The report by Ramūnas Vilpišauskas, Policy Analyst, LFMI
This report has been financed by the Phare SEIL within the framework of Support to the Medium Term Economic Strategy. The copyright belongs to the Phare SEIL.
The author acknowledges the support of Phare Seil program. The paper benefited from the comments of Jouko Rautava, Pekka Lindroos and the participants of the discussions during which the final draft of it was presented in April 2000. The author alone is responsible for the views presented in the paper.
Integration into the EU has become a major priority of Lithuanian foreign policy. However, maintaining friendly and open relations with Russia, both economically and politically, is an integral part of this foreign policy initiative. Although in recent years there has been a significant shift in trade from Eastern to Western markets, Russia continues to be an important trading partner with Lithuania. In 1999, for example, imports from Russia accounted for nearly 20 percent of Lithuania’s total imports, while exports to Russia totaled 7 percent of all exports.
The majority of Lithuania’s leaders and a significant share of the population see its future in the EU. Nonetheless, maintaining strong ties with the East is critical to Lithuania’s future for a variety of reasons. Lithuania has an established trade network with Russia for both historical and geographic reasons. Further, Lithuanian companies are much more familiar with the Russian marketplace than most Western European companies. This provides Lithuania with a unique niche as a future member of the European Union, which could prove advantageous to the Lithuanian economy.
So how will accession into the EU affect Lithuanian-Russian relations? Preliminary estimates seem to indicate that the economic effect of EU membership on Lithuania’s trade with Russia is likely to be insignificant. Nonetheless, it is important to understand that, although the effects may be negligible, changes are likely to take place.
The final result of EU accession on Lithuanian-Russian relations will depend largely on the following factors: the EU’s policy toward Russia (which Lithuania will be required to adopt), the political and economic situation in Russia – which seems to be in a constant state of change, Lithuania’s trade regime towards Russia, and trade flow between Lithuania and Russia. Whether or not Russia is allowed to join the WTO, as well as whether a free trade area can be established between Russia and the EU, will also have an impact on the future of Lithuanian-Russian relations.
As was mentioned previously, when Lithuania joins the EU it will be required to adopt the EU’s policies toward Russia. This includes the Common Commercial Policy (CCP), which in itself includes the Common External Tariff (CET). Adoption of the CCP will impact on Lithuanian-Russian relations because it will include uniform customs duties with respect to third (non-EU member) countries, preferential treatment of certain trading partners, anti-dumping duties, and quality standards to name a few. Adoption of the CET, on the other hand, will have little effect on Lithuanian-Russian relations. This is because the CET only applies to imports from Russia to Lithuania, as both the EU and Lithuania have Most Favoured Nation (MFN) treatment for goods exported to Russia. In other words, the export climate between Lithuania and Russia will not change significantly following accession into the EU.
The following table illustrates the impact of accession on the import and export of certain product groups. It is important to bear in mind that the information presented is only a static picture of the possible impact, as it is difficult to accurately predict the future trading climate between Russia and the EU, and how Lithuania’s membership may affect this.
Along with adopting the CCP, Lithuania will also be required to adopt the Partnership and Cooperation agreement that had initially been signed between the EU and the USSR, and which has subsequently formulated the basis of EU-Russian relations. This partnership agreement was aimed at both developing political relations between the two parties and deepening economic cooperation. The establishment of a free trade area was foreseen as the next step of the economic cooperation. It was agreed that the EU and Russia would jointly examine whether “circumstances allow the beginning of negotiations on the establishment of a free trade area,” though recent developments in Russia make this unlikely anytime in the near future. Nonetheless, the establishment of a free trade area is the best scenario for Lithuania, because it would significantly benefit the Lithuanian economy by facilitating trade, transit, and economic growth.
Lithuania’s main imports from Russia and conventional import tariff rates, January 1999 – November 1999
|CN group, code and title
||% from total imports from Russia
||Lithuania’s conventional import duty
||EU conventional import duty
|V chapter, 251020 Natural calcium phosphates, natural aluminium calcium phosphates and phosphatic chalk: Ground
|V chapter, 270900 Petroleum oils and oils obtained from bituminous minerals, crude
|V chapter,271121 Natural gas
|VII chapter,390110 Polyethylene having a specific gravity of less than 0.94
|IX chapter,440710 Coniferous
|XVI chapter,840130 Fuel elements (cartridges), non-irradiated (Euratom)
Sources: Lithuanian Department of Statistics, Ministry of Economy, Commission Regulation (EC) No. 2204/1999
Such a weighty issue between Lithuania’s two major trading partners is clearly of major importance to Lithuania. As a member of the EU, Lithuania would likely have a much more significant influence over the outcome of economic and political changes such as this that could potentially have a major effect on the Lithuanian economy.
There is a negative side to Lithuania’s entry into the EU with respect to Lithuanian-Russian relations. For example, the requirement to adopt anti-dumping duties against Russia might have an impact on trade between the two countries. Application of EU quality standards may also become a non-tariff barrier for imports from Russia.
Though these are examples of negative ramifications of EU entry with respect to Lithuanian-Russian relations, in a broader sense, the advantages far outweigh the disadvantages. For example, becoming a member of the EU may in itself stabilize Lithuania’s trade with Russia by reducing Russia’s potential for exploiting trade issues and the supply of certain products to achieve political objectives in the region. EU membership may also increase competition, legal certainty, and efficiency, which could strengthen the ability of Lithuanian companies to compete in the marketplace.
It is clear that the impact of Lithuania’s accession into the EU on the future of Lithuanian-Russian relations is dependent on a number of diverse factors. However, the general economic impact on both Lithuania and Russia is likely to be insignificant.