written by Viktoriia Demydova printable version send your friend

Friday, 4 November 2011

Post-Soviet Ukraine is now facing a difficult choice – where it should turn to. A long history of struggle and hesitation between East and West is a reality nowadays. Ukraine has few economic and political options to choose from. On the one hand, the Association and Free Trade Zone Agreement are important stages for the accession of the country to a united Europe. On the other hand, the Customs Union with Russia has advantages for Ukraine.

Ukraine – EU Association Agreement

Negotiations on a deep and comprehensive free trade agreement (DCFTA) between Ukraine and the European Union started on February 18, 2008 between the Ukrainian government and the EU Trade Commissioner. As of May 2011, there remained three outstanding issues to be resolved in the free trade deal; quotas on Ukrainian grain exports, access to the EU's services market, and geographical names of Ukrainian commodities. It was expected that the deal would be signed in December 2011. Ukrainian President Viktor Yanukovych was supposed to visit Brussels on October 20 at the invitation of President of the European Commission Jose Manuel Barroso to reach political agreements in the completion of talks on the Association Agreement and the European Union. As it is known, on October 11, 2011, main opposition leader of the country Yulia Tymoshenko was sentenced to seven years in jail and three years of prohibition from occupying state posts. The court decision provoked wide responses by European officials: Europe cannot be a partner of a country that violates human rights and that lacks main democratic principles.

European officials addressed Ukrainian authorities’ demands to respect the rule of law and expected considerable changes in the political situation of the country. However, their appeals fell on deaf ears. Instead, Ukrainian leaders declared that if Europe is not ready to accept Ukraine, the negotiation and completion of the agreement can be postponed. The EU reacted decisively and cancelled Yanukovych’s visit to Brussels to show who establishes the rules of the game.

In addition, new concerns of the European officials were provoked by the attempt of the Party of Regions to change the electoral system in the country. Parliamentary elections in Ukraine since 2006 have been held through the proportional system where the candidates from the parties obtain seats in the parliament – Verkhovna Rada – in accordance with the party lists. A few days ago, the pro-presidential Party of Regions initiated in the parliament a bill that would change the system toward a mixed one. In this case, the Party of Regions, which is losing the support of the citizens, can get the support of the independent candidates elected in the single member districts and achieve a majority in the parliament after the 2012 elections.

As it can be seen, the removal of the opposition leader, and the building of the strong power distance are not the policies the EU wants to see in its partner state. As High Representative of the European Union Catherine Ashton noted, “Commissioner responsible for enlargement and European neighborhood policy Štefan Füle and I particularly are concerned about the cases against Yulia Tymoshenko and other members of her government, and the attempts to return to the old electoral system, despite the international response.”

The position of the European Union is firm – official Brussels demonstrated its dissatisfaction with Yanukovych’s policies by postponing his visit, and considers implementations of sanctions against Ukrainian officials similar to the ones against the leadership of Belarus, in case Ukraine does not change its political course. Moreover, during the European Parliament session held in Strasburg over October 24-27, a resolution on the political situation in the country was adopted. The European deputies, despite some discrepancies, agreed on continuing the negotiation on the Association Agreement. Nevertheless, the resolution was to be a signal to the Ukrainian government that the future of the negotiations depends on the changes in Ukrainian politics.

Why does the European Community need 45 million people united in an economically underdeveloped and non-democratic country? There are different opinions on this issue. On the one hand, it can be said that the accession of Ukraine to the EU will create a counterbalance to a Russia that is willing to create a Eurasian Union of states (and the CIS free trade area as well as Customs Union are probably just the first steps). One the one hand, as some experts from the EU argue, the acceptance of Ukraine is the issue of identity. The big “European Family” is eager to see all the European countries inside it. It would be preferable for Europe to include Ukraine rather than to leave it at the border, with all its turmoil. Nevertheless, the EU is threatening Ukrainian statesmen to reduce the number of visas to be given for Ukrainian citizens, and to implement sanctions as in the case of Belarus. Moreover, Taras Kuzio in his blog argues that the Agreement will be constantly postponed due to the lack of reforms in the country.

Ukraine and Russian “Imperialist” Plans

In his article in Izvestia daily, Mr. Putin presented his plan of economic and political integration with the former Soviet republics. According to Russian prime minister, it lays out the following institutions: the Union State of Russia and Belarus, the Collective Security Treaty Organization, the Eurasian Economic Community, the Customs Union, and finally the Common Economic Space. Not touching upon the Union State of Russia and Belarus and the Collective Security Treaty Organization, one should pay attention to recent and upcoming agreements.

The Free Trade Zone Agreement of the CIS states, signed on October 18, was the result of 14 rounds of talks between the prime ministers of the republics. With Russia at the center, Armenia, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, and Ukraine signed it. Three countries – Azerbaijan, Turkmenistan, and Uzbekistan – asked for extra time in order to consider the conditions of the treaty. The agreement abrogates export and import duties on some kinds of goods. Although some products are excepted from the conditions, the document specifies a time period within which these exceptions will be included. These goods are gas, oil, sugar, and spirit. In fact, this means that Russia will buy Ukrainian sugar and alcohol as well as sell gas and oil with the old prices. That is not beneficial for Ukraine, while provides profits for Russia. Besides, Vladimir Putin, during the Saint Petersburg summit, placed special emphasis on the free trade zone’s being created in conformity with the norms and principles of the World Trade Organization.

The Customs Union is negotiated by Russia, Belarus, Kazakhstan, and Ukraine. However, this document is incompatible with the Association of Ukraine with the European Union. On July 1, 2011 customs control over goods passing through the borders between three states (Russia, Belarus, and Kazakhstan) was lifted. While Russia is trying to involve Ukraine in the Union, proposing gas discounts, Ukraine is not eager to join it. Ukraine does not seek to enter a Russian-led association of countries which are not members of the WTO, while Ukraine is. While for Russia it is the chance to ease the trade with Ukraine, Belarus, and Kazakhstan, as well as to establish control over Naftogaz (for the exchange of the 2009 gas contract revision), for Ukraine this is missing the bigger partner – Europe. In 2010, trade with the EU constituted 30 percent of Ukraine’s trade, and CIS counties 40 percent. However, in the case of a deep and comprehensive free trade area, trade with the EU will grow exponentially. It is needless to say that for Ukraine, it signifies a new level. Long before, the low quality and uncompetitiveness of Ukrainian goods did not allow it to enter Western markets, and now the country has the chance.

The Common Economic Space of Russia, Belarus and Kazakhstan (CES), will kick off on January 1, 2012. It is designed to involve macroeconomics, ensuring competition, technical regulations, agricultural subsidies, transport, and natural monopolies tariffs. Later, this framework will also include common visa and migration policies, allowing border controls between our states to be lifted. Thus, The Court of the Eurasian Economic Community will become fully operational on January 1, 2012. Both governments and economic entities will be able to apply to the court in all instances of discrimination or regarding the violation of competition and equitable business regulations. Eventually, it will lead to the creation of the Eurasian Union, with a common parliament and Currency Union.

These institutions are designed similar to the European Union’s institutions and, obviously, to balance it. Although, it seems utopian and difficult to achieve, Russia’s plans include particular steps for the creation of the Eurasian Union that are being negotiated and implemented. In this process, Ukraine’s position is uncertain and not clear. On the one hand, the Free Trade Zone Agreement with the CIS states will revitalize the old industrial chains that existed in the USSR and that appeared to be disrupted by nation-states’ borders in 1991. Trade turnover is expected to increase 45 percent per year. Besides, Ukraine will have deep access to the markets of CIS states, low-cost public consumer goods, and access to energy resources of Central Asia. It is especially beneficial for the pipe industry of Ukraine as well as for producers of agricultural goods (meat and milk). On the other hand, one cannot ignore the political meaning of these agreements – Ukrainian experts are talking about the creation of a new Soviet Union that will make Ukraine economically and politically dependent on Russia. Obviously, the negotiations with the European Union are slowed down due to non-democratic polices toward the Ukrainian opposition. This makes Ukraine turn its head toward Russia and the CIS – the economic deprivation in the country needs to be overcome. At the same time, some Ukrainian experts argue, there is no choice between Brussels and Moscow. Ukraine can participate in different economic agreements. Eventually, the visit of Yanukovych to Brussels in mid-November will show the progress in Ukraine-EU talks.