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Postponing the implementation of the trade part of the EU-Ukraine Association agreement: Pragmatism or Surrender

After a long absence, we come back with an insightful analysis of the implications of the postponement of the implementation of the Trade part of the EU-Ukraine Association agreement by guest authors from Birmingham University

Rilka Dragneva and Kataryna Wolczuk

Few bilateral agreements have had such a turbulent history and implications as the Association Agreement between the EU and Ukraine. The refusal to sign the agreement by then president Yanukovych triggered massive protests in Ukraine resulting in his overthrow in February 2014. This in turn provoked Russia’s response: annexing Crimea and fuelling separatism in Eastern Ukraine, including direct military incursion in August 2014.

Importantly, the Agreement envisages a Deep and Comprehensive Free Trade Area (DCFTA), which entails tariff changes but also provides for Ukraine’s integration into the EU single market. Russia has objected to both, alleging potential damage to its economy. Clearly, an important aspect of this ‘damage’ lies in the fact that the DCFTA precludes Ukraine’s membership into the Eurasian integration bloc, something which Russia has actively sought and presented as a viable (and indeed preferable) alternative to integration with the EU.

Asserting its independence, Ukraine signed the Agreement in June 2014. Russia’s opposition to it intensified over the summer leading to its delayed ratification. Trilateral EU-Ukraine-Russia negotiations continued against the backdrop of military intervention and threats of a trade war against Ukraine. Indeed, Russia’s demands have been far-reaching including a revision of the already signed agreement. The Russian government has in fact drafted amendments to substantive terms in somebody else’s agreement.

The tri-lateral negotiations resulted in compromise: the Agreement was ratified by the Ukrainian and European parliaments, but implementation of the key trade-related part (the DCFTA), was suspended until the end of 2015 due to ‘Russia’s concerns’. This middle ground is already proving to be unstable, with Russia reinforcing its demands for legal revisions and the exclusion of 2,000 commodities from the free trade regime. To assert its position, it has imposed tariffs with suspended application to mirror the EU’s approach. Furthermore, in a spectacular U-turn, it seems that at least the outgoing Commission President Barroso is not averse to the thought of revising an agreement that has been signed and ceremoniously ratified.

Who favoured this ‘compromise’ and why it was adopted still needs to be fully clarified. EU officials indicate that it was requested by the Ukrainian side concerned about the economic and social implications of Russia’s trade sanctions. Similarly, there was pressure from EU member states putting a premium on ‘appeasement’, or the ‘normalisation’ of relations with Russia and an end to the costly spiral of reciprocal economic sanctions. Despite what is undoubtedly a complex background story, the postponement of the agreement was labelled ‘business as usual’. If anything, the EU’s response to Russia’s pressure for a say on EU-Ukraine’s relations was presented as a success, on the grounds that ratification had taken place without ‘a single word having been changed’. As Elmar Brok, a veteran member of the European Parliament put it:
‘… this process [i.e. negotiations] has been concluded. And the Russians are part of it. They were there for the negotiations. It’s all coming into force. It’s just being implemented incrementally, as is often the case with contracts. From the legal point of view, the whole contract will be enforced in all its details. It’s just that there are often transitional arrangements. That’s normal in business.’

There is no doubt that since the start of the crisis, the EU has found itself in a particularly difficult position where it has tried to balance principles, economic interests and complex constraints. Yet, in opting for this latest compromise, Brussels has performed a U-turn with potentially high and diverse costs without securing a lasting resolution of the core issues in the post-Soviet region. Certainly many – the present authors included – have pointed out the need for a comprehensive overhaul of the EU’s Eastern Partnership policy so as to address a range of serious concerns. However, a last-minute decision announced three days before the Association Agreement’s ratification and taking many top EU officials by surprise hardly constitutes such a review. Allowing Russia to dictate EU-Ukraine relations does not indicate the application of a comprehensive, sustainable strategy. Whether it is born out of a pragmatic trade-off or a tactical retreat, it is a short-term fix based on a set of shaky assumptions. Its far-reaching implications, however, will still need to be confronted.

First, allowing Russia to participate in the EU’s negotiations on a bilateral agreement with another country sets a dangerous precedent. It is a blatant reversal of the EU’s earlier position. It opens a minefield for international lawyers. Even more importantly, it undermines the principle of dealing with Ukraine as an independent country: regardless of its ‘semantic framing’, the EU has accepted Russia’s right to determine the essential terms and the limits of its post-Soviet neighbours’ integration choices. The potential application of this precedent to other neighbours is obvious, but also has implications for relations further afield involving Turkey or China. Importantly, the EU likewise concedes to Russia’s double-standards in international relations: while Putin complains that nobody talked to Russia about the potential consequences of the DCFTA, he conveniently forgets that the Eurasian Customs Union was launched in 2010 with no consultation with the EU and no adequate transitional arrangements resulting in significant damage to EU businesses.

Second, it is not only the inclusion of a third party as such, but also the mode and the professed reasons for accommodating its preferences that are questionable. Russia’s justifications for its ‘trade concerns’, have been highly spurious and are, as Michael Emerson put it, ‘a non-story’. For example the problem of Russia being ‘swamped by EU goods’ can be addressed by the proper application of rules of origin. The EU has been involved in consultations with Russia on the subject for many months now making a strong case as to why the DCFTA need not disrupt existing trade arrangements. It is unclear how fifteen more months of discussions will help resolve a problem that in its essence is neither legal nor technical. Above all, Russia’s concern is a thinly veiled contestation as to who the rule-setter in the post-Soviet space is. Russia principally objects to the EU expanding its regulatory framework – via the Association Agreements – to Russia’s perceived exclusive backyard, the post-Soviet space. This is especially so given the clash of EU policy with the expansion of Russia’s own economic integration project. Faced with a complex bundle of economic and geopolitical concerns, the EU conceded to pressure rather than sound argument.

Third, EU statements on the deal refer to the peace process in Eastern Ukraine, implying that it amounts to a necessary sacrifice for the sake of ensuring a peaceful resolution between the separatists and the Ukrainian government. Its political acceptability is justified against the backdrop of a military conflict in which Russia has been a party. However, Moscow has adamantly refused to acknowledge its involvement, endeavouring to present the conflict as a local, bottom-up rebellion. Securing peace and saving human lives is an objective one certainly cannot disagree with; however, as it stands, the deal offers few guarantees and carries considerable costs. While Russia refuses to acknowledge its role in the conflict, the deal legitimises and validates Russia’s ‘hybrid war’ strategy: by instigating conflict, Russia is able to extract concessions from the EU for the sake of a ‘contribution to peace’.

Fourth, the EU’s actions rest on the assumption of a ‘fixed and stable agreement’, one that reflects and accommodates Russia’s preferences. It assumes that agreements and rules will be implemented. The source of this optimism – given Russia’s track record of behaviour – is unclear. Indeed, it has already been revealed that Russia is not satisfied by the mere delay of the Agreement’s implementation. Furthermore, the consensus on what constitutes ‘implementation’ might be overestimated given Putin’s reference to ‘any legislative implementing acts under the Association Agreement’. There is no reason to assume that Russia’s decision to trigger sanctions will be based more on law and shared understanding than in previous instances. The EU’s longing for ‘business as usual’ obscures the fact that this is the last thing it is and that Russia’s claims are derived not from legal agreements but from claims to a sphere of influence.

Fifth, while the need to ensure the compatibility of the DCFTA with interregional linkages is understandable, the EU has shown a sudden ready acceptance of post-Soviet integration structures. After many years during which the EU had raised valid concerns: for example, about the degree to which the Eurasian Customs Union acts as an economic rather than a Russia-steered, political entity with an unclear division of competences, or the degree to which it contributes to trade liberalisation and WTO commitments implementation. We, amongst others, have criticised the EU’s lack of strategic engagement with the Eurasian project, yet the show of caution has not been entirely unjustified.

If anything, Russia’s policies towards Ukraine amplify these concerns: the Kremlin has in effect (and with its partners’ consent), destroyed the Eurasian Customs Union by imposing unilateral trade measures on Ukraine. Recent statements of Commissioner Füle, however, reveal the EU ‘warming up’ to Eurasian structures, based on a presumed functional and rule-based equivalence of both regimes. While the Eurasian structures certainly contain promise, its actual delivery is circumscribed by a range of problems of institutional design and implementation.

The EU continues to state that regional economic integration frameworks need to contribute to trade liberalisation and WTO compliance. Yet, ironically, Russia’s threats to Ukraine – rather than the success of the Eurasian project itself – might end up earning it external recognition just as these very same threats undermine it internally. Furthermore, while the EU might be willing to enter into a comprehensive free trade area ‘from Lisbon to Vladivostok’, there is actually no certainty that free trade is what Russia wants and pursues.

On balance, it is hard to avoid the conclusion that by agreeing to this pragmatic, ‘principles-lite’ deal, the EU accepts and legitimises a particular way of conducting international relations favoured by Russia. Acquiescence to this pattern of behaviour comes at the very time when Moscow’s actions vis-à-vis Ukraine amount to a shake-up of the international order. The EU’s pragmatism has not been lost on the people of Ukraine, with the prevailing interpretation on social media being one of ‘having been abandoned’. For an outgoing team of the European Commissioners to present this as ‘business as usual’ while leaving a series of ‘landmines’ for future interactions between the EU and Russia should be a source of deep concern. Yielding to Russian anxieties rather than comprehensively addressing existing questions, opens a raft of new issues. They need to be confronted rather than obfuscated behind the rhetoric of normality.

A shorter version of this commentary has been published in The Conversation

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