Bridges Weekly Trade News Digest • Volume 8 • Number 15 • 28th April 2004

EU, Russia Extend Trade Deal, Discuss WTO, Kyoto Protocol

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Following intensive talks between Romano Prodi, President of the European Commission, and Russian President Vladimir Putin last week, the two parties struck a deal on 27 April to extend their Partnership and Cooperation Agreement (PCA). The PCA governs bilateral relations between Russia and the EU, and will now also cover the ten new members joining the EU on 1 May, many of which are former East block countries. Russia had expressed concern over the trade effects of the extension, as well as over the fate of Russian minorities in the new EU members (see BRIDGES Weekly, 31 March 2004). The two parties were, however, able to sign a protocol extending the PCA on 27 April — just four days before the new members enter the EU — and issued a joint statement acknowledging opportunities for increased cooperation offered by EU enlargement. After the enlargement, the average tariffs on Russian products entering the new members will decrease from nine to four percent.

Russia’s WTO accession…

Also raised in the talks between Prodi and Putin, held from 22-23 April in Moscow, were Russia’s WTO application and the Kyoto Protocol. Both issues are slated for possible inclusion in a "package deal" between Russia and the EU at a summit on 21 May. Russia has been seeking accession to the WTO for nearly ten years, and has to clinch bilateral deals with Members that ask for them. Disagreement between Russia and the EU has centred on access restrictions to the Russian gas pipeline and subsidised Russian gas prices, which the EU considers WTO-incompatible (see BRIDGES Weekly, 8 April 2004). Reportedly, Russia indicated it could compromise by opening up its gas pipelines, but was not willing to agree to a binding commitment on higher gas prices. Prodi noted political will on both sides to resolve this, and some other outstanding issues related to the accession. After Russia finds agreement with the EU, it will still have to clinch deals with other Members, including the US and China.

… linked to Kyoto Protocol ratification

During the meeting, Prodi urged Russia to ratify the Kyoto Protocol, which sets emissions limitations for greenhouse gases. The Protocol cannot enter into force without Russia, following the pullout of the US in 2001. Russia’s ratification has been linked to progress in its WTO accession, and speaking after the meetings, a Russian official indicated that the removal of "risks" could encourage Russia to ratify: "To remove worries about EU enlargement would be taking away a risk, to remove demands about raising gas prices would be removing a risk… The quicker the risks are removed, then the quicker a decision will be made [on the Kyoto Protocol]." Prodi stressed the economic benefits the Protocol could bring to Russia, saying that "We are pressing ahead with preparations to launch the world’s biggest greenhouse gas market in 2005. Ratification will allow the Russian economy to diversify, allowing the economy to move away from relying on mainly energy".

While Putin himself has not yet spoken on the Protocol, his economic advisor, Andrei Illarionov, has taken an openly negative stance. According to Illarionov, the Protocol would hamper Russia’s economic growth, and in his latest public statement he said "The Kyoto Protocol is a death treaty, no matter how strange that seems, because its main purpose is to stifle economic growth and economic activity in countries which assume its responsibilities".

The EU and Russia will hold a high-level Summit on 21 May.

To access the PCA Protocol and the Russia-EU Joint Statement, visit http://europa.eu.int/comm/trade/issues/bilateral/countries/russia/pr270404_en.htm

"EU pledges help with Russia’s WTO accession, while urging Russia to ratify the Kyoto Protocol," AP, 23 April 2004; "Russia to Ease Pipeline Access for WTO Entry," MOSCOW TIMES, 26 April 2004; EU, "Russia clear last hurdles to trade deal, RUSSIA JOURNAL," 28 April 2004; "Russia and EU Strike a Deal," MOSCOW TIMES, 23 April 2004.