Europe Will Trump BRICS as the Natural Trading Partner
- By Mark H. Gay
- Oct. 01 2014 00:00
Prof Dr Rainer Lindner
The German Committee on Eastern European Economic Relations (Ost-Ausschuss der Deutschen Wirtschaft) was founded in 1952, and promotes ties with Russia on behalf of business. Prof Dr Rainer Lindner, its Managing Director, spoke to Mark Gay.
In the face of sanctions, Russia banned agricultural products from a number of EU and western suppliers for one year and turned to rival supplies, including the BRICS. Could this reshape the trading landscape?
If the sanctions remained in force for a year or longer, they would have a considerable impact on the European trading structure. Both parties would address new clients permanently and look for new suppliers as well. However, the quality of products and services would probably not be as high and costs might also rise. Otherwise, firms would already have chosen to work with these suppliers.
If the Shanghai Cooperation Organization agrees to expand its membership will this represent a shift in the center of global power and commerce from west to east?
China certainly is the one standing on the sideline laughing while Europe and Russia are caught in a serious conflict. At the moment China is able to increase its economic influence in Russia and access Russian resources at lower costs. Nonetheless, Russia is a mere junior partner for more than a billion of Chinese people, a fact which is well understood in Russia. Hence, in the long run we should strive to build a common economic space among Russia and the EU. This is the only way Europeans will have their share of the global economy.
Does it benefit Russia to sell more of its gas to China and the east?
Russia can achieve the best prices for its resources in the EU. This will not change in the long run. Therefore, turning away from the EU market will be disadvantageous for Russia on the one hand. On the other hand, the EU is highly dependent on Russian energy supplies. Over 40 years a mutual dependence has grown and worked very well. I strongly hope that as a result reason will win and a compromise which leads to a continued successful partnership will be agreed.
Is there a danger that instead of rival trading blocs, we will see a retreat behind trade barriers, into the kind of fortress economy that both India and Russia tried in the past?
Certainly, the danger of becoming trapped in a new wave of protectionism is fairly high. In Russia there has been a range of measures currently employed which very much worry our companies, for example the local content regulations. The compartmentalization of markets may be successful for a short period of time; however, if this happens to all markets, we stifle the global business cycle. Russia will only be able to modernize its economy in a successful way if it stays open to modern technology.
On the other hand, could world trade benefit from a rebalancing, that is already happening in the consumer goods sector with the growth of the middle class in developing countries?
The emergence of a middle class in Russia fostered foreign investment. Foreign investors came to the country and contributed significantly to economic growth in Russia. For instance, German companies created around 250,000 jobs in Russia. The example highlights that the integration of the Russian market in the global economy certainly has positive effects which would be jeopardized by protectionism.
Cynics might argue that some interests in the west do not want Russia to develop into a rival economic force. That they can profit just as much from an autocratic Russia, which exports raw materials and simply buys lots of consumer goods and technology from the west, without actually developing any significant self-sufficiency.
On the contrary: The better Russia develops economically, the higher the people´s income, the more interesting it becomes for foreign companies as they will be able to sell more products. Thus, the EU is highly interested in the positive economic development of Russia. We all are interdependent. A crisis in the EU has negative impacts on Russia, the same way a crisis in Russia hampers the Western economy. We are all in the same boat.
The EU's Eastern Partnership program promotes the harmonization of laws and its partners include countries like Armenia. As Armenia also plans to join the Customs Union or the Eurasian Economic Community — do you think these two ambitions will conflict?
We would like to see the Eurasian Economic Union and the European Union harmonizing their customs and trading rules. We should start negotiations about a common European free trade zone. Countries such as Moldova, Ukraine or Armenia would no longer be forced to choose between one or another side. This would be the best solution for the European and Russian economies.
Could the EU and the Eurasian Economic Community combine their positive advantages through any joint approach or program?
Yes, in our opinion there is a great chance. Concrete talks about a common economic space and the abolishment of visa requirements were been taking place in 2003. We should revive this process.In which areas could the EU and the EEC achieve their greatest impact?
We should work on a mutual abolishment of visa requirements and on a harmonization of licensing procedures for new products. We would save an enormous amount of money and reduce bureaucracy significantly. Another task would also be the development of new mining sites and the efficient extraction of raw material. Additionally, we need one European transport infrastructure.