Will ‘Reform’ of Soviet-Era Laws Revive Ukraine’s Free Trade Prospects With EU – or is Brussels Looking for a Way Out Too?

September 26, 2011
James George Jatras
Deputy Director, AIU

Ukrainian President Viktor Yanukovich has been the recent recipient of coordinated ultimata from European Union leaders that if his one-time and perhaps future rival, Yulia Timoshenko, is sent to prison, Ukraine can wave goodbye to the free trade agreement (FTA) currently under negotiation. The forcefulness and the source of the messages – including from Warsaw and Stockholm, capitals considered among Kiev’s top advocates in the EU – seems to have made an impression. “The message has been delivered,” commented Swedish foreign minister Carl Bildt, “and it has been received.”

Numerous observers, both Ukrainian and foreign, now suggest Yanukovich is looking for a way out of the trial in the hopes of saving the FTA’s increasingly fragile prospects. One such exit now appears to be the notion of reforming the Soviet-era laws under which Timoshenko stands accused, according to which her alleged peccadilloes would be decriminalized. Commented the president: “We well understand the need to revise and reform the current system of criminal justice. The judiciary system needs to be reformed and we are dealing with these matters in a very determined manner.”

President Yanukovich should be taken at his word. Quite apart from the issues relevant to Timoshenko, there is widespread agreement that Ukraine’s criminal code, last revised comprehensively in 1962 under vastly different political, juridical, economic, commercial, and ideological circumstances, is long past due for a thorough overhaul. If Yanukovich can leave comprehensive and principled reform of Ukraine’s laws as one of his legacies, it would be well to his credit.

Legal Reform Won’t Work as Timoshenko ‘Rescue’ Ploy

But the imperative for legal reform as an enduring bequest to the people of Ukraine is one that must be approached thoughtfully and systematically, not as an ad hoc rescue from the political bind the Kiev administration has created for itself. Indeed, if “reform” turns out to be just a pretext for fixing the laws applicable to Timoshenko – perhaps by rushing a special bill through the Rada – it might not even accomplish the immediate task. The suspiciously convenient discovery of legal reform as a means to spring Timoshenko would lend credence to the accusation, vigorously denied by the administration, that the charges against Timoshenko all along were politically motivated, both to remove her eligibility as a future candidate and to invalidate the gas pricing deal she agreed to with the Russians in 2009.

Such a “convenient” stratagem might end up alienating the Europeans further, who, as voiced by Poland’s foreign minister Radek Sikorski, are telling Ukraine: “If you associate with us, we will hold you accountable to our standards.” Moreover, the Europeans are demanding not only that Timoshenko not be imprisoned following what they regard as a show trial, but that she be allowed to participate fully in future Ukrainian elections as a candidate, absent which the western governments (who, as is well known, are the sole judges of such things) will not certify any future ballot as “free and fair.”

As for the Russians, if anyone in Kiev thinks the Kremlin will concede the invalidity of the current price structure based on some legal machinations, they’d better think again. Whether Timoshenko goes to prison or not, the only way Kiev could hope to force a price change – as opposed to negotiating a change on terms acceptable to Moscow – would be to provoke yet another gas war. It doesn’t take a crystal ball to predict that the loser would be Ukraine, whose leverage, already weak, suffered a major blow with this month’s opening of Nord Stream. As Russian Prime Minister Vladimir Putin observed at the time, “Like any transit country, [Ukraine] has the temptation to benefit from its position. Now this exclusive right disappears. Our relations will become more civilized.” Or to put it another way, Kiev – whether under the previous anti-Russian “Orange” regime or now with President Viktor Yanukovich's putatively “pro-Russian” administration – no longer can pretend that the laws of geography and of supply and demand don't apply to Ukraine’s energy transit policy.

Even worse for any confrontational strategy by Kiev, no one should expect that this time European opinion, with Germany in the lead, would blame Russia. As even the Economist notes, while Ukraine’s “souring of relations with Russia” over gas prices, among other issues, “helped push Mr Yanukovich towards the EU, his core supporters in Ukraine’s east and south prefer union with Russia and other ex-Soviet republics. That makes sense economically: Ukraine exports more to the former Soviet Union than to the EU, and joining a customs union would deliver cheaper gas, as the Kremlin has made clear.” In any case, word from Yanukovich’s office regarding his most recent meeting with his Russian counterpart, Dmitry Medvedev, claimed “considerable progress,” and Russian willingness to review the 2009 pricing agreement.

Timoshenko a Convenient Excuse for the Europeans?

As noted by the Economist of London, it appears that Yanukovich – or to be more fair, some of his advisers – “believed that relinquishing Ukraine’s stockpile of highly enriched uranium, which pleased America, and eschewing Russia’s pressure to join its customs union would outweigh the arrest of the tarnished Ms. Tymoshenko.” If so, that belief turned out to be misplaced. Now, even if Timoshenko does walk free, there might be insufficient time to rescue the FTA in time to meet the EU’s cumbersome 27-nation ratification process. According to one informed member of the European Parliament, if key deadlines are not met because of growing concerns within the EU, “we’re losing not one month or two months; we’re losing three years because the agreement will not be ratified in the current legislative period.”

If the FTA falters, it might not reflect just technical realities on the EU side but a change of heart: As one senior diplomat told the EU Observer, the Timoshenko drama “already had an impact on our discussions about the Eastern Partnership summit declaration [of which the EU-Ukraine FTA was to have been a key part]. It creates a negative context. We are hearing that this is a group of failed countries. Very few people are now speaking about any European perspective for them,” referring not only to Ukraine but to Moldova, Azerbaijan, Armenia, Georgia, and Belarus. In short, if Kiev is looking for a technical trick to rescue the FTA, some of Kiev’s European interlocutors may well be looking for one to entomb it. Indeed, Europeans increasingly seem to be repelled by neo-Orange notions of an “East-West” dichotomy, as voiced by Ukraine’s EU ambassador, who compared progress toward a political association and trade pact to the fall of the Berlin Wall. Said one Center-Right Member of the European Parliament, Elmar Brok, who ought to know a Berlin Wall when he sees one: “This is old thinking. We live in a modern society where values play a role. You can't have an Association Agreement, which might even contain a European [accession] perspective and at the same time put the opposition in prison.”

To be sure, Washington is still dominated by East-West “old thinking,” and may well put pressure on the already overburdened Europeans to move forward with the FTA for exactly the reasons rejected by Brok, and probably by the Germans in general. But whether that pressure will prevail is another matter. As always, it hardly needs to be added, changes of heart connect to the pocketbook as well. At a time when the entire global market hangs by a thread because of the EU’s debt crisis, and there is open speculation about rolling defaults and the breakup of the Euro zone, qualms about “standards” may be just the excuse Europeans need. What better way for them to back out of a deal that brings neither side much tangible benefit but which they fear could subject them to an open-ended commitment on top of the existing ones they no longer can meet?

FTA or Not, Rule of Law Reforms Needed

As the Economist quotes former foreign minister Petro Poroshenko, “Ukraine’s options are not only a question of money or gas. Ukraine has ways to boost revenues,” he says: “stopping stealing, removing restrictions on exports, privatizing state property more honestly.” A true legal reform doesn’t mean just backtracking on Timoshenko, whose treatment “has signaled to prosecutors and the security services that they have a free hand,” according to the Economist: “Raiding of businesses by armed men is widespread. Businessmen say the climate is worse than a decade ago,” under Leonid Kuchma’s tenure.

President Yanukovich’s embrace of legal reform points to a real and historic opportunity to strengthen the rule of law in Ukraine. He should be encouraged to take it. But such reform shouldn’t be just a ploy to save the FTA agreement, which may be beyond help anyway.