In
the last days of November 2013, in Vilnius, Lithuania, Ukraine was
set to sign a landmark trade agreement with the EU, also known as the
Association Agreement (AA).
However, only a week before the official signing date, Ukraine’s
president Viktor Yanukovich announced that his country is
reconsidering its decision and will not sign the AA. Instead, he
decided to strengthen and deepen relations with Russia and set the AA
aside for the time being.
This essay will endeavour to analyse
the factors and reasons that influenced Yanukovich’s decision. It
would do so by looking at the Ukraine-Russia and Ukraine-EU
relationships, as well as what in my view would likely serve the
Ukrainian interests best.
1. Internal political, demographic and economic context
1.1. The political and demographic context of Ukraine
Ukraine gained its independence from the Soviet Union in 1991 and has ever since been in a continuous crossroad between West and East. It has always been difficult, if not unthinkable, for any President to only focus on one direction, either west or east, at the expense of the other. This has been the case mostly for political, demographic and economic reasons.
Important
to mention in this context is that Ukraine is a multi-ethnic country,
the two most significant groups being Ukrainians and Russians. The
former live predominantly in the West of the country, and the latter
– in the east and south-east, including, notably, the beautiful and
strategic Crimean peninsular. The Ukrainians from the west of the
country are in their larger part EU-orientated, and the
Russian-speaking ones are, naturally, pro-Russian. In this
complicated ethnic and religious mosaic, it is a very sensitive topic
for any leader of Ukraine whether to set on a pro-EU or pro-Russian
path, for this would mean losing a huge part of the votes at home.
And presidential elections are just around the corner, due in 2015.
It
is in this complicated political and demographic context at home that
Yanukovich had to make his choice in late November 2013. On top of
this, he had to take into account the most important and absolutely
rudimentary element, namely, the economy. For
abstract politics and rhetoric is one aspect, but ensuring the
country’s economical and financial survival is a very tangible and
pressing matter for Ukraine. And the current economic
state of Ukraine looks very grim.
1.2.
Economic context
Ukraine’s GDP has been steadily declining in the last three years (2011-2012-2013), and so have production output and exports to its two largest export destinations: Russia and the EU. This has led to a steep decrease in revenues, which has prompted the state to borrow profusely. According to July 2013 Central Bank [of Ukraine] data, the sovereign debt of Ukraine was at the staggering $136 billion, facing a debt repayment of more than $60bln in 2015, or a third of the country’s GDP. The list with problems goes on and on, however, the main point here is: The country’s economy is on the edge of catastrophe, on the verge of bankruptcy and default in fact, and only decisive and clear steps would ensure that it stays afloat and, hopefully, grows.
2.
The repercussions and prospects of joining the AA
2.1. No duties for import/export
By adhering to the AA and joining the EU’s customs union, Ukraine’s borders would be open for a two-way, customs duty free flow of goods. This is an excellent opportunity for both sides to increase trade. There is, however, one major issue for Ukraine before it could fully benefit from one such move: Standardisation and competitiveness of Ukrainian goods.
To briefly explain what is meant by
standardisation, the EU has a policy of very strict standards for
products produced/imported within the Union. Should a product not fit
within these standards (say, milk or poultry products etc.), they are
not allowed into the EU market, thus rendering Ukrainian producers
completely unable to compete with their EU counterparts, at least for
the time being. The reality on the ground is such that very few
production lines in the country are ready to produce within those
standards and there is a long way before the whole economy modernises
accordingly. In fact, some experts estimate the cost of this
modernisation at more than $100bln, money that Ukraine simply does
not have at its disposal right now or at any point in the near
future.
Therefore, even if Ukraine joined the
AA tomorrow, by no means does it mean that Ukrainian products would
immediately flow all over the EU, thus boosting the local economy and
creating jobs. This, however, does not preclude EU products entering
the rather lucrative Ukrainian market of 46mln people. These products
will likely undermine the local economy severely, potentially causing
loss of business, closure of factories, job loss and many other
unpredictable consequences for a country already so deep in an
economic crisis.
2.2. Effects on relations with Russia (political and economic)
Russia is more than simply a trade partner. With the free trade zone between the two states, Ukraine’s manufactured goods sell well in Russia because of their competitive prices and superior quality. It has been affirmed by President Putin that, should Ukraine sign the AA (and thus reset its trade tariffs with the EU), this would automatically affect Russia and would lead to the cancellation of the preferential tariffs with Kiev. If these links are severed, thousands will be left jobless as factories and businesses close down.12
In
this context, signing the AA carries some very real and tangible
negative consequences for the Ukrainian economy with regard to its
Russian ties. Even“The
Economist”
agrees that, if Russia sticks to its threats, Ukraine will also need
substantial financial assistance from the EU to see it through the
winter.3
Something that it hardly has to offer at these difficult for the EU
times.
3. The repercussions and prospects of getting closer to Russia
Russia, on the other hand, has also been very keen in attracting Ukraine in its sphere of influence. And this is not surprising – the two countries have long-standing cultural, geographical, linguistic, historic and economic ties. In its attempt to hold on to this relationship, Russia has, on its part, also “reached” to Ukraine. In sharp contrast to the EU’s fascinating and enchanting words and promises of free market, free trade, bright future in the happy democratic European family, Russia had quite some tangible and immediate offers on the table.
Firstly, on 17th Dec 2013 in Moscow, Russia purchased Ukrainian state bonds of the value of $15bln, essentially providing a preferential 10-year loan to Ukraine. This gave Ukraine the so-much-needed fresh finance to keep Ukraine afloat.
Secondly, President Putin and
President Yanukovich agreed on a significant reduction of the gas
price, from $400/1000m³ down to $268.50/1000m³. This was a welcome
ease of tension in the gas deals between the two states,
particularly in light of the more than $2bln that the Ukrainian
state-owned company, Naftogaz,
owes
to Gazprom
for
past purchases of natural gas.
Thirdly, Ukraine and Russia signed another 14 agreements in the area of trade and economics, such as agreeing on certain products purchases, easing tariffs for import and other facilitations of the trade between the two states; All steps that would aim at boosting the stock and goods exchange between the two states.
Finally, and to conclude, suffice it to mention the ample and very tangible opportunities that Russia offers to Ukraine for its development. These are not mere words, but immediate assistance and a goodwill to cooperate, as proven on 17th December 2013. Of course, it is not as if Russia offers it all simply because of a goodwill and a warm-heartedness; it most certainly expects that Ukraine would take a pro-Russian stance, and, particularly, that Ukraine would stay away from the EU and, notably, NATO. However, this changes not the fact that Ukraine is given a lot in times of great difficulty.
CONCLUSION
Should Ukraine decide to sign the AA, it would open up the door to many opportunities within the context of the EU. However, these positive effects could only be cashed-in upon in the unforeseeable future. As for the very near future, the EU seems to offer nothing substantive and very little to tackle the urgent economic problems of Ukraine. In fact, not only does it not suggest solutions, it would create more problems and has no prospect of how the Ukrainian economy would deal with them. With many Member States in deep economic crisis, the EU can offer very little of the much, much needed fresh help and finances.
Russia,
on its part, has offered Ukraine a most tangible and immediate relief
and support, and this is exactly what Ukraine needs at this very
moment.
I would therefore wholeheartedly advise President Yanukovich to do exactly as he did, because this serves the interest of his country best.
BIBLIOGRAPHY
1) ‘Don’t humiliate Ukraine’: President defiant over EU deal proposals, 27.11.2013, http://rt.com/news/ukraine-eu-yanukovich-protest-368/
2) Kiselinchev, Ch., Защо ЕС
загуби мача с Русия? (Why did EU lose against
Russia?), 02.01.2014, as quoted
in online edition “www.dnes.bg”,
3)
Putin: EU blackmailing Ukraine over halt in trade deal 22.11.2013,
http://rt.com/news/putin-eu-ukraine-blackmail-151/
4)Reznik,
I., Russia
Offers Ukraine Cheaper Gas to Join Moscow-Led Group,
02.12.2013
http://www.businessweek.com/news/2013-12-02/russia-offers-ukraine-cheaper-gas-to-join-moscow-led-group-1
5)
Western
Diplomats Are Going to Disappoint Ukraine’s Protesters, 13.12.2013,
http://world.time.com/2013/12/13/western-diplomats-are-going-to-dissapoint-ukraines-protesters/
6)
Zavadski, K., SHOULD
UKRAINE JOIN THE EU? AS PROTESTS CONTINUE, HERE’S WHAT’S BEEN
HAPPENING IN UKRAINE,
15.12.2013, accessed via
http://www.bustle.com/articles/9886-should-ukraine-join-the-eu-as-protests-continue-heres-whats-been-happening-in-ukraine
1 Putin: EU blackmailing Ukraine over halt in trade deal 22.11.2013, http://rt.com/news/putin-eu-ukraine-blackmail-151/
2 Zavadski, K., SHOULD UKRAINE JOIN THE EU? AS PROTESTS CONTINUE, HERE’S WHAT’S BEEN HAPPENING IN UKRAINE, 15.12.2013
3 The Economist, Paper Edition, 03.10.2013, ‘West or East’, accessed via