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Asymmetrical interdependence and competition between EU and Russia

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EU and Russia find themselves connected by strong and continuously growing trading relations as well as investment capital flow that moves to-and-from both the parties involved. Although their position in the international system doesn't seem to
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  1  Asymmetrical interdependence and competition between EU and Russia Michalis Mathioulakis – MA International Studies Major in Strategic Studies and International Policy The European Union and Russia find themselves in the first years of the 21 st  century connected by strong and continuously growing trading relations as well as investment capital flow that moves to-and-from both the parties involved. Although their position in the international system doesn’t seem to bring them in a direct path of collision, the two trade partners seem to prone to the harsh effects of asymmetrical interdependence and the security threats that it imposes. According to Robert Keohane and Joseph Nye in order to have interdependence it is not enough to have merely a high volume of transactions between two countries but it requires the existence of significant costly effects that derive from these transactions 1 . These costly effects come as a result to the limitations that derive from these transactions. The states involved are obligated to accept these limitations in their ability to act freely in order to maintain the benefits that also derive from these extensive interactions. The two renounced authors of “Power & Interdependence” emphasize that: “A symmetries in interdependence are more likely to provide sources of influence for actors in their dealings with one another”. 2   In order to examine whether the EU and Russia relations fall into the spectrum of asymmetrical interdependence we need to identify on one hand the existence of significant costly effects that the two trade partners have to face in the implementation of their trade interactions, and on the other hand the form and intensity of the asymmetry in their interdependence. The Partnership and Cooperation Agreement (PCA) signed in 1997 has set the framework of the EU-Russia relations and has regulated and promoted trade and investment relations between EU and Russia ever since, even though it hasn’t been renewed yet since its expiration in 2007. The two parties are currently negotiating a new EU-Russia Agreement that is built on a renewed framework for cooperation that takes into consideration Russia’s recent accession to the World Trade Organization (WTO) in August 2012 and aims to express most of the aspects of the EU-Russian intense interdependence and competitive trading and 1  Robert O. Keohane and Joseph S. Nye, Power and Interdependence , (New York: Longman, 2001), 7-8 2  Robert O. Keohane and Joseph S. Nye, 9  2 political relations. The total trade volume between the two parties has doubled since 2009 and exceeded the barrier of 300 billion in 2012 reaching up to 330 billion euro. Diagram 1: EU’s trade balance with Russia 2008-2012 Source: European Commission: http://ec.europa.eu/trade/policy/countries-and-regions/countries/russia/    Trading volumes reveal that Russia and EU play a significant role in each other’s economy since they both hold a place in their prospective top-five trade partners list. A closer look in the ranking and the percentages shown in Tables 1 & 2 that follow offers a first clue into the nature of this relationship and the seeds of interdependence that it imposes between Russia and its European partners. The trade balance between the two parties favors Russia with an annual surplus of almost 90 billion euro but also reveals that the EU is a far more important partner to Russia than Russia itself is to the European Union. Russia lists as the 3 rd  most significant trade partner for EU, holding the 2 nd  place as an exporter to the EU and the 4 th  place as a receiver of EU’s exports. For Russia on the other hand, the EU holds by far the 1 st  place as its most important trade partner with “exports-to” & “imports-from" the EU being in the 1 st  place of Russian trade while holding a significant difference with the ones that follow. While trade with Russia represents less than 10% of the total volume of trade for the EU, for Russia the trade with EU holds more than 40% of the total volume of Russian trade value thus making Russia extremely sensitive to its trading relations with EU and to the political relations that might affect them. Table 1: EU’s top 5 trade partners in 2012 Source: European Commission: http://ec.europa.eu/trade/policy/countries-and-regions/countries/russia/     3 Table 2: Russia’s top 5 trade partners in 2012 Source: European Commission: http://ec.europa.eu/trade/policy/countries-and-regions/countries/russia/    The asymmetric impact that EU-Russia trade has on each party’s economy is revealed if compared with the total volume of each economy. The total trade of 336 billion euro between the two partners for 2012 represents less than 3% of the European Union’s GDP while it rises up to 17% of the Russian GDP. This fact reveals the high dependency of the Russian economy growth from its trade relations with EU.   Country Comparison   by GDP   (2012) Rank Economy GDP (million euro) 1 European Union 12.191 € 2 United States 12.168 € 3 China 9.626 € 4 India 3.634 € 5 Japan 3.591 € 6 Germany 2.481 € 7 Russia 1.950 € 8 Brazil 1.827 € 9 United Kingdom 1.813 € 10 France 1.749 € Table 3: Country Comparison by Gross Domestic Product in 2012 Source: CIA World Factbook: https://www.cia.gov/library/publications/the-world-factbook/rankorder/2001rank.html   Economic growth is a major factor generating political strength for countries in the Westphalian State System and according to Robert Gilpin the struggle for power and the desire for economic gain are “ ultimately and inextricably  ” joined. Gilpin argues that an economic growth rate of 2% or 3% a year that can be sustained for an adequate amount of time can create a significant positive effect in a country’s power levels 3 . This makes the issue of sustainable economic growth and its connection to the trade with EU a vital subject of interest in the Russian agenda as the Kremlin struggles to restore Russian power and 3   Robert Gilpin, War and change in world politics , (Cambridge: Cambridge University Press, 1981), 67-69    4 influence in the International System. Examining the volume of trade between EU and Russia has exposed the ways that Russia is dependent on its trade with EU, but when focusing on the content   of this trade another dependency is revealed, one that has to do with the concentration of European imports from Russia in energy related products. Table 4: EU’s imports from Russia by category of goods Source: European Commission: http://ec.europa.eu/trade/policy/countries-and-regions/countries/russia/    More than 75% of the volume of EU imports from Russia refers to raw materials, in particular oil and gas. EU imports of energy-related products reached 162 billion euro in 2012, covering up to 30% of EU’s total imports in this category thus making the EU seriously depended on Russian energy exports. At this point it has to be noted that in this part of the current analysis the interdependence linked with energy-related issues is examined only within the framework of the asymmetry presented by the high percentage that Russian energy exports hold within the total volume of EU’s energy imports. As far as energy is concerned, there are more issues at play that arise concerns about Energy Security in both EU and Russia. These issues will be examined separately in the next chapter of this paper. Analysis of the trade-data between EU and Russia reveal so far that both EU and Russia have a critical part of their economy linked directly to the influence and decision making of the other party. Russia’s economy and its growth potential is linked directly to the decisions that EU officials make on the form and volume of trade that they will direct towards the Russian economy, and EU’s  5 growth is respectively linked to the Kremlin’s decisions on the flow of gas and oil that it will direct towards the European businesses and households. Russia’s determination to maintain its trade relations with EU on a satisfactory level implies that Moscow has to suffer limitations in its ability to react to Brussels’ pressure on human rights violation issues 4 . Respectively EU’s resolution to maintain the inflow of Russian energy sources for its member states leads to limitations in Brussels’ effectiveness on the implementation of its European Neighborhood Policy for the counties that fall under the Russian influence. These limitations constitute serious costs for both parties; costs that enforced by the intense asymmetries between the elements of their mutual dependence are a proof of the existence of an asymmetrical interdependence between EU and Russia that forces them to list each other as an inescapable threat for their own security. Moscow’s efforts to overcome the limitations and costs that derive from the asymmetrical interdependence with EU have focused on its bilateral relations with various member states of the EU. While the Union of the 27 European countries creates a far bigger trade partner for Russia, each member state separately is a much easier trade partner -or trade opponent- for Russia thus giving a chance for Moscow to eliminate the asymmetry factor in its trade balance and lower the limitations that interdependence forces down on Russian Foreign and Security Policy. Russian efforts to divert its relations with the rest of Europe in a bilateral level benefit from the structural problems of EU’s Common Foreign and Security Policy. The CFSP has failed so far to transform the security interests of its member states to a truly common collective security policy that will derive as a result of expressing a common denominator for the separate security and foreign policy interests of the member states 5 . This results to polyphony of policies from the EU member states that in the spirit of self-help try to handle their trade relations with Russia separately thus giving Moscow the bargaining advantage that it needs to achieve its security goals in its European front. Brussels also try to overcome the limitations and costs that derive from the asymmetrical interdependence with Russia by attempting to improve its energy mix and its energy vulnerability through the diversification of its energy sources and energy needs. The European Commission has proposed an Energy Security and Solidarity Action Plan in order to formulate its efforts into an applicable action that combined with the new PCA currently negotiated with the Kremlin could lift the asymmetry of its interdependence with Russia. 4  Jeffrey Mankoff, Russian Foreign Policy-The return of Great Power politics, (Lanham: Rowman & Littlefield, 2012) 137 5  Giorgos Voskopoulos, European Union and United States of America , (Piotita: Athens, 2012) 227-236
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