The Kaliningrad Region: At the Crossroads between Russia and the European Union

Table on Contents

ABSTRACT

1. INTRODUCTION

2. THE HISTORY OF KALININGRAD
2.1 BEFORE 1990
2.2 1990 UNTIL TODAY

3. THE KALININGRAD REGION TODAY
3.1 ECONOMY
3.2 POLITICS

4. THE FUTURE OF THE KALININGRAD REGION

5. CONCLUSION

BIBLIOGRAPHY

Abstract

The Kaliningrad region captures since the Middle Age a place as a trading center. The text describes its economical development since the Second World War until today and gives an overview about the actual economical conditions. Followed by an analysis over future economical trends for the region and the chances which can occur through a closer cooperation with the European Union.

Keywords: Kaliningrad, Kaliningrad region, reforms, European Union

1. Introduction

As a key region between the Russian Federation and the European Union (EU), the Kaliningrad era plays in nearly every negotiation between both sides an important role. Although small in terms of population (937.360 inhabitants in 2009¹ ) and land size (15,100 km²), the Kaliningrad oblast has grown more and more important specially after the EU east enlargement on May 1st 2004 when beside other countries Poland and Lithuania became part of the EU. From then on the Kaliningrad region was a Russian enclave within the “Schengenera”, while since the break-up of the Soviet Union it is an exclave of Russia. While being an enclave, the NATO enlargement and the WTO expansion were further external factors which influenced the development of Kaliningrad.

In today’s discussion the Kaliningrad region is seen as a place where Russia and the EU could find together, in cases of economical development and although in cultural convergence. The chances the region could have are seen from both parties quite different, while on the one hand in the EU partners such as Lithuania or Poland try to influence the development and convergence in the region. On the other hand Russia tries to minimize the influence of foreign voices, following their own “Kaliningrad policy”.

In the beginning the paper will describe the historical development of the region, specially focused on the economical progress after the collapse of the Soviet Union as well as the economical situation today. Closed by an analysis about economic prospects, which will lead to an outlook how the region will develop itself in the future.

2. The History of Kaliningrad

2.1 Before 1990

The Kaliningrad territory has a long economic history. Beginning with its trading links with Rome in former times when it was known as the main supplier of jewelry ± amber. In the Middle Ages, Königsberg was one of the Hansa trading hubs. And before the Beginning of World War II it was one of the main centers in Germany for trading with the Soviet Union. Today the Kaliningrad oblast is besides being the smallest region in the Russian Federation also the newest. The region came into the Soviet Union mainland after WW II when East Prussia was divided between Poland and the Soviet Union. Nearly two-thirds of the former The Kaliningrad Region: At the Crossroads between Russia and the European Union East Prussia, which was itself a German exclave since 1919 and until 1939, when Poland was annexed, was integrated into Poland, while the remaining one-third, called Northeast Prussia initially becoming Königsberg and then renamed Kaliningrad.² This apportionment took place in August 1945 at the Potsdam Peace Conference. In 1946 the region was integrated as an oblast into the Russian Socialist Federal Soviet Republic (RSFSR). One of unique feature of this integration was the total change of population in this region. The German population was convoyed out of the region, and hundreds of thousands of migrants were brought in from all over the Soviet Union. Since the economy as well former trade patterns were virtually extinguished, a new economy was built integrating Kaliningrad into the Soviet economic system.³ Soon the region was characterized through a high militarization rate. Reason therefore was the beginning of the Cold War and the strategic position of the region. The port of Baltiisk became one of the major naval bases in the Soviet Union and also the headquarters of the Soviet Baltic flotilla moved from Leningrad to the city of Kaliningrad. This led to the development of a big military industry, which became fast the major employer in the region. Also the civilian structure was redesigned for the needs of the armed forces, what can be seen as one of the main hampers for economic development in the region during that period of time.⁴

2.2 1990 until today

With the collapse of the Soviet Union and the independence of Lithuania, Kaliningrad was separated from the Russian mainland. The region got problems with transit because all major routes had to cross Lithuanian territory. Through establishing trade relations with Lithuania as leverage, Russia tried to make the transits as smooth and quick as possible. This Russian policy to use the trade relations and the dependence in case of oil and gas as leverage for transit caused troubles for both countries for years. After the collapse, lots of territorial disputes about the region appeared in nearly all neighbor countries. In Germany, Poland and Lithuania nationalist groups claimed rights on the land based on historical and ethic reasons. At the end the Russian territorial integrity has been acknowledged by all the governments of the neighbor states. With the EU enlargement in 2004, the political and geographical situation

The Kaliningrad Region: At the Crossroads between Russia and the European Union for Kaliningrad got more difficult. Suddenly it was an enclave in the EU and Russian politics had a new and stronger negotiation opponent.

Although was Kaliningrad’s economy faced by the transition process from a centrally planned economy to a market economy. This and the significant increase in transportation costs caused by their role as exclave reduced the competitiveness of Kaliningrad’s enterprises on the Russian market. In 1991 the region was granted a status of a Free Economic Zone (FEZ), to reduce their disadvantages on the market. This was in 1996 consolidated by the federal law “On the Special Economic Zone (SEZ) in Kaliningrad Oblast”. “The SEZ has exempted companies located in the region from customs duties and import VAT and thus turned the region into essentially a free customs zone. Goods manufactured in the region and exported then to the rest of Russia were also exempted from customs duties ´⁵

In any way the transition crisis, opening of the regional market to imports and increased transport cost led a decline in industrial and agricultural production. At its minimal point in 1998 industrial production dropped by 73 per cent compared with 1990. Although there was the Russian Crisis in 1998, the Kaliningrad oblast production underperformed in every year compared to the Russian production.

Industrial production in the Kaliningrad oblast and Russia

Sources: RosStat, Kaliningrad oblkomstat

After the crisis of 1998, the SEZ fulfilled its task and the foreign trade and retail trade grew. Specially for companies which produce final goods from imported parts and components the region became an attractive location. But because of the small regional market these companies all focused on the main Russian market.

[...]

¹ Russian Federal State Statistics Service, http://www.gks.ru/free_doc/2009/demo/popul09.htm, accessed December 19th 2009.

1

² Natalya Ryzhkova:“The Russian Baltic exclave of Kaliningrad: Prospects for economic development”, Blekinge Tekniska Högskola, 2008, 20.

³ Evgeny Vinokurov: “Economic Prospects for Kaliningrad between EU Enlargement and Russia’s Integration into the World Economy”, CEPS Working Document No. 201, Center for European Policy Studies, 2004, 1.

⁴ Daniel R. Kempton and Terry D. Clark:“Unity or separation: center-periphery relations in the former Soviet Union”, Praeger Frederick, 2001.

2

⁵ Artur Usanuv:“Future vision on the Kaliningrad economy in the Baltic Sea region”, Ed. by Kari Liuhto, 2005. 3