The annual Gaidar Forum in Moscow made evident that trends in Russia-EU relations are still more positive than negative despite the ongoing sanctions regime. What will it take to bring the dialogue back to normal?

Members of the European Parliament take part in a voting session at the European Parliament in Strasbourg, France, December, 2015. Photo: Reuters 

Jan. 13 marked the beginning of the Gaidar Economic Forum held each year in Moscow at the Russian Presidential Academy of National Economy and Public Administration under the President of the Russian Federation (RANEPA). With the falling price of oil leading to the ruble’s continuing devaluation, the discussion at the forum brought forward a number of urgent issues that are critical to Russian economic development in 2016 as well as over the long term.

One such topic was the future of Russia-EU relations and what might be done to re-establish the relationship now that there seems to be a deadlock in cooperation. During many years, the EU relationship was one of the most profitable ones for Russia and ensured a stable stream of revenues to the federal budget.

One of the most evident signs of both sides being ready to make steps towards each other was the rhetoric present at the first day of the forum. For instance, Russian Prime Minister Dmitry Medvedev stated quite clearly that Moscow is ready to re-establish cooperation with the countries of the European Union. “Sooner of later common sense will prevail and sanctions will be lifted. But for this to happen we need to make steps toward each other,” he said.

European representatives also expressed optimism about the revival of the dialogue. “As the year 2015 showed, we can work quite successfully together on a range of global issues. We achieved progress together on Iran, the Syrian crisis and the climate change agreement in Paris. We are interested in working with Russia on addressing other global problems,” said Kristalina Georgieva, vice president for Budget and Human Resources at the European Commission.

What is more, she said, Russia and the EU think alike on some questions and there are areas where bilateral cooperation is still on a good level, for instance, in educational exchange programs.

In terms of trade, there are positive signs as well. According to Alexey Likhachev, First Deputy Minister of Economic Development of the Russian Federation, Russian exports to the EU in 2015 grew in terms of physical volume while the amount of foreign direct investment increased from $193 billion in January 2015 to $221 billion by July 2015. A negative trend is present only during the last two years – during 2001-2013, the overall trade turnover between Russia and the EU grew six-fold. So, if not for the geopolitical situation, the positive trend could have continued even further.

The losses from the current crisis, according to the Deputy Minister, are estimated to be $50 billion for the EU in 2015 and $25 billion for Russia. “As the economy in Russia adapts to this state of affairs, the impact will become lower with time,” he forecasts.

The European perspective on the current state of affairs is a bit different. As presented by Vygaudas Ušackas, head of the European Union Delegation in Russia, even before the geopolitical crisis, there were points of disagreements between Russia and the EU. In his view, the representatives of both sides need not only resources and willingness to re-establish cooperation, but also a common vision and trust that have suffered a great deal.

The official also raised the question of Ukraine that, as he sees it, is one of the points that will define the future development in Russia-EU relations. He also expressed concern over Russia’s ability to fulfill its obligations within the World Trade Organization (WTO) framework and its future ability to simultaneously develop import-substitution and further integrate with the Eurasian Economic Union.

On the other hand, Russian business partners are also having doubts about the future of working with Europe. For instance, while European investors are worried about doing business in Russia due to general instability, Russian businessmen are also quite uncertain about their projects in Europe.

During the last couple of years, the amount of requests for the state export-support mechanism of business insurance in Europe grew significantly, said Petr Fradkov, First Deputy Chairman of Vnesheconombank (Russia’s Bank for Development and Foreign Economic Affairs) and Member of the Board of Directors at the Russian Export Center. “This is a sign of the reduced trust between entrepreneurs on both sides. Such a trend should be efficiently addressed,” he said.

The situation in the energy sector also leaves much to be desired. Even though 2015 marked a record-breaking rate of Russian exports of gas to Europe – with 45 billion cubic meters of gas exported to Germany alone – and this total is expected to grow further, there is still uncertainty about the way the energy dialogue is going between Russian and European partners. According to Anatoly Yanovsky, Deputy Minister of Energy of the Russian Federation, during the past decade, there was no significant agreement reached on any energy matter. For this, according to his opinion, the one responsible is the EU.

Another issue of concern for Russian officials is the Transatlantic Trade and Investment Partnership (TTIP) between Europe and the United States, which will inevitably put Russian exports to the EU at further risk. The preferential tariffs for U.S. products, which are analogous to Russian ones, will make Russian exports uncompetitive on the European market and hamper economic cooperation in the long run.

This development is proceeding in line with the global trend of deglobalization – a term already widely used to describe the current growth of regional trade agreements that are replacing the former ideas of “global trade flows” of the WTO. These ideals are now considered unrealistic. The new process of deglobalizaton has been started after it became clear that no crisis can be resolved using protectionist policies, by efforts of one country only.

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As Andrei Slepnev, Minister of Trade, Eurasian Economic Commission, explained at the forum, economies started to create economic alliances, or “clubs,” which will benefit the members while putting other states at an unfavorable position. This will have an impact on how global power and capital will be allocated in the long run.

Such a trend is hard to ignore, especially when trade agreements, including the TTIP, are said to be brought into reality in order to benefit the citizens of the EU and the U.S., as Ušackas remarked at the forum. “We are not afraid of the U.S., they pose no threat to us, and we share common values and ideals. And we would like that Russia could also act in a similar way,” the official said.

From the Russian perspective, economic relations between both sides should not be looked at from Washington or Kiev. “If we look at EU-Russia relations through the prism of Kiev, then we better end it straight away. We [Russia] have done our best to keep the preferential treatment of Ukraine, but Europe refused to negotiate, ” points out Likhachev.

Indeed, there are still a lot of questions where Russia and EU states disagree, but this does not mean that the dialogue can not be improved. In the words of Minister Slepnev, “in order to deal with numerous disagreements and reach a mutually beneficial agreement we need to strengthen trust, which has already suffered a lot.” We need to create a new strategy to tackle the crisis and cooperate as before. This will happen eventually – the only question is: At what cost?