Ukraine: Between a rock and a hard place

Ukraine is caught in a vice between the European crisis and Russian pressure, however, the formation of a Free Trade Area would be mutual interest to both Kyiv and Brussels with the added effect of shoring up the Ukrainian economy against Russian absorption, argues Viktor Tkachuk.

Viktor Tkachuk is the director-general of the Ukrainian Foundation for Democracy "People First". He has over 20 years of experience working in governmental bodies at the highest levels including the administrations of three presidents since Ukraine's independence.

"With exports to the European Union and CIS markets currently holding steady, the Ukrainian government has been enabled to secure stability in the social sphere for the immediate future.

According to the Ukrainian State Committee for Statistics, Ukrainian exports for the first two quarters of 2011 have amounted to $39 billion, an increase of 39% on the same period 2010.

The analysis shows $15 billion in exports to CIS countries (of which Russia takes the lions share claiming 28% of Ukraine's total exports) and $11 billion in exports to the EU, coincidentally matching Russia's 28% of total export. Imports also show a slight eastward bias, with 48% of goods imported to Ukraine coming from CIS countries and 30% from the EU.

Ukraine faces two main threats. The first issue concerns the potential development of further economic crises across the territory of the European Union. The situation regarding the unreined state debts of Greece, Ireland, Portugal, Spain and Italy, in conjunction with the potential devaluation of the euro, threatens to destabilise the Eurozone with the knock-on effect of an export decline for Ukraine. The resulting impact upon the Ukrainian economy is likely to be immediate and traumatic.

The second threat is that of persuasive pressure, of Russian origin, for Ukraine to join the Customs Union of Russia, Belarus and Kazakhstan. This might ultimately lead to Ukraine being drawn into the Unitary Economic Space, which the Union's member states will implement as on 1 January 2012.

IfUkraine opts for such a route it is fair to suggest that we may see Ukraine's inclusion into the Collective Security Treaty Organisation (CSTO); the Russian answer to NATO. Should events follow this tack, the possibility of economic support from a Free Trade Area with the EU or collective Euro-Atlantic security support would be utterly dismissed.

Since mid-2011 Russian actions towards Ukraine have resembled acts of 'economic warfare'. Customs Union signatories are currently exercising a ban on the meat and dairy exports of over 30 Ukrainian producers. New restrictions on the export of Ukrainian confectionery and sugar have recently been introduced. Ukrainian chemical, metallurgical and industrial piping enterprises, which are Ukraine's largest exporters, are already experiencing similar restrictions over export to Russia. Russian gas however remains the most potent tool for political pressure.

Within this context, the development of the Ukrainian economy and politic rest upon the decision of president Yanukovych and his administration regarding the selection of a priority trading partner – who shall it be, Russia or the European Union?

Occasionally from the Ukrainian perspective Europe seems to treat Ukraine as little more than a bargaining chip in Euro-Russian relations, due to the absence of the unitary position.  In the interests of individual European states, the development of relations between the EU and Ukraine can be seen as a tool for softening of Moscow's attitude towards Europe. Russia in fact utilises the differences between the foreign policy approaches of the EU member-states in order to slow down the process of Ukraine's European integration.

From our perspective, Kyiv choosing to favour Brussels would produce the optimum gains for both Ukraine and the EU. Such a relationship would not only secure trade relations in the form of a mutual Free Trade Area, but would also equip Brussels with an effective channel for counteracting Russian attempts to impose political pressure upon Eastern European states through economic means.

Internally there would be a marked positive effect - the Ukrainian authorities would be forced to direct Ukraine's development in accordance with various European standards and norms, particularly in terms of democracy and human rights.

Inclusion of European investment and technological innovations into Ukrainian industry, especially mechanised production platforms, would also bring significant local benefits. However the relationship needn't be seen as one-way, for example Ukrainian atomic energy could partially compensate for the closure of the German atomic power stations. 

In this case, within a 1-3 year timeframe Ukraine is capable of becoming a fully-fledged, democratically governed Eastern European state. Existing not only as a reliable partner to the EU, but also as a mirror of its values, norms and principles.

A reduced economic cooperation with Russia will likely be the price Ukraine has to pay for its integration into Greater Europe, with a corresponding negative impact on the economies of both sides.

It is conceivable that Moscow will not want to let Ukraine slip from its grasp without a struggle resulting in the exertion of political forces at many levels to either tempt or force Ukraine away from the European family. However, with firm political vision and steadfast support from the EU, Ukraine can rapidly implement Europeanisation at many levels.

Moreover, a truly democratic neighbour upon Russia's doorstep might prove instrumental in the gradual democratisation of Russia itself, the benefits of which would be felt in Europe and beyond."