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  Ukraine, Customs Union and EU

Vadim Volovoj, Doctor in Political Sciences
2011 05 30

The economic and geopolitical future of Ukraine has again become the focus of attention. Kiev has two choices: to join the Customs Union (CU) patronized by Russia or to complete the Free Trade Zone negotiations with the EU. According to Ukrainian authorities the priority is given to European integration, but the country also seeks cooperation with the CU (i.e. with Russia) which is beneficial for Ukraine. What results can we expect?

In order to answer this question it is necessary to define the interests of all parties and evaluate their determination to reach the set goals. Let’s start from Russia. When Moscow established the Customs Union, Ukraine’s potential participation in Union was not discussed, but today the Kremlin is requiring Ukraine to become a full-fledged member of CU. In fact, the CU project is part of Russia’s plan to bring back its influence in former USSR states, and the role of Ukraine is instrumental. Long time ago geopoliticians Z. Brzezinski (USA) and A.Dugin (Russia) said that Russia will not have a new empire without Kiev. Kazakhstan joined the CU project on a voluntary basis, Belarus couldn’t resist pressure, Ukraine was the only country which caused problems. Thus, the country understands what is behind Moscow’s pressure. According to Jan Pekla, chairman of Polish-Ukrainian Cooperation Foundation, “Ukraine is very important for Putin. The efforts of Russia, Kazakhstan and Belarus to establish a Single Economic Area (SEA) as a counterweight to the EU will not make any sense without Ukraine. In order to reach the goal, Putin will use all possible measures: from threats to increase the duties for the Ukrainian goods to the political pressure and promises to reduce gas prices”.

Position of the EU regarding Ukraine is quite clear. Today the EU is too “tired” of the expansion to accept such a problematic partner as Ukraine. Besides, the Europeans will hardly want conflicts with Russia which will do everything in order to calm down the EU’s ambitions via Paris and Berlin. Since the West was indifferent toward the last presidential elections in Ukraine, Kiev might be “returned” to Moscow. There is no doubt that Europeans, the same as Russians, will have a strong position toward Ukraine and will sign a free trade zone agreement with Ukraine only under favorable conditions or will not sign it at all.

In view of the above, Ukraine has to be very pragmatic and forget the dreams about Euro integration and the myths about the brotherhood of the Slavs. From the economic point of view the integration to Customs Union proposed by Putin seems to be better from short-term and long-term perspectives. First of all Ukraine could negotiate lower gas prices (which is instrumental for the country) and require certain guarantees concerning gas transit to Europe. In exchange it would probably be necessary to sacrifice the Ukrainian gas transport system but then there will be no need for the country to modernize the system. Secondly, by signing the Free Trade Zone Agreement with the EU Ukraine could double its export toward this direction. How to achieve this goal? The European market of agricultural products has been divided and subsidized long time ago. Ukrainian industry under EU conditions is also uncompetitive. In general, the Europeans don’t need Ukrainian goods (with the exception of raw materials, e.g. metal), what the EU needs is the Ukrainian market. According to Putin, after joining the Customs Union Kiev would be able to increase the annual income by 6,5-9 billion USD and Ukraine would immediately gain 1,5-2 percent in additional GDP growth. Gazprom Deputy Chairman Valery Golubev said that reduced gas prices could save 8 billion USD per year if Ukraine joins the Customs Union (elimination of oil duties would give another 3 billion). Besides, differently from Europe, Russia needs Ukraine’s industry (e.g. aviation).

Certainly, Kiev’s membership in the CU is nothing but a perspective to part from the independent economic and foreign policy, but are there any other alternatives? The EU doesn’t give any promises in relation to membership or privileges. Another serious argument: maybe Ukraine should try and break the historic tradition of dependence on Russia? But Youshchenka has already tried to do that and the country appeared on the verge of civil war. Besides, nobody will give cheap gas and it’ll be necessary to borrow money for economic reforms. But Ukrainian oligarchs don’t care about the reforms. The only thing they need today is cheap gas and profit but not a bright European future.

V.Yanukovich is still trying to play games with EU and Russia. But he will have to make a choice since Putin is pushing and winter is coming. Most probably some day Ukraine will join the Russian SEA. Although Ukraine’s membership in the WTO will complicate its accession to the CU, Russia could cover all the costs. It realizes the strategic benefit of Ukraine’s membership, thus Russia shouldn’t spare the money. 

According to Jan Pekla, mentality of the Ukrainian elite is closer to the well-known Russian standards. “Here they are well aware of the rules of conduct, whereas in Brussels, Paris, Berlin and London they feel uncomfortable. They perceive democracy and the rule of law more as Russians than Europeans (…)”. Thus, in the future Ukraine would probably lead the Russian rather than European way of life.

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