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Europe to Help Russia Modernize Economy

The upcoming EU-Russia summit is to see the launch of a new initiative designed to help bring Russia's petro-dominated economy into the modern age.

The "Partnership for Modernisation" began as a conversation between European Commission chief Jose Manuel Barroso and Russian President Dmitry Medvedev at the last EU-Russia summit in November. The two sides are now racing against the clock to agree a joint communiqué for the top-level meeting in Rostov-on-Don on 31 May.

The EU commission in an informal paper last year put forward a 10-point agenda for the scheme. The main points include: ensuring the rule of law; increasing foreign investment; enhancing trade; integrating markets; creating a greener economy; boosting scientific research and support for NGOs.

The Commission wants to see "first concrete results" already in 2010 and is willing to put a modest sum of money into the pot. It aims to use existing EU-Russia diplomatic structures to implement the project, rather than creating new bodies.

The Kremlin in the run-up to Rostov-on-Don put some flesh on the commission's proposal in a three page "Memorandum on key areas of the Partnership for Modernisation" – a paper obtained by EUobserver.

The Russian memo underlines that the scheme should not be seen as a form of EU patronage, saying: "It is based on principles of equality and mutual benefit."

But it contains a wish-list of "flagship projects" which would lead to a transfer of high-end technology from EU companies to Russian firms, straying into areas with military applications.

The list includes: bio-technology; space technology; nano-technology; telecommunications; microelectronics; supercomputers and aircraft engineering. A large part is devoted to energy, covering: energy efficiency; nuclear technology; mineral resources extraction; alternative fuel research and oil and gas processing.

It envisages "a joint foundation for commercial introduction of research" and speaks of the "speedy conclusion of negotiations on Russia's WTO accession."

The memo proposes new legal instruments to tackle corruption and money laundering. And it calls for talks on how "to exclude possible damage to Russian investors on the EU energy market caused by the 'Third Energy Package'," a recent EU law which complicates attempts by Russian energy firm Gazprom (OGZPY) to buy up EU competitors.

An EU diplomat said the union is mainly interested in improving the rule of law in Russia, energy efficiency and the environment.

"Let's be frank. It's a bit of a one-way transfer in the end. Of course, it's they who will be the recipients. We're not naive. But it is in our interest that Russia modernises," the contact said. "We can't say all EU countries are fully modernised either. I don't know to what extent we can learn from Russia. But we don't have all the answers," the source added.

Confusion over WTO

Russia's leading EU trade partners – the UK, Germany and France – as well as former Communist EU countries all back the scheme. But there is worry it could push democracy and human rights down the agenda.

The EU is also sceptical about Russian talk on free trade. At the same time as calling for speedy WTO accession, Moscow is promoting a customs union with Belarus and Kazakhstan which would seriously delay WTO entry. It has not budged an inch on anti-EU tariffs on timber exports and fees for trans-Siberian overflights in the past three years of talks.

The Kremlin's break-up of the Yukos oil firm in 2003, involving an exotic mix of FSB agents, political clans and stolen billions, set the scene for doing business in Russia under Vladimir Putin. Mr Medvedev has made a number of pro-reform speeches. But during his presidency bankers and human rights campaigners have been shot dead in Moscow with apparent impunity.

It remains to be seen whether private-sector European firms will get behind the Partnership for Modernisation.

"The question is, will they try to pull in Western companies, take their technology and then kick them out, as is happening in China?" Keith Smith, a former US ambassador to Estonia turned analyst at the Centre for Strategic and International Studies in Washington, said.

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