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The Elusive Single Market

The Wall Street Journal has a good column today on one of our favorite topics – Russia’s energy disaggregation of Europe.

Accelerating EU plans to build a single market for energy would have multiple benefits. It would encourage much more competition between energy providers, bringing down prices for consumers in the process, and fuel investments in intra-European power grids. It would also help to cushion the effect on mostly East European countries when key energy exporters to Europe fiddle with pipelines — a practice, alas, not exclusive to the Kremlin. Europe would be better able to compensate energy or electricity shortages in countries such as Bulgaria or Hungary the next time Ukraine or Russia reduces gas supplies to the region. Moreover, it would give Europe greater market power to fight anti-competitive behavior by Russian energy companies like Gazprom.

This is a classic EU-style bottom-up strategy: When it opens up andliberalizes internally, it grows stronger externally and can leverageits market power to get other countries to open up and respect rules aswell. Europe’s efforts to make Russia play by international rules bygetting it into the WTO, though, are unlikely to succeed. But it’s notentirely clear that Russia really wants to join this trade organization.

A better strategy would be to use Russia’s existing commitments as asignatory to the Energy Charter Treaty to make it respect internationalrules. Unsurprisingly, Russia does not like the ECT because it is oneof the few international treaties that actually could constrainRussia’s energy power games. Moscow claims, correctly, that it hassigned but not ratified the ECT. It also claims, wrongly, that it istherefore not bound by this treaty. When signing the ECT, Russia agreedto apply its rules even before ratification.