Finally, a market economy

The European Union has officially proclaimed Ukraine a market economy, Prime Minister Yuriy Yekhanurov announced on Dec. 24. This appears to be more than a symbolic “gift” against the background of tensions between Ukraine and Russia, especially Moscow’s attempts to draw the attention of Brussels bureaucrats to Kyiv’s alleged “non-market” behavior in the gas situation.

“The Brussels-based Official Journal of the European Union has reported that the EU’s Council of Ministers officially recognized Ukraine a market economy country on Dec. 21,” announced the head of the Ukrainian government. He also noted that all procedures needed for the US to grant Ukraine market economy status should be completed by Jan. 23, 2006. The US will do this on Jan. 27, the prime minister added. It is difficult to determine why Brussels chose to make this decision precisely at this tense moment in Ukrainian-Russian relations. Still, Ukrainian diplomats and politicians interpret this as unambiguous support for Kyiv in certain areas, including the gas negotiations with Russia. In the past few weeks Moscow has been trying hard to tarnish the Ukrainian leadership’s image in the eyes of EU officials by means of the gas problem: ‘See how irresponsible your partner is!’ But things went differently.

A few days ago the European Union announced that Ukraine and Russia should continue their dialogue and arrive at a mutually acceptable decision on the gas issue, which calls for a gradual revision of prices for the supply and transit of gas. Announcing this viewpoint, Christina Gallach, spokesperson of the EU High Representative for the Common Foreign and Security Policy, Javier Solana, noted that the EU expects both sides, Ukraine and Russia, to ensure uninterrupted supplies of gas to European consumers, which both Kyiv and Moscow have repeatedly promised. “Reaching a compromise on the gas problem will serve the interests of all sides,” Gallach emphasized. Diplomacy rests on nuances and hints. The key distinction of this message is the phrase “gradual revision of prices.” Ukraine is also insisting on this in its talks with Russia.

Last Friday Benita Ferrero-Waldner, EU Commissioner for External Relations and European Neighborhood Policy, said in an interview with a Kyiv publication that the EU will be studying the possibility of intervening in the gas conflict between Ukraine and Russia if these countries fail to reach a compromise. “If this proves to be a really big problem, we will see,” the EU commissioner said. The Ukrainian-Russian gas talks is a matter of bilateral relations, and the EU “welcomes reaching a fair compromise between the two sides.” She also noted that “cooperation between the EU and Ukraine in the energy field will help Ukraine adapt to market prices and implement energy-saving technologies.”

However, it would be wrong to think that the European Union’s attitude will help solve the gas problem. Some countries depend on Russian energy resources no less than Ukraine, so it is too early for Ukrainian negotiators to be complacent. It seems strange that Oleh Rybachuk, Chief of the Presidential Staff, reportedly said last Friday that Ukraine has won the information war against the Russian Federation on the gas issue. “We are winning as far as information is concerned,” he said. According to Rybachuk, Europe supports Ukraine’s position, and European diplomats hope that the two countries will reach a mutual understanding.

This naturally raises the question: Is Ukraine conducting serious negotiations with Russia or taking part in information wars? There were some elements of an information attack from the Russian side, but no Russian officials dared admit that they were in some way implicated in this. The world is undoubtedly watching the events on the Ukrainian-Russian “front line.” Naturally, other countries are forming their own opinion of these events. The EU seems to be inclined to back Ukraine. This is a serious argument in the talks with Moscow. But things can change if Kyiv shows even a trace of flippant behavior during the negotiating process.

The tough approach of the Russians, who may have overdone it to some extent, proved ineffective. A recent statement by Sergei Yastrzhembsky, the Russian president’s aide and special representative for Russia-EU relations, was particularly harsh and unsubstantiated.

“In this case, one could advise the EU to play a more active role because it recently granted Ukraine market economy status,” he said. Yastrzhembsky noted that he feels “awkward pronouncing copy-book maxims, but market economy status should in general preclude any mention of barters and so on. But, apparently, EU professors should point this out to those who are making pertinent decisions in Ukraine,” the Russian president’s aide said.

This sounded like a challenge to the European Union, a challenge from a country that itself received market economy status for anything but economic achievements. It should be recalled that in 2002 EU industrialists resolutely opposed granting Russia market economy status, the main argument being the mechanism of establishing gas prices. According to the complaints that European industrialists have filed just this year, three years after Russia was granted market status, “certain countries, especially Russia, are practicing a two-tiered price structure: gas is being sold on the domestic market to industrial users at non-market reduced prices; at the same time, export prices are being set at the topmost level.” One can also recall other facts, for example, the way Russia was proclaimed a market economy at a bilateral summit on May 29, 2003. The EU delegation granted Russia market economy status without prior consultations with all the EU member states, which triggered a violent reaction within the Union — in both bureaucratic and industrial entities. Russia was admitted to the “club” in advance, on condition that it would carry out additional reforms, especially in the energy sector. This has not happened yet. So is it wise to be throwing around accusations in these circumstances?