World
Natalia Meden
June 26, 2013
© Photo: Public domain

«We have a great interest in signing the association agreement this autumn», stated German Foreign Minister G. Westerwelle during his visit to Kiev on June 21. It is expected that the agreement will be signed at the Eastern Partnership summit in Vilnius on November 28-29, 2013. 

V. Yanukovich hastened to assure the Europeans that the signing of the agreement «will have a substantial positive influence on the European economic situation and will help Europe emerge from the crisis.» In general, the Ukrainian side is taking great pains to gain Berlin's support. At a meeting of the German-Ukrainian High-Level Group which took place in the German capital on May 22-23, Ukrainian Deputy Prime Minister A. Vikul expressed gratitude to Germany for its enormous contribution to the development of Ukraine's economy and declared that the signing of an association agreement between Ukraine and the EU will open «unprecedented opportunities» for German business (1). Do tell! 

It is well known that after Russia and China, Germany is Ukraine's most important trade partner (2). If you don't count offshore Cyprus, Germany is the largest investor in the Ukrainian economy: 7.4 out of 49 billion dollars of direct foreign investments. In the two-way market, Ukraine has a constant deficit: while Germany's share of Ukrainian imports is 8%, for exports it is a modest 3% (2012). The highest volume in mutual trade was reached in 2008. Since then exports to Germany have been stagnant at a level of 1.5 billion euros, while volumes in the other direction have been steadily growing, increasing to 5.7 billion euros in 2012. Germany's imports to Ukraine include machines and equipment, electronics and electrical appliances (over half of exports), and, of course, automobiles and auto parts, 1/7 of the export volume. In exchange Ukraine sends raw materials, iron and steel (around 40% of its exports to Germany). It turns out that even without any trade liberalization Ukraine is buying more and more German goods, but it essentially has nothing to export there. Under these circumstances, offering itself as the «savior of Europe» is a bit presumptuous. 

German experience shows that for stable development it is first of all necessary to develop the real sector of the economy. Do the Germans plan to help Ukraine in this? For example, in boosting the declining machine building industry? Frankly, German business has no such plans. During the aforementioned meeting of the High-Level Group, the German side suggested environmental and climate protection as a prospective area of collaboration. Meanwhile, in the European Union they have been searching feverishly for a tactful way to get out of their previous large climate protection obligations, which have become too great of a burden for the economy of EU countries. Why should they suggest something to Ukraine that was too much for Europe? Neither German business nor the German government has an interest in moving production from Germany to other countries. 

The Germans consider Ukraine a «difficult partner», emphasizing that they have achieved success on this market not because of the difficulties involved, but in spite of them. (3) At the aforementioned meeting the German side pointed out to Ukraine that it needs to improve its business and investment climate. What, then, does the German side think of the work of the «German Advisory Group» which has been advising the Ukrainian government since 1994 on instructions from the Federal Ministry of Economics? Are the advisors not up to the task, or are the consultees thick-headed? 

Today, when Germany's main trade partners, the EU countries, are forced to reduce their imports, sales markets are more important for the German economy than ever. However, in 2012 Ukraine dropped to 54th place on the list of Germany's foreign trade partners. Considering this figure, Yanukovich's declaration that Ukraine will «help Europe emerge from the crisis» sounds at the least frivolous.

Can Ukraine offer its partners in the West something new and promising? At the negotiations in Kiev the prospects of collaboration in the gas energy sphere were discussed. For some time there has been talk of Ukraine providing Europe with shale gas. Which it doesn't have yet. No one knows yet what the European gas market will be like in the far-off year 2050, when Shell predicted significant production volumes of this raw material in Ukraine. The Germans think that they won't need to increase their import volume, and they don't want to extract shale gas at home, despite the tempting prospects described by Brussels and visitors from overseas. For example, last week the head of General Electric, J. Immelt, was pushing for the Germans to begin extraction of shale gas. However, the bill on shale gas proposed by Germany's Minister of Economics P. Rösler didn't even get past the government, and in the Bundesrat it was doomed to failure from the start. But if Ukraine wants to develop its shale or oil gas deposits, it's more than welcome to do so. If it gets enough to sell to the Germans, they'll probably buy it, if they can agree on a price. 

But for now, the German company RWE Supply & Trading GmbH has started selling gas to Ukraine. They have found this to be a good deal: it has been reported in the press that the price of Russian gas for Ukraine in December of last year was $430 per cubic meter, while for «German» gas it was $407. The volume of gas supplied by Germany in the first 7 months (November 2012 – June 2013) was 420 million cubic meters. This is a drop in the bucket compared to Ukraine's yearly consumption of around 40 billion cubic meters per year; however, Ukraine is making colossal efforts to reduce consumption, and in May of this year technical tests for the use of a pipeline through the Czech Republic and Slovakia in reverse mode have begun (negotiations with Slovakia took over a year). The CEO of RWE Supply & Trading GmbH, S. Judisch, says that his company plans to increase the volume of supplies to Ukraine to 30 billion cubic meters per year (4). In his opinion, if the gas is transported by three routes – through Poland, Hungary and Slovakia – this will be technically feasible. In addition to the agreements with RWE, Ukraine is planning to establish reverse supplies from Romania.

Incidentally, the Europeans are dreaming of ensuring the proverbial energy independence (from Russia, naturally) not so much for Ukraine as for itself. A plan for turning the Ukrainian gas transportation network into a gas reservoir for Central and Eastern Europe is being worked out. It is well known that Ukraine's gas transportation network includes extensive underground reservoirs capable of holding over 30 billion cubic meters of natural gas. Gas reservoirs are a sure means of ensuring the reliability of gas supply, as confirmed by the example of Germany; it had no interruption of its gas supply in 2009, when the Russian-Ukrainian conflict took place, or in the cold winter of 2011/2012. But in the countries of Central and Eastern Europe there are no such gas reservoirs; building them would require large capital outlays, and operation is not cheap. Currently the European Commission is striving toward the unification of networks, which requires colossal investments in the construction of connecting segments; therefore, the use of Ukraine's already existing capacity for gas storage would be, from the European Commission's point of view, an optimal solution. 

But what does the association agreement have to do with this? Strictly speaking, nothing. Even without it, the German company Ferrostahl AG is modernizing the Bar compressor station on the Soyuz main pipeline, since Deutsche Bank has already provided a line of credit in the amount of 53.5 million euros (5). This company is prepared to undertake the modernization of Ukraine's entire gas transportation system as long as there is financing. 

* * *

Europe has no serious economic interest in an association agreement with Ukraine, and for Ukraine the economic consequences of liberalizing trade with the EU are more than dubious. The idea of this agreement is of a deeply political character. Kiev, with a persistence worthy of a better cause, is demonstrating its commitment to the «European choice». And Europe, as former Chancellor of Austria A. Gusenbauer has said, wants to keep Russia from «getting its hands on Ukraine». Berlin's immovability on the issue of Serbia's accession to the EU shows that the Germans will obtain all the concessions they think necessary from their negotiation partners. 

The political element permeates the entire history of the negotiations for an agreement between the EU and Ukraine. These negotiations started during the 12th EU – Ukraine summit in September 2008 under the influence  (6) of the Russian-Georgian conflict, when V. Yushchenko tried to get the West to agree to accept Ukraine into NATO and the EU immediately. However, even then in Berlin (unlike in Warsaw and Stockholm) they expressed skepticism with regard to Ukraine's Euroatlantic integration. Why are the Germans now singing a different tune? 

The answer is simple: for the same reason Germany is not objecting to the creation of a transatlantic free trade area between the EU and the U.S.; despite the serious economic risk, Berlin welcomes the beginning of negotiations for creating an «economic NATO». National economic interests are being put on a back burner in favor of geopolitics: uniting the West against China. Similarly, signing an EU – Ukraine association agreement is viewed as a guarantee that Ukraine will not participate in any integration processes in the post-Soviet area…

This is indicated by a consistent chain of political signals: on May 13 J. Kerry in Washington assured Leonid Kozhara that the association agreement would be signed «soon»; on May 16 French Prime Minister J.-M. Ayrault wrote in a message to his Lithuanian colleague that «France is interested in the signing of an association agreement with Ukraine» (7); on the same day the European Commission issued a recommendation to the European Council to sign the agreement; on June 16 the EU Commissioner for Enlargement and European Neighbourhood Policy S. Füle stated that he has «no doubts» that the agreement will be signed at the summit in Vilnius. 

Under these circumstances only Berlin's antagonism toward the Ukrainian leadership could prompt Germany to block the signing of an agreement with the European Union.

(1) Ukraine umwirbt Deutschland. Euractiv.de, 24.05.13.
(2) According to figures from gtai.de
(3) See, for example, the publication of the Association of German Chambers of Commerce and Industry on the results of 2011/2012 “Erfolgreich in schwierigem Umfeld”//www.dihk.de.
(4) http://gazeta.zn.ua/energy_market/ukraina-dlya-rwe-ne-babochka-podenka-a-perspektivnyy-torgovyy-partner-_.html
(5) http://www.tendersinfo.com/details-14618499.php
The views of individual contributors do not necessarily represent those of the Strategic Culture Foundation.
What Lies Behind the Idea of the EU-Ukraine Association Agreement

«We have a great interest in signing the association agreement this autumn», stated German Foreign Minister G. Westerwelle during his visit to Kiev on June 21. It is expected that the agreement will be signed at the Eastern Partnership summit in Vilnius on November 28-29, 2013. 

V. Yanukovich hastened to assure the Europeans that the signing of the agreement «will have a substantial positive influence on the European economic situation and will help Europe emerge from the crisis.» In general, the Ukrainian side is taking great pains to gain Berlin's support. At a meeting of the German-Ukrainian High-Level Group which took place in the German capital on May 22-23, Ukrainian Deputy Prime Minister A. Vikul expressed gratitude to Germany for its enormous contribution to the development of Ukraine's economy and declared that the signing of an association agreement between Ukraine and the EU will open «unprecedented opportunities» for German business (1). Do tell! 

It is well known that after Russia and China, Germany is Ukraine's most important trade partner (2). If you don't count offshore Cyprus, Germany is the largest investor in the Ukrainian economy: 7.4 out of 49 billion dollars of direct foreign investments. In the two-way market, Ukraine has a constant deficit: while Germany's share of Ukrainian imports is 8%, for exports it is a modest 3% (2012). The highest volume in mutual trade was reached in 2008. Since then exports to Germany have been stagnant at a level of 1.5 billion euros, while volumes in the other direction have been steadily growing, increasing to 5.7 billion euros in 2012. Germany's imports to Ukraine include machines and equipment, electronics and electrical appliances (over half of exports), and, of course, automobiles and auto parts, 1/7 of the export volume. In exchange Ukraine sends raw materials, iron and steel (around 40% of its exports to Germany). It turns out that even without any trade liberalization Ukraine is buying more and more German goods, but it essentially has nothing to export there. Under these circumstances, offering itself as the «savior of Europe» is a bit presumptuous. 

German experience shows that for stable development it is first of all necessary to develop the real sector of the economy. Do the Germans plan to help Ukraine in this? For example, in boosting the declining machine building industry? Frankly, German business has no such plans. During the aforementioned meeting of the High-Level Group, the German side suggested environmental and climate protection as a prospective area of collaboration. Meanwhile, in the European Union they have been searching feverishly for a tactful way to get out of their previous large climate protection obligations, which have become too great of a burden for the economy of EU countries. Why should they suggest something to Ukraine that was too much for Europe? Neither German business nor the German government has an interest in moving production from Germany to other countries. 

The Germans consider Ukraine a «difficult partner», emphasizing that they have achieved success on this market not because of the difficulties involved, but in spite of them. (3) At the aforementioned meeting the German side pointed out to Ukraine that it needs to improve its business and investment climate. What, then, does the German side think of the work of the «German Advisory Group» which has been advising the Ukrainian government since 1994 on instructions from the Federal Ministry of Economics? Are the advisors not up to the task, or are the consultees thick-headed? 

Today, when Germany's main trade partners, the EU countries, are forced to reduce their imports, sales markets are more important for the German economy than ever. However, in 2012 Ukraine dropped to 54th place on the list of Germany's foreign trade partners. Considering this figure, Yanukovich's declaration that Ukraine will «help Europe emerge from the crisis» sounds at the least frivolous.

Can Ukraine offer its partners in the West something new and promising? At the negotiations in Kiev the prospects of collaboration in the gas energy sphere were discussed. For some time there has been talk of Ukraine providing Europe with shale gas. Which it doesn't have yet. No one knows yet what the European gas market will be like in the far-off year 2050, when Shell predicted significant production volumes of this raw material in Ukraine. The Germans think that they won't need to increase their import volume, and they don't want to extract shale gas at home, despite the tempting prospects described by Brussels and visitors from overseas. For example, last week the head of General Electric, J. Immelt, was pushing for the Germans to begin extraction of shale gas. However, the bill on shale gas proposed by Germany's Minister of Economics P. Rösler didn't even get past the government, and in the Bundesrat it was doomed to failure from the start. But if Ukraine wants to develop its shale or oil gas deposits, it's more than welcome to do so. If it gets enough to sell to the Germans, they'll probably buy it, if they can agree on a price. 

But for now, the German company RWE Supply & Trading GmbH has started selling gas to Ukraine. They have found this to be a good deal: it has been reported in the press that the price of Russian gas for Ukraine in December of last year was $430 per cubic meter, while for «German» gas it was $407. The volume of gas supplied by Germany in the first 7 months (November 2012 – June 2013) was 420 million cubic meters. This is a drop in the bucket compared to Ukraine's yearly consumption of around 40 billion cubic meters per year; however, Ukraine is making colossal efforts to reduce consumption, and in May of this year technical tests for the use of a pipeline through the Czech Republic and Slovakia in reverse mode have begun (negotiations with Slovakia took over a year). The CEO of RWE Supply & Trading GmbH, S. Judisch, says that his company plans to increase the volume of supplies to Ukraine to 30 billion cubic meters per year (4). In his opinion, if the gas is transported by three routes – through Poland, Hungary and Slovakia – this will be technically feasible. In addition to the agreements with RWE, Ukraine is planning to establish reverse supplies from Romania.

Incidentally, the Europeans are dreaming of ensuring the proverbial energy independence (from Russia, naturally) not so much for Ukraine as for itself. A plan for turning the Ukrainian gas transportation network into a gas reservoir for Central and Eastern Europe is being worked out. It is well known that Ukraine's gas transportation network includes extensive underground reservoirs capable of holding over 30 billion cubic meters of natural gas. Gas reservoirs are a sure means of ensuring the reliability of gas supply, as confirmed by the example of Germany; it had no interruption of its gas supply in 2009, when the Russian-Ukrainian conflict took place, or in the cold winter of 2011/2012. But in the countries of Central and Eastern Europe there are no such gas reservoirs; building them would require large capital outlays, and operation is not cheap. Currently the European Commission is striving toward the unification of networks, which requires colossal investments in the construction of connecting segments; therefore, the use of Ukraine's already existing capacity for gas storage would be, from the European Commission's point of view, an optimal solution. 

But what does the association agreement have to do with this? Strictly speaking, nothing. Even without it, the German company Ferrostahl AG is modernizing the Bar compressor station on the Soyuz main pipeline, since Deutsche Bank has already provided a line of credit in the amount of 53.5 million euros (5). This company is prepared to undertake the modernization of Ukraine's entire gas transportation system as long as there is financing. 

* * *

Europe has no serious economic interest in an association agreement with Ukraine, and for Ukraine the economic consequences of liberalizing trade with the EU are more than dubious. The idea of this agreement is of a deeply political character. Kiev, with a persistence worthy of a better cause, is demonstrating its commitment to the «European choice». And Europe, as former Chancellor of Austria A. Gusenbauer has said, wants to keep Russia from «getting its hands on Ukraine». Berlin's immovability on the issue of Serbia's accession to the EU shows that the Germans will obtain all the concessions they think necessary from their negotiation partners. 

The political element permeates the entire history of the negotiations for an agreement between the EU and Ukraine. These negotiations started during the 12th EU – Ukraine summit in September 2008 under the influence  (6) of the Russian-Georgian conflict, when V. Yushchenko tried to get the West to agree to accept Ukraine into NATO and the EU immediately. However, even then in Berlin (unlike in Warsaw and Stockholm) they expressed skepticism with regard to Ukraine's Euroatlantic integration. Why are the Germans now singing a different tune? 

The answer is simple: for the same reason Germany is not objecting to the creation of a transatlantic free trade area between the EU and the U.S.; despite the serious economic risk, Berlin welcomes the beginning of negotiations for creating an «economic NATO». National economic interests are being put on a back burner in favor of geopolitics: uniting the West against China. Similarly, signing an EU – Ukraine association agreement is viewed as a guarantee that Ukraine will not participate in any integration processes in the post-Soviet area…

This is indicated by a consistent chain of political signals: on May 13 J. Kerry in Washington assured Leonid Kozhara that the association agreement would be signed «soon»; on May 16 French Prime Minister J.-M. Ayrault wrote in a message to his Lithuanian colleague that «France is interested in the signing of an association agreement with Ukraine» (7); on the same day the European Commission issued a recommendation to the European Council to sign the agreement; on June 16 the EU Commissioner for Enlargement and European Neighbourhood Policy S. Füle stated that he has «no doubts» that the agreement will be signed at the summit in Vilnius. 

Under these circumstances only Berlin's antagonism toward the Ukrainian leadership could prompt Germany to block the signing of an agreement with the European Union.

(1) Ukraine umwirbt Deutschland. Euractiv.de, 24.05.13.
(2) According to figures from gtai.de
(3) See, for example, the publication of the Association of German Chambers of Commerce and Industry on the results of 2011/2012 “Erfolgreich in schwierigem Umfeld”//www.dihk.de.
(4) http://gazeta.zn.ua/energy_market/ukraina-dlya-rwe-ne-babochka-podenka-a-perspektivnyy-torgovyy-partner-_.html
(5) http://www.tendersinfo.com/details-14618499.php