, 99. 4% literacy rate, 41 Russian Nobel laureates) The government has begun implementing a program aimed at finding tomorrow’s leaders and providing priority support to them.

Why? 2. One of the Largest Consumer Markets 3. World-Renowned Human Capital Vast Natural Resources Unique Geographic Position Technologically Advanced Economy Attractive Taxation System Extensive Government Support Stable Social and Political System

Russia has a relatively small share of the EU’s total external FDI, at 4%,but this is actually significantly more than China’s. Despite that, the EU is by far the largest investor in the Russian economy. On the other hand, it seems that a significant part of the FI inflows, and also of the recent increase, may be Russian capital repatriated from abroad. Services have received between 50% and 60% of the total FI. Among the other sectors, natural resources and manufacturing attract roughly comparable amounts of FI (and close to their weights in Russia's GDP).

But… •…the share of the energy sector is larger in FDI (i. e. , without Portfolio and “Other Investments”). The share of the energy sector in the FDI inflows in the period 1Q-3Q 2007 seems to have been nearly 2/3 of the total. •EU MS seem to be among the largest investors in virtually allthe sectors of the Russian economy. In other terms, Russia performance is not as bad as one might expect, which is not to say that there are not areas for improvement. There are, and one such one is the legal framework .

European Union accounts for 4/5 of the accumulated direct investment in Russia, and the amount of capital investment in absolute terms has grown significantly over the past few years European busi-ness community rated Russia third, while neither Asian nor North American investors included it even in the top dozen   According to the calculations done by the Institute of World Economy and International Relations, the burgeoning Russian trans-national companies, despite their global inter-ests, have nevertheless concentrated 2/5 of their long-term foreign assets in the EU   According to the new long-term forecast of the Institute of World Economy and International Relations, the share of the EU-27 in the world’s GDP (calculated by the par index of the purchasing power of currencies) will go down from 21% in 2005 to 16% in 2020 . This means that Russia’s more forward-looking markets will be not its traditional European partners but China and other large developing countries.  Strong Russian scientific knowledge provides excellent opportunities for R;D partnerships with Russian research institutes and universities.

While Russia possesses some of the largest oil and gas reserves in the world, some of them have become harder to recover. This is a great opportunity to introduce innovative technologies to develop new gas and oilfields. Additionally, critical technological areas are eligible for government co-financing on a competitive basis to facilitate research and development of innovative capabilities and leading technologies in:

•  Aerospace
•  Aviation
•  Shipbuilding
•  Automotive
•  Machinery
• Metallurgy
•  Construction
•  Chemistry and pharmaceuticals
•  Nuclear physics
• And many more.

Interesting fact: Russia leads the world in the number of annual spacecraft launches.

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