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European Foreign Affairs Review Volume 14 Issue  August 2009













Electronic copy available at: http://ssrn.com/abstract=1425768

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Electronic copy available at: http://ssrn.com/abstract=1425768

European Foreign Affairs Review 14: 337–366, 2009. © 2009 Kluwer Law International BV.

The EU and Russia as Energy Trading Partners: Friends or Foes? RAFAEL LEAL-ARCAS*

Abstract. This paper examines the potential of a trade partnership of the EC with Russia. In doing so, it emphasizes the interaction between politics and international economic law and policy from an empirical perspective. It argues that the EC’s objective of engaging with Russia on trade matters is to establish peace, security, and prosperity in the twenty-first century, and looks at Russia’s rise as an energy power, analysing its control of supplies and delivery systems and its investments in energy infrastructure across the EU, as well as questions about the potential of its production. The paper also examines the EU’s difficulties in forging a common policy on energy supply and recommends a strategy of both integration and diversification, arguing that the EU seek new sources of energy from non-Russian suppliers. The paper concludes with some recommendations on how the EU and Russia should move forward in the energy field.

I Introduction January 2009 brought a stark reminder of the perils of EU dependence on Russian natural gas. A cutoff of supplies connected in part to a pricing dispute between Russia and Ukraine, the crucial transit country for much of Russia’s gas, left millions of Europeans without heat and forced factories to close. The crisis not only underscored the challenges of managing European relations with Russia, a country whose geopolitical reach rises and falls to some extent with the price of oil and gas. It also highlighted the difficulty for the EU to break its dependence on a single energy supplier – one whose willingness and ability to provide sufficient gas over time is uncertain. This paper aims at understanding the potential of a trade partnership of the EC1 with Russia. In doing so, it emphasizes the interaction between politics * Senior Lecturer in International Economic Law & European Union Law, and Deputy Director of Graduate Studies, Queen Mary, University of London, UK; 2008–2009 Visiting Scholar at Georgetown University Law Center (Visiting Fellow at its Institute of International Economic Law); 2008–2009 Tillar House Resident Fellow, American Society of International Law. Dr Leal-Arcas is the author of Theory and Practice of EC External Trade Law and Policy (London: Cameron May, 2008). 1 The existence of the EU came much later. The EC was created by the Treaty of Rome in 1957, whereas the EU was created by the Maastricht Treaty on European Union in 1992. Currently, the entities co-exist. Although this paper is mainly about EC law (given the nature of the topic), it is important to note that the EC is now part of the more encompassing EU and therefore I may use the term EU when referring to that more encompassing framework. For a legal distinction between the EC and the EU, see R. Leal-Arcas, Theory and Practice of EC External Trade Law and Policy (London: Cameron May, 2008), chapter 2.

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and international economic law and policy from an empirical perspective. Although the power base of Russia is Eastern Europe, there may be specific policy areas in which its influence might be global. With this in mind, the paper raises the following questions: Is the European Community an attractive trade partner for Russia? Does the EU want cooperation with Russia? What can the EU expect from cooperation with Russia? What are the EC’s priorities in its foreign trade policy? With which instruments can the EU engage Russia and how can EU internal coordination be ensured? The paper argues that the EC’s objective of engaging with Russia on trade matters is to establish peace, security,2 and prosperity in the twentyfirst century. Trade creates economic ties and generates more wealth; thus it contributes to peace and security, since nations that trade with each other do not go to war.3 An example is the EU integration project. The paper is divided into five parts: after the introduction in section I, the paper presents an analysis of bilateralism in today’s multipolar world in section II. Then section III examines the advantages and disadvantages of free trade agreements as a way to enhance international trade globally. Section IV follows with an examination of the EC–Russia energy trading relations. This Section looks at Russia’s rise as an energy power, analyzing its control of supplies and delivery systems and its investments in energy infrastructure across the EU,4 as well as questions about the potential of its production. This section also examines the EU’s difficulties in forging a common policy on energy supply and recommends a strategy of both integration and diversification. It recommends that the EU seek new sources of energy from non-Russian suppliers. The conclusion in Section V presents some recommendations on how the EU and Russia should move forward in the energy field. II Bilateralism as a Legal Instrument5 The set of laws which we recognize as classical international law arose out of the 1648 Treaty of Westphalia,6 even if there have been formal 2 For an analysis of security in the global context, see A. Hurrell, On Global Order. Power, Values, and the Constitution of International Society (Oxford University Press, 2007), chapter 7. 3 For arguments on the correlation between trade and peace, see D. Sobek, The Causes of War (Polity, 2009), pp. 107–127. 4 On this point, see N. Fiedziuk, ‘The Interplay between Objectives of the European Union’s Energy Policy: The Case of State Funding of Energy Infrastructure,’ TILEC Discussion Paper, No. 2009-011, April 2009. 5 See generally (eds), Bilateral and Regional Trade Agreements: Case Studies (Cambridge University Press, Cambridge, 2009); S. Lester and B. Mercurio (eds) Bilateral and Regional Trade Agreements: Commentary and Analysis (Cambridge University Press, 2009). 6 For an easily readable and concise run through the development of the law of nations throughout history, see John W. Head, ‘Supranational Law: How the Move toward Multilateral

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legal frameworks guiding the relations between societies since the earliest history of civilizations.7 The Westphalian Peace established a balance of powers8 in Europe based on a territorial division of powers between various Sovereigns. The Treaty’s clear, vertical grant of sovereignty to each state overlay a (geographically identical) horizontal division of jurisdiction. Thus, each Sovereign had the right to determine the religious policies of the lands under his authority without interference from other rulers. The sovereignty acknowledged by the Treaty of Westphalia did not prevent contacts (whether diplomatic or commercial) across borders, but it made mutual consent for such contacts a legal prerequisite. These legal prerequisites took the form of bilateral (or plurilateral) treaties between governments. Traditional views of international law maintain the essentially bilateralist view set forth in the late 18th century by de Vattel‘s Le Droit des Gens ou Principes de la Loi Naturelle: states, as sovereigns, are bound and limited in their actions only by those rules to which they themselves have agreed to be bound and limited (explicitly in the case of treaties,9 explicitly or implicitly with regard to customary law10). The consent-assumption of bilateralism is in turn based on the concept of legal equality of states – factual inequalities play no role. Obligations owed by and to states are therefore unidimensional and, importantly, discrete as well as specific to treaty partners. Therefore, unilateral actions in a bilateralist world would always be a legitimate response to a violation of the acting state’s rights.11 Solutions is Changing the Character of “International” Law’ (1994) 42 Kansas L. Rev. 605, 607–620; Jianming Shen, ‘The Relativity and Historical Perspective of the Golden Age of International Law’ (2000) 6 Int’l Leg. Theory 15 (focusing on the contributions of the major scholars of the three main eras of international legal development: the beginnings, lasting until the Peace of Westphalia; the enlightenment/growth phase, continuing until the end of the Napoleonic Wars; and the golden age of the post 1815-XIX century). Martti Koskenniemi describes the more recent history of international legal thought in the published version of his contribution to the Hersch Lauterpacht Memorial Lectures. See Martti Koskenniemi, The Gentle Civilizer of Nations: The Rise and Fall of International Law 1870–1960 (Cambridge University Press, Cambridge, 2002). Koskenniemi contradicts conventional belief in his assertion that the rise of truly modern conceptions of international law did not arise until the latter half of the XIX century (rather than after 1648). Id. at 4; see generally id. at 11–178. 7 For an overview on the developments in international law, see R. Miller and R. Bratspies (eds), Progress in International Law(Martinus Nijhoff, 2008). 8 For an account of the new balance of power in the world, see S. Brooks and W. Wohlforth, World Out of Balance: International Relations and the Challenge of American Primacy (Princeton University Press, 2008). 9 See Emer de Vattel, Le Droit des Gens ou Principes de la Loi Naturelle Appliqués à la Conduite et aux Affaires des Nations et des Souverains, Préliminaires, para. 24 (1758) (translation into German by Wilhelm Euler and Paul Guggenheim, Tübingen: J.C.B. Mohr (Paul Siebeck), 1959). 10 Ibid. at para. 25. 11 This view continues to be promoted. For example, in the report by the International Law Commission’s Special Rapporteur on Unilateral Acts of States, discussing comments by state

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While the results of bilateralism include a relatively clear set of international legal rules and a necessary adherence to the (instinctively pleasing) principle of reciprocity, other results are less desirable. First, despite bilateralism’s emphasis on the notion of states’ legal equality, as Simma points out, ‘bilateralism unveils, and even endorses, the crucial dependence of the enforceability of a State’s international legal rights upon a favourable distribution of factual power.’12 Due to the ‘inherently unequal’ nature of bilateralism, the enforceability of the ‘weaker’ state’s legal rights cannot be considered assured.13 Moreover, bilateralism permits states to be internationally ‘morally uncommitted’,14 even if they are not so domestically. States in a bilateralist system are, according to Philip Allott, able to tolerate ‘oppression and starvation and disease and poverty, human cruelty and suffering, human misery and human indignity, of kinds, and on a scale, that they could not tolerate within their internal societies.’15 The full competence to address internal affairs also leaves the states the freedom to ignore problems external to their territory. In the case of bilateral trade relations between the EC and Russia, what can the EC offer Russia to foster trust, a sense of cooperation and respectfulness, as well as a better multipolar16 framework of global economic governance?17 The EC can offer a large market, while the Russian market is of smaller economic relevance. However, there seems to be a direct conflict of interests as well as pressure on the European Commission’s Directorate-General for external trade not to be too altruistic. And how will the EU manage the new phenomenon of moving from a global economic equilibrium, dominated principally by the EU and the USA, to a new trend in which we have new voices and centers of gravity in the world economy? As a major ‘old’ economic power, the EU should also refrain from patronizing Russia. The following quotation illustrates this point from a Russian perspective:

12 Bruno Simma, ‘From Bilateralism to Community Interest in International Law,’ 1994: VI Rec. des Cours, 217–384, 233 (Martinus Nijhoff Publishers, The Hague/Boston/London, 1997). 13 Rorden Wilkinson, Multilateralism and the World Trade Organisation: The Architecture and Extension of International Trade Regulation(Routledge, London, 2000), at p. 32 (noting that imperialism is the extreme form of bilateralism). 14 Simma, note 12 above. 15 Phillip Allott, Eunomia: A New World Order for a New Society (2d edn, Oxford University Press, Oxford, 2001), 248 at §13.105(16) . 16 The argument of multipolarity is elegantly described by Fareed Zakaria in his thesis about ‘the rise of the rest’, meaning that the rise of emerging economies to the top has dispersed power and complicated collective action; see F. Zakaria, The Post-American World (Allen Lane, 2008). 17 For an analysis of multipolarity as well as the rise and fall of States, see D. Sobek, The Causes of War (Polity, 2009), pp. 131–171.

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Friends are only friends until you start splitting the money. These [Western] countries need to have access to oil and gas, and to get it they are prepared to use any means, including accusations that Russia has a different system of values. All … Russia is doing is defending its interests. We want to live peacefully, but the West cannot tolerate the idea that we are an equal partner, that we are the same. Now there is no more time for niceties.18 Another example of this is the EU’s approach to China, which is stuck in the past. The ‘EU continues to treat China as the emerging power it used to be, rather than the global force it has become.’19 Moreover, the EU should accept and foster even more actively the new leadership roles of Russia and other new leading powers.20 In this sense, there is certainly a need to reform the current Bretton Woods institutions.21 The international trading system must also be reformed,22 given that it is experiencing a sudden, severe, and globally synchronized collapse. Protectionist forces have already emerged, and as the recession gets worse, they will strengthen.23 Isn’t it time to propose a proper reform of global economic governance?24 18

Igor Shuvalov, Russia’s first deputy prime minister, quoted in The Economist’s Special Report on Russia, 29 November 2008. 19 J. Fox and F. Godement, ‘A Power Audit of EU–China Relations,’ European Council on Foreign Relations, London, April 2009, p. 1. 20 A. Åslundand A. Kuchins, The Russia Balance Sheet (Peterson Institute for International Economics, April 2009). 21 The Bretton Woods institutions are the organizations set up as the result of the UN Monetary and Financial Conference held in July 1944. Representatives of 44 Allied nations met in Bretton Woods, New Hampshire, which led to the signing of the Bretton Woods Agreements. The World Bank and the International Monetary Fund were established and became known as the Bretton Woods institutions. For further reading, see J. Stiglitz, Globalization and its Discontents (Penguin, London, 2001), chapter 1. 22 Pascal Lamy argues, in this sense, that trade is useful if it enhances the human condition. Realism and intellectual honesty require that we consider the costs and the politics associated with trade. If the beginning and end of the story was that trade was unconditionally beneficial to all and that the more we had of it the better, then governments would surely embrace it unilaterally and without question. And there would certainly be no need for the WTO Agreement to manage international trade relations. See P. Lamy, ‘The economics and politics of trade are inextricably linked,’ available at . For an academic analysis on the future of international economic law and governance, see W. Davey, and J. Jackson (eds), The Future of International Economic Law (Oxford University Press, 2008). 23 On how to reform global trade within a new global economic governance, see R. Baldwin and S. Evenett (eds), The Collapse of Global Trade, Murky Protectionism, and the Crisis: Recommendations for the G20 (VoxEU Publication, 2009), available at . 24 On this note, see D. Patterson and A. Afilalo, The New Global Trading Order: The Evolving State and the Future of Trade (CUP, 2008). For a broader model of transnational and supranational governance inspired by Kantian cosmopolitanism, see J. Habermas, The Divided West (Polity, 2006).

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III Advantages and Disadvantages of an FTA (Between the EC and Russia) A growing number of bilateral and regional free trade agreements (FTAs)25 are concluded for the purpose of enhancing trade and investment among the parties to the agreement. This, however, is bringing about an associated issue known as the ‘spaghetti bowl’ effect.26 What should be done to reinvigorate the Doha Round of multilateral trade negotiations?27 What should be done to get rid of the ‘spaghetti bowl’? How can we coordinate multilateral and regional governance of trade? An argument of why bilateralism is taking over multilateralism is that, as experience shows, regional trade agreements have been instrumental in providing reciprocal trade liberalization, and have significant effects for the multilateral trading system as the share of global trade conducted regionally reaches unprecedented levels.28 From this perspective, one could argue that, if the aim is progressive liberalization of international trade, bilateralism and regionalism are certainly contributing to this goal. Furthermore, while the multilateral institutions governing the global economy are facing serious challenges in the effective governance of a globalized world economy, regional agreements and institutions such as the EU, ASEAN, or FTAs, are rising as forces in the governance of the global as well as regional economy.29 The challenges are, therefore, not the lack of institutions (whether multilateral or regional) governing the global economy, but the lack of coordination between these multilateral and regional mechanisms. Why is trade important in the political arena? A trade agreement is often considered to be part of a bilateral political agreement, even if the scope might 25

A free trade agreement is a contractual arrangement between two or more countries under which they give each other preferential market access, usually called free trade. In practice, free trade agreements tend to allow for all sorts of exceptions to cover sensitive products; see Walter Goode, Dictionary of Trade Policy Terms (5th edn, Cambridge University Press, 2007), p. 181. 26 The spaghetti bowl effect is ‘a term used by Jagdish Bhagwati to describe the complexity of trade rules resulting from a proliferation of free trade areas. A typical example of this is the existence of different rules of origin for each free trade area. Countries that are members of more than one arrangement of this kind will have to administer different rules for each of them.’ See Goode, note 25 above, p. 394. 27 For a thorough legal and policy analysis of the Doha Round, see Leal-Arcas, note 1 above, chapters 8 and 9. 28 The Warwick Commission, ‘The Multilateral Trade Regime: Which Way Forward?’ The Report of the First Warwick Commission, University of Warwick, 2007, p. 11. 29 See for example the recent conclusion of an FTA between ASEAN and Australia and New Zealand, becoming one of Asia’s largest trade agreements. For more details, see ‘ASEAN Pushes for Deeper Integration, Signs FATA with Australia, New Zealand,’ Vol. 13, No. 8, Bridges Weekly Trade News Digest, 4 March 2009.

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be rather limited (e.g. Asian bilateralism). Trade is about money, and money is a powerful instrument to foster political relations.30 Trade can be used as a ‘carrot’ or as a ‘stick.’ It is used as a ‘carrot’ when preferences for certain countries create competitive advantages versus third parties. Trade can also be used as a ‘stick.’ For example, 1) to deny preferences to a certain country when granting them to others, thereby creating discrimination and trade diversion; 2) through trade defence instruments31 such as antidumping and safeguard measures; and 3) the World Trade Organization (WTO) dispute settlement system.32 If we look at bilateral FTAs as instruments for liberalizing trade,33 the ‘carrot’ function is important since FTAs offer preferential market access, whereas in the ‘stick’ function it does not seem realistic to withdraw preferences, as the free trade agreement in question would need to be breached. This situation seems hardly imaginable and thus not a credible threat. From the Russian perspective, a reason for the attractiveness of signing a free trade agreement with the EC is its competitive advantage. A free trade agreement can level the playing field, for example for Brazil in relation to Mexico and Chile, both of which already have FTAs with the EC. Moreover, there is an insurance against trade defence instruments as these are generally less used against trade partners. Furthermore, the EU could offer additional incentives (and therefore show generosity to build more political trust) by granting larger concessions or demanding fewer concessions than would be the case in a purely reciprocal give-and-take situation. However, even if the EU concessions were possible, what would the EU want to obtain in return? Market access seems to be the evident answer. This is what trade negotiations are about. The European Commission’s Directorate-General for trade would come under pressure if EU concessions were not used to enhance market access for European exporters in growing and important emerging markets like Russia. 30 For arguments on how to promote trade as an engine for growth and development, see the speech by Pascal Lamy at the UK Department for International Development on 22 January 2009, available at . 31 Trade defence instruments are protective mechanisms that are legal under the WTO Agreements. They may be triggered to counter the effects of dumping, subsidies and unexpected import surges causing injury to domestic industry. Such mechanisms include antidumping measures, countervailing duties and safeguards; see Goode, note 25 above, p. 101. 32 According to Rachel Brewster, the WTO’s Dispute Settlement Understanding subordinates unilateral enforcement of international trade law to a rule-based system of multilateral enforcement. It also immunizes violations of WTO law from retaliatory sanctioning so long as the offending measures are withdrawn at the end of the litigation process, which is often several years later. See R. Brewster, ‘Shadow Unilateralism: Enforcing International Trade Law at the WTO,’ University of Pennsylvania Journal of International Law, 2009. 33 A. Estevadeordaland K. Suominen (eds), Regional Rules in the Global Trading System (Cambridge University Press, 2009).

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However, there are also disadvantages to FTAs, even if FTAs are WTOcompatible according to GATT Article XXIV.34 Further proliferation of FTAs35 results in transaction costs that are detrimental to multilateral trade liberalization at the WTO level, thereby provoking a fragmentation of multilateralism.36 In this sense, I would argue that the EU has responsibilities for the multilateral trading system and therefore should be defensive in bilateralism; in other words, the EU should only react when other countries move first with FTAs to EU export markets. That was the case with the USA and Japan after the suspension of the Doha round in July 2006, when the European Commission, on behalf of the EC and its Member States, started negotiating FTAs with India, ASEAN, and South Korea. The aim was to not lose the opportunities offered by the new emerging markets in Asia.37

IV EC–Russia Trade Analysis Before starting with a trade analysis of the EC vis-à-vis Russia, it is important to note the differences among the BRIC countries.38 Brazil, Russia, India, and China, i.e., the BRIC countries may be classified in two groups. The first group is composed of Brazil and India, which are not yet global economic superpowers, but are only starting to grow into a more powerful role. Therefore, the EU can try to foster this development in a cooperative stance and establish trust with Brazil and India. A second group, composed of China and Russia, is more assertive than the first group in some areas. It is in this second group where we find major problems with the EU stemming from the EU dependence on Russian energy supply, a reviving Russian economy, 34 GATT Article XXIV basically acknowledges that regionalism within multilateralism is WTO compatible. 35 On the proliferation of FTAs, see J. Bhagwati, P. Krishna, and A. Panagariya (eds), Trading Blocs: Alternative Approaches to Analyzing Preferential Trade Agreements (MIT Press, 1999). See also J.-J. Hallaert, ‘Proliferation of Preferential Trade Agreements: Quantifying its Welfare Impact and Preference Erosion’ (October 2008) 42/5 Journal of World Trade, . 36 On fragmentation of international law, see T. Broude and Y. Shany (eds), The Shifting Allocation of Authority in International Law (Hart, 2008). 37 For an analysis of regional economic integration in Asia, see Jiang Yu Wang, ‘China, India, and Regional Economic Integration in Asia,’ 10 Singapore Yearbook of International Law, pp. 269–305, 2006. 38 BRIC is a term used in economics to refer to the combination of Brazil, Russia, India, and China. General thinking is that the term was first prominently used in a thesis of the Goldman Sachs investment bank. Goldman Sachs argues that the economic potential of Brazil, Russia, India, and China is such that they may become among the four most dominant economies by the year 2050. This will certainly affect the four EU Member States which are members of the G-7. The BRIC countries encompass over 25% of the world’s land coverage and 40% of the world’s population. For further detail on the BRICs, see Goldman Sachs, BRICS and Beyond, The Goldman Sachs Group, 2007.

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booming prices in oil and gas, the large Chinese market, and the fact that China is a growing economic and political power. Let us now tackle the Russian case.

1. Background on EU–Russia Relations: The PCA There is a Partnership and Cooperation Agreement (PCA) between the European Communities and their Member States and the Russian Federation.39 The agreement was signed in 1994 and entered into force on 1st December 1997 for a period of 10 years. Under Article 106 of the PCA, the agreement is automatically prolonged, unless either Party to the agreement gives notice of termination. Both Parties have agreed to leave the PCA in place until a new agreement is signed to avoid a legal vacuum.40 The agreement regulates the political, economic, and cultural relations between the EU and Russia and is the legal basis for the EC’s bilateral trade with Russia. One of its main objectives is the promotion of trade and investment as well as the development of harmonious economic relations between the parties. Although trade is growing between the EC and Russia, it remains largely concentrated in the energy and minerals sectors, although trade in services is growing rapidly too. It is interesting to note that trade between the EC and Russia is on mostfavored-nation basis terms.41 The EU and the Russian Federation are planning to start negotiations on a new PCA to provide the contractual framework for EU–Russia relations in the years to come, thereby replacing the existing 10-plus-year-old PCA.42 This new legally binding agreement would provide a sustainable and comprehensive framework for bilateral relations. Although both sides seemed comfortable with each other at the June 2008 EU–Russia summit held in Khanty-Mansiysk (Russia),43 tensions remain. The Russian view on the new PCA, presented by its president, was: [A]ll European countries are interested in good relations with the Russian Federation, [and] the Russian Federation is interested in good partnership 39 Council and Commission Decision 97/800/EC, ECSC, Euratom, 1997 O.J. (L 327) 1. A full copy of the agreement can be found under . 40 See K. Barysch, ‘Partnership with Russia in Europe,’ report from the 4th Friedrich-Ebert Stiftung and Foundation Unity for Russia roundtable, December 2006, p. 2. 41 See European Commission, ‘Russia: Economic Relations Provisions,’ available at . 42 See Joint Statement of the EU–Russia Summit on the Launch of Negotiations for a New EC-Russia Agreement, 27 June 2008. 43 ‘EU-Russia welcome ‘new page’ in relationship, EurActiv, 30 June 2008, available at .

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relations with the European Union and specific countries in Europe. These relations are not opportunistic and should not depend on any political events. And we definitely should not look at the signing of the partnership agreement with the European Union as some kind of prize that Russia gets for its good behaviour.44 The two sides also diverged as regards the form that the new Partnership Agreement should take, with Russian President Medvedev voicing support for a document that is ‘short, without too many details’,45 while the EU wants a more detailed text, with precise wording on energy46 and security issues in particular. ‘The new agreement should be inextricably linked with Russia’s advancement in democratic standards, rule of law, and human rights. In economy it should incorporate – among others – the principles of the Energy Charter Treaty and its Transit Protocol’,47 said liberal Polish MEP Janusz Onyszkiewicz, European Parliament’s rapporteur on the EC–Russia agreement. In this context, the EU is eager to pursue, once Russia has acceded to the WTO,48 a deep and comprehensive economic integration agreement between the EU’s and Russia’s interdependent economies, building on and going beyond the PCA and WTO provisions.49 However, negotiations for a new PCA had not started due to objections by Poland to the Russian ban on Polish meat and vegetables,50 where Russia claims that the meat contains excessive levels 44 Russian president Dmitry Medvedev, in an interview with the Spanish press, reported in Russiatoday: ‘Europe needs new Energy Charter – Medvedev,’ available at , 1 March 2009. 45 International Herald Tribune, ‘Medvedev makes nice with the EU,’ 27 June 2008, available at . 46 See, by contrast to the EU, the new Russian conceptual definition of energy in the context of the new legal framework for energy cooperation on the president of Russia’s official website, available at . 47 ‘EU–Russia welcome “new page” in relationship’, EurActiv, 30 June 2008, available at . 48 See K. Barysch, R. Cottrell, F. Frattini, P. Hare, P. Lamy, M. Medvedkov and Y. Yasin, ‘Russia and the WTO,’ Centre for European Reform, December 2002. 49 European Commission, ‘Russia,’ available at . 50 This kind of incidence is proof of the difficulty of speaking with a single voice in the EU’s external relations. When it comes to re-shaping the architecture of the new world economic order, Fred Bergsten argues that the EU’s inability to speak with a single voice disqualifies it from being a member of a potential G-2, composed of China and the USA. These two economic superpowers should take the leadership in tackling global issues through co-management. See F. Bergsten, Ch. Freeman, N. Lardy and D. Mitchell, China’s Rise: Challenges and Opportunities, Peterson Institute for International Economics & Center for Strategic and International Studies, Washington, D.C., 2008, pp. 22–31; for further reading on the legal difficulties while searching for a single voice in the EU’s external relations, see R. Leal-Arcas, ‘The European Community

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of antibiotics.51 In addition, Lithuania also objected to initiating talks on a new PCA between the EC and Russia, thereby receiving heavy criticism from the EU’s presidency at the time (Slovenia).52 Lithuania wanted to obtain assurances from Russia over certain issues including energy supply and involvement in regional conflicts in Georgia53 and Moldova.54 These difficulties, however, were solved on 27 May 2008 when EU foreign ministers formally approved launching talks with Russia over a new PCA – an issue that had been deadlocked for almost two years.55 However, due to the disproportionate Russian reaction to the attack on South Ossetia’s capital by Georgian forces in August 2008, EU leaders decided to postpone the talks conditional upon Russian troops withdrawing completely from the positions prior to the August invasion.56 A key feature of the talks will be energy relations,57 with the EU increasingly concerned by gas disputes between Russia and neighbouring countries such as Ukraine,58 through which supplies to the 27-nation bloc must be brought. According to energy commissioner Andris Piebalgs and Czech energy minister Martin Riman, the genesis of the gas dispute was that Moscow wanted its own observers to monitor gas distribution in Ukraine, to which Kiev was opposed.59

and Mixed Agreements’ 2001 6 EFA Rev., pp. 483–513, and R. Leal-Arcas, ‘Unitary Character of EC External Trade Relations’ (2001) 7 Columbia Journal of European Law, pp. 355–383. 51 M. Leonard and N. Popescu, ‘A Power Audit of EU–Russia Relations,’ European Council on Foreign Relations, 2 November 2007, p. 50. 52 Slovenian Presidency of the EU, ‘Agreement on start of negotiations for new Partnership and Cooperation Agreement with Russian Federation,’ Press release, 11 May 2008, available at . 53 See interview with Charles Grant, ‘Conflit russo-géorgien: un nouveau souffle pour l’OTAN,’ RIA Novosti, 9 September 2008. 54 ‘EU Presidency upset over Lithuanian veto of EU–Russia accord’, EurActiv, 30 April 2008, available at . 55 For an overview of the backing of the long-awaited launch of negotiations between the EU and Russia, see ‘EU to give green light to Russia talks’, EurActiv, 26 May 2008, available at . 56 ‘EU contemplates “common market” with Russia’, EurActiv, 22 October 2008, available at . 57 See K. Barysch (ed.), ‘Pipelines, Politics and Power: The future of EU–Russia energy relations,’ Centre for European Reform, October 2008. 58 For the text of an interview with Russian president Medvedev on the Energy Charter and the Russia–Ukraine gas dispute inter alia, see note 44 above. 59 ‘Czechs take lead in chaotic gas crisis troubleshooting’, EurActiv, 9 January 2009, available at .

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Brussels is therefore seeking to diversify its energy supplies60 in order to overcome the EU’s dependency on Russia.61 To this end, the EU offered in September 2008 financial and political support for a EUR15 billion trans-Saharan pipeline to carry natural gas from Nigeria to European markets.62 The planned 4,300 km pipeline would stretch across Nigeria, Niger, and Algeria, where gas would be shipped to Spain and Italy.63 A week before the EU’s offer for the trans-Saharan project, Gazprom, the Russian energy giant, signed a memorandum of understanding with the Nigerian National Petroleum Corporation in Moscow to cooperate on gas exploration, production, and transportation.64 The simultaneous moves by Brussels and Moscow illustrate the scramble for natural resources as continued growth in the global economy fuels ever-increasing demand for energy.65

2. Possible Ways to Improve EC–Russia Trade Relations Currently, there are large problems in the political sphere between the EU and Russia, based on conflicts and mistrust. In fact, when Peter Mandelson was EU trade commissioner, he used to say that the current phase is the hardest since the late 1990s and that it is a serious test of the EU–Russia relationship. An issue of bilateral tension between Russia and the EU is energy security. Another issue is the trade conflict because of the Russian ban on Polish meat on health grounds discussed earlier, and the fact that on April 1, 2008 Russia increased its duties on exports of wood. According to the European Commission spokesman for trade, [t]hese increased duties will have significant economic impact on the wood processing industry in the EU. It will make it more difficult to source wood from Russia and hinder trade flows in this product. It may also have further 60 On Russia’s vision of the EU’s energy diversification projects, see V. Feklyunina, ‘The “Great Diversification Game”: Russia’s Vision of the European Union’s Energy Projects in the Shared Neighbourhood’ (2008) 4 Journal of Contemporary European Research, pp. 130–148. 61 ‘Russian Ambassador: “You will not live to see Putin and Medvedev in conflict”’, EurActiv, 8 May 2008, available at . 62 ‘EU and Russia in scramble for Nigerian gas’, EurActiv, 18 September 2008, available at . 63 Kevin Ummel and David Wheeler argue that the answer to the current European gas crisis may be solar thermal power production in North Africa and the Middle East, which could provide enough power to Europe to meet the needs of 35 million people by 2020. See Kevin Ummel and David Wheeler, ‘Desert Power: The Economics of Solar Thermal Electricity for Europe, North Africa, and the Middle East,’ Working Paper, No. 156, Center for Global Development, December 2008. 64 EurActiv, note 62 above. 65 Ibid.

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negative economic consequences in terms of plant closures and job losses. We therefore regret the decision by the Russian Federation to raise export duties for wood.66 Sweden and Finland have complained that Moscow’s plans to sharply increase its timber export taxes – from the current 25 per cent of raw timber value to 80 per cent at the beginning of 2009 – will hurt European paper companies.67 Helsinki said it was considering taxing Russian goods crossing its territory in retaliation. Nevertheless, the European Commission’s position regarding Russia is that of a stronger multilateral engagement of Russia: ‘We continue strongly to support Russia’s WTO accession, which is not just in Russia’s interest, but in the interest of everyone who trades with Russia. It is important that we make progress in this issue and see Russia firmly anchored in the international trading system.’68 This position, however, is not entirely shared in Moscow as there is some skepticism about Russia’s accession to the WTO69 because, as a major resource exporter, it might not need to join the WTO and because the WTO bindings and rules are not welcomed.70 In this context of conflict and mistrust between the EU and Russia, what can the EC do in the trade field to improve its relations with Russia, the largest economy in the world still outside the WTO, which has been pursuing membership in the global trade body for nearly 15 years? The EC, which is by far Russia’s biggest trading partner and source of investment, has a vested interest in smoothing out ongoing disagreements mentioned above and facilitating Moscow’s entrance into the WTO. Indeed, the 27-member trading bloc hopes to begin negotiating a free trade agreement with Russia once its membership in the global trade body has been finalized.71 Removal of nontariff barriers, the achievement of regulatory convergence, and openness to investment flows seem necessary to benefit from a real common European economic space.72 However, neither a free trade agreement nor WTO accession 66 See European Commission, ‘EU response to increase in Russian export duties for timber,’ available at . 67 ‘Amid new Talks, Russia Could Complete WTO Accession this Year’, Bridges Weekly, 12/6, February 2008, available at . 68 See the statement made by European Commission spokesman for trade Peter Power, available at . 69 On WTO acession, see S. Charnotiz, ‘Mapping the Law of WTO Accession’ in M. Janow, V. Donaldson and A. Yanovich (eds), WTO at Ten: Governance, Dispute Settlement and Developing Countries (Juris Publishing, 2008). 70 On accession to the WTO, see P. Williams, A Handbook on Accession to the WTO (CUP, 2008). 71 ‘Despite Obstacles, EU Expects Russia to Join WTO This Year’ 12/23, Bridges Weekly, 25 June 2008. 72 P. Mandelson, ‘Russia and the EU: Building Trust on a Shared Continent’, speech at conference Russia in the 21st Century, Moscow, 19 June 2008, available at .

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seems overly attractive for Russia, given that Russian energy exports are in good demand in the world and are not subject to restrictions. Notwithstanding this, Russia has made significant progress in its WTO accession talks,73 having already signed protocols with more than 60 WTO member states. All applicants for WTO membership must negotiate bilateral accords with any WTO member that requests one. As with most WTO decisions, any single Member has the power to block Russian accession. The only bilateral talks that remain unresolved are the negotiations with Ukraine and Georgia. Despite historic strains on trade issues between the two countries, Kiev has indicated that it intends to facilitate Moscow’s membership in the global trade body.74 As for Georgia, although it completed a bilateral accession deal with Moscow in 2004, it withdrew its signature from that agreement two years later.75 Georgia again broke off bilateral talks with Russia in April 2008, saying that it would veto Russia’s bid unless the country agreed to stop operating customs checkpoints in Georgia’s separatist territories of Abkhazia and South Ossetia. Georgia also wants Russia to lift its ban on imports of Georgian wine and other products.76 In August 2008, Georgian troops invaded the breakaway region of South Ossetia. South Ossetia and Abkhazia are officially part of the territory of Georgia, but are in fact autonomous and largely under Russian influence. Russia responded with massive military action, invading part of Georgia.77 This incident will certainly not persuade Georgia to facilitate Russia’s accession to the WTO. The EU delegation to Russia, led by French President Sarkozy on 8 September 2008, nevertheless succeeded in convincing Russian President Medvedev to agree to a complete withdrawal of troops from Georgia.78 Michael Emerson argues that it would be in the West’s interest to include Russia in its political, economic, and security plans, as both parties aim at common objectives.79 This, in my view, would be a way to improve relations 73 D. Tarr, ‘Russian WTO Accession: What Has Been Accomplished, What Can be Expected,’ World Bank Policy Research Working Paper, No. 4428, December 2007. 74 Ibid. 75 ‘End of Road not yet in Sight for Russia’s WTO Accession’ 10/35, Bridges Weekly, 25 October 2006, available at . 76 ‘Despite Obstacles, EU Expects Russia to Join WTO This Year’ 12/23, Bridges Weekly, 25 June 2008. 77 ‘Extraordinary EU summit may be convened over Georgia’, EurActiv, 18 August 2008, available at . 78 ‘EU to keep peace after Moscow OKs Georgia pull-out’, EurActiv, 9 September 2008, available at . 79 M. Emerson, ‘Time to think of a strategic bargain with Russia,’ Centre for European Policy Studies, Policy Brief, No. 160, May 2008.

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between the two sides. True partnership between Russia and the EU seems essential to security and prosperity on the European continent in the twentyfirst century.80 Furthermore, cooperation seems to be a plausible way to improve relations with Russia.81 This is not always easy since there are contradictory positions of the EU toward Russia.82 The new EU Member States do not think in the same way as the old EU Member States vis-à-vis Russia for historical reasons. This multiplicity of voices has been a main reason behind the EU’s failure to develop a coherent and strategic approach to the reality of the EU’s dependence on Russian gas.83 To demonstrate this point, in a speech by the then EU trade commissioner Peter Mandelson, reference was made to the EU’s difficulties in speaking with a single voice when dealing with Russia: ‘The incoherence of European policy toward Russia over much of the last decade has been, frankly, alarming. No other country reveals our differences as does Russia.’84 The most fundamental challenge facing the EU is therefore to ensure greater solidarity between Eastern and Western EU Member States, and between countries that rely on Russian gas and those that do not. At the St Petersburg Summit in May 2003, the EU and Russia agreed to reinforce cooperation with a view to creating four EU/Russia common spaces within the framework of the existing Partnership and Cooperation Agreement. It was decided to create a common economic space; a common space of freedom, security and justice; a space of cooperation in the field of external security; as well as a space of research and education, including cultural aspects.85 This would be another way to improve relations between the two sides. 80

Mandelson, note 72 above. Paami Aalto argues that the difficult question of the EU’s responsibilities toward Russia is best approached as a problem of community. Applying a broad notion of the wider European community can make it easier for the Union to be sensitive vis-à-vis its gigantic neighbour to the east and, as a consequence, to define its policies toward it. The issue of belonging and identity are thus fundamental to delineating the EU’s responsibilities toward Russia regardless of whether we speak of the EU–Russia strategic partnership or the regional cooperation level. See P. Aalto, ‘The EU, Russia and the Problem of Community’ in H. Mayer and H. Vogt (eds), A Responsible Europe? Ethical Foundations of EU External Affairs (Palgrave, 2006), pp. 98–118. 82 In Fraser Cameron’s view, speaking with one voice vis-à-vis Russia, although it is difficult in some areas, is likely to produce far greater benefits for the EU than trying to cut bilateral deals; See ‘EU–Russia relations “should be more positive”’, EurActiv, 9 April 2008, available at . 83 For arguments on the importance for the EU to speak with a single voice in international affairs, see R. Leal-Arcas, ‘Unitary Character of EC External Trade Relations’ (Fall 2001) 7 Columbia Journal of European Law, pp. 355–383. 84 See International Herald Tribune, 21–22 April 2007, p. 3. 85 For an analysis of the four EU/Russia common spaces, see P. Van Elsuwege, ‘The four Common Spaces: new impetus to the EU–Russia Strategic Partnership?’ in A. Dashwood and 81

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Regarding the common economic space,86 it aims at increasing opportunities for economic operators, a further step towards establishing a more open and integrated market between the EU and Russia. The main objective of the common economic space is to put in place the conditions for increased and diversified trade and create new investment opportunities by pursuing economic integration, eliminating trade barriers, creating regulatory convergence, opening markets, trade facilitation and infrastructure development by closer cooperation, exchange of information, and sharing of best practices.87 The roadmap on the common economic space was adopted at the EU–Russia Summit in Moscow on 10 May 2005 and provides for various dialogue fora. The idea behind the common economic space is to prepare the ground for a future and deep free trade agreement. However, there has been little substantial progress so far. In sum, Russia’s economy, although strong, still has structural weaknesses. It needs to diversify its economy into other sectors such as services88 and investment in critical parts of infrastructure. Moreover, education and research are under-resourced.89 In this sense, it is worth noting that Russia has formed a new government body designed to control foreign investment in so-called ‘strategic’ sectors, whereby acquisitions of interest exceeding 25 per cent of voting shares in Russia’s strategic commercial organizations by foreign investors must be approved by the special governmental commission. Furthermore, companies operating in ‘strategic’ sectors cannot place more than 25 per cent of shares outside Russia. Russian companies doing geological exploration and extraction of resources at strategic deposits are not allowed to place more than 5 per cent of shares overseas.90

3. Importance for the EU to Diversify its Energy Supply Sources91 As mentioned in the previous paragraphs, the common economic space provides for various dialogue fora, the most relevant of which is the energy 86 See K. Barysch, ‘Is the common economic space doomed?’ (November 2006) 2 The EU–Russia Review. 87 European Commission, ‘Russia’, available at . 88 On the correlation between trade in services and growth, see B. Hoekman and A. Mattoo, ‘Services Trade and Growth’ in J. Marchetti and M. Roy, Opening Markets for Trade in Services: Countries and Sectors in Bilateral and WTO Negotiations (Cambridge University Press, Cambridge, 2008), pp. 21–58. 89 Mandelson, note 72 above. 90 S. Blagov, ‘Russia Sets Up New Commission to Control Foreign Investment in 42 Strategic Sectors,’ BNA International Trade Reporter, 17 July 2008. 91 See generally J. Mankoff, ‘Eurasian Energy Security,’ Council on Foreign Relations, Special Report No. 43, February 2009.

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dialogue.92 At the Sixth EU–Russia Summit on 30 October 2000, leaders of the EU and Russia agreed to institutionalize an energy dialogue on a regular basis between the EU and Russia to enable progress to be made in the definition and arrangements for an EU–Russia Energy Partnership. Russia has been a reliable supplier of energy into the EU for many years, despite periods of internal difficulties.93 Likewise, the EU continues to be the dominant market for Russian energy exports. This strong mutual interest and interdependence means that energy is an ideal sector in which relations can be progressed significantly for the further development of an EU–Russia strategic partnership.94 In this sense, the energy dialogue started with high ambitions, as demonstrated in the joint declaration adopted at the Sixth EU– Russia Summit, where the energy partnership was supposed to ‘provide an opportunity to raise all the questions of common interest relating to the sector, including the introduction of cooperation on energy savings, rationalization of production and transport infrastructures, European investment possibilities and relations between producer and consumer countries.’95 When comparing what the EU wishes to achieve in the framework of the energy dialogue with the potential gains for Russia, there seems to be little incentive for Russia to give in to European demands since there is little more than energy efficiency improvements and technical assistance that the EU can offer as meaningful rewards in exchange for access to the Russian energy sector and energy security.96 EU dependency on Russian gas imports is currently over 40 per cent and is expected to rise considerably in the coming decades, unless supply sources are diversified and/or greater emphasis is placed on locally generated renewable

92

See the European Commission’s report ‘EU–Russia Energy Dialogue, Sixth Progress Report,’ October 2005; C. Grant and K. Barysch, ‘The EU–Russia Energy Dialogue,’ Centre for European Reform, May 2003. 93 For an analysis of Russia’s exponential macroeconomic success based on energy supply, see Vinhas de Souza, Lúcio, A Different Country: Russia’s Economic Resurgence, Centre for European Policy Studies, Brussels, 2008, pp. 73–82. 94 European Commission, ‘European Union–Russia Energy Dialogue,’ available at ; Communication from the Commission to the Council and the European Parliament on relations with Russia, COM(2004)106, 9 February 2004; Council Report on the implementation of the Common Strategy of the European Union on Russia, 1060/04, 16 June 2004. 95 See joint declaration on 30 October 2000 of President of the European Council Jacques Chirac, President of the European Commission Romano Prodi, and President of Russia Vladimir Putin, available at . 96 See J. Piper, ‘The EU–Russian energy Dialogue: Towards an EU–Russia Energy Partnership,’ available at .

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sources of energy.97 Unlike oil, which can be transported easily in tankers, gas is still transported mainly via pipelines, making Europe dependent on existing supply and transit routes. The need for the EU to diversify supplies was underlined by a dispute between Ukraine and Russia in January 2006, which led to interruptions to supplies of Russian gas for some 2098 EU Member States.99 The EU was understandably alarmed since about 25 per cent of all gas consumed in the EU originates from Russia, and 80 per cent of it is shipped via pipelines crossing Ukraine. The dispute between Ukraine and Russia recalled a quarrel in 2006 when deliveries to Western Europe were briefly interrupted, highlighting the EU’s dependency on Russian gas and prompting it to seek new supply routes.100 Russian Prime Minister Vladimir Putin blamed Ukraine for blocking gas transit across its territory, arguing ‘We are hearing from our Ukrainian colleagues and friends that they are having problems with the transit of our natural gas to you [EU]. But these are not our problems, but the problems of the transit country. And they must solve these problems.’101 One wonders how credible Russia is as an energy supplier and how reliable Ukraine is as a partner to the West. Despite the need for the EU to diversify supplies of gas, Greece and Russia signed an agreement on 29 April 2008 to start construction on the South Stream pipeline. The South Stream project, promoted by Gazprom, is seen by specialists as a more political project, which is not necessarily costeffective.102 South Stream was launched in 2007 by Italy’s Eni and Russia’s Gazprom. It is designed to pump 30 billion cubic meters of Russian gas a year to Europe, under the Black Sea103 via Bulgaria, Greece, Serbia, and Croatia 97 Former Spanish prime minister Felipe González voiced the importance of tackling the issue of Europe’s energy dependency at a reflection group launched by EU leaders at a summit in December 2007. At the summit, González asked EU leaders to reconsider their position on nuclear power. See ‘González voices bold ambitions for EU ‘reflection group’, EurActiv, 15 January 2008, available at . 98 Among those countries, some outside the EU, are: Romania, Bulgaria, Greece, Macedonia, Serbia and Croatia, which stopped receiving gas completely. 99 ‘EU seeks new supply routes in wake of Russia-Ukraine gas row’, EurActiv, 29 June 2007, available at . 100 V. Landsbergis, ‘Why we must learn to say No to Russia,’ Europe’s World, 24 July 2008. 101 For a transcript in Russian of the January 2009 meeting among the Russian, Bulgarian, and Slovak prime ministers over the gas crisis, see . 102 ‘EU’s Piebalgs on ‘Nabucco tour’ for gas supplies’, EurActiv, 4 November 2008, available at . 103 For an analysis of the EU’s policy toward the Black Sea region, see M. Emerson, ‘The EU’s New Black Sea Policy: What Kind of Regionalism is This?’, Center for European Policy Studies, Working Document, No. 297/July 2008.

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to Italy. Under the plans, one of its branches will go through Hungary, which recently joined the project, and will then reach Austria.104 However, some European officials seem to have doubts about the intentions of Gazprom. Europe’s perception of Gazprom as ‘a political weapon of the Kremlin’105 is wrong, according to top Gazprom executive Alexander Medvedev, who claims that Gazprom is perceived by the EU as ‘an instrument of Russian foreign policy.’106 Medvedev finds puzzling statements that an increase in Gazprom’s gas deliveries constitutes a threat to the EU’s energy security.107 According to him, the suggestion that Gazprom would invest billions of dollars in expensive gas export pipelines so that the Russians could then disrupt them for political reasons looks absurd, especially in view of the substantial contribution these gas exports make to Russia’s budget and the country’s economy.108 Another project is the so-called Nord Stream project which is a German– Russian plan of a Baltic Sea gas pipeline. The project has come under attack from central and eastern European countries, since they fear that Russia might use the pipeline, which bypasses their territories, to impose higher energy prices on them.109 Furthermore, the European Parliament is concerned about the geopolitical implications and environmental impact of the project.110 It is nevertheless paradoxical to note that some EU Member States have signed agreements with Russia for the creation of gas pipeline projects, although the aim of the EU is to minimize its dependence on Russian energy supply.

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‘Greece seals pipeline agreement with Russia’, EurActiv, 30 April 2008, available at . 105 A. Medvedev, ‘Is Gazprom’s strategy political?’, Europe’s World, June 2008, available under . 106 Ibid. 107 By energy security, we mean the threats of supply and price disruptions arising from risks associated with the sources of oil and gas supplies, the transit of oil and gas supplies, and the facilities through which oil and gas are delivered. There are two major dimensions of these risks: short-term supply availability versus long-term adequacy of supply and the infrastructure for delivering this supply to markets; operational security of oil and gas markets, i.e. daily and seasonal stresses and strains of extreme weather and other operational problems versus strategic security, i.e. catastrophic failure of major supply sources and facilities. For further details on the definition of energy security, see J. Stern, ‘Security of European Natural Gas Supplies: The Impact of Import Dependence and Liberalization,’ July 2002, The Royal Institute of International Affairs, p. 6. 108 Medvedev, note 105 above. 109 ‘EU–Russia welcome ‘new page’ in relationship’, EurActiv, 30 June 2008, available at . 110 ‘Baltic pipeline under fire despite industry assurances’, EurActiv, 9 July 2008, available at .

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In contrast to these two projects, another natural gas pipeline called Nabucco, although endangered because of the Russia–Georgia conflict in August 2008,111 would bring gas from the Middle East and Central Asia to Europe via Turkey, Bulgaria, Romania, Hungary, and Austria.112 The project, today more politically justified than ever because of the negative repercussions on EU Member States of the Russia–Ukraine conflict over gas mentioned above, and scheduled to be completed by 2013, is geopolitically significant on energy security grounds because it will bypass Russia. However, it has encountered financial problems and a lack of political will from some EU Member States.113 Russian Ambassador to the EU Vladimir Chizhov dismissed the potential of the Nabucco project from a cost effective and profitable view point,114 especially the plans to bring gas from Turkmenistan or Azerbaijan, arguing that the resources of the two Central Asian countries would be insufficient. The only way to fill the Nabucco pipeline is with Iranian gas, he said.115 However, with an embargo currently on Iran, there is no gas.116 Others such as Wolfgang Ruttenstorfer, the CEO of Österreichische Mineralölverwaltung, claim that there is enough gas to make Nabucco happen.117 On this note, Iraq has shown interest in selling gas to Nabucco, and discussions have already taken place about the transfer of substantial amounts of Iraqi gas via Syria and the trans-Arabian gas pipeline, or directly via a link between Iraq and Turkey.118 Generally, the EU is in a weak position vis-à-vis Russia since it needs energy security. Russia has been making autocratic use of its energy policy. An example is the reductions in Russian oil deliveries to the Czech Republic which, according to Moscow, were a result of technical problems, but there was widespread speculation that the cuts may have been politically motivated and linked to Prague’s decision to host a radar that is part of the US missile 111 ‘Nabucco: ‘Pie in the sky’ after Georgia crisis?’, EurActiv, 25 August 2008, available at . 112 ‘EU in quest to secure Middle East gas supplies’, EurActiv, 6 May 2008, available at . 113 ‘Greece seals pipeline agreement with Russia’, EurActiv, 30 April 2008, available at . 114 ‘EU’s Piebalgs on ‘Nabucco tour’ for gas supplies’, EurActiv, 4 November 2008, available at . 115 Ibid. 116 Iran, which holds 15% of the world’s estimated gas reserves, is not on the list of countries that would participate in Nabucco due to the uranium enrichment row between Western countries and Tehran, which prevents the EU from developing the project with Iran. 117 ‘Bussiness and Commission in plea for Nabucco pipeline’, EurActiv, 4 July 2008, available at . 118 ‘EU’s Piebalgs on ‘Nabucco tour’ for gas supplies’, EurActiv, 4 November 2008, available at .

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shield defence system,119 which Russia is unhappy with.120 Another example is Bulgaria, which is poised to restart one of the nuclear reactors at its Kozloduy nuclear power plant121 as a result of having been victimized by the Russia– Ukraine gas dispute mentioned above.122 This is legally acceptable according to Article 36 (1) of the Protocol concerning the conditions and arrangements for admission of Bulgaria to the EU,123 whereby decommissioned reactors could be reactivated in crisis situations.124 Slovakia adopted the same position as Bulgaria, although in the Slovak case it was a violation of the Accession Agreement to the EU.125 The EU continues to have considerable dependence on Russian energy supply: the share of EU imports from Russia is 30 per cent in the case of oil and 44 per cent in the case of natural gas.126 This continued dependence has proven to be politically problematic. So the EU should diversify its energy supply sources127 by dealing with alternative markets such as the Middle East, Norway,128 Nigeria,129 or

119 ‘Czechs to push for Nabucco gas pipeline at EU helm’, EurActiv, 16 December 2008, available at . 120 ‘Russia angry over US missile shield’, Aljazeera, 15 August 2008, available at . 121 On nuclear power plants, see Shull, A. ‘The Global Nuclear Safety and Security Regimes,’ Nuclear Energy Futures, Paper No. 2, November 2008. 122 ‘Bulgaria threatens to restart nuclear plant’, EurActiv, 7 January 2009, available at . 123 OJEU, L 157, Vol. 48, 21 June 2005, 29. 124 Article 36 (1) of the Protocol concerning the conditions and arrangements for admission of the Republic of Bulgaria and Romania to the European Union reads: ‘If, until the end of a period of up to three years after accession, difficulties arise which are serious and liable to persist in any sector of the economy or which could bring about serious deterioration in the economic situation of a given area, Bulgaria or Romania may apply for authorization to take protective measures in order to rectify the situation and adjust the sector concerned to the economy of the internal market.’ 125 ‘Gas crisis gives Slovakia excuse to restart nuclear unit’, EurActiv, 12 January 2009, available at . 126 See European Commission, ‘The European Union and Russia: Close Neighbours, Global Players, Strategic Partners,’ Office for Official Publications of the European Communities, Belgium, 2007, p. 13. 127 Diversifying energy supply sources has become of the Czech EU Presidency’s priorities. See Czech Presidency of the Council of the EU, ‘Work Programme of the Czech Presidency: Europe without Barriers,’ 1 January–30 June 2009. 128 That said, North Sea oil and gas fields have already been exploited beyond their peak. See ‘Geopolitics of EU energy supply’, EurActiv, 18 July 2005, available at . 129 ‘EU and Russia in scramble for Nigerian gas’, EurActiv, 18 September 2008, available at .

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Algeria.130 By the same token, Russia is dependent on the EU, which is its largest single market for the time being, for its energy exports. One major economic issue for Russia is the failure to diversify its economy. If the EU is diversifying, Russia also needs to think about diversifying its exports to other regions of the world. Furthermore, the construction of pipelines is not cheap, and Russia needs to secure its sources of tax revenue.131

4. Future of the Energy Charter Treaty132 ‘The Energy Charter Treaty [ECT] provides a multilateral framework for energy cooperation that is unique under international law. It is designed to promote energy security through the operation of more open and competitive energy markets, while respecting the principles of sustainable development and sovereignty over energy resources.’133 In the early 1990s, public debates took place on how to improve energy cooperation between Eastern and Western Europe. Russia was rich in energy but in great need of investment to be able to reconstruct its economy at the same time as West European countries were trying to diversify their sources of energy supplies. Therefore, there was a recognized need to set up a commonly accepted legal framework for energy cooperation among countries of the Eurasian region, out of which the Energy Charter process saw the light.134 The Energy Charter Treaty is therefore the only binding multilateral legal instrument dealing with intergovernmental cooperation in the energy sector. The first step in the Energy Charter process was the adoption and signing of the European Energy Charter in The Hague in December 1991. The European Energy Charter was a political declaration of principles and therefore did not constitute a legally binding treaty. That said, it contained guidelines for the negotiation of a subsequent binding treaty, later to become the ECT.135 The Energy Charter Treaty and the Energy Charter Protocol on Energy Efficiency 130

‘EU manoeuvring for non-Russian gas supplies’, EurActiv, 15 April 2008, available at . 131 ‘EU ‘wrong’ to prioritise energy diversification’, EurActiv, 15 October 2008, available at . 132 For an overview of the role of the Energy Charter Treaty in the EU–Russia context, see K. Hobér, ‘The role of the Energy Charter Treaty in the context of the European Union and Russia’ in G. Coop and C. Ribeiro (eds), Investment Protection and the Energy Charter Treaty (JurisNet, Huntington, 2008), pp. 235–305. 133 Information taken from the web site of the 1994 Energy Charter Treaty, available under . 134 G. Coop, ‘The Energy Charter Treaty: More than an MIT’ in C. Ribeiro (ed.), Investment Arbitration and the Energy Charter Treaty (JurisNet, Huntington, 2006), pp. 4–9. 135 C. Bamberger, J. Linehanand T. Wälde, ‘The Energy Charter Treaty in 2000: In a New Phase’ in M. Roggenkamp (ed.), Energy Law in Europe (OUP, 2000).

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and Related Environmental Aspects were eventually signed in December 1994 and entered into force in April 1998. All 27 EU Member States and the European Communities have ratified the ECT. Russia, however, has signed it but not yet ratified it. a) Russian issues. Russia’s increasingly vigorous expression of its readiness to cast aside the ECT as a frame of reference for EU–Russia energy relations is the subject of worldwide publicity and comment. Since the January 2009 gas crisis, top-level Russian officials have been suggesting that the ECT should be reviewed. In his speech at the 2009 World Economic Forum in Davos, Russian Prime Minister Putin stated: ‘Unfortunately, the existing Energy Charter has failed to become a working instrument able to regulate emerging problems. I propose we start laying down a new international legal framework for energy security.’136 President Medvedev took up the same theme in his March 2009 interview with the Spanish press: I have come up with an idea, which I first voiced at the Moscow summit during this gas conflict [with Ukraine] – let’s draw up a new Energy Charter or a new version of the Energy Charter. But what should it be like? It should not benefit just the consumers. Yes, a consumer is a vulnerable party. But sometimes we need to think about the producers as well, and the transit countries. Otherwise we cannot come to an agreement.137 In a field of such importance to its economy as is the case of energy, Russia is stepping away from the ECT with significant prevalence, which it freely agrees provisionally to apply,138 and which promotes international law and international arbitration. Does this move really serve Russia’s purpose of being considered an equal counterpart in its energy relations with the EU? Mixed messages abound, and tend to weaken Russia’s position. Russia claims that it deserves an equal place at the negotiating table with its EU counterpart in the energy dialogue. Recognizing the role and importance of international law in its energy policy would be a significant step towards asserting confident 136 Wall Street Journal Online, 28 February 2009. See also the views of then Russian president Putin at an international security summit in Munich: ‘We have stated on numerous occasions that we are not against coordinating the principles of our relations with the European Union in the energy sphere. But we find the [Energy] Charter itself hard to accept.’ Text published by Global Research on 11 February 2007, available under . 137 Medvedev, note 44 above. 138 Article 45 of the Energy Charter Treaty provides that the Treaty is provisionally applied by its signatories provided (i) its provisions are not inconsistent with the Contracting Party’s domestic law; (ii) the Contracting Party has not opted out of provisional application. For further information on the provisional application of the Energy Charter Treaty, see M. Reisman, ‘The provisional application of the Energy Charter Treaty’ in Coop and Ribeiro, note 132 above, pp. 47–61.

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sovereignty and laying the foundations for the credibility which Russia claims it deserves. On the other hand, stepping away from international law – as Russia is doing by not ratifying the ECT – would sideline Russia in the dialogue and entail a significant loss of credibility, no matter how large its natural gas reserves are, or how dependent on them the European market might be. Having signed the ECT places Russia under an obligation at international law not to act in a manner contrary to the ECT’s aims and terms. In addition, Article 45 ECT provides that signatories agree provisionally to apply the ECT, to the extent that such application is not inconsistent with their domestic law, and that they have not availed themselves of the opting-out provision. Provisional application may be terminated, seemingly at any time (Article 25(2) of the Vienna Convention on the Law of Treaties (VCLT)). The VCLT does not deal with the scope or detail of the provisional application of treaties, which is left to the agreement of the state parties. Article 45(2)(a) ECT provides each signatory state with the opportunity to deposit, upon signature, a declaration that it is unable to accept provisional application. Pursuant to Article 45(3)(a) ECT, provisional application of the ECT may be terminated at any time upon giving 60 days’ notice. Russia has not registered a declaration of non-application upon signature, nor has it given notice of its intention to terminate provisional application. Consequently, the ECT is applicable to Russia within the framework of Article 45 ECT. A crucial aspect of Article 45 ECT lies in the so-called ‘domestic exception’ clause, to the effect that provisional application must not be inconsistent with the signatory State’s constitution, laws, or regulations. This wording appears to give priority to national law over the treaty during the period of provisional application. The role of treaties in domestic Russian law as well as Russia’s approach to the sources of international law have changed fundamentally since the dissolution of the former Soviet Union. Article 15(4) of the 1993 Russian Constitution provides that ‘generally recognized principles and norms of international law and international treaties of the Russian Federation’ are an integral part of Russia’s legal system.139 This approach, which makes international law a part of domestic law without a need to be translated into domestic legislation, is termed monist.140 Arguably, Article 45 ECT (provisional 139

W.E. Butler, Russian Foreign Relations and Investment Law (OUP, 2006), §2.49. See also Resolution No. 5 adopted by the Plenum of the Supreme Court of the Russian Federation, Moscow, 10 October 2003: ‘On Application by Court of General Jurisdiction of the Commonly Recognised Principles and Norms of the International Law and the International Treaties of the Russian Federation’, available at . 140 The monist approach to international law is diametrically opposed to a dualist system, which does not recognize international law as part of domestic law unless it is enacted by way of domestic law (such as, for example, in the UK: Morgan and Baker v. Hinton Organics (Wessex) Ltd and CAJE [2009] EWCA Civ 107 (English Court of Appeal)). Note, however, the

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application) enhances Russia’s position in comparison to full ratification of the treaty: by provisionally applying the ECT, Russia keeps the ‘domestic exception’ alive, and can invoke incompatibility with its domestic law as a defence to recourse pursuant to the ECT, a defence which is not open to State parties to fully ratified treaties.141 b) Transit issues. Russian gas giant Gazprom repeatedly invoked the ECT’s incompatibility with Russia’s own interests and often claimed that the ECT should be amended. One of the main dilemmas for Gazprom has always been the question of transit: how to ensure a reliable gas transit through Belarus and Ukraine on the one hand, while preserving a monopoly on the gas transit from Central Asia on the other? The ECT transit provisions (Article 7 ECT) were unclear to Gazprom: issues concerned tariffs for transit, the dispute settlement mechanism, as well as the right of first refusal for long-term supply contracts. In order to clarify these and other issues, Russia and the EU started negotiating a Transit Protocol, which is still not adopted despite the years of off-and-on negotiations since 2000. In the aftermath of the latest gas crisis in January 2009, the need for a gas transit regime became clear for all involved. At the same time, Gazprom experts and Russian political officials claimed the ECT to be next to useless for gas transit disputes. Gazprom consistently refused to use the conciliation dispute settlement mechanism provided in Article 7(7) ECT. In response, European capitals urged Moscow to ratify the ECT in order to enable Russia to defend its transit interests vis-à-vis Ukraine. Russia applies the ECT provisionally (in accordance with the Article 45 ECT) and hence, arguably, could invoke the dispute settlement mechanism. Consequently, the reason for Russia’s refusal of the ECT dispute settlement mechanism appears not to lie so much in its non-ratification of the ECT, as in its political unwillingness to accept an EU-sponsored Energy Charter Treaty. On 20 April 2009, President Medvedev tabled an alternative to the ECT, entitled Conceptual Approach to the New Legal Framework for Energy Cooperation.142 The text includes many principles and practices which have been previously stated by the United Nations, the International Energy Agency, and even the ECT itself: state sovereignty over national energy resources, ensuring non-discriminatory access to international energy markets, transparency, access to energy technologies, and exchange of information inter alia. controversy in the Russian doctrine on the hierarchy between international and domestic law within Russian law; see in this sense Butlernote 139 above, footnote 28, §§10.1–10-5. 141 Article 27 of the Vienna Convention on the Law of Treaties reads: ‘A party may not invoke the provisions of its internal law as justification for its failure to perform a treaty.’ 142 See text at .

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It is interesting to note that the Conceptual Approach to the New Legal Framework for Energy Cooperation introduces the idea of the nondiscrimination at the pre-investment phase: ‘non-discriminatory investment promotion and protection, including new investments into all energy chain links.’ The issue of pre-investment protection was already the subject of international negotiations in 1994, before ECT signature. Non-discrimination at the pre-investment phase re-emerged in 1998 when a Multilateral Investment Treaty was proposed. However, it was aborted and the pre-investment phase issue became a subject of politically agreed reciprocity rather than an impartial legal regime. Perhaps not surprisingly, transit provisions are the main focus of the Russian proposal. Indeed, since the beginning of the Energy Charter process, Russia has been suggesting that the ECT transit provisions needed clarification, hence the Transit Protocol negotiations, ongoing since 2000. During those negotiations, Russia expressed concern about a possible mismatch between transit and supply agreements and therefore proposed a right-of-first-refusal clause for transit contracts. In addition, Gazprom (as well as Naftogaz of Ukraine) often requested clarification of the conciliation dispute settlement mechanisms in Article 7(7) ECT. The gas companies were worried about the provision allowing the conciliator to fix interim tariffs pending resolution of the dispute. This is mainly a political, and not only a legal, issue. Interestingly, the new Russian proposal appears to cast conciliation aside in transit disputes in favor of an UNCITRAL arbitration clause in the event of failure of diplomatic channels. It proposes to reform the dispute settlement mechanism of Article 7(7) ECT. The overall legal framework of the proposal, however, remains unclear: given the important changes that have taken place, and continue to take place, in the energy geopolitical map, should the proposal be the subject of a particular EC–Russia agreement? Or should it completely replace the ECT? Neither of these two options seems readily possible to implement. A new EC–Russia agreement would require 29 separate ratifications (the 27 EU national parliaments, the European Parliament, and the Russian Federal Assembly),143 which would be hard to obtain in the current EU–Russia political climate. A new ECT is even harder to achieve. EU Member States will certainly resist an attempt to redefine the 1994 ECT. Without a doubt, Russian officials understand that opposition to the modification of the ECT will be met in the EU. Perhaps the new proposal, rather than looking at practical implementation in the short term, represents Russia’s willingness to portray itself as a constructive partner on the international energy scene, ready to participate 143

On the legal complexity of the ratification of mixed agreements, see Leal-Arcas, note 1 above, chapters 5 and 6.

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in international norm creation. Politically, the proposal appears to aim at counterbalancing the EU’s influence in the international energy regime and is a request that the interests of Russia, a world leader in energy resources, be acknowledged and counted. The Energy Charter’s Secretary-General has raised the possibility that ‘new tasks and new directions’144 be explored, and has singled out transit as an area for discussion, which has troubled Russia from the outset.145 It remains to be seen how the EU and the Energy Charter Secretariat will respond to the Russian proposal. c) EU issues. The EU has its own internal tensions to address. The EU’s unease in the delimitation of its sphere of competence in mixed agreements146 alongside that of its Member States is tangible and leaves several important questions currently unresolved, particularly with respect to the ECT and foreign investment more generally.147 There are unique challenges presented to the EC as a Party to international treaties alongside some or all of its Member States, and in its dealings with other State Parties. These challenges give rise to avenues which newly acceded EU Member States defending investor-toState claims are starting to explore: 1) a bilateral investment treaty’s (BIT) dispute settlement mechanism violates the principle of ‘mutual trust’ between EU Member States;148 2) the diversion away from the European Court of Justice (ECJ) of the determination of questions of EC law in investor-State cases; 3) the inconsistency between BIT protection and EU law;149 4) in the Energy Charter Treaty context, claims by EU nationals against other EU Member States.150 144 Energy Charter, ‘A Word from the Secretary General on the Energy Crisis of Early 2009,’ 6 February 2009, available under . 145 Ibid. 146 For a legal analysis of mixed agreements, see Leal-Arcas, note 50 above. 147 M. Burgstaller, ‘European Law and Investment Treaties’ (2009) 26/2 Journal of International Arbitration, pp. 181–216; H. Wehland, ‘Intra-EU Investment Agreements and Arbitration: Is European Community Law an Obstacle?’ (2009) 58 International and Comparative Law Quarterly, pp. 297–320, . 148 Notably in Eastern Sugar BV v. The Czech Republic, Partial Award, 27 March 2007, available at . 149 Micula and others v. Romania, ICSID Case No. ARB/05/20, Decision on Jurisdiction and Admissibility, 24 September 2008, available at . 150 Mercuria Energy Group Limited v. Republic of Poland, Stockholm Chamber of Commerce, claim registered on 24 July 2008, IAReporter, Vol. 1, No. 8, 26 August 2008, available at ; Electrabel S.A. v. Republic of Hungary, ICSID Case No. ARB/07/19, available at ; AES Summit Generation Limited and AES-Tisza Erömü Kft.v. Republic of Hungary, ICSID Case No. ARB/07/22, available at . In the cases against Hungary, the European Commission has applied for amicus curiae participation, arguing that the long-term power purchase agreements at issue, which guarantee a return on investment, violate EC competition law.

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With all certainty, a coherent message on EU competence and policy in energy matters would assist in allowing the ECT, and international law standards, to remain the natural choice as a framework for future EU–Russia energy relations. The ECJ may just have afforded an opportunity to put the EU house in order. In its decision of 3 March 2009 in the cases brought by the European Commission against Austria and Sweden respectively,151 the ECJ examined certain bilateral investment treaties (BITs) pre-dating the accession of Austria and Sweden to the EU in 1995, which contained wording conferring unrestricted freedom of transfer of capital and profits for investments covered by the BITs. Whilst free movement of capital is a fundamental principle of EU law,152 Articles 57, 59, and 60 EC give the EU Council powers to impose exchange controls for certain limited or temporary purposes. The EU Council has never exercised these powers. However, if it were to do so, the unrestricted freedom-of-transfer clauses in the relevant BITs would make it difficult or even impossible for Austria and Sweden to comply with their obligation to cooperate with the EU Council, and the European Commission takes the view that there is a hypothetical conflict between the BITs and the EC Treaty.153 The ECJ agreed with the Commission, and ordered Austria and Sweden to renegotiate the relevant BITs or to denounce them. Although these cases arose in the context of bilateral treaties, a similar freedom-of-transfer provision is found in Article 14 ECT. The prospect of the ECT’s quinquennial review (Article 34(7) ECT) might afford the right forum to discuss the possible impact of the ECJ’s decision, as well as Russia’s concerns. To sum up on the future of the ECT, the ECJ rulings in Commission v. Austria and Commission v. Sweden seem to be a timely reason to open discussions on how to move forward in energy law treaty-making. Also, the EU should aim at offering at clearer and more consistent message on investment and should also address its internal competence struggles alongside its Member States in the energy field.

151 Case C-205/06 Commission v. Republic of Austria; Case C-249-06 Commission v. Kingdom of Sweden, Decisions of the Court, 3 March 2009. 152 Let us remember for the non-specialised reader that there are four fundamental freedoms in the EU: the free movement of goods, the free movement of persons, the free movement of capital, and the freedom to provide services. This is certainly one of the great achievements of the EU, which has been able to create a frontier-free area within which people, goods, services, and money can all move around freely. 153 Case C-205/06 Commission v. Republic of Austria, paras. 42–43; Case C-249-06 Commission v. Kingdom of Sweden, paras. 18 and 42.

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One way to depoliticize the EU–Russia debate over energy could be with the environment.154 The Kyoto Protocol155 has been heralded as an alternative avenue that, while still relevant to energy, would take the pressure off the oil and gas agenda and encourage dialogue on energy. Russia, the EC, and its Member States have all ratified the Kyoto Protocol.156

VI Conclusion The EU is definitely an attractive partner for Russia as it provides much in its trade relations. In fact, the EU is Russia’s largest trading partner. Although the EU does want cooperation with Russia, in my opinion, using trade policy as a ‘carrot’ in a policy-centered approach does not have much scope beyond current existing efforts. The European Commission’s Directorate-General for external trade is already very active. So, few new initiatives seem possible. When it comes to bilateralism with Russia, an FTA with the EC does not seem to be a suitable trade instrument at the moment. Nevertheless, the EU can expect a mutual benefit as well as greater economic and political ties. What remains to be done? In my opinion, it is not about what, but how you negotiate: the European Commission should negotiate a new PCA more constructively, without patronizing, and instead accepting Russia as an equal player in the current multipolar framework of global economic governance. Russia is in some areas more assertive than, say, Brazil and India due to a reviving economy and booming prices in oil and gas. So an EU partnership with Russia is more difficult than with Brazil and India. The EU is not in a stronger position vis-à-vis Russia due to the multiplicity of voices on the EU side when negotiating with the Russians on energy, which has been one of the main reasons behind the EU’s failure to develop a coherent and strategic approach to the reality of the EU’s dependence on Russian gas. The renaissance of Russia’s self-confidence, which seems evident thanks to its vast energy supply, is another reason why the EU is not in a stronger position vis-à-vis Russia. Nevertheless, I maintain my point that Russia should prioritize the conclusion of negotiations to enter the WTO in order to fully integrate into the global trading system and protect its growing

154 S. Müller-Kraenner, ‘Focus on Climate Change Could Depoliticize EU–Russian Debate,’ Spiegel Online International, 22 January 2009, available at . 155 Kyoto Protocol to the United Nations Framework Convention on Climate Change, Kyoto, 11 December 1997. For a legal analysis of the Kyoto Protocol, see R. Leal-Arcas, ‘Is the Kyoto Protocol an Adequate Environmental Agreement to Solve the Climate Change Problem?’ (2001) 10/1 European Environmental Law Review, pp. 282–294. 156 For the status of ratification of the Kyoto Protocol, see .

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interests on world markets. WTO membership will certainly help eliminate any discrimination against Russia in its trade and investment. Moreover, on energy Brussels should diversify its energy supplies and obtain energy from new sources by cooperating more closely with other markets such as the Middle East (Qatar, Iraq, Egypt), Norway, Nigeria, or Algeria in order to overcome the EU’s dependency on Russia, and greater emphasis should be placed on locally generated renewable sources of energy. Only a serious effort at diversification can limit Russian leverage and ensure the EU’s protection against future shortfalls resulting from political manipulation or from energy supply shortages in Russia. Furthermore, to help itself and those who benefited from its boom, Russia needs to demonstrate that it can introduce policies to reduce the importance of oil prices for its economic future. Russia also needs to make a commitment to better corporate governance and implement it, pursue policies to raise productivity, and improve its demographic profile by addressing concerns about lack of population growth.

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EUROPEAN FOREIGN AFFAIRS REVIEW European Foreign Affairs Review considers the external posture of the European Union in its relations with the rest of the world. Therefore, the Review focuses on the political, legal and economic aspects of the Union’s external relations. The Review functions as an interdisciplinary medium for the understanding and analysis of foreign affairs issues which are of relevance to the European Union and its Member States on the one hand and its international partners on the other. The Review aims at meeting the needs of both the academic and the practitioner (government officials throughout the world dealing with EU matters, parliamentarians, EU officials, officials of international organizations, executives of multinational corporations, specialized journalists and policy-makers in general). In doing so the Review provides a public forum for the discussion and development of European external policy interests and strategies, addressing issues from the points of view of political science and policy-making, law or economics. These issues will be discussed by authors drawn from around the world while maintaining a European focus. Editors: Jörg Monar, Professor of Contemporary European Studies, Sussex European Institute, University of Sussex; Nanette Neuwahl, Professor of European Law, Centre for Research in Public Law, University of Montreal. Associate Editor: Christophe Hillion, Europa Institute, University of Leiden, The Netherlands. Advisory Board: Dr Gianni Bonvicini (Director, Istituto Affari Internazionali, Rome); Professor Jacques Bourrinet (University Paul Cezanne (Aix Marseille III)); Prof. Dr. Günter Burghardt (Ambassador (Ret.)); Professor Marise Cremona (Department of Law, European University Institute, Florence); Professor Alan Dashwood (University of Cambridge); Professor Sir David Edward (Judge of the Court of Justice of the EC, 1992–2004); Dr Geoffrey Edwards (University of Cambridge); Professor Piet Eeckhout (King’s College London); Lord Hannay of Chiswick (House of Lords); Professor Christopher Hill (University of Cambridge); Prof. Dr. Horst G. Krenzler (Former Director-General External Relations and Trade, European Commission); Professor Josef Molsberger (Emeritus Professor of Economic Policy, University of Tübingen); Professor David O’Keeffe (Founding Joint Editor); Dr Jacek SaryuszWolski (Chairman of the Foreign Affairs Committee of the European Parliament); Ambassador Philippe de Schoutheete de Tervarent (Former Permanent Representative of the Kingdom of Belgium to the European Union); Lord Slynn of Hadley (House of Lords); Professor Loukas Tsoukalis (University of Athens; President, Hellenic Foundation for European and Foreign Policy (ELIAMEP)); Professor John Usher (University of Exeter); Lord Wallace of Saltaire (House of Lords); Professor Joseph H.H. Weiler (New York University School of Law); Professor Wolfgang Wessels (University of Cologne) For more information about European Foreign Affairs Review, please visit www.kluwerlawonline.com/europeanforeignaffairsreview