The decision of the Ukrainian President Viktor Yanukovitch not to sign the Deep and Comprehensive Free Trade Agreement has plunged the EU into a deep crisis. Seen in its most positive light, this shock offers a potential “new start” for the policy. The EU should seize this chance.
The decision of the Ukrainian President Viktor Yanukovitch not to sign the Deep and Comprehensive Free Trade Agreement (DCFTA) has plunged the European Union’s approach to its Eastern Neighbourhood into a deep crisis. Seen in its most positive light, this shock offers a potential “new start” for the policy. The EU should seize this chance.
The DCFTA was to be the most comprehensive free trade agreement that the EU had ever negotiated with a non-member state. The signing of the treaty was intended to set a precedent for economic integration and alignments of standards for the whole region. The refusal of the Ukrainian leadership to sign the agreement after years of negotiation with the EU thus makes explicit how unenticing the EU’s offer appears to post-Soviet elites.
Simultaneously, the mass demonstrations in Ukraine demonstrate how deep the divisions between citizens and elites are. By focusing exclusively on the leadership’s (un)willingness to reform, the EU has been dealing the wrong partner for its modernisation programme. While the Ukrainian president is interested solely in the maintenance of the status quo, Ukrainian civil society hopes that closer alignment with the EU will bring better living conditions and political change.
President Yanukovitch used negotiations with the EU in order to try and drive Russia to improve its offer. Ukraine is currently in a precarious economic situation; the deputy Prime Minister Serhij Arbusov claimed that the country is threatened by bankruptcy if it doesn’t urgently receive a loan worth 10 billion dollars.
With one eye on the 2015 presidential elections, Yanukovitch needs (besides the loans) low gas prices. And it is Moscow, not Brussels, which is able to deliver both things to the embattled Ukrainian government. In comparison, the long-term modernisation and democratisation policy of the EU is for the short-sighted Ukrainian elite pretty unappealing.
The costs for a restructuring of the Ukrainian economy after a free trade agreement has been signed appear too high to the Ukrainian leadership – at least as long as there is no perspective of EU membership and the subsequent transfer payments. Here the EU either has to propose new offers or reduce its expectations. It is also unclear whether EU member states were aware of the full implications of the Association and Free Trade Agreement. In 2013, Ukraine had a current account balance and budget deficit of around 8 percent, moreover, the foreign exchange reserve shrank from 32 billion dollars at the start of the year to 18.8 billion in December. Even though the Ukrainian economy has been modernised in certain sectors, it is still marked by outdated industrial structures - and it is largely uncompetitive. With an opening of the market to European goods, the costs of adjustment would be enormous and unemployment would increase dramatically. Thus, even if the Agreement had been signed, it seems that public approval ratings in the Ukraine towards both further integration with the EU and President Yanukovitch would have drastically sunk.
A clear win for Russia
For Russia, the EU Association Agreement with Ukraine would have meant a setback for its own integration project in the post-Soviet region. The Customs Union with Belarus and Kazakhstan and the planned Eurasian Economic Union can only become politically relevant if Ukraine, the second-largest of the former Soviet republics, also signs up. At the same time, Ukraine is an important consumer of Russian gas and a prominent partner for the Russian aerospace, automobile, and military industry. A free trade agreement between the EU and Ukraine would have seriously affected the Russian economy and would therefore have weakened the Russian position in its own neighbourhood.
Moscow carried out a trade blockade in August in order to demonstrate to the Ukraine the consequences further integration with the EU would bring. As a result the EU miscalculated. It overestimated the attractiveness of its own offers and underestimated Russian capacity to exert pressure. In addition, the continued calls from Brussels for the release of Yulia Timoshenko, who is not an uncontroversial figure, have further slowed down the signature process. The European insistence on this as a condition of further co-operation undermined the EU’s credibility among the Ukrainian population, as Brussels failed to explain why it took such a tough stance against selective justice in Ukraine on this case in particular. All of a sudden, the EU found itself locked into a geopolitical conflict with Russia, which, unlike Brussels, pursues a clearly interest-driven foreign policy and is willing to make short-term offers to the Ukrainian government. Nonetheless, as it became clear that the Ukrainian leadership would not release Timoshenko, EU countries began making more and more concessions which discredited Europe’s normative approach.
Lessons from Vilnius
The EU member states have to decide what they want to achieve in their Eastern Partnership policy and if they are ready to reconcile it with what is feasible in the region. If the EU really aspires to bring democracy, rule of law and a competitive economy to its Eastern Neighbourhood, its needs to realise the high costs in resources and time which this policy requires.
The elites in those countries have no interest in increasing transparency, rule of law, and free elections. Therefore, it is not the powerful groups at the top who form the natural partners for the EU’s modernisation ambitions, but rather the population and civil society at large. EU foreign policy must make a much greater effort to recognise the divergent interests of elites and societies in post-Soviet countries; indeed, the inclusion of civil society into the reform process should become a central part of the EU strategy.
Given the huge discrepancy between the objectives of the EU and those of the post-Soviet elites, setbacks are unavoidable. These recent events should help Europeans to come to a more realistic assessment of the scope for development in the countries of the Eastern partnership. This would also avoid the over-the-top “summit-diplomacy” we witnessed in Vilnius; this approach is superficial and can only bring disappointments.
Even the current model student of the Eastern Partnership, Moldova, is still struggling with a corrupt administration and the economic self-interest of its elites. The country will also hold parliamentary elections at the end of 2014 or the start of 2015 and, according to current opinion polls, the Communist Party would win. The Communists have announced that, if elected, they would prioritise accession to the Russian-led Customs Union. The EU must realise that sustainable reforms demand the involvement of wider society, longer-term engagement, and high implementation costs.
Finally, if it has any hope of salvaging its Eastern Partnership project, the EU has to take into account the significance and implications of Russian interests in the region. Brussels is currently engaged in a trial of strength with Moscow - which the EU and several member states seemed resigned to - in order to see who is able integrate the region into their sphere of influence. The EU cannot, however, allow this competition with Russia to undermine its normative foreign policy approach. The strength of the EU is its appeal to the ordinary citizens in Eastern Europe and the Caucasus - not its allure to elite groups.
The EU must also find a forum which can dampen down the rivalry with Russia. On economic issues this could fall under the framework of the World Trade Organisation (WTO), and political questions could be addressed by the OSCE or the Council of Europe. The EU cannot concede veto rights to Moscow on questions of Europe’s approach to the Eastern Partnership countries, but it needs a format in which one can discuss common interests with both Russia and the EaP states. Sharp rhetoric merely serves to strengthen Putin and remains toothless when the fiery words are not followed by real consequences.
The European Council on Foreign Relations does not take collective positions. This commentary, like all publications of the European Council on Foreign Relations, represents only the views of its authors.