The freezing tensions between the EU and Russia

And how this affects your business

Russia EU tensions

Whether you represent a company, political party or government, actions tend to have consequences. While many hope to see the year 2022 as the year of healing, both economically and culturally, past tensions are throwing mud in the water. Conflicts that affect the bilateral political dialogue between the European Union (the EU) and the Russian Federation (Russia) are not new, yet it is still considerably unclear what will happen next. Will the EU citizens sit in the cold and the Russian citizens without certain necessary goods? Or will we be able to celebrate warm holidays and further enhance international trade?

Policy dialogues and cooperation are temporarily frozen

The aftereffects of Russia’s annexation of Crimea in 2014 can still be felt in 2022. The world watches Russia’s threats towards a war with Ukraine, unsure if these threats are empty or not. As a result, some policy dialogues and mechanisms of cooperation between the EU and Russia are temporarily frozen. The next question is, will this dialogue continue to freeze shut, or will the two international positions of power allow international defrosting? However, the EU and Russia’s stagnated relationship was not always like this. Both share similar global goals and extensive history in cooperation and trade.

The history of cooperation between the EU and Russia

The European Union and Russia share a longstanding history. Next to cultural, economic and historical ties, Russia is one of the most prominent neighbors in the EU’ neighborhood.’ In the past 25 years, Russia and the EU have exchanged information and cooperated in various international matters. They share bilateral global concerns regarding:

With Russia’s permanent UN Security Council membership, the country also engages in various selected points of interest of the EU, which was proven by the implementation of the Minsk Agreements. These Agreements were supposed to put an end to the war in east Ukraine. However, while this seemed like a path to peace back in 2014, the tensions between Russia and Ukraine are still very much alive.

The Partnership and Cooperation Agreement (CPA)

In general, the framework of the political and economic relationship between the EU and Russia is the Partnership and Cooperation Agreement (CPA). Since 1997, the goal of this Agreement has been to promote trade, investment, and the development of economic relations between the two parties. However, what started as healthy manure has slowly but surely transformed into a minefield.

In 2008, the EU and Russia started negotiations of a New EU-Russia Agreement. However, this Agreement is still postponed to this day. With the current challenges in dialogue, the two parties can agree that the existing conversation is either limited or non-existent. Like a domino effect, the EU and Russia are heavily involved in international trade, affecting everyone. What can investors and enterprises expect for the future of their company?

Your opportunities in trade, even with the limitations

Societies, governments and businesses are affected by the EU-Russia tensions; that much is clear. The EU and Russia adopted laws, resulting in various import and export restrictions. Since 2012, Russia moved from third place to fifth place as the EU’s biggest trade partner.

Even with the trade restrictions, the EU still remains Russia’s most prominent trade partner. In 2020, Russia remained representative of 5% of the EU’s merchandise trade. This bilateral trade in goods consisted of €174 billion, which is around 40% of Russia’s trade.

Main trade EU Russia

The future of the tensions between the EU and Russia

The EU continues to apply a set of restrictive measures against Russia in response to the Ukraine crisis. As a result, Russia responded with countersanctions. Experts from the Atlantis Council are concerned about the EU’s response to Russia yet state that both parties have various options. The EU should build a common strategic culture in order for European countries to stick together. Simultaneously, both Russia and the Eu are investing in the Transatlantic region for future endeavors. Therefore, it is most likely that the two parties will drive further apart.

Furthermore, in order for Russia and the EU to start an open dialogue again, both parties should look at their strengths and impacts. However, seeing a harmonious EU-Russia relationship in the short term will be most unlikely. While both parties may share similar international goals, they also share different views regarding what is best for them. In this case, the negative highly outweighs the positive.

Company assistance

In the end, Russia and the EU are dependent on each other in one way or another. Just like a neighbor quarrels, only time and actions can tell what the future brings. With the world as a global village, governments and authorities do need to reflect on their position of power: What message will they send out, and what strategies should they entail? One thing we do know is that the current state of affairs will continue to strongly affect international businesses, whether we like it or not.

Are you concerned about your position in international trade? Global Connect Admin has an extensive background and expertise in European and Russian matters, especially regarding international business, financial management and accounting standards. If you require any form of assistance in complex company situations, do not hesitate to reach out to us. Instead of lingering on restrictions, we would gladly review possibilities with you.

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