EC ready to discuss free-trade pact

LUXEMBOURG - The European Community yesterday sent a strong signal of support for the government of Boris Yeltsin by holding out the prospect of a free-trade pact, writes Andrew Marshall.

By agreeing to extend the mandate of current negotiations with Moscow to include a free-trade agreement, EC foreign ministers made a determined effort to show that they want to support the regime there. 'It is a recognition of the need for the Community to do what it can to assist the process of democratisation and reform in Russia headed by Mr Yelstin,' said Sir Leon Brittan, the EC's external Trade Commissioner.

He pointed out that the new agreement had been reached in less than a month since the last meeting of foreign ministers, something of a record for Commission action. 'That indicates the urgency with which the Community has treated the issue,' he said.

The political aspect of the deal was accentuated by a clause allowing the EC to renege on the deal if there is a deterioration of the human rights regime in Russia. This clause was also applied to the Baltic states, but not to the other Eastern European states with which the EC has agreements. 'It is the EC's way of saying: 'We are doing a deal with a regime',' said one official.

The package would protect European investments in Russia, as well as allowing free trade in most product areas. A particular area of interest will be energy, where Western companies are keen to make large- scale investments. But it remains to be seen how far the negotiations produce genuinely free trade. The EC has been highly criticised for its agreements with Eastern Europe, which restrict trade in many areas where these countries have a comparative advantage - such as textiles, steel and agricultural products.

The EC has, for example, blocked Russian exports of high-quality uranium on the grounds that it comes too cheap. It says Russia is dumping the uranium at below market price, undercutting other producers, including Britain and France. Russian exports, the argument goes, threaten to put the EC's well-protected domestic suppliers out of business.