Focusing on politics and leaving the economy behind the scenes

A meeting between Petro Poroshenko and Vladimir Putin was allegedly to be held in Ankara on August 28, after the inauguration of the newly elected president of Turkey. This rumor appeared in the media which cited diplomatic sources, but there was no official confirmation of such a meeting. Anyway, had it happened, the range of issues would have been obvious, including the war and the association with the EU. The Ukrainian and Russian presidents began discussing these topics earlier in the week during a tripartite meeting involving Ukraine, EU and the Eurasian trio in Minsk at a summit of     the Customs Union (CU). Along with political statements, the meeting heard also a number of important economic ones.

The first of them dealt with amendments to Ukraine’s agreement with the EU. Russia is preparing its proposals to the basic agreement on the EU-Ukraine FTA and planning to announce them on September 12 in Brussels, where the next stage of the tripartite negotiations on the implementation of the agreement is to be held, as confirmed by the European Commissioner for Trade Karel de Gucht on August 27. So, the Kremlin expects by this time to obtain enough leverage to revise the agreement’s economic part as it suits them, because, as they allege, EU-Ukraine trade will harm Russia’s economy. The Ukrainian side reacted immediately. “We would like our Russian colleagues to stop engaging in wishful thinking. There will be no changes to   the agreement. We will ratify and implement it,” Foreign Minister of Ukraine Pavlo Klimkin tweeted. While his statement is true, the European commissioner has confirmed that the tripartite meeting will be held. Therefore, we will be forced to listen to the aggressor’s objections, and we must prepare for it.

Chairman of the board of the Institute for Economic Research and Policy Consulting Ihor Burakovsky believes that Russia’s complaints about the Association Agreement are a manifestation of its traditional stance. Everyone is seeing clearly that despite Putin’s constant statements to the contrary, Russia will not suffer any economic problems because of the Agreement. However, Burakovsky explains that it is too late for Russians to abandon their fiction, because too many of them now believe it. “If they back down now, it will actually be a confession of political failure,” the expert added in an interview with The Day. What should we do now? According to Burakovsky, Ukraine should appeal to the WTO dispute resolution mechanisms in case of problems in trade relations with Russia, like smuggling. He remarks that it was mostly Russia that used them over the recent years. “Most importantly, it is unclear how it can even be possible under international law to revise the agreement which has already been initialed? This is a direct interference in the affairs of Ukraine,” he concluded.

Former economy minister Volodymyr Lanovy is worried about another issue. “The Ukrainian side has agreed to the creation of a tripartite working group for elaboration of amendments to the Association Agreement. Typically, tripartite working groups are created exactly to prevent finding a solution,” he told The Day. Thus, the expert concluded, it looked like “Russia simply wants to delay the ratification of this agreement by the Ukrainian Parliament and harm Ukraine as much as it can. The main purpose of all its actions now is to stir a new socio-economic conflict and effect overthrow of the current pro-European government.” While we understand well what the leadership of Russia wants, the Europeans’ stance is amazing. All signs point to them only wanting to localize the conflict, to prevent it from widening, but Europe does not offer ways that would eliminate it, he says. “They are interested just in keeping the lid shut on the      boiler where Ukraine is now,” Lanovy said.

The second statement had to do with maintaining economic relations with the CU. The Ukrainian government called for continued economic dialog between Ukraine, the EU and the Eurasian trio. “Even now, without any restrictive measures, our trade with the CU has fallen by 30    percent. It harms both Ukraine and our partners in the CU, and any further deterioration in terms of trade would be totally unacceptable,” Poroshenko said. He then added that Ukraine was ready to engage in economic dialog but wants it to be pragmatic and avoiding “the use of political pressure.” According to him, the EU association cannot hurt normal trade with the CU. Poroshenko got supported by Kazakh President Nursultan Nazarbayev, who said he was not expecting any problems for trade with Ukraine after signing of this agreement.

Ukraine is really interested in maintaining good relations with Belarus and Kazakhstan, Burakovsky says in his comment on this initiative. This is especially important because we have a free trade area with these countries. “Ukrainian economy is an open one and needs all markets it can get its exports into. On the other hand, Belarus and Kazakhstan have not supported Russia, and none of them has joined the Russian sanctions. This suggests that the CU is not a well-established organization with strong traditions. It scares Russia, for it has no integration success to show off,” the expert continued. Therefore, Burakovsky advised build closer trade links with Belarus and Kazakhstan instead of breaking them.

Trade is always a matter of negotiation, Lanovy adds. Of course, he says, one can listen to the Russian proposal on the issue of labeling that, if Putin is to be believed, is Russia’s chief problem with Ukraine’s FTA. However, he stresses, it would be another matter if the Russians want to check on the goods which will be imported in that country. “It will be virtually full-fledged control,” Lanovy predicted. Knowing Russia’s methods, the expert emphasizes, we must not succumb to its entreaties and chatting, “for Russia says one thing and does another. It agreed in Minsk to strengthen border, but is doing everything to destroy it. So, we should listen, but understand that everything will be done in exactly the opposite direction,” he concluded.

The third statement called for a new gas agreement and stopping the Stockholm litigation. European Commissioner for Energy Guenther Oettinger proposes to achieve an interim gas agreement between Ukraine and Russia without waiting for the Stockholm arbitration’s outcome. “Two cases are heard in the Stockholm court, but the hearing will take 12 to 15 months, and we cannot wait that long. We need an interim solution for this winter,” he said. Surprisingly, tone of his statement coincided with the traditional rhetoric of the Kremlin on the gas issue. In his familiar manner, Putin tried to shift responsibility for gas supply to Ukraine, stating that Naftohaz’s suit prevents Russia from giving our country any discounts on gas supplies.

Our experts advise against swallowing this gas bait.

“Russia is not sure of its position in the Stockholm arbitration. What we see now is the first probing around the situation, trying to determine if it is possible to move away from the arbitration and sign a new agreement. They call it preferential to save face while we would get nothing less than revision of the current contract parameters. I would advise our leadership to be very careful in this regard, and withdraw the suit only when they will be 100 percent sure what agreement we will sign. Putin’s statement is also evidence of the Kremlin’s reaction to the situation in the world. After all, Europe has stated that it is developing measures to cope with a complete cessation of gas deliveries from Russia. This is a major signal for Russia, showing that frontal blackmail does not work anymore,” Burakovsky explained.

Do not accept any interim agreement on gas offered by Oettinger, Lanovy agrees. “The Stockholm arbitration is our only opportunity to get an equal position in the dialog with Russia. Everything else will be just doing other countries’ bidding, and the position of the EU, as expressed by Oettinger, looks in this respect like protective towards Russia,” he explained.

According to the interviewed experts, Gazprom sees preventing the gas case from going to court as an extremely important task. After all, if the court’s decision favors Ukraine, the terms of the suit will see the price of gas revised for us, and six billion dollars repaid which Ukraine states it overpaid for natural gas since 2010.

The meeting in Minsk is another attempt to clarify the parties’ position, our experts say. The only crucial addition is the EU’s updated position on gas which is very close to the Russian one. Therefore, the experts advise the government not to succumb to pressure and maintain the course to the very end.