Foreign Policy and Civil Society Program

October 2012

Summary: Eight years after the Orange Revolution and less than a month before new parliamentary elections, Ukraine still finds itself at the crossroads of major geopolitical integration processes. The uncertainty of the situation magnifies the current crisis in relations between Ukraine and the EU caused by domestic political processes in Ukraine. It casts doubts on the prospects of Ukraines European integration in general, and, in particular on the signing and coming into force of the Association Agreement with the EU, which envisages creation of an important integration vehicle the Deep and Comprehensive Free Trade Area. On the other hand, Russia has stepped up pressure on Ukraine to re-engage in projects aimed at the reintegration of former Soviet space: the Customs Union, the Single Economic Space, and, in the future, the Eurasian Union. Ukraine remains a prisoner of this stark choice, a choice the current government has only made rhetorically. Moreover, relations in the Ukraine-EURussian Federation triangle are being further complicated by the shifting and contradictory processes taking place on the European continent, which underline the urgency of finding the answers to new challenges and threats.

Ukraine Between Two Paths of Integration

by Valeriy Chalyi

Ukraines non-compliance with Russias desire to integrate the country in its grand union of Eurasian states will be seen by Russia as significantly diminishing the value and complicating the implementation of its integration projects. In comparison, Ukraines choice of an Eurasian orientation is regarded as of less importance by the EU, or at least by many of its members. Yet Ukraines choice of a pro-Russian path should not be looked upon with indifference by the EU, as it carries the risk of transforming the country into an unreliable EU neighbor one governed through managed democracy and whose values differ from European ones. It would also mean that the process of further expansion of the area of democracy, freedom, and security to the East was effectively suspended. Russia and the EU see the substance and goals of their respective integration processes of the post-Soviet area differently. The respective projects of Moscow and Brussels are based on different values and employ different mechanisms of cooperation. Particularly, the countries that are (or intend to become) members of integration unions under the leadership of Russia are not required to ensure the rule of law, protection of rights and freedoms of citizens, development of civil society, independence of judicial system, and transparency of their electoral processes. To put it simply,

Russian-led unions, as reflected in their founding documents, do not care about the status of democracy in their member states, and do not aim at its development. It is in this context that Ukraine has yet to determine the direction of its integration. This choice cannot be defined by economic considerations alone. It is in fact a choice of civilizations for Ukraine, the choice of the basic values that will underpin countrys further development. Ukraine will either adhere to the project that is intended to unite European states on the basis of democracy and supremacy of law, or become a party to the associations of the post-Soviet countries with transition economies, low social standards, mainly authoritarian political regimes, and numerous challenges in the field of democracy and human rights. The Ukrainian law On the Foundations of Domestic and Foreign Policy, approved on July 1, 2010, states as one of the main principles of the countrys foreign policy is to ensure integration of Ukraine into the European political, economic, and legal area for the purpose of becoming the member of the European Union. Unfortunately, modern Ukrainian history abounds with examples of changes of the countrys strategic course due to political considerations. Prioritization of the European integration course should not be viewed as an

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exclusion of establishment of mutually beneficial partnerships and neighborly relations with the Russian Federation. Ukraines choice of European civilization should be the selection of fundamental values and a strategic developmental model, and not the result of geopolitics and the consequent division of Europe. Furthermore, Ukraines interest is to see Russia also moving towards European democratic values and standards, as well as expanding and strengthening integration relationship with the EU, even if this is a distant perspective. This would best ensure Ukraines security, as well as its economic and social development. Ukraine is now caught in a triangular relationship with Brussels and Moscow that is characterized by: Unpredictability: Political relations in the Brussels Kyiv Moscow triangle are complicated and difficult to predict. This applies to all sides of this geometric construction. Relations between Kyiv and Brussels are now in a critical state, mainly due to internal policy developments in Ukraine. This endangers the entire body of Ukraine-EU cooperation. Ukraine-Russia relations are asymmetric and unequal. The potential leverage of Ukraines concessions in relations with Russia shrinks, while Moscows pressure to draw Kyiv in the Customs Union and other Russian integration projects continues to grow. The dialogue between Moscow and Brussels is complicated by a number of problems: geopolitical competition, the critical attitude of the EU to the state of democracy in Russia, differences in opinions about continental security, and the settlement of frozen conflicts. Relations in the energy sector also continue to be tense. Unexploited Economic Potential: Economic interaction between the EU, Ukraine, and Russia does not correspond to the parties potential. The main obstacle

for development of efficient economic relations in the EU-Ukraine-Russia format (and especially between Ukraine and the EU) is the inadequacy of Ukrainian and Russian regulation of economic activity (nonprotection of ownership rights, lack of independence of the judiciary, spread of corruption, and burdensome and inefficient state regulation of the economy). Without relevant institutional changes, the possibilities for international economic interaction will continue to be limited. If it were to integrate into the Customs Union, Ukraine could obtain a few short-term economic benefits. Yet this choice would seriously endanger the countrys strategic goal of changing its development model to that of innovative economic development. Eventually, the country would bear the burden of the likely negative economic, financial, and political effects of Eurasian integration. On the other hand, firmly establishing the priority of the European integration trajectory (accompanied by equal and transparent relations with Russia) promises Ukraine no instant economic benefits. Yet this choice brings the country strategic victories: by implementing European values, norms, and rules, Ukraine will fundamentally enhance its institutional attractiveness and get real chances for the national economy to restructure on a modern innovative basis (since the innovative potential of the EU is much higher than that of Russia). Problematic Dialogue on Energy: The parties dialogue on energy is asymmetric and wrought with conflicts. The Russian energy policy toward Ukraine stands out for its consistent toughness. Russian leadership uses Ukraines energy dependence to keep it within its sphere of influence. After the signing of the Kharkiv Agreements, the space for Ukraines traditional policy of maneuvering between energy spaces of the EU and Russia shrank substantially. The Ukrainian authorities have chosen the path of political concessions rather than seeking the legal settlement of the commercial dispute on the problem of gas pricing. This only serves the narrow interests of business structures close to Ukrainian authorities, who are interested in the preservation of opaque schemes in relations with Gazprom. It is also a reflection of the

Ukraines interest is to see Russia also moving towards European democratic values and standards.
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authorities inability to place Ukraines energy policies within the context of the declared goal of Ukraines European integration. The energy policies of both Russia and Ukraine are inconsistent with the principles of EU energy market reform, since administrative methods of state management prevail in both countries, giving rise to corruption and unfair competition. This hampers proper coordination among the elements of the European energy equation (the EU, Russia, and Ukraine), and consequently enhances the risk factors for European energy security. Joining the Energy Community has given Ukraine an opportunity for full accession to the EU common energy space. The next step, regulatory-legal compatibility of the gas markets of Ukraine and the EU, would promote fair competition, ensure the safety of the gas supply, and strengthen Ukraines position in negotiations with Russia. It is up to Ukrainian government to take this next step, if they so chose. Potential for Development of Cooperation in the Security Sector: Ukraines security policy in general, and vis a vis Europe in particular, is characterized by inconsistency. The security deficit Ukraine perceives is largely due to its inability to ensure adequate defense through its own forces, and a lack of reliable foreign security guarantees. The non-bloc policy has provided Ukraine with no security guarantees, and has not protected it from being dragged into the Russian sphere of influence. Ukraine-EU cooperation contributes to the enhancement of security, stability, and democratic values on a national, regional, and global scale. Further development of partnership between Brussels and Kyiv in the

security sector poses no threat to the interests of other states and international organizations, and should be sought. Cooperation with Russia in the security sector is important for Ukraine, especially in those sectors (training of troops, defense industry cooperation) where Russia tends to abide by European standards. However, one should be aware of the considerable differences between the two countries, caused by the different scales of geopolitical interests and political, financial, and economic resources available to pursue those interests. Problematic Socio-Cultural Relations: Humanitarian, socio-cultural, and individual contacts between Ukraine and the EU are rather limited and unstable, in particular due to the language barriers and rigid visa procedures in the Schengen area. The socio-cultural aspects of Ukrainian-Russian relations are overly politicized and concentrate mainly on subjects sensitive for both countries: different interpretation of some historic events and figures, the granting official status to the Russian language in Ukraine, etc. Humanitarian and socio-cultural aspects of the EU-Russian relations are complicated by different perceptions of democracy, the rule of law, human rights, and freedoms by both parties. This affects not only bilateral relations but also relations in the triangle, where Ukraine has been subject to opposite influences in choice of its values. Based on this, we can imagine three scenarios for Ukraines further drift within the East-West coordinates: Conservation of the status quo, where Ukraine continues to pursue a non-bloc policy, remaining in the grey zone between the two integration groups (the EU and the Customs Union) and two collective security systems (NATO and CSTO). However, the window of time Ukraine can indulge in remaining non-bloc shortens. Growth of Russian pressure further reduces the Ukrainian authorities possibilities for maneuver, and, in the absence of a strategic decision, pushes them to hasty and unreasonable decisions. In the absence of reliable security guarantees, risks to Ukraines sovereignty will soon occur.

The energy policies of both Russia and Ukraine are inconsistent with the principles of EU energy market reform.
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Eurasian integration will grow out of the previous scenario. Its implementation is contingent only upon Ukraines consent, and, in the initial stages, it only requires minimal efforts (accession to the Customs Union). Consequent adherence to the Single Economic Space and the Eurasian Union would be mostly a matter of time. Russia is interested in such a scenario, and will do its best to see this occur, with Ukraine a satellite country serving Russian interests. Regrettably, current Ukrainian society does not seem able to reach an accord and counter this course of action. This scenario will result in a deep internal crisis, emergence of new dividing lines, and deterioration of the security situation on the EU borders. European integration is an alternative to the two previous scenarios. It is in the interest of Europe to widen the area of security and stability, and it is in Ukraines long-term interest to associate itself with Europe. Unlike Eurasian integration, which comes easily and for free (albeit at a price), European integration requires serious political will, intellectual efforts, and resources. It can only be carried out by a team of true reformers, who are yet to come to power. They should be ready and able not just to declare changes, but also to make them, to meet the expectations of supporters, and to recruit new ones, despite difficulties and resistance. In the Ukrainian reality, this makes European integration a very challenging task. Implementation of this scenario is conditional on: clearly and irreversibly defining European integration trajectory as a political priority of the country, proved by the practical actions of the government; deepening of partnerships with European and Euro-Atlantic structures; and following the principles of openness, good-neighborliness, and mutual respect in relations with Russia. Both processes the conclusion of the Association Agreement which brings Ukraine into political association and economic integration with the EU and Russias increased efforts to bring Ukraine closer to the Customs Union are taking place simultaneously, with the latter increasing in pace. As a result, we expect to see the end of Ukraines continuous multi-vector policy. Ukraine has to determine its priority integration model, and any further delay weakens the countrys ability to make its own decision, and not have it be imposed by external forces. Ukraine is left a

very short period of time to finally determine the strategic model of its civilizational development. Both European and Eurasian development models have their pros and cons. However, the strategic long-term benefits of European integration outbalance the tactical, short-term benefits of Eastern integration. In all major domains political, economic, energy, security, and socio-cultural the movement to the EU corresponds to Ukraines national interests.

About the Author

Valeriy Chalyi is the Deputy Director General of the Razumkov Center. He is also a participant in the GMF-funded project Ukraines Quest for European Integration: Internal and External Dimensions. The main conclusions presented in the paper are based on the results of the Razumkov Center study Development of Relations in the EU-Ukraine-Russia Triangle: Problems and Prospects.

About GMF
The German Marshall Fund of the United States (GMF) is a nonpartisan American public policy and grantmaking institution dedicated to promoting better understanding and cooperation between North America and Europe on transatlantic and global issues. GMF does this by supporting individuals and institutions working in the transatlantic sphere, by convening leaders and members of the policy and business communities, by contributing research and analysis on transatlantic topics, and by providing exchange opportunities to foster renewed commitment to the transatlantic relationship. In addition, GMF supports a number of initiatives to strengthen democracies. Founded in 1972 through a gift from Germany as a permanent memorial to Marshall Plan assistance, GMF maintains a strong presence on both sides of the Atlantic. In addition to its headquarters in Washington, DC, GMF has seven offices in Europe: Berlin, Paris, Brussels, Belgrade, Ankara, Bucharest, and Warsaw. GMF also has smaller representations in Bratislava, Turin, and Stockholm.

About the On Wider Europe Series

This series is designed to focus in on key intellectual and policy debates regarding Western policy toward Wider Europe that otherwise might receive insufficient attention. The views presented in these papers are the personal views of the authors and not those of the institutions they represent or The German Marshall Fund of the United States.