April 20 (Bloomberg) -- The relationship between the European Union and Russia is beset by mistrust and the two governments must show greater understanding to improve trade ties, EU Trade Commissioner Peter Mandelson said.

Relations with Russia, which is the EU's third-largest trading partner and provides a quarter of the natural gas used in the 27-nation bloc, are going through a ``difficult period,'' Mandelson said today in a speech distributed by e-mail.

``Each suspects the other of double standards,'' he told a conference on EU-Russia relations in Bologna, Italy. ``Both believe the other is using the energy weapon as an instrument of politics. Neither thinks they enjoy the respect and goodwill from the other they are entitled to.''

The EU wants to replace a decade-old trade deal with Russia with a new accord it hopes will improve relations, particularly in energy. Poland, which joined the EU in 2004, has blocked negotiations in response to a Russian ban on its meat exports.

On Jan. 8, Russia shut an oil pipeline that crosses Belarus, accusing the country of illegal siphoning. The closure cut supplies to refineries across central Europe and renewed EU concerns about Russia as a reliable energy supplier.

Frank Talk

``Russia needs upstream investment in its energy sector, while seeking itself to invest in downstream markets in Europe,'' Mandelson said. ``Rules that allow investment to flow both ways would interlock producer and consumer markets and deepen stability.''

Today's speech is a sign that ``the EU has started to speak frankly with Russia,'' Alexander Rahr, program director on Russia at the German Council on Foreign Relations in Berlin, said by phone. EU-Russia relations are ``full of conflicts, misunderstandings and irritations,'' he said.

``Case by case, we should explain why the rule of law must be the highest goal in Russia if the country is not to become trapped in the false strength of a petro-state,'' Mandelson said. ``If Russia's only ambition is to be a hydrocarbon power, then it probably doesn't need the World Trade Organization.''

Russia is the only major economy yet to join the WTO and is negotiating membership. ``We have a duty to assist this, which is why I am frustrated by continuing bilateral disagreement on a number of issues,'' Mandelson said.

EU Health Commissioner Markos Kyprianou will meet Alexei Gordeyev, the Russian agriculture minister, in Cyprus tomorrow to discuss Russia's 16-month ban on Polish meat. An EU-Russia summit is scheduled for May 18 in Samara, Russia, presenting a potential opening for talks on a new trade deal to restart.

``Poland is blocking, but it's not the major problem,'' Rahr said. ``The EU would love to get Russia into a partnership on values and the Russians now think they're strong enough to force a partnership only on issues. That's the main bone of contention now.''

To contact the reporter on this story: Adam Mitchell in Brussels at amitchell13@bloomberg.net

Last Updated: April 20, 2007 09:58 EDT