, Title-Page j The Development of Relations Between Russia and the European Union Luc Vaillancourt Thesis submitted for the degree of Doctor of Philosophy School of Slavonic and East European Studies, University of London. 14 June 1996. ProQuest Number: U091468 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. uest. ProQuest U091468 Published by ProQuest LLC(2016). Copyright of the Dissertation is held by the Author. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code. Microform Edition © ProQuest LLC. ProQuest LLC 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106-1346 Abstract Thesis Abstract of Thesis Russians overwhelmingly see themselves as part of Europe, yet appreciate their Asian connection; there is a continuation of the ‘Great Debate’ between Westemizers and Slavophiles. Decades of official acrimony towards the EC were followed by acceptance of West European integration, if it did not involve Russia’s isolation. After a period of rapprochement with Europe, a feeling of betrayal has recently grown in Russia. Nevertheless, the trend is for ever closer links with the West. From the EU’s perspective. Member States’ conflicting views on the New Europe hinder a united approach to solutions. The EU has gained a very strong position with the collapse of the CMEA. The EU-Russia Partnership Agreement shows that vested interests of EU producers often prevail, yet useful structures for political dialogue were nonetheless created, and the prospect of a common free trade area is momentous. The need for a new security structure is unlikely to be satisfied by NATO’s Partnership for Peace, but the EU has failed to lead European calls for a WEU or CSCE-based security framework. The inheritance of the command economy has damaged foreign trade and investment conditions. Despite the transformation of the economy, much needs to be done to improve investment conditions for foreigners as well as for potential exporters — fiscal, export and property legislation must become workable, and the need to make a profit must be respected. Nonetheless, foreign investment projects are growing fast. The energy and aeronautics industries are used as case studies of the new possibilities for foreign investors and Russian exporters. Having long been aimed at restricting Russian economic growth, statecraft has become an instrument of growth. The EU’s assistance is particularly beneficial as it is non­ reimbursable and aims at long-term change through training, yet TACIS could be improved by better management, smaller projects and lower wages. Overall, Western investment in Russian stability should increase. Table of Contents Table of Contents Title-Page 1 Abstract 2 Table of Contents 3 Acknowledgements 7 Dedication 8 Glossary 9 Introduction 13 Chapter One: The Russian Vision of Europe 1.1 Introduction 26 1.2 Russia’a Role in Europe — the Endless Cycles of the Great Debate 27 1.3 Overall Shift Westwards 49 1.4 Moscow’s Perspective on West European Integration 53 1.5 Germany’s Special Position 74 1.6 The Security Dimension of the New Europe — As Seen From Russia 78 1.7 Conclusions 94 Chapter Two: European Union Views on the New Europe and Policy Towards Russia 99 2.1 Introduction 99 2.2 Different Approaches to a United Europe 100 2.3 Agreement and Disagreement Between Brussels and Moscow, Before Gorbachev 111 2.4 The EC’s Relations with the USSR Under Gorbachev 116 2.5 The Evolution of a New Partnership Agreement 120 2.6 On the Road to a Pan-European Economic Structure? 142 2.7 The Security Dimension of the New Europe — As Seen from the European Table of Contents Union 147 2.8 Conclusions 170 Chapter Three: The Effect of Russian Economic Reforms on Foreign Trade, and on the Prospects of Closer Russia-EU Economic Relations 174 3.1 Introduction 174 3.2 The Former Soviet Economy in Terms of European and World Trade 175 3.3 Traditional Weaknesses of the Soviet Economy 181 3.4 Gorbachev’s Attempts to Liberalize Foreign Trade 184 3.5 Barriers to Reform Facing EFtsin 190 3.6 El'tsin’s Economic Successes and Failures up to 1995, with Regard to Foreign Trade and Investment 198 Privatization 199 Macrostabilization and Price Liberalization 206 Ruble Convertibility 218 3.7 Foreign Trade Policy Reform, and New Conditions for Foreign Investment 226 3.8 Conclusions 242 Chapter Four: Western Aid and Economic Assistance to Russia 249 4.1 Introduction 249 4.2 The Changing Approaches of Western Economic Statecraft Towards Russia 250 Definition of ‘Statecraft’, and the First Aid Programmes to Soviet Russia 250 From Cold W ar to Détente, or from Stick to Carrot 255 Gorbachev and the Metamorphosis of Statecraft 259 New Country, Old Empty Promises 263 4.3 The European Union’s Assistance to Russia 270 The Special Role of European Union Aid 270 Table of Contents Food Grants 273 Credit Guarantees and Loans 277 Non-TACIS Energy Programmes 279 Technical Assistance to the CIS 280 4.4 Assistance from Other Multilateral Organizations in Relation to that of the EU 309 The Coordination of Western Assistance 309 The European Bank for Reconstruction and Development and the World Bank 312 4.5 Conclusions 320 Conclusions 326 Postscriptum 337 Appendix One: Aeronautics as an Example of the Potential for Increased Russian Commercial Interaction with Western Europe 342 A l.l Importance of Sector 342 A1.2 Military Aviation Export Potential 346 A1.3 Conversion and Restructuring of Russian Aeronautics Enterprises 352 A1.4 Purely Russian Civil Aviation Export and Leasing Projects 359 A1.5 Partnerships Amalgamating Russian and Western Hardware 365 A1.6 Joint Production Partnerships with Western Enterprises, and the Most Marketable Areas of Russian Expertise 374 A1.7 Conclusions 381 Appendix Two: Oil and Gas as an Example of the Potential for Increased Russian Commercial Interaction with Western Europe 386 A2.1 Importance of Sector 386 A2.2 Previous Restrictions on Foreign Involvement in Oil and Gas, and New Conditions Allowing Western Cooperation 392 A2.3 Most Promising Sectors of Cooperation 397 T able of Contents A2.4 Main Barriers to Cooperation Yet to Be Lifted 402 A2.5 Specific EU Involvement in the Sector 406 A2.6 Conclusions 413 Bibliography 417 List of Tables Table 3.1 Major Western Investment Projects in Russia 246 Table 4.1 TACIS Project Cycle Timeframe 325 Table A l.l Projects for Western Engines on Russian Airframes 383 Table A1.2 Projects for Joint Western-Russian Aeronautics Hardware Production, at Russian Facilities 385 Table A2.1 Major Joint Oil and Gas Projects in Russia 415 Ackno^edgements ^ Acknowledgements This doctorate was greatly facilitated by the financial assistance of the ESRC (award no. R00429024959), and would simply have been impossible without the unfailing material and moral support of my parents, Jean-Paul and Diane Vaillancourt. The personnel of many institutions have kindly helped with my search for information. In particular, I would like to express my gratitude to the staff running the Department of Trade and Industry’s World Aid Section, as well as the libraries of the Royal Institute of International Affairs and the Royal United Services’ Institute for Defence Studies. I am also indebted to many of the specialists from the Russian Academy of Science’s Institute of Europe for sharing their knowledge, and in particular to Andrei Semenov. I have benefitted from interviews with a great many sources, but especially from the specialists of the TACIS Russian Coordination Unit, Michael Emerson and his staff at the European Commission’s Moscow Delegation, Jean Foglizzo and Tom Woolfe of the IMF, Michael Carter of the EBRD, and Lou Naumowski of the EBRD. I am also much obliged to John Pilgrim, of Pilgrim Associates, for his tutelage in the field of TACIS project design and analysis. Special thanks naturally go to my supervisors. Alan Smith’s advice on economic matters has been invaluable, whilst Peter Duncan’s overall guidance and friendship have been far beyond the call of duty, and are deeply appreciated. All of my friends deserve thanks, as well as apologies for my guilt-induced mood swings and infrequent communication. Emma Gray and Maksim Olitskii nevertheless must be thanked specifically for the support, both in terms of accommodation and close friendship, which they provided in Moscow. I am also thankful to Pierre Tremblay for his advice on the structure of the thesis, to Belinda Seward for her inspiration, and Michael Friedrich for his counsel. Most of all I want to offer my partner Rosalind McKenzie more love, gratitude and admiration than the written word could ever convey. Not only has Ros’ constant emotional support been extraordinary, but it has been complemented by superhuman efforts in the editing and formating of this doctorate not only once, but twice. Without her, this thesis would have seen the light in a much less readable state, and may well have failed to materialize at all for its second submission. Dedication 8 Â Maman et Papa: sans votre soutien et votre amour, je n 'aurais pas été en mesure de dédier quoi que ce soit. Glossary GLOSSARY An-.., — Antonov (aircraft design bureau) ATC — Air trafific control Be-... — Beriev (aircraft design bureau) bcm — billion cubic metres b/day — barrels per day BEE — Business