The Lisbon to Vladivostok common economic space: the perspective from Berlin

_ Yuri Kofner, head, Eurasian sector, Higher School of Economics. Moscow, 4 September 2017. 

On April 7th, 2017, a working group of representatives from leading German companies signed the 10-point “Berlin Memorandum” containing proposals for the next steps towards continental cooperation and the creation of a common economic space from Lisbon to Vladivostok (L2V).

Referring to SCHNEIDR GROUP’s „Lisbon-to-Vladivostok (L2V)” position paper one needs to stress the major economic benefits for Germany, but more broadly for the EU, of restoring close economic cooperation with Russia and the EAEU.

The resumption of contacts also at EU level would greatly help moving forward the L2V goal, the establishment of a common economic space between the EU and the EAEU, allowing free trade among all countries in the region.

A detailed quantitative analysis of the potential developement trade and economic relations, that was published in 2016 by the Munich based Ifo-Institute jointly with the Bertelsmann publishing house, points out the huge economic potentials and benefits from creating a free trade area between the EU and the EAEU/CIS. This detailed analysis covers various sectors, product groups and individual member countries of the EU and the EAEU/CIS.

In terms of income per capita, a deep EAEU-EU trade agreement would increase real income in the European Union by ca. €30 billion. Germany could expect its GDP to rise between seven and nine percent, which corresponds to €90-110 per capita. Even a shallow trade agreement would still generate substantial positive effects. In such a scenario, Germany’s exports to the EU and EAEU member states would increase by 60%.

The present negative situation however, falls in economic contacts and trade, cause – even if unevenly distributed – damage to all countries.

The Vienna based International Institute for Applied Systems Analysis (IIASA) is conducting the main research project, that is focusing on the prospects and challenges of creating a wider Euro-Eurasian economic space. Major results were made within Phase I (2014-2016). IIASA is now launching a more detailed Phase II (2017-2020).

The first phase of the international research project “Challenges and Opportunities of Economic integration within a wider European and Eurasian Space” aimed at discussing and critically evaluating the potential and conditions for the creation of a common economic space between the European Union (EU) and the Eurasian Economic Union (EAEU).

This project had been very timely. Due to the tensioned EU-Russia political and hence economic relations, caused by the Ukrainian crisis, the interactions of the officials and experts have practically stopped since 2014. IIASA has been the only platform where high-level officials and experts from the European Commission, European countries, the Eurasian Economic Commission and the Commonwealth of Independent States (CIS) countries could meet and discuss the challenges and opportunities of (re-) establishing close economic relationships and the eventual creation of a common economic space between the EU and the EAEU to all relevant countries and regions.

The project was organized around a series of high-level workshops each addressing a specific dimension of the economic relations between the EU, EAEU and neighboring countries and the science needed to substantiate the political process:

  1. Methodological Approaches to the Assessment of Economic Impact;
  2. Trade Policy Regimes;
  3. Non-Tariff Barriers and Technical Regulations;
  4. Futures of Energy in Eurasia in a Global Context;
  5. Development of Transport and Infrastructure in Eurasia;
  6. Labor Market and Migration across the Eurasian Continent;
  7. EU-EAEU in Greater Eurasia: Long-Term Agenda for Economic Cooperation.

More than 200 recognized scientists, experts, stakeholders and policy-makers from numerous countries and organizations, especially from the EU and EAEU member states, but also from the USA, China, Turkey, South Korea, Ukraine and other states participated in the workshops.

IIASA’s research has shown the big economic potentials of increased EU - EAEU economic cooperation, which is, however, in stark contrast with the present downward spiral of economic/trade relations.

Behind the fast falling trade figures, apart from the political problems linked to Ukraine, the European side also sees as a major negative factor, the present economic-trade policies of Russia. These include a continued series of measures contradicting to Russia’s WTO commitments.

Thus, first the trust between the EU and Russia should be restored, so that any contacts result in positive, pragmatic steps to improve the conditions for exports by EU companies, as well as the bad business and investment environment.

In February 2017 SGS, the large Swiss quality control and certification company, gave a detailed presentation about the state of the technical regulatory regime in Russia, the level of harmonisation with EU and international standards.

Progress was achieved especially concerning processed industrial products, but the situation is more difficult in the agri-food sector, in health and sanitary matters. The still different regularory regimes and standards have major costs and damages for EU - EAEU trade.

Concerning the re-establishement of EU-Russia economic relations, one can distinguish two groups of views within the European business and administrative community.

The larger part, especially the German industrialists, stress that irrespective of the present negative situation, the EU should urgently restart official, formal contacts with Russia and the EAEU, participate at joint conferences, high-level meetings and negotiations.

The strongest supporters of the „Lisbon to Vladivostok” common economic space within the Austro-German business, scientific and political community are – the International Institute for Applied Systems Analysis (IIASA), the Ifo-Institute, the German Industry’s Eastern Committee, the SCHNEIDER GROUP, the „Osteuropaverein”, the Berlin East Forum, the "Deutsch-Russisches Forum e.V.", the Austrian Chamber of Commerce, various more or less influential members of the German federal foreign and economic ministries, as well as of the CDU/CSU, AfD and FPÖ political parties.

When creating the L2V common economic space, Berlin would be primarily interested in: 1. establishing a simple free trade zone between the EU and EAEU/CIS involving the removal of tariff barriers to increase the volume of exports to the EAEU market; 2. the liberalization of the EAEU's anti-trust legislation and the enforcement of a national regime for European companies; 3. improving the overal investment climate in Eurasia (investment guarantees).

A lesser part however, mainly the Transatlantic EU beaurocracy, points out that progress was needed first in the political area, in the Minsk process, before serious talks about the formal economic contacts could be started.

One might propose a mid-way solution, a gradual approach: to start with smaller steps, technical level contacts and meetings, focussing on practical problems, on administrative measures, the solution of which would facilitate trade and business contacts. These should be action-oriented, so that the European companies should see the results actually implemented.

Thereby the necessary trust could be gradually re-established which is necessary for higher-level, formal contacts, for reverting to the Lisbon to Vladivostok idea. One might also underline the importance of cooperation between IIASA, the Ifo-Institute, SCHNEIDER GROUP and the wider German business, political and scientific community.

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