EU-Ukrainian, EU-Russian relations: converging or diverging frameworks? - Economic aspects

1. EU-Ukrainian, EU-Russian relations: converging or diverging frameworks? - Economic aspects Zsuzsa Ludvig senior research fellow, Ph. D. Institute for World Economics of the Hungarian Academy of Sciences Budapest, CEU, 14th May, 2008.

2. Why to bring Russia and EU-Russian relations into discussion? 1. EU, EU-countries themselves use this approach when thinking over other post-soviet countries (! but „no one voice”) Affected post-soviet countries also cannot neglect the Russian issue due to their strong and manifold links to Russia 3. Studying EU-Ukrainian and EU-Russian relations parallel enables to draw very interesting lessons

3. Different frameworks – similar contents? Or the „block-type” approach of the EU • ENP- for Ukraine, Moldova, Georgia etc. • Four Common Spaces – for Russia • Russian reluctance to being included into ENP-framework (the „unique case”) • ! My point: two frameworks with similar content • Coincidence in monitoring timing: • 2008 March: EU Progress Report 2007 on EU-Russia Common Spaces • 2008 April: EU Progress Report Ukraine on the Implementation of the European Neighbourhood Policy in 2007

4. The four common spaces - 2003 • 1. on Trade and Economic cooperation – to be in the focus • 2. on Freedom, Security and Justice • 3. on External Security • 4. on Research, Education and Culture • !Basically major fields of EU-Ukrainian cooperations as well!

5. Examples on content similarities – based on the four common spaces I. • 1. on Trade and Economic cooperation – economic integration + intensive energy dialogue • 2. on Freedom, Security and Justice • Visa issue – entry into force of Readmission and Visa Facilitation Agreements • Long-term goal: visa free regime (launch of the Visa Dialogue) • Cooperation in border guard services • Cooperation in fighting against trade in drugs, illegal migration, organised crime, terrorism etc. • Judicial cooperation • Dialogue on human rights

6. Examples on content similarities – based on the four common spaces II. • 3. on External Security • ( matters related to CFSP – different directions: problems of the common neighbourhood) • 4. on Research, Education and Culture • Participation in EU Framework Programmes (Russia was the most successful non-associated country to the 6th FP for Research and Technological Development participating in some 280 projects!- future possibility of association) • Participation in Tempus, Erasmus programmes • Introduction of principles in line with Bologna Process • Cooperation with European Atomic Energy Community) !”All dialogues have substantially deepened mutual understanding of policies and rules thus providing the underpinning of the future negotiations of the NEW EU/Russia Agreement.”

7. Economic aspects - in focus • Goals: • Promote mutual trade and investment, facilitate the establishment and operation of companies • Reinforce overall economic cooperation and reform • Approach: cooperation through sector dialogues (energy, transport, information and communication technologies, agriculture, space, research and development, macroeconomic policy, financial services, intellectual property rights, procurement, investment, standards, environment) • Way of economic integration: „FTA+” („deep and comprehensive” FTA)

8. Ukraine as the „pioneer” and the „test-case” for „FTA+” • „FTA+” has been invented for EU-Ukrainian relations: more than simple FTA, but less than „full membership” in the single market – bits of the single market – after WTO-membership • „+” means: harmonisation process in line with acquis based on reasonability and readiness on part of Ukraine • Two deep studies (impact assessments) on the concrete Ukrainian case – sector approach (CEPS 2006, ICPS 2007) • Ukraine as the pioneer: to be first to conclude such an agreement • Ukraine as the test-case: how will it work? *** • „FTA+” offer for other countries within the ENP framework: no other concrete candidate for it at moment • Russia was offered „FTA+” in autumn 2006 (In the past Ukraine could not get more or sooner than Russia did!) • no real development since then • Yastrezembskiy: „We do not well understand what „plus” means, but in any case this is better than an EU-initiative about forming an area of ‘free trade minus’,”

9. Dilemmas about „FTA+” • Much uncertainties (new trial, the development gap etc.) • Short and long-term effects may differ! • EU intension to put it into the centre of the new agreements (both with Ukraine and perhaps with Russia) • Ukrainian ambitions go beyond economic-type integration (to take short-term economic burdens in order to receive political promise) • Specific economic relations with Russia do not make sense to put free trade into the focus (energy supplies!)- Russia is more keen on concluding a new agreement with ambitious political content about equal partnership. • Is the EU really ready to conclude a whole-range FTA, without exceptions for sensitive sectors? (agriculture!)

10. Similarities and differences in „energy dialogues” • Major difference: • Ukraine as a transit country- security of energy transit, source of route diversification • Russia as a supplier – security of supplies (quantity, prices, reliable partner relations) • Major similarities in contents: • Audit of infrastructure – to disclose the investment needs in order to secure EU supplies • Cooperation with UCTE – consider required measures for synchronous operation with UCTE networks – to link European and Ukrainian/ Russian electricity markets (+ Ukrainian gas market) • Coal sector restructuring with EU technical help • Study the possibilities for energy savings, issue of renewable energy • Cooperation in nuclear energy

11. Different frameworks – similar contents and Ukrainian interests • Ukrainian will: to receive more since the price to be paid is much higher (One-sided harmonisation process without membership promise to bring short-term burdens!) • But in a hidden(?) way the EU offers very much the same to Russia (Will Russia accept or refuse this offer?) • Two frameworks (EU-offers!) are moving into similar direction – rather converging than diverging frames in the economic field • Does it really hurt Ukrainian interests? NO! • Similar business environment (standards, harmonising regulation in different fields) makes Ukrainian business activities more simple since Ukraine’s major economic partners are the EU-countries and Russia. • EU-Ukrainian and EU-Russian FTA-s could pave the way towards the creation of Russian-Ukrainian free trade area that could never be realised within CIS-initiatives. (Only on paper.) • Russian market is still crucial for several Ukrainian industries! (metallurgy, agriculture etc.)

12. Share of Russia and the EU in Ukrainian exports (%), 2003-2007

13. Some remarks • ENP was born in a period when EU-Russian relations began to worsen politically. • This fact contributed to the European approach towards Ukraine: „either ..or” (= economic integration of Ukraine towards the EU or Russia, but not in a parallel way) • (At the beginning of the 2000-s the EU was still visioning a pan-European common economic space including both Russia and its neighbourhood. See: Belaja Knyiga, 2002.)

14. Conclusions • Much similarities in the contents at moment (! but possible diverging content in the future upon Russian political decisions and EU readiness on compromises) • Major differences in the motives and main driving forces • Ukraine: high-level political decision on eurointegration with the final aim of full membership – „FTA+” is a tool or a stage towards this goal • Russia: no membership aspirations, but equal partnership instead, limited Russian political willingness towards „FTA+” having EU-Russian political relations on their bottom, but business group interests may pave the way towards it through the mediation of „medium-level administration” („ …although there were no major breakthroughs, day to day business was conducted efficiently under all common spaces… Progress Report 2007”) • Timing? • Ukraine: conclusion of NEA (New Enhanced Agreement) in short to medium term • Russia: ??? – high level negotiations could not be launched on the new Partnership and Strategic (???) Agreement.

15. Thank you for your attention!