Ukrainian oligarchs invest heavily into Yanukovych’s rule (in exchange for subsidies, tax exemptions, etc.) and make functioning of the regime possible. They thus could be made co-responsible for the recent violations of democratic norms in Ukraine. U.S. sanctions might bring some direct damage to trade flows, but they would be harmful first of all in terms of downgrade in financial ratings of the Ukrainian companies. It is the EU sanctions that, if imposed, would hurt Ukrainian oligarchs the most. Their companies sell the lion’s shares of their goods to EU market. Furthermore, as the effective rule of law in the West protects property rights much better than any close ties to Ukrainian politics, they prefer to save the accumulated capital and hold properties in the EU. The EU’s sanctions might make further support of Yanukovch’s regime for them extremely costly.
The West seems to play a waiting game, however. The Obama administration announced that it might consider sanctions among its policy options if the Ukrainian government continues its crackdown on protesters. Despite some informal talks on possible “smart sanctions” if police brutality against peaceful demonstrators escalates, the EU officially still prefers a dialog with Ukrainian authorities. After her visit to Kyiv in December last year, Catherine Ashton, Vice-President of the European Commission, reaffirmed the need to find a negotiated solution to the current political stalemate and a dialogue between the different stakeholders. The EU keeps “blaming and shaming” Ukrainian authorities in an attempt to urge them to protect people’s right to peaceful rallies and freedom of expression of journalists and other civic activists.
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However, the EU has a great room for sanctions at its disposal. Being primarily considered as a “soft” or “civilian” power, since 2010 the EU started to increasingly fall back on so called “democratic sanctions”, i.e. restriction measures imposed as a reaction to violations of democracy and human rights. Targets of such sanctions could be both governments of third countries or non-state entities and individuals. The sanction tool-box varies from diplomatic instruments (expulsion of diplomats, severing of diplomatic ties, suspension of official visits, visa or travel bans) to economic ones (import and export bans, withdrawal of tariff preferences, freezing of funds and accounts, prohibition on financial transactions, restrictions on credits or investment). In view of the EU’s economic significance for Ukrainian elites and oligarchic groups, the application of such “democratic sanctions”, in particular broad sanctions targeting particular sectors (steel, machinery), might be a powerful tool at the least to stop the rollback of democracy in Ukraine.
However, “democratic sanctions” might also have their negative impacts, which the EU is apparently considering:
1) A decision on “democratic sanctions” requests unanimity from EU member-states in the EU Council. As the business and assets of Ukrainian oligarchs have already become important investment in some economies of EU member-states, it is unlikely that agreement on restriction measurements could be found soon. Once the talks on possible sanctions start in EU institutions – if they do - the failure to reach any consensus on sanctions would damage the EU’s foreign policy image.
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2) EU sanctions should target as closely as possible individuals and entities responsible for the undesirable policies and actions. Oligarchic companies or companies of their straw men could be made responsible for democratic violations only indirectly. Their responsibility would be difficult to prove, especially if pro-EU rallies are infiltrated by such provocateurs as “titushky”. Moreover, restrictive measures on trade flows might also run counter to the EU’s international obligations and agreements with Ukraine within the WTO. Therefore, legality of sanctions against Ukrainian political and business elites could be claimed in court (indeed, some Belarusian straw men companies of Lukashenka currently plead a case of EU bans against them in EU courts). Furthermore, Ukrainian oligarchs are known for their diversification strategies in supporting regime and opposition simultaneously. So, drawing a line between pro-regime and pro-opposition oligarchic companies might be difficult, especially for sanctions targeted against specific sectors of economy.
3) EU mechanisms to enforce, coordinate and monitor sanctions are weak; these functions are left to national authorities of EU member-states. Belarus’ elites have sometimes used these weaknesses to bypass EU sanctions (especially sanctions with narrow targets – a dummy company was sold or moved to another EU state; a straw man was replaced by another) in the past.
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4) EU sanctions are often regarded by experts as “shooting in the dark”, as their effectiveness is uncertain. Sanctions promise to be more effective, if they target the whole economic sectors. However, these are not elites, but ordinary citizens who might ultimately suffer from such sector-focused sanctions. Narrow EU sanctions as imposed on Ukraine’s neighbor Belarus are regarded by observers as highly ineffective, as they hardly damage Lukashenka’s rule. Quite on the contrary, they added legitimacy to Lukashenka’s regime and weaken the positions of pro-EU forces, as EU sanctions (and not mismanagement of the ruling elites) may be blamed for economic troubles and financial crises. In addition, EU sanctions have not led to more democracy in Belarus; they have not even prevented further repressions against opposition and civic activists by Lukashenka.
5) After Vilnius, EU policies for Eastern Neighborhood should take Russia into account more seriously. The aggravation of Ukraine’s economic situation through sanctions would further push the country into Russia’s arms.
All in all, nobody in the West wants Ukraine to turn into another Belarus.