Friday, August 08, 2014

Dealing with Russia: Law, jaw and war

It has been a bad few days for Vladimir Putin. That makes it a particularly dangerous time for Ukraine and for the rest of Europe. The EU has imposed more sanctions on the Russian economy, Moscow has retaliated with an agricultural boycott and Russia appears ready to escalate the crisis: Russian troops are amassing on the Ukrainian border. The West needs to be clear about what it wants from Moscow and take international legal measures against Russia to pursue its objectives. It should also do more to help Ukraine defend its borders. But for the moment Western leaders should put aside the megaphone (particularly when the accompanying stick is disproportionately small) and pick up the telephone to the Kremlin.

The KGB reflexes of Putin and those around him will see a Western conspiracy in recent events. The reality is that two important court cases coincidentally finished within days of each other, both of which went against Russia; and the shooting down of Malaysian Airlines flight MH17 on July 17th, which no one could have predicted, left the EU and US little choice but to impose tougher measures.

Since spring, the EU had been threatening so-called ‘tier three’ sanctions on whole sectors of the Russian economy, while changing its mind about what would trigger them. In the aftermath of the attack on the airliner and Russia’s inadequate response, the EU finally moved. On their own, the new sanctions on some financial transactions, defence trade, and transfer of energy-related technology are still at the lower end of what could be done. But they will put additional pressure on Russia's economy which is falling into recession. There are indications that – as the EU had hoped – fear of the impact of sanctions has started to cause splits in Putin’s circle, between the ex-KGB personnel and those with the largest financial interests.

Russia has retaliated with a boycott of Western agricultural imports, but it remains to be seen how effective these are at weakening Europe’s growing resolve. If Europe’s initial ‘tier three’ sanctions are not sufficient to change Putin’s mind, the EU should consider expanding their scope to include, for instance, the purchase of Russian oil. Moreover, European member-states should discourage France from delivering two ‘Mistral’ warships to Russia. Paris has said it will deliver the first, but may suspend delivery of the second ship, depending on Putin’s actions. To increase pressure on France, other EU member-states should set the right example, as did Germany when it decided on August 4th to cancel a defence deal with Russia. So far, EU sanctions have not been retroactive; existing defence deals or City contracts are not affected. EU leaders should re-consider this.

Potentially at least as important is the judgement of the Permanent Court of Arbitration in The Hague in favour of a group of former shareholders in the Russian oil company, Yukos. Yukos was once Russia’s largest private company until the Russian government drove it into bankruptcy and transferred its assets to state-owned Rosneft as part of Putin’s trial of strength with Yukos’s former owner, the oligarch Mikhail Khodorkovsky. On July 18th, the court issued a damning commentary on the Russian government’s business practices, and ordered it to pay more than $50 billion – about 2.5 per cent of Russia’s GDP – in compensation to the former shareholders. In an unrelated case, on July 31st, the European Court of Human Rights, which had already found in 2011 that Russia had violated Yukos’s right to a fair trial and protection of property, awarded another group of former Yukos shareholders €1.9 billion – the largest amount ever awarded in a human rights case.

The significance of the arbitration case is that if Russia refuses to pay up within 180 days (which is almost certain), the shareholders can ask foreign courts to seize Russian state-owned assets. This is because 150 countries (including Russia itself) are parties to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and therefore bound to enforce such judgements. Sovereign property, such as embassy buildings or naval vessels, is exempt from seizure, but property used for commercial purposes by state-owned companies is not. Given the extent to which the Russian government still owns or controls the economy, there will be plenty of targets; cases could go on for many years, and have a chilling effect on potential investors in Russia.

International legal mechanisms are the best weapons the EU has to deal with a state where the rule of law is weak; it should use them effectively. That will not be simple: member-states are sometimes slow or fickle when implementing EU sanctions legislation (inconsistent application of the anti-money laundering directives being a clear example). The Commission and other member-states need to do more to lean on countries that would rather profit from Russian misbehaviour than prevent it.

Where the Commission has power, it should be forceful in exercising it. This is particularly true in relation to trade and energy. Russia has begun to retaliate against EU sanctions by blocking exports of agricultural produce from European countries on spurious health grounds – a familiar tactic. The Commission should make full use of the World Trade Organisation (WTO) dispute settlement mechanism. This can be a slow process, but using it consistently whenever Russia violates its WTO obligations is the best way to put political and economic pressure on Russia to abide by the rules.

In the energy field, the Commission opened an anti-trust case against Gazprom in 2012. It sought to force the Russian gas company to divide its European pipeline business from its gas production business and let third-party gas suppliers have access to the pipeline; to allow the re-export of gas supplied by Gazprom; and to deal with unjustifiably high gas prices in countries (particularly in Central Europe) where Gazprom is a monopoly or near-monopoly supplier. The case should not be postponed until the next Commission takes office in the autumn. The Commission should also keep the pressure on the six member-states plus Serbia who are involved in the South Stream project (which would bring Russian gas to South Eastern Europe, bypassing Ukraine) to ensure that their contracts with Gazprom comply with EU competition law and regulations. In December 2013, the Commission found that all the contracts helped Gazprom to maintain its anti-competitive practices. If the Commission can force Gazprom to change its practices, it could have a major impact on both energy prices and energy security, particularly in Central and Eastern Europe. So far, Bulgaria has suspended work on South Stream as a result of the Commission's action; but Austria and Hungary are pressing on.

Beyond looking for ways to bring Russia into line with international rules, the EU needs to step up its support for Ukraine. Ukraine’s armed forces have made significant progress in taking back territory in the east, but they still do not control the whole length of the border with Russia. There is plenty of evidence, including from careless social media posts by Russian soldiers, that Russian troops are on the Ukrainian side of the border and that Russian forces are shelling Ukrainian positions from inside Russia. Like the annexation of Crimea, these are grave breaches of international law, and the EU should give Ukraine political support if, as then-foreign minister Andriy Deshchytsia said in April, it takes Russia to the International Court of Justice. But the EU and the member-states should also consider what practical help they can give Ukraine to secure the border. The US has announced that it will supply engineering vehicles, transport and surveillance equipment for the border guards; the EU should take similar steps.

In June, EU foreign ministers agreed on the contours of a possible civilian mission to give Ukraine support on rule of law issues such as policing and the administration of justice. The EU should also discuss with the Ukrainian government whether military training would be beneficial. The performance of the Ukrainian army and national guard has improved considerably since Russian irregular forces first appeared on the Ukrainian mainland in March, but unless Russia stops arming, training and supporting rebel forces, the Ukrainians will find themselves at a disadvantage again. Ukraine is a sovereign state on Europe’s borders; the EU has every interest in ensuring that Kyiv can defend its territory.

At the same time, although the Ukrainian government has denied it, there is evidence that its forces have used artillery and the 'Grad' missile system, designed for use against concentrations of forces in open ground, against populated areas including the city of Donetsk. International human rights organisations have rightly been critical of this, but it is not clear that the Ukrainians have either the equipment or the training needed to clear rebel forces out of towns in any other way. The West should offer Ukraine alternatives to stop it from using inaccurate and indiscriminate weapons like 'Grad' in circumstances for which they were not designed. It would also remove a possible pretext for Putin to intervene in Ukraine on humanitarian grounds.

So far, Putin’s response to pressure (in the form of sanctions) and conciliation (such as the April 17th agreement brokered by the US and EU with Russia and Ukraine) has been to escalate. He is almost certainly more willing to accept the risk of full-scale conflict over Ukraine than any Western leader. But he is also more likely to miscalculate and cause a larger scale conflict in Europe if he is isolated – if Western leaders stop talking to him, and address him only through public statements.

There should be a moratorium on declarations of what Russia ‘must’ do. Instead, Western leaders should step up their personal contacts with Putin, however unproductive these may seem. An interesting piece of research by Jason Karaian of 'Quartz' shows that since February this year Putin has spoken to Angela Merkel more than 30 times; Fran├žois Hollande 15 times, while Barack Obama and David Cameron have only spoken to him eight and seven times respectively. But now is the moment to pick up the phone and try to talk him out of taking any rash steps.

Without giving any ground on key international principles, or offering deals about Ukraine without Ukrainian approval, Western leaders should start to talk to Putin relentlessly, as often as he will take their calls, challenging his narrative. If he claims that Ukrainian forces are committing atrocities against Russian speakers, he should be asked to provide proof, or confronted with the contrary information from human rights monitors. If he denies that Russian forces are firing into Ukraine, he should be presented with the data to show the opposite. If the West knows that Russian armaments have crossed the border into Ukraine, the evidence should be laid out for him personally. Consistent efforts by European leaders to communicate with Putin are even more important now that the threat of a Russian military invasion in eastern Ukraine has increased.

Given the extent of the information war being waged by Russia's state-owned media, Western public broadcasters should also do whatever they can to provide for the Russian population an accurate, non-polemical account of what is happening in their neighbouring country.

It may be impossible to penetrate the information bubble around Putin – he may indeed have begun to believe the same propaganda that is shown on the Russian media. But if it is possible to set out an alternative version of what is happening, that might also give Putin the chance, if handled carefully, to use the traditional Russian myth of the good Tsar and the bad 'boyars' (nobles), and to blame his subordinates for freelancing.

Winston Churchill was certainly not afraid of a fight, but even he said that “jaw-jaw is better than war-war”. No one in the West wants to risk war with Russia. But in that case, the EU and the US need to put even more effort into influencing Putin’s decisions through international law and constant dialogue.

Ian Bond is director of foreign policy at the Centre for European Reform.

No comments: