"Russian and Euro-Asian Bulletin", Vol.9, No.5, September-October 2000
The Future of Australia's Relationship with Russia *
Jeremy Webb and Sean Forster
In examining the future of the bilateral relationship with Russia, this article first discusses the framework within which the Department of Foreign Affairs and Trade (DFAT) seeks to manage the relationship. The article then discusses the mechanisms the Department employs, within this framework, to develop the relationship, and concludes with an examination of prospects for development of the bilateral economic relationship.
The Corporate Plan
The framework for the relationship is set out in the Department's Corporate Plan 2000-2002, which provides broad guidance on implementation of the Government's foreign and trade policies over the next three years.
In the Plan, DFAT's overall Aim is described as being "to advance the interests of Australia and Australians internationally." Under this Aim there are set a number of subsidiary Goals, such as "to assist Australian travellers and Australians overseas;" "to strengthen global cooperation in ways that advance Australia's interests;" and "to foster public understanding of Australia's foreign and trade policy and to project a positive image of Australia internationally."
Of particular relevance to the development of the specific bilateral relationship with Russia is the Goal "to enhance Australia's security." The Plan proposes, as a Key Strategy for the achievement of this Goal, "working with other countries to promote a stable regional and global security environment." A related Goal is "to contribute to growth in Australia's economy, employment and standard of living." Key Strategies for the achievement of this Goal include: "promoting trade and investment through bilateral activities;" "working to overcome market barriers facing Australian exports of goods and services;" and "building support for freer trade and for economic reform."
Finally, the Plan sets out an assessment of the Operating Environment in which DFAT must pursue these Aims, Goals and Key Strategies. In this assessment, the environment is characterised by: a fluid and uncertain regional and global security situation; an Australian economy increasingly integrated with the global economy; a global economic outlook which is positive, but which still involves risks and uncertainties; continuing advances in communications technology, increasing accessibility of information, growing community interest in foreign and trade policy, growing community concerns over globalisation and open markets, and blurring of the distinction between international and domestic policy.
The Ministerial Directive
This, then, is the global framework within which DFAT operates. With regard to the Australia-Russia relationship specifically, the Ministerial Directive to the Australian Ambassador to Russia, issued by the Minister for Foreign Affairs and the Minister for Trade, provides a convenient guide to the main priorities which the Government wishes the Ambassador to pursue.
The Directive notes that Russia remains a globally significant power, and has the potential to affect Australia's interests - particularly in security and disarmament, but also through its engagement with the US and with many of Australia's other major trading partners. Australia has a strong interest in supporting Russia's effective integration into the international community, and in particular in ensuring that Russia's growing involvement in the Asia-Pacific region - including in the Asia Pacific Economic Cooperation (APEC) process and in the ASEAN Regional Forum (ARF) - remains constructive. Australia also has an interest in economic reform in Russia, including minimisation of protectionist measures.
The Directive notes that Russia's large and resource-rich market, straddling both Europe and Asia, provides opportunities for Australian companies over the medium to longer term, despite the challenging business environment. It is true that the bilateral relationship lacks substance, and the August 1998 financial crisis has resulted in a stalling of our exports for the near term. Nevertheless, maximum use should be made of the Embassy's resources - limited though these are - to enhance the relationship. The Joint Commission for Trade and Economic Co-operation is a useful mechanism for developing the economic relationship, particularly through bilateral agreements, market access and veterinary certification. Political-Military Talks provide a useful avenue for exploring views on strategic issues including arms control, disarmament and the Asia-Pacific security environment.
The Directive notes in conclusion that Australia's interests in the other seven countries of accreditation besides Russia are limited. Where possible, however, the Ambassador should promote trade relations, and as appropriate give some priority to the various WTO accession negotiations. (The other seven countries to which the Ambassador in Moscow is accredited are: Ukraine, Moldova and Belarus; Armenia, Azerbaijan and Georgia; and Uzbekistan. An eighth country, Kazakhstan, has been added since the closure of the Australian Embassy in Almaty in 1999. The Embassy in Moscow also has reporting responsibilities for Kyrgystan, Tajikistan and Turkmenistan).
The Post Evaluation Report
While the Ministerial Directive is couched in general terms and is intended to cover the duration of the Ambassador's term of office - usually around three years - the Post Evaluation Report provides a mechanism for developing the bilateral relationship in greater detail and over a shorter period of time. At the beginning of each financial year, the Embassy endeavours to define - in consultation with the Russia desk in Canberra - Australian interests and prospects in Russia, and in the light of these to establish objectives for the coming year. At the end of the year, the Embassy evaluates what it has been able to achieve against these objectives, and formulates fresh objectives for the coming year.
In terms of Australian interests and prospects in Russia, the current Post Evaluation Report notes that Australia has a direct interest: in Russia's commitment - in international security and disarmament matters - to the non-proliferation agenda; in political stability and economic reform in Russia; in constructive Russian engagement with the Asia-Pacific region including through APEC, ARF and relations with China, Japan and India; and in addressing challenges to Australian business interests resulting from the financial crisis of August 1998. Although the bilateral relationship is not substantial, it is important to be realistic about what can be done within existing resource constraints and the difficult political and economic environment in Russia. A ministerial visit could help promote Australian interests. There is additional scope for promoting bilateral ties through the Sydney 2000 Olympics and the Centenary of Federation.
The Report, in evaluating achievements to June 1999 against the objectives set twelve months earlier, notes that the Political-Military Talks held in Moscow between senior officials in November 1998 were significant as the first dialogue of this type between the two countries, and represented an important contribution to confidence-building in relation to security issues in the Asia-Pacific region. Attempts to promote Australia's trade and investment interests in Russia met a number of difficulties, including the postponement of the visit to Moscow of (then) Deputy Prime Minister Tim Fischer and the postponement of the scheduled meeting of the Australia-Russia Joint Economic Commission on Trade and Economic Cooperation, due to the fall of the Chernomyrdin government (in 1998) and the Primakov government (in 1999). There was however progress on market access issues, including on veterinary certification with a view to facilitating Australian food imports to the Russian market.
In terms of objectives for the next twelve months - to June 2000 - the Report proposes that the embassy should seek to protect and advance Australia's interests in three priority areas: international security, national economic and trade performance, and global co-operation. In the area of international security, the embassy proposes analysing Russian domestic-, foreign- and security-policy perspectives, and explaining Australian perspectives to Russia. In the area of economic and trade performance, the embassy proposes seeking progress on market access issues and on the finalisation of bilateral economic agreements. It proposes analysing Russian trade policy perspectives, and explaining Australian perspectives to Russia. In the area of global co-operation, the embassy proposes analysing Russian perspectives on issues such as the environment, human rights, international legal regimes and trade liberalisation. It also proposes explaining Australian perspectives to Russia.
Although at the time of writing (April 2000) the twelve-month period to June 2000 is not yet up, it is perhaps possible to make some preliminary assessment of the extent to which these objectives are likely to be met. Although the bilateral relationship with Russia remains largely unproblematic, it also remains insubstantial. Multilateral and regional relations have proved somewhat more substantive, providing opportunities for political contacts and for progressing Australian interests, particularly in the arms-control, non-proliferation and international trade agendas. A successful second round of Political-Military Talks was held in Canberra in December 1999. But WTO accession negotiations and the Paris Club debt negotiations remain as potential difficulties in the relationship. And to ensure that Australia is competitive in the longer-term development of Russia's considerable resources and markets, it is still vital to finalise investment and taxation agreements. It may also be worth keeping under review, as the process of political, economic and social reform in Russia gathers momentum, a proposal that Australia emulate other OECD countries by providing modest targeted technical assistance to Russia, particularly at the regional level, in order to promote Australian interests in the Russian market.
Government, business and academic links
The remainder of this paper examines in some detail prospects for development of the bilateral economic relationship in particular. But before leaving the general issue of mechanisms by which DFAT seeks to assist with development of the overall bilateral relationship with Russia, it may be useful to consider briefly what the possible scope might be for enhanced collaboration between the main sectors of the community - that is, between Government, business and the academic world. The mechanisms discussed above - the Corporate Plan, the Ministerial Directive and the Post Evaluation Report - represent an attempt to adapt techniques developed in the business world such as "Management by Objectives." It is certainly not always easy to transfer such techniques from the business to the Government environment. But the attempt to formulate objectives, strategies for achieving them, and performance indicators by which to measure success in achieving them, has undoubtedly proved useful in focusing the minds of those of us in the Government seeking to promote the development of Australia's international relations.
No doubt, too, there are lessons which we can learn from our colleagues in the academic world in terms of intellectual rigour, historical understanding or theoretical insight. In turn, we in the Government would certainly want to contribute what we could by way of insights from our own experience in Australia-Russia relations. It is important that we create and take advantage of opportunities to exchange such insights on a regular basis.
If we can get into the habit of such regular exchanges, we and Australian interests generally are all sure to benefit. Perhaps there are other techniques common in business or academia which we in the Government can usefully study. It would, for instance, be of great interest to know whether business has developed any kind of methodology for weighing up long- and short-term opportunities as a guide in deciding the optimal allocation of resources. A country like Russia clearly offers few short-term commercial prospects, and it is obviously tempting for DFAT to allocate resources to the development of relationships which offer more immediate returns in terms of national interest. Equally clearly, however, there are significant long-term prospects. But how significant are they by comparison with prospects in other countries? There must be a lucrative consultancy awaiting anyone - whether in government, in business or in academia - who can develop a reliable methodology for resolving such questions.
Australia-Russia bilateral economic relations
Let us now turn to prospects for development of the bilateral economic relationship in particular. The post-war history of Australia's bilateral relationship with Russia has been one much dominated by the Cold War. A close relationship with Russia was of course difficult for Australia as a staunch ally of the US. It was equally difficult in the Australia of the 1950s, with the Government preoccupied with trying to ban the Communist Party, and an industrial relations scene in which Communist trade unionists held influence out of proportion to their wider community support. Trade became the most pragmatic part of our relationship, and by the 1970s we had begun to build up a substantive volume of trade. That peaked at just over $A1 billion in exports to Russia in the mid-1980s. But dealing in bulk commodities never did generate a labour intensive commercial relationship.
Since then, everything and nothing has changed. Our trade is still almost entirely in primary commodities and there is still not a great deal of direct commercial interaction. But with the extraordinary economic collapse of Russia everything has changed. The parallel collapse in the volume of trade with Australia has been exceptionally sharp: in 1998/99, merchandise trade - with a country of 150 million people - totalled only A$70 million in exports and A$23 million in imports. Also underlining this collapse is the fact that:
The causes of this slump are not hard to find. There has been a precipitate decline in Russian income levels and purchasing power. Russia's so called debt problem has also affected Russia's ability to purchase imports. And with the Russia's default on private and sovereign debt - including A$500 million owed to Australia - EFIC has ceased providing exporters insurance cover for the Russian market. In these circumstances it is not surprising that there has not been great enthusiasm from the private sector to rush back into this market.
The commercial environment is, however, changing rapidly, and a window of opportunity for Australia and Russia to rebuild the trade and investment relationship may well be developing. This is based on a coincidence of events and changed circumstances in Russia.
The opportunities for Australia therefore can be found in:
There is recognition of these opportunities within the government. We are currently negotiating a number of bilateral agreements which are designed to provide a secure commercial environment in which to do business. They include an investment protection and promotion agreement; a double tax agreement; and an intergovernmental agreement on space co-operation.
There are of course uncertainties in the future of our bilateral relationship. The window of opportunity could be closed off as rapidly as it has opened. Oil prices are notoriously volatile. The current high prices are probably transitory and therefore have the potential to act as a severe drag on Russia's economic upturn (it is estimated that for a $1 fall in oil prices, a $2 billion fall in Russian forex reserves would be generated).
There is also the question of whether IMF disciplines will continue to operate on the Russian economy. With higher reserves Russia may not feel the need to seek a further IMF draw-down.
Much will also depend on Putin's ability to implement an economic reform program. Given that direct confrontation with the oligarchs is unlikely, there is always a danger that reforms may get bogged down.
Insofar as our exports depend on reasonable purchasing power for Russia's 150-million population, the current outlook is not good. 50% of Russia's population fall within the classification of the world's poorest people - that is, living on less than US$1 a day: - compare this with an average 12% figure for central European countries.
As for what shape the future bilateral relationship with Russia should take, it is reasonable to assume it will be very different from the past. With the growth in newly prospective areas of trade such as tourism, education and space, people-to-people contact between Russia and Australia is likely to show a strong increase. In this way the commercial relationship can be expected to help broaden and deepen the wider relationship with Russia. Such a process should be aided by our geopolitical positioning within the Asia Pacific region. Given Russia's preoccupations with NATO, the Balkans and disarmament, and its exclusion from the EU, the absence of this baggage in our region should be a welcome change in the environment and the basis, perhaps, for an expansion of the political relationship.
Jeremy Webb and Sean Forster
East Europe, Russia and Central Asia Section
Department of Foreign Affairs and Trade, Canberra
Email: sean.forster@dfat.gov.au
* This is an updated version of a paper (as of July 2000) which was presented at the national conference on "Russia After Yeltsin" held in April 2000 by the Contemporary Europe Research Centre at the University of Melbourne