Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Trade Pact With EC Looks Good

Progress on trade talks between the European Community and Russia has been commendable. The two sides say they are within reach of a broad trade agreement that would resolve many of the outstanding issues between them.


The accord, which would affect $17. 3 billion in Russian exports, would remove trade barriers to Russian raw materials and commodities and help Russia export its more labor-intensive products. The EC, meanwhile, would gain better access to one of the world's most important emerging markets.


President Boris Yeltsin is scheduled to travel to Brussels on Dec. 9 to sign the accord. If this takes place, the agreement also would be important for Russia symbolically. The country's foreign economic diplomacy, from its debt rescheduling with the London Club to its negotiations with the International Monetary Fund for additional assistance, has appeared to be at a standstill until the recent breakthrough with the EC.


The success was only achieved because of the decision to break off negotiations on the thorniest issues - Russian access to the European space market and its exports of aluminum and uranium - into separate discussions. That allowed a deal to be struck on trade restrictions. The EC agreed to treat Russia as an economy in transition, not a state-run economy, which would have permitted sanctions to be imposed automatically without negotiations with Russia.


Russia, meanwhile, is permitted to restrict access of foreign banks to its market in return for guaranteeing the present rights of existing Western European banks.


But striking an agreement and living up to its provisions are two different matters.


The sides have moved this far through compromises which mean that one Russian industry may have to reduce exports so that another can gain access to Europe. Both sides will face interest-group pressure; it will be up to both governments not to cave in.


Recent history is not encouraging. Eastern European countries excluding Russia, which initially saw trade with Western Europe jump by 20 percent annually, have since seen the export boom tail off as the EC has imposed restrictions.


This is unlikely to happen with Russia in the early stages because its exports, mostly oil and gas, are less sensitive to domestic political pressure in EC countries. But as Russia strives to develop a more sophisticated export base, including consumer goods and high technology, the pressure will grow on the EC to restrict access.


For the EC, the prize will be a growing Russian economy offering markets to European producers and political stability. As one Western diplomat said, the accord will hinge on the EC's willingness to pay in the short-term for the long-term benefits.