Saturday, October 25, 2014


Ukraine

Explainer: What EU Accords Mean For Ukraine, Georgia, and Moldova

European Council President Herman Van Rompuy (right) exchanges documents with Ukrainian Prime Minister Arseniy Yatsenyuk during the signing of the political provisions of the bloc's Association Agreement with Ukraine in Brussels on March 21.
European Council President Herman Van Rompuy (right) exchanges documents with Ukrainian Prime Minister Arseniy Yatsenyuk during the signing of the political provisions of the bloc's Association Agreement with Ukraine in Brussels on March 21.
By Charles Recknagel

Ukraine, Georgia, and Moldova will take a step closer to the EU when they sign key accords in Brussels on June 27. Here are five things to know about what's at stake.

What accords are Ukraine, Georgia, and Moldova signing with Brussels?

Ukraine will sign an accord on closer economic ties -- a Deep and Comprehensive Free Trade Area (DCFTA) agreement -- after already signing an Association Agreement on closer political ties with the EU on March 21.

Moldova and Georgia each will sign both an Association Agreement and a DCFTA.

The signings on June 27 come after the crisis over Russia's intervention in Ukraine disrupted the EU's original schedule for concluding agreements with all three countries -- all of which are members of the EU's Eastern Partnership program. 

Brussels had originally planned to sign the political and trade accords with Kyiv in November at a summit in Vilnius but was jilted by Viktor Yanukovych, then Ukraine's president, when he came under heavy Russian opposition to the deal. 

That reversal led to the Euromaidan revolt and Yanukovych's ouster. The EU signed the political accord with Kyiv in March following Russia's annexation of Crimea.

Brussels had originally planned to sign political and trade pacts with Chisinau and Tbilisi by the end of this year, after each initialed agreements at the Vilnius summit. 

But the signing date was moved up as the Ukrainian crisis made all parties nervous that Moscow might try to obstruct the process.

"Things have gone ahead much quicker because of the risk of the Russians perhaps derailing or creating high levels of tensions in both Moldova and Georgia in the run up to signature," says Amanda Paul a policy analyst with the Brussels-based European Policy Institute. 

"They didn't want to have a repeat of the Vilnius scenario where for months and months before the Russians were like an octopus and threatening and creating tensions and stirring things up." 

How will Ukraine, Georgia, and Moldova benefit?

The immediate benefits will be economic as the three countries gain unfettered access to the EU's market of 500 million customers.

The EU will cut import tariffs for all three countries as part of a phased-in opening of markets on both sides. The removal of the EU import tariffs will be "front-loaded," meaning most will occur in the first few years following the agreement.

However, the three countries will go more slowly in cutting their tariffs on imports from the EU in order to protect some fragile sectors from competition.

Thus, the EU will open its markets to Ukrainian goods within seven years, while Kyiv will have up to 10 years to open its market to EU goods -- and up to 15 years for Ukraine's vulnerable auto sector.

In addition to lowering tariffs, Brussels will assist these countries in bringing their products up to EU quality standards, which will speed their access to the the European market.

"The most important industry for standards is, of course, food because you want to make sure that if people buy some foods there is no risk for their health, so there are lots of regulations regarding food security and safety in the EU," says Ricardo Giucci, head of the German Advisory Group in Ukraine, a German government-funded project helping Kyiv prepare.

"Any company in Ukraine that now wants to export foodstuffs to the EU would have to comply with these new standards. So that by complying with the new food safety standards in Ukraine they will be able to sell their products to Germany, to Britain, or France without extra papers."

Beyond economic benefits, all three countries will improve their chances of one day becoming EU member states.

Dmitar Bechev, director of the Sofia office of the European Council on Foreign Relations, a pan-European think tank, says that all the countries which have joined the EU from Eastern and Central Europe and the western Balkans over the past 15 years had a preliminary association with the bloc.

However, he notes, Brussels is making no promises ahead of time.

"The EU, as ever, is exercising creative ambiguity and that has been the case since the very launch of the European Neighborhood Policy (ENP)," says Bechev.

"For the eastern members, the formula they adopted is that the ENP, including those association agreements which are the fundamental pillars of the Neighborhood Policy, is not a stepping stone to membership but it is not an alternative either."

He says that ambiguous language reflects a "very fragile compromise" reached between EU member states such as Poland and Romania, which want the union to expand farther east, and members such as Germany and France, which are more cautious.

Do the accords limit the countries' ability to trade with Russia?

Moscow sought to pressure the three countries into joining the Russian-led Customs Union, which Moscow sees as an alternative free-trade space to the EU. 

To increase the pressure, Moscow stated on numerous occasions that by signing the free trade accord with the EU the three countries could no longer have free trade with Russia, because that would be incompatible.

But analysts say that interpretation is more about Moscow playing hardball than about real commercial restrictions.

"It is quite possible and plausible to have a normal free trade agreement with Russia as well as be part of the [EU's] DCFTA," Paul says.
 
"But obviously if the only thing on offer [from Moscow] is the Customs Union, and not an independent Free Trade Agreement [with Moscow], then it is impossible. But this is something that has been put in place by the Russians, not by the EU."

The three states can have free-trade deals with Brussels and Moscow because Russia is a member of the World Trade Organization (WTO).

"The EU association agreements are embedded into the whole fabric of the WTO," Bechev says. 

"So, [the three] countries can trade freely with non-members of the EU to the extent that they are also members of this bigger umbrella, which is the WTO."

Joining the Moscow-led Customs Union, however, would preclude a DCFTA with the EU because it would require more extensive legislation to synchronize customs rules with Russia -- which would lead to conflicts with European customs regulations.

How might Russia react?

Moscow has signaled it will impose trade barriers on Kyiv over its free trade pact with the EU.

Russian President Vladimir Putin told an agricultural meeting in the southern city of Stavropol last week that it was "absolutely certain" that Russia will not be able to maintain its zero duty on imports from Ukraine. Moscow claims it will need to protect itself against Ukraine re-exporting duty-free EU goods into Russia and undercutting Russian domestic products.

However, any tougher Russian customs or tariff measures against Kyiv could harm Ukraine's economy, meaning they could also be intended to give Moscow political leverage over Kyiv amid the current Ukraine crisis. Ukraine sends 20 percent of its exports to Russia, worth $15 billion a year.

Moscow has not mentioned any specific retaliatory measures against Moldova. But here, too, there have been threats.

Russian Deputy Prime Minister Dmitry Rogozin late last year warned Moldova against being too quick to move toward the EU, saying "traveling at such speed, a locomotive can lose its rear carriages."

Some 12 percent of Moldova's exports go to Russia and Moscow has already banned Moldovan wine since September in what many analysts say is arm-twisting.
 
There are other pressure points, too. Moldova is heavily dependent upon Russian gas and also depends upon remittances from Moldovan citizens working without visa requirements in Russia. 

Equally troubling for Moldova are fears an angry Russia could move to annex Transdniester or make trouble in the autonomous Moldovan region of Gagauzia, which voted overwhelmingly in a February referendum in favor of the Customs Union over the EU.

Tbilisi is far less economically vulnerable to Russia, thanks to having turned its trade away from Moscow after the 2008 Russian-Georgian war. It also receives its gas from Azerbaijan, not Russia, thanks to the Baku-Ceyhan pipeline, which passes through Georgia. 

But Russia still holds trump cards with the breakaway regions of Abkhazia and South Ossetia, which Tbilisi wants back and does not want to see annexed by Moscow.

What about the EU's other Eastern Partners?

The other three members of the EU's Eastern Partnership program are Azerbaijan, Armenia, and Belarus. None of these three countries will be signing an Association Agreement or free trade pact with Brussels on June 27 or look likely to do so anytime in the near future.

Azerbaijan has been courted by both Brussels and Moscow but seems intent on steering its own independent course while cooperating with both. 
 
Armenia, much to the EU's surprise -- and reportedly following Russian pressure -- has said it wants to join the Moscow-led Customs Union. The announcement by Armenian President Serzh Sarkisian on September 3 came just ahead of the Vilnius Summit in November, where Yerevan had been expected to initial an Association Agreement with Brussels. 

Belarus, the final member of the European Partnership program, is already in the Russian-led Customs Union and has a frosty relationship with Brussels.

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