Europe and� Asia : New� Partnerships after the Cold War Era

Elif Hatun Kilicbeyli*

 

A. Historical Background

International system has been changing for many centuries. Through the end of 20th century, the world left behind unexpected great developments. The end of the 20th century and the beginning of 21th century in about ten years, the world accounted great political changes. The effect of these changes on the world economy has been dominant. In the new century the complex structural condition and agitatinal structure of the world are to be going to continue for some time. By the way, global political and economic stability are about to be established.

Dr. Javier Solana said that �developing the partnership between Russia and EU is the most important, the most urgent and the most challenging task that the EU faces at the beginning of the 21st century. It offers great opportunity to affect the course of history. Both the EU and Russia are at the end of one era and on the threshold of another�.[1]

For this reason, the changes in both are brought together. From point of view of economics and politics, the European Community, in the 20th century, for the last fifteen years has been in a change of structural situation and therefore it is set to be in the proper place. Russia has undergone an intense eleven-year-period of transformation. After the latest Presidential elections, Vladimir Putin�s administration came to power and now social reforms are today near normal. Both the EU and Russia need to found new partnership about economic, political and social spheres with carefully and securely in the long � term.�

In 1985, in the Eastern European Countries (EEC), the social demonstrations started. In 1989, the Wall of Berlin was destroyed. As a result of these developments, the Warsaw Pact ended. That�s why the Russian Federation became in the East Europe an Asian superpower in August 19, 1991 as a result of the political changes in Moscow that led to her independent.[2]

B . The European Union:� New Europasiation� and its Development

The World Wars, the Japanese attack to Pearl Harbor, the usage of atomic bomb, travel to Moon by human beings, the scientific innovations, Autumn-1968 event in Prag, the copy of humans, the Kennedy�s assasination, the October Revolution and the end of� Russian Czarist regime and destroy of the Berlin Wall all occurred in the 20th century. However, after First and Second World Wars, view of political order becomes very important for the process of globalization. In the 20th century these two important events dramatically affected international system, especially in Europe. Although the Western countries were developed and pursued imperialist policies before the Second World War, their economies were damaged heavily during the world war. But as a result of the attempts in the course of the regional integration, they improved their internal and external conditions very fast.

At the beginning of the Cold War era, the American administration implemented the Marshall Plan[3] in which it mainly granted $18 billion financial aid to sixteen European countries in order to improve their social, economic and technical structures. In the meantime, Europe, especially Federal Germany, developed their political situations. At the same time as a result of the American financial aid to the European countries, their financial and economic structures were improved. In Germany, architect of the development was Adolf Hitler. Other European countries, together with Germany, came together to form a unity in Europe against the Soviet Union�s revisionist attempts. Such unity was the dream of Hitler. Then they formed the Coal and Steel Community in Europe[4].

The economic development during the Cold War period made the European countries very strong. In the three stage of this development, which were geographic, financial and political unions, the European Community was established with 15 members to protect their social and economic developments. Nowadays, recently the European countries, eventhough they have started late to form this unity, have been successful.

C . Russian Federation: New� Sovereignty

At the beginning of 20th century, one of the main events in the world politics was the end of Russian reign. By the Great October Revolution, the Russian reign was ended. Afterthat the Soviet Union formed. Although the Europe became developed, the Socialist Russia was formed in Asia, which was underdeveloped. In Socialism, based on the ideas of Karl Marx and Frederick Engels,� there are proletariat class and Communist Party officials, who came forward creals complex relations, which became� problem. From 1917 to 1991 there occurred various negative and positive developments. First of all in the Soviet Union a totalitarian regime controlled the power. The Soviet Union divided the Europe by conquering the Eastern European countries. Its military attempts and socialist system led to the emergence of the Cold War. It created the Warsaw Pact as being its leader. In the meantime it succeeded� agricultural reform and technological developments, especially in the military industry, within its territory. USSR established its economic unity in СЭВ (SEV)[5], economic association center of which is in Moscow.� The members of the association used RUBLE, equal to $0.60, as an official currency between the years 1960 and 1990. Convertibility of Ruble was a serious mistake.

It did not mean that it didn�t have any contact with the European states. At the minimum level, especially in the fields of culture and diplomacy, it had certain relations with them. Especially 1970s a detant between the West and Russia lived. They negotiated the matter of disarmament and arms control.� Russia and the European countries continued bilateral trade relations. Such relations has been developing in the post- Cold war era.

D. EU Assistance to Russia

The EU and Russia are bound to be close partners[6]; because in political terms they are the main players and immediate neighbors in the European continent. Russia is becoming an increasingly important trade partner of the EU. Energy supplies represent 45% of Russia's exports to the EU, which, in turn, account for 42% of the EU's needs in imported natural gas (17% of total gas consumption) and 17% of oil imports.

The Partnership and Cooperation Agreement (PCA) was signed in 1994 between the EU and Russia. Since it came into force on December 1st 1997, the EU-Russia relations have been gaining increased momentum. Implementation of the PCA, which has been carried out by means of meetings of the institutions created by the agreement, has led to increased interest and understanding between the EU and Russia. The EU's Tacis programme of technical assistance is a key to the implementation of the PCA agreement.

The main characteristics of the PCA are:

1.      Trade: Liberal, based on MFN treatment and the elimination of quantitative restrictions;

2.      Political dialogue: Increased and institutionalized dialogue at all levels;

3.      Economic and legislative co-operation: A broad menu of co-operation in sectors such as science and technology, energy, transport and the environment;

4.      Justice and Home Affairs: Cooperation to prevent illegal activities, including cooperation to combat trafficking in drugs, money laundering and organized crime;

5.      Institutions: Summit, Co-operation Council (at the ministerial level), Co-operation Committee (at the senior official level), Sub-Committees on technical issues.

D. 1. EBRD - Activities in Russia

The European Bank for Reconstruction and Development (EBRD) was established in 1991. It exists to foster the transition towards open market-oriented economy and to promote private and entrepreneurial initiative in the countries of Central and Eastern Europe. Nowadays the Commonwealth of Independent States (CIS) committed to and applied the principles of multiparty democracy, pluralism and market economics. The EBRD seeks to help them implement structural and sectoral economic reforms. It promotes competition, privatization and entrepreneurship, taking into account the particular needs of countries at different stages of transition. Through its investments, it bolsters private sector activities, the strengthening of financial institutions and legal systems, and the development of the infrastructure needed to support the private sector. The Bank applies sound banking and investment principles in all of its operations.

In fulfilling its role as a catalyst of change, the EBRD encourages co-financing and foreign direct investment from the private and public sectors, helps to mobilize domestic capital, and provides technical cooperation in relevant areas. It works in close cooperation with international financial institutions and other international and national organizations. In all of its activities, the EBRD promotes environmentally sound and sustainable development.[7]

EBRD has started to assist the CIS in 1991. The following subjects are main operating areas of the Bank: Integration of market economics easily, supporting private enterprise, formation of multiparty democratic principles, granting financial aid, preservation of cultural identities, modernization of city life and protecting the environment from pollution. In the plan of EBRD there exist the countries of independent states. EBRD focuses on the following matters:

�                  Economic reforms,

�                  Competitiveness among firms,

�                  To meet in the norm of legal systems and constitutional regimes,

�                  Free Trade,

�                  Reorganization of regulations of banking and financial systems.

The relations started between Russia and EU in 1992 and developed especially after� founding the EBRD. The main purpose of EBRD is to establish a capitalist system in these countries, who had socialist regularity, and to help the small � and medium � sized firms through providing technical and financial supports in order to make them bigger and strong. For these reasons, as at 31 December 2000, the EBRD had signed 104 projects in Russia for a total of �3.3 billion of loan and equity financing, with a total project value of about �11.3 billion. EBRD has preferred long- term loans. Especially in the period of USSR established nuclear power stations and research labs, bio-chemical labs and their disposals are one of the main problems of USSR. For this reason the EBRD�s financial aid to such establishments examined very carefully. As regard of December 31,1992, the investment agreement made in Russia, the EBRD�s total financial aid is 19.7%. In Russia, for the private company as well as for the state companies,� the EBRD�s financial aids are at the different levels. These aids are non-returnable.

 

Table 1: EBRD signed projects in Russia

Sector

No. of operations

Total cost

EBRD debt

EBRD equity

EBRD total

Financial institutions

34

2,757

787

236

1,033

General industry

19

2,132

399

47

546

Industry and commerce

44

5,507

1,264

123

1,315

Infrastructure

7

902

407

0

367

Total

104

11,298

2,857

406

3,261

Source: �www.ebrd.org

The EBRD focuses on project financing, taking a long-term view. The Bank depends on industrial sponsors for most of its projects. In a context where Russia's macroeconomic environment is likely to remain favorable in the next one to two years, and given the comparative advantages the Bank enjoys, such as its preferred creditor status, extensive experience across sectors and close relationship with different levels of government, the EBRD looks forward to further development of its operations in Russia. The Bank will continue investing in sound projects in Russia in a careful way, seeking to achieve a substantial transition impact with each new project. The private/public sector portfolio ratio for the EBRD's signed operations in Russia was 92:8 as at 31 December 2000. Russian investments amounted to 19.7 per cent of the Bank's total signed commitments at the end of December 2000. Russia also continues to be the largest single recipient of the EBRD's technical cooperation funds, assisting Russian companies and organizations. These grant funds are used on a selective basis for the preparation of projects, bringing them to a level where the EBRD and other potential partners can decide to make an investment, and also for project implementation and provision of training and advisory services.

D. 2. TACIS (Technical Assistance for CIS)

The EU has been the largest provider of economic and technical assistance to Russia. Since 1991 the EU Tacis programme (technical assistance) has supported the economic and democratic reform process in Russia. The focus is on institutional, legal and administrative reform, including support for the development of independent media and civil society; fiscal and banking sector reform and social reform. Assistance is aimed at facilitating the implementation of the EU-Russia PCA as well as Russia�s eventual accession to the WTO.[8]

Launched by the EC in 1991, the Tacis Programme provides grant-financed technical assistance to 13 countries of Eastern Europe and Central Asia[9], and mainly aims at enhancing the transition process in these countries.

When Tacis was initiated, technical assistance was a stand-alone activity, whereas the programme is now part of a complex and evolving relationship with each of the 13 countries concerned. Politicians and officials from the partner countries and the EU meet now on a regular basis. With the implementation of PCAs as well as the EU enlargement process, Tacis also becomes a more strategic instrument in the co-operation process between EU and partner countries.

A new regulation, concerning the provision of assistance to the partner states in Eastern Europe and Central Asia, replaces the former legal basis.[10]
This new Regulation covers the years 2000-2006.[11] The new regulation is based on an understanding that co-operation is a reciprocal process, encouraging a move from �demand-driven� to �dialogue-driven� programming. More flexibility in the way that Tacis is structured will allow potential technical assistance to be mobilised and implemented according to the capacity of each partner country.

The 2000 Regulation concentrates Tacis activities on fewer areas of cooperation:

�                   Institutional, legal and administrative reform;

�                   Private sector and economic development;

�                   Consequences of changes in society, infrastructure networks,

�                   Environmental protection, 

�                   Rural economy,

�                   Nuclear safety.

The areas where Tacis funding is used are designed to complement each other, and each national or multi-country program focuses on no more than three of the above-mentioned fields, so that each can be most effective. The new Regulation also focuses on projects of sufficient scale (projects of at least �2 million in Russia and Ukraine and �1 million in the other partner countries) and supports the objectives of the PCAs.

TACIS funding is allocated through:

�                   National country programs: they include indicative programs, valid 3-4 years, which identify priorities and areas of co-operation as well as annual (for Russia and Ukraine) and biannual (for the other countries) action programs setting out the projects to be supported and the funding available, within the guidelines defined by the indicative program.

�                   Regional programs: Multi-country programs are used for areas like environmental protection or the promotion of transport networks. Cross-border programs have also been set up to promote the co-operation and the development of links between neighboring communities in different countries. These regional programs are based on indicative and action programs as well.

�                   Small projects programs: A limited number of small project programs are used to address very specific tasks, such as advice to governments in particular fields: trade regulation, co-operation in higher education, or encouraging EU investment in the partner countries. Since their objectives are not set with pre-defined beneficiaries in mind, they are organized in a different manner, with specific priorities set each year.

Once agreed by the Member States, technical assistance projects are put out to tender. Organizations from the EU (and also the from the accession countries) are selected to implement projects, transferring their know-how to beneficiaries in the partner countries.

Between 1991 and 2000, Russia has received � 2.281 billion in EU assistance, of which �1.391 billion have been allocated within the framework of the Tacis Action Programs, with the remaining � 890 million coming from other programs - notably regional programs[12]; nuclear safety; donor coordination[13]; program implementation support and other programs (e.g. Democracy program). The Council adopted in January 2000 a new Tacis Regulation, covering the period 2000-2006. Tacis is increasingly used in support of PCA implementation.

In 2001, Russia is expected to receive � 96 million within the framework of Tacis Action Programs in addition to a comparable amount from a variety of programs, including Cross-border Cooperation; nuclear safety and the Baltic line. Over the period 1996-1999, Russia has also benefited from � 520.88 million of financial assistance from member-states (credits actually disbursed - including � 13.58 million in debt cancellation) and from � 1.577.50 billion in EBRD credits.

 

 

Table 3:� TACIS fund allocations to Russia in million � (Russian Federation Action Programs)

 

1997

1998

1999

2000

2001

Institutional, legal and administrative reform

16

30

15

28

28

Private sector support and economic development

29

31

18

14

19

Alleviation of social consequences of transition

11

3

 

6

16

Development of infrastructure networks

24

20

14

0

3

Environmental protection, natural resources management

5

10

8

4

0

Rural economic development

13

9

5

0

0

Policy advice; Small Project Programs

27

24

20

35

20

Others

8

13

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