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26/08/2016

EU pushing Ukraine towards trilateral free trade, with Russia

Europe's East

EU pushing Ukraine towards trilateral free trade, with Russia

Johannes Hahn [European Commission]

Fearing that Russia could retaliate against Ukraine following the entry into force of the Deep and Comprehensive Free Trade Agreement (DCFTA) later this year, the European Commission is now pushing Ukraine to agree to a trilateral trade format, including Russia.

On Wednesday (15 April), a Ukrainian parliamentarian reacted angrily to messagess from EU officials, who said that Ukraine should seek to accommodate its EU free trade agreement with an older arrangement his country had with Russia.

Ironically, it was Ukrainian President Viktor Yanukovich who appealed for such an approach two years ago, which was flatly rejected by Brussels.

>> Read: Ukraine wants trade agreements with EU and Russia

Dr. Hryhoriy Nemyria, an MP from Ukraine, and a former Deputy Prime Minister in a government led by Yulyia Tymoshenko, reacted with visible displeasure after receiving messages in favour of including Russia in his country’s EU relations.

Nemyria referred to the victims of the Euromaidan protests that brought down the regime of Viktor Yanukovich, who refused to sign the EU-Ukraine Association (AA), and the DCFTA in Vilnius, in November 2013.

“Many people gave their lives for the Association Agreement and DCFTA, this is core. That defines Ukraine’s short to medium term future, and this is a roadmap. That’s why I would be very much cautious and there are specific elements of the report to be debated further; to what extent trilateralism, or the idea of trilateralism, even institutionalised, could be helpful,” Nemyria said.

The Ukrainian MP warned against “crossing red lines” by engaging in a trilateral format, and thus “emasculating” or “diminishing” AA and DCFTA.

Milking two cows

Nemyria said this was an issue that needed to be thoroughly discussed, to avoid “embarking in a game Ukraine played in the past, trying to milk two cows”.

The verbal exchange took place at a public event organised by the Bertelsmann Foundation, during which the study How to stabilise the economy of Ukraine, by the Vienna Institute for International economic studies (WiiW), was presented.

Neighbourhood Commissioner Johannes Hahn backed the main conclusions of the paper in the following terms:

“The study rightly recognises that integration [for Ukraine] with Russia and EU are not in principle mutually exclusive. The study goes on to suggest that at least partial restoration of links with Russia, and the so-called Eurasian Economic Union will be important to Ukraine’s economic recovery, and that Ukraine should diversify its export markets and develop trade relations in many directions.”

The Commissioner said that the EU wasn’t looking for an exclusive economic relationship with Ukraine.

“This is important to be stressed. There is nothing in our new agreement that would stop Ukraine from continuing to export products to Russia. Approximation with EU standards will not prevent Ukraine from trading with Russia,” he went on. In his terms, the Association Agreement left Ukraine free to determine its own trade policy.

“Ukraine already has preferential trade relations with the members of the Eurasian economic union within the framework of the Community of Independent States free trade area. These are perfectly compatible with the Deep and Comprehensive Free Trade Area, and there is no reason why they should not be maintained. So the EU-Ukraine bilateral DCFTA does not impose a false choice on Kyiv. Those who say so are wrong or may have their own agenda,” Hahn said.

The EU has been active and open to discuss potential Russian concerns, said Hahn, adding that the Commission was convinced that any justified Russian concern could already be addressed within the flexibility offered by the DCFTA as it stands. But he added that there was no possibility for renegotiating the agreement, as a large number of member states have already ratified it, or are in the process of ratification.

D. Phil. Michael Landesmann, representing WiiW and one of the authors of the 90-page report, argued that without proper negotiations including Russia, Moscow would inflict counter-measures following the entry into force of DCFTA. Such a response could include excluding Ukraine from the existing free trade agreement between the countries of the Commonwealth of Independent States.

‘From Lisbon to Vladivostok’

Landesmann made recommendations that trilateral trade talks including Russia are needed, that Ukraine needs to preserve its place in the Community of Independent states free trade area, and that ideally, a common economic space “from Lisbon to Vladivostok” should be established.

This idea of a free trade area from Lisbon to Vladivostok was in fact described by Putin back in 2010. In the meantime, Putin has built instead a Customs Union, as a backbone of a Eurasian Union, reminiscent of the former Soviet Union.

“Landesmann said that in the medium term, Ukraine’s market access to Russia and to the other CIS countries should be maintained, and that in the long run it was one of the advantages of this country to be a bridge between markets.

“In term of technicalities, remaining a member of the CIS FTA agreement is compatible with a continued participation and full implementation of DCFTA. There are (a) few issues to be negotiated, like mutual recognition of technical regulations, etc,” he said.

But he also said that with the continuation of the military conflict, it is very difficult to imagine a stable economic development of Ukraine. “Our basic scenario is that (if) the military situation gets contained, the optimistic scenario is a frozen-conflict one,” he said.

The Commission said on 14 April that a round of trilateral trade talks with Ukraine and Russia will take place in Brussels on 20 and 21 April, and that they would be followed very soon by contacts at the political level.

Background

An Eastern Partnership summit in Vilnius on 28-29 November 2013 ended with a major disappointment for the EU, as Ukraine’s president, Viktor Yanukovich, decided to put off the signature of a landmark Association Agreement (AA) with the EU, coupled with a Deep and Comprehensive Free Trade Agreement (DCFTA). Meanwhile, Yanukovich turned to Russia, obtaining a $15 billion loan and cheaper gas.

Following the news that their country had turned to Russia, pro-European Ukrainians staged protests which developed into a popular revolution to oust Yanukovich, who left the country abandoning power on 21 February 2014.

Russia however considered this a coup d’état, and has ever since sought to destabilise Ukraine. Ukraine’s Crimean peninsula was annexed in March 2014, and a ‘hybrid war’ is being waged in the Donetsk and Lugansk areas, which are no longer under the control of Kyiv.

Further Reading