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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

22. Kaliningrad scenarios: passive mode (policy-taking) Russia Europe Liberal Modernization Administrative Modernization Bureaucratic Capitalism Global ActorPilot region Stagnation/ Preferences Outpost Network Europe Stagnation/ Preferences Stagnation/ Preferences Outpost Fortress Europe Outpost

23. Kaliningrad scenarios: active mode (policy-making) Russia Europe Liberal Modernization Administrative Modernization Bureaucratic Capitalism Global ActorPilot region Stagnation/ Preferences Outpost Network Europe Stagnation/ Preferences Stagnation/ Preferences Outpost Fortress Europe Outpost Pilot region

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

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

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

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

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

29. Guidelines of the Federal Policy towards Kaliningrad 1. Integration into the European economic space 2. Creating the institutional base of cooperation 3. Modifying the SEZ regime 4. Improving federal and regional governance 5. Improving business climate and lowering administrative barriers 6. Development of infrastructure 7. Export incentives 8. Supporting small and medium business

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