The View from Germany

Comment by Klaus Mangold
Special to Russia Profile


Part of the EU wants More Cooperation with Russia

Our economy relies on open markets to promote growth and prosperity in Germany and throughout Europe. The same is true for Russia, which is Germany’s most important trade partner in Central and Eastern Europe due to its vast energy resources and enormous market potential.

Relations between Europe and Russia have until now been defined in the Partnership and Cooperation Agreement (PCA), signed in 1997. However, this document will expire at the end of this year. The European Commission has not yet issued a new negotiating mandate, and the last EU-Russian Summit in Samara last May did not lead to a breakthrough, either. The Russian embargo on meat from Poland has all but brought negotiations to a standstill. In addition to establishing a new legal framework for European-Russian cooperation, a new PCA could help define further goals such as the creation of a free trade zone between the European Union and Russia. From the perspective of German business and industry, the agricultural sector along with the energy, aerospace, transport and finance industries are of particular importance in this regard along with the removal of barriers to trade and investment.

Following the completion of bilateral negotiations with all leading industrial nations, the drive for Russia’s entry into the World Trade Organization has also lost momentum. At the bilateral level, negotiations with Georgia and Saudi Arabia have not yet been concluded and a host of issues still remain unresolved at the multilateral level, including increases in export duties for round timber, discriminatory railway tariffs, the lowering of overflight charges, protection of intellectual property, trade liberalization in the healthcare sector and pest management.

Recently, calls in Germany and Europe for more access restrictions of foreign investors in strategically important sectors have grown louder. This is largely due to the increased presence of new market players, in particular state-owned enterprises and investment companies from China, Russia and the Persian Gulf states, who are capable of making comprehensive strategic investments. Additionally, many of these same countries have protectionist policies restricting foreign investor access to their markets, such as the Foreign Investment in Strategic Industries Act brought before the State Duma by the Russian administration. While German business views national security as a legitimate political interest, it should not be used as a tool for discriminating against specific foreign investors. Freedom of investment is critical for economic growth, jobs and prosperity, in Russia as in Germany. In addition to attracting capital, foreign direct investment also brings with it a transfer of technology and know-how, strengthens competition and promotes innovation. Ironically it is Russia, which is on average 20 years behind Western Europe in many industries in terms of competitiveness, that is in urgent need of foreign investment.

Russian investment in Germany and Europe, on the other hand, is expected to increase sharply over the months and years ahead. The reason why is obvious: Russian businesses are eager to move forward and close the gap in this age of globalization. One of their objectives is gaining access to the German and European markets. As market leaders in several key industries, German companies are quite attractive for Russian investors, while construction, electrical and mechanical engineering and the auto industry, for example, are also targeted due to Russia's need to modernize. The excellent positioning of German companies in these sectors naturally puts them at the top of the list for Russian business leaders.

What is important now is to show Russia that economic relations are not a one-way street, but rather that it is also in the interest of the EU for the Russian economy to become more competitive through job creation and transfer of knowledge. This is bound up with the opening of European markets governed under EU competition law and domestic market regulations to Russian firms. Measures such as loosening visa requirements and promoting youth, student and work exchange programs would serve to bring the EU and Russia closer together, paving the way for a stronger shared-values partnership. We believe that it is important for Europe to work towards furthering our mutual interests by means of a unified EU policy towards Russia.

To achieve these common interests, we need to converge around a single focus: ensuring our national economic competitiveness within the global economy over the long-term.

The goal of the European Union is to become the world's most competitive economic region by the year 2010. Russia's objective is to double its gross domestic product within the same period. These goals will only be reached if Russia opens up to Europe and Europe opens up to Russia. The German-Russian partnership is at the heart of this process.

Dr. Klaus Mangold is the chairman of the committee on Eastern European Economic Relations of the Federation of German Industries (BDI).