Opinion of the Economic and Social Committee on "The EU's Northern dimension including relations with Russia"

(1999/C 368/14)

In accordance with Rule 23 of its Rules of Procedure, the Economic and Social Committee decided at its plenary session of 25 February 1999 to adopt an opinion on "The EU's Northern dimension including relations with Russia."

The Section for External Relations, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 6 October 1999. The rapporteur was Mr Hamro-Drotz.

At its 367th plenary session of 20 and 21 October 1999 (meeting of 20 October) the Economic and Social Committee adopted the following opinion by 104 votes to two with three abstentions.

Introduction

The significance of northern Europe for the European Union has grown since the enlargement of the EU in 1995. Over the last few years the development of relations between the EU and the Russian Federation has also become more important. Effective relations between the EU and its Member States and other northern European states and Russia are fundamental for strengthening security and stability.

Economic improvements and greater prosperity in northern Europe will be of benefit to the EU as a whole, as well as its European neighbours.

With this in mind, proactive cooperation at every level, based on common interests and including interaction between different civil society organisations (for example, the social partners, economic organisations and other non-governmental organisations), is very important.

The Economic and Social Committee is presenting this opinion because both the EU's northern dimension and its relations with Russia are among the EU's priorities and are being actively developed. In both areas efforts are currently being made to flesh out and give concrete form to the follow-up measures. In addition to the spread of organised crime and corruption, political, economic and social instability - particularly in Russia - pose considerable challenges. Measures also need to be taken to address the large gulf in living standards between countries in northern Europe. Labour market mechanisms, the social dialogue and the status of various civil society organisations in the Baltic states, Poland and Russia in particular, are very underdeveloped when compared to the EU's Member States.

Appendix 1 contains an overview of the EU's northern dimension, the development of the EU's relations with Russia, as well as other related activities. Chief among these are Baltic Sea cooperation and the preparations by the northern European associated countries for EU membership.

The Economic and Social Committee wishes to support the work begun by the EU through the objectives, recommendations and proposals presented in this opinion.

In the course of work, the Economic and Social Committee held a meeting in Moscow with representatives of Russian socio-economic organisations. The Committee has also sent out a questionnaire to obtain the views of organisations in Russia and the countries in this region which have applied for EU membership. Appendix 2 contains a summary of their views and responses. These have been taken into account in this opinion.

The Economic and Social Committee has previously adopted several opinions and information reports relating to this subject, the most relevant of which are listed at the end of Appendix 1. The opinion draws on these documents without, however, referring explicitly to them nor reiterating the views presented in them.

The Economic and Social Committee will monitor the measures taken to develop the EU's northern dimension and strengthen the EU's relations with Russia. The Committee will present its views (opinions) on necessary follow-up measures, with the intention of helping the EU to make solid progress on these issues.

Objectives

1. The northern dimension is an essential initiative, as the EU should develop an integrated policy on northern Europe.

2. For hundreds of years, relations between Russia and other countries have had a decisive influence on the development of the whole of Europe. They are also very important for its future development. Since Russia is viewed as a strategic partner, this partnership should also be endowed with appropriate instruments. This highlights the importance of the EU's Russia strategy, which is being used to coordinate the relations between Russia, the EU and its Member States.

The events in the Balkans demonstrate the need and opportunities for EU-Russian cooperation. Stabilisation and reconstruction work in the Balkans must strengthen the EU's cooperation efforts in eastern and northern Europe. Crisis prevention is particularly important for enhancing stability.

3. The ESC considers that the point of departure for the northern dimension - namely that efforts must be made within this context to emphasise the beneficial mutual dependence between Russia, the Baltic Sea region, and the EU - is the right one. Developing cooperation in the Baltic Sea region is essential, mainly because it is in this region that the EU and Russia come into direct contact. The northern dimension should be used to strengthen cooperation between the EU, its Member States, association and non-EU EEA countries in the Baltic Sea region, and Russia, particularly its northwestern and northern regions. The objective of the northern dimension must be to reduce the political, economic and social divergences between these societies. At the same time, efforts must be made to help the associated countries prepare for EU membership and to step up partnership between the EU and Russia. The northern dimension must act as a cohesive force in helping these efforts to converge.

Another prerequisite for success is the full commitment and involvement of Russia and the other non-EU countries in this region in the northern dimension.

4. The need to develop good neighbourly relations between countries in northern Europe is becoming more pressing because of the EU's future enlargement towards Central Europe, as well as the fact that the Baltic Sea is in practice becoming an internal sea within the EU, and that, as the EU expands, Kaliningrad will become a Russian enclave within the Union. An economically prosperous and politically and socially stable Russia which has good relations with its neighbours is the best kind of partnership country for the EU to have in the east. The northern dimension should become a key instrument for promoting neighbourly relations between these countries.

5. The promotion of economic growth and prosperity also depends on the effective rule of law and an operational civil society. This consideration is, therefore, of central importance at all stages of developing the northern dimension and relations with Russia.

6. The Commission's November 1998 communication on the northern dimension, the recommendation adopted by the Council in May 1999, the Russia strategy adopted at the Cologne European Council in June 1999 and the first work programme relating to it provide appropriate guidelines for developing cooperation.

Recommendations

1. Economic growth and more stable markets, as well as the prosperity and increased employment which stem from them, should be the priorities in developing the EU's northern dimension. In Russia and the associated countries in the region, this can be achieved by considerably increasing both domestic and foreign investment. The greatest obstacle to investment is the unpredictability of how the operating environment will develop. The situation is not yet ideal in all associated countries in the region and is poor in Russia. To ensure the recovery of the economy it is important, particularly in Russia, to restore the confidence of investors. The scale of Russian investment is critical.

Investment can be increased in particular by reforming legislation on company taxation, by bringing the rules on company accountancy and auditing into line with those of the EU's Member States, and by improving the legislation on investment. Improving financial and security arrangements to gain the confidence of financial institutions and opening up the banking sector to foreign banks would also increase the propensity to invest in the target countries. Partners in investment projects should consolidate their relations with international funding sources (the World Bank (the IBRD and IFC), the EBRD, EIB, NIB). Funding sources should, for their part, tighten up their monitoring of investments in order to prevent abuse.

It is also important for credible rules to be drawn up which serve to safeguard inward investment. In line with the EU-Russia PCA agreement, standards and technical regulations - including those on product safety - should be brought into line with EU rules. In addition, the development of labour-related factors, such as vocational training, working conditions, health and safety, and labour market stability, influences investment decisions.

2. In order to promote economic growth and prosperity, the main shared economic interests and cooperation objectives need to be identified. These include:

- promoting trade and production cooperation, for example in the field of subcontracting;

- improving the operating conditions for small- and medium-sized enterprises

- equitable privatisation of state-owned companies undergoing structural reform and measures to adapt them to the market economy;

- developing production methods and transport for exploiting the energy (natural gas, oil and electricity) and considerable forest and mineral resources;

- developing diversified transport routes and networks based on the specific conditions of the region, taking into account the needs of combined and transit transport;

- improving the food supply, including primary production and processing, transport, logistics, and the functioning of the wholesale and retail trade;

- developing integrated communications and IT communication for the entire region;

- developing environmental protection, including Baltic Sea conservation, reducing dangerous emissions, improving nuclear safety and public health, including the provision of high-quality drinking water and improving sewage processing;

- attaining a high level of competence among the relevant public authorities (competition authorities, tax authorities, the product certification body, customs authorities, etc.) responsible for monitoring compliance;

- strengthening measures to combat organised crime and corruption;

- developing vocational training for young people.

When defining cooperation objectives, the various service needs relevant to these objectives and social development needs arising from structural changes in the business world (including employment, training, and living conditions) should be taken into account.

In identifying the cooperation objectives, the views and proposals of socio-economic organisations in the EU should be taken into account. Cooperation makes sense as the objectives require joint planning, funding and implementation. The EU must take the initiative in drawing up and launching practical projects.

In addition to current EU documents, there are also some other reports on development needs which are worth drawing upon in the future(1).

3. The countries in the region, with the exception of Russia, belong to the WTO or are in the process of joining. Equally, they are EU members or in the process of preparing for EU membership. It is important that Russia also brings its laws and regulations into line with the WTO agreement. This is the best way of ensuring that businesses in all these countries benefit from sustainable operating conditions which promote cooperation between companies. This will also help Russian companies to establish themselves successfully in markets outside Russia.

The EU and its Member States must continue to support Russia in preparing for WTO membership even though conditions in Russia do not hold out much hope that it will be able to join in the near future. This adjustment to WTO rules will form the basis for starting negotiations on free trade between Russia and the EU.

4. Improvement of cross-border and border regional cooperation among all the countries in the region must be considered a priority. In addition to trade in goods and services and other economic cooperation, cooperation must also extend to cooperation between citizens, cultural exchange, crime prevention, and promoting local entrepreneurship. In particular, those regions in direct contact with the common borders between the EU, the associated countries and Russia - the Murmansk region, the Karelian republic, the Leningrad region, St Petersburg, the Pskov region and Kaliningrad - require special attention from the EU.

5. Attention should focus on the task of local and regional authorities in the associated countries in the region, and especially in Russia. They are responsible for implementing legislation as well as monitoring compliance with it. Local authorities have a key role to play in promoting responsible entrepreneurship and favourable investment conditions, as well as crime prevention. The EU must improve the effectiveness of its support for measures which provide local authorities with sufficient information, know-how and other resources to achieve these objectives.

6. A successful market economy also needs efficient labour markets and effective dialogue between individuals and representative socio-economic organisations, as well as between these and the public authorities. The survey carried out when the opinion was being drafted and other contacts with organisations in non-EU countries in the region (see Appendix 2), have demonstrated that in most countries the national government has laid down a framework for the labour market, tripartism and social dialogue. However, in many cases the institutional structures and legislation are clearly inadequate and the arrangements do not function well. Organisations state that they can exert at least some influence, for example in the legislative process, but there is a feeling in quite a few cases that they are not sufficiently prepared to act as a credible guardian of interests and to participate in a civil society dialogue. In many cases the organisations are weak, and their representativeness and resources inadequate.

The ESC information report on "Stocktaking of the Employment Situation and the Social Situation in the Applicant states in the context of the application of the existing body of EU law covering the internal market" has also outlined the prevailing situation.

The association countries and Russia should consolidate the labour market action, social dialogue and the related institutional structure which have been initiated by them. The different operators must be helped to organise themselves better and to improve their capabilities and their operating conditions, and they must be consulted regularly, for example in the legislative process. The EU should provide much more focused support than at present to these development efforts and the ESC is in a good position to help with this. The Committee is pleased to note that Part 2 of Annex II of the EU's Russia strategy (areas of action) states that the EU is, among other things, seeking to integrate Russia into a European economic and social cooperation area. This is to be achieved (point 2.c) by promoting social dialogue, setting up modern trade unions and employers' organisations and encouraging compliance with the most important ILO conventions.

Proposals

1. On the basis of the conclusions of the Cologne Summit, the EU should draw up an action plan for northern Europe on the basis of the northern dimension. The action plan should take account of the recommendations presented in this opinion. Both short- and long-term measures should be devised and agreement should be reached as soon as possible, preferably as early as the presidency conclusions of the Helsinki Summit of the European Council in December 1999.

The action plan must include an effective follow-up mechanism, in which implementation and responsibility are carefully defined. Administrative arrangements are necessary: the EU's relevant administrative units should coordinate their work and focus on the priorities of the action plan.

2. The action plan should concentrate on the priorities presented in the ESC's recommendations. Feasibility studies need to be undertaken and care taken to ensure that investment is targeted at the main priorities. For example, food aid from the EU and other Western countries may have a detrimental impact on agricultural production in Russia and its neighbours. Indeed, the priority of Western support should be to modernise Russian agriculture and its system of food supply in order to ensure that they meet the basic needs of the population.

3. The resources of the EU's support programmes (Tacis, Phare, Interreg, etc.) should be concentrated on implementing this action plan. Impartial and targeted coordination between these programmes is necessary in order to maximise benefits from the limited resources. According to the information received, there are still serious shortcomings in the implementation and management of the programmes, namely that the projects are not targeted at essential needs, the programmes and projects are inadequate and too slow, etc.

The EU should take determined action to improve the support programmes and the way in which they are managed. The new Tacis regulation must be implemented by early 2000. The needs of target countries must be taken into account more effectively, but greater emphasis must also be placed on the operational and financial responsibility of these countries themselves.

With regard to Russia in particular, monitoring of the use of funds needs to be improved. It is essential to solve the problem that part of the support is swallowed up by intermediate administration, which does little to help the development of the economy. The EU must be firm and lose no time in introducing effective monitoring in order to improve the effectiveness of support programmes and to retain their credibility. Laying down strict conditions for support is crucial to achieving the desired objectives. The diversion of support to unintended beneficiaries should also be prevented.

Adequate arrangements must be targeted at preventing corruption, money laundering and the establishment of front companies.

4. The EU should continue to develop its action plan on northern Europe through bilateral links with the association and EEA countries in the region as well as with Russia.

In addition, the EU should initiate regular multilateral dialogue between the EU and the other states in the region in order to identify common interests and priorities. Efforts should be made to link the work of the regional cooperation councils (CBSS, BEAC) to the dialogue. The EU should support this regional cooperation and participate fully in the implementation of projects.

5. Efforts should be made to coordinate the work and objectives of the EU and other organisations providing support for northern Europe and Russia. The EU should, therefore, initiate a multilateral dialogue between all parties, including one between countries receiving support. The EU should also promote cooperation on these issues within the framework of the transatlantic dialogue, on the basis of the action plan on northern Europe.

6. Within the context of the action programme, it must be ensured that civil society organisations can participate in development work, including the following:

- The involvement of socio-economic organisations in implementing the action plan on northern Europe through the consultation mechanisms - such as the consultative group - established for this purpose.

- Regular cooperation between EU and Russian socio-economic organisations should be developed as part of the implementation of the PCA agreement. Consideration should also be given here to the possibility of setting up an advisory panel, of which the ESC would be a member. The EU presidency work-programmes on the Russia strategy should take this into account.

- The Europe Agreement articles on the establishment of a consultative committee for these organisations must be implemented without delay in those association countries which have not yet done so.

- Support should be given to developing multilateral cooperation between socio-economic organisations in the countries of the region as well as forging closer links between these organisations in Russia and the associated countries and the various relevant European cooperation bodies.

With regard to Russia, improving the effectiveness of labour markets and tripartite relations, requires strengthening the special Tacis programme, "Support to Social Reform Implementation and Labour Relations (social partnership and labour disputes)". With regard to the associated countries, the Commission should meet its commitment, as expressed in the communication on the adaptation and development of the social dialogue to also support these countries. In addition, the Commission's direct technical assistance and information (TAIEX unit) should be reinforced.

The Economic and Social Committee should be consulted when the above-mentioned arrangements are being made. It is also in a good position to participate in their implementation and in making any necessary contacts.

Brussels, 20 October 1999.

The President

of the Economic and Social Committee

Beatrice RANGONI MACHIAVELLI

(1) A few examples: Suomen Keskuskauppakamari: "Suomalaisten, luoteis-venäläisten ja virolaisten yritysten näkemyksiä pohjoisesta ulottuvuudesta" [The Central Chamber of Commerce of Finland: The views of Finnish, northwest Russian and Estonian companies on the northern dimension], June 1999, ISBN 951-8967-48-2; Prof. Simon Clarke: "New Forms of Employment and Household Survival Strategies in Russia", Moscow 1999, ISBN 0-9535519-0-3; Baltic Business Advisory Council: "Survey on Conditions for Growth and Development in the Baltic Sea Region", May 1999.