Kaliningrad in EU-Russia relations: Scenario exercise

1. Kaliningrad in EU-Russia relations:Scenario exercise Sergei Medvedev RECEP, Moscow

2. Research objectives • Define key global trends relevant for Russia-EU relations and on Kaliningrad • Define key parameters to forecast the future of Russia-EU relations and of Kaliningrad • Define four sets of scenarios for : • Russia • The European Union • Russia-EU relations • Kaliningrad • Define the most desirable scenario for Kaliningrad (“Pilot Region”) and outline practical policy steps for its implementation (“Road Map”)

3. GLOBAL TRENDS: Globalization and accommodation KEY PARAMETER: Role of the nation-state European scenarios Russian scenarios R1 R2 R3 E1 E2 E3 RE1 K1 RE2 K2 RE3 K3 Pilot region Road map

4. De-Nationalization Integration EU federalism Homogeneity Markets, liberalism Americanization New Economy networks Crisis of the welfare state Liberal imperialism New World Order Re-Nationalization Fragmentation Regionalization, localization Resistance/Identity State as an anchor of identity Anti-Americanism Old Economy, oil, resources, hierarchy State intervention Global terrorism Regional instability Globalization and accommodation

5. Key parameters • Role of the Nation-State • In the economy: • Liberal/ globalized / private / de-regulated/, or… • Statist / Public / Regulated / protectionist • In politics: • Decentralized / networked / confederal, or… • Centralized / integrated / unitary • Scales of evaluation • Economic axis: • Statist / regulated <---> Liberal / Global • Political axis: • Centralized/integrated <---> Decentralized/networked

6. Generic chart Centralized/ Integrated Economic axis Statist Regulated Liberal Global Political axis Decentralized/ Networked

7. Russia’s options Centralized/ Integrated R3: Bureaucratic Capitalism R1: Administrative Modernization Statist Regulated Liberal Global R2: Liberal Modernization Decentralized/ Networked

8. Russian scenarios • R1: Administrative modernization • Model: South Korea • R2: Liberal modernization • Model: Czech Republic • R3: Bureaucratic capitalism • Model: Mexico, Indonesia

9. R1: Administrative modernization • Political centralization • “Administrative vertical”, “managed democracy” • Limits on federalism and local autonomy • East Asian models: South Korea1960s-70s? • Liberal economic and social agenda • Corporatism / re-distribution of resource rent • Capital-intensive modernization projects • Dismantling the paternalist social system • Eventual WTO membership, OECD application? • Generally pro-Western foreign policy • Extended cooperation with the US (terrorism, Iraq?) • Friction with EU, CoE, OSCE • “Liberal imperialism” in the CIS

10. R2: Liberal modernization • Political pluralism • Resurgence of liberal parties/projects (support by the Kremlin?) • Modernization from below, civil society development • Extended federalism and regionalism • Cross-border cooperation • Full economic liberalization, de-monopolization • Fighting the “Dutch disease” and resource dependence • Development of the small and medium business • Central European model (Poland, Czech Republic) • Enhanced dialogue with the EU • Not just economic interests, but normative affinity and legal harmonization

11. R3: Bureaucratic Capitalism • Informal state capitalism • Corporations are private but de facto controlled by the state • High ownership concentration / monopolies (Gazprom) • Postponement of structural reform / stagnation • Dependence on natural resources/ oil exports: Russia as petro-state (“Petrocracy”) • Authoritarian drift • Privileged role for the bureaucratic corporation/security elite • One-party rule (like in Japan, Mexico) • A unitary territorial structure (merger of regions) • Neo-imperialism in the CIS • “Cold peace” with the West

12. EU options Centralized/ Integrated E3: Fortress Europe E1: Global Actor Statist Regulated Liberal Global E2: Network Europe Decentralized/ Networked

13. EU scenarios • E1: Global actor • E2: Network Europe • E3: Fortress Europe

14. E1: Global actor • Success of constitutional referenda and institutional reform • Deepening and widening of the EU (accession of Turkey, Ukraine, etc.) • Liberal economic policy: opening up EU markets to globalization • Consolidated foreign and security policy • Enhanced Neighborhood Policy • Global role – out of the area

15. E2: Network Europe • Failure of the Constitution and of institutional reform • Weakening of central institutions, re-nationalization and regionalization • Emergence of a “core Europe” of rich nations • Proliferation of bilateralism • Globalization and liberalization of national and subregional markets • Low-profile global role of the EU • Failure of CFSP and of consolidated neighborhood projects

16. E3: Fortress Europe • Powerful external variables /“globalization gone bad”: • Global terrorism, WMD • Role of the US and/or Russia • climate change, catastrophic migration • Enlargement stops at 25 + BG, ROM, CRO • Limited institutional reform, with impact on JHA • Securitization of polity, stricter immigration/border control • Economy: protectionism and state intervention • Foreign policy: Isolationism, no global commitment • Failure of subregionalism and of neighborhood projects

17. Russia-EU scenario matrix

18. Russia-EU scenarios • RE1: Cold Peace • RE2: Muddling through • RE3: Full partnership

19. RE1: Cold Peace • A combination of worst-case scenarios: • deteriorating global conditions: terrorism, WMD, migration • global security alert, geopolitics, competition for resources • “Fortress Europe” in the EU and/or bureaucratic capitalism in Russia • EU and Russia increasingly alienated • US-Russia cooperation possible, over the head of the EU • Russia’s unsuccessful attempts to divide the EU • Raising visa and border barriers • failure of cross-border regionalism • Trade disputes, delayed Russian entry into the WTO

20. RE2: Muddling through • Continuation of present trends, stagnation of EU-Russia relations • Loose institutions, hollow summits, bureaucratic squabbling between EU and Russia • Lack of cohesion, rival visions of Russia in the EU • Failure of CSR • Bilateralism with Russia (France, Germany, UK) • Of four common spaces, only some cooperation in the First (economy) and Fourth (humanitarian) • no large EU investment • frictions in internal security (visas, re-admission) • competition in foreign policy (rivalry in the CIS: Ukraine, Moldova, Belarus, South Caucasus) • stagnation of cross-border regionalism

21. RE3: Full partnership • Development of EU-Russia institutions beyond the traditional neighborhood policy • a Special Partner status for Russia? • acceptance by Russia of part of the acquis, institutional adaptation • Full cooperation in four common spaces • Economy: EU investment, participation in the modernization of Russia • CFSP: Cooperative security with Russia, replacing NATO as preferred partner • JHA: full cooperation (counterterrorism), visa-free for RF? • Cultural exchange, Bologna process

22. Kaliningrad scenarios:passive mode (policy-taking)

23. Kaliningrad scenarios:active mode (policy-making) Pilot region

24. K1: Outpost • Deterioration of global conditions and EU-Russia relations • geopolitical thinking, isolationism, enemy construction • higher transit costs, “security tax”, lifting of preferences • militarization of the Baltic Sea area, hard security risks • Kaliningrad as a “double periphery” • Alienation from Europe • Vicious circle of dependence on mainland Russia • Kaliningrad as an “island economy” • Curtailing imports from Europe • Collapse of the local informal economy • Drastic deterioration of social conditions

25. K2: Stagnation/ preferences • Continuation of present trends: high vested interests • Local rentier behavior, shadow economy (up to 90 %?) • Poland, Lithuania, transit economies of the Baltic and CEE • Russian business: “Dutch disease” • Russian bureaucracy: selling preferences, administrative rent • “Drug addiction” to preferences in the SEZ • No export, huge imports • No structural investment; short-term high-risk investment • Vicious circle of parasitism and underdevelopment • Kaliningrad as a waste of national resources, value subtracted • Susceptible to world oil prices and Russian balance of account • “Soft security” risks: complicating EU-Russia relations • Environment, drugs, AIDS, smuggling, migration…

26. K3: Pilot Region • Transnational economic and policy project • EU and Russia as key stakeholders • Special institutions needed (special reps, High Level Group) • Export-oriented industrial policy, sustainable growth • Orientation to (a) EU markets and (b) Russian market • Gradual removal of current preferences, re-orienting incentives to export of goods and services • Making local industries competitive without subsidies • “Double integration” of Kaliningrad as a competitive advantage • Transition period needed to prepare local business to: • a revised regime of preferences • liberalized energy tariffs • new certification requirements • Road Map with a timeline needed

27. Logic of the Pilot Region • From passive mode (Kaliningrad as apolicy-taker) to pro-active approach(Pilot Region as apolicy-maker) • Pilot Region as a harbinger of change • Overcoming unfavorable trends in EU-Russia relations • Pilot Region feasible under various scenarios except overtly isolationist and/or confrontational • Forward implementation of European Economic Space: Improving EU-Russia compatibility through a common interface • Adaptation by Russia of part of the acquis • The logic of gradualism: creating a “Road Map” with a timeline for specific benchmarks

28. Institutional base of the Pilot Region • Russian Law on the “Guidelines of the Federal Policy towards Kaliningrad Oblast” • Stipulating the status of a “foreign territory” of the RF • A Special Agreement between Russia and the EU on Kaliningrad • Introducing the Kaliningrad factor into Four Common Spaces

29. Guidelines of the Federal Policy towards Kaliningrad • Integration into the European economic space • Creating the institutional base of cooperation • Modifying the SEZ regime • Improving federal and regional governance • Improving business climate and lowering administrative barriers • Development of infrastructure • Export incentives • Supporting small and medium business

30. Impact of the Pilot Region • Active shaping of the EU-Russia agenda (a policy-maker approach) • Addressing key bottlenecks of the EU-Russia relations • Improving the geopolitical situation in Europe after the double enlargement of the EU and NATO • Promoting the “Global Actor” scenario in the EU, fostering ESDI • Promoting modernizing attitudes in Russia, signaling Russia's adherence to long-term liberalization • Checking the rentier behavior of the Russian bureaucracy • Kaliningrad as a test case for the successful globalization of Russia