Towards a Pan-European Economic Space Ivan Samson1

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Regiolateralism would be the most adequate form for the EU to negotiate building of the Pan-European Economic Space, since:

- It is perfectly suited for negotiations that combine trade and regulatory issues;

- It will show readiness of the EU to take certain existing integration processes between CIS countries into account.

- It will help to keep a special position for Russia. The CEES, which is currently being discussed, relies on the idea of a strategic partnership between the two parties. The building of PEES should not give the impression of diluting the CEES process (which is more advanced) and the special position of Russia.

The PEES model, based on CEES, could be extended to several CIS sub-regions as Western CIS, Caucasus and even Central Asia. It could also be based on other sub-regional geometries. There is also potential for the PEES to become the basis of EU cooperation with the Mediterranean region or Middle East.
PEES development would thus represent a major change in the EU approach to the "other" transition countries, which are not involved in the accession process. It will show that the EU has a concept for the East as a neighbour and a close partner, beyond the enlargement process.
Building PEES means a radical change in the world economy as well as formation of a large economic belt around the enlarged and unified EU25. Understanding of PEES as a space with free circulation of persons and goods is a very exciting prospect, representing an unprecedented level of European unification. But is this realistic? Is it really thinkable in a near future? Our answer is yes for two reasons. The first is the asymmetry of economic relations between the EU and its eastern neighbours (Russia, Western CIS, Caucasus, Central Asia), which paradoxically pleads for further economic integration and will facilitate it. Russia, the EU’s biggest partner in the region, was the fifth largest source of EU imports and sixth largest destination for EU exports in 2001, but represented only 1.5% and 1.1% of its imports and exports respectively. On the other hand, EU15 represented 29.5% of CIS exports and 35.2% of CIS imports in 2001 (see appendix). For Russia the figures are respectively 33.3% and 45.1%, for Ukraine 19% and 27.2%, for Belarus 8% and 15% and for Kazakhstan 30.2% and 21.9%. If we consider EU25, the overall share of the EU in CIS trade will be increased by 3%. The CIS is already more integrated with the EU than with itself as regards trade. Removing economic barriers will have thus small economic impact on the EU (CIS GDP is only equal to that of Spain) but will have major impact on CIS countries. Therefore potential negative impact on EU companies due to trade liberalisation is not a serious factor and should not be a serious obstacle to building of PEES, which presents huge opportunities.
The second reason why PEES is realistic is that the EU recently officially stated commitment to such a target. In a very important document of March 11, 2003 the EU defined the new orientations of its relations with the "Wider Europe Neighbourhood".12 The point is that in addition to EU enlargement, the EU has to show its willingness to open broad and generous co-operation with its neighbours, which are not concerned by this process. It is time to show that the EU has something important to propose to its close partners and that enlargement is not the unique tool. This represents a major change in EU policy and a move by the Commission away from the enlargement paradigm. This was not a brutal change, because the process started at least as early as 1999, but it is clear that the approach of 2004 made creation of a new paradigm into an urgent priority. The Wider Europe Neighbourhood (WEN) paradigm means the building of a belt of democracy and prosperity around Europe, which will ensure shared stability and security. It is interesting to note the prevalence of geographic proximity as a criterion for definition of strategic partnerships, which reflects the importance of the integration process in the EU’s international relations. What is Wider Europe Neighbourhood? The content will of course be more precisely defined, but the guidelines are already quite clear. The EU will strive to disseminate its values and prosperity within this "ring of friends". Free movement of persons, goods, services and capital should be ensured and the economic dimension is very close to what was proposed for the CEES by the RECEP White Book. It is clear that this new paradigm extends the first approach proposed for the CEES and that the building of a Pan European Economic Space is quite compatible with the WEN. They rely on the same vision, and the PEES is ideally suited to found the economic dimension of the "ring of friends" proposed by the EU. The only discrepancy is that the WEN suggests a bilateral approach, country by country, which is less than optimal for the reasons set out above. Regiolateralism would appear friendlier in this respect.
Success of PEES also requires attention to remarks made by Russia in discussions concerning CEES.13 Beside the usual – and sometimes not unjustified - request for additional liberalisation by the EU side, the Russians support the idea of an "open" scenario, i.e. that the CEES should not rely on preferential forms of cooperation regarding third countries, which could become obstacles to overall trade development, but that it should rely on integration forms transferable to third countries. In other words, Russia will avoid becoming “captured” in a CEES with the EU that will constrain its trade with third parties. Although this request is largely symbolic, because the CEES is oriented towards increasing the competitiveness of Russian companies and not towards giving trade preferences, the Russian fear of a lock-in with the EU should be considered.
Another argument already heard against PEES is the following: "Well, with PEES, what you offer is a trick to avoid letting us into the EU!" This remark is typical of the enlargement paradigm, which has gained acceptance beyond the EU. It relies on the idea that there is no salvation outside EU membership, forgetting one very important fact: that the accession process is associated with extremely high constraints and costs. The cost for sharing the decision process of the EU and benefiting from its (decreasing) structural and agricultural policies is the loss of a part of national sovereignty and of autonomy in economic policy. Precise calculation of the costs for accession countries is of course a difficult exercise. But there are some partial estimates. For example: "realising massive infrastructure development projects and environmental investments (motor way construction, impacts of the EU directive for heavy weight vehicles, directives on waste handling and public utilisation densities) is almost beyond rationality. These investment needs are estimated to around 25-30% of the GDP of candidate countries in the next 5 to 10 years".14 The cost to Poland of introducing the 320 EU environment directives could represent 4-8% of current GDP for the next 20 years15 and the cost to Poland of complying with EU directives on standards and safety rules in transportation would be somewhat less.16 In 1997, the Commission estimated the cost for the 10 CEE candidate countries of integrating the whole acquis communautaire in national legislations at $120 bn.17 There are even voices expressing the idea that the EU regulatory system may draw the new EU accession countries into "a poverty trap".18 Without going to such extreme views, the point is thus to find forms of economic integration with the EU for third countries that maximise the benefits and minimise the costs. This is what the Pan-European Economic Space can offer.

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