OWN-INITIATIVE OPINION OF THE ECONOMIC AND SOCIAL COMMITTEE ON RELATIONS BETWEEN THE EUROPEAN UNION AND RUSSIA, UKRAINE AND BELARUS
Date: 1995-01-26
Institutions: European Economic and Social Committee
Subjects: USSR, international cooperation, international relations













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51995IE0055

OWN-INITIATIVE OPINION OF THE ECONOMIC AND SOCIAL COMMITTEE ON RELATIONS BETWEEN THE EUROPEAN UNION AND RUSSIA, UKRAINE AND BELARUS  


Official Journal C 102 , 24/04/1995 P. 0040 





Opinion on relations between the European Union and Russia, Ukraine and  Belarus(95/C 102/11)On 29  April 1993, the Economic and Social Committee, acting under  the third paragraph of Rule 23 of its Rules of Procedure, decided to draw up an Opinion on  relations between the European Union and Russia, Ukraine and Belarus. The Section for External Relations, Trade and Development Policy, which was responsible for  preparing the Committee's work on the subject, adopted its Opinion on 13  January 1995. The  Rapporteur was Mr Petersen. At its 322nd Plenary Session (meeting of 26  January 1995), the Economic and Social Committee  adopted the following Opinion by a majority with three abstentions. Chechnya: a rapid end to the hostilitiesThe Economic and Social Committee has followed the  bloody hostilities in Chechnya with sorrow and concern. Every day human rights are being violated  on a massive scale and the Chechen people exposed to unspeakable suffering. The Committee appeals  to the European Union to persuade Russia finally to put an end to the senseless bloodshed and to  bring about an immediate political solution to the conflict. The European Union must make it clear  that the credibility of the Russian Federation's political reforms is at stake and that there is a  growing danger of serious damage to Russia itself and to its economy. Respect for human rights and  basic freedoms, including the rights of members of national minorities, democracy and the rule of  law are our common objectives, enshrined in the 1992 CSCE Helsinki document, and incontrovertible.  Respect for these principles is the basis for cooperation in the CSCE and underpins the development  of our societies. The Committee asks what value these solemnly proclaimed CSCE principles and  objectives have if they can be so easily flouted by individual signatory states. The Committee has always advocated an intensive political dialogue with the democracies of Central  and Eastern Europe and has unanimously supported rapprochement between the Eastern European partner  states and the European Community, and the integration of these states into a pan-European economic  area. The Committee has unreservedly welcomed the desire expressed in the partnership and  cooperation agreements to work together to strengthen the political and economic freedoms which are  the real basis of partnership. To this end respect for the principles of democracy and human rights  should be regarded as a guiding principle of domestic and foreign policy and an essential component  of partnership. The European Community and its Member States should make it clear that they attach  great importance to these passages in the agreements; the Community should therefore not yet  implement the interim arrangements for the trade section of the agreement. The EC Member States  should delay ratification of the agreement until Russia has more firmly embraced political and  social reforms and it has become clear that internal conflicts - such as the one in Chechnya - will  be solved politically and not through military force. SummaryIn view of the length of the Opinion, the Committee considers it appropriate to summarize  its stance and recommendations. The Opinion focuses on the partnership and cooperation agreements  concluded in the first half of 1994 between the European Community and its Member States on the one  hand, and Russia and Ukraine on the other. To promote better understanding of the radical changes  currently taking place in the Eastern European partner states, the Opinion also contains a brief  sketch of the collapse of the Soviet Union. The attempts at political and economic reform in the  independent Republics are touched on, as individual passages in the agreements can be understood  only against this background. The Committee in principle welcomes the partnership and cooperation agreements, but stresses that  differences in the negotiating clout of the independent Republics should play no part in the  shaping of treaty relations, and that as far as possible no distinction should be made between the  European and Asiatic Republics. Any inequality of treatment would exacerbate the worrying  disintegration of the CIS economic area and create considerable problems for the recently  established CIS economic committee. These non-preferential agreements, which are of a hybrid nature  and consequently require ratification, define a broad range of political, economic and commercial  relations. The form of the agreements is mid-way between that of a trade and cooperation agreement  and that of a Europe agreement. Bilateral discussions with Russia began at the end of 1992, and  with Ukraine a little later (points 3.1 to 3.6). The Committee unreservedly welcomes the determination of the parties to work together to strengthen  the political and economic freedoms which constitute the very basis of the partnership. The  Committee also shares the parties' belief in the paramount importance of the rule of law, of  respect for human rights (particularly those of minorities), of the establishment of a multiparty  system with free and democratic (secret) elections and of economic liberalization leading to a  market economy. At the same time the Committee endorses the link established by the parties between  the implementation of partnership and the continuation of political and economic reforms in these  countries (point 3.7). The Committee considers the parties' statement that Russia is a country with an economy in  transition, to be a political compromise. The future will show to what extent this assessment is  economically realistic and viable. Ukraine on the other hand continues to be classified as a  state-trading country. The Committee feels that the different classification can probably be  attributed mainly to the fact that for the Community Russia was the stronger negotiating partner  (point 3.8). The Committee is very critical of the absence from both agreements of an open commitment to the  principles of social justice. The negotiating partners should be sufficiently aware that the  processes of transformation are associated with huge social upheavals. They may ultimately mean  democracy and the market economy being rejected by the people because the social and human cost is  seen as too high In this context, the Committee urges that the agreements speak not merely of a  market economy, but of a social market economy (points 3.9 and 3.10). The Committee considers the content of the agreements' general principles to be highly  unsatisfactory. It is true that respect of democratic principles and human rights is an important  component of the agreement. But this is insufficient. Above all, the Committee regrets the  Community's failure to make the introduction and maintenance of market economy principles, which  were specifically highlighted in the original negotiating mandate, an integral part of the  agreement with Russia. The Committee feels that dropping this element gives a false political  signal, which is discouraging for Russia's market-orientated reformers. In addition, the Committee  urges that the maintenance of basic social rights and minority rights be made a substantive part of  the agreements (point 3.1.4). The Committee attaches importance to the evolution clause under which a joint study is to be  carried out in 1998 to establish whether the economic preconditions (e.g. basic market economy  structures) have been fulfilled in Russia (or Ukraine), thus enabling negotiations to begin on the  establishment of a free trade zone. Not least in view of the need for confidence building, the  Committee would have preferred a more precise wording (point 3.15). The Committee reiterates its criticism of the failure to mention the essential contacts between the  economic and social groups in the countries concerned. It should be possible to achieve consensus  in the Community that there is no chance at all of creating a pan-European economic area if  economic and social interest groups are kept in the background. The Committee suggests that during  the first revision of the agreements the Community consider whether the time has come to  institutionalize contacts between the members of the ESC and the members of corresponding bodies in  the Eastern European partner states by setting up a joint advisory committee. In the interim  period, dialogue and cooperation between the committee's social groups could be discussed (points  3.18 and 3.45). In the section dealing with trade the signatories grant each other general most favoured nation  (MFN) status within the meaning of Article I of the GATT. The Committee welcomes the reciprocal  abolition of quantitative import restrictions, without prejudice to the special rules for textiles,  ECSC products and nuclear material. The Committee feels that the safeguard clause agreed in the  event of market disturbances should be made more precise and replaced as soon as possible by the  relevant provisions of GATT 94. The same applies to the anti-dumping and countervailing measures.  On customs policy, the Committee regrets that the Community has failed to agree a freeze on the  Russian/Ukrainian external tariff. As long as these two countries are not members of the GATT/WTO,  they are free to increase their customs protection at will, without prior consultation (points 3.19  to 3.26). With regard to the labour market, the Committee can see no reason why the families of workers from  Russia and the Ukraine who are employed legally in a Member State, should not be given access to  the Community labour market. However the high level of unemployment and the very limited scope for  action in the medium term mean that there is little likelihood of any significant demand for  additional workers on the Community labour market over the next few years. The Committee therefore  feels that it would be unwise to make undertakings which might give rise to a claim (even a  political claim) for (cross-border) freedom of movement for workers from non-Community countries  (point 3.27). The Committee considers improvements to the rules negotiated on firms' right of establishment and  activity - in particular with regard to financial services - to be urgently needed. The agreements  with Russia will initially place EC banks at a clear competitive disadvantage, which must be  eliminated rapidly, at all events more rapidly than planned under the current outline timetable  (point 3.30). The Committee welcomes the authorization of current payments connected with the bilateral movement  of goods, services and persons in convertible currency. The Committee also supports the first  attempts at liberalizing capital movements. The Committee also calls on the parties to continue  along this road. The Committee is convinced that advantages in terms of location and specialization  conferred by free movement of goods and services can be fully exploited only if there is  cross-border freedom of movement for capital (point 3.33). The competition arrangements are a weak point of the agreements. The provisions are so soft and  non-binding that it is unlikely that any claims would arise, either for the signatories or for  European firms. The Committee endorses the Community's willingness to provide the Eastern European  partners, at their request, with technical assistance in the drawing-up and implementation of  competition rules (point 3.34). Russia and Ukraine intend to strengthen the protection of intellectual, industrial and commercial  property and achieve a level of protection 'comparable' with that of the European Community five  years after the agreement's entry into force. The Committee feels that it would have been better to  agree on an 'equivalent' level of protection. The Committee is also critical of the procedure  agreed for the settlement of disputes arising from application of the agreement and the listed  multilateral agreements. This procedure too is ill defined; it boils down ultimately to non-binding  discussions and falls far short of the GATT mechanism (point 3.35). Russia and Ukraine will endeavour to ensure that their legislation is gradually made compatible  with that of the Community. The Committee welcomes this statement of intent, but by no means fails  to appreciate the serious difficulties which approximation of legislation poses. The Committee  feels that groups should be set up, within the framework of the cooperation committees, to identify  priority areas for approximation. The Committee regrets that the agreements contain no timetable  for the legal adaptation measures (points 3.36 and 3.37). The parties wish to foster economic cooperation, in order to cement and develop economic links. It  is particularly noteworthy that all the parties also consider it essential to contribute to a  harmonious social development. But the Committee has strong grounds for doubting whether merely  establishing a long list of unconnected policy areas will suffice to make an effective contribution  to the overall macro economic objectives. We are not talking merely about one or two Eastern  European partner states here; the associated Central European states, the Baltic States and the  other independent Republics of the former Soviet Union expect similar support and cooperation. The  Committee feels that it would have been better to agree on a list of economic priorities for  cooperation from the outset. There is for example an urgent need for action in the fields of  infrastructure, retrofitting or decommissioning of power stations, and the protection of the  environment and human health (points 3.38 to 3.40). In contrast to the Europe agreements, the partnership and cooperation agreement with Russia for the  first time contains a list of areas for cooperation on prevention of illegal activities. The  Committee considers this agreement long overdue. It calls on the European Community and its Member  States to initiate the planned consultations and close interaction with Russia rapidly and to  provide technical and administrative assistance (point 3.41). The Committee welcomes the framework agreements under which Russia and Ukraine are to receive  technical assistance funds via the Community's TACIS programme. In order to ensure optimum use of  the available funds, this technical assistance is to be coordinated closely with contributions from  other sources. The Committee supports this approach and assumes that the coordination will include  all the financial aid which will contribute to the economic reorganization of the Eastern European  reformist states. The Committee also urges that the reformist states' domestic sources of capital  be exploited to a greater extent for productive investment and the significant outflow of capital  curbed. But this will only be possible if a consistent macroeconomic stabilization policy is  followed and at the same time effective, predictable conditions created for the corporate sector  (points 3.42 to 3.44). 1. The collapse of the Soviet Union and the rise of independent Republics 1.1. After the end of  the 1970s at the latest, Soviet citizens' material aspirations rose much faster than the ability of  the economy to satisfy them. The high economic targets set year after year by the Soviet leadership  proved to be hopelessly over-ambitious. The Soviet Union lagged further and further behind the  leading industrial nations of the West. The gulf between claims and reality became so wide that a  crisis in the Soviet economic system was inevitable. The problem had been discussed in depth within  the ranks of the Party even during the Brezhnev era. Attempts at economic reform in the 1960s and  1970s were ultimately doomed to failure as they left the command planning system essentially  untouched and were to have been carried out without political change. The election of Mikhail  Gorbachev as General Secretary of the CPSU in  March 1985 brought a new dimension to the discussion  of reform. Gorbachev put it plainly at the 27th Congress of the CPSU in  February 1986: 'The  practical actions of party and state bodies have lagged behind the demands of our times, of our  lives. Inertia, ossified management forms and methods, declining dynamism in the workplace [and]  proliferating bureaucracy' () had done considerable damage. Following up this harsh analysis, at  the Plenary Session of the Central Committee of the CPSU in  June 1987 he argued for a radical  economic reform and reorganization of economic management (perestroika). The aim was to overcome  stagnation, to eliminate everything which was holding the economy back, to establish a reliable and  effective mechanism for accelerating socio-economic development and to instil greater dynamism (). 1.2. The CPSU played a decisive role in the process of 'perestroika', which was to reform the  Soviet Union's bureaucratic and dictatorial system and make it more 'alive, open, flexible and  effective'. It was already clear that many Central Committee members did not support Gorbachev's  reformist course. The process of reorganization collided with the authoritarian system at all  levels and in all areas of social life. In  June 1988, Gorbachev therefore convened the 19th  All-Union Party Congress of the CPSU. The Congress called for a new parliament, a stronger  presidency, the introduction of a market economy and greater economic autonomy for the individual  Union Republics. These calls met with stiff resistance, as they affected the interests of many  strata of Soviet society. Opposition came mainly from the Party nomenklatura, the state authorities  (from central administration to local arms of the state), the military-industrial complex, and not  least from a significant section of the population, who faced the prospect of losing their ideology  and political orientation. 1.3. Without broadly based support, it was impossible to force through the reforms against  opposition from ossified structures and conservative mindsets. It was essential to promote open  discussion (glasnost). Problems and shortcomings were in future to be openly discussed. As part of  the move towards more democracy, the Constitution was amended, and in  March 1989 the Congress of  People's Deputies was established as a constitutional body. The elections to the Congress of  People's Deputies could not be considered free in the western sense of the word, but they were an  important step on the road to democracy, and not to be compared with past 'elections' in the Soviet  Union. Although the new Congress was heavily dominated by current and former members of the  Communist Party, the elections broke the political monopoly of the CPSU. A start was also made on  curtailing the power of the party apparatus, without however calling into question the 'leading  role' of the party. The CPSU was deprived of its direct control of the economy, and the  corresponding Party organizations were dissolved, right down to local level. The privileges of  Party officials were, to a great extent, abolished. If they were to survive as a political class,  they had to change from being an arm of central government to become critical spokesmen for their  region in dealings with Moscow. The separatist tendencies which arose in the Union Republics and  Regions as a result of these constraints, and exacerbated by growing supply difficulties, later  took on nationalist overtones. 1.4. From the second half of 1989 onwards, the collapse of the socialist system accelerated. From   August 1989, the communist governments in Central and Eastern Europe began to collapse after  Gorbachev withdrew his direct support. In  March 1990 Lithuania became the first Republic of the  USSR to declare its independence. Parliamentary elections were held in the Soviet Republics. With  the election of Boris Yeltsin as Speaker of the Parliament of the Russian Republic and the  declaration of Russian sovereignty, the struggle to decide the fate of the Soviet Union shifted up  a gear. Russian sovereignty meant that the Union now existed in name only. By the end of 1990 the  remaining Republics had all declared sovereignty in one form or another. In order to secure the  survival of the Soviet Union, not least for economic reasons, Gorbachev proposed a union of  sovereign states. The draft Union Treaty was approved by a referendum in  March 1991. But the  signing of the Treaty, planned to take place on 20  August 1991, was aborted by the putsch of 19   August. In early  September 1991 the Soviet parliament set up an interim government to manage the  transition to a union of sovereign states. A few days later Ukraine announced that it would not  participate. On 16  November 1991 Yeltsin, who in mid-June 1991 had been elected President of the  Russian Federation, issued ten statutes by which Russia took over former functions of the central  government. 1.5. Ignoring these declarations and without consulting their parliaments, a few days later, on 8   December 1991, the representatives of Russia, Belarus and Ukraine signed an agreement in the  Belovesha forest establishing a Federation of Independent States. The agreement made it clear that  the laws of the former USSR were henceforth null and void. At the same time the three Presidents  pointed out that their states had in 1922 initiated the foundation of the USSR. The same states  therefore had the right to dissolve the USSR. On 21  December 1991 a document entitled The end of  the Soviet Union and the establishment of the Commonwealth of Independent States (CIS) was signed  in Alma Ata by all the former Republics of the Soviet Union, except the Baltic Republics and  Georgia. This declaration on the establishment of the CIS states that cooperation between the  members is to be on the basis of equality. The CIS is neither a state nor a supranational  structure. 2. The reform processes in Russia, Belarus and Ukraine 2.1. Russia2.1.1. With the collapse of the Soviet Union, Russia and the other Republics inherited the  political structures of the communist social system. Russia's Supreme Soviet had been elected while  the Soviet Union still existed. There was no clear majority and voting varied according to the  matter under discussion. A determining factor was that the deputies primarily represented the  aspirations of specific territories rather than social interest groups. As the reform plans  progressed, the differences of opinion between the President and the Supreme Soviet grew. This can  by no means be interpreted merely as a struggle between a President bent on reform and a parliament  opposed to it, although there were plenty of opponents of reform in the parliament. Rather, the  dispute was over the path the reforms should take. The questions discussed were many and various:  should the path to reform be rapid, ignoring social frictions, or should a more socially acceptable  road to the market economy be followed? Should a foreign market model be adopted or a Russian  variant developed? Emerging conflicts over redistribution exacerbated the problem. Interest groups  and individual deputies squabbled over their share in the historically unparalleled privatization  of state property (in the form of real estate, production facilities, housing and land) which was  often let go at less than its true value, or even free. A confrontation developed between the  representatives of the powerful state enterprises, the new private businessmen, farmers and the  general public. Not the least controversial of questions was which social groups should be the  beneficiaries of inflation and which the losers. This struggle over re-distribution was interrupted  on 21  September 1993 by the dissolution of parliament. It was a tragedy that no satisfactory  solution had been found by then to any of the burning issues which had stoked the flames of the  conflict. 2.1.2. The parliamentary elections of 12  December 1993 were the first multi-party elections in  Russia. The elections were to the State Duma (lower chamber) and the Federation Council (upper  chamber), representing the administrative regions. The outcome of the elections was a setback for  Yeltsin's reform policy. The level of participation and the results of the election show that broad  sections of the population do not support the course of reform followed so far. The rejection of  the attempts at reform can be attributed mainly to the fact that the people have already had to  shoulder a heavy burden without any tangible improvement. It is also confirmation that the old  parliament, dissolved on 21  September 1993, did indeed faithfully reflect the mood of the people  and the political situation in Russia. The election result is thus in this sense not fortuitous.  No-one could realistically expect the new, democratically elected parliament to be less fractious  than its predecessor. Whether, and to what extent, the quarrels will flare up again depends on the  nature of future reform measures. A further factor to consider is that, in continuing his reforms,  the President now also has to consider the wishes of the army, whose help was enlisted in ending  the 'bloody  October' 1993 putsch. The President places increasing faith in the 'strong  ministries', the Army and the security apparatus. It is not yet possible to assess the accurate  consequences of this for the development of democracy and a parliamentary system. So far at least a  modus vivendi has been maintained. Clearly parliament is aware of the need to restructure Russia.  There has so far been no deliberate confrontation. Admittedly the new bodies constantly being  established, such as the social chamber attached to the President or the coordination commission  provided for in the Treaty on civil peace, can be interpreted as evidence of the President's  mistrust of Parliament and existing institutions. 2.1.3. Following the election the distribution of seats in the State Duma is as follows: the  democratically orientated reformist parties obtained a bare quarter of the total 450 seats. Their  direct opponents, the conservative, anti-democratic forces, obtained about a third as did the  independents and various small parties. The main focal points are the reformist block, Russia's  Choice, with 65 seats, and the right-wing extremist Zhirinovsky's Liberal Democratic Party, which  with 64  seats is the second strongest party. Admittedly, the relations between the parties and  voting blocks are unclear; moreover the allegiance of the independents to the right or left of the  political spectrum is in many cases uncertain and they may not vote as expected. And electoral  alliances may not last. It is difficult to predict how the Federation Council (178 members) will  behave. It consists of two representatives of each of the constituent elements of the Federation  (Republics, Regions). The majority of its deputies were members of the Supreme Soviet. 2.1.4. The draft constitution submitted by Yeltsin was confirmed by the constitutional referendum  carried out at the same time as the parliamentary election, with more than 50 % of voters  participating and more than 50 % of the votes being in favour of the draft. This formally ended the  long drawn-out dispute over the new Russian Constitution and the powers of the President. However,  19 of the 89 administrative areas (9 Republics and 10 Regions) rejected the draft Constitution. The  Constitution is tailor-made for the President. It gives him the de facto right to decide on all  major issues and, in the event of dispute, to rule without parliament. Given the composition of the  democratically legitimate new parliament and the economic problems remaining to be resolved, this  could well soon happen. The President enjoys a dominant position. He has a decisive say in the  composition of the government, and appoints ministers, and subject to the approval of the State  Duma, the prime minister. He alone can accept the government's resignation and dismiss individual  cabinet members. The Constitution's guidelines on the division of powers give the President a  decisive say in external and domestic policy. The President can dissolve parliament, but may only  be removed by decision of both chambers of parliament and the constitutional court, and then only  on grounds of high treason. The Constitution clearly settles the power struggle in favour of the  central government. The proliferation of parallel executive and legislative state bodies at the  various levels of the federation is to be ended by the new Constitution. Clearly defined power  structures are to be introduced. Thus the text of the Constitution ends the distinction between  federal entities (Republics, Regions, etc.), which had differing rights. The extent to which the  Constitution can actually be implemented will depend not least on these federal entities. This  clear bias towards a presidential system could one day prove to be disadvantageous, should Yeltsin  be replaced by a representative of the extreme right-wing or nationalist forces. 2.1.5. Even in the days of the Soviet Union, Union laws were duplicated in the Russian Federation  by Russian legislation. Since 1991 numerous additional laws and edicts have been adopted to ensure  the rapid transformation of the economy: the Enterprise Act (29  December 1990), the Privatization  Act, the Act on competition and the control of monopolistic activity on goods markets, the Acts on  banks and their activities, and on goods markets and market trading. In addition to these, a  multitude of presidential edicts and decisions of the Supreme Soviet, of statutes of the Council of  Ministers and directives of the state bodies at federal level have also entered into force. The  main disadvantage of this kind of legislation lies in the lack of certainty in legal relations.  Edicts can be amended at short notice or suspended, and this creates further uncertainty as to the  progress of the reforms. There are frequent attempts to regulate specific aspects of economic life,  in the form of countless authorizations for specific groups or authorities, instead of first laying  the foundations of a social market economy and setting up a viable overall economic framework. 2.1.6. Against this background, it is hardly surprising that reform has so far been inconsistent  and sporadic. The many programmes and proposals for reform reflect the differing views of their  authors and groups but do not form a basis for economic policy. The government has made its views  clear in individual plans and executive acts. There is however no coherent and balanced programme  for reforms. Electoral 'bribes' were distributed by the President and the government on the very  eve of the parliamentary elections (December 1993). Minimum wages, unemployment benefits and  pensions were increased. Miners and steel workers, who were threatening to strike and who had not  been paid for months, were once again promised their wages. The new 'financial entrepreneurs' were  to be protected against foreign competition. Agriculture would be allowed to use for investment the  resources released by restrictions on imports of cereals. The industrial giants would be granted  their wish to form financial-industrial conglomerates on the Asian model. Over the last few months  President Yeltsin and Prime Minister Chernomyrdin appear to have found common ground for further  action. Official government statements have taken the line that the priority is to implement the   August 1993 government programme rather than set new objectives. However, there is still a danger  that the transformation of the system will be slowed down by inconsistent economic policy and  failure to implement declarations of intent. 2.2. Belarus2.2.1. A plethora of parties and movements has emerged in Belarus since 1991. On 10  March  1993 a total of 497 were registered. The strongest groups in the Supreme Soviet include the  Communist Party, the Communists of Belarus and the National Rebirth movement. The reformers and the  deputies elected while the Soviet Union still existed have different ideas. But discussions are far  less vituperative than in Russia. By opting for compromise and caution, the government has  succeeded to a great extent in maintaining political stability. This basic assessment remains valid  even after the election of the new President in  July 1994. One senses however that there is far  less evidence of a change for the better in ways of thinking and in society than, for example, in  Russia. The government administration and social groups and political parties are still wedded to  the old way of thinking. Major projects are repeatedly postponed. The new Constitution was finally  adopted at the beginning of  March 1994. Weighty reasons, such as lack of raw materials, increased  division of labour, unfavourable geopolitical circumstances and the legacy of the Chernobyl  disaster are cited as justification for the striking lack of decentralization. The country's  dependence on Russian energy sources and on exports to Russia is already causing some groupings to  consider the possibility of reunification with the Russian Federation. Even before the election the  new President, Alexander Lukashenko, was advocating closer ties with Russia. The original objective  of a monetary union with Russia on the basis of a treaty on Belarus' accession to the Russian  monetary system has however been abandoned for various reasons, not least Moscow's lack of  enthusiasm. Instead, at the beginning of 1995 treaties were signed with Russia on the  liberalization of trade, a customs union, measures to achieve reciprocal convertibility of the two  countries' currencies, the formation of joint industrial-financial groups and the development of  trade and other economic relations. At the same time treaties were concluded allowing the Russian  radar station at Gantsevichi and submarine control centre at Vileyke to continue operating. It is  also Belarussian policy to develop cooperation with the other CIS republics. 2.2.2. The Republic of Belarus declared its sovereignty on 27  July 1990. Only a few weeks later  the Supreme Soviet of Belarus adopted a two-year programme for transition to a market economy. This  includes a specific blueprint for achieving economic independence by restructuring the economy.  Other objectives are privatization, the dismantling of monopolies and the creation of new  infrastructure. None of these objectives have so far been attained. The economic and political  events in other states of the former Soviet Union, in particular the neighbouring Republics of  Russia and Ukraine, and fears of a still sharper fall in production and the impoverishment of the  population, have caused the government of Belarus to proceed hesitantly in adopting concrete  measures to achieve a market economy. In view of the catastrophic economic situation, on 30   September 1994 the government adopted an emergency programme. Its main aim is to stabilize the  general economic situation. Radical reforms are not planned although privatization is to be  accelerated, on the basis of the existing programme. It is doubtful whether the ambitious aims of  the emergency programme can be achieved. The tight deadlines and inadequate economic incentives  give grounds for scepticism. Whilst the international organizations support the present course  aimed at surmounting the present economic difficulties, they also urge concrete and determined  progress towards a market economy. At home too more and more voices are calling for a more  consistent policy of reform. 2.2.3. Over the last three years the legislative bodies of Belarus have, admittedly, adopted major  laws paving the way for a market economy system. These include, rules for leases, banking, goods  exchanges, company law, business insolvency and restrictions on monopoly power. Some of these legal  provisions are, however, still incomplete, whilst others are hardly applied, or are no longer  relevant because requirements have changed. 2.2.4. Dirigistic methods continue to be applied in a bid to transform Belarus into an independent  industrial state and to adapt its completely distorted economic structures to current conditions.  The programme for the restructuring of industry approved by the Presidium of the Supreme Soviet in   May 1993 is the result of three years of industrial policy planning and provides for the specific  development of individual industrial sectors. The overall objective of the programme, intended to  run for about eight years, is to make major manufacturers internationally competitive. It is hard  to imagine how the objectives and methods of the programme, which is in parts very detailed, can be  reconciled with the introduction of market economy regulatory mechanisms, and in particular with  the decision-making autonomy of enterprises. The economic crisis and lack of finance have so far  prevented a start being made on the programme. Structural reorganization of the economy is not to  begin until completion of the emergency programme, which runs until mid-1995. The main problem is  coordinating the macroeconomic stabilization policy with the reform of firms, which, in addition to  small-scale privatization and the conversion of large state enterprises into joint stock companies,  is to provide more efficient systems of incentives, for management too. It remains to be seen  whether the planned management contracts merely entrench central control or whether they actually  give rise to independent entrepreneurial decision-making. 2.3. Ukraine2.3.1. The efforts to establish an independent national state at first concealed  differences among the reformers as to methods and short and medium-term economic policy objectives.  Economic problems were to a great extent ignored. Crimea's separatist aspirations constantly  exacerbate the domestic and external political situation. The people have so far been disappointed  by the attempts at reform. Real reform has been prevented by the constant tensions between  reformists and their opponents, above all the directors of the large combines and nationalist and  Moscow-orientated groups. As in the other independent Republics of the former Soviet Union, the  government's ability to act has been severely impaired by disputes with parliament. Most recently,  in  September 1993, diverging views on economic policy, and the President's edict on compulsory  measures to stabilize the economic and political situation in Ukraine, led to the resignation of  Prime Minister Kuchma. Kuchma had put his signature to the Treaty on closer economic cooperation  with Russia, in the realization that, without such cooperation, it would scarcely be possible for  Ukraine to develop into an independent national state. The Treaty also secured vital supplies of  crude oil in the short term. 2.3.2. In the presidential elections completed on 10  July 1994 the former Prime Minister, Leonid  Kuchma, beat the incumbent President, Leonid Kravchuk. His victory was achieved in eastern Ukraine,  which has heavy industry and a higher proportion of ethnic Russians than other parts of the  country. Here public opinion favours closer and more balanced ties with Russia. In western Ukraine  there is more support for nationalist movements. President Kuchma has so far succeeded in pursuing  a balanced policy towards Russia and in defusing a number of contentious issues, without however  compromising Ukraine's independence. The Black Sea fleet issue is no longer seen as an obstacle to  businesslike cooperation between the two countries. Ukraine's participation in the inter-state  economic committee of the CIS Republics and cooperation between the armed forces on security policy  are important steps towards normalization of bilateral relations. In signing the nuclear  non-proliferation treaty Ukraine took another step towards improving the international climate and  laid a solid foundation for more intensive cooperation with international organizations. 2.3.3. Differing views have been responsible for a lack of direction in economic policy. While the  Soviet Union still existed (November 1990) a plan for transition to a market economy was drawn up  and adopted. This was followed six months later by a package of exceptional measures to tackle the  economic crisis, and in  October 1991 an outline economic policy for an independent Ukraine was  confirmed. In  January 1992, the urgent economic measures plan was adopted. This set out to place  the economy on a commercial basis. More than sixty laws, covering the whole economic and social  development of the country, and a multitude of other legislative acts covering the most diverse  areas of the economy, were adopted in the space of a year. At the same time the cabinet was given  special powers to establish the legal framework. However, it was becoming clear that the early  exclusion of the state from economic activities was not feasible. From  December 1992 onwards a  number of laws had to be redrafted or rescinded. The reason for this was probably the dramatic  proliferation of regulations, which were almost impossible to keep track of, let alone comply with.  Ukrainian businessmen and foreign investors constantly run the risk of inadvertently contravening  laws. Over the last two years, eight emergency programmes have been adopted but none of them have  been implemented. President Kuchma has promised reforms. He intends to develop the economy under  'state supervision'. A comprehensive restructuring of the economy is urgently needed. In order  better to implement the necessary restructuring processes, the President appointed himself Head of  Government and made the regional and local administrative chiefs directly responsible to him.  Parliament is to relinquish a number of its governmental responsibilities which date from Soviet  times. The President intends in particular to push the delayed privatization programme. Various new  tax laws are also to be introduced. 3. Joint Declaration on the partnership and cooperation agreements 3.1. After years of difficult  negotiations the Joint Declaration was signed by the European Community and the Council for Mutual  Economic Assistance (Comecon) (). The Committee described this Declaration as a decisive step  towards a long overdue normalization of relations with the individual Comecon states. The Community  obtained acceptance of its two-track policy; in parallel with the official relations between the EC  and Comecon, every member will be free to decide whether to establish bilateral relations and  negotiate on trade issues with the European Community. It was decided not to set up the EC-Comecon  umbrella organization which had repeatedly been called for. Only three years later - almost to the  day - the Eastern European economic alliance was dissolved. The 46th and final Plenary Session  (held at the end of  June 1991) formalized the collapse which had begun as early as the mid-1980s.  For the whole period intra-Comecon trade had been shrinking. German reunification deprived Comecon  of one of its main supports. When, in  January 1991, its members decided that they would in future  transact their internal trade in dollars rather than convertible transfer roubles (the common  currency for transactions), this was tantamount to dissolution of Comecon. 3.2. The new phase of political and economic contacts between the European Community and the  Comecon countries rapidly led to the establishment of official relations. By  March 1991 numerous  trade and cooperation agreements had been signed. The Committee is convinced that all these steps  are essential components of the process of political and economic integration. They strengthen  inter-state consultation, deepen European political cooperation (EPC) and provide medium-term  economic support for the political reform processes in eastern Europe. An agreement on trade,  commercial and economic cooperation was signed with the USSR on 18  December 1989 and entered into  force on 1  April 1990. The focal points of this agreement are the granting of most-favoured nation  (MFN) status in cross-border trade and the Community's undertaking to make every effort to phase  out specific quantitative restrictions on the basis of Regulation (EEC) No  3420/83 (). The  European Community had introduced these 'autonomous' import restrictions since the mid-1970s, after  the bilateral trade agreements between the EC and Comecon Member States concluded in the period up  to 1973 had expired at the end of 1974 and Soviet opposition had, except in the case of Romania,  aborted new bilateral negotiations at Community level (). The parties to the agreement decided to  promote, in accordance with their respective economic policies and objectives, the broadest  possible cooperation in a wide variety of fields, including industry, agriculture, environmental  protection, energy and transport. The Committee described this agreement as an important signal of  political and economic confidence building in the framework of East-West cooperation. It is  indicative of the dynamic process of rapprochement which was taking shape that as early as   December 1990 the European Council, at its meeting in Rome, requested the Commission 'to explore  with the Soviet authorities the idea of a major agreement between the Community and the USSR,  encompassing a political dialogue and covering all aspects of close economic cooperation and  cooperation in the cultural sphere' (). With this decision, as the Committee pointed out in an  earlier Opinion, the European Council was clearly calling for something more than the existing  trade and cooperation agreement. The discussion of future economic and commercial relations was  however delayed by the violent political and economic upheavals of 1991 which culminated in the  fragmentation of the Soviet Union. The Commission was now obliged to talk to twelve independent  Republics. 3.3. The transformation of the political and economic landscape in the former USSR has caused the  European Commission to develop a new type of agreement, mid-way between a trade/cooperation  agreement and a Europe agreement. The aim is now to conclude partnership and cooperation agreements  with the independent states of the former Soviet Union (). These non-preferential agreements, which  are of a hybrid nature and consequently require ratification, are designed to define a broad range  of political, economic and commercial relations between the contracting parties and to replace the  1990 trade and cooperation agreement with the former Soviet Union. Bilateral discussions with  Russia began at the end of 1992, and with Ukraine a little later. Both sets of negotiations were  completed in the first half of 1994. Negotiations with Belarus were completed in  December 1994. 3.4. The partnership and cooperation agreements are similar to the Europe agreements in structure,  although different in content: - Preamble; - General principles; - Political dialogue; - Trade in goods; - Business and investment; - Payments and capital; - Competition, intellectual, industrial and commercial property protection, legislative  cooperation; - Economic cooperation; - Cooperation on prevention of illegal activities; - Cultural cooperation; - Financial cooperation; - Institutional, general and final provisions. The following comments by the Committee refer to the treaty signed on 25  June 1994 between the  European Community, its Member States and the Russian Federation. Where the earlier (14  June 1994)  partnership and cooperation agreement with Ukraine differs significantly, the Committee will, where  necessary, comment separately on these passages. As the partnership and cooperation agreement with  Belarus was initiated only on 22  December 1994, it is not dealt with in this Opinion. 3.5. With hindsight it is clear that the discussions with Russia on individual issues were more  prolonged than the Community had expected. This was partly because of Russian internal problems,  and because Russia escalated its demands, but it was in many cases also partly because the  Community had difficulty in reaching a consensus. On trade (improved market access) for example,  the EC Member States were reluctant to go much further than allowed by the negotiating mandate of 5   October 1992. With regard to the right of establishment and services on the other hand, the  eastern European negotiating partners were not noted for their willingness to compromise. The two  additional directives (5  April and 9  November 1993) for the negotiations on the partnership and  cooperation agreement with Russia, and an extension of the mandate in the case of Ukraine, are  sufficient proof of the Community's good will and its efforts to bring negotiations with its  Eastern European partners to a successful conclusion. 3.6. The Committee cannot understand the reasoning behind the protocol declaration in the extended  mandate of 5  April 1993, which states that the directives apply exclusively to Russia. Only at a  later stage do the Council and the Commission intend to investigate the possibility of extending  some or all of the provisions to other successor states of the Soviet Union. The Committee tends to  the view that the partnership and cooperation agreements should, in framing relations, from the  outset treat the independent Republics essentially equally and that a distinction between the  European and Asiatic Republics should be avoided. This would of course not exclude the possibility  of special arrangements for specific Republics. It became clear early on that some of the  independent Republics would try during the bilateral negotiating rounds to obtain partnership and  cooperation agreements with the Community and its Member States which are comparable in content to  that between the Community and Russia. (See Ukraine's call at the beginning of last year for  clarification of the European Community's initial negotiating stance). Preamble3.7. The Committee unreservedly welcomes the determination of the parties to work together  to strengthen the political and economic freedoms which constitute the very basis of the  partnership. The Committee also shares the parties belief in the paramount importance of the rule  of law and respect for human rights (particularly those of minorities), the establishment of a  multiparty system with free and democratic (secret) elections and economic liberalization leading  to a market economy. At the same time the Committee endorses the link established by the parties  between the implementation of partnership and the continuation and accomplishment of Russia's  political and economic reforms. The parties deserve unqualified support for their declaration  endorsing the commitments made under the CSCE process, above all full implementation of the  principles and provisions of the Helsinki Final Act, the concluding documents of the Madrid and  Vienna follow-up meetings, the Charter of Paris for a New Europe and the CSCE Helsinki document on  the Challenges of Change. The reference to the concluding document of the CSCE Bonn conference of  11  April 1990 is extremely important. But the Committee suggests that the very general references  to final acts and documents in the preamble be clarified and expanded, e.g. by incorporating key  passages from the Bonn document on economic cooperation in Europe. The Committee also hopes that  the numerous declarations of intent will be translated into everyday political action and fully  reflected in the constitutions of the signatory states. 3.8. The Committee considers the parties' statement that Russia is no longer a state-trading  country, but rather a country with an economy in transition, to be a political compromise. The  future will show to what extent this assessment is economically realistic and viable, and it will  depend on whether policy can in practice continue to satisfy the requirements of reform. Ukraine on  the other hand continues to be classified as a state-trading country, though the signatories  recognize the country's 'efforts, aimed at transition of its economy from a state-trading country  with a centrally planned economy into a market economy'. The Committee feels the different  classification of the two countries to be difficult to justify. It can probably be attributed  mainly to the fact that Russia is a stronger negotiating partner and often better able to get its  views reflected in the treaty than the other independent Republics. 3.9. The Committee has repeatedly criticized the absence from later agreements of the commitment to  social justice which first Europe agreements laid down as the basis of association. The same  criticism applies to the partnership and cooperation treaties. The Committee cannot understand why  the preamble makes no mention of social justice. It is particularly difficult to understand since  the concluding document of the CSCE Bonn Conference (1992) and the CSCE Helsinki Summit Agreement  (1992), both of which are referred to by the parties, show that sensitivities of this kind are not  an issue for the Heads of State or Government - including the European Community and its Eastern  European treaty partners. On the contrary, they regard social justice as a common and irrevocable  objective. They stress unanimously that wide-ranging trans-frontier cooperation, involving human  contacts, is needed to overcome economic and social inequalities and to pave the way for social and  economic development. The negotiating partners should be sufficiently aware that the processes of  transformation initiated in the independent Republics of the former Soviet Union are associated  with huge social upheavals which in many cases are causing real, and often severe, human misery. As  the Fund for Democracy and Development pointed out at the beginning of 1994, if these effects are  not mitigated, they will one day burst out of the confines of these countries and inundate other  countries, endangering prosperity and security (). They may ultimately mean democracy and the  market economy being rejected by the people, as the social and human cost is seen as too high ().  These possible chains of cause and effect should be considered. Only if it proves possible to match  and underpin the basic market economy system with a corresponding social order will the desired  panEuropean economic area attain political, and above all, ethnic and social stability. The  Committee's call has repeatedly been countered with the argument that social justice does not need  to be written into the preamble as the agreements include several passages of a social nature -  e.g. with regard to cooperation on health and safety, and on employment and social security. The  Committeefeels that the Commission's argument is wide off the mark. 3.10. In this context, the Committee urges that the partnership and cooperation agreements speak  not merely of a market economy, but of a social market economy. The Committee does not accept the  objection raised by some Central and Eastern European politicians, that in their countries the word  'social' is equated with socialist, and that a socialist market economy is the last thing they  want. On the contrary, the politicians' argument only highlights the young democracies of Central  and Eastern Europe's continuing need for information and clarification on political systems and  processes. In the framework of the various programmes, the European Community and its Member States  need to provide more advice, which in the early stages of political and economic reform is often  just as important as material support. 3.11. In contrast to the Europe agreements so far concluded with six Central European countries,  the preamble of the partnership and cooperation agreements does not hold out any prospects of  accession. However when the Agreement was signed, the former Ukrainian President, Leonid Kravchuk,  announced in principle his country's candidacy for eventual accession to the European Community.  'This prospect is among the Ukrainian government's priorities.' Only a few weeks previously the  Russian Prime Minister, Viktor Chernomyrdin, had also articulated his country's claim to  membership. Under Article O of the Treaty on European Union any 'European' state may apply to  become a member of the Union. There is of course no clear definition of the word 'European'. As the  Commission rightly says, the expression embraces geographical, historical and cultural elements  which contribute to the European identity. It would therefore appear neither possible nor desirable  to lay down once and for all the borders of the European Union, which will need to emerge gradually  over an extended period of time (). At the same time it should be made clear to would-be members  that as intra-Community integration progresses, it is becoming increasingly difficult to cross the  entry threshold. These countries must realize that their road to the European Community will be a  long and arduous one but the Community too will need to adapt, e.g. via CAP and financial reform.  The Committee therefore cannot understand why some politicians are calling for rapid enlargement  towards the East and mass accessions with no strings attached. It would be disastrous if the  intra-Community consolidation process were to fall victim to political opportunism or if it were to  be delayed or even watered down by hasty, and possibly ill prepared, enlargement. 3.12. The (associated) Central European countries have had a concrete prospect of accession since  the Copenhagen European Council (June 1993) decided that under certain conditions they could become  members of the European Community. What is needed is institutional stability as a guarantee of  democracy and the rule of law, maintenance of human rights, and respect for and protection of  ethnic minorities. A functioning market economy and the ability to withstand market forces are  essential. Moreover, the commitments entered into in connection with accession must be  wholehearted, as must the objectives of Political, Economic and Monetary Union. The European  Commission argues that the 1996 EC Intergovernmental Conference must lay the institutional  foundations for maintaining the EC's ability to take decisions. 3.13. The partnership and cooperation agreements provide a solid foundation for closer cooperation  between the European Community and the independent Republics of the former Soviet Union. The  European Community has on a number of occasions made it clear that for reasons of principle  membership of the EC can - at least in the foreseeable future - hardly be considered. The accession  of the independent Republics would require such wide-ranging agreement on major political, economic  and social conditions that these states would be hampered in their independent development.  Moreover, the CIS economic area would become even more fragmented, giving a new impetus to the  worrying process of disintegration. The Committee feels, however, that this does not exclude the  possibility of enhancing and developing the partnership and cooperation agreements by specific  forms of political cooperation. In due course ways of achieving still closer cooperation should be  discussed with those successor Republics of the former USSR which have passed the point of no  return for democracy and the market economy. General principles3.14. The Committee considers the general principles laid down to be highly  unsatisfactory. It is true that respect of democratic principles and human rights, as enshrined in  particular in the Helsinki Final Act and the Charter of Paris, is described as a guideline for the  domestic and external policy of the parties, and as an important component of partnership and of  the agreement. But this is insufficient. Above all, the Committee regrets the Community's failure  to make the introduction and maintenance of market economy principles an integral part of the  agreement with Russia. For the Committee this is incomprehensible, not only because the Council's  original negotiating mandate specifically defined market economy principles as an integral part of  the agreement, but also in view of the agreement to set up within the next few years a free trade  zone between Russia and the Community. The Commission should have realized that dropping this  element would give a false political signal, certainly discouraging for Russia's market-orientated  reformers. If Russia insists - as the negotiating rounds have clearly shown that it will - on no  longer being treated as a state-trading country, it is essential, with a view to a successful  process of economic reform, to lock in market principles as an essential, and not merely  declaratory, component of the future agreements. In addition, the Committee reiterates its view  that the maintenance of basic social rights and minority rights should not just be referred to in  the preamble but should be a separate and substantive part of the agreement. The agreements with  Ukraine inspire greater confidence: there at least market economy principles, as defined for  example in the Bonn CSCE document, are an integral part. It is to be welcomed that in the event of  sustained breach of these provisions the Community can unilaterally, and with immediate effect,  suspend the agreements. The Commission feels that in this way the Community has obviated the slow  and complex procedures laid down in the Vienna agreement on treaty law. 3.15. The Committee attaches importance to the evolution clause under which a joint study is to be  carried out in 1998 to establish whether the economic preconditions (e.g. basic market economy  structures) have been fulfilled in Russia (or Ukraine), thus enabling negotiations to begin on the  establishment of a free trade zone. Not least in view of the need for confidence building, the  Committee would have preferred a more precise wording; in particular the arrangements for the  beginning of negotiations should have been more clearly defined. Differences of opinion between the  EC Member States prevented a clear wording being adopted; once again in the field of trade policy  rhetoric and action were at odds. It is also regrettable that there is no evolution clause in the  agreements with Kazachstan, Kyrgyzia and Moldova. The different forms of treaty heighten the danger  of renewed and intolerable strain on the Eastern European economic area and of lasting damage to  the process of regional cooperation between the successor states of the former USSR repeatedly  called for by the European Community. This applies not least to the  September 1994 decision by the  Heads of Government of the twelve CIS states to establish close economic cooperation and set up an  inter-state economic committee. Too often we fail to realize that the introduction of free  merchandise trade with the states of the former Soviet Union, even going as far as the  establishment of a free trade zone, is in the interests of all the parties. It is a truism to say  that if internal economic development in the reformist Eastern European countries receives  effective external support, new export markets will be created and the Community will in the long  term gain new and significant outlets for its investment and consumer goods. The precondition for  this, however, is that the maxim 'aid through trade' be taken seriously and put into effect. It  would be more than inconsistent were the West to commit large amounts of financial aid to the  Central and Eastern European reformist states but deny them access to its markets and thus the  opportunity to earn their own foreign exchange. 'What we really need', as the Prime Minister of the  Czech Republic, Vaclav Klaus, put it, 'is the free exchange of people, ideas and, most importantly,  goods. And in a form which is of benefit to both sides.' ()Political dialogue3.16. The Committee  welcomes the inauguration of a regular political dialogue, which will be structured similarly to  that laid down by the Europe agreements. The Committee has repeatedly described political dialogue  as a key element of, and pointer for, pan-European integration. Political dialogue will encourage  rapprochement between the parties, support political and economic change in the Eastern European  countries and contribute to new types of political cooperation. The parties feel that this dialogue  should enhance security and stability by ensuring closer coordination and convergence of views. To  be welcomed is the plan to work together on questions concerning respect for basic democratic  principles and human rights and to consult - whenever necessary - with a view to optimum  realization of these principles. It is regrettable, however, that the rights and opportunities for  development of minorities are not specifically mentioned as part of the political dialogue. The  Committee considers this to be evidence of a credibility deficit which should be dealt with as  rapidly as possible. 3.17. In the framework of political dialogue regular meetings are to take place - in principle  twice a year - between the Russian President and the Presidents of the EC Council and the European  Commission. At ministerial level political dialogue will be conducted mainly via the Cooperation  Council, at parliamentary level via the Parliamentary Cooperation Council. In addition, other  procedures and mechanisms are to be developed, either making full use of diplomatic channels, or  via meetings of senior officials or in other forms, the aim being to help consolidate and develop  political dialogue. 3.18. The Committee would once again voice criticism of the failure to mention the essential  contacts between the social groups in the countries concerned. With reference to the independent  Republics of the former Soviet Union, it should be possible to achieve consensus in the Community  that 'there is no chance at all of creating a pan-European economic area if economic and social  interest groups are kept in the background'. They are the pillars of social and political culture  in Europe, they make changes in the political and economic balance transparent and serve to balance  the interests of the various social groups. Particularly at a time when these groups are becoming  established and are organizing themselves in the successor Republics of the former USSR, making  contact with democratic forces is more necessary than ever, and they need to be integrated as  closely as possible into pan-European structures. In this context the Committee would remind the  Member States of the agreement on the European Economic Area (EEA), which institutionalizes  cooperation between the economic and social partners in the EEA advisory committee; in the case of  Hungary the setting-up of a joint advisory committee is being seriously considered; in other Europe  agreements the parties to the treaty have agreed in a joint declaration to have the relevant  Association Council look into the possibility of establishing a consultative body made up of  members of the EC's Economic and Social Committee and corresponding groups from the Central  European partner states. The Committee has welcomed the joint declarations as an important step in  the right direction; it expects amended declarations to be incorporated in the partnership and  cooperation agreements. Over the past months Committee members have had various discussions with  representatives of social groups from Russia, Ukraine and Belarus and have noted not only a great  need for information but also a desire for further contacts. Sporadic consultations will not be  enough. Rather, an on-going and intensive dialogue is needed on common locations, objectives and  priorities. Another aim should be to make know-how available for efficient problem solving - which  is in the interests of both parties. The partnership and cooperation agreements are to be reviewed  three years after their entry into force. If the partners, Russia and/or Ukraine, should become  members of GATT/WTO earlier, however, revision is to take place at this time. The Committee  proposes to the EC that during the first revision of the treaty it clarify jointly with the  Committee whether the time has come to institutionalize contacts between the members of the ESC and  the members of corresponding bodies in the Eastern European partner states via a consultative body.  This could be organized similarly to the proposed joint advisory committee of the EC's economic and  social interest groups and those groups assembled in the Hungary's national council for the  balancing of interests. Trade in goods3.19. Although Russia and Ukraine are not yet members of the GATT, some passages in  the agreements are to a great extent in line with the relevant GATT provisions. By GATT the  European Community and its Eastern European partners mean the agreement signed in Geneva in 1947,  as subsequently amended and as applied by the partnership and cooperation agreements. In the  section dealing with trade the signatories grant each other general most favoured nation (MFN)  status within the meaning of Article I of the GATT. As MFN treatment was already enshrined in the  trade and cooperation agreement between the European Community and the former USSR, the provisions  of the agreements with the successor Republics are in a sense a back-up. Any bilateral advantages  which Russia or Ukraine grant neighbouring countries in areas covered by the partnership and  cooperation agreements are excluded. Also excluded are any advantages which certain countries grant  developing countries in accordance with the GATT or other international agreements. At all events,  as early as 1  January 1993 the CIS states were brought into the Community's Generalized Scheme of  Preferences (GSP). The Committee feels that this was entirely justified. Research shows that on  average the relief from customs duties enjoyed by the CIS states is less significant than for the  developing countries granted preferential treatment (); under the GSP the latter are relieved of an  average of about one third of their customs liabilities (). The reason for these variations in  relief is to be found in the dif2ferent structure of exports. CIS exports were - at least in the  year preceding inclusion in the GSP - dominated by oil and other commodities which are either  subject to low rates of customs duty or entirely exempt (). 3.20. The Committee welcomes the reciprocal abolition of quantitative import restrictions for goods  originating in signatory countries - without prejudice to the special rules for textiles, ECSC  products and nuclear material. This agreement confirms the European Community's abolition, from 1   August 1991, of specific quantitative restrictions. The same applies to the unilateral suspension  of non-specific quantitative restrictions on imports from individual GATT member states and from  the Eastern European partners. Russia and Ukraine will benefit from limited, temporary derogation  clauses, in the event of the reintroduction of quantitative restrictions on a non-discriminatory  basis under Article XIII of the GATT. These clauses will apply to young industries, to sectors in  the process of restructuring, to sectors having to cope with serious (particularly social)  problems, and, in the case of Russia, to where there is the danger of local companies seeing a  drastic reduction in their market share. Russia has given assurances that it will not circumvent  these provisions by increasing tariff protection of the goods in question. The Committee accepts  the need for these derogations, as the economies of the independent Republics of the former Soviet  Union are still weak, and have been confronted almost overnight with enormous challenges. Above  all, deep-seated structural problems have to be tackled at the same time as stronger competition  from imports. On the other hand, the Committee fears that the temptation may be growing to use  these arrangements to put off the need for adaptation to market processes. Given the broad and  imprecise criteria, these derogations could become the rule on major Eastern European markets. This  would certainly do nothing to promote the necessary rapid intensification of economic relations  between Russia, Ukraine and the Member States of the European Community. 3.21. A joint declaration stated that the safeguard clause in the event of market disturbances did  not accord with the GATT's provisions on safeguard measures. Although the Eastern European  negotiating partners had repeatedly called for the GATT rules to be applied, the EC Member States  could not agree on treatment which would have been in conformity with the GATT. Admittedly, the  part of the treaty dealing with criteria for the introduction of safeguard measures is based to a  great extent on Article XIX of the GATT, but the decisive criterion for the triggering of the  safeguard clause was watered down. In contrast to the GATT provisions which speak of 'serious'  injury caused or threatened, the partnership and cooperation agreement merely refers to  'substantial' injury - however that may be defined by the Community. If quantitative restrictions  are introduced pursuant to the agreed safeguard clause, the Russians (but not the Ukrainians) have  the right to deviate from their obligations to the other party in respect of goods of substantially  equivalent value. The Committee cannot see why this provision was included only in the agreement  with Russia. What is clear, however, is that the right to discontinue concessions of equivalent  value was included in the trade and cooperation agreement with the former USSR and that the  successor states have taken over the rights and duties arising from the 1989 agreement. The  possibility cannot be excluded that Ukraine might attempt to circumvent the procedure for  justifying the introduction of quantitative protective measures, by increasing customs duties.  Russia has undertaken by treaty to refrain from such practices. The Committee wonders, however,  whether this Russian assurance has any practical value. As long as Russia and Ukraine are not  members of the GATT/WTO they are free to set their own customs policy and to increase customs  protection for whatever reason. The proposed consultations in the Cooperation Council on the  customs policy of the Eastern European treaty partners are therefore to be welcomed, though they do  not ultimately offer any effective protection against increases in customs duties by the Eastern  European partners. It would have been better to agree from the outset to freeze the  Russian/Ukrainian external tariff. The increase in Russian import duties on certain consumer goods  in mid-1994 demonstrates the validity of the Committee's concern. The Committee considers it  significant that the Community, in an exchange of letters outside the scope of the agreement,  stressed that the entry into force of GATT 94 constituted a change in circumstances within the  meaning of the partnership and cooperation agreement, which justified considering whether the  agreement needed to be amended. The Committee suggests that this review be used as an opportunity  to bring the safeguard clause into clear conformity with the relevant provisions of GATT 94. Only  when more stringent criteria are applied to the triggering of safeguard measures will the safeguard  clause in the agreements with Russia and Ukraine inspire confidence. GATT 94 also contains revised  definitions of serious injury caused or threatened, and the Committee is glad that the proof  required must be based on actual facts, and not on assertions, assumptions or remote  possibilities. 3.22. In both agreements the anti-dumping or countervailing measures are based on Articles VI and  XVI of the GATT and on internal rules which undoubtedly include the EC anti-dumping Regulation.  Until definitive measures are introduced, the parties to the treaty intend to seek constructive, ad  hoc, solutions to problems. The consequences of classifying Russia as an economy in transition and  Ukraine as a state-trading country (which is incomprehensible in economic terms) are felt most  clearly in the agreement's anti-dumping provisions. In particular, Article  2(5) of the  anti-dumping Regulation, dealing with the determination of the normal value of imports from  non-market economy countries, does not apply to Russia (). In determining the normal value of  goods, appropriate account will also be taken of the natural comparative advantages enjoyed by the  manufacturers concerned, such as access to raw materials, manufacturing procedures, proximity of  manufacturing to customers and specific characteristics of the goods. Ukraine and the other  Republics, on the other hand are without exception treated as having non-market economies. There is  no indication that the natural comparative advantages of manufacturers should be taken into  account. Instead, the Commission refers to a relevant judgement of the European Court of Justice of  22  October 1991/case C-16/90. These agreements also include a price clause, under which goods are  to be traded between the parties at 'market-related prices'. Unfortunately market-related price is  not defined, giving free rein to the imagination. The European Community has repeatedly asserted  that it has sufficient instruments to protect itself against price manipulations. If this is in  fact the case, the purpose of such a vague price clause is questionable. The Committee would once  again argue that it would probably have been fairer to treat the independent Republics of the  former Soviet Union equally on essential economic matters. The European Community should base the  anti-dumping and countervailing measure provisions uniformly on GATT 94. 3.23. The opening-up of the Eastern European market presents the European Community's economy with  an unusual challenge. This daring attempt to set up, when the time is ripe, a large free trade zone  between the Community and a group of extremely low-cost countries, which have an industrial  tradition and a skilled workforce, is the first of its kind - probably anywhere in the world. The  Committee is convinced that integration of the Central and Eastern European markets into a  pan-European economic area will temporarily increase the need for structural adjustment in the EC  Member States and entail radical changes. The specific problems of individual sensitive sectors  therefore make it necessary to agree supplementary transitional provisions. Temporary protective  measures need to be included in the partnership and cooperation agreements to facilitate and  provide a social safety net for the inevitable restructuring in the textiles and ECSC areas in  particular. The European Community's longer term objective, however, must remain to agree the  framework of a liberal trade policy with its treaty partners and to make sure that it is put into  effect without restrictions in Eastern Europe. Article  110 of the Treaty establishing the European  Community specifically requires the EC to work for a liberal trade policy in the common interest.  The planned establishment in due course of a free trade zone is also subject to the condition that  customs duties and other restrictive measures be abolished virtually across the board (by both  parties) in their bilateral trade (Article XXIV 8b of the GATT). The need to fall into line with  the GATT will mean that in the long run it will not be possible to exclude any sector (even  agriculture) from the market-opening process. 3.24. A voluntary export restraint agreement on trade in textiles has been negotiated between the  European Community, Russia, Ukraine and Belarus, and will remain in force until the end of 1995. By  Decision of the Council of 20  December 1993, these bilateral treaties apply retrospectively as of  1  January 1993. In the preamble to the agreements the parties underline their desire to promote an  unhindered and balanced development of trade in textiles. They stress their determination to take  the greatest possible account of the serious economic and social problems facing the textiles  industry. The Committee regards these agreements as a necessary step towards countering, when  necessary, on a long-term basis the potential risk of market distortion. At the same time it calls  on the Commission to enter into discussions with the European textiles and clothing industry on the  content and extension of the voluntary restraint agreements before the treaties expire. On several  occasions the Committee, in Opinions on the subject, has endorsed the Commission's view that the  textiles and clothing industry has an important role to play in the Community (). This is true not  only with regard to manufacturing, jobs and sales, but also accumulated experience and creativity.  The structural challenges facing the European textiles and clothing industry require Community  solidarity. This is all the more necessary, given that these sectors will continue - at least for  the foreseeable future - to be of vital importance to certain regions of the Community. 3.25. Quantitative restrictions will initially continue to apply to products falling under the ECSC  Treaty. Discussions on voluntary restraint agreements in respect of imports of certain steel  products for 1995 and 1996 were successfully concluded at the end of 1994. The Committee in  principle welcomes these negotiations, agreeing with the European Commission that political reasons  alone mean that a treaty is to be preferred to the unilateral imposition of quotas, which is common  practice. Until the end of 1992 steel imports from the former Soviet Union were limited in quantity  via rules imposed by individual EC Member States - in the form either of official national quotas  or else semi-official administrative practice. With the completion of the internal market the ECSC  members agreed to standardize European Community import rules, so that as of 1  January 1993 EC  quotas apply to imports of certain steel products from the CIS Republics. The measure was  introduced initially for a year (1993) and was then extended to the end of 1994 (the quotas being  increased by 3 %). With regard to the content of voluntary restraint agreements with Russia and  Ukraine for 1995 and 1996, the Committee is concerned that: - the increase in supply opportunities by 35 % in 1995 and another 15 % in 1996 compared with 1994  EC quota levels is very large; - the system of regional distribution of steel imports within the Community was not retained. The Committee welcomes the provision in the agreements for the setting-up of a contact group on  coal and steel matters which will regularly exchange information of common interest relating to  coal and steel. However, the Committee doubts whether the Commission and the representatives of the  Eastern European partner governments will on their own be able to carry out an informed assessment  of coal and steel industry trends in the areas covered by the treaties and also worldwide, and to  draw up practical proposals (e.g. for structural adjustments). The Committee feels that it would be  better to include representatives of the sectors concerned in the contact group from the outset and  to treat them as equal partners in the discussion, rather than bringing them in only after the  group's discussions. The Committee also hopes that these bodies will work more efficiently than the  groups meeting, under the Europe agreements, to exchange ideas. 3.26. The negotiations on trade in nuclear materials were for a long time coloured by differences  of opinion between Russia and the European Community on the one hand, and between the EC Member  States on the other. Underlying this dissension was the Community's fear that imports of enriched  uranium from Russia could threaten the viability of the Community's own competitor industries and  considerably reduce their share of the Community market. Hence the agreement not to submit the  trade in nuclear materials to the same rules as the general trade in goods under the partnership  and cooperation agreements. Instead, a special agreement, to be negotiated by 1  January 1997, is  foreseen. Under consideration are a firm quota for imports of nuclear materials from Russia, a more  flexible safeguard clause and a special price clause taking all costs into account, i.e. including  the cost of environmental protection measures, permanent storage, reprocessing and safety  standards. Until the separate agreement is concluded the trade in nuclear materials will be  governed by interim rules based on certain provisions of the partnership and cooperation agreement  and of the trade and cooperation agreement with the former Soviet Union. These include safeguard  measures with a simplified trigger mechanism, as well as market-related pricing and an undertaking  to conduct trade in accordance with the respective laws of the parties. The Community takes the  view that these laws include the Treaty establishing the European Atomic Energy Community  (Euratom), and in particular the provisions governing the rights, duties and responsibilities of  the Euratom supply agency and the Commission. In an exchange of letters Russia expresses its  intention of acting as a reliable, long-term supplier of nuclear materials to the Community. The  Community in turn recognizes Russia as a separate supplier in the nuclear area. Further questions  concerning civilian cooperation in the nuclear sector - e.g. nuclear fusion and nuclear safety -  are to be dealt with in two supplementary agreements. In this connection, the Committee welcomes  the jointly expressed wish to facilitate the process of nuclear disarmament by all available  means. Provisions on business and investment3.27. As far as the labour market is concerned, the parties  agree not to allow any nationality-based discrimination as regards remuneration, dismissal and  other working conditions, and not to discriminate against the other party's nationals legally  employed on their territory. The Committee can see no reason why the families of workers from both  partner states, living and working legally in a Member State, should not be given access to the  Community labour market. It may be true that the high level of unemployment and the very limited  room for manoeuvre in the medium term mean that there is little likelihood of any significant  demand for workers from non-member countries on the Community labour market over the next few  years, but this has no bearing on the matter. The Committee therefore feels that it would be unwise  to make undertakings which might give rise to a claim (even a political claim) for (cross-border)  freedom of movement for workers. It should also be borne in mind that in existing agreements the  Community has made concessions (second priority) which could further limit opportunities for  immigration from Eastern European countries. The parties also intend to make joint efforts to  control (Ukraine) or - as in the agreement with Russia - even prevent illegal immigration. The  Committee welcomes this agreement. In its Opinions on the Europe agreements the Committee - rightly  as daily experience has shown - repeatedly urged the Community to pay sufficient attention to the  problem of illegal employment, which is closely connected with that of illegal immigration.  Unfortunately, even in later Europe agreements, the Committee's call went unheard. It is therefore  all the more pleasing to note that the Community now recognizes the problem and has for the first  time made it a feature of partnership and cooperation agreements. 3.28. The Committee supports the parties' intention (which is already enshrined in the Europe  agreements) of coordinating the social security rights of Russian and Ukrainian workers who are  legally employed in the Community. Subject to the rules applied in the various EC Member States,  this coordination will ensure that workers' periods of insurance, employment or residence are added  together for the purpose of medical care and of retirement, invalidity and dependents' pensions.  Any such pensions will be freely transferable at the rates applied by the relevant Member States.  Russia and Ukraine intend to grant similar treatment to EC nationals legally employed within their  borders. 3.29. The Committee has repeatedly argued that freedom of establishment will promote the transition  to the market economy and help create a modern and competitive economy in the Eastern European  partner states. In this respect, the rules negotiated for the establishment of companies cannot be  fully endorsed. Russia and the Community grant each other reciprocal MFN treatment for the  establishment of enterprises (subsidiaries or branches) on each other's territory, i.e. treatment  which is no less favourable than that granted to any third country. However, this is inadequate to  ensure unlimited market access, as domestic enterprises may well be in a more advantageous  position. Ukraine on the other hand - unilaterally - grants firms from EC Member States the same  treatment as national firms. Subsidiaries are granted either national or, at their option, MFN treatment, whichever is the  better, for their operations. Both treaty partners of course have reservations in certain areas,  which will not be gone into here. The Community and Russia grant each other only MFN treatment in  respect of the operations of branches of companies, whilst Ukraine grants them national treatment.  The Committee feels that the right of establishment arrangements - at least as regards the  Community and Russia - should be improved. It is welcome therefore that the parties intend to look  at ways of achieving national treatment in a way satisfactory to both sides and on the basis of the  recommendations of the Cooperation Council. This laudable intention is however incompatible with  the Community's concession whereby Russia may subsequently restrict existing agreements on freedom  of establishment, on the ground, to quote the Russian argument, that in certain respects and in  certain areas the treatment of subsidiaries and branches of EC companies is often more favourable  than that of Russian companies. Without examining this argument in greater detail, it should be made abundantly clear to the  Russian negotiating partners - even if only later in the Cooperation Council - that clauses of this  kind will only deter investors. The Committee feels that a legislative and administrative framework  based on continuity and predictability would be preferable, enable companies to plan ahead and  encourage longer term innovatory and investment activity by Community companies. Three years at the  latest after the signature of the partnership and cooperation agreement, Russia and the Community  intend to examine in the Cooperation Council all subsequent changes to the right of establishment  laws of the parties. Consultations are also provided for to settle disputes. If no agreement is  possible the other party is free to make its own appropriate balancing adjustments. As the  introduction of rules likely to discriminate against individual countries is not part of the EC  Member States' policy or practice, further unilateral restrictions of the right of establishment  are within the realms of possibility - although both parties intend to use their best endeavours to  prevent this. 3.30. EC banks and insurance companies are also granted MFN treatment as regards the establishment  of subsidiaries or national treatment with regard to their operations () but there are many waivers  for banks in Russia. Particularly serious is the general ceiling (12 %) on foreign ownership of  Russian banks. The limit on the number of branches of Russian subsidiaries of EC banks is also a  brake on business development. Another problem is that subsidiaries have to be more highly  capitalized than Russian banks. Trading in shares, and instruments convertible into shares, of  Russian companies is prohibited. Russia has given assurances that certain waivers - not all of  which are listed here - will be dropped after three or five years. For example, five years after  the signature of the agreement, Russia intends to consider whether - in the light of the relevant  monetary, fiscal, financial and balance-of-payments considerations - the rules placing a ceiling on  foreign ownership of the Russian banking system and imposing higher capital requirements on Russian  subsidiaries of EC banks can be relaxed. In conclusion, the Committee feels that the waivers agreed  with the European Community will initially place EC banks at a competitive disadvantage on the  Russian markets, and that these disadvantages must be eliminated rapidly, at all events more  rapidly than currently planned. 3.31. The services markets are growing dynamically and increasing in importance worldwide. Initial  estimates suggest that about one third of world trade is accounted for by services. But numerous  exceptions, obstacles, subsidies and preference for national providers of services cloud the  picture and everywhere distort the cross-border trade in services. In view of these tendencies,  steps towards liberalization, however timid, cannot be valued too highly. This applies particularly  to the cross-border trade in services with the Eastern European partner states. The Committee  therefore welcomes the reciprocal MFN concessions laid down for a broad range of services in the  agreement with Russia. In future the Cooperation Council will make recommendations for the further  liberalization of the cross-border trade in services and at the same time take due account of the  other international commitments entered into by the parties. It was logical therefore for the  European Community to stipulate by treaty that the GATT provisions impinging on the agreement would  be taken over on time. Once the GATS comes into force, no service sector or sub-sector falling  under the GATS may be treated more favourably than agreed in the Uruguay Round. By making suitable  adjustments Russia can restore the balance of concessions between the parties. In the agreement  with Ukraine both partners undertake to phase in cross-border services on the basis of Cooperation  Council recommendations. At the same time the European Community and Ukraine intend to work  together to build a market-orientated services sector in Ukraine. 3.32. The agreements on cross-border transport services deserve general support. With regard to  maritime transport, the parties undertake to apply effectively the principle of unrestricted access  to the international market and traffic. This does not prejudice the rights and obligations arising  under the United Nations Convention on a Code of Conduct for Liner Conferences. The parties also  affirm their commitment to a freely competitive environment as being an essential feature of the  dry and liquid bulk trade. All unilateral measures, administrative, technical and other obstacles  which could constitute a disguised restriction or have discriminatory effects on the free supply of  services in international maritime transport are abolished. The Committee considers the agreements  reached with Russia on inland waterways to be inadequate. Only after the agreement has entered into  force will steps be taken (by the end of 1996) to work out how inland waterways can gradually be  opened up to international air-sea transport services provided by the shipping companies of a party  to the agreement. The Committee suggests that an immediate start be made on the negotiations and  that a definite timetable be drawn up for the reciprocal opening-up of inland waterways. On rail  transport, supplementary bilateral and multilateral mechanisms will be used to create suitable  conditions for, inter alia, guaranteeing and developing passenger transport between the EC Member  States and Russia. As regards the market for communications services, steps are being taken to  negotiate multilateral rules on satellite bearer services. The parties want to agree conditions for  the supply of bearer services for the transitional period up to 2000. The imprecise wording shows  that the Commission's original intention of concluding a Community agreement cannot yet be  realized, as it is a matter for the Member States themselves. Every assistance will be granted to  promote the cross-border trade in mobile satellite communications. In 1995 the partners intend to  look at the possibility of granting each other MFN treatment in respect of satellite  communications. The Committee considers it important that after the partnership and cooperation  agreements have entered into force additional special agreements be concluded on reciprocal market  access and the provision of services in the transport sector. Payments and capital3.33. The Committee welcomes the authorization of current payments connected  with the bilateral movement of goods, services and persons in convertible currency. When the  agreement enters into force freedom of capital movements will also be granted for direct  investments, their liquidation and the repatriation of any profits. The agreement with Russia  includes provisions for compensation for expropriation, nationalization or measures of equivalent  effect. After a five-year transitional period the European Community and Russia intend that no  further restrictions on cross-border capital movements should be introduced. If, however, in  exceptional circumstances cross-border capital movements create serious difficulties for the  operation of monetary or exchange-rate policy, the parties may take safeguard measures for a period  not exceeding six months. Moreover, the Eastern European partners may, until the Russian/Ukrainian  currencies become fully convertible, impose exchange restrictions on the granting or taking up of  short and medium-term financial credits, provided that these restrictions are based on IMF  recommendations. The parties also intend to facilitate cross-border movements of other forms of  capital in order to achieve the objectives of the partnership and cooperation agreement. To this  end consultations are to be held; in the case of Russia the emphasis is on further liberalization  of capital movements with respect to portfolio investments, commercial credits and financial loans  granted to Russian residents and business partners from EC Member States. The Committee supports  these initiatives for the liberalization of capital movements. Without freedom of capital  movements, liberalization in other economic areas will only be possible to a limited extent. The  advantages in terms of location and specialization conferred by free movement of goods and services  can be fully exploited only if there is cross-border freedom of movement for capital. The role of  free capital movements as a 'discipline' for the economic, financial and monetary policies of the  individual countries should also not be forgotten. Against this background the Committee calls on  the parties to the agreements to promote the liberalization of capital movements between the  Community and the Eastern European partner states with the final objective firmly in mind. The next  steps will require the policy of economic reform to be consistently maintained, excessive  regulation (e.g. for EC banks) curbed and economic disparities significantly reduced. Competition, intellectual, industrial and commercial property protection, legislative  cooperation3.34. The competition arrangements are a weak point of the agreements. The parties do  specifically stress their intention of removing competition restrictions affecting trade between  the Community and the Eastern European signatory states. Russia and Ukraine are directly required  to adopt and enforce laws on competition. But - compared with the Europe agreements - the  provisions are so soft and non-binding that it is unlikely that any claims would arise, either for  the signatories or for European firms. Something which is to be welcomed is the general agreement  with Russia to refrain from subsidies in trade for exports to the Community which favour certain  undertakings or the manufacture of products. Primary products within the meaning of Article XVI of  the GATT, i.e. agricultural and forestry, fishery and all mineral products, are excluded. Russia  has also agreed to introduce strict aid disciplines in its trade with the Community from the third  year onwards. Ukraine also intends - without specifying a date - to give up state aid in  cross-border trade, even in relation to services. Temporary derogations, above all for new and  restructuring industries, which in Russia would justify the reintroduction of quantitative  restrictions, also apply to measures which are inconsistent with the agreement to abolish export  subsidies. From the third year (or in the case of Ukraine the fourth year) after the agreement's  entry into force the parties intend to introduce a general prohibition on discrimination between  nationals and firms from the signatory countries with regard to supply and sales conditions. The  consultations intended to take place in the Cooperation Council could one day assume considerable  importance for the implementation and further development of competition rules and for the  dismantling of restrictions on competition. Systems of aid and specific instances of state aid are  to be discussed there. The Committee endorses the Community's willingness to provide the Eastern  European partners, at their request, with technical assistance in the drawing-up and implementation  of competition rules. The extent to which the Community, in so doing, will draw on EC competition  rules is an open question. The Committee assumes however that the Community is interested in  recommending to the Eastern European partner states a competition regime based on EC principles. 3.35. Intellectual, industrial and commercial property protection is of great importance to the  industries of the contracting parties. It not only promotes cross-border cooperation, it also  favours international technology transfer. It is more than ever necessary to put a stop to the  abuse of property rights worldwide. The Committee welcomes any progress in the area of industrial  property rights protection - not least in relation to the Eastern European partners. Russia and  Ukraine intend to develop the protection of intellectual, industrial and commercial property  further with a view to achieving a level of protection 'comparable' with that of the European  Community five years after the agreement's entry into force. This is to be welcomed, but it still  leaves something to be desired, as 'comparable' can still mean a lower level of protection. The  only important thing is that differences in the level of protection should be minimal. This is not  stated in the agreement however; it would have been better to agree on an 'equivalent' level of  protection. From the entry into force of the agreement the Eastern European partners grant  Community firms and nationals MFN treatment in relation to the recognition and protection of  intellectual, industrial and commercial property. Advantages granted to a third country on the  basis of actual reciprocity are excluded. This restriction is not without its problems, as it would  allow an agreement in which, for example, Russia and the USA granted each other much better  conditions than allowed under the international conventions. There are already precedents with the  USA (e.g. South Korea, Bulgaria). As this passage was absent from earlier drafts of the agreement,  the Eastern European partners now also seem to be thinking about such possibilities. The Committee  is also critical of the procedure agreed for the settlement of disputes arising from application of  the agreement and the listed multilateral agreements. The procedure is ill defined, boils down  ultimately to non-binding discussions and falls far short of the comparable GATT mechanism. The  Committee feels that it would be a real gain for the industries of the contracting parties if the  TRIPS provisions of the Uruguay Round were to be incorporated as soon as possible (after  ratification) into the partnership and cooperation agreements - even if states in the process of  moving from a planned to a market economy were granted a transitional period lasting until 2000. 3.36. Legislative cooperation is a necessary precondition for the deepening of economic and social  relations between the European Community and the Eastern European contracting parties. Russia and  Ukraine will endeavour to ensure that their legislation is gradually made 'compatible' with that of  the Community. The Committee welcomes this statement of intent, but Community firms - and those of  the Eastern European partner states too - are confronted almost daily with the problem of having to  live with several legal systems. The same matter is often assessed and handled in contradictory  ways. The earlier the various legal frameworks can be approximated therefore and legal certainty  increased, the more favourable - as the Committee put it in its earlier Opinion - the environment  will be for cooperation between East and West. On the other hand, the Community by no means fails  to appreciate the serious difficulties which approximation of legislation poses for the Eastern  European partner states. These will mean that these countries can approximate their legislation to  the Community system only 'by the skin of their teeth'. It must also be borne in mind that  established rights (of whatever kind) cannot be abolished overnight by a stroke of the pen. 3.37. The Committee agrees unreservedly with the European Commission that legal harmonization is an  enormous task. A multitude of legal and administrative provisions are involved: civil law, banking  law, company accounts and taxes, the protection of workers in the workplace, financial services,  competition rules, public procurement, the protection of the lives and health of humans, animals  and plants, environment, consumer protection, indirect taxes, customs law, technical regulations  and standards, laws and other regulations governing the nuclear area, transport. In its Opinions on  the Europe agreements the Committee repeatedly suggested that priorities be set. This suggestion  was taken up by the Commission and incorporated in its report to the European Council in Edinburgh  (). In this context the Commission suggests setting up, within the framework of the association  committees, groups which would identify priority areas for approximation. The Committee feels that  similar groups should also be set up within the ambit of the cooperation committees. Important  areas for the list of priorities are: customs law, competition law, protection of industrial  property, environment law and the regulations governing the protection of workers in the workplace.  Also, the legal and administrative provisions governing nuclear technology should be speedily  adapted and the adoption of the Euratom rules discussed as soon as possible. The Community has also  agreed with Ukraine to provide technical assistance, e.g. seminars or exchanges of experts. The  Committee regrets that the agreements contain no timetable for the legal adaptation measures. Given  the parties' common wish to strengthen and develop political, economic and trade cooperation, it  should also be in the interests of the Eastern European partner states to make an early start on  the approximation of their laws. Economic cooperation3.38. The European Community, its Member States and the Eastern European  contracting parties wish to foster economic cooperation, in order to cement and develop economic  links. The necessary measures will be long term and will fully incorporate environmental  considerations. The aim of these common efforts is to boost the growth potential of the economies,  create a favourable international (economic) environment and integrate Russia into a pan-European  economic area. It is particularly noteworthy that all the parties also consider it essential to  contribute to a harmonious social development. Emphasis is also placed on the need to deepen  cooperation between the CIS states and to ensure balanced development of the region. In this  context, the contracting parties - as in the Europe agreements - offer a broad field of economic  policy activity. As well as industrial cooperation, the need for promotion and protection of  investment is also emphasized. Other areas of activity are: public procurement, standards and  conformity assessment, consumer protection, mining and raw materials, science and technology,  general and vocational training, agriculture and food, energy, the nuclear sector, space,  construction, environment, transport, post and telecommunications, financial services, regional  development, cooperation in the social area, tourism, SMEs, communications, information technology  and infrastructure, customs, statistics, economics, money laundering, drugs and the regulation of  capital movements and payments in Russia. The Committee does not dispute that cooperation in these  fields is in principle desirable, and that in the fullness of time it could be initiated or  improved. But it has strong grounds for doubting whether merely making a long list of unconnected  policy areas will suffice to make, within an acceptable timeframe, an effective contribution to the  overall economic policy objectives, which range from expansion of the economy to harmonious social  development. There is virtually no sign of the intended division of responsibility between the  economic operators, between firms and the state and between the Community and its Member States. We  are not talking merely about one or two Eastern European partner states here; the associated  Central European states, the Baltic States and the other independent Republics of the former Soviet  Union expect similar support and cooperation. Given the limited human and financial resources of  the Community and its Member States, this is an altogether ambitious undertaking. 3.39. The Committee feels that the most important thing is to draw up a list of economic priorities  for cooperation between the parties to the agreements. This will require the partners to have as  realistic and unadorned an image as possible of the everyday problems confronting European firms on  the markets of the Eastern European partner states. Firms' attempts to gain a footing in these  states are often an obstacle race over bureaucratic hurdles. The number of obstacles is great, but  their size varies from country to country. The main problems are connected with the chronic lack of  foreign exchange, persistent inflation and inadequate certainty in legal relations - particularly  with regard to investment. Further obstacles are created by contradictory laws and decrees and in  some cases their arbitrary interpretation (customs and taxes). There are complaints of opaque  decision-making structures in government departments and wrangling between central and regional  authorities. Domestic firms' lack of liquidity, declining standards with regard to payments and a  growing tendency to renege on contracts are further hindrances to economic relations, as are  unclear property rights and state meddling in firms' decisions. The spread of corruption and  protection rackets are further deterrents. These difficulties and obstacles must be openly  discussed in the Cooperation Council. The two sides need to get together to consider how suitable  economic, financial and exchange-rate policies and legislative and administrative measures can be  devised to dismantle the obstacles to the activities of European firms, and how cooperation with  firms in the Eastern European partner states can be facilitated and made more efficient. The  Committee considers this a political and economic challenge of great urgency. 3.40. In its Opinions on the Europe agreements the Committee identified other areas where there is  a need for action. The Committee was concerned here with areas of policy which have an undisputed  cross-border dimension and are relevant to the construction of a pan-European economic area. The  great technical resources available must be applied to infrastructure throughout Europe. The need  to establish and develop efficient trans-European networks in the fields of transport,  telecommunications, energy and vocational training is beyond dispute (). The Committee welcomes the  decision of the Corfu European Council (24/25  June 1994) to have a report drawn up on 'the  extension of the Trans-European Networks to neighbouring countries (in particular to central and  Eastern European countries and to the Mediterranean Basin)' (). The direction of the Community's  future energy policy will play a decisive role in efforts - desired by all sides - to reduce  significantly the safety risks of nuclear power stations in the Eastern European partner states, by  retrofitting or final decommissioning (Chernobyl). To this end worldwide cooperation and solidarity  are required. The most recent example of such cooperation is the European Energy Charter, which can  also do much to ensure security of the Community's energy supply in conditions of greater  ecological safety and economic efficiency. This will at the same time - as the Committee pointed  out in its Opinion on the subject () - constitute a major contribution to economic and social  stability in the Central and Eastern European countries. It is only logical that the contracting  parties should, in pursuing their goal of developing and strengthening cooperation on protection of  the environment and human health, take account of the European Energy Charter and the results of  the 1993 Lucerne Conference. Environmental policy - considered as pan-European policy - is a  cross-border challenge and cannot be successfully handled by any country in isolation. It must not  be based on the lowest common denominator and must do what is ecologically and economically  necessary. In certain regions environmental pollution has reached a level where it is beginning to  have an impact on the economic performance of individual states. Cooperation on prevention of illegal activities3.41. In contrast to the Europe agreements, the  partnership and cooperation agreement with Russia for the first time contains detailed arrangements  for cooperation on prevention of illegal activities. The list of illegal activities ranges from  illegal immigration and illegal presence of physical persons to illegal business practices  (including corruption), illegal trading and illicit traffic in narcotic drugs and psychotropic  substances. The Committee considers this agreement long overdue. The Committee would have liked to  see money laundering dealt with separately - as in the agreements on economic cooperation - to  highlight the fact that it is playing an increasing role in cross-border organized crime. The sharp  rise in the illegal trade in highly toxic plutonium registered in recent months is already becoming  a security risk of incalculable proportions. At their summit in Naples (8/9  July 1994) the Heads  of State or Government of the seven main industrial nations discussed the worrying rise in  cross-border crime and called for increased international cooperation on the combatting of  organized crime. The summit's communiqué stated that organized crime was a worldwide problem which  increasingly targeted countries undergoing transition. The Committee unreservedly endorses this  declaration. It calls on the European Community to initiate the planned consultations and close  interaction with Russia rapidly and to provide technical and administrative assistance without  delay. Financial cooperation3.42. Properly planned assistance from the western industrialized states  could permanently improve the chances of success of the reorganization and renewal processes in the  Central and Eastern European countries. Left to their own devices, the Eastern European partner  states will scarcely be able to stabilize the democratic and economic reforms process. It is in the  West's own interests to provide effective assistance. Continuing contraction of the Eastern  European economies, combined with political and social instability, would necessarily have a  damaging impact on the European Community. By virtue of the partnership and cooperation agreements,  Russia and Ukraine are to receive technical assistance funds under the Community's Tacis programme,  the world's largest scheme for supporting reforms in the former Soviet Republics. In the first four  years of its existence alone $ 2.25  bn were made available under the Tacis programme, of which -  according to the Commission - the greater part went to Russia and Ukraine. It was also agreed that  a guideline programme to be agreed between the parties will list the priority areas covered by  financial assistance, and the various needs, the sectors' absorption capacity and the progress of  the reforms will play a major role. The European Community is responsible for implementing the  Tacis programme. The Committee welcomes the outline agreements reached and trusts that the European  Court of Auditors' criticism that the Community's objectives would be achieved only slowly and to a  differing degree from one country to another has now been proved unfounded.3.43. In order to ensure optimum use of the available funds, the parties intend to coordinate the  technical assistance agreed closely with contributions from other sources. The Committee supports  this intention and assumes that this coordination will include all the financial aid intended to  contribute to the economic reorganization of the Eastern European reformist states. Not only  bilateral assistance from the EC Member States or other OECD states is planned; funds from  international financial institutions (IMF, IBRD, EBRD, EIB) and from multilateral aid funds will  also be involved. The use of the funds must of course be properly coordinated, transparency  improved and firm evidence provided of the efficiency with which funds are used. In this context,  the European Court of Auditors writes that the Commission must ensure that, for example, measures  initiated by G-24 do not contravene any economic policy conditions set by other international  bodies, e.g. the IMF. The Committee endorses this view, but has the impression that such conditions  are extremely difficult to fulfil. How else can it be explained that - as the European Court of  Auditors points out in its report for the 1992 budget year - at the beginning of 1993, in other  words nearly four years after the decision of the Paris summit to entrust to the Commission the  coordination of the actions and the establishment of a framework for aid commitments, the  Commission still has no clear plan for the administration and use of these considerable counterpart  funds in Central and Eastern Europe (). The situation may have improved by now, and yet this  example clearly demonstrates the kind of timescale to which one should, to be realistic, work in  such cases. 3.44. In purely quantitative terms, public-sector aid from the West is incomparably more  significant than private foreign capital. Whilst it is true that capital inputs are on a rising  trend, these are unevenly distributed between the various reformist states. Thus, in 1993 foreign  investors put only about $ 750 m into Russian firms, i.e. considerably less than into the firms of  smaller countries such as Hungary or the Czech Republic. The reasons for this distribution are, in  the case of Russia, to be found mainly in the inadequate conditions for business activity outlined  above. Whilst in other reformist countries conditions for foreign investment now to a great extent  meet international standards, Russia has not yet succeeded in presenting itself as an attractive  home for inward private capital. Admittedly, it is still more important for the process of reform  to tap domestic sources of capital for productive investment. But, as recent studies have shown,  inadequate progress is being made here. Indeed, private capital is flooding out of Russia. At the  end of 1993 western lending banks reported assets owned by Russian investors of more than $  16  bn  - almost twice as much as two years previously. And, according to Russian sources, in mid-1993  illegal foreign assets amounted to some $  20  bn. This trend continued last year. Foreign exchange  transactions continue to be a major vehicle for illegal exports of capital, whilst capital inflows  for direct and portfolio investment remain relatively insignificant. Both phenomena can no doubt be  attributed in no small degree to domestic and foreign investors' lack of confidence in Russia's  reform policy (). In order to reverse this capital inflow and attract more foreign investors  Russian economic policy faces a considerable challenge: a consistent macroeconomic stabilization  policy has to be established and at the same time effective and predictable conditions guaranteed  for firms. General political conditions play an important part here and their influence on  businessmen's decisions must not be neglected. Institutional, general and final provisions3.45. In the framework of the political dialogue, the  Committee has proposed that, when the time is ripe, contacts between the members of the ESC, which  of course consists of representatives of the various economic and social organizations of the EC  Member States, and the members of corresponding bodies in the Eastern European partner states be  institutionalized in the framework of a consultative body. In the interim period the Committee  suggests that a second paragraph be added to Article  93 (Russia)/Article  88 (Ukraine), which deal  with the establishment of special committees or working parties by the Cooperation Council. This  paragraph should be worded as follows: 'During a transitional period beginning with the entry into  force of the Agreement the Economic and Social Committee of the European Communities shall, with  the agreement of the Cooperation Council, organize the dialogue and cooperation between the  economic and social interest groups of the European Community and Russia/Ukraine. To this end joint  meetings shall be held twice a year'. The 1989 trade and cooperation agreement between the European  Community and the former USSR - drawn up at a time when there was no question of free,  democratically legitimate organizations in the USSR - hints at this in its statement that the  parties undertake to facilitate their cooperation by promoting contacts between economic  associations in the Community and the USSR. This statement is absent from the partnership and  cooperation agreements. Done at Brussels, 25 January 1995. The Chairmanof the Economic and Social CommitteeCarlos FERRER() M.  Gorbachev, political report to the Central Committee of the CPSU at the 27th Party Congress,  Moscow, 1986.  () M. Gorbachev, Perestroika. The Second Russian Revolution. A New Politics for Europe and the  World, 1989.  () 7214/88 (presse 103).  () OJ No L 68, 15. 3. 1990.  () B. Busch and H.-P. Froehlich, Aufbruch im Osten - Anpassung im Westen. Europa nach dem Fall des  Eisernen Vorhangs. (Beitraege zur Wirtschafts- und Sozialpolitik, Heft 211; Pub. Institut der  deutschen Wirtschaft, Cologne,  June 1993).  () European Council, SN/428/90.  () I.e. Armenia, Azerbaijan, Georgia, Kazachstan, Kyrgyzia, Moldova, Russia, Tadjikistan,  Turkmenistan, Ukraine, Uzbekistan and Belarus.  () A New Strategy for United States Assistance to Russia and the Newly Independent States. (Report  from the Policy Panel of the Fund for Democracy and Development, a Washington-based non-profit  institution devoted to assisting Russia, Ukraine and other newly independent states in achieving  democracy and market-based economies) (10.  1.  1994).  () Green Paper on European Social Policy: Options for the Union (COM(93) 551).  () Report of the European Commission: Europe and the problem of enlargement (appended to the  Conclusions of the European Council of 26/27. 6. 1992), SN/3321/1/92.  () B. Busch and H.-P. Froehlich loc. cit. and V. Klaus, The Ten Commandments of system  transformation. (In: Forum, Lecture series, Institut der deutschen Wirtschaft, Cologne, 25.  5.   1993).  () Developing countries excluding ACP countries, Taiwan and the Mediterranean countries.  () Data drawn from studies, and based on customs duty payable under MFN conditions.  () Industrieguetereinfuhren der EG aus Ost und Sued: Handelspolitik und Entwicklung. In:  Wochenbericht des Deutschen Instituts fuer Wirtschaftsforschung, Nr. 23/1993.  () OJ No L 209, 2. 8. 1988.  () OJ No C 40, 17. 2. 1992.  () For a transitional period of up to five years Ukraine will grant only MFN treatment in respect  of the operations of subsidiaries and branches of EC banks and insurance companies. During this  transitional period foreign involvement in certain areas of insurance activity is either  prohibited, restricted or subject to special conditions.  () Towards a new association with the countries of Central and Eastern Europe: Commission report to  the European Council, Edinburgh, 11/12. 12. 1992.  () OJ No C 14, 20. 1. 1992.  () European Council, SN 150/1/94.  () OJ No C 269, 14. 10. 1991.  () OJ No C 309, 16. 11. 1993.  () Dir wirtschaftliche Lage Russlands. Fortsetzung des Niedergangs ohne hinreichenden Strukturwandel  (Deutsches Institut fuer Wirtschaftsforschung, Berlin/Institut fuer Wirtschaftsforschung an der  Universitaet Kiel/Institut fuer Wirtschaftsforschung Halle). Fuenfter Berichts,  October 1994.