Implementation of EU-Ukraine Association Agreement (II)
Dmitry MININ | 24.01.2016 | WORLD | BUSINESS

Implementation of EU-Ukraine Association Agreement (II)

See Part I

Is Europe saving Ukraine?

While the EU-Ukraine Association Agreement was being drafted, Europe and even the US talked about it as though it would be Ukraine’s salvation, but now that the agreement is in full force, that tone is slowly changing.

Ukrainians are no longer hearing as much about their rights as about their responsibilities. Generous promises are being replaced by appeals to search for internal reserves and to get things in order. Experts are calling attention to serious problems in the Ukrainian economy. The business community is expressing frank disappointment with what it is up against.

For example, Krzysztof Siedlecki, the president of the European Business Association in Ukraine, which protects the interests of European entrepreneurs here, points out that a free trade agreement with the EU offers not only opportunities, but also risks. Ukraine should be careful to remember that businesses can pull their money out and move it to Europe. Siedlecki thinks that if the business world figures out that it can accomplish the same things in Poland, the Czech Republic, and Estonia, only with fewer problems and less of a tax burden, then that’s where it will move.

By rejecting the trilateral format that Moscow proposed for a Deep and Comprehensive Free Trade Area (DCFTA) between the EU, Ukraine, and Russia, which was intended to preserve the remaining potential of the Ukrainian economy, Brussels put Kiev in a difficult position. The danger can no longer be ignored that Ukraine’s de-industrialization could accelerate, since it will be more difficult for Kiev to get its industrial products into the Russian market once duties are re-imposed, or it could even become impossible, as a result of sanctions imposed by Ukraine on trade with Moscow. There will be no hope in the foreseeable future of redirecting its more sophisticated products to Europe, because of differences in standards. In the past, metals have been the salvation of Ukraine’s export industry, but now their price has plummeted, and also their production has significantly decreased because of events in the southeastern part of the country. In this Free Trade Area, Ukraine is fated to only be able to provide agricultural raw materials.

Some see nothing wrong with the demise of Ukraine’s heavy industry and mechanical engineering sector, believing that the nation’s revival will not begin with those, but with Ukraine’s rich black soil and the latest information technology (IT).

The billionaire Yuriy Kosyuk, the biggest poultry producer in Ukraine and owner of the brand Nasha Ryaba, is a fervent backer of the Maidan protests and the «European Movement for Ukraine», but he recently quit the post of first deputy head of Petro Poroshenko’s administration, expressing his deep disappointment with, for example, the outlook for the EU association agreement in the agricultural sector. Until recently, he exported 250,000 tons of chicken to foreign markets, and he was obviously counting on European consumers to help him increase those numbers. Kosyuk was distressed when it became clear that nothing would come of it. In a Jan. 17 interview with the Ukrainian edition of Voice of America, he stated bluntly: «Ukraine was conned by the Free Trade Area with Europe».

He claims that European markets did not open up at all for most Ukrainian producers after the association agreement ultimately took effect, because a whole «pile» of exceptions and restrictions were affixed to it that created barriers to exports. Specifically, a quota was set that allows only 16,000 tons of Ukrainian chicken to be imported into the EU, which is only slightly more than 1% of what the country produces. And these quotas will not change in the next five years. «Europe has carefully defended its market and its own interests, and Ukraine has lost». A similar picture can be seen for other kinds of agricultural products. It will also become much more difficult to get products into the distant Asian food markets, such as in China, especially given the fact that Russia, which is geographically closer to them, is planning to significantly expand its footprint there. 

Israel’s total ban on importing Ukrainian eggs, due to salmonella contamination, was distressing news. In essence this means that those eggs cannot be exported anywhere. Given this situation, the ban on the export of Ukrainian agricultural products to Crimea (worth up to $0.4 - $0.5 billion per year) looks like a lethal blow for Ukraine’s agribusiness.

The fall in global oil prices offered some hope, but it turned out that this did not improve the competitiveness of the Ukrainian economy, and the problems are only growing.

The bottom line is simple: Ukrainian industry and its exports are faltering, and no growth can be seen in agriculture. So now what? How will Europe save Ukraine from the predicament in which Europe itself has forced that nation (with the connivance of the current Ukrainian government)?

Ukrainian Foreign Minister Pavlo Klimkin met with the foreign ministers of the «Group of Friends of Ukraine» on Jan. 18 in Brussels. Afterward, the European ministers convened for a meeting of the EU Council on Foreign Affairs (but without Klimkin).

Later, on behalf of his colleagues, Klimkin was presented with a short document, titled «Food for Thought», in which the ministers laid out their opinions about further measures to support Ukraine, as well as what to do to ensure that reforms there are truly carried out, not merely simulated. The document was drawn up on behalf of nine countries, including Germany, the United Kingdom, the Netherlands, and the countries of Central and Eastern Europe.

Experts have commented on the document’s harsh tone – for example, in its claim that although substantial progress has been made in regard to the passage of new laws and the creation of new bodies, «[i]n some areas the actual implementation of reforms lags behind and is hampered by vested interests and lack of capacity. The complex processes of change and perceived lack of tangible results create disappointment and frustration among Ukrainians». The document also noted that it was particularly worrisome that only 5% of the public had confidence in the judicial system.

Its recommendations are simple: Ukrainians must «reinforce their efforts to adopt and implement effective reforms, in particular in the area of anticorruption». In addition, the establishment of a deputy prime minister for European integration could help create a «transparent and effective coordination structure for reforms». Until recently, Yatsenyuk has avoided establishing this post, fearing the emergence of a competitor within his government. After all – integration is one thing, but personal interests are quite another. 

And the EU speaks only in general terms when mentioning its own role in supporting reforms in Ukraine, not committing itself to any specific obligations.

In addition, Deutsche Welle (DW) reports that the EU has reminded Ukraine of the need to respect the Minsk agreements. British Foreign Minister Philip Hammond made mention of this. According himthe Ukrainians must «make sure they can look the Russians firmly in the eye» when Russia accuses them of noncompliance. 

So, it is coming to light during the very first phase of the implementation of the EU-Ukraine Association Agreement that this will not be Ukraine’s «salvation». Nor will the agreement, upon which Ukraine’s citizens had naively pinned their highest hopes, save the EU’s prestige in their eyes. Europeans have realized that the funds that they are able to allocate will not be enough to pull Ukraine back from the abyss. That country’s needs can be measured not in tens of billions of euros, but in hundreds of billions, and neither European finances nor European public opinion can afford that. It is this simple truth, and not the «hand of Moscow» or the Dutch referendum, that could lead to the «continental crisis» mentioned by Juncker.

In order to save the remnants of the Ukrainian economy, it will have to be acknowledged that there is no alternative – Ukraine must recover its traditional ties, although apparently it is already too late for some losses to be recovered... But if they turn to Moscow, they will not find Moscow to be vindictive. Despite the allegations in the propaganda from Kiev, the people of Ukraine and Russia share a long fraternal history, and Russia is not indifferent to their fate.

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