July 4, 2013

The Customs Union Is Still Waiting for Ukraine

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Iosif Illarionovich, analyst of Polit.KG

Expert-analytical portal Polit.KG was founded in December 2010 as a resource for experts and decision-makers of the state level in the Kyrgyz Republic. Chief Editor of the website is Arkady Gladilov, former Chief Editor of a number of major publications such as "Komsomolskaya Pravda in Kyrgyzstan", "Word of Kyrgyzstan", "Evening Bishkek" and others..

The author of the material is Iosif Illarionovich, analyst of Polit.KG, an expert on the Caucasus and Central Asia.

The Customs Union Is Still Waiting for Ukraine

Stretching between two poles of integration, Ukrainian state hopes to maintain a strict and solid feel. To cover torn pants at the same time is not the most difficult task. Much more difficult is to restore the body of the country in a vertical position. The years of Yanukovych’s Presidency are all “Zebra”, where an “integration” stripe rapidly follows the stripe of “Eurasianism”. What initiatives have not been proposed over these years: the famous Decree "On Urgent Measures for European Integration of Ukraine", and a statement that Ukraine supposedly was going to sign an agreement on creating a Free trade area (FTA) with the European Union already in 2013, and the recent having gained an observer’s status in the Customs Union of Russia, Kazakhstan and Belarus, and even earlier — talks about a specific trade area with Russia beyond the CU. Here, to the chain of integration mishaps, can be added sudden cancelling of President’s trip to Moscow (December last year). Disagreements between the Government and Parliament of Ukraine also add fuel to the fire: Prime Minister, for example, speaks about determined intentions to join the same CU, while the Speaker of Parliament, on the contrary, insists that such an accession will never happen and patriots of Ukraine will die to prevent this.

Enlightened European slavery

From communication with Ukrainian colleagues is clear the following: the current position of Ukraine, which by its actions gives hope and then suddenly disappoints its foreign partners, is a deliberate policy. Its meaning is to avoid falling under any external control, and to go on “domestic” division of property at a usual pace. “All negotiations with the EU and CU are a smokescreen in order not to go anywhere. And not to join anybody. Here is the land to be divided. To that division absolutely nobody should be allowed. In terms of personal enrichment, for the elite the situation is fantastic”, says, for example, ex-Minister of Economy of Ukraine Viktor Suslov. In the view of many Ukrainian experts, the Government is well aware of all the associated disadvantages of the EU membership for Ukraine. And there is an understanding that the EU, on the contrary, almost needs badly such a rich in a range of resources “fool from the East”. Therefore, the flow of loans and tranches issued to Ukraine only in order to prevent its joining the Customs Union, does not end.

To get rid of any doubts about Brussels’ sole aim being elimination of another national economy, we should simply refer to the text of the Agreement between Ukraine and the EU on the Free Trade Area (FTA). There, among other things, very honestly is stated that European standards will be implemented in Ukraine by an “Association Council” which will include one and only representative of Ukraine and 28 (!) representatives of the EU. The main settings are as follows:

  • out of production those that do not meet environmental requirements;
  • a ban on the export of energy resources to the EU at higher than domestic prices;
  • strict quotas on exports of agricultural products with bringing the export tax down to zero;
  • withdrawal from trade of household goods and handicraft production (farewell, grandmas with sauerkraut!)
  • introduction of over 20,000 standards in housing, infrastructure and other spheres;
  • withdrawal of standards in force in the CIS (a straight path to isolation from Russia and other CIS countries, which revive Soviet standards);
  • privatization of railways and transition to the “European gauge”;
  • impossibility to challenge any final decision of the aforementioned "Association Council";
  • aligning national legislation into conformity with laws and even regulations of the EU.

Thus, the Russian warning that there will be no way back is no political blackmail, but a result of an ordinary analysis. Having signed the “Association Agreement” (which even does not mean an equal status with other EU countries), Ukraine will voluntarily clothe itself a slave collar.

Everything listed above is being ignored only in order to continue withering on gold, like Koshchey, teasing Russia with the skillfully staged “European theater”. This is being done with full understanding of the simple choice: if not Russia — than Poland, which controls the whole Eastern direction of the EU. Poland in the face of former President Lech Walensa, has already let out: Ukraine in Europe can get a role of a peaceful farmer, working on a tractor of Polish make and providing Europe with cheap bread. Ukraine’s future is not even the fate of the lagging behind Romania, which is called “banana republic without bananas”, because it still gets some European subsidies necessary for maintaining sustainable consumption of German and other Western goods there. If you analyze this example, all "pros" of European integration will be seen immediately. Since mid 2000s, in Romania there have been sold the national telecommunications company (now — in the hands of Greeks), the largest state oil company (now — in possession of Austria), and a huge Iron & Steel Works (now — in the hands of the Indo-British billionaire Lakshmi Mittal). It will seem unreal, but Romania — once a big farmer in Eastern Europe — even ordinary vegetables buys abroad now. A local farmer does not know how to sell the crop. Thousands of poor households are getting bankrupt. Is this not warning for Ukraine?

Nonsense-economy and overcoming it

After all, even now, before the "Association with the EU", the situation in Ukraine is not the most cheerful. For example, the deficit of trade balance (the ratio between the sum of the prices of goods exported by the country, and the sum of the prices of imported goods) within three years (2010 to 2012) has grown three times. This is despite the fact that trade with the Customs Union has not stopped yet. The negative balance (the index of foreign trade deals) of 16 billion US dollars last year for Ukraine is quite comparable with the same data of small Kyrgyzstan with its small economy — 3.5 billion US dollars in the same 2012. What does make difference is that Bishkek does recognize the absurdity of the situation, while Kiev does not. “The economy of Kyrgyzstan is nonsense. Our trade balance is negative; imports may at times exceed exports. But the shortfall of Kyrgyzstan is covered by migrants and shadow economy”, stated at the beginning of 2013 the Minister of Economy Temir Sariyev. These sober conclusions are a powerful impetus to the establishment of new industrial and trade relations with countries of the Customs Union, which successfully solve the problem of marketing their products, as well as other problems, simply cooperating with each other within the Common Economic Space. Now, by the way, despite the fact that the position of the Kyrgyz leadership to Eurasian integration is clearer than that of the Ukrainian one, both countries have the same status of CU observers. This suggests that Ukraine for the Customs Union is a special and desirable partner. While for the EU Ukrainians are just cheap working hands, for the CU they are social basis for reaching a new level of production in various fields, including innovative ones.

Entering the jungle of the East-West confrontation in the Ukrainian society, it is important to remember that this factor is often not decisive. Paradoxically, the main obstacle for integration to the CU today is Ukraine’s East or rather, its oligarchic circles. “The East of Ukraine controls raw materials lobby which represents metallurgy, chemistry and is an active exporter to the European market. So, for them an access to the European market is critical, and Russian companies are their competitors in the Eurasian market”, believes Russian expert Mikhail Remizov. He also states the complete absence of active supporters of Eurasian integration on the political Olympus of Ukraine. The position of “agreeing” that characterizes some figures creates only an illusion of "involvement" of the country in an odd and not needed conglomeration of former Soviet republics. In fact, it seems that ideologists of the Customs Union think of ordinary Ukrainians more than their native authorities do. The latter, for example, are now shamelessly proposing to turn the economy of Ukraine into pure service. One can only guess where it would lead. You have an example of Kyrgyzstan, where such economic policy spawned such a rapid fermentation of the masses that two “revolutions” seem not to have been enough. And this — in the country with the population of five million. What to say about the Eastern European 45-million state?

While Ukrainian “well-wishers” joke on Russia’s “imperial exploitation” of Belarus and Kazakhstan, Belarusian fuels and lubricants are rapidly gaining Ukrainian gas stations. Well, actually, Ukrainian natural gas (yes, there is such!) instead of satisfying needs of the country’s population, goes to Europe, providing profits to private firms, without a doubt connected with the state. Population is supplied with Russian gas, which is ten times more expensive. Despite the fact that officials assure that, say, domestic gas goes to the same local consumers, up to 40% from those 20 billion cubic meters extracted a year, Ukraine exports— such information was let out last August by the associate of Yulia Tymoshenko who fled to the Czech Republic, Bogdan Danylyshyn. And do we still want to convince these people that after joining the CU, Russian gas will get dramatically cheaper? They spit on these prices: the burden falls entirely on the shoulders of ordinary people, about whose problems oligarchs do not care. The fuss around the so-called “gas wars” with Russia in this scheme is just an attempt to canalize discontent of the masses. If the Ukrainian leadership really had a desire to reduce prices of Russian gas, it would appreciate the fact that after joining the Customs Union, Russia offers Ukraine gas at a price even lower than that at which natural gas enters the neighboring Belarus”.

“Belarus has sold 100% of shares of “Beltransgaz “ to Russia, joined the CU. There is development and modernization of infrastructure, gas is at $ 200 per 1 thousand cubic meters there. Ukraine has not sold the gas transportation network to Russia, nor has it joined the CU. There is degradation, rotting of infrastructure, gas at the market price of 435 US dollars per 1 thousand cubic meters there. Two models. Repetition of practices of Belarusian reasonable pragmatism is obviously advantageous to the people of post-Soviet countries than copying Ukrainian independent stubbornness, dictated, mind you, by local nationalists, liberals, oligarchs. What is the use for Ukraine of the industry and agriculture which is closed on Russia? Next to the obstinate Kyiv, will flourish an example of entirely different model — a successful one. Because reintegration of territories of a sole great empire ensemble began to work. Of the ensemble which was cut, destroyed two decades ago by scoundrels, traitors, and enemies with the active support of external forces”, says Vladimir Lyeshukov, expert of the Scientific and Educational Center for Cooperation with the Countries of the CIS and Baltia of Saratov State University. It is clear that trade with the European Union to Ukraine is not much less than trade with the Customs Union of Russia, Kazakhstan and Belarus. But the prospects of the two markets differ dramatically: Europe, overrun with its own products and technologies in the future will only "be getting closed". The CU in this sense is a clear field with a mass of niches open and ready to make concessions to partners that highlight your equality in the managing the process. Anyway, “if the Presidents of Belarus and Kazakhstan find a third friend and ally, with whom they have good personal relationships, this trio will withstand the monopoly of Russia’s influence in the Customs Union”. This is the point of view of the Ukrainian expert Volodymyr Fesenko. Meanwhile... “Putin has made it clear that the Kremlin was not joking and in the future it will be more and more difficult for Ukraine to find a common language with its neighbors-members of the CU”. We do not give Ukraine the right quotas not because we do not want to, but because it is within the jurisdiction of supranational bodies. Our Ukrainian colleagues thought we were joking to a certain time, but have understood that we weren’t ", — Russian business newspaper “Vzglyad” quotes the Russian President’s February statement.

From whims — to cooperation

In late May, Europe pulled itself together. There, according to the Head of the EU Delegation in Kyiv Yan Tombynskyi, no one minds Ukraine’s “observing” in the CU at all. Figuratively speaking, the European penny-pinching pensioner has eventually realized that his young bride is being stolen from the altar. Logically, the next step has to be making certain amendments mitigating the “marriage contract”. But this is according to logics. According to the practice that has developed in Ukraine, then again and again will be raised the question of “European values”. The bottom line is that all arguments of Ukrainian Westerners are reduced to permanence of “European civilization choice”. They themselves look down at numbers and calculations, assuming that it is better to burn the energy vine in primitive stoves, but in the EU, than to buy cheap gas as a member of the CU. This position suffers from the lack of forecasting calculations and tries in every way to attribute political nature to the Customs Union. There are, though, more romantic critics. For example, Professor of the Kiev School of Economy Oleksandr Shepotylo says that the discounts and privileges within the Common Economic Space will not give Ukrainian economy any stimuli for modernization. Such remarks give the impression that Ukraine can be modernized only in extreme conditions, and the peak of modernization will be in a time when all the fields are covered with that magic energy vine. One would like to quote the words of a parent of the Latvian post-Soviet independence, Imant Kalninsh about his already “modernized” country, "Latvia has been rudely cheated and robbed. Wisdom of our former leaders was just enough to see their own profits and to try and grab something for themselves. The system of values, being promoted by the Western civilization, has totally failed, and we're trying to squeeze in there at any cost and take into advisers those who call the degeneration of conscience a progress, and the demolition of thousands-year-old human values — "Western values".

So when the state seeks to be independent, it is understandable: not everyone in the world has realized that further moving away from the center of integration processes, is an anti-historical process. But when a state seeks independence from its own people— this is abnormal. "Not being included in any regional economic system, the state of Ukraine will uncontrollably exhaust traditional resources", — noted the Chief Editor of the “Odnako. Eurasia”, Semyon Uralov. “If Ukraine participates with us in the Customs Union and Common Economic Space, it will get an additional increase of gross domestic product by 2030 of at least 6 percent. Most likely, this increase will be greater. In absolute volumes this index is, from $ 5 billion in the coming year to $ 20 billion of additional GDP by 2030. If Ukraine takes part in the Free Trade Agreement with the European Union, according to our calculations, it will lose up to 1.5 percent of GDP. At this, absolute loss will make 3-4 billion US dollars annually because of worsening of the situation with foreign trade, “- said in one of his latest television interviews, Academician of the Russian Academy of Sciences, President’s Adviser Sergei Glazyev. There he also reminded that, strange as it might seem, Ukraine was one of the founders of the Common Economic Space (CES), and in 2004 Verkhovna Rada (Ukrainian Parliament) even ratified an agreement. Of course, there was Yushchenko’s time when any obligations under the Russian-Ukrainian agreements were ignored by Kyiv…

But time puts everything in its place: Yushchenko and his team got into a deep political out. And Ukraine is still being waited for. “The fact that to the CU come (and are invited) states with absolutely different political and economic systems, is the best evidence that the Customs Union in the first place cares about economic interests. Besides, none of the documents of the CU even mentions any political conditions for being in the Customs Union “- said political analyst from Ukraine Dmitriy Dzhanhirov.

Yes, the CU is waiting for Ukraine as for an equal partner. Back in 2011, the Eurasian Economic Commission adopted a rule of "one country — one vote", which makes all the participants of integration equal organizers and participants of the process. This approach is radically different from that which is being cultivated by the "enlightened Europe" with its morbid sense of hierarchy. In 2005 (unilaterally!) it established a visa-free regime with countries of the Euro-zone, Ukraine had been waiting for easing in response for eight years— and then, the agreement on simplification of visa regime, which will enter into force on July 1, applies only to certain categories of citizens: NGO members, activists-democrats, and officials.

"Ukraine should consider possibility of adaptation of its legislation to some provisions of the Customs Union", — such Yanukovych’s streamlined formulation can inspire optimism only in naive minds. Undoubtedly, before Ukraine integrates into a particular Eurasian structure, it will have time to make yet another political zig-zag. However, something in the minds of Ukrainian officials begins to clarify. Here is, for instance, what, in early June, said Deputy Prime Minister of Ukraine Yuriy Boyko, “We thought about protecting our economic interests, about continuation of marketing of our engineering products, development of the market for our An-70, An — 124, about developing space projects together. The lion’s share in Ukrainian exports to the Customs Union is production of engineering transformers, road machinery, electrical equipment, turbines — all that gives us more jobs”.

Of course, there will be lots of nonsense ahead. The mere fact that specially for Ukraine (and only "for the sake of company" — for Kyrgyzstan) was created an observer status with the Customs Union, seems somewhat strange: usually not economic, but political unions are generous in such statuses. But as they say, there is nothing one cannot do on a loved one’s whim! The fact that all peoples of former Soviet republics are a close family is beyond controversy. We can still understand each other without words. But understanding is not enough — you have also to cooperate.

Iosif Illarionovich, analyst of Polit.KG