Foreign Policy Will Prove Decisive for Ukraine in 2013

January 23, 2013
Anthony T. Salvia
Director, American Institute in Ukraine

2013 could prove a watershed year for Ukraine in foreign policy.

Kiev will have to choose between a free trade agreement with Europe and a Russia-backed Customs Union, meet or reject IMF demands that it raise the price of gas on Ukrainian enterprises and households, and undertake to resolve some of the region’s most intractable conflicts as chairman of the Organization for Security and Cooperation in Europe.

Kiev and Brussels will hold a summit in February as prelude to the possible signing of an Association Agreement (including a Deep and Comprehensive Free Trade Agreement) in November. In that eventuality, Ukraine could find itself frozen out of the CIS’s Eurasian Customs Union.

Whereas the Eurasian Customs Union offers Ukraine unimpeded access to a growing market of some 200 million people, tariff protection for domestic industry from non-CIS competition, and, most important, a sharp reduction in the gas bills paid by Ukrainian enterprises and households, the DCFTA has few tangible benefits, if any.

The matter of gas prices is especially critical. The IMF is insisting on a six-fold increase in gas prices if Kiev is to receive billions of dollars in new loans. Without the loans, the government would find it impossible to meet it s fiscal obligations; and yet acceding to the IMF demands is a major political headache for the government. To raise gas prices is to win new supporters for the Eurasian Customs Union, as it is only membership of that organization that guarantees a reduction in the cost of imported energy. Belarus’ energy costs have decline by 1/3 since joining the Customs Union.

The most DCFTA has to offer Ukraine is the intangible benefit of having inched that much closer to membership of the magic circle of progressive humanity – i.e., Brussels Europe, and, by extension, the wider Euro-Atlantic world.

For some Ukrainians – opposition leader ArseniyYatseniuk, for instance – the DCFTA’s paucity of tangible benefits is less important than the fact that in inching towards “Europe,” Ukraine is embracing European “values” and rejecting Soviet ones (the pretense being that Russia is still the Soviet Union). As noted, Europe is a near-mystical incantation to be repeated endlessly like a mantra. It is its own reward.

That’s fine for the Ukrainian elite, but the Ukrainian people need jobs, economic growth, and access to cheaper energy, and these are clearly provided only by the Eurasian Customs Union.

President Yanukovich, wisely, has not closed the door on this option. In a recent interview, he said Ukraine sought “instruments and possibilities” for mutually beneficial cooperation with the Customs Union, noting that Ukraine’s trade with the bloc amounted to €46 billion annually.

Will Yanukovich succeed in persuading Russia to permit an association with the Customs Union that falls short of full membership – something Moscow has previously ruled out? Will Europe, in the end, even ratify the Association Agreement in view of the continued incarceration of Mrs. Timoshenko? Some European governments insist on giving precedence to liberal “values”; others are willing to put these on the back burner in hopes of delivering a blow to Moscow.

These issues will be decided as the year unfolds.Meanwhile, in assuming the chairmanship of the Organization for Security and Cooperation in Europe (OSCE), Ukraine has taken on its most visible and consequential international role since independence – that of moving towards resolution of protracted, frozen conflicts in, for example, Nagorno-Karabakh and Pridnestrovie.

For obvious reasons, the question of “frozen conflicts” – and especially Pridnestrovie – is one in which Ukraine should have a specific interest and where Kiev’s voice can make a difference.

Foreign Minister Leonid Kozhara said that under Kiev’s chairmanship “we must re-energize negotiations within the existing formats and prevent any escalation in tensions. The resolution of protracted conflicts must remain the highest priority for the OSCE and all participating States.”

It is fortunate that Pridnestrovie has been quiet since that republic’s contentious 2011 presidential election, in which the voters decisively retired longtime strongman Igor Smirnov and elected YevgeniyShevchuk of Renewal (“Обновление”), running on a reform platform.

How the people of Pridnestrovie – in which Russians and Ukrainians together form a majority – express their choice in the context of negotiations between Tiraspol and Chișinău will require tact and perseverance on both sides, as well as on the part of outside participants like Ukraine, the OSCE, and Russia.

Kozhara’s readiness to depart from the passivity that has in the past largely characterized Kiev’s policy toward Pridnestrovie, and to help find a just, legal, and enduring settlement is a welcome development.

In helping shape the political future of the region, Ukraine has a chance to demonstrate its value as a partner both to Europe and Russia. But this will not relieve Ukraine of the necessity to choose an overriding geo-political orientation, as that is what both Washington/Brussels and Moscow are clearly expecting of it. The stakes could not be higher as 2013 gets underway.