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Signing full EU Association Agreement at last: outlook Ukraine

23 Jun 2014 - 11:58

The political situation from the perspective of the European Union as well as from the perception of Russia. Speech held at an information meeting of the Netherlands-Ukrainian Council for Trade Promotion (NOCH) which addressed Ukraine’s current instable economic and political situation and possible consequences for Dutch companies that are doing business in Ukraine.

After a series of dramatic months since November of last year the situation on the political front has calmed down somewhat, although serious issues remain unsolved like the continuing instability and violence in the East of the country. The Kiev government feels compelled to seek a military solution to the power vacuum in parts of the East. A legitimate but risky policy.

Improvements

If one can be more positive now than say four weeks ago in the run up to the elections of the 25th of May, it is because the overall situation was more threatening then. What has improved?

First of all the presidential elections took place in such a way that the outcome can be considered as legitimate even though voting was not possible everywhere. Russia also accepted the outcome, which means it is prepared to do business with the new president which it was not with the interim-president. The next important step will be to hold elections for the Duma, the national parliament. These will hopefully add legitimacy to the government and the pro-European stance it has adopted.

What was not possible at the Eastern Partnership Vilnius Summit November last year – concluding an association agreement with Ukraine -  is now happening in two stages. The political part has already been signed; the rest (including the deep and comprehensive free trade agreement DCFTA) will follow at the upcoming EU summit at the end of June. Moldova and Georgia will also sign such agreements.

The Russian foreign minister Lavrov announced that his government will not oppose these steps but might have to adapt its customs rules as a consequence. Whether this means that Russia accepts that Ukraine will never join Russia’s own customs union with Belarus, Kazakhstan and Armenia, has not been said in so many words. Many in Brussels consider a DCFTA to be incompatible with that. How trade relations overall will be affected is somewhat unclear. I therefore welcome proposals to include Russia in one way or another in the implementation of the association agreement in order to avoid unnecessary trade restrictions in the future.

NATO has not been drawn into the conflict but it has limited itself to some political measures against Russia after the annexation of the Crimea. Military intervention in support of Kiev from its side is and was out of the question. NATO has been giving clear signals though that it will protect those Baltic states (and NATO members) that house significant Russian minorities.

One cannot avoid the impression that president Putin has chosen a less confrontational line and does not consider direct intervention in East Ukraine any more, at least for the time being. He has threatened to do so in the past to protect Russians and Russian speakers in East Ukraine.

But even though Ukrainian forces have been attacking Russian separatists, Moscow has nevertheless removed troops from the border area. And although Western sanctions remain in place, what was called ‘commemoration politics’ ( high level meetings in Normandy at the commemoration of the 1944 invasion) allowed for contacts between the different sides.

Serious risks

But not all is well. There is indeed reason for some optimism but in all three areas that were mentioned – the internal situation, relations with the EU and the Russia factor – there are still serious risks.

Ukraine is a country of unfinished transitions. The economy needs drastic reforms that will affect many people. What will their reaction be once they become aware of the price that has to be paid for IMF support? Oligarchic structures are still in place. Have we just witnessed another change within the same elite as we have seen in the past? Or will it be different this time? Will we see more transparent and less corrupt politics ? Will unhealthy relations between business and politics be dismantled? Will the country finally lift itself up towards European standards? Can one be 100% convinced that they will? Or that they might not take more time than is good for the country? The Orange revolution of 2004 also failed to achieve what it promised.

The answers will have to come from Kiev. Ukrainians will have to own their reform process but the EU and others can help by applying the right conditionality as part of the support package that should help modernise the country. The very least the EU can do is to engage more than in the past and give the new government the benefit of the doubt.

Even more urgent in the situation of today is the question of the sovereignty of Ukraine and the inviolability of its borders. Kiev does not control the whole country nor all the borders and will have enormous difficulty in establishing this in some areas where the majority are Russians. It is good that presidents Putin and Poroshenko agreed that the violence should be stopped. But what does that mean on the ground? What to do with the self-declared independence of two Eastern regions? Moscow has not excluded it will recognise it if an acceptable solution within Ukraine cannot be found meaning in fact very far reaching autonomy for Donetsk and Luhansk.

Border

It has been reported repeatedly that arms are being smuggled over the border which, if true, implies at least tacit support from Moscow. Kiev refuses to talk to the ‘terrorists’. But one can question the wisdom of this position. The OSCE (Organisation for Security and Cooperation in Europe) wants to include representatives of the Russians and Russian speakers, that rely on Russia, in talks about institutional reform and decentralisation in Ukraine. In a country as divided as Ukraine in the end only political solutions – thus dialogue – will work. These have to be found by the Ukrainians themselves without interference from outside, but will have to include a new frame in which Russian and Russian speaking citizens will also feel safe.

The EU will have what it originally proposed: the Association agreement. In the end Russia failed to block it. In Kiev there is now a pro-European government. But it comes with a price. First of all financially: the EU will have to offer huge financial assistance. How and how much exactly will become clear in the coming months. It has no alternative.

Then there is the political dimension of the relationship. As in 2004, there is the expectation that the EU as a next step will create the possibility for Ukraine to join it. But now as then, EU leaders are not prepared to go in that direction. In order not to further aggravate Russia – although this will not be openly admitted – but even more because of a negative public opinion at home, it is not on any official agenda. NATO membership seems even further away but anyhow is much less popular in Ukraine. So it ends for the foreseeable future with association and free trade. Important steps. But cooperation, not integration.

That will limit the leverage of the EU. The pro-European transformation process will not be as irreversible as the reforms were in for example neighbouring Poland that acceded to the EU in 2004. In my view that is only the case when a country goes through all the steps: association, candidate status, negotiations, membership. We basically say to the Ukrainians that if they reach the level of say Norway, they might have a chance of joining.

One of the lessons learned – again one could say after distribution problems in the past – is that energy dependence hampers political independence. How to make the EU (or EU countries) less vulnerable in situations like we witnessed the last months should get high priority of the new EU Commission.

Russia factor

Then again there is the Russia factor. Will Russia really accept the change of course of its neighbour? And not interpret it in terms of a zero sum: what they win we lose! Even though Moscow seems more cooperative now, we should not forget its fury some months ago when Ukraine intended to sign the EU agreement or the annexation of the Crimea. Then many were convinced that Russia would do almost everything to disrupt Ukraine and derail its pro-European orientation. It still has the means to do so at its disposition: the energy weapon, trade restrictions, interfering with Kiev politics, supporting separatist elements in the East and so on.

Have the Russians however become afraid of the economic and political damage - and more sanctions - if it would use these instruments (more) openly? Has there really been a change of heart and an end to certain post-soviet dreams and ambitions? Or is it wait and see now in Moscow because they think time is on its side because the Kiev government will fail to solve Ukraine’s problems as its predecessors did? Recently the conflict about payments of gas deliveries between Ukraine and Gazprom escalated again. Is this part of a Russian strategy to damage the new Kiev government?

So many uncertainties remain. But we should support the new government and try to include Russia in a process to make the region more stable. The EU is not without means. What should be done?

First and foremost stand for a sovereign and independent Ukraine.

Help strengthen democracy and the rule of law.

Promote transparency in politics and Ukrainian society.

Help improve its economy, exploiting the opportunities of the DCFTA and thereby creating a better business climate.

Keep defending the basic rules and principles of OSCE and Council of Europe: cooperation and dialogue, common security, respect for borders, protection of minorities and so on.

Engage Russia but not at every price ( no zero sum approach).

Look after Moldova and Georgia so that these countries feel more secure.

Assess better where interdependence interferes with independent action and how to avoid it.