Developments in Ukraine and Implications for U.S. Policy

Introduction

Madam Chairwoman, Senator Barrasso, distinguished members of the Committee, thank
you for the opportunity to appear today to testify on developments in Ukraine and the
implications for U.S. policy and U.S. policy goals in Europe.

When Victor Yanukovych became president of Ukraine in February 2010, his first foreign
policy priority was to repair what he regarded to be Ukraine’s badly frayed relationship
with Russia. At the same time, his government indicated that Ukraine would seek a
balance between its relationship with the West—particularly the European Union—and that
with Russia. This seemed a sensible course for Ukraine in its current circumstances.

Regrettably, the first two years of President Yanukovych’s tenure in office have seen a
significant regression in democratic practices within Ukraine. That is unfortunate for the
Ukrainian people, and it is blocking the strengthening of Ukraine’s relations with the
European Union and the United States. EU officials have made clear, for example, that the
signature of an EU association agreement with Ukraine depends on Kyiv taking certain
steps, such as releasing former Prime Minister Tymoshenko from prison.

Mr. Yanukovych’s domestic policies are seriously undermining his ability to balance
Ukraine’s relationships between the West and Russia. That will complicate Ukrainian
foreign policy, leaving it less connected to Europe and in a weaker position to deal with
Russia on issues where Ukrainian and Russian interests do not coincide.

It remains in the U.S. interest that Ukraine develop as a stable, independent, democratic,
market-oriented state increasingly integrated into Europe and institutions such as the
European Union. That kind of Ukraine promotes the U.S. objective of a wider, more stable
and secure Europe. Democratic regression within Ukraine, however, impedes that
country’s ability to draw closer to the West.

The U.S. government should continue to underscore to Kyiv U.S. concerns about
democratic backsliding and remind the Ukrainian leadership that its internal political
policies have a significant impact on its relationships with the United States and Europe;
keep the door open for a more positive relationship with Ukraine should Kyiv heed the
message on democracy; and coordinate closely with the European Union to maximize the
impact of Western policy on decisions by Mr. Yanukovych and the Ukrainian leadership.

While engaging Ukraine at most diplomatic levels, the United States and European Union
should continue what appears to be a de facto policy of minimizing high-level contact with
Mr. Yanukovych until he alters his internal political policies. The West should seek to
crystallize in Mr. Yanukovych’s mind the choice between a more authoritarian political
system and a strong relationship with the West, and make clear that he cannot have both.

Ukraine’s Foreign Policy—A History of Balance

Developing an independent foreign policy has posed one of the key challenges for Kyiv
since the collapse of the Soviet Union in 1991. Ukrainian presidents have generally sought
a balance in their foreign policy relationships between the West and Russia. Europe and
the West are attractive to many Ukrainians. Ukraine ought to be able to develop stronger
relations with the European and trans-Atlantic communities without rupturing relations
with Russia, which are also important to many in Ukraine.

Given the large space that Russia occupies on Ukraine’s border, the long, complex history
between the two countries, cultural links between Ukrainians and Russians, and economic
ties that have continued since the end of the Soviet era, it is natural that Ukraine seek a
stable relationship with Russia. At the same time, Russia is not the easiest of neighbors.
Ukrainian presidents thus have sought to develop relationships with the United States,
Europe and institutions such as NATO and the European Union. Ukraine’s leaders have
been motivated in part by a desire to gain greater freedom of maneuver vis-a-vis Russia.

For example, Ukraine’s first president, Leonid Kravchuk, moved immediately after
Ukraine regained independence to build strong relationships with the West. When he could
not reach agreement with Moscow on the terms for the elimination of the strategic nuclear
weapons on Ukrainian territory, he involved the United States. The resulting trilateral
process successfully brokered a deal in early 1994.

President Leonid Kuchma, who took office in July 1994, established a strategic partnership
with the United States, concluded a partnership and cooperation agreement with the
European Union, and agreed to a distinctive partnership with NATO. As Ukraine’s
relations with the West strengthened, Moscow softened its approach toward Kyiv. In May
1997, Ukraine and Russia resolved the long-standing issue of basing rights for the Russian
Black Sea Fleet in Crimea on terms acceptable to Kyiv, and signed a bilateral treaty that
incorporated a clear and unambiguous recognition of Ukraine’s sovereignty and territorial
integrity—something Ukrainian officials had sought since 1991.

President Victor Yushchenko assumed office in 2005 following the Orange Revolution.
While seeking stable relations with Moscow, he made no secret of his desire to integrate
Ukraine fully into institutions such as the European Union and NATO. Kyiv opened
negotiation of an association agreement with the European Union and asked for a NATO
membership action plan. Other Yushchenko policies—including expanded use of the
Ukrainian language, seeking to have the Holodomor recognized as genocide, and support
for Georgian President Saakashvili—plus disputes over gas purchase contracts further
angered Moscow. Relations between the two countries hit a low point in 2009. But the
president failed to build elite or public support for his course; many Ukrainians grew
concerned over the downturn in relations with Russia.

Mr. Yanukovych’s Foreign Policy

Victor Yanukovych became Ukraine’s fourth president in February 2010. He believed that
“normalizing” relations with Russia should be his first foreign policy priority.

President Yanukovych met with Russian President Medvedev in Kharkiv less than two
months after taking office. At the meeting, the Ukrainians agreed to extend the Black Sea
Fleet’s basing lease for an additional 25 years. In return, Russia’s Gazprom agreed to
reduce the price that it charged Ukraine for natural gas by $100 per thousand cubic meters
for the remainder of the multi-year gas contract signed in 2009. Mr. Yanukovych and other
Ukrainian officials praised the arrangement for significantly reducing Ukraine’s energy
costs, though independent energy experts question whether Kyiv might not have negotiated
a better deal, perhaps without having to extend the Black Sea Fleet’s lease. The
government rammed the agreement through the Rada (parliament) within just a few days of
signature and with no substantial parliamentary discussion, despite opposition by the
Rada’s foreign affairs, European integration and national security committees.

At the same time, Kyiv dropped other policies that had generated Russian complaints: it
downgraded the program to promote use of the Ukrainian language, ended the campaign to
get the Holodomor recognized as genocide, and toned down relations with Georgia. While
expressing interest in maintaining cooperative relations with NATO, the Yanukovych
government made clear that it sought neither membership nor a membership action plan.
With these policies, Kyiv swept the bilateral agenda with Moscow clear of most issues that
the Russians had considered problematic.

Even before the Kharkiv meeting, however, Ukrainian officials indicated that, while their
first foreign policy priority was repairing the relationship with Russia, Kyiv planned to do
so in the context of an overall policy that pursued balance between Ukraine’s relationship
with the West and that with Russia. Senior Ukrainian officials made clear that Ukraine
remained very interested in concluding an association agreement, which would include a
deep and comprehensive free trade arrangement (FTA), and a visa facilitation agreement
with the European Union as the vehicles to strengthen Ukraine’s integration into Europe.

Ukrainian officials also indicated that they wanted a robust relationship with the United
States. By all accounts, President Yanukovych was delighted with the opportunity that he
had for a bilateral meeting with President Obama on the margins of the April 2010 nuclear
security summit in Washington.

One could see Kyiv’s outreach to the West and effort to strike a balanced foreign policy in
several developments in May and June 2010. The Rada voted overwhelmingly to approve
the annual plan for military exercises on Ukrainian territory, most of which involved
NATO forces. Ukrainian officials ruled out the possibility of joining a customs union with
Russia, Belarus and Kazakhstan, as that would be incompatible with an FTA with the
European Union. Kyiv declined to join the Russian-led Collective Security Treaty
Organization, which Moscow billed as a Eurasian counterpart to NATO.

Western diplomats in 2010 also reported that the Ukrainian government was doing its
homework to prepare an association agreement and FTA with the European Union in a
more serious manner than had been the case during the Yushchenko presidency. A number
of Western diplomats expressed the view that President Yanukovych wanted to be seen as
the one who “brought Ukraine into Europe.”

Other reports suggested that senior Ukrainian officials were becoming unhappy with
Russia’s policies. For example, Ukrainian officials questioned why Moscow continued to
pursue the South Stream gas pipeline, which would run along the Black Sea bottom and
circumvent Ukraine, when the Ukrainian gas transit system had considerable excess
capacity. As the Russians had no new gas to flow into South Stream, the pipeline, if
constructed, would only divert gas from pipelines through Ukraine.

Kyiv’s frustrations grew in 2011 as senior Ukrainian officials asserted that the price for
Russian gas—even with the Kharkiv discount of $100 per thousand cubic meters—was too
high and “unfair.” Gazprom showed no sign of budging. Ukrainian complaints increased
at the end of the year, and Kyiv informed Gazprom that it would import only 27 billion
cubic meters of gas in 2012. Gazprom officials responded that Ukraine had a “take or pay”
contract and was obligated to take—or in any case pay for—41.6 billion cubic meters.
These issues are currently unresolved. Press reports in December suggested that the
Ukrainians were considering plans that would give Gazprom significant control of the
Ukrainian gas pipeline system. Gazprom has long coveted Ukraine’s gas transit
infrastructure, but there likely would be significant resistance in Kyiv to ceding control.

Democratic Regression

Mr. Yanukovych was elected president in 2010 as the result of a process that domestic and
international observers found to be free, fair and competitive. Ms. Tymoshenko, who lost
in the run-off round by about three percent of the vote, briefly challenged the result but
offered no compelling evidence of major fraud. Western governments quickly recognized
the result, which was Ukraine’s fifth consecutive nationwide election following the Orange
Revolution to win plaudits from election observers.

Unfortunately, questions soon arose about the Yanukovych government’s commitment to
democratic principles and practices. Over the course of 2010 and 2011, concern grew
about the government’s authoritarian tendencies. Some of the most troubling examples:

.
Widespread reports began to emerge in spring 2010 of inappropriate activities by the
Security Service of Ukraine (SBU), including approaching university officials for
information and reporting on students who had taken part in anti-government protests.
SBU officers also reportedly approached non-governmental organizations to seek
information on their activities.
.
On September 30, 2010, the Constitutional Court of Ukraine invalidated the changes to
the constitution approved by the Rada in December 2004, after the replacement of four
judges who opposed the decision by four new judges who supported it. The result was
to revert to the constitution that had been in effect prior to the Orange Revolution,
which gave the president significantly stronger powers and weakened the authority of
the Rada. The European Commission for Democracy through Law (Venice
Commission) issued a report the following December which raised numerous questions
about the Constitutional Court’s action. The report noted “it is clear that a change of
the political system of a country based on a ruling of a constitutional court does not
enjoy the legitimacy which only the regular constitutional procedure for constitutional
amendment and preceding open and inclusive public debate can bring.”
.
Ukraine held nationwide local elections in October 2010. Observers found significant
flaws, and both the European Union and U.S. government expressed concern. The
Congress of Local and Regional Authorities of the Council of Europe observer group
issued a report in March 2011 noting concern over “a newly adopted local election law
which created politically unbalanced electoral commissions, discretionary registration
of candidates and overly complicated voting and counting procedures.” The report
concluded with the assessment that “overall, the local elections of 31 October 2010 in
Ukraine met neither the standards that it wished to see, nor the standards set by the
presidential elections [in Ukraine] in January and February 2010.” The conduct of
these elections raises concern about the Rada elections to be held in autumn 2012.
.
Attracting the most attention, former officials who served in the cabinet under Ms.
Tymoshenko have been arrested on charges that appear, to most observers, to be
politically motivated. Among those arrested have been former Interior Minister
Lutsenko, former First Deputy Justice Minister Korniychuk, former Acting Minister of
Defense Ivashchenko, former First Deputy Chairman of Naftogaz Ukrainy Didenko,
former Head of the State Customs Service of Ukraine Makarenko and former Economy
Minister Danylyshyn (Mr. Danylyshyn sought and received political asylum in the
Czech Republic). Then there is the case of Ms. Tymoshenko herself. She was charged
in December 2010 with abuse of state power stemming from her conclusion of the 2009
gas purchase contract with Russia. Her trial began in June 2011, and she was jailed in
August for disrupting courtroom proceedings. In October, she was convicted and
sentenced to seven years in prison—a verdict immediately condemned by the United
States, European Union, most major EU member states and Russia. The Parliamentary
Assembly of the Council of Europe, in a report issued in January, criticized the charges
against former government officials as amounting to “post facto criminalization of
normal political decision-making.” Although Ukrainian officials maintain that these
arrests were legitimate and do not represent selective prosecutions, no comparable
members of the current government have been arrested or charged, despite the general
view that corruption has increased significantly under Mr. Yanukovych.

In 2006 Freedom House rated Ukraine as the first post-Soviet state other than a Baltic
nation to achieve a “free” ranking. In January 2011, given the democratic problems within
Ukraine, it became the first post-Soviet state to lose the “free” ranking when it was found
to be only “partly free.” Freedom House reaffirmed that ranking last month.

Democratic Regression and Ukraine’s Relations with the West

The authoritarian tendencies within Ukraine have affected Kyiv’s relations with the West.
European and U.S. officials have long expressed concern about democratic regression,
including warning senior Ukrainian officials as early as January 2011 not to carry forward
the charges against Ms. Tymoshenko, whose case has come to epitomize the problem of
selective application of the law within Ukraine.

Following her jailing in August, some deputies in EU member-state parliaments stated that
they would oppose ratification of the association agreement and FTA with Ukraine unless
Ms. Tymoshenko was released. This is no surprise. The European Union has long
regarded commitment to democratic principles as an important element of the association
agreement process. In September 2011, Swedish Foreign Minister Bildt, EU
Commissioner for Enlargement Fuele and European Parliament member Brok had a
lengthy meeting with President Yanukovych and warned him of the damage that the
Tymoshenko case was doing to EU-Ukrainian relations.

The Rada passed up an opportunity to end the case in October when it examined the
Criminal Code. Despite suggestions that it might annul the article on which the charge
against Ms. Tymoshenko was based, it did not. Days later, the court convicted her. The
European Union responded by postponing a planned Yanukovych visit to Brussels.

EU officials continued to state that Ms. Tymoshenko should be released and allowed to
return to normal political life. In November meetings with President Yanukovych,
Lithuanian President Grybauskaite and Polish President Komorowski reiterated warnings
that Ms. Tymoshenko’s imprisonment would damage EU-Ukraine relations and prevent
signature of the (now completed) association agreement and FTA at the planned December
EU-Ukraine summit in Kyiv.

Although a number of European countries reportedly favored canceling the summit, EU
President Van Rompuy and EU Commission Head Barrosso went to Kyiv and held a short
meeting with President Yanukovych. They signed no agreements and made clear that
signature would depend on Ms. Tymoshenko’s situation.

Thus, at the beginning of 2012, EU-Ukraine relations are at a standstill. It is not clear what
will happen with the association agreement and FTA, which were to provide the basis for a
new stage in the relationship between Brussels and Kyiv.

U.S.-Ukrainian relations are at a quiet point. Washington has few major issues on its
bilateral agenda with Kyiv, reflecting the fact that many of the problems that troubled the
relationship earlier have been resolved. More broadly, given everything else on the foreign
policy agenda, Ukraine barely registers on the radar. Ukrainian officials have over the past
18 months actively sought to arrange meetings for President Yanukovych with President
Obama or Vice President Biden, but without success. The lack of enthusiasm to meet with
Mr. Yanukovych undoubtedly reflects the U.S. government’s critical attitude toward the
democratic developments that have taken place the past two years in Ukraine.

The Risk to Kyiv

Democratic regression most destructively sets back the ability of the Ukrainian people to
have a free, fair, robust and competitive political system. It also has a destructive impact
on Mr. Yanukovych’s professed foreign policy.

Democratic backsliding puts at risk Ukraine’s relations with the West, in particular with the
European Union. As the EU President has indicated, the European Union does not intend
to proceed with signature of the association agreement and FTA until political
circumstances within Ukraine change. Even were it prepared to do so, the association
agreement and FTA must be approved by all 27 EU member states, and a number of
deputies in EU member-state parliaments have already stated that they would oppose
ratification so long as Ms. Tymoshenko remains in jail.

Moreover, given the current difficulties within the European Union, such as the eurozone
crisis, a number of member states believe that the EU’s attention should be focused
internally and that the European Union should slow the pace of its engagement with
neighboring states, particularly those which say they aspire to become EU members. For
those EU member states, democratic regression within Ukraine offers a handy reason to
justify slowing down the pace of EU relations with Kyiv. Even Kyiv’s traditional
advocates within the European Union—such as Poland, Lithuania and Sweden—appear to
be flagging in their support for Ukraine.

Mr. Yanukovych’s internal policies not only pose a major impediment to his goal of
drawing closer to the European Union, they also endanger his goal of having a balance
between Ukraine’s relations with the West and with Russia. Although Kyiv sought to
repair its relations with Moscow in 2010, the two countries’ interests simply diverge on
some issues. Take natural gas: a lower price for Ukraine means less revenue for Gazprom.
Likewise, construction and operation of the South Stream pipeline would reduce the flow
of gas through Ukrainian pipelines. Russian Prime Minister and presumptive President
Putin has called for creation of a Eurasian Union to serve as a counterpart to the European
Union. It is not exactly clear what the Eurasian Union might be in practice—and few other
post-Soviet states have expressed enthusiasm for the idea—but it is almost certain that one
of Mr. Putin’s goals is to increase Russian influence in the post-Soviet space.

With weaker relations with the West, Kyiv will find that is has less room for maneuver in
its dealings with Moscow. Tough negotiations will likely become even more difficult. Mr.
Yanukovych only has to look north to Belarus and what happened to President Lukashenko
once he had burned his bridges with the European Union and the United States following
the December 2010 crackdown on opposition leaders and demonstrators. Facing a dire
economic situation and with no hope for help from the West, Mr. Lukashenko struck a deal
with Moscow that secured a lower price for gas and a loan from Russia—at the price of
surrendering control of the Belarusian gas pipeline system to Gazprom.

It is not clear why Mr. Yanukovych is putting himself and Ukraine in this position. He has
regularly expressed a desire for closer relations with the European Union and a balanced
foreign policy. He may be allowing personal hostility toward Ms. Tymoshenko and a
desire to sideline her politically to dominate his decisions. Ironically, over the past year,
the government’s actions against Ms. Tymoshenko have focused public attention on her,
and her poll ratings and those of her party have increased significantly.

Mr. Yanukovych may also calculate that the European Union and the United States will
overlook his democratic regression and accept Ukraine without his having to adjust his
domestic policies, believing that the West does not want to see Ukraine drift closer to
Moscow’s orbit. That would reflect a fair measure of wishful thinking and overestimate
the geopolitical importance that the West currently attaches to Ukraine.

U.S. Interests and U.S. Policy

Since the early 1990s, the United States has supported Ukraine’s development as a stable,
independent, democratic state, with a robust market economy and growing links to the
European and trans-Atlantic communities. Such a Ukraine is in the U.S. interest as it
would contribute to the goal of a wider, more stable and secure Europe. It could be—and
has been—an important partner in addressing critical questions such as proliferation
challenges. The nuclear question, which dominated U.S.-Ukrainian relations in the early
1990s, has been resolved as the nuclear weapons systems that were in Ukraine have been
eliminated and Kyiv has agreed to transfer its small stock of highly-enriched uranium.

Over the past two decades, the United States has provided several billion dollars in
assistance to Ukraine to promote democratization, economic reform and the elimination of
the strategic nuclear systems and infrastructure that Kyiv inherited following the end of the
Soviet Union. The United States has led in shaping a strong partnership between NATO
and Ukraine and has encouraged the European Union to deepen its relations with Ukraine.

The U.S. interest has not changed. However, the circumstances within Ukraine have, and
the Ukrainian government is moving in the wrong direction. On democracy, it is walking
back the gains that the Ukrainian people have made over the past 20 years, particularly in
the period of 2005-2009. The West cannot and should not ignore that.

The U.S. government’s priority with regard to Ukraine now should be to encourage the
Ukrainian government to make the right choices regarding the country’s democratic
development. This means releasing Ms. Tymoshenko and allowing her to return to normal
political life. But it does not end with Ms. Tymoshenko. The Ukrainian government needs
to end its manipulation of the judicial system for political purposes against other members
of the opposition. It should rein in agencies such as the Security Service of Ukraine. And
it should work with the broad political spectrum to ensure that the upcoming autumn Rada
elections are free, fair and competitive.

To promote this objective, the U.S. government should, first of all, continue to underscore
to Kyiv U.S. concerns about democratic regression and continue to remind the Ukrainian
leadership that its internal political policies have a negative impact on its relationships with
the United States and the West. Ambassador John Tefft and the U.S. Embassy in Kyiv are
working hard to convey this message. Washington should reiterate it as often as possible,
including when Senate and Congressional delegations visit Ukraine.

Second, the United States should keep the door open for a more positive relationship with
Ukraine should Kyiv heed the message on democracy. A Ukraine that returns to the
democratic path should be fully welcome in the European and trans-Atlantic communities.

Third, the United States should coordinate closely with the European Union so as to
maximize the impact of Western policy on decisions by Mr. Yanukovych and the Ukrainian
leadership. The joint letter sent to President Yanukovych last September by Secretary of
State Clinton and EU High Representative for Foreign Affairs and Security Policy Ashton
provides just such an example of coordination between Washington and Brussels. It is
especially useful for Washington to coordinate with the European Union now, as the
European Union may be better placed to influence thinking in Kyiv.

What do these policies mean in practice? As one example, the Ukrainian leadership greatly
desires high-level contact with Washington, which gives it a degree of political legitimacy.
Mr. Yanukovych would dearly appreciate an invitation to the White House or the chance to
host President Obama in Kyiv. The U.S. government should continue what appears to be a
de facto policy of minimizing high-level meetings with Mr. Yanukovych. U.S. officials
should inform Ukrainian officials that, as long as Kyiv imprisons opposition leaders and
regresses on democracy, no meetings at the highest level will be possible.

As a second example, Ukraine’s credit line with the International Monetary Fund is
currently suspended, because Kyiv has failed to meet the conditions of the IMF loan. In the
past, the U.S. government has on occasion weighed in with the IMF to support a more
lenient approach with Ukraine. Given the democratic regression in Ukraine, now would
not be the time for Washington to take such an approach with the IMF.

This approach does not mean freezing ties across the board. Normal diplomatic interaction
should continue at most levels. The target should be the most senior leadership in Kyiv,
those who are responsible for Ukraine’s democratic regression.

As for assistance programs, the U.S. government should carefully consider its priorities,
especially as budget resources for Ukraine will be limited. U.S. assistance should aim to
sustain civil society in Ukraine, which has made dramatic gains over the past 20 years. In
this context, exchange programs that bring Ukrainians to the United States and Europe can
play a major role. The U.S. government should also continue assistance programs to
promote energy security, so that Ukraine can become less dependent on imported energy.

It may be time for U.S. and EU officials to consult as to whether it is appropriate to
consider lists of Ukrainian individuals who would be denied visas to visit the United States
and EU member states. Even the threat of this could send a forceful message to Kyiv and
have a powerful effect on President Yanukovych and the elite around him.

This is not a call for the type of isolation that the West has applied to Belarus. Ukraine has
not yet regressed to that point. But the United States and European Union should seek
effective ways to disabuse Mr. Yanukovych of the notion that he can pursue a more
authoritarian course at home without repercussions for Kyiv’s relations with the West.

Crystallizing a Choice

Some Ukrainian officials likely will warn that this kind of approach by the United States
and European Union will cause Ukraine’s leadership to turn toward Russia. Western
officials should not be taken in by this. If Ukraine truly wants to join Europe, then its
leadership must accept the democratic values that prevail in Europe. If the leadership is not
prepared to adopt such values, then how can Europe and the West integrate Ukraine?

Moreover, Kyiv does not wish to fall too closely into Moscow’s orbit. Mr. Yanukovych
does not want to compromise Ukrainian sovereignty; he wants to be the leader of a fully
independent state. The Ukrainian elite and public likewise overwhelmingly support an
independent and sovereign Ukrainian state. For the Ukrainian oligarchs—who control so
much of the Ukrainian economy—the Russian model holds little appeal.

The overall goal of U.S. and European Union policy thus should be to crystallize in Mr.
Yanukovych’s mind the following choice. He can have a more authoritarian political
system, more difficult relations with the West, and a greatly weakened hand in dealing with
Russia, or he can return to a more democratic approach and have a stronger relationship
with the West and a balanced foreign policy. In the end, Mr. Yanukovych has reasons to
opt for the latter course. The West should face him with the choice as clearly as possible.

Thank you for your attention.