Everyone Loses: The Ukraine Crisis and the Ruinous Contest for Post-Soviet Eurasia

Although normal trade resumed in less than a week, the message of these actions was clear: if Kyiv were to proceed with the AA, it should expect a disruption in bilateral trade with Russia.[15] Specifically, Moscow threatened to scrap Ukraine’s trade preferences under the CIS’s extant free-trade pact, an effective increase in average tariffs of more than ten percentage points. It was estimated that this would have reduced Ukrainian exports to Russia by 17% per year, shaving off 1.7% of Ukraine’s GDP annually.[16] Russian spokesmen used a spurious economic argument to justify this threat as something other than crude coercion: they claimed that European goods would enter Ukraine duty free under the DCFTA, and then ‘flood’ the Russian market by exploiting CIS free-trade rules governing Russia–Ukraine commerce. As Putin said, ‘We say, it’s your choice… but keep in mind that we will be forced to defend our market.’[17] Perhaps such a risk existed on the margins, but rules of origin – the globally accepted benchmarks for determining the national source of a product – would have allowed the Russian customs authorities to distinguish between EU and Ukrainian goods in the vast majority of cases. Why repeatedly make an argument that most trade experts considered facetious? A charitable explanation is that many in Moscow made worst-case assumptions about the AA and DCFTA due to the lack of dialogue with Ukraine and the EU on the subject. Or, more likely, this talking point could have been a cover story for Moscow’s efforts to block the AA, which would certainly have redirected Ukraine’s trade away from Russia in the long term.

The Russian squeeze on Ukraine’s economy did not stop Yanukovych from pushing ahead with the AA; his government formally approved the final draft on 18 September. But furious wheeling and dealing was ongoing away from public view. Yanukovych knew that the EU was keen to have the AA signed at the November Vilnius summit and angled for concessions from Brussels in the final weeks. Despite voluminous evidence that Ukraine’s politics were becoming more authoritarian and its political economy increasingly monopolised by Yanukovych’s family and inner circle, the EU was still ready to sign the AA with Kyiv if it allowed Tymoshenko to leave prison for medical treatment in Germany.

The EU’s focus on the Tymoshenko case had blown its significance out of proportion. Her imprisonment after a politically motivated prosecution was just one example of broader failings in Ukrainian democratic governance that had become more acute under Yanukovych but long predated him. A weak judicial system was chronically subject to manipulation by patrons in the executive branch and the business elite. But Brussels’ need to emerge victorious in what was now an open geo-economic bidding war with Moscow trumped the principle that greater integration should only be offered in return for reform. The conditionality for signing the AA was thus reduced to a single symbolically rich but systemically insignificant step.

Brussels even dropped that residual demand in the end. In the weeks before the Vilnius summit, Yanukovych seized on the EU’s visible eagerness to move ahead, with the apparent expectation not only that Brussels would give up on Tymoshenko, but that it would also provide financial compensation to offset the cost of Moscow’s expected retaliation, which he claimed would amount to US$160bn. While the EU declined to pay the financial ransom, it relented on Tymoshenko. Poland had pushed for the concession, arguing that if Ukraine did not sign the AA, it was just a matter of time before Moscow re-established control over the country. ‘Never again do we want to have a common border with Russia’, the Polish president is said to have informed Chancellor Merkel.[18]

But that was not enough for Yanukovych. Despite the EU’s last-minute concession on Tymoshenko, the Ukrainian cabinet issued an order suspending preparations to sign the AA just a week before Vilnius. The same order called for the establishment of a trilateral commission with Russia and the EU to discuss trade relations and the renewal of active dialogue with the countries of the Customs Union on trade and economic issues. While Yanukovych did not stop proclaiming his commitment to European integration, it was clear that the AA would not be signed at Vilnius.

The EU refused to back down. Barroso and the president of the European Council, Herman Van Rompuy, brought two copies of the AA to Vilnius in a last-ditch attempt to seal the deal in person with Yanukovych.[19] When even that could not deliver Yanukovych’s signature, European leaders publicly browbeat him during the evening reception, with the cameras rolling. These awkward moves created the distinct impression that motives other than reform and integration were driving EU policy. Washington, having observed the AA negotiations from the sidelines, was in no position to prevent this train wreck.