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

Russia has stated on numerous occasions that full acceptance by our Ukrainian friends of all the tariff liberalisation requirements and the adoption of the European Union’s technical, food safety and veterinary norms will have a negative impact on the scope and dynamics of trade and investment cooperation in Eurasia. By very conservative estimates, the total loss for the economy of Russia alone may amount to 100 billion roubles during the first stage, that is $3 billion. This will affect entire sectors of our economy and agriculture, with all the attendant consequences for economic growth and employment rates.[65]

He went on to explain that Moscow would take steps to protect its economy should these concerns go unaddressed.

Once the cameras were off, Putin made his position clear: besides altering the standards, 2,340 tariff lines in the DCFTA would have to be changed. The EU trade commissioner, Karel De Gucht, repeatedly rebutted Putin’s arguments about the injury Russia would suffer from the DCFTA.[66] He and other EU leaders were sure that Putin’s demands were a ploy to scuttle the deal.[67] They also had a parochial bureaucratic interest in rejecting Putin’s arguments. Altering just one tariff line – let alone 2,340 – would require the Commission to obtain a new mandate, necessitating a painstaking renegotiation among the 28 member states. This rigidity is a common feature of the EU’s international trade negotiations. It creates strong disincentives to amend course midstream, even when doing so would be sensible, as it was in this case.

Later, Putin asked Poroshenko to put off ratification of the deal in order to allow more time for talks. Poroshenko agreed to talks, but stood his ground on proceeding with ratification less than a month later. The Russian military’s assault on his forces that ended in the defeat at Ilovaisk on 2 September 2014 changed Poroshenko’s mind. In addition to agreeing to Minsk I, he also conceded to Putin’s demand to reopen the text of the AA to change the DCFTA. He presented this compromise to NATO leaders at their summit in Wales a few days later. ‘Mr Obama responded first, according to a person in the room. Was this something Ukraine wanted, or Mr Putin wanted? Mr Poroshenko made clear he was the one seeking it. Mr Obama turned to Ms Merkel: if the Ukrainians want it, why not? She agreed.’ But even Obama and Merkel were not prepared to take on the EU’s institutional unwillingness to revisit the AA. When they presented the compromise to Barroso, he was ‘incredulous’. ‘Barroso was, like, WTF?’ a US official recalled. Invoking the Maidan Revolution as evidence of what could happen if Poroshenko agreed to a renegotiation, Barroso, ‘desperate to find a way to keep the [AA] on track’, talked Obama and Merkel into renouncing the Ukrainian president’s deal with Putin and allowing ratification of the agreement to proceed.[68] In place of a renegotiation, the EU would ratify the AA but offer Russia a 15-month pause in implementation of the trade-related parts of the agreement, during which time fuller explanations and technical tweaks would be possible, but not substantive amendments.

EU commissioner De Gucht was to present this modified deal to Russia the following week. In the run-up to the meeting, the Russian government sent Brussels and Kyiv its proposals for the talks, which the latter duly leaked to a Ukrainian newspaper. The 59-page document called for extensive changes to the DCFTA, in accordance with Putin’s earlier demands, not trifling misunderstandings about the text that the EU could simply clarify.[69]

The EU, in short, was fully aware that Moscow was expecting a renegotiation when the Russian minister Ulyukaev arrived in Brussels for the talks. De Gucht rejected the Russian proposal categorically and aired the 15-month pause offer. He told Ulyukaev that ‘the decision was simple: either we have a deal on the 15-month plan or we don’t. There would be no further compromise.’ Ulyukaev, in a move that would see him reprimanded upon his return home, agreed. One EU official involved in the talks celebrated the result: ‘[Russia’s] purpose was to delay the thing until doomsday and break it open on substance. On both counts, they failed.’[70] The two sides were still locked into their zero-sum geo-economic competition.