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Sanctions and trade with Russia

1 - Sanctions and trade with Russia

Grade: A-
Unity 5/5
Resources 5/5
Outcome 7/10
Total 17/20
Scorecard 2012: A- (16/20)
Scorecard 2013: B+ (14/20)
Scorecard 2014: B+ (14/20)

The EU demonstrated impressive (if slow) unity when imposing sanctions against Russia, but making them work as a policy tool will be a challenge. 

In 2014 EU made a U-turn in its aims for trade relations with Russia. In previous years, the EU had called for trade liberalisation, but now, the EU found itself imposing sanctions on Russia to try to change Moscow’s behaviour in Ukraine.

The first set of EU sanctions was agreed on 17 March, one day before Putin announced the annexation of Crimea. They targeted individuals and associated entities accused of committing actions “against Ukraine’s territorial integrity”. In practice, those targeted were generally subordinate officials without policymaking authority, and the sanctions had no obvious impact. The sanctions adopted on 31 July were more serious, limiting technology transfers and, crucially, Russian companies’ access to international financial markets.

Germany, not itself a strong proponent of harsh sanctions, was the clear leader in consolidating a common sanctions policy, especially after mid-summer. The European Commission was key in preparing a package of sanctions acceptable to major member states. Others states that pushed hard for sanctions (often despite heavy costs) included Sweden, the Netherlands, Poland, Romania, UK, and the Baltic states. France deserves recognition for halting the sale of Mistral warships. Slovakia, Hungary, Italy, and Spain were reluctant to sign on to sanctions, but eventually agreed.

The sanctions have been at least partially effective, their impact magnified by the fall in oil prices. In November, Russia reported its first GDP contraction in five years, and its foreign reserves are dwindling fast. This must be changing the Kremlin’s calculations. However, though the threat of more sanctions may have prevented Moscow from further (overt) escalation, the policy has not yet brought about a political reversal. Eastern Ukraine remains contested terrain. The EU now needs to develop a policy to convert economic pressure into results on the ground.

The EU is still trying to hold Russia to its WTO commitments, with Lithuania, Poland, and Slovakia particularly active. But the idea of further trade liberalisation under a bilateral agreement (to replace the old Partnership and Cooperation Agreement) is dead for now.