From the Utilization Fee, to Svoboda’s Call for the Annexation of Pridnestrovie, to Timoshenko’s Continued Incarceration -- New Doubts in Brussels as to Whether Ukraine Is “European” Enough

August 15, 2013
Anthony T. Salvia
Director, American Institute in Ukraine

While in Germany recently to build support for Ukraine becoming an associate member of the European Union, Deputy Prime Minister Arbuzov referred to Europe as Kiev's "civilized choice." This cheerful and rather simplistic view both of Europe and of Ukraine’s choice begs the question: does Europe feel the same way about Ukraine?

Recent internal Ukrainian developments are giving rise to fresh doubts in Brussels as to Ukraine’s suitability as partner in the European project, which has enough trouble already:

  • Kiev recently slammed tariffs – in the form of a “utilization fee” (“утилизационныйсбор”) -- on cars imported from the E.U., “infuriating” Brussels according to the Financial Times;
  • Oleg Tsariov, a Rada deputy and advisor to Prime Minster Azarov, recently questioned the compatibility of the Association Agreement with Ukraine’s Constitution, and suggested the need for constitutional amendments before a signed agreement could go into force. Brussels’ annoyance was so intense, President Yanukovich is said to have felt compelled to personally call the appropriate E.U. officials in an effort to smooth ruffled feathers.
  • Timoshenko remains in prison with little sign Yanukovich intends to release. This is particularly galling to Brussels as it was her incarceration in 2010 shortly after Kiev and Brussels jointly initialed the Association Agreement that torpedoed a quick signing ceremony and led to the present impasse.
  • And just to demonstrate that the Yanukovich administration has no monopoly on maximizing Brussels’s discomfiture, Rada deputy Eduard Leonov of Svoboda has called on Kiev to annex Pridnestrovie in the event Romania were to absorb Moldavia. This sort of posturing complicates delicate diplomatic maneuvering and undermines Germany’s efforts to resolve the matter, efforts with which Chancellor Merkel is personally closely identified.

The Financial Times’ coverage of Ukraine’s imposition of the “utilization fee” on foreign car imports – effectively a tariff designed to protect domestic car producers -- is telling of how Europe sees Ukraine and its prospects for becoming an associate E.U. member.

European officials are said to be “infuriated.” The FT sees the tariff as “further jeopardizing any chance of signing planned association and free trade agreements with the E.U. in the autumn.”

The newspaper quotes a commentary issued by the Kiev-based investment bank Concorde Capital:

“What’s revealing about this situation is… that Yanukovich was unfazed, which serves as further evidence that he’s willing to test the E.U.’s patience to the fullest extent in trying to get as many concessions as possible before potentially signing the Association Agreement.”

Is Yanukovich really looking for concessions from Europe? As it stands, the Association Agreement contains next to no tangible benefits for Ukraine. It would take a powerful lot of concessions for this agreement to compensate Ukraine for the benefits it is foregoing in rejecting – at Europe’s (unreasonable) insistence – membership of the Moscow-backed Eurasian Custom Union.

Concorde Capital says the utilization fee is “the result of the current government desperately looking for sources of revenue that are largely tapped out.”

True enough, but the only source of significant funding for Ukraine, like it or not, is Russia. Membership of the Customs Union would result in the elimination of gas import tariffs and a reduction in the price of gas. It would also lead to growth in tax revenues as Ukrainian producers tap into a growing market of 160 million people with a natural penchant for buying Ukrainian goods and services. This would put an end to Kiev’s cash and credit crunch. But Europe forbids Kiev from signing a deal with Russia.

If, as Concorde Capital suggests, Yanukovich is seeking “concessions” from Europe, the only one that would begin to compensate for the dead loss the Associate Agreement represents would be Brussels’ acquiescence in Kiev’s exercising Article 39 of the Association Agreement, which, in the words of the article, “shall not preclude the maintenance or establishment of customs unions, free trade areas or arrangements for frontier traffic except insofar as they conflict with trade arrangements provided for in this Agreement.” (Ex-Minister of Economics Viktor Suslov says these are minimal.)

The Financial Times reveals, incautiously, what is really at stake for Europe, and it has nothing to do with automobile exports:

“Signing [the Association Agreement and related free trade pact] would significantly weaken Moscow’s pull on Kiev, putting it on a steady path towards EU integration. But the agreements were already in doubt after the jailing of opposition leader Yulia Timoshenko. Now they are even more doubtful.”

So there you have it. That’s what this is all about – roping Ukraine into an anti-Russian orientation, whether or not this is good for Ukraine. If Brussels would allow Kiev to conclude a deal with Russia, Kiev would not have to resort to revenue-enhancing measures such as the utilization fee that harm European interests. By the same token, if you harm European interests, you are suspected of being a bad European and an unfit partner.

It is a vicious circle reminiscent of the gas wars whereby Europe demanded that Russia end preferential gas subsidies for Ukraine ostensibly because they distorted market prices. Russian was reluctant, but in view of Kiev’s policy, then, of seeking NATO entry, figured it made no sense to accord preferential prices to Kiev if Kiev were intent on joining a hostile military bloc. Europe (and the US) blamed Russia for the resulting gas war but failed to address, much less acknowledge, its own culpability.

Some in Europe may question Ukraine’s suitability as a partner, but Brussels needs to address the contradictions that flow from its own policies. These come about because the Brussels institutions – being fundamentally unaccountable – tend to defer to American priorities in foreign affairs, acting less as an ally of Washington that as its satellite.

The moral force of the European project always lay in its promotion of peace between erstwhile enemies, and trans-continental economic and security cooperation. But European policy – like American policy – has in recent years gone badly astray, wondering off into the never-never land of ideological utopia often referred to by bloggers as the USSA and the EUSSR.

In seeking to drive a wedge between Ukraine and Russia, Europe is betraying the legacy of its great modern founders – Adenauer and de Gaulle, and no good can come from that.