Economic changes in Lithuania after re-establishment of independence in 1990: the case of a double transition



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Negotiations with Russia and dealing with controversial issues

Early relationship between independent Lithuania and Russia was characterized by mutual understanding and support to each other’s aspirations. In addition to trying to convince the Soviet Union regime to recognize Lithuania and negotiate mutual relations, Lithuanian leaders took part in a parallel process of negotiating bilateral relations with Russian leadership. The initiative of strengthening dialogue between Russia (at that time the RSFSR) and Lithuania – and bypassing relations between the USSR and Lithuania – came from Russia’s leadership. The latter wanted to use negotiations with Lithuania to increase its own powers vis-à-vis Soviet authorities. A delegation of the RSFSR Supreme Council visited Lithuania in July 1990 and expressed readiness to sign a bilateral treaty which would be based on equality and recognition of each other’s sovereignty outside the process of the new Union Treaty being prepared. On 27 July 1990, the quadrilateral meeting of Heads of Parliaments of the Baltic Republics and RSFSR took place in Jurmala (Latvia), where the official decision to launch negotiations on these treaties was taken.

In the fall of 1990, Russia presented the draft treaty with Lithuania, which did not, however, satisfy Lithuanian authorities. The draft proposed to treat both Russia and Lithuania as former Soviet Republics and newly emerging states, thereby failing to acknowledge the continuity of Lithuanian statehood (Stankevičius, 2004). This was not acceptable to Lithuanian negotiators. A compromise was found in the Treaty on Fundamentals of Bilateral Relations between RSFSR and Republic of Lithuania, which was signed on 29 July 1991. It recognized the right to sovereignty and independence with reference to respective national declarations adopted by the parties (12 June 1990 for Russia and 11 March 1990 for Lithuania). The compromise also included Russia’s recognition of the annexation of Lithuania and the obligations of the USSR to eliminate its consequences. After the failed coup d’état (17-19 August 1991), official diplomatic relations between Russia and Lithuania were established on 9 October 1991.

In comparison with similar bilateral documents with Latvia and Estonia, this Treaty stipulated “zero” option of obtaining Lithuanian citizenship for persons who immigrated into the country during the Soviet period. The relatively small share of the Russian-speaking population facilitated the adoption of such an option. In addition, Lithuania made a commitment to “contribute to preserving benevolent conditions for economic and cultural development of the Kaliningrad Oblast” on the basis of an additional agreement, which was signed the same day. On the occasion of the ratification of the treaty on 17 January 1992, the leaders of Russia and Lithuania meeting in Moscow emphasized the issues of withdrawing Soviet troops from Lithuania and developing economic relations between two countries.

The main priority of the newly re-established state was to remove the Soviet troops stationed in Lithuanian territory (at the start of 1992 there were an estimated 34,600 troops, 1000 tanks, 180 aircraft and 1901 armed vehicles). Lithuania’s goal was to achieve a withdrawal as quickly as possible. Although Russia had also agreed to withdraw the troops now belonging to it, it wanted to prolong the process. It had huge numbers of troops in former Eastern Germany as well as in other Central Eastern European countries, and was now faced with a challenge of accommodating all these soldiers and officers and their families inside the country.

Thus, beginning in 1992 Lithuania began to pressure Russia to reach a quick agreement. Lithuanian foreign policy decision-makers chose a two-level strategy to achieve their goal. The first was to work directly with the Russian government. The second was to mobilize the international community in its favour (Vitkus, 2006). In direct contact with the Russian side, the personal efforts of Vytautas Landsbergis – the de facto head of state as leader of the independence movement and the then chairman of the Supreme Council of Lithuania – were the most prominent. His personal ties with the Russian President Boris Yelstin also helped. During 1992 alone Landsbergis visited Moscow – and Yeltsin personally – three times. Though already during the first visit Landsbergis was assured by Yeltsin that the withdrawal plan would be ready within a month, progress was very slow.

The efforts to mobilize international opinion were much more successful. The Organization for Security and Cooperation in Europe (OSCE) was the main and most successful target for these activities. The organization managed to convince Russia that the withdrawal of troops from the Baltic States would be a commitment not only to the Baltic States but to the international community as a whole. Lithuania and the other Baltic States worked intensively during the preparation of the OSCE Helsinki Summit document in 1992 to include an acknowledgment of the problem. The Helsinki Document 1992 stated: “We express support for efforts by CSCE participating States to remove, in a peaceful manner and through negotiations, the problems that remain from the past, such as the stationing of foreign armed forces on the territories of the Baltic States without the required consent of those countries. Therefore, in line with basic principles of international law and in order to prevent any possible conflict, we call on the participating States concerned to conclude, without delay, appropriate bilateral agreements, including timetables, for the early, orderly and complete withdrawal of such foreign troops from the territories of the Baltic States.” Lithuanian politicians considered this statement an important diplomatic victory and in this sense the uncompromising position taken by the Lithuanian leaders had borne fruit.

In June 1992, Lithuania initiated a referendum, in which a vast majority (about 80%) supported the demand for immediate (by the end of 1992) withdrawal of Russian troops from Lithuania. Finally, in August 1992, Russia showed the initiative and began intense negotiations at the ministerial level, which finished on 8 September with an agreement between the two ministers of defence to complete the withdrawal of the troops by 31 August 1993. Although the process was far from smooth the target date did not change, and on 1 September 1993 there were no Russian troops in the country and the first foreign policy goal in Lithuania’s relations with Russia had been achieved. Politically and symbolically it was an important event for the country.

Another issue which continued to reoccur on Lithuanian-Russian bilateral agenda was transit to Kaliningrad region. The Kaliningrad Oblast (Region) is a western territory of the Russian Federation, which found itself in a new geopolitical situation as an exclave on the Baltic Sea – surrounded by Lithuania and Poland. It was a relatively underdeveloped region of Russia with a very high degree of militarization. Kaliningrad was always present on the bilateral agenda in one way or another, but twice in the history of interstate relations it reached the top of the agenda. First it happened in 1993-1994 in the context of military transit, and then in 2002-2003 in the wake of Lithuanian membership in the EU, when it became necessary to negotiate new visa regime and civil transit rules.

Some of the Russian troops withdrawn from former Eastern Germany were also stationed there, which meant the need for an agreement on military transit rules through Lithuania. On 18 November 1993 together with the Agreement on Trade and Economic Relations between Lithuania and Russia establishing the Most Favourite Nation status for bilateral trade relations a Temporary Agreement on the transit of troops and military cargo withdrawing from Germany through the territory of Lithuania was reached. This was due to expire at the end of 1994, necessitating the renewal of negotiations on the issue in 1994. At the beginning of that year Russia presented its position, demanding a special agreement granting the freedom to carry military goods through the territory of Lithuania by rail, air and road and refusing to accept the Lithuanian rules that were presented during the negotiations and were intended to be universal, applicable to all states needing transit. Instead of agreeing with general regulations on the transport of dangerous and military cargo, Russia continued to demand a special agreement (Stanytė-Taločkienė, Sirutavičius, 2003). Lithuania continued to insist on the national regulation of military transit since Russia’s proposals were perceived as a tool for holding the state within the sphere of Russian influence, potentially hindering prospective integration into NATO and the EU (Laurinavičius, Lopata, Sirutavičius, 2002).

Meanwhile Russia started applying pressure by postponing the ratification of the agreement on trade and economic relations. This agreement was important for Lithuania as it granted it the Most Favored Nation (MFN) status. There were also threats to limit the gas and oil supply (Stanytė-Taločkienė, Sirutavičius, 2003, p. 192). After some deadlock a compromise was reached, prolonging the temporary rules accepted earlier. In response, Lithuania’s concession was reciprocated with the ratification of the economic agreement by Russia. In practice, since 1996 Russia’s military transit has been conducted according to Lithuanian national regulations without any expression of dissatisfaction from Russia, although Russia had to apply for permission for every transport of military cargo and staff (Stanytė-Taločkienė, Sirutavičius, 2003, p. 193).

An agreement regarding civil transit to and from Kaliningrad was reached relatively quickly during the visit of Prime Minister Adolfas Šleževičius to Moscow on 24 February 1995. The agreement established a visa regime between the two countries and provided certain exemptions for the Kaliningrad region. Lithuanian citizens could enter the Kaliningrad region without visas for up to 30 days, residents of Kaliningrad could enter Lithuania without visas, and Russian citizens going to and from Kaliningrad by particular railway routes (via Belarus and Latvia to Kaliningrad) could do so without visas. This visa regime existed until 2003, when it was subject to modification on the eve of Lithuania’s accession to the EU and anticipated entry into the Schengen agreement, at which point the exception for Russian citizens was revoked.

In addition to civil and military transit, the issues of economic development and regional cooperation between Lithuania and Kaliningrad were also important. Simultaneously with the framework political treaty between Russia and Lithuania, the Agreement on Cooperation in Economic, Social and Cultural Development of the Kaliningrad Oblast of the RSFSR was concluded on 29 July 1991. This regulated the issues of electricity and natural gas supply and the transit conditions through Lithuanian territory without customs duties, as well as expressing the intention to establish a privileged customs regime. The agreement was seen as important by Russia in political terms, as it established that Kaliningrad belonged to the Russian Federation.

Cooperation on Kaliningrad has proved to be the most sustainable aspect of Russian-Lithuanian relations, even during the most difficult periods of their relationship. Despite the prevailing constructive atmosphere in relations on Kaliningrad, however, Lithuania retains certain criticisms of Russia’s policy there. The troops and weaponry stationed in Kaliningrad remain a source of concern for Lithuania. Although transparent data is not publicly available, the region is assumed to be heavily militarized. For many years Lithuania has proposed the adoption of the Baltic Assembly resolution calling for the demilitarization of Kaliningrad Oblast and a return to pre-war German toponyms there (Baltic Assembly, 1994). Lithuanian President A. Brazauskas spoke in the UN of the need to internationalize the Kaliningrad issue by including it in the projected European Stability Pact of 1994. Though in general Lithuania’s official position on the status of Kaliningrad has been moderate and restrained, the subject of the Russian threat from Kaliningrad has been used to demonstrate the need for security, strengthen arguments for NATO membership, and in domestic politics for the conservative opposition to criticize the left government. The Seimas of the Lithuanian Republic adopted a resolution “On Cooperation with the Kaliningrad Oblast of the Russian Federation”, in which Russia was criticized for focusing exclusively on the issue of ensuring transit between the enclave and the mainland territory, which “prevented any substantial resolution of the issues of social and economic development, the environment, education and the preservation of the cultural heritage of this region.” (Seimas, 2004).

The issue of transit to/from Kaliningrad region emerged again in 2000 when the EU accession negotiations took place. This was the only issue which impacted directly on bilateral relations between Lithuania and Russia. It should be noted, that removing barriers to trade with the EU (and other candidate countries) and adopting EU’s regulatory norms – which had a direct effect on trade and processes of production – meant at the same time an increase in some barriers to trade with third countries such as Russia. However, since Russia was not a member of the World Trade Organization (which it joined in 2012), it could not claim compensation for those instances when customs duties for products of Russian origin increased as a result of Lithuania and other countries having joined the EU and adopted its Common external trade policy.

In September 2000, Russia expressed its concerns in the letter “The EU Enlargement and Kaliningrad”. In March 2001, the position of the Russian Ministry of Foreign Affairs was clarified in the Letter “Possible Solutions for Specific Problems of the Kaliningrad Region in the Context of the EU Enlargement”. Russia insisted on preserving visa free transit on railways as well as roads, assuming the conclusion of a special legally binding agreement. The position of Lithuania was ambivalent. On the one hand, Vilnius was interested in preserving a maximally liberal border crossing regime with the Kaliningrad region, bearing in mind the increased importance of the region for Lithuanian trade and investment, and it requested that Brussels scrutinize the possibility of Schengen regime exemptions for Kaliningrad residents. The European Commission in response recommended that Lithuania define its position on visa introduction (Stanytė-Toločkienė, 2001, p. 40).

In the summer of 2002, Prime-Minister Brazauskas expressed a willingness to preserve the visa-free transit regime if Russia and the EU agreed upon it. On the other hand, Vilnius was striving to follow the mainstream EU position, fearing delays with EU membership and the elimination of internal border barriers. The negotiation process received a priority track on the Russia-EU agenda and was finalized in the Joint Declaration in November 2002. It stipulated the mechanism of a Facilitated Transit Document (FTD), as well as amending Schengen regulations. This was a compromise, with the FTD playing the role of a quasi-visa, issued in a simplified procedure without personal attendance of the consular authorities. The following period until the summer of 2003 was devoted to the technical implementation of the Joint Declaration. In the framework of the negotiations Russia signed the Agreement on Readmission of Illegal Migrants and finally ratified the Border Treaty, signed in 1997.

Similarly the signature and ratification of the border treaty between Lithuania and Russia has been linked with the Lithuania’s accession into NATO and Russia’s attempts to prevent this. The absence of any unresolved territorial issues was one of the most important preconditions for NATO membership. Lithuania started negotiating border treaty with Russia already in 1993. But no visible improvement was seen until January 1997, when finally 90% of the land border was agreed upon. In October 1997, during the official visit of Lithuanian President A. Brazauskas to Moscow, two treaties regulating border questions were finally signed. Lithuanian borders have been based on the situation of 1944 when Soviet army once again took over Lithuania and the Lithuanian Socialist Republic was established within the Soviet Union. Lithuania ratified the border treaty on 19 October 1999. The ratification process by the Russian side took much longer than expected.

On 29-31 March 2001 Lithuanian President Adamkus visited Moscow. It was the second and last official visit of the Lithuanian President to Russia. However, this visit did not bring any substantial results, despite the efforts of Lithuanian foreign policy makers to get the border treaty ratified. The common declaration mentioned only differences in opinions, though it must be admitted that the fact of the common statement itself showed some improvement in bilateral relations compared to the other two Baltic States. The border treaty was ratified only in August of 2003 – almost six years after it had been signed. It was done with the help and pressure of the EU as part of a package that included agreements on the Kaliningrad transit regime rules. The most common explanation for this long delay is based on the belief that Russia had been waiting for an official decision by NATO concerning the invitation to join the organization. It was hoped that the absence of a ratified border treaty with Russia would complicate these plans. When this tactic did not succeed, Russia’s leaders finally ratified the treaty.

Since Lithuania’s accession to NATO and the EU in 2004, Lithuanian foreign policy leaders have been trying to use membership in these organizations to increase its bargaining power vis-à-vis Russia on issues where mutual agreement was still absent (i.e. acknowledgement of the crimes of Stalinism) or where economic asymmetries made Lithuania vulnerable to manipulation of economic links for political purposes by Russian authorities (such as the shutting down of the Druzhba oil pipeline to Lithuania in 2006, interpreted as a response to Lithuania’s decision to sell the Mažeikių nafta oil refinery to a Polish, not Russian company, and just recently in September 2013 excessive checks of Lithuanian transport carriers by Russian customs which was interpreted as a response to Lithuanian EU Council Presidency’s attempts to bring Eastern Partnership countries closer to the EU).

The focus of Lithuania after its accession into the EU has been on advocating the integration of Lithuania’s Eastern neighbours into the EU and reducing its energy dependence on supplies from Russia. Bilateral relations with Russia were characterized by sometimes open confrontation expressed on various occasions, including debates in EU institutions, and the use of the EU-Russia agenda to promote national priorities. The most visible expression of this policy could be found in Lithuanian efforts in the first half of 2008 to link the drafting of the new EU and Russia partnership and cooperation agreement with the acknowledgement of a series of demands to Russia: to restore supplies through the Druzhba pipeline shut down in 2006 and commit to the Energy Charter, to resolve the “frozen conflicts” in Georgia and Moldova, to start legal cooperation regarding the judicial cases of the Medininkai Massacre and events in Vilnius on 13 January 1991, and to remunerate Lithuanian citizens deported to the Soviet Union. Bargaining inside the EU resulted in several declarations adopted by EU institutions.

From 2008-2009, the main priorities of Lithuania included the adoption of the EU third energy policy package, namely, the option of complete unbundling of ownership in the natural gas and electricity sectors. This was considered as a means of restructuring the energy sector, reducing the influence of Gazprom and involving the European Commission in bilateral energy relations between Lithuania and Russia. The recent reaction of President Putin to the legal case initiated in 2012 by the European Commission against Gazprom on the basis of possible violation of EU’s competition policy norms, as well as the decree that the Government of Russia, rather than Gazprom itself, should be dealt with on matters of Gazprom business, including prices, was seen in Lithuania as yet another sign that in the energy field Russian elites still treat Lithuania and other Baltic States differently from most other EU members.

The plans to build an LNG terminal on the Baltic Sea coast and to link Lithuania’s gas network with Poland’s are the main projects aimed at reducing Lithuania’s dependence on natural gas from Russia, which is currently the only source of supply. The issue of natural gas prices – seen as being set deliberately high by the Russians to get a premium from Lithuania – continues to be one of the main issues on the political agenda. Unlike Latvia and Estonia, Lithuania did not receive a gas price discount in 2012. Also, the debate on exploration of shale gas in Lithuania which started in late 2012 and early 2013 was seen by international media as influenced by possible meddling of Gazprom concerned about potential competition from this source if the prospects for commercial exploitation of shale gas are proven in Lithuania.

In the electricity sector, the priorities include electricity linkages to Sweden and Poland, which also aim to reduce dependence on Russian electricity imports and to create the conditions for switching from the former Soviet electricity system (BRELL) in order to synchronize the Baltic States with the electricity system of Western Europe. Paradoxically, since the end of 2009, when the second reactor of the Ignalina nuclear power plant was shut down in accordance with the EU Accession Treaty, Lithuania’s dependency on the Russian electricity supply increased, and in 2011-2012 it imported 60% to 70% of its electricity from Russia. Although significant steps have been taken since 2010 to establish a Baltic electricity exchange modelled on the basis on the Nordic electricity exchange, and to be merged with the latter in the future, so far there has been little real competition in this area. Conditions for real competition will be in place after the construction of electricity bridges to Sweden and Poland in 2015.

In addition, the right-center Government of Lithuania which worked from 2008 till 2012 has tried to promote the construction of the new Visaginas nuclear power plant in cooperation with Estonia, Latvia and Poland. Poland withdrew from the project, while the support of Latvia and Estonia as well as Japanese investor will depend on the eventual concrete conditions of participation in the project and the position of the new Lithuanian Government formed after Parliamentary elections in 2012. The debate on the construction of the Visaginas nuclear power plant has also been poisoned to a large extent by suspicions of Russia’s meddling in this project by trying to obstruct it with the arguments of green activists and others, while simultaneously supporting competing projects in the Kaliningrad region (Baltiskaja nuclear power plant) and in Belarus.

The other issue of continuing disagreement was in the realm of the politics of history – to achieve the recognition of Stalinist crimes at the EU level. This policy was connected with the official Lithuanian policy of demanding compensation for damages wrought during the Soviet occupation. Since 2005 Lithuania, together with Latvia and Estonia, has sought to criminalize the Stalinist period and the denial of its crimes, to the same level and degree as was applied towards the crimes of Nazism. Gradually, by 2010 the Council of European Union had condemned the crimes of Stalinism and in 2009 the European Parliament declared 23 August (the date when the Molotov-Ribbentrop pact was signed) the European Day of Remembrance for Victims of Stalinism and Nazism. Russian authorities view Lithuania’s attempts to gain recognition for the occupation and compensation for damage as aimed at complicating bilateral relations, and reject both the fact of occupation and any responsibility for the actions of the Soviet Union. According to Moscow, this issue should be removed from the political agenda and left for expert discussions. In addition, Russia regime rejects Lithuania’s attempts to accuse it of responsibility for the events of January 1991 in Lithuania, arguing that at that time Lithuania was not an independent country.

To sum up, the experience of bilateral relations, especially after the atmosphere of mutual support changed into the disagreements on how to manage mutual (inter)dependences and how to treat recent period of Soviet occupation, convinced the Lithuanian political elite that the most effective method for Lithuania to reach its foreign policy goals in relationship with Russia was to Europeanize or internationalize the issue by involving European and other international institutions.


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