The pause in European integration makes Ukraine ever more vulnerable to Russia’s economic pressure
On December 30, 2011, Mykola Azarov commented on negotiations with Russia on the First National TV channel. “Both the President and I have made it clear that the Russians are very wrong to think that we will accept any demands that they impose on us,” he said. Unlike Premier Azarov, Moscow seems to think otherwise, and for good reason.
When Viktor Yanukovych paid his first official visit as President to Moscow in early March 2010, he said how sorry he was for “five wasted years,” “the romantic European hopes of his predecessors,” and “his intention to start a new page in Ukraine-Russia relations.” It appears that he missed the fact that the “readiness of Messrs. Medvedev and Putin to turn the page and start a new one” boded no good either for Ukraine or for himself as the political leader, who put relations with Russia at the heart of his election campaign. Mykola Azarov, who claimed that he represented the first generation of Ukrainians in his family, was even more disappointed with the Kremlin’s “friendliness.” His evaluation of the situation today looks nothing like what it was at the meeting with the Russian leadership in Novo-Ogorevo in March 2010, immediately after he came to office.
In his New Year’s letter to Viktor Yanukovych, Dmitri Medvedev stressed the “constructive nature” of cooperation between Ukraine and Russia in 2011, even if this “constructive nature” turned out to be in favor of only one of the two parties. Mr. Medvedev mentioned the increase in trade between Ukraine and Russia, the ongoing expansion of interregional contacts in education and student exchange, and the intensification of integration processes as a result of the CIS Free Trade Zone Agreement, signed on October 18, 2011. However, trade growth was outpaced by the increase in Ukraine’s trade deficit, due largely to high gas prices. Apparently, the ongoing expansion of interregional and education contacts is the important instrument used by Moscow to bring border regions, especially Eastern and Southern Ukraine, closer to Russia and to drag Ukraine into the “Russian World”.
Kyiv, on the other hand, had no “constructive benefits” whatsoever. The only positive outcome for Ukraine, or so the government says, was the CIS Free Trade Zone Agreement. First of all, though, it has not yet been ratified, and secondly, indications of another trade war with Ukraine, in response to Ukraine’s non-constructive reluctance to hand over its gas transit system to Russia and its price, which have been observed since the beginning of 2012 are not exactly in line with the spirit of free trade.
THE SPIRIT OF FREE TRADE
Initially, Gennadiy Anishchenko, Chairman of Russian Consumer Goods Supervisory Authority, made sarcastic comments concerning the adaptation of Ukraine’s phytosanitary norms to EU standards, saying that the changes “essentially contain recognition of the citizens of Ukraine as animals”. He later said that the quality of the product Ukrainian cheese makers exported to Russia was poor, threatening to ban the import of Ukrainian cheese into Russia. The official reason was the increasing share of vegetable fats in Ukrainian cheese. It is difficult to judge the quality accurately, but according to Ukrainian phitosanitary inspectors, Russia never provided any documents to confirm Mr. Anishchenko’s criticism, while just one cheese maker in nine produces cheese that contains vegetable fats for Russia, and such producers have relevant permits. Even if the share of vegetable fats has grown in Ukrainian cheese over Q4’11, as Mr. Anishchenko claims, why did it take Russia so long to notice and deal with it? After all, the import of palm oil to Ukraine has been shrinking lately and one third of all imported palm oil has been re-exported to Russia.
There is no doubt that the reason for such “concern” was the fact that Anishchenko only noticed the “increased share of vegetable oils” during the latest gas conflict and the fact that Ukraine has adapted its phytosanitary norms to European ones, which is inconvenient from the point of view of dragging Ukraine into the Customs Union, since Russian norms remain unchanged. The fact that every tiny step Ukraine takes towards the EU causes the Kremlin excruciating pain is evident in a statement made by Sergei Glaziev, the Responsible Secretary of the Customs Union Committee on December 15, 2011. According to Mr. Glaziev, Kyiv should have got the green light from Moscow first, before taking steps towards EU integration, and consulted with Customs Union countries before signing the Free Trade Agreement with the EU, since the agreement with the Customs Union had been signed earlier.
In the final instance, the reasons behind Russia’s claims about the quality of food imported from its neighboring countries are familiar from its earlier cooperation with other post-soviet states. The growing tension between Georgia and Russia resulted in restricted imports of Borjomi mineral water and Georgian wines in the spring of 2006. This mineral water/wine war lasted five years. In 2007, Russia started the cheese wars with Ukraine, followed by milk conflicts with Belarus in 2009. During its anti-Tajik campaign in November 2011, the Russian Consumer Goods Supervisory Authority announced that it intended to ban the import of vegetables from Tajikistan since they did not meet phytosanitary standards. As soon as the formal pretext – the imprisonment of a Russian pilot – was resolved, the quality of the vegetables magically improved dramatically and Russia has forgotten its intent until the next controversy.
The prospect of Ukrainian pipe exports to Russia is also in question. If, during the “confrontational” 2008-2009 years, the annual quota for Ukrainian pipes exported to Russia increased from 419,000 to 428,000t, then last year,during the era of “constructive relations”, it was reduced to 300,000t. Under the contract signed on December 30, 2011, the quota for the first six months of this year is 150,000t, what happens afterwards will most likely depend on how Ukraine behaves.
On January 10, Mr. Azarov commented on gas talks with the Kremlin: “We are telling the Russian leadership that if we are to be strategic partners in the future, we should build our cooperation accordingly, as strategic partners.” But the essence of the problem lies in the fact that Russia has never viewed Ukraine as an equal partner, while with its actions, our current government is narrowing its room for maneuver, pushing the country and itself into a dead end. Playing its multi-vectored game and overestimating its own strength in blackmailing Europe, it has, in essence, voluntarily refused to sign FTA with the EU, which among other things, offered additional opportunities for the sale of Ukrainian goods on the European market and in either case, would have weakened the negative impact of likely trade wars with Russia.
Jerzy Buzek, President of the European Parliament, recently commented on possible economic sanctions against the Ukrainian government if it fails to stop its repression of members of the opposition. He said that there were no such plans “so far” and that he would not want to get ahead of himself. At the same time, the Europeans also did not want to get ahead of themselves six months ago and suggest that they would have to refuse to sign the already long-suffering Association Agreement and FTA as a result of the inadequacy of the Ukrainian leadership. By contrast, Russia will use this situation to increase pressure on ever more aspects of its bilateral cooperation with Ukraine. This is the price of Ukraine’s isolation from Europe.
During the 3rd Lviv Security Forum The Ukrainian Week met with Kari Liuhto, professor and director of the Pan-European Institute at Turku School of Economics at the University of Turku (Finland) to discuss Russian economic war against Europe, toxic investments and nature of Russian oligarchs