Russia has arguably won its trade war with Ukraine, at least for now. After months of punitive measures because of Kiev’s desire to choose joining the European Union over the neo=Soviet Customs Union, last week the Ukraine suspended its move to join the EU.
The move has been highly unpopular in the Ukraine, and protesters have taken to the streets to demand that Ukraine restart its pursuit of the EU.
Viktor Yanukovych, Ukraine’s president, entered into secret talks last week with Russian President Vladimir Putin. At the time, there was speculation that Yanukovych was trying to get Putin to end the trade war and allow Ukraine to move to the EU. If that was the goal of the meeting, then the meeting seems to have failed. As a result, the Ukraine has appeased Russia, though as the article below illustrates, perhaps not permanently. Russia’s trade war has cost Ukraine billions of dollars, and a move to the EU would cost many billions more. Some now suspect that Ukraine is slowing the move to the EU in order to increase what it would be receiving out of the deal in order to mitigate these costs. In other words, Russia’s trade war may have not only cost Ukraine billions, but may have raised Ukraine’s price tag as well. – Ed.
“The decree was passed for the purpose of more detailed study and development of a package of measures that Ukraine must complete in order to renew volumes of production and the directions of trade and economic relations with the Russian Federation and other members states of the CIS, and the formation of the relevant level of the domestic market which will ensure parity relations between Ukraine and EU member countries, that is the basic principle of international law and fundamental economic security of the country,” the report said verbatim.
Under the decree, the Foreign Ministry and the Ministry of Economic Development and Industrial Policy are assigned to propose to the EU and Russia the creation of a tripartite commission for discussion of a set of general questions including those concerning “the expansion and promotion of international trade, further liberalization of markets and approval of a regulatory basis of issues for improvement of conditions for conducting business.”
The ministries referenced were assigned to “restore active dialogue” with the Russian Federation and the Customs Union on the renewal of trade and economic ties.
Finally, five ministries must make changes to state and industrial programs in order to develop “trade, industrial cooperation and exchange of technologies with the countries of the CIS.” In a separate resolution, the Ukrainian Cabinet of Ministers will prepare proposals to develop free trade zones within the CIS, and also access to pipelines within the CIS. A draft of such an agreement must be proposed and reviewed at the CIS summit in Kiev, which will take place in May of next year. Moreover, Ukraine, as chair of the CIS in 2014, is initiating the drafting of a document that “details and regulates the issue of justified application of certain restrictions in trade” among the countries of the CIS. The position of the Cabinet of Ministers was later commented on by Vice Premier Yury Boyko, head of the group of negotiators with Russia.
Ukraine won’t be compensated by the EU
“The process was suspended because Ukraine did not get a clear signal from the European side regarding compensation of the losses which Ukraine would suffer from complication of relations with the CIS. The government employed exclusively national interests, the interests of preserving work places, raising the country’s economic stability, raising the productive potential and other tasks aimed at securing decent social standards of living for our people,” said Boyko. Earlier, we will recall, the Ukrainian prime minister and a number of officials publicly complained about the fact that transitioning to EU standards for Ukrainian industry and also other losses and expenditures would cost Ukraine a sum of from 160 to 500 billion euros. However, Europe responded to the demand for compensation with a refusal.
Boyko also announced that Ukraine also couldn’t count on the funds of the International Monetary Fund (IMF), a freezing of cooperation with which would have been one of the consequences of signing the EU association agreement.
“We didn’t count on the IMF funds, since the key demand of the fund which was expressed in the last proposal was the raising of tariffs on utilities by 40%. The position of the president was that we could not shift the terms of a shackling agreement which was signed by the previous government on to the shoulders of our people. Therefore there would be no raising of tariffs,” the Ukrainian vice premier noted. Interestingly, several hours before these statements, representatives of the IMF announced that even the signing of an agreement about association [with the EU] would not be a guarantee of the start of new talks on loans.
Ukraine still moving towards Europe?
It is noteworthy, however that simultaneous with the decision of the government to suspend preparation for the association with the EU, President Viktor Yanukoych, on a visit to Austria, made a statement that the European direction of Ukraine was unchanged.
“Ukraine has been going and will continue to go in the direction of a European integration. The further along, the more obstacles, but we aren’t afraid of it. We have confidence and conviction that we are going on the correct path,” Yanukoych told journalists in Vienna.
The EU has already reacted to such a sharp turn-around. Alexander Kwaśniewski, the European Parliamentary observer in Ukraine and former president of Poland, stated outright that nothing would be signed in Vilnius now. The Ukrainian opposition, for its part, demands an explanation from the government, and in particular, an answer to the question of whether the summit in Vilnius would take part with Ukraine’s participation, and threatened the president with impeachment in advance.
Vladimir Fesenko, head of the Penta Center for Applied Political Research:
“In the suspension of the preparation for signing there is an element of bargaining, because no one is talking yet about joining the Customs Union. But now that bargaining will move to a fundamentally different, strategic level. Ukraine has essentially declared the beginning of a reset of its foreign policy. Obviously, if some miracle doesn’t happen, if the USA or the EU don’t make an offer that Kiev can’t refuse, then at the Eastern Partnership summit in Vilnius, nothing will be signed. There is a likelihood of more than 90%.
What’s fundamentally new is a “plan B” from Yanukovch – this proposal to come to an agreement in a tripartite format, even as essentially junior partners. Ukraine is once again turning toward a proven strategy of balancing and subduing passions. On the part of the Europe there will be annoyance, there will be a pause, but there will hardly be sanctions and the talks will start anew anyway. Ukraine is proposing to find a non-conflicting balance of relations, and is proposing to Europe and Russia to speak directly about Ukraine. For Yanukovch today, this is the only chance to propose something like this, because he categorically does not want a worsening of relations with Russia. He is taking a time-out, freezing the situation, and further on, it will turn out as it will. If a non-conflictive withdrawal from the attempt to grow closer with Europe will be found, if the acuteness of the issue will be removed, then Yanukoych has a chance at the presidency. For the opposition, it’s also a kind of chance, it will go to the elections under slogans of a new signing of the agreement on association.
Mikhail Pogrebinsky, director of the Kiev Center for Political Research and Conflict Studies:
“Even after such news, with our officials, you can never be sure of something 100%. My sense of this according to what I know and understand is that it is not a question of turning the vector toward the Customs Union, but about rejection of the movement toward Europe without an alternative. Here it is important to admit that movement only toward Europe, to the detriment of relations with Russia, is counterproductive today, and it is impossible to sacrifice it, it is like death. Because it would be impossible to go on living like that, we lost a fourth of our trade turnover and it was getting worse for us with each passing day. I don’t think that the EU will react harshly. Of course there are many who are disappointed now, but they will not burn bridges. One way or another they will listen to the proposal for the tripartite format in Brussels. But with [Yulia Tymoshenko, the imprisoned former President of Ukraine ], the question remains open. It is possible that on the wave of conciliatory rhetoric and rapprochement of the positions of the sides, she will go to Berlin. In any event, she will not serve seven years and will likely be released in 2015, after the presidential elections, no matter who becomes president.