Conference
Yalta agreement on The Common Economic Space affect on eurointegration prospects of Ukraine

20 November 2003, LVIV, UKRAINE

Programme
List of participants

CENTER FOR PEACE, CONVERSION AND FOREIGN POLICY OF UKRAINE

e-mail: sushko@cpcfpu.org.ua  (Oleksandr Sushko)
monitoring@cpcfpu.org.ua (Volodymyr Nahirny)
http://www.foreignpolicy.org.ua
Tel/fax: (38 044) 4595156

UKRAINIAN MONITOR

Ukrainian Monitor is an information-analytical project of the Center for Peace, Conversion and Foreign Policy of Ukraine that continues and develops traditions of the Monitoring Foreign and Security Policy of Ukraine, published in 1997-2001. The project aims to gather and analyze information related to international aspects of Ukrainian political, economic and social life, and to promote strengthening the European political values and standards of analyzing in Ukraine.

Ukrainian Monitor includes weekly Headlines & Comments and Policy Papers (2-3 per month).

The project is supported by the Friedrich Ebert Stiftung (Germany) Regional Office in Ukraine, Belarus and Moldova.

POLICY PAPER # 15 (NOVEMBER 2003)

COMMON ECONOMIC SPACE IN UKRAINIAN EXPERTS’ ASSESSMENTS

Abstract:

In October 2003 CPCFPU polled expertson the issue of Common Economic Space (CES) [1] . By tradition, 53 experts in the field of international relations and foreign policy (including government staff members, research institutes and analytical centers, institutions of higher education, NGOs and mass media) have been polled.

Experts on foreign policy and international relations keep scepticizm about CES perspectives. The problems with project’s practical application are determined by the fact that the signers didn’t agree about what exactly they meant by the “Common economic space”. The project, which essence is so differently comprehended by the parties is unlikely to become a successful integration unity. Probably, it is outside the plans of initiators, who planned CES not as a real tool of cooperation, but a technology of manipulation by the society, public opinion and political actors’ behaviour, including foreign ones.  

Authors – Oleksandr Sushko, Nataliya Parkhomenko

1. The ultimate aim of integration within CES

The documents signed on September 18 in Yalta are, as officially announced, framing ones. So, they must define the objective of the whole process. We have already paid attention to the fact, that authors of documents’ projects on CES avoid using generally accepted integration terminology (such as customs union, common market etc.) [2] CES constitutive documents don’t make it clear, what ultimate aim the initiators pursue. The obscurity of the definitions put into agreement and EU conception determines the opportunity of qualitatively different interpretations of CES objectives. While Russians openly talk about customs, economic and even monetary union, official Kyiv continues insisting, that it means free trade area. Probably, the absence of clear-cut definitions is a result of conscious policy of the parties, which consider the project first of all a manipulating technology (with different “national” specifics), but not a real integration project. Anyway, experts who differently interpret the texts of signed documents, thereby testify that founders of the Agreement and Conception of Common Economic Space haven’t reached consent on basic issues and haven’t given wording that would have made CES idea clear and transparent. 

What is in your opinion the ultimate aim of integration within CES according to the texts of Agreement and Concept of CES signed in Yalta?

1. Free trade area – 15.9%
2. Customs Union – 22.64%
3. Economic Union – 18.86%
4. Common market – 9.43%
5. Monetary (Currency) Union – 3. 77%
6. Hard to say – 18.86%

Other answers (11.35%): “Putin’s PR – “return of Ukrainian land”, “Political declaration”, “Full-scale revival of the empire”, “Absorption of Ukraine by Russia”; one of experts pointed to different ultimate aims of the integration: for Ukraine – free trade area, for Russia – customs and economic union, and common market at the same time.  This is a rational version, however we aimed to disengage us from declared parties’ statements and single out a relative “ultimate aim” of CES, like it has been written in the documents’ text, because the text is common for all four parties of the process.  

2. Limits of CES integration for Ukraine

Considering CES formation as a step-by-step process, every stage of which depends on independent choice of each participant, it is appropriate to find out, what integration limit experts see within the frames of this project (using generally accepted terminology). So:

What is the maximum appropriate limit of Ukraine’s integration into CES?

1. Free trade area – 43.39%
2.Customs Union – 1.92%
3. Economic Union – 5.65 %
4. Common market – 5.65 %
5. Monetary (Currency) Union – 0
6. Integration into CES is unnecessary at all – 35.85%

The majority of Ukrainian experts assume the possibility of integration into CES, but limited to free trade area stage that doesn’t hamper the realization of strategic purpose of integration into European Union. However, more than a one of three of experts doesn’t find it necessary (or possible) to use CES as a tool for free trade regime’s creation. Probably, unsuccessful experience of such regime’s realization within other projects on post-Soviet space (CIS, GUUAM) shows itself, including bilateral format (agreement on free trade with Russia exists ‘on paper’ since 1993, within CIS it was signed in 1994, and hasn’t been ratified by Russia yet).  

Only about 13% of experts support more profound format of integration into CES namely customs union, common market, and economic union. 

3. CES and the EU

How does the process of CES formation affect the integration in the European Union?

1. It steps up integration into EU – 1.92%
2. It makes integration into EU impossible – 30.17%
3. It slows down integration into EU – 49.06 %
4. It doesn’t affect integration into EU – 15.08%
5. It makes integration into EU unnecessary – 0%
6. Other answers – 3.77% (“the step toward equal in rights integration into EU”, “there is no saying, because regarding Ukraine it’s impossible to anticipate, which level of integration it will find itself at”)

A half of experts consider membership in the CES will slow down the integration in the European Union. Those polled take into account that in case of full-scale realization of CES project Ukraine can enter the European community only along with other CES partners. As European perspectives of Russia, Kazakhstan and Belarus are even more vague than Ukrainian ones, it’s obvious, that those 30% who anticipate impossibility of Ukraine’s European integration in case of CES creation, are also not far from truth.  

4. CES perspectives

At the same time, absolute majority of experts don’t believe in possibility of creation on CES basis a real functioning integration establishment. 

 What are in your opinion CES perspectives?

1. It will become an efficient economic unity – 5.65%
2. It will suffer the fate of other paper economic projects in the CIS – 56.62%
3. It will become a political tool of post-Soviet space’s reintegration – 16.98%
4. It will be transformed into other more realistic project – 16.98%
5. It will become a bridge for member states to the European Union – 0
6. There is no saying – 3.77%

Only 5.65 % of those polled consider that the project will achieve the declared objectives, that is become an efficient economic unity. Instead, three times more experts anticipate CES realization as a political tool of post-Soviet space’s reintegration with Russia’s dominating role. But 65% consider, that CES will suffer the fate of other ‘paper’ economic projects in the CIS and, accordingly, will become neither a perceptible threat, nor an essential win for member states. 

So, the experts don’t give credence to the CES project. On the one hand, the experts point to risks of CES realization, on the other hand – most of them don’t believe in possibility of its realization. It’s not a paradox: as testifies internal and external response to CES, this project has already harmed Ukraine without being realized yet. First, there appeared one more determination for imposing on society and political elite a fruitless discussion on the “East-West” dilemma (in Ukraine this discussion is traditionally used as a coarse election technology); second, there was created one more factor of Ukraine’s incomprehension by Western partners, who have been watching Ukraine’s extreme inconsistence in its actions and intentions for many years. 

Thus, even if Common Economic Space finally comes to grief as an economic project (the majority of Ukrainian experts have no doubts about this), its negative influence on internal and international standing of Ukraine is and will remain noticeable.  

[1] The Agreement on CES was signed by presidents of Ukraine, Russia, Belarus and Kazakhstan on September 18, 2003, in Yalta.

[2] Expert evaluation on the Draft Agreement on the Common Economic Space between Belarus, Kazakhstan, Russia Federation and Ukraine (CPCFPU Non-Paper, September 1, 2003)

Center for Peace, Conversion and Foreign Policy of Ukraine

Tel/fax: +38 044 459 51 56;   P/Box 101, Кyiv-142,Ukraine
e-mail: sushko@cpcfpu.org.ua;   http://www.cpcfpu.org.ua

September 1, 2003

EXPERTS’ EVALUATION
On the Draft Agreement on the Common Economic Space between Belarus, Kazakhstan, Russia Federation and Ukraine

(as preliminarily signed by High Level Groups in Astana, Kazakhstan  on August 15, 2003).

During Yalta summit of CIS scheduled for September 18-19 the Agreement on Common Economic Space between Belarus, Kazakhstan, Russia Federation and Ukraine is expected to be signed. Considering this document unique for independent Ukraine, we suggest to initiate public expertise involving authority representatives, governmental and independent analysts, think tanks.  

We suggest to consider CES drafts in the context of Ukrainian legislation and its existing foreign policy commitments.

Article 1 of draft agreement contains the conceptual definition of CES:

The Parties understand the Common Economic Space (CES) as Economic Space, which unites customs territories of the Parties on which common principle based economic regulatory mechanisms are applied. These principles guarantee free movement of goods, services, capitals and labor force; common foreign trade policy and coordinated taxes, financial and currency policy are applied. (Unofficial translation of CPCFPU)

Authors of the draft have consciously avoided using widely adopted integration terminology in the draft. The definition does not contain the reference to the concrete integration stage (such as FTA, customs union, common market or economic union). CES is an abstract term from the justice point of view. This term may be interpreted differently.  On our opinion avoiding recognized terms is a conscious creation of the opportunity to play by the words. But the content of the definition is unlikely able to deceive someone. The definition meet in part  (Space, which unites customs territories of the Parties… These (common) principles guarantee… common foreign trade policy) customs union, and in other part (These principles guarantee free movement of goods, services, capitals and labor force) common market.

Special commitments of the Parties are included in the Article 2:

- Creation of the FTA without exemptions and limitations, with implies non-application of anti-dumping procedures, compensation and special protection actions on the basis of common tariff and non-tariff regulation policy, common competition rules, subsidies and other forms of governmental protection; 

- Harmonization of macro-economic policy;

- Harmonization of the Parties’ legislation up to the level necessary for the CES functioning including trade and competition policy… 

Article 2 means, firstly, very extended definition of FTA, secondly, harmonization of macro-economic policy, which is usually applied at the higher stages of economic integration, thirdly, Harmonization of the Parties’ legislation. It means that the agreement will lead Ukraine to the “double commitments” of the legislation approximation.  This is a clear contradiction to the numerous normative acts of Ukraine that foresee the only path of approximation, which is to the EU legislation. Double harmonization looks impossible because these unions apply very different regulatory rules, have different economic legislation.

Article 2 of the draft agreement contradicts to:

1. Article 51 Of Partnership and Co-Operation Agreement Between the European Communities and Their Member States, and Ukraine (PCA) signed on June 14, 1994, in which there is a notion that “The Parties recognize that an important condition for strengthening the economic links between Ukraine and the Community is the approximation of Ukraine's existing and future legislation to that of the Community. Ukraine shall endeavor to ensure that its legislation will be gradually made compatible with that of the Community”;

2. Decree of Cabinet of Ministers of Ukraine (16.08.1999) On the Concept of Ukraine’s Legislation Adaptation to the EU Legislation;

3. Decree of President of Ukraine (30.08.2000) On the National Council for  Ukraine’s Legislation Adaptation to the EU Legislation;

4. The Law of Ukraine (21.11.2002) On the State Program Ukraine’s Legislation Adaptation to the EU Legislation;

According to the logic and practice of customs unions and common markets it is impossible for the subjects of such unions to participate in another regional integration projects. Therefore, the very concept of CES contradicts to:

1. Partnership and Co-Operation Agreement Between the European Communities and Their Member States, and Ukraine (PCA) signed on June 14, 1994, in which, in the Article 4, the option of free trade area creation between the EU and Ukraine provided.

2. Strategy on Ukraine’s Integration into the European Union, confirmed by the Decree of President on June 11, 1998 (totally);

3. The Program on Ukraine’s Integration into the European Union, confirmed by the Decree of President on  September 14, 2000 (totally);

4. The main directions of Presidential Communication to the parliament “European Choice” of May 2002.

5. To the points “b” and “c” of the chapter V of Decision of State Council on European and Euro-Atlantic integration #3 “On further actions in the sphere of European and Euro-Atlantic integration of Ukraine”.

6. Ukraine-EU Action Plan draft that was submitted by Ukrainian MFA to the Commission in August 2003;

7. To the other documents of Ukrainian authorities, which define the integration into the EU the main foreign policy objective of Ukraine.

It is obviously that in case of signing and implementation of the Agreement on CES Ukraine will loose following opportunities:

1. To initiate and carry on the talks on free trade area with the EU;

2. To use instruments and to get benefits suggested in the EU “Wider Europe – Neighborhood” Communication of March 11, 2003, especially on the access to the EU market and “four freedoms”;

3. To rise a question on association with the EU;

4. To negotiate independently on trade regimes with any country, unions and international organizations.

As a conclusion, CPCFPU recommends to withdraw Ukrainian signature under the CES drafts and refuse to sign them because they do not meet Ukrainian legislation, international agreements and declared foreign policy goals of Ukraine.

INTERNATIONAL CONFERENCE
NEW TRENDS IN THE SPHERE OF ENERGY POLICY

By Y. Zherebetskyy     

The war in Iraq broke out not so much because of terrorism and proliferation of weapons of mass destruction as because of Iraqi oil, which Paul Wolfowitz has acknowleged recently. It must be noted, however, that it would be wrong to state this was the only goal of Washington‘s war in Iraq. Of course, the war had a number of goals and its aims and goals have been fairly comprehensively covered in the press. Therefore I will be concise:

I would like to remind that before 1991 due to a real Soviet threat the USA dominated Western Europe. In the event of the Soviet intervention, [West] European countries would have found it impossible to protect their sovereignty and integrity without America’s help. Thus, before the breakup of the Soviet Union, there was no alternative to the military, political and economic leadership of the USA in the western world and this was generally perceived in a positive way by the Europeans (except the French). The world currency, dollar, which Americans used to pay for their military bases on the European continent, and the American nuclear umbrella over Europe suited everyone and caused no negative reactions. If an armed conflict with Moscow had taken place, there was no one in Europe at the time ready to sacrifice its soldiers and money. Therefore American leadership was accepted in a positive way. However, after the USSR broke up, certain political circles in Europe fairly quickly forgot about the American financial and military assistance provided to them during the Cold War and publicly questioned the right of the USA to dominate in Europe. The climax of the standoff between the USA and Western Europe coincided with the introduction of the euro.

As is known, the stability of the dollar as the world currency is ensured by the strength of the US economy and, secondly, by the fact that since 1945 the dollar has been used as the world’s reserve currency. 80 percent of all international transactions, half of export transactions and two thirds of the world currency are in dollars. Thirdly, the stability of the dollar is also ensured by the fact that it is used as the main currency in energy transactions. There is evidence that Russians intend to switch to euro settlements in their transactions for fuels (for now it is only gas) supplied to Europe: this becomes clear from Russian President Putin’s statement of 9 October. Of course, this financial initiative of Europeans and Russians meets with Washington’s negative attitude, therefore one can predict that if this initiative materialises, we may witness a gradual escalation of the Iraqi war into a war against Europe (of course, we are talking about economic war). In view of this, the biggest paradox of the end of the XX and beginning of the XXI century is that soon after the dismissal of the Warsaw Pact and breakup of the USSR, Western Europe faces a real possibility of being split. What we see as the EU enlargement has every chance of becoming yet another division of Europe into the pro-German and pro-American areas of influence or, as Dick Cheney put it, into Old and New Europe.

The recent German-American conflict over the Iraq issue has one more reason behind it and this reason is more serious: it looks as if the current US administration sees only one serious potential rival among all the EU members and this rival is Germany, which is capable of consolidating around herself 450 million Europeans and give maximum impetus to the European economy. As Washington rules out a direct political confrontation (let alone military one) with Berlin, I assume that the USA and the UK will try to make deep European integration processes initiated by the Germans slow down.

However, these measures alone won’t suffice: Europe’s huge market, colossal economic, scientific and cultural potential with its single currency may quickly transform the EU into a world leader and the euro into another world currency which will inevitably begin to oust the dollar. In order to fulfill these ambitious plans, the EU needs in the first place stable and reliable sources of energy as Europe’s own stores of oil and gas are insignificant and are quickly running out. And without fuels there is not a prospering economy. Therefore I believe this deep and still unseen geopolitical standoff between the USA and Germany will become the main cause of the inevitable reconfiguration of the world energy market in the near future.

In my view, the most likely scenario of the redistribution of the world energy market will be carried out in the following way. First the Americans will try to assume control of the most important stores of oil in the world. The anti-terror operation in Iraq and Afghanistan, the strained relations with Saudi Arabia and Iran and the well-known events in Venezuela constitute a notable part of that scenario. There is every reason to maintain that the Americans feel quite confident in the Caspian region too. Finally, the conflict around Russia’s biggest oil company, Yukos, is also a part of the big oil war. President Putin and his entourage are unlikely to win this battle against Russian oligarchs and large American transnational oil companies, which means that control over part of big Russian stores of oil will gradually be assumed by Americans. That is not all, though. I predict that the next step of American oil giants will be an attempt to take control of the [process of] transportation of fuels to Europe. This will not only allow the USA to control the level of energy consumption with the EU but will also give Washington a potential possibility to substantially restrict energy consumption in Europe, when needed, and this will have negative consequences for the European economy.

Finally, one more way of reducing energy consumption in Europe is already actively being implemented: the diverting of Russian oil supplies from the west to the north and east, which involves the export of Russian oil and gas to the USA via Murmansk and plans to build pipelines to export Russian oil from East Siberia to the Far East (Japan) and the USA. This way or another, if the USA and Russian oil companies manage to implement these plans, we will see absolutely revolutionary changes on the world energy market, where the USA will become the main operator of the world oil flows.

What is then the role of Ukraine and its pipelines according to this scenario? It is evident that Ukraine is not of great interest to Europe (of course, except Poland, Great Britain and some Baltic countries). It does not have large stores of oil or gas, therefore Europe sees only Russia. Secondly, Ukraine’s geographical location as a transit country between the producer and consumer of energy, significantly increases the cost of fuels. In view of this, despite the statements about support of Ukraine’s euro-integration aspirations, regularly made by political representatives in Brussels, Europe is doing its best to make sure that the transit state of Ukraine disappears from the political map of the world. Now Europeans are interested in establishing direct energy links with Russia, without any intermediaries; therefore Ukraine is viewed as an obstacle. In exchange for stable energy supplies from Russia, Europe is ready to agree to not only a seizure of our oil and gas pipelines by Moscow but also to a complete political and economic absorption of Ukraine by Russia. The creation of the Ukrainian-Russian-German gas consortium and recent talks between Schroeder and Putin about a new gas pipeline stretching along the bottom of the Baltic Sea provide convincing evidence in favour of this point of view.

I anticipate three main ways of the development of the situation:

1. If Europe (this mainly refers to Germany) stops thinking locally, embracing only narrowly national economic interests, and reorients itself towards global strategies and plans, it will have to unveil concrete plans and terms of Ukraine’s accession to the EU. And only after Ukraine does ultimately join the EU can one start concrete actions regarding the privatisation of Ukrainian transportation facilities (oil- and gas pipelines, main power lines, railways and ports). Otherwise all these Ukrainian transportation facilities must remain state-owned.

2. According to the second scenario, Russia and Germany will continue to try to seize Ukrainian oil- and gas pipelines. Since the privatization of Ukraine’s transport corridors within the current geo-political context will lead to catastrophic consequences for Ukraine, i.e. loss of its economic and then political sovereignty, one can confidently predict that these plans are unlikely to be fulfilled. Ukraine’s senior leadership understands this very well and despite the enormous pressure that Russia has been exerting for 12 years, plans to privatise or have a long-term concession of our transportation corridors will not materialise, the unsuccessful attempts to set up the Ukrainian-Russian gas transportation consortium serving as proof of this.

3. And finally, the third scenario, which in our view has the best chances of being fulfilled. The EU continues to push Ukraine towards Russia’s economic and political space. In this situation, Ukraine is forced to refuse from any integration processes westwards or eastwards, becoming a buffer state under the US protectorate. As a reward for the political and economic support of this buffer status, US companies are given certain preferences in privatisation of Ukraine’s transportation corridors, which entails grave consequences for the EU and Russia. It is doubtful that if this scenario is carried out European and Russian companies will be able to pump their fuels via something other than the existing Ukrainian pipelines. As we know, Americans can protect their economic interests not worse than political ones.

Conclusions

What kind of future Europe chooses entirely depends on Europe herself. There is increasingly less time to avoid a full-scale standoff between America and Europe. Ukraine with its oil- and gas pipelines happens to be a key element in this conflict. If Ukraine becomes a full member of a united Europe, US attempts to exert substantial influence on the level of energy supplies will be fruitless. Unless pro-American buffer states are created between Russia and the EU, fuels will be pumped via joint Ukrainian-West-European pipelines. Otherwise Ukrainian transport corridors will perform the function of a control valve that will not allow the united Europe to develop efficiently.