What the Association Agreement Means for Ukraine’s Reform Agenda

On March 21, 2014 the political parts of the association agreement were signed between Ukraine and the EU. What does this mean, asks Dominik Tolksdorf: is the EU ready to put forward criteria for a reform in the country, and will Ukraine kick off such a reform agenda?

The last week has seen a hardening of the positions of Russia, the EU and the US. While Russia has continued with its annexation of Crimea, the EU and the US have instituted visa bans on and frozen the assets of several Russian and Crimean individuals. Arguably, the EU’s response could have been more decisive, including instituting visa bans on all Russian MPs who ratified Crimea’s annexation and imposing economic sanctions on Russia.  To date, several EU member states have shied away from these options, in order to leave a door open for negotiations with the Russian government. The EU has, however, recently decided on measures that can have much more political implications than many people realize at the moment.

First, rather than wait for Ukraine’s upcoming presidential and parliamentary elections, the EU has pushed ahead on the Association Agreement with Ukraine, officially signed on 21 March. The agreement commits both sides to “a close and lasting relationship that is based on common values,” including respect for democratic principles, the rule of law, good governance, human rights and fundamental freedoms, and principles of a free market economy. The agreement explicitly refers to the rights and the non-discrimination of persons belonging to national minorities, particularly salient to the concerns of ethnic Russians and Russian-speaking citizens in Ukraine. In addition, in signing the agreement, the EU has committed itself to promoting its independence, sovereignty, territorial integrity the and inviolability of Ukraine’s borders. The agreement thus excludes the possibility of the EU tacitly accepting Russia’s actions with respect to annexing Crimea in the future.

Second, besides the Association Agreement, the EU decided to cut customs on nearly all Ukrainian imports to the EU. According to the European Commission, this measure will deliver savings of around 500 million Euros a year for Ukrainian exporters who do business in the Single Market. In doing so, the EU will begin implementing parts of the so-called Deep and Comprehensive Free Trade Area (DCFTA) with Ukraine. Through such actions, the EU sidesteps the agreement it made with the Russian government back at the EU-Russia summit in January to consult with it before creating a free trade area with Ukraine. Clearly, the EU does not feel bound to this agreement, given how the Russian government has not demonstrated willingness to compromises with the EU in recent weeks.

The decision to fully implement the DCFTA will be made later. From a cost-benefit perspective, yesterday’s decision to cut customs gives more to Ukraine than to the EU. This “solidarity” can be explained by looking at recent developments: Prior to the Vilnius summit in November 2013, the EU had only agreed to sign a “package deal” with Ukraine, i.e. an association agreement that also included the establishment of a Deep and Comprehensive Free Trade Area (DCFTA) between the EU and Ukraine. This second component of the deal was especially controversial among business actors in Ukraine, many of whom rejected the trade area out of concerns that their companies would not be able to compete with EU producers. In signing the DCFTA, the Ukrainian government would also commit itself to adopting a broad range of EU legislation in coming years, which would result in “compliance costs” – a factor that should not be underestimated. Shortly before the Vilnius summit, ousted President Yanukovych argued that important Ukrainian businessmen asked him to not sign the EU agreement. Since the fears of domestic producers of unrestricted EU exports overflowing the Ukrainian market have been halted for the moment, the EU’s temporary concession has alleviated the concerns of Ukrainian oligarchs, many of whom had strong relations with the former government. Although these business circles have lost political influence in the past months, the new government in Kyiv will have to cooperate with them in the future – in part to ensure they do not join forces with Russia.

Third, developments since November have brought again to the fore of discussion among European politicians about the question of a “European perspective” for Ukraine. Whereas many member states have rejected such a perspective prior to the Vilnius summit, they seem to have become more flexible on the issue. The Congress of the European People’s Party, held two weeks ago in Dublin, adopted an “Emergency Resolution on Ukraine” which referred to Article 49 of the Treaty on the European Union, which stipulates that all European states, including Ukraine, have a European perspective and may apply to become a Member of the Union.  Also in the recently signed Association Agreement, the EU has appeared more receptive of Ukraine’s aspirations to join the Union through welcoming “its European choice”. Although a “membership perspective” is not clearly indicated, EU heads of governments have suggested there is room for such possibilities in the future. 

By signing the Association Agreement, the Ukrainian government also committed itself to implementing reforms that align with the “common values” and principles of the agreement.  The EU can therefore expect an ambitious reform agenda in Ukraine that will include judiciary reform, constitutional reform, and the respect for minority rights, among others. The agreement thus has the potential to lead to significant political, economic, and social reforms in Ukraine. If the current government in Kyiv chooses to take these reforms seriously, it can count on the continuous support of the EU, the US and likely that of the IMF in the years to come.

This article was originally published on Euractiv.com