Towards the Kaliningrad partnership in EU-Russia relations RECEP, 27 April 2005

Area 15,100 sq. km Population Distance from Moscow 1289 km Major cities Kaliningrad Sovetsk Chernyakhovsk Baltiysk Gusev Share in the RF total:  Area 0,1%  Population 0,7%  GDP 0,4%  Retail trade 0,5%  Exports 0,4%  Imports 3,7%  FDI0,1%

Two phases of research Phase 1 (November 2004 – April 2005)  Request from the Administration of the President,  study the Kaliningrad region in the context of EU-Russia relations, build scenarios Phase 2 (starting April 2005)  Request from the State Duma  scenarios of the socioeconomic development

Phase 1: Report outline 1. Introduction (Christer Pursiainen) 2. Scenarios (Sergei Medvedev) Russian Scenarios EU Scenarios EU-Russia Scenarios Kaliningrad Scenarios 3. Road Maps (Christer Pursiainen) Towards a Common Economic Space The EU-Russia Partnership Road Map The Kaliningrad Partnership Road Map 4. Legal Instruments (Mark Entin) 5. Statistics and Bibliography (Marina Cherkovets)

European scenarios Russian scenarios RE1 RE2 RE3 K1 K2 K3 Kaliningrad Partnership Kaliningrad Road map E1 E2 E3 R1 R2 R3 Legal instruments Research methodology

Scenario template Statist Regulated Liberal Global Centralized/ Integrated Decentralized/ Networked Economic axis Political axis

Russian scenarios Statist Regulated Liberal Global Centralized/ Integrated Decentralized/ Networked R1: Administrative Modernization R2: Liberal Modernization R3: Bureaucratic Capitalism

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

Russia-EU scenario matrix Russia Europe Liberal Modernization Administrative Modernization Bureaucratic Capitalism Global Actor Partnership Muddling Through Cold Peace Network Europe Muddling Through Muddling Through Cold Peace Fortress Europe Cold Peace

Kaliningrad in Russia-EU scenarios Russia Europe Liberal Modernization Administrative Modernization Bureaucratic Capitalism Global Actor Kaliningrad partnership Stagnation/ Preferences Outpost Network Europe Stagnation/ Preferences Stagnation/ Preferences Outpost Fortress Europe Outpost

Kaliningrad in Russia-EU scenarios Russia Europe Liberal Modernization Administrative Modernization Bureaucratic Capitalism Global Actor Kaliningrad partnership Stagnation/ Preferences Outpost Network Europe Stagnation/ Preferences Stagnation/ Preferences Outpost Fortress Europe Outpost Kaliningrad partnership

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

Impact of Kaliningrad Partnership  From being a mere corollary, the Partnership can become a shaping factor of EU-Russia relations Forward implementation of European Economic Space Adaptation by Russia of part of the acquis Improving EU-Russia compatibility through a common interface  Promoting cooperative regionality and cross-border networks Linkage to existing regional institutions (CBSS, NCM)  Tapping into the existing EU instruments (Northern Dimension, INTERREG, ENI) without creating new institutions and ad-hoc structures

Kaliningrad Partnership Road Map Creating a joint EU-RF list of policy priorities for Kaliningrad. Done in connection with drafting the third Northern Dimension Action Plan ( ), e.g., in the form of ND Kaliningrad Partnership Connecting to regional organizations (CBSS, the Nordic Council of Ministers) Detailing policy priorities, developing concrete projects at regional and local levels by local governments, businesses and NGOs from Kaliningrad and the larger Baltic Sea region Securing linkage between the local and regional projects and the financial instruments: the European Neighborhood Instrument (ENI, replacing TACIS in 2007), INTERREG programs, Euroregions, IFIs (EBRD, NIB etc.) Establishing Kaliningrad Partnership Project implementation Project evaluation New action plan for

Legal Instruments Comparing legal models for the development of Kaliningrad  Selecting an optimal model Various methods for legal regulation Using the newly adopted Russian legislation  Concession Law  Anti-monopoly Law  Tax Law  Customs Law  Legal regulation of Foreign Economic Activity  Law on Special Economic Zones

Phase 2: Research Issues Study of the shaping factors  EU enlargement  New Russian law on the SEZ (from 2006 on)  The forthcoming Common Economic Space Scenarios of socioeconomic development Desired outcomes Road maps Economic/legal instruments

Appendix: Kaliningrad Stats

Population Dynamics Natural change, per 1000 population (‰) Net migration, per 1000 population (‰)

Population Dynamics Life expectancy at birth Infant mortality rate (infant deaths under 1 year per 1000 live births)

Economy Unemployment rate GRP index (% to the previous year)

Standard of living Changes in real monetary income, % change on previous year Change in real wage, % change on previous year

Industry Real industrial production index, % on the previous year Goods Production Index

Investment Climate (Kaliningrad in the Rating of Investment Potential and Risk among 89 regions of the Russian Federation) Investment PotentialInvestment Risk Rating Change in rating to to Rating of the components Labour potential52Legal risk 45 Consumption potential58Political risk 68 Production potential53Economic risk 29 Financial potential52Financial risk 6 Institutional potential29Social risk 12 Innovation potential54Criminal risk 72 Infrastructure potential3 Environmental risk 36 Natural resources potential 40

Investment Climate Real index of investment in fixed capital, % change to the previous year Investment in fixed capital

Foreign Investment Foreign investment in the Kaliningrad Region Direct Foreign investment in the Kaliningrad Region

External Trade Goods structure of Kaliningrad’s import and export (first half of 2004) ImportExport

External Trade Import and Export Dynamics in Kaliningrad Region Trade turnover between Kaliningrad region and Lithuania in 1998–2003 (mln USD)