Ukraine, Moving East or West?

Guest Blog by Anna K. Duszczyk.

Hundreds of thousands of people took the streets of Ukraine in these past few weeks to participate in the country's largest street demonstrations since the Orange Revolution in 2004. In these previous ‘Orange’ protests, the masses demanded new fair elections, challenging the fraudulent second round of the 2004 elections, after which pro-Russian presidential candidate and current president Viktor Yanukovych appeared to be the winner. This uprising paved the way for the pro-European government of Viktor Yushchenko, which during its four-year term was not able to fulfill the Orange Revolution’s main goal: further European integration. Together with further economic and political turmoil during Yushchenko’s presidency, this created the ideal environment for Viktor Yanukovych to take power in early 2010. But now, during his third year in office, he is facing mass protest yet again. And this time again what is at stake is further European integration. Riot police have begun to fight the protesters who want Kiev to move closer to the European Union, as Yanukovych is stressing the need to deepen trade ties with Russia.

The European Union versus a Eurasian Union

Although Yanukovych has claimed many times to seek good ties with Russia and the EU simultaneously, it seems that by refusing to sign the Association Agreement (AA) and Deep and Comprehensive Free Trade Agreement (DCFTA) with the EU last November, the power balance is tipping towards Russia. As an alternative to further EU integration, Russia has been actively promoting Ukraine to join the Russian-led Customs Union with Belarus and Kazakhstan, which in the future could progress towards a further integrated Eurasian Union. Although Yanukovych has not yet stated that Ukraine will join, he has started to negotiate with Russia about economic assistance. Moscow agreed to buy fifteen billion dollars in Ukrainian debt by investing in its national welfare fund and give Ukraine a discount on gas imports. Action plans in various areas such as industry, transport, agriculture and defense were also agreed on. Yanukovych and Putin signed the deal on December the 17th.

Ukraine, Moving East or West 01Although the Customs Union is not on the agenda officially, by not signing the AA-DCFTA with the EU, Yanukovych leaves the door to Russia open. In the past, Russia has claimed that the Customs Union would give Ukraine immediate economic benefits, unlike the DCFTA, which has a phase-in process and will not provide access to the EU market for all Ukrainian products immediately. Furthermore, the EU cannot give Ukraine the benefit of cheap gas, which Russia is willing to offer. On top of that, the Customs Union would allow Ukraine to maintain access to the Russian market, particularly important for the export Ukrainian agricultural products. Russia has pressured Ukraine with trade barriers in the last couple of months, and it is possible that the bureaucratic measures that Ukraine faces are a penalty for not being in the Customs Union. Russia has stated that some Ukrainian agricultural products would be subjected to quota even under the DCFTA, while siding with the Customs Union would offer Ukraine wider and more secure market access. Other arguments Russia uses to persuade Ukraine not to sign the AA-DCFTA are loss of sovereignty, the financial and economic costs of convergence with EU norms and standards and weak position Ukraine has vis-à-vis the EU. 

Although relations between the EU and Ukraine may not be progressing right now, Ukrainian Deputy Prime Minister Serhiy Arbuzov has said that the country will continue to discuss the signing of the AA-DCFTA with the EU in the future. The EU has also claimed that the door will remain open to Ukraine. But it seems that to make Ukraine walk through that door, the EU will have to acknowledge the costs that Ukraine will have to bear, economically and politically, and meet Ukraine’s specific needs. Although Catherine Ashton has said that the AA-DCFTA could bring Ukraine the kind of investment it needs to satisfy the country's short-term economic and financial needs, it seems that by investing in Ukraine’s national welfare fund and providing Ukraine with a discount on gas imports, Russia is more capable of doing so.

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