The EU-Ukraine summit in Kyiv on Dec. 19 ended with the Ukrainian government’s failure to secure the long-sought Association Agreement, despite being able to finalize the details of the deal.
Significance
Despite concerns that the EU–Ukraine summit may not take place at all it went ahead on Dec. 19`. The parties finalized the Association Agreement but the European bloc’s leaders refused to sign it, citing Ukrainian authorities’ commitment to legal reforms, exemplified by imprisonment of former prime minister Yulia Tymoshenko.
Implications
Lack of progress with the EU is a setback for the Ukrainian president who pledged to be the bridge between Russia and the EU. This setback—although expected—is even harder to stomach in the light of deteriorating relations with Russia over gas price disagreements.
Outlook
The EU’s tough stance on selective justice against the government’s opponents and general lack of commitment to wider reforms is designed to push Kyiv to decide if it is serious about integration with the EU. The downside of this is that the EU risks becoming irrelevant for President Viktor Yanukovych at least in the short term. With a parliamentary election on the horizon, he is looking for tangible benefits rather than a drawn-out reform process.
Principled But Ineffective
The European Union’s (EU’s) decision to withhold the endorsement of its Association Agreement (AA) with Ukraine came as no surprise. It was also widely expected that the summit on Dec. 19 held in the Ukrainian capital Kyiv would focus on the slow pace of reforms and, of course, the controversial imprisonment of the former prime minister and the most prominent leader of opposition Yulia Tymoshenko.
This expected outcome also led to speculation that Yanukovych may snub the summit altogether. He had already indicated that his attendance was expected at the Eurasian Economic Community Interstate Council in Moscow planned on the same day as the summit. This could have been a response to the decision by the EU to cancel Yanukovych’s trip to Brussels where he was due to discuss the Association Agreement.
Despite the difficulties, the summit in Kyiv went ahead with participation of European Council President Herman Van Rompuy and Jose Manuel Barroso, the head of the European Commission, the bloc’s executive arm. Perhaps one factor that contributed to Yanukovych’s decision not to snub the bloc was the announcement made earlier by Russian and Ukrainian negotiators tasked with reviewing the 2009 Russian natural gas supply and transit agreements.
The talks, which have been dragging on for some time now, will not be concluded by the end of this year—a very disappointing result for Kyiv. The outcome of the EU-Ukrainian talks was encouraging insofar as the parties managed to agree on all the major sticking points. The AA is an important document which will open the door for a Deep and Comprehensive Free Trade Area between EU and Ukraine. They signed their first Partnership and Cooperation Agreement (PCA) back in 1994; it went into force in May 1998 and expired in 2009.
Since then Kyiv has been seeking a new agreement. The difference between the PCA and the AA is the scope and depth of the partnership. While the former centered on the transition to more democratic and market-oriented institutions the latter outlines co-operation which will help the non-EU country improve its state institutions, business environment, legal system and most importantly comes with a free-trade agreement (FTA) that could benefit Ukrainian exporters as well as consumers increasing the flow of goods into the country, boosting choice of goods and services and giving better value for their money.
The EU, nonetheless, refused to endorse the deal and tied its consent to improvement in the "political circumstances" in Ukraine. Barosso hailed the progress made in ironing out final details concerning the creation of the Deep and Comprehensive Free Trade Area but he also clearly stated his main reservation by saying, "Our strongest concerns are primarily related to the risks of politically motivated justice, among which the Tymoshenko trial is the most striking example."
He went on urging Ukraine to fully embrace the common European values that are at the basis of the Association, "the key for the progress" in bilateral relationship. Yanukovych also reiterated that he is content with the progress made but did not indicate any willingness to budge on the Tymoshenko case.
Perhaps more telling was the ensuing statement from the Ukrainian government that it would start more vigorous negotiations with Russia over the gas price issue, indicating that Yanukovych is interested in immediate and tangible results which the EU is not ready to offer at the moment.
Outlook and Implications
It was expected that the Tymoshenko issue would dominate the agenda, but her case is a symbol of the wider issues that concern the EU, notably the continuing regress in individual rights in Ukraine and general lack of serious commitment to reforms in the judiciary and the fight against corruption. Despite Yanukovych’s initial pledges to be the bridge between Russia and EU during his presidency and maintain a balanced foreign policy, and his initial success especially in revamping relations with Moscow, in 2011 Ukrainian foreign policy has been in retreat on both fronts.
Relations with the EU are at a standstill while much-hailed ties with traditional ally Moscow saw a real dip in September when Yanukovych threatened to sue the Russian state-owned energy giant Gazprom over the terms of 2009 gas contract signed by Tymoshenko. Yanukovych said that the terms offered by Moscow were felt to have been dictated by a foe not a friend.
The 2009 gas deal lies at the heart of some of the problems that Kyiv is facing in its relations with both the EU and Russia. It is true that the terms of the deal are not as favourable for Kyiv as they are for Gazprom, as the deal sets a high threshold for the minimum imports that Ukraine has to take under the take-or-pay scheme, essentially obliging Kyiv to buy gas even if there is no need for it domestically but also barring it from selling the excess gas on to third parties.
The gas price issue is also of essence in understanding the Ukrainian government’s course of action. Despite a USD100/cubic meter discount that Russia agreed to under 2010’s "gas-for–fleet" deal in return for the extension of its military presence in Ukraine’s Black Sea port, it is still high.
Since coming to power in February 2010 and contrary to his populist pledges Yanukovych was forced under economic circumstances and pressure from the International Monetary Fund (IMF) to take the first step and liberalise gas prices by 50% in August 2010. This has been highly unpopular move. The IMF is keen for Yanukovych to agree to the last step, another 50% increase in domestic gas prices. To increase the pressure, Fund has frozen its co-operation with Ukraine since February this year, which in turn could be a warning signal for some foreign investors interested in doing business in Ukraine.
Yanukovych and his government realize that ahead of the parliamentary election in October 2012 it would be political suicide to increase domestic gas prices any more. Instead they have decided to pin the blame on the negotiator of the deal, Tymoshenko, who is facing seven years in prison for concluding a bad deal.
Also a zealous opponent of Yanukovych, the former Orange Revolution leader could also capitalize on growing public discontent with the lack of progress in the fight against corruption, falling living standards due to higher prices, and the new pension reform.
Despite the EU’s calls it is hard to see how Yanukovych could allow her release. Tymoshenko’s case is not only a clumsy effort by the government to avoid blame but also an example of selective justice that can be used against political opponents of the government. It is also symptomatic of a politically dependent judiciary.
Successive governments in Ukraine, including the one led by Tymoshenko, pledged to end this dependency making the courts independent and free of corruption, but almost all of them have either little interest in doing it or were preoccupied by pushing ahead with their personal political agendas. The EU’s call to push ahead with the judicial and political reform highlights the core of the problems that hold back Ukraine’s economic and democratic progress. However, as many of its predecessors, the current Ukrainian government is mainly preoccupied with gaining tangible results in a short period of time that will help it to win the next election.
When it comes to the EU, it appears that Kyiv is weighing the benefits of close co-operation with Russia against those of allying with the EU. Should it secure concrete gains from Russia, mainly in the form of a gas price reduction, the Ukrainian government might just keep the status quo with EU, which is not a great approach if the country is really seeking integration with the European bloc.
