Ukraine must get off the fence when it comes to its relations with Russia and the European Union.
Hopes that an EU-Ukraine association agreement, including a deep and comprehensive trade agreement, might be signed at the November Eastern Partnership summit in Vilnius are fading.
Meanwhile, Ukraine’s negotiations to become an observer in the Customs Union of Russia, Kazakhstan and Belarus have just been concluded. Brussels sees any arrangement with Russia on trade as incompatible with the association accord, as it would hamper the proper implementation of crucial liberalisation provisions.
Are these two-sided tactics by Ukraine aimed to get the best possible deal from Brussels? Or is there a genuine option of Ukraine choosing the east over the west and forsaking its European perspective to the detriment of its own interests and those of the EU?
Russia, which is notorious for exerting pressure on Ukraine through its energy policy, is linking the outcome of the Customs Union summit in Astana where Ukraine was granted observer status, with the pursuit of own energy interests in Ukraine. It is pressing for the creation of a gas consortium in Ukraine, in which Gazprom would hold a decisive stake, thus taking control over Ukrainian gas infrastructure and exclude any EU presence.
Should this scenario materialise, it would run counter to the EU’s rules for free third-party access, enshrined in the Third Energy Package to which Ukraine isalready committed via the Energy Community Treaty.
It would also significantly undermine the EU’s security of supply. Let us not forgetthat over 60 per cent of Russian gas imported to the EU, equivalent to over 15 per cent of EU gas needs, is delivered through Ukraine.
Gazprom control over these pipelines would clearly put the EU in a vulnerable position. It would also be detrimental to the interests of Ukrainians – irrespective of the actions of their government. Some 60 per cent of citizens oppose givingup control over their gas transmission system to Russia.
As far as economic impact of either a customs union with Russia or with the EU is concerned, the likely outcomes are clear.
An authoritative study of the Ukrainian Institute for Economic Research and Policy Consulting shows that a Russian deal would actually cumulatively decrease Ukrainians’ welfare by 0.5-3.7 per cent GDP, inter alia due to the higher costs of imports from the EU as a result of a surge in tariffs, as well as trade diversion in favour of Russia, Belarus and Kazakhstan.
Meanwhile, an association and deep trade agreement with the EU would, it is estimated, cumulatively increase Ukraine’s GDP by as much as 11.8 per cent in the long-term. A free trade agreement with the EU, rather than with Ukraine’s eastern neighbours, would aid the modernisation of the country’s economy, facilitating technology and business innovation.
A free trade area between the EU and Ukraine can also bring benefits that go far beyond regular trade relations, with improved cross-border infrastructure and a strengthening of Ukraine’s institutions.
This would facilitate the EU’s policy of making Ukraine a European gas hub and promoting investments in strategic infrastructure, beneficial for both parties. In terms of energy, cooperation on the exploration and exploitation of indigenous energy resources, and of shale gas in particular, would present many opportunities for investors.
While the largest trading partners of Ukraine – Germany, Poland and Italy – would stand to benefit the most from increased economic ties, the strong regulatory dimension of the association and deep trade agreement would mean reforms and improved conditions for investment, improved business climate and ensured legal certainty for businesses from all over the EU.
The economic, strategic and energy security case for closer integration between Ukraine and European Union wins hands down.
Our Ukrainian partners would be wise not to overplay their game. European business people, who understand the benefits of market integration with Ukraine and who know the obstacles they face in Ukraine, should encourage Kiev to make the right decision. They should remember the possible negative impact of any Ukrainian trade pact with the Customs Union of Russia and its partners.
There is a useful role here for high-level conferences bringing together politicians, media, business and academics, such as the Wrocław Global Forum co-organised by the Polish Institute of International Affairs later this month.
European policy makers should demand that Ukraine finally picks one side of the fence.
Jacek Saryusz-Wolski is a former Polish Europe Minister and Chair of the Foreign Affairs Committee of the European Parliament. He is a member of the Council of the Polish Institute of International Affairs.
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