1. Â Â Â Â Â From 27 to 28 April 2006,
members of the Sub-Committee on East West Economic Cooperation and Convergence
travelled to Warsaw, Poland, to discuss a range of issues including Poland’s relations with Ukraine, Belarus, and Russia, Poland’s views of the European Union and its
role in the transatlantic alliance and energy security matters.
2. Â Â Â Â Â Poland has a special perspective
on Russia and Ukraine, in part, because of a common Slavic identity, common
experiences under Communism, geographical proximity and historical ties. Poland’s relationship with Russia is particularly complex and involves both close cooperation and
tension. Polish authorities who met with the members of the Committee stressed
that they seek good working relations with Russia and sense that there has been
a great deal of progress in recent years, perhaps capped by a recent visit of
President Putins’ chief foreign policy adviser to Warsaw. There are also
growing cultural ties between Russia and Poland; Russian music, literature and
film are all well received in Poland and vice versa. But there are important
differences as well.
3.      Like much of Europe, Poland recognizes that Russia is a key supplier of energy and it wants to be a reliable transport
power partner to Russia so that Russian energy can move to Europe. At the same
time, Polish authorities recognize that supply diversification is critical to
national security. Polish authorities were upset by the German-Russian
agreement to build a Baltic pipeline because other European countries were not
consulted. Poland wants to see a European energy policy implemented that
accords Russia a prominent role as a supplier but not as the sole supplier to
any particular country. It also wants to encourage Europe to speak with one voice
on energy matters.Â
4.      The Polish believe that Russian
leaders see oil and gas as profoundly political assets and suggest that the
cut-off of Ukrainian gas last winter reflected Russian political as well as
economic interests.
5.      Poland has also faced a Russian
import embargo on certain food exports, claiming that Poland did not meet its certification standards on a range of goods. The EU Commission has
supported Poland’s view on this and the matter is likely to be resolved soon.
6.      Russian
support for the Belarusian dictator Lukaschenko poses another problem in
Russian‑Polish relations. Poland wants a democratic Belarus on its borders,
and sees Alexander Lukaschenko’s regime
as a grim and grotesque example of political authoritarianism and a living
monument to the worst excesses of the old Soviet system. Although the recent
elections were tightly controlled and thoroughly undemocratic, they also
revealed a public aspiration for democracy. Poland supports the visa ban that
both the EU and the U.S. have imposed on Belarusian leaders and wants
intelligent economic sanctions imposed against that country. Poland maintains some contacts with the government as it is an important transit country
and because there is a significant Polish minority living there who has
suffered mistreatment in recent years. Polish authorities argue that new and
innovative ways are needed to engage democratic figures and civil society in
that country. There is a strong view that Belarusians should be able to secure
travel visas to come the West: New visa fees will make it virtually impossible
for many Belarusians to travel to Europe. If anything, travel can help spark a
democratic movement there and block Lukaschenko’s
efforts to isolate his own country. Thus any sanction regime should not strike
at the public but rather at the elites serving the authoritarian interests of
the regime.
7.      Polish-Ukrainian
relations are very strong, and Poland has welcomed Ukraine’s democratic
evolution. It is not coincidental that President Lech Kaczyński paid one of his first state visits to Poland. Poland has become an advocate of Ukraine’s integration in the Euro-Atlantic system
and has appealed to its partners in the EU and NATO to rally to Ukraine’s support. It is also urging Ukraine to take advantage of every opportunity it has
been extended in the EU’s Action Plan. Ultimately Poland would like to see a
democratic Ukraine prepared for full accession to the EU and has suggested that
one way to make this possible is to establish a more advanced Association
agreement between the EU and Ukraine.
8.      That said, recent elections in Ukraine did not turn on EU issues. In fact part of Ukrainian society feels disappointed
with the EU and the relationship has not evolved significantly, from their perspective,
since the Kutchma years. There is clearly a need for deeper contact between
Ukrainian society and EU members, and some of this is envisioned in the Action
Plan.
9.      Akadisuz
Sarna of the Center for Eastern Studies spoke at length on Ukraine’s economic situation. He noted that, last year, Ukraine’s economy slowed
considerably after several years of dramatic expansion.  This deterioration
was due to political factors and a weakening of export markets. The slowdown in
external demand was also related to the re-evaluation of the Hrvina which was
undertaken to brake inflation but which also raised the prices of Ukrainian
exports.Â
10.    The larger
problem has been the lack of agreement on Ukraine’s transition model. Ukraine has lacked a coherent export strategy. When Yulia Tymoschenko became Prime
Minister, she adopted one of the most socially oriented budgets in the history
of Ukraine. It placed a premium on social spending at the cost of investment.
The rise in income crowded out investment and a policy of reprivatisation was
also seen as undermining the investing classes. Mrs Tymoschenko promised to
review over 3000 privatisations, and there were no coherent laws to regulate
the process. That said, the recent sale of the Kryvorizhstal Steel Plant
generated large earning for the state. But the general effect was to
discourage investment. Only towards the end of the year with the change of
government did the situation begin to stabilize. The banking sector, in
particular, is attracting the interest of foreign investors. Germany is the leading investor in Ukraine while Russian investment is surprisingly low given its
own ties to the country. Cyprus and the Virgin Islands are also leading
investors, which is indicative of how money from the grey economy is being
recycled back into Ukraine. The grey and black market could account for as much
as 40% of GDP. This also suggests that the role of Russian money in Ukraine is likely far greater than official statistics suggest. There are also signs that
official Russian investment activity in Ukraine is picking up.
11.    Although a coalition has yet to
be established for the new government, any possible coalitions looks set to be
shaky. There is a general sense that reform would remain on the agenda although
there could be a temptation to engage in economic populism in ways that might
slow down the pace of reform.
12.    There are also large risks in the
Ukrainian economy. The gas war with Russia revealed Ukraine’s grave energy
vulnerability. Although Russian and Ukrainian negotiators signed a deal to
settle the problem, there are strong intimations that Russia wants to reopen talks. Ukraine is in a vulnerable negotiating position and there is
a sense that tensions between the two countries could rise again. To a certain
extent, this, like lingering fears of renewed reprivatisations, is clouding the
country’s economic future. Polish officials are perfectly aware that Gazprom
announced gas price increases in Ukraine prior to national elections while only
waiting until after the Belarus elections to announce their intention to raise
prices in that country. Moreover the day before the gas crisis, Russia banned meat and milk products from Ukraine and had imposed similar trade restrictions on Georgia and Moldova. Â It is not surprising that Ukrainian diplomacy has been very sympathetic to
both countries and that Yuschenko himself has been highly engaged in the
Transdniester peace process. Ukraine has also adopted the EU’s line on Belarus although it sees itself playing a role as an intermediary should the situation
evolve to the point.
13.    There are also concerns about
inflation and since the Party of the Regions is a party of exporters, its
inclusion in the coalition could result in pressures to devalue the currency,
which would, in turn, further stoke inflation. Ukraine’s large industry
flourishes on cheap raw materials, low labour costs and strong export margins.
The metallic industry generates 40% of Ukraine’s revenues. In 1996 that sector
began a significant expansion and began to tap into new markets including China. Energy price rises are already cutting into the country’s competitive advantages.
Ukraine’s’ fiscal system is still in need of
reform.
14.    Gzegoryz
Gromadzki of the Batory Foundation addressed Poland’s relations with her
neighbours. Poland was acutely aware of the importance of Ukraine’s recent democratic election. The contrast between Ukraine’s elections and the
rigged elections of Belarus could not be greater. The high turnout in Ukraine suggested that there has been a sea change in that country and that it has embraced
democracy in a genuine fashion. Those elections also showed a degree of
stability in the support for the three main parties as well as a persistent
geographic division. The fact that Mrs Tymoschenko outpolled "Our Ukraine" in many regions
of the West underlines the strength of her party.
15.    The parliament in Ukraine now only has five parties and ensures a degree of order in the Ukrainian Duma.
There will be no extreme left or rightwing parties in the government and hard
line nationalists will not be present either. The great challenge now lies is
building a coalition. This problem is rendered all the more challenging as "Our Ukraine" resolutely refuses to accept Mrs Tymoschenko to head the new
government. There are also strong reasons for including Viktor Yanokovich
and the Party of the Regions in the government simply because this would mean
that both the East and the West of the country would be represented.  The worst
option might be a broad coalition because Ukraine needs a vibrant opposition if
it is to move forward. It is also simplistic to maintain that the Party of
Region’s is simply a pro-Russian front. That party is run by a business
oligarchy that in many ways looks at Russia as a source of unwanted
competition. The Eastern business establishment actually has a growing economic
interest in the West and is increasingly trading and investing in the EU. In
this sense, concerns about secession are greatly exaggerated. The eastern
regions of Ukraine are not eager to become part of Russia and they would hardly
appreciate interference from the Kremlin in their affairs.
16.    The real test for the new
government will lie in its capacity to sustain reform. Without significant
policy changes, Ukraine will not be able to move closer to the West. In this
sense WTO membership could be very helpful insofar as it helps to discipline
the reform process. The prospect of WTO accession has indeed hastened a range
of economic reforms and Ukraine is moving towards its goal of membership. But
the public has not been involved at all in the discussion about membership and
what this will entail.
17.      Energy Security emerged as a
key theme of the discussions and Piotr Naimski, the Secretary of State from the
Ministry of Economy made this the focus of his talk. He noted that European
energy policy was difficult to discuss before January of this year. Neither the
EU nor NATO had a common energy policy, and there had been an assumption throughout
the West that market forces would more or less sort out energy matters.
18.    The sequence of events in early
January changed perceptions markedly. First Moscow began to ratchet up
political pressure on Ukraine on a range of issues and then gas supplies were
lowered. A dramatic fall in temperatures in Siberia ensued and Russia suddenly could not meet market demands. At the same time, a key pipeline blew up in Georgia plunging that country into a sudden energy crisis. All of this conspired to render
Russian reliability suspect. This chain of events is indeed worrisome and has
rightfully pushed Europe to begin to think about energy matters in security
terms.
19.    The EU has never managed to
construct a common energy policy and every member state preserves its own
national approach. The EU is deregulating markets and has thus ceded some of
the tools it might have used to exercise a greater degree of control. Piotr
Naimski questioned whether it was possible to deregulate one side of the market
when the supply side is effectively monopolized.
20.    Russia is now exploiting this
state of affairs, and its own recent paper on Energy Policy to the year 2020
states on page 71 that the export of raw materials should be used as a
political tool. In this respect, Russia’s actions with regard to Ukraine and Georgia should not come as a surprise.Â
21.    Hungary represents what some
interpret as an extreme case of energy vulnerability. Russia provides virtually all of Hungary’s gas, and Gazprom has been making a bid for a range of
German-owned downstream assets that would effectively give Gazprom control of Hungary’s entire gas chain. This is happening without very much discussion in the EU, NATO
or in Hungary for that matter and it is worrisome. Brussels considers this a
Hungarian matter and will not take it up. There are rumours that a similar
process may be underway in Bulgaria. This raises important questions about the
relationship between economic investment patterns, energy security and national
security.
22.    Poland is looking to build an
intergovernmental mechanism to react to these threats. NATO should be part of
this process. Indeed, if NATO is to play a part in responding to natural
disasters, it makes sense that it also respond to an energy supply cut off.Â
Cooperation is needed to ensure solidarity, supply diversification, market
integration, redundant pipeline systems, and crisis management coordination. Of
course, diversification is understood very differently between Madrid and Warsaw. Spain would welcome more gas from Russia while Poland would like to import more from Algeria. Building more links in the European system would help
make this market relatively more seamless. Doing so also makes economic sense
and it would encourage more price competition while lowering costs.
23.    China’s activism on global energy
markets is also a concern. China is purchasing an enormous range of energy
assets, storage facilities, oil and gas fields, tankers. It recently purchased
73 gas tankers in Qatar each weighing 250 tons. This is a huge fleet and it
points to the kind of market power China increasingly demands. Moreover
President Putin is increasingly playing a China energy card and making it
evident to Europe that it now must compete with China for Russia’s attention and for its gas.
24.    As a result of its rising
vulnerability, the West needs to invest as much as it can in alternative fuel
technologies including clean coal, biomass, bioethanoil etc. Ultimately it
needs to move away from hydrocarbon dependence. This is not going to happen in
the near term but efforts must now begin to diversify energy use and energy
supply. Nuclear energy will also have to be part of the mix although Poland itself has a strong interest in developing clean coal solutions.
25.    Polish energy is cheaper than in Germany but it lacks connections to the German market. But these links need to be forged
for strategic and economic reasons. Price differences between countries are
creating friction over deregulation but deregulation within Europe can have
positive security effects, as it will lead to network redundancies.
26.    Andrez
Kryspin Babuchowski, the Secretary of State in the Ministry of Agriculture and
Rural Development spoke on EU CAP reform. He outlined the details of Polish
support for recent CAP reforms but also laid out what he defined as the limits
of Polish willingness to move away from an interventionist agriculture policy.Â
He argued that the EU should base its agricultural policy on competitiveness,
stability and high quality products but argued as well that the EU should
maintain its preference system against competitors that are not using EU norms.
The presentation triggered a strong reaction from several members who felt that
it was a defence of a highly protectionist system that penalizes developing
country producers and imposes high costs on European consumers. Poland, however, is hardly alone in Europe in defending these elements of the CAP system and has
become allied with countries like Spain and France in defending certain
principles.
27.    Witold
Waszczykowski, Undersecretary of State in the Ministry of Foreign Affairs, next
spoke about Poland’s position as an EU and NATO member state. He argued that Poland accords great importance to its relations both with the EU and the United States. The
government sees no contradiction between the two and works to ensure that the
European project does not undermine the transatlantic partnership. Poland has supported NATO’s transformation as a necessary adjustment to a changing world.
For this reason, the Riga summit will be very important to solidify the new
outlook of the Alliance. Poland wants NATO to develop it expeditionary
dimensions but in such a way as to ensure that Article 5 of the treaty can be
fulfilled. Thus Poland wants to retain a balance between expeditionary and
territorial features of the military structure. Poland hopes that NATO will be
able to formulate a new strategic concept by 2009, which would also be an
appropriate year for future enlargement.
28.    At the same time, the EU’s own
role in security matters is growing and it confronts many of the same threats
and challenges that NATO must deal with including the proliferation of weapons
of mass destruction, terrorism and the dictatorship in Belarus. The problem is that the two organizations often seem to be engaged in an
unnecessary rivalry. Poland wants a strategic partnership to emerge between
these two organizations and categorically rejects the notion that they should
ever work at cross-purposes. It is particularly concerned about how some in
the EU seem to welcome a rivalry.  Poland has always resisted the notion that
there is a choice between a good European and a good partner to the United States. Poland sees no dichotomy. There is no substitute for NATO in security
terms and so a dialogue between NATO and the EU is essential so that Europe
does not develop the notion that the EU needs to be a counterweight to the United States. Unfortunately the relationship is stagnating right now and it should be
reinvigorated. There are many areas for potential cooperation on a range of
practical military and diplomatic matters. The nuclear stand off with Iran is the latest crisis that might be better managed if NATO and the EU were to
coordinate their approaches. These types of situations should not be allowed
to divide the alliance.
29. Â Â Â Reform of NATO and the NATO-EU
relationship should not take place in a vacuum. It should occur within the
broad template of global changes that are shaping the foreign policies of
allied countries. Thus NATO-UN relations are also a factor that must be
considered. NATO must also be careful not to overreach, and Poland does not yet see a reason for NATO to focus too much attention on China.
30.    NATO should remain engaged with Russia but it must be weary of what Russia is trying to do through its partnership. It seeks to
change NATO without taking responsibilities for it. It wants to help set the
NATO agenda without meeting NATO’s own standards in a range of areas.  The
speaker also suggested that NATO does have a role to play in energy security
matters. The Russians have openly admitted that energy should be used as a
political tool and NATO members should not let themselves be held hostage to Russia. For this reason, NATO member governments need to build security arrangements to
deal with any prospective supply crisis. These cannot only be market based.
This presentation led to an exchange with the Chairman of the Sub‑committee,
Kurt Bodewig, over the question of whether Poland was itself not adopting
a Euro‑sceptical position.
