By Tom Thomson, Senior Vice President, PBN-Moscow

Russia has been a reluctant convert to the EU expansion. But on May 1, Russia woke up to find Europe even closer to its Western border and eight of its former Soviet bloc allies as EU countries.

Russia has not been a fan of EU enlargement. It feared a loss of economic influence over its former Soviet bloc colleagues. It dreaded having to deal with two superpowers, as the EU now equals the US in size, population, economic prowess and political clout. It struggled with the economic and logistics hassles of shipping goods through new EU countries to its remote enclave of Kaliningrad. It also worried about the impact of Russians still living in the Baltic States. But finally, and some say halfheartedly, it signed a new Partnership and Cooperation Agreement (PCA) with the EU covering the newly-admitted 10 countries last week.

Life as a Russian diplomat, bureaucrat and businessman will surely change now that a good part of Central and Eastern Europe has been reintegrated with Western Europe. But whether these changes will be for the better or for the worse has yet to be seen.

Immediate economic downsides will go into effect. For example, mandatory duties on Russian products will make them more expensive now in countries that before May 1 were not part of the EU. But consider this: the EU is the largest investor in the Russian market. With EU enlargement, the EU will be Russia's largest trading partner, with its share of Russian exports jumping from 37 percent to 51 percent.

That's not the only benefit. The EU and Russian agreement also dropped customs duties on cargo between Russia and Kaliningrad, raised Russian steel quotas and honored existing contracts to supply Russian fuel to nuclear power plants in new EU member states.

WTO Accession

EU expansion has benefits to Russia in other ways as well. EU enlargement can actually help Russia in its quest to join the World Trade Organization (WTO). As the last and largest major economy yet to join the WTO, EU enlargement can help define some of the policy issues that Russia must tackle before joining the global trading organization.

Intellectual property (IP) is one of these core issues, a particular specialty of The PBN Company.

EU enlargement presents a unique challenge for those battling cross-border trade of counterfeits -- a huge problem not only in Russia, but throughout Central and Eastern Europe as well. The border between Europe and Russia has moved and so too has the burden of ensuring effective border protection. While laws, regulations and systems are generally in place, more effective enforcement practices are needed to stop the trafficking of fake goods crossing the newly extended easterly borders of the European Union with the countries of the former Soviet Union.

EU expansion, coupled with U.S. continued diplomatic pressure, will help to prod Russia to finish what it has already started. The task of harmonizing Russia's IP laws with international standards is already well on its way; the trademark legislation was modified more than two years ago, and amendments to copyright laws passed its second reading in the Russian State Duma just recently.

Uncommon Approach to Security

While the PCA agreement bridges many economic issues between the EU and Russia, many were surprised that there wasn't more consensus on security issues. Maybe the old "Cold War" mentalities got in the way of understanding that there was much more to agree on in terms of security than to disagree. Terrorism and nuclear proliferation are two topics in reality in which there is little divergence between the EU and Russia. But there is also little tangible evidence of this reality.

Contributing to Russia's and the EU's lack of cooperation are mutually contentious issues such as human rights violations in Chechnya and the presence of Russian troops in the breakaway republic of Transdneister in Moldova. Well-known Russian commentators have expressed the view that while the EU says it wants Russia to participate in decisions involving regional security, in fact, it does little to encourage this dialogue. Nevertheless, with the EU and Russia now sharing expanded borders, it is far more likely that the two sides will be forced to engage in common security issues than ever before.

The Post May 1st Realities

The positive spin on the agreement between the EU and Russia by the Russian press and government spokespersons doesn't remove the fact that the EU and Russia still have a broad agenda of outstanding political and economic issues to resolve. The new reality of an expanded EU will be a challenge for Russia, but also an opportunity for it to further integrate into the international community.

Will Russia embrace these new political and economic realities in a positive way? Can the EU allay Russia concerns over EU expansion? Only time will tell.

Email Tom: tom.thomson@pbnco.com