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26/08/2016

Special Report: Russia, Ukraine eye customs union with EU

Europe's East

Special Report: Russia, Ukraine eye customs union with EU

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Russian and Ukrainian officials said their relationship with the EU could take the form of a customs union in the next 15 to 20 years, with Russia admitting it was willing to get closer to the Union "as far as possible," excluding only membership.

A panel discussion at the European Business Summit in Brussels yesterday (18 May) took the form of a visionary brainstorming session, resulting in a rather consensual view that Russia, Ukraine and the EU would eventually forge a common economic area in the long run.

Oleg Fomichev, Russia's deputy minister for economic development, said Moscow shared the EU's values and had no problem whatsoever in deepening its relations, including at a political level.

"We want to go as far as possible without being a member of the European Union," he said. Considering Russia's size, which is three times that of the EU, Moscow could not possibly be considered as a potential future EU member, he explained.

Regarding a possible customs union, Fomichev said that a period of 10-15 years was necessary for negotiations, but also for introducing regulations and boosting the competitiveness of Russian industry.

"If you integrate without being ready, you can ruin the whole thing," he warned.

Fomichev described three stages in the development of Russia-EU relations. In the short term, a visa-free regime should be put in place, he said. In the medium term, the Russian official said a free-trade agreement (FTA) should be introduced, and in the longer term, "maybe in  20 years," a customs union could be set up.

EU relations 'a key priority' for Ukraine

Valerii Pyatnitskiy, deputy economy minister of Ukraine, said relations with the EU were "one of the key priorities" of his country, admitting that a customs union could be set up in the next 15 years.

However, he appeared to indicate that an even closer relationship with the European Union would be possible in the longer term.

"In 10 or 15 years, it won't matter if it is a customs union or another form of integration," he said.

The official also outlined his country's European agenda, saying he hoped that Ukraine's Association Agreement with the EU would be finalised this year.

"We believe that this will be an absolutely comprehensive type of relations. We are talking about the political dimension, justice and home affairs, sectoral cooperation, the establishment of a deep and comprehensive Free Trade Area, about a visa agreement, about approximation of our legislation, and improving the capacity of our institutions and the capacity of our business to compete on the EU internal market," he explained.

Two prominent representatives of the business community who participated in the panel concurred with the idea that putting in place a customs union would take about 15 years.

Andrew Cranston, senior partner in Russia at consulting firm KPMG, said that some sectors of the economy needed time to adapt.

Energy Commissioner Günther Oettinger, who also participated in the debate, insisted that Russia's gas pipeline projects that bypass Ukraine – Nord Stream and South Stream – were "not a solution".

He said that today, 100% of Russia's gas to the EU transited through Ukraine, and "tomorrow", with the pipelines operational, this proportion would rise to 50%.

At the moment, Russia's main economic activity is to produce energy, while Ukraine serves as a transit partner and the EU acts mainly as a buyer, Oettinger pointed out.

"We need a next level, meaning competition, meaning joint ventures, meaning reverse flows, meaning innovative partnerships, EU technologies used in Russia and Ukraine for energy saving," he said.

Georgi Gotev

Positions

Russian President Dmitry Medvedev took to the stage on 18 May in Moscow in a televised conference, signalling what the international press saw as a clear desire to be seen as an independent, no-nonsense world leader.

Speaking at a business school in the Moscow suburb of Skolkovo - one of his pet projects - Medvedev said his view of Russia's modernisation differed from that of Prime Minister Vladimir Putin's.

"He believes that modernisation is a calm, gradual movement," Medvedev said. "But I think that we have a chance and enough forces to conduct that modernisation faster," he added.

He added it was too early to announce his election plans.

Putin and Medvedev have been evasive about their plans for next March's presidential elections. They both have said they would decide later whether they would run, but most analysts expect Putin to reclaim the nation's top job.

Medvedev also said that should it choose to integrate with the EU, Ukraine would find it more difficult to find common "points of convergence" with the Russia-Kazakhsan-Belarus customs union.

"You can't sit on two chairs, you should make a decision." However, he said he was not against that and that Russia was developing cooperation with Europe as well.

Background

Russian Prime Minister Vladimir Putin said that Russia and the European Union, which accounts for half of Russia's foreign trade, should have a common industrial policy and called for technical regulations and customs rules to be unified.

Putin said his country is proposing "a harmonious community of economies from Lisbon to Vladivostok".

However, Russia considers that European legislation aimed at liberalising energy markets could hinder investment and undermine future cooperation with the European Union.

Moscow hinted that limiting Russian investment in the EU could prevent asset swaps that could give European energy companies access to Russia's vast energy reserves.

For its part, Ukraine is engaged in negotiations to secure a "deep and comprehensive" free trade agreement with the EU, as the country's foreign minister, Kostyantyn Gryshchenko, recently said in an interview with EurActiv.

Gryshchenko also said that his country wanted to open trade with Russia, Kazakhstan and Belarus.

Moscow has long urged Kiev to join the union whose other members, Belarus and Kazakhstan, agreed last year to bring their foreign trade policy in line with that of Russia and open up their markets to Russian goods.

The position of Ukraine, however, is that it wants both a free-trade deal with the EU and Russia.

Russian gas export monopoly Gazprom said last April it would treat Ukraine as a domestic consumer, cutting its gas bills by $8 billion (€5.59 billion) per year, if it joined Russia, Belarus and Kazakhstan in a customs union.

Timeline

Further Reading