29 Jun 2014
Ukraine has finally signed an economic agreement with the European Union which will further add to the tense atmosphere between Ukraine and Russia. As pivots more firmly to the West, Ukraine will have to assert its own political independence without alienating Russia.
Following a relatively unsuccessful ceasefire, Ukraine’s president Poroshenko has signed a long-awaited economic agreement with the European Union (EU). Former Ukrainian president Viktor Yanukovych had been set to sign this agreement in November 2013, but in a last minute about-turn opted for Russian aid instead. Ukraine is not the only ex-Soviet state to move closer to the EU: Georgia and Moldova also signed similar agreements at the same time. These events have concerned Russia, and economic counter-measures are to be expected. There will certainly be long-term challenges in implementing the agreement given the changes Ukraine needs to make. However, having finally taken measures to strengthen relations with the EU, Ukraine will not only test the reality of Russia’s leverage over the country, but it will also determine whether stronger ties with Europe are in fact positive for the country.
Ukraine has already signed an EU Association Agreement establishing closer political ties. On Friday 27 June it signed the EU Deep and Comprehensive Free Trade Area agreement (DCFTA).This agreement stipulates the removal of trade tariffs in both directions, and it is estimated that Ukrainian exporters will save €487m per year due to reduced duties . It not only addresses free trade, but also means Ukraine agrees to bring its goods in line with European standards, with EU support. Moreover, Ukraine must comply with EU legislation on areas such as public procurement and, with the exception of defence, will have access to public procurement markets. .
It is unsurprising that Ukraine wants to open up its markets and diversify like many other nations are doing. Not only is there popular support in the country for closer European relations, Ukraine is very aware that Russia has shown a propensity to use trade as a pressure tool against countries acting in a way it disagrees with. In July 2013, in the lead-up to Yanukovych’s signing the deal with the EU that never materialised, Russia announced l it was banning imports of Roshen confectionary claiming violations of food health and safety standards. Following the annexation of Crimea Russia also delayed and halted some imports from Ukraine, again citing food contamination issues.
Russia Under Threat?
There will certainly be practical challenges accompanying the implementation of this agreement, as it will take time and money for Ukraine to bring its products and legislation in line with that of the EU. Moreover, whether there will be significant resistance from the established oligarch business powers is unclear. Russia has threatened a potential loss of trade, and has repeatedly stated its concern that implementation of the agreement will cause an influx of unchecked EU products duty-free to Russia, which will hurt local producers. Although Russia is justified in considering the effects of this agreement on its own economy, there does not seem to be such a strong justification for this particular concern. Both Ukraine and Russia are members of the World Trade Organisation, the guidelines of which are cited in the DCFTA. This stipulates for ‘rules of origin’ which are there to determine the national source of a product. Furthermore,although 25.7% of Ukraine’s exports are to Russia , 5.7% of Russia’s imports come from Ukraine, making Ukraine Russia’s third largest import source.
European Union vs Eurasian Economic Union
There is one genuine ‘either, or’ scenario that has played out in this agreement, and that is that by signing the EU agreement Ukraine cannot join the Eurasian Economic Union (EEU). The EEU members (Russia, Belarus and Kazakhstan) had hoped that Ukraine would join. A meeting was held between the EEU partners on 23 June 2014 to discuss group protectionist measures that could be taken in anticipation of Ukraine’s signing of the EU agreement – but the three were unable to reach a consensus. Russian first deputy Prime Minister Igor Shuvalov later announced that Russia would in fact take its own national measures. He plans to examine addendum 6 in the CIS free trade zone agreement, of which Ukraine is a part, which states that members may implement tariffs on imports from member states, if that state has entered into agreements with third parties that in turn significantly increase the imports across borders of the region. However, Russia will also need to take into account how this will affect the trade mechanisms, and credibility, of the EEU.
Ukraine Stepping Up
This agreement is provocative to Russia. Moscow sees it as an encroachment on its traditional sphere of influence – and interprets the document’s use of the term ‘integration’ as a sign that Ukraine will eventually become a member of the European Union. This frustration is understandable to a degree, but it also perpetuates a zero-sum view of Europe–Russia relations instead of recognising the real need to stabilise Ukraine economically.
Furthermore, it demonstrates that Russia is not comfortable with the idea of Ukraine becoming independent enough to make its own decisions. What Ukraine’s government now needs to do is to prove that it can genuinely reform its economy and be taken seriously by all sides. Without seeking to alienate Russia, Ukraine needs to redefine its own identity to defend itself against the use of political and economic leverage from stronger powers.
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