Raw Awakening: Prospects for Ukraine’s EU Integration Slipping Away to Vanish beyond the Horizon

Raw Awakening: Prospects for Ukraine’s EU Integration Slipping Away to Vanish beyond the Horizon

The Maidan revolution involved grassroots into the process of power change. The integration with the European Union was promulgated as one of the main goals. The association agreement was a step on the way. It was signed on March 21, 2014. A year has passed, but there are no tangible results. The prospects for integration have become even murkier than they were back then.

In 2014 Ukrainian commodities freely moved to the European markets in line with the autonomous trade preferences envisaged by the association agreement. The export rose by 10-12% in the first ten months of the year, mainly thanks to agricultural production. The growth was expected to be 15% but it slowed down by the end of the year. The effect of nullifying export taxes was over, Ukraine had too little to offer and the economy was in deplorable state. According to the State Statistics Service of Ukraine, the country’s volume of exports to the European Union grew by only 2, 6%. It fell by around 22% in the fourth quarter of 2014. 

The latest data show that Ukrainian exports to the European Union in January 2015 dropped by 31% as to January 2014. Since the autonomous trade preferences (around $ billion) went into force the volume of Ukraine’s exports to the European Union was equal to two thirds of what it was when Nikolay Azarov headed the Ukrainian government. The former Prime Minister advocated discreet approaches to the development of relations with the European Union. The statistics show that the larger part of income in the form of export duties (70%) falls on ferrous metals. Perhaps it happened thanks to export of military hardware made unusable as the fighting continued in the Donbass. But it cannot last forever. The growth of exports cannot be further stimulated by devaluation of hryvnia. Experts don’t expect the Ukraine’s exports to soar even if the situation on world markets improves while the trade preferences are still in force. Anna Derevyanko, Executive Director of the European Business Association, said that export growth requires a stable and predictable economic policy which now doesn’t exist.

Nullifying EU export duties is not a big thing because of low quotas. Kiev prefers to hush up this fact. For instance, the quotas are set at 5% for grain exports. It makes Africa and Asia remain the main consumers. The EU association does not change the situation. Metals and fertilizers – the two leading exports – remain to be significantly restricted. By the end of the year it became evident that the majority of quotas were not exhausted. Most of commodities have not been exported at all. The quotas were used to the full by exporters who had sold their products to the European Union before. The main reason are non-tariff barriers, like, for instance, sanitary, veterinary and technical standards. It takes many years to start the production from zero and bring it up to the level of manufacturing goods to meet European standards and be exported. The endeavor requires a startup capital but it’s hard to attract investments for industrial production in Ukraine. Europeans are interested only in minerals and semi-finished goods; products with high-added value are not in demand in Europe, so Ukraine remains to be a raw materials supplier. The deep and comprehensive free trade area (DCFTA), a part of the association agreement with the European Union, comes into force on January 2016 to make Ukraine lower tariff protection or even eliminate it for some commodities. Kiev did not use to its advantage the period when the EU decreased its tariff protection from Ukrainian goods while Ukraine still kept its market protected by tariffs. The nullification of import duties will inflict great damage on Ukraine’s budget. The losses cannot be compensated by increasing the volume of exports. Many Ukrainian manufacturers will go broke. 

The dream of those who advocate the idea of European integration promising a great flow of investments is dashed. According to Eurostat, all East European EU members have maintained traditional exports and markets with no boost for high-tech production. So far, only George Soros has announced his plans to invest $1 billion into Ukraine’s economy. But he has the reputation of a profiteer making a fortune thanks to foreign-exchange speculation. Looks like Mr. Soros is going to use Ukraine for personal gains. Kiev has been cherishing a hope for a Marshall Plan to pour billions of dollars into its economy. Few in the West espouse such ideas. Normally the people who do hardly know the first thing about real politics, like, for instance, Anders Åslund, a Swedish economist and a Senior Fellow at the Peterson Institute for International Economics. Åslund served as an economic adviser to the governments of Kyrgyzstan, Russia and Ukraine. According to him, if the needed capital is provided as credits, Ukraine will not be financially sustainable. Actually he suggests that the money should be given as a present. European leaders don’t even consider such a possibility. At best they can offer limited sums as credits with rather rigorous conditions attached. 

Kiev expected the European Union to grant 2, 8 billion euros in the form of aid destined for economic reforms. But the European parliament approved only 1, 8 billion euros. It’s not exactly aid, but rather additional loans received by the EU to be then granted to Ukraine so that it could pay off its short-term obligations. Nobody will grant loans to Ukraine directly without guarantees offered by go-betweens. The money will not be spent on development and reforms but rather on paying off debts to Europe or, in other words, increasing the country’s debt burden. 

The hopes for free travel across Europe are frustrated. Biometric passports were issued some time ago to enable free movement across the Schengen Area countries. Then it was quietly scaled down because Europeans still wanted visas and there was no prospect for visa-free regime in the foreseeable future. The Head of the EU Delegation, Ambassador Jan Tombinski, said at the May 2015 Eastern Partnership summit in Riga that there will be no visa-free regime for Ukraine. 

Brussels ignores the request for sending European peacekeepers to Ukraine - the idea Kiev is pushing forward so hard. The EU shrugged it off while giving its consent only to strengthening the mission of the Organization for Security and Cooperation in Europe (OSCE). EU Commissioner for European Neighborhood Policy and Enlargement Negotiations Johannes Hahn said the EU countries plan to strengthen the OSCE mission in Ukraine, not to send peacekeepers there. According to him, "We are discussing not the peacekeeping mission, but strengthening the OSCE mission. That is the reason for OSCE secretary general’s presence at the meeting. EU is providing a lot of additional support, including people and equipment." 

Until now the European Union did not criticize the Ukraine directly. It has been continuing its policy of trying to exert pressure on Russia. But in case of Ukrainian regime it clearly realizes who it has to deal with. The European Union has no plans to integrate Ukraine till the present government stays in power. While supporting Ukraine in words the European Union takes no serious steps aimed at developing closer relationship. 

The preparations are on the way for the EU-Ukraine summit scheduled on April 27. Jean-Claude Juncker, the President of the European Commission, and Federica Mogherini, the High Representative of the European Union for Foreign Affairs and Security Policy, were expected to visit Kiev on March 30 to work out all the details related to the meeting’s agenda. Juncker refused to come for health reasons. He was followed by Mogherini who gave no reasons for her absence. These are diplomatic gestures to let know that no breakthrough is expected. It’s interesting to guess how Kiev will explain to German Chancellor Angela Merkel and French President Hollande the fact that it has not done anything to carry out the Minsk accords and why the laws adopted by Verkhovna Rada (the Ukraine’s parliament) have emasculated the substance of what was agreed on. 

It won’t be a landmark event in the EU-Ukraine relationship. For instance, Federica Mogherini has recently said that the European integration is not part of the agenda for Ukraine. She noted that the European Union and Ukraine would have done better by giving more attention to internal problems. Achieving success is the way for Ukraine to address them. 

Tags: IMF  Ukraine