Cabinet decides not to sign EU Association, Yanukovych stays mum

Ukraine’s Cabinet of Ministers decided on November 22 during its closed-door session to halt negotiations to sign the Ukraine-EU Association Agreement, citing the need to ensure Ukraine’s national security by renewing lost production and trade with the Russian Federation and other nations of the Commonwealth of Independent States (CIS). The Cabinet resolution also called for creating a trilateral commission with Russia and the EU to renew lost production volumes.

 

Former Polish President Aleksander Kwasniewski, who led the EU diplomatic mission alongside former European Parliament President Pat Cox, confirmed that day that his mission was over and the Ukrainian government wouldn’t be signing the agreement as scheduled at the Eastern Partnership summit in Vilnius on November 28-29.

 

“In this situation, the government decided to make a short-term decision, sacrificing long-term prospects,” Kwasniewski said, as reported by the Kommersant-Ukraina newspaper. “The Association Agreement would have had effects in the future, while an agreement with the Russian Federaton offers a reprieve for the next few months.” Prime Minister Mykola Azarov said his government isn’t refraining from EU integration, but merely taking a brief pause, Kwasniewski said, which he didn’t believe to be the case. “It seems that this break is more likely to be lengthy than short,” he said.

 

In a separate press briefing, Vice Prime Minister Yuriy Boyko pointed out that worsened trade with CIS states in the last four months caused significant drops in industrial production, leading to the layoffs of 15,000 workers each month and plummeting tax revenue. “We almost completed the program of introducing European standards,” he said. “And yet we didn’t get a signal from our European partners that the incurred losses will be compensated with new markets. I underline: we didn’t make an issue of a financial aid grant, as Greece did. We merely requested a replacement of trade.”

 

Prior to the Cabinet resolution, Kyiv and Moscow had already agreed to coordinate their actions after the agreement’s signing and the details of their ongoing negotiations, said Viktor Suslov, Ukraine’s Representative to the Eurasian Economic Commission. The Russian government won’t impose sanctions or trade restrictions during the talks, Suslov said, as reported by Kommersant. “It’s possible that large aid will be offered by the Customs Union nations during the period until the consultations are completed.”

 

Ukrainian President Viktor Yanukovych sounded a different tone when addressing journalists during a working visit to Vienna on November 21. “Ukraine has gone and will go on the path to Euro-integration,” he said.

 

Zenon Zawada: As far-fetched as it might seem, there is actually some basis for optimism in the latest turn of events. The Cabinet resolution has no political consequences since it’s only the president who determines Ukraine’s foreign policy and signs international accords, according to the Constitution. Yanukovych has yet to state his position clearly, and we don’t rule out that the resolution is a maneuver to persuade the EU leadership to drop its demand that he arrange for the release of former Prime Minister Yulia Tymoshenko, as well as offer more loans on more relaxed terms. A last-minute EU deal would boost Yanukovych’s political popularity, demonstrating to the pro-Western electorate that he’s the only person who can move Ukraine closer to EU, as opposed to impotent opposition and skittish government, led by the Russian-leaning Azarov.

 

Nevertheless, the “no deal” scenario looks like the most probable. A failure to sign the Association Agreement would have enormous implications both in the short term, and long-term perspective. Most players involved have dismissed the suggestions that the Association Agreement can be signed within a year. We agree with the view of European Parliament MP Pawel Kowal, chair of the Ukraine-EU parliamentary commission, that the agreement won’t be signed for at least another three years, taking into account next year’s elections for the European Parliament, then the Ukrainian presidential vote in February 2015, followed by a period to reorganize the work to prepare for the agreement again.

 

With no deal with the EU, Yanukovych would rejuvenate Ukraine’s otherwise stagnant opposition parties for the 2015 presidential election campaign. Most polls indicate any pro-EU opposition candidate would handily defeat Yanukovych in a run-off vote, which means he’ll have to pull off an economic miracle to win the elections, which is highly unlikely. The more likely scenario is a repeat of the 2004 presidential elections, which were ruled to have been fraudulent and ignited a nationwide revolt. We expect widespread instability on the domestic political front.

 

In regard to international politics, the Russian government would only intensify its pressure on the Ukrainian government to join the Eurasian Union, which is set for launch in 2015. The Yanukovych administration – which is clearly opposed to joining the Customs Union – would be left to fend for itself against this Russian expansion, without support from Western powers. We expect instability on the foreign policy front as well.

 

Economically, we do not expect the deal’s outcome will have much of an effect as the key challenge for Yanukovych is to secure enough foreign loans to survive until the presidential elections in February 2015. He can gain such funds from either Russia or the West. That being said, we expect a negative reaction from the capital markets if the Cabinet’s “no deal” resolution is supported by Yanukovych.