Foreign Policy Insight

October 15, 2014 Issue 8 Contents

Foreign Policy Strategies and Decisions ...... 1

• CIS summit without ...... 1

• Putin puts on hold the “Novorossiya” project? ...... 2

Energy Diplomacy ...... 4

• Putin’s friends in European Parliament «send regards to Ukraine» ...... 4

• The Verkhovna Rada of Ukraine should adopt the draft law “On technical regulations and compliance assessment” ...... 5

Economic Diplomacy ...... 7

• Russia’s economy suffers recession ...... 7

• Reformatting the Polish government ...... 9

October 15, 2014 Foreign Policy Strategies and Decisions CIS summit without Ukraine

n October 10, a CIS summit took place in At the same time, it comes as a surprise that Minsk. Ukrainian President Petro Porosh- no clear explanation from Ukrainian authorities, enko refused to attend the summit. On the which would clarify Ukraine’s stance on the CIS, Oone hand, it is a logical decision, which became has been presented that. Just in one interview for a the continuation of what TV channel, Mr Pereby- was the curtailment of President inis stated that this deci- No clear explanation Poroshenko Ukraine’s participation sion was “a signal to the of Ukraine’s refused to attend position on the CIS in the CIS. It should be CIS that the CIS coun- the CIS summit has been presented noted that Ukraine has tries are making a mis- never regarded itself as a full CIS member. Follow- take supporting Russian actions in Ukraine”. Mr ing the Euromaidan revolution and Russia’s an- Perebyinis is rather naive if he thinks that authori- nexation of Crimea, Ukraine decided to withdraw tarian regimes of the post-Soviet countries of Cen- from the CIS. According to the Head of the Press tral Asia, Caucasus and , which have been office of the Ministry of Foreign Affairs of Ukraine dependent on Kremlin, will support a democratic Yevhen Perebyinis, the reason for such a decision path of Ukraine’s development. was “breaching of the Agreement establishing the But the fact that no document on the termina- CIS by supporting Russian annexation of Crimea tion of Ukraine’s participation in the CIS has been by individual CIS countries”. It was also pointed adopted since the overthrow of Janukovych cor- out that “Ukraine retained the right to adopt de- rupt regime indicates that a final decision on this cisions on the appropriateness of Ukraine’s mem- issue is yet to come. In addition, prior to Minsk bership in the CIS”. summit, in a phone conversation with Belarusian

October 15, 2014 1 Foreign Policy Strategies and Decisions

President Aleksandr Lukashenko, Ukrainian Pres- will adopt it are very narrow. ident even apologized for being Instead, Ukraine should finally make a decision. unable to attend the meeting personally. Instead, The example of Georgia, which after the 2008 events the Minister of Foreign Affairs of Ukraine Pavlo withdrew from the CIS, shows that the withdrawal Klimkin stated that the participation of the Ukrai- from the CIS does not bode ill for countries that nian delegation in this Petro Poroshenko decided against the CIS. The only thing that needs event will be ensured apologized for his to be done before the start of legal procedure of by the Ambassador inability to attend Ukraine’s withdrawal from the CIS is the inventory Mykhailo Yezhel, who the meeting of international agreements, which were conclud- attended the summit. ed by Ukraine as a CIS member. Ukraine should Thus, the abstention from participation in this announce its legal position on which agreements year’s CIS summit can be regarded as a light dip- are to be kept binding upon Ukraine and which lomatic démarche rather than a conscious decision should be denounced. It is quite obvious that in aimed at withdrawing from this ineffective orga- view of CIS countries’ support for Russian actions, nization, which was established in 1991 to solve be it direct or latent support, the further format of issues related to the break-up of the relations between them The priority should and which was not intended to establish coopera- and Ukraine should be be given to the tion between the newly created states. On October determined. From now bilateral format 10, the Verkhovna Rada of Ukraine registered the on, the priority should of relationships draft law on the suspension of the Agreement es- be given to the bilateral between Ukraine tablishing the CIS. The fact that authors of the draft format of relationships and CIS countries law were only MPs from “Svoboda” party indicates between Ukraine and that the chances that the incumbent Parliament CIS countries. Putin puts on hold the “Novorossiya” project ? ussian President Vladimir Putin ordered to is set to take place in Australia in November. For “return 17.6 thousand Russian servicemen Russian diplomacy, it is very important to prevent to their permanent bases after military ex- diplomatic failure in this regard. The absence of Rercises in Rostov region”. This contradictory deci- Vladimir Putin at the summit would mean a total sion has been explained in different ways. On the political isolation of Russia. The situation was com- one hand, according to an optimistic version, Putin plicated by the fact that decided to alter his policy on Ukraine and demon- Australian political cir- Vladimir Putin strate his disposition to replace war with peace. But cles do not stop debating absence at the Russian hawks and opposition leaders consider it to on this issue. Even Aus- G20 summit would mean Russia’s total be Russian major military and political defeat and tralian Prime Minister political isolation call Russian president almost a traitor. To support repeatedly stated in his their claims, they presented the number of Russian public comments that Vladimir Putin would take military losses — up to 4 000 dead, great capital part in the summit solely because the Prime Minis- outflows worth around USD 100 billion, hyperin- ter does not have the right to veto his participation. flation, political isolation, painful sanctions etc. For this reason, being fully aware that in order to At the same time, one should not see things only reach some consensus on this issue, it is necessary to in white and black. Over the last few years, there make at least a step backward, the Kremlin decided have been many official and informal discussions to publicly announce its decision, which may make on the appropriateness of Russia’s withdrawal not everyone think that Russia will stop supporting pro- only from G8, which happened almost automati- Russian bandit and terrorist groups in Donbas. It cally, but also from G20, the next summit of which seems, perhaps, that this decision opens a window of

2 October 15, 2014 Foreign Policy Strategies and Decisions opportunities for as regards the intensification G20 summit in Brisban, the Kremlin will be look- of Ukrainian actions aimed at forcing Russian mer- ing for ways to escalate the situation in Ukraine. cenary soldiers out Ukrainian territory. Until August Alongside its attempts to 24, with a number of glorious victories behind, it worsen the situation in Russia is not seemed that it would take only a few weeks to regain Donbas, the Kremlin will going to wind up control over the entire Donetsk and Luhansk regions. try to destabilize south- its “Novorossiya” However, two factors should be singled out. ern and eastern regions project Firstly, the restoration of legal order in Donbas of Ukraine. With this being taken into account, the would become a personal defeat of Vladimir Putin. unexpected time-out initiated by Vladimir Putin For this reason, he will not let this happen by any should be used to reinforce the defence in Kharkiv, means, at least in the near future. The announced Odesa and Kherson regions as well as ensure full- withdrawal of Russian forces does not mean the scale rearmament of Ukrainian military, improve- closure of mercenaries training base in Rostov re- ment of military command and preparation for au- gion, nor does it indicate that the Russian army will tumn-winter campaign. In addition, in view of the not be send to Ukraine again after the Ukrainian intensification of Russian diplomatic efforts against army’s new victories. And secondly, Petro Porosh- Ukrainian lobby groups at the OSCE, Council of enko’s style of state governance and attitude show Europe and the EU, Ukraine should immediate- his intentions to “stabilize” the situation in Donbas. ly focus on the renewal of its effective diplomacy Given the choice between safeguarding Ukraine aimed at large-scale military and financial coopera- from further territorial losses and restoring terri- tion with countries that Ukraine should torial integrity putting everything at stake, Porosh- are supporting Ukraine. immediately restore enko voted for the first option. American, Canadian and the effectiveness of Thus, Russia is not going to wind up its Novoros- European directions are its diplomacy siya project. Today, one can see that right after the the key ones.

October 15, 2014 3 European focus Putin’s friends in European Parliament «send regards to Ukraine»

ast week, Committee on International Trade meeting of the International Trade Committee is of the European Parliament failed to adopt set to take place, at which a standard procedure will the decision on prolonging the autonomous be applied. Thus, there It is not about the Ltrade preferences for Ukraine under fast track are good chances that refusal to prolong procedure. Trade preferences mean the exemption the green light to this trade preferences from imports fees for Ukraine. It received only fast track procedure will four votes of European MPs — Helmut Scholz be given. However, the fact that this issue will be (Party of the European left, Germany), representa- passed to the European Parliament for consider- tives of “Europe of freedom and direct democracy” ation is somewhat alarming. In case of postpone- David Borrelli (Italy) and William Dartmouth ment of the relevant decision, there might be delay (Great Britain) as well as French Marine Le Pen, in prolonging trade preferences for Ukraine as the who created a blocking minority and voted against previous decision, adopted in May, will be valid the fast track procedure. only until November 1, 2014. On the one hand, such decision is not a reason Thus, no matter where the consideration of this for panic, since it is not final. It is not about the issue may go, there is no doubt that the activities refusal to prolong trade preferences. The Interna- of Putin’s friends in the European Parliament have tional Trade Committee cannot bring up the issue intensified. This is the first alarm signal from Brus- under simplified procedure with the 10% votes of sels to Kyiv. To avoid further unpleasant surprises, a blocking minority. On September 20, a second necessary preventive measures should be taken.

4 October 15, 2014 European focus

Firstly, the contacts with European MPs should be might be. It is necessary to reinforce Ukrainian em- intensified, and not only before or during plenary bassies in EU countries as well as enhance interpar- sessions of the relevant committees, but also on a liamentary relations. This is not an easy task to do, permanent basis. given the delay in the appointment of new Ukrai- It is quite evident that it will take more than just nian ambassadors and ongoing electoral campaign. diplomatic efforts by Ukraine’s representative in the However, recent statements by Petro Poroshenko in EU Kostyantyn Yeliseyev and other Ukrainian dip- France and Poland give hope that at least for the lomats in Brussels, no matter how professional they first time this complication will be overcome. The Verkhovna Rada of Ukraine should adopt the draft law “On technical regulations and compliance assessment” he draft law “On technical regulations and (except for some minor exceptions) should meet compliance assessment” has been submitted the requirements of relevant technical regulations. to the Verkhovna Rada of Ukraine. The said In EU territory, as well as in other countries, these Tdraft law is one of the key European integration standards are elaborat- projects. It actually rounds off a series of legal acts, ed, adopted and applied Technical regulations are namely the Law of Ukraine “On standartization” based on the principles the most serious and “Metrology and metrology activity, the adop- established by the WOT form of non-tariff tion of which removes technical barriers and legal Agreement on Technical regulation obstacles in the trade in manufactured products Barriers to Trade, which and will facilitate the access of Ukrainian manufac- were added to the 1994 Marrakech Agreement es- tured goods to the EU market as well as markets tablishing the WOT and which are legally binding of other developing countries. This draft law was for all WTO members, including Ukraine. Also, the put on Parliament’s agenda on the last session day existing Ukrainian legislation, as regards technical of the incumbent Ukrainian Parliament — that is standards, does not meet directives of the EU New October, 14. However, the draft law was not consid- and Global approach that detail requirements for ered by MPs due to early closing of the parliament the elaboration of similar European acts. If the ex- session because of provocations outside the parlia- isting technical standards do not meet necessary re- ment building. If the draft law is not adopted at a quirements, the imported products will not be able special session, as urged by the Chairman of the to enter foreign markets, where these standards are Verkhovna Rada of Ukraine Oleksandr Turchynov, applied, namely the EU market. the trade in manufactured goods may be impeded Currently, the issue of elaboration, adoption and for another year. implementation of regulations and conformity as- The objectives of the technical regulations are sessment procedures, including mandatory certifi- protection of life and health of people, animals and cation is regulated by the Law of Ukraine “On Con- plants, environmental protection and protection of firmation of Conformity”, “On Standards, Technical natural resources, energy efficiency, legal protec- Regulations and Conformity Assessment Proce- tion of property, national security and prevention dures” and the Decree of the Cabinet of Ministers of the sale of poor quality products. of Ukraine “On Standardization and Certification“ In practice, technical regulations are the most and a number of other regulations. At the same serious form of non-tariff regulation. All products time, some provisions of these legislative acts are manufactured and supplied onto Ukrainian market duplicated or not consistent, and some rules do not

October 15, 2014 5 European focus cover certain provisions of the WTO Agreement on all Ukraine’s obligations in the industrial sector. Technical Barriers to Trade. As a result, the prin- Ensuring compliance with mandatory EU techni- ciples of the WTO Agree- cal regulations would stimulate the unhindered ment on Technical Bar- Current legislation turnover of products between Ukraine and the EU. riers to Trade as regards does not cover The draft law envisages an establishment of a single their elaboration, adop- specific rules of the national standardization body in accordance with WTO Agreement on tion and implementation European practice. Technical Barriers are not applied to the to Trade Adoption of the abovementioned draft law will most of the national leg- positively affect both the Ukrainian producers and islative acts, which are technical regulations in their consumers. First of all, it will help to open markets essence. This, in turn, leads to the non-observance of the European Union and developed countries for of Ukraine’s obligations as a WTO member. Ukrainian industrial producers. Therefore, it will Instead of the laws of Ukraine “On Confirmation help to mitigate the effects of a trade war with Rus- of Conformity” and “On Technical Regulations and sia and the loss of the Russian market. Conformity Assessment”, it is proposed to adopt Introduction of a new technical regulation sys- the Law of Ukraine “On Technical Regulations and tem, according to the European standards, will lead Conformity Assessment”, which would consolidate not only to an improvement of goods and services legal and organizational principles for elaboration, safety, but also contribute to a better institutional adoption and implementation of regulations and consumer protection. At the same time, a high- conformity assessment procedures. It would allow er level of industrial products safety means that not only to eliminate contradictions, but also en- products, which do not meet safety requirements, able adaptation of the national legislation to the EU but are probably cheaper, will be excluded from legislation more efficiently. the market. It concerns both domestic producers, Thus, the draft law creates a legal framework and which will not be able to adapt to new requirements, mechanisms for adop- and less safe import goods. This may adversely af- tion of the EU directives The draft law fect consumers with lower incomes, but in the long envisages that would allow initiat- term, the use of safer products will improve health an establishment ing the process of transi- of a single national of the population, decrease the instances of injury, tion to European stan- standardization etc. Therefore, it may offset the cost of purchasing dards and fulfillment of body safer products.

6 October 15, 2014 Regional and global focus: implications for Ukraine Russia’s economy suffers recession

nternational sanctions have a significant im- growth slowdown is forecasted for 2015, which are pact on the economic situation in the Russian going to reflect the results of sanctions. Federation. Problems with the ruble exchange Budget. The situation with the budget of the Irate, state budget deficit, lack of credit resources for Russian Federation is much worse. The Russia’s large companies, decline in foreign trade activity – budget had 138.0 bln rubles deficit in September all these have already affected the life-styles of or- 2014. It is 2.0% of GDP for that month. Since one of dinary Russians. However, economic trends can be the main indicators to be fixed in the budget is the better characterized by key indicators. oil price, the situation with the budget will deterio- GDP. In August, Russia’s Ministry of Economic rate due to decline in world oil prices. Development warned that Russia’s economy was Ruble exchange rate. On October 13, Russian balancing between recession and stagnation. The ruble exchange rate broke another record against forecast of the Ministry of Economic Development the dollar and the euro, which cost USD 40.46 and of the Russian Federation provides for GDP growth RUB 51.20 respectively. The main reasons for ruble by 0,5% in 2014. The World Bank forecasts GDP drop are the general decline in world oil prices and growth in Russia also by The World Bank capital outflows due to Western sanctions. During 0,5%, in 2014, by 0,3% forecasts GDP the last ten days, the Rus- and 0,4% in 2015 and sian central bank spent Russian ruble growth in Russia exchange rate broke 2016 respectively. Thus, by 0,5% in 2014 USD 6 bln to support the the greatest economic ruble. Since the year be- another record

October 15, 2014 7 Regional and global focus: implications for Ukraine ginning, the ruble lost 18 percent of value against sive Russia’s energy policy. In addition, Western the dollar. In general, the problem of the national sanctions have blocked the possibility for Russia to currency stability is one of the key indicators, as it buy shelf production technologies and production affects purchasing power of the population, infla- platforms. It stops the development of projects on tion, investment and trading activities. oil and gas production, deep drilling in the regions Inflation. According to Rosstat, cumulative in- of Siberia, as well as slows projects in the Arctic. flation in September was 6.5%. It is a maximum As a result, Russia has enormous natural resources, since September 2011. For comparison, inflation in but has no technology for their production. And in the fourth quarter of 2013 was 1.7%. This signifi- order to create their own similar capacities, Russia cant increase in inflation can be observed in the fu- needs time and money. ture to be resulted in deterioration of the situation In addition, complication of the geopolitical with fixed personal income, reduction of incentives situation around Russia and its domestic econom- for savings, manufacturers’ reorientation to pro- ic problems are spoiling the Kremlin’s ambitious duce low-quality products. plans to accept oil and gas payments in ruble. At Capital outflows. According to the Bank of Rus- the same time, the Krem- Kremlin’s plans to sia, from January to September 2014, banks and en- lin’s hopes for Chinese accept oil and gas terprises have taken out USD 85.2 bln, which is 1.9 organizations’ activities payments in ruble times more than the same have not been justified. Capital outflow are being spoiled period last year. However, Currently, official Beijing has increased according to the Ministry by almost half is in no hurry to oppose Western sanctions, far- of Economic Develop- compared to 2013 seeing and analyzing the possible risks from such ments of the Russian Fed- cooperation. Actually, Chinese banks do not intend eration, about USD 100 bln are going to be taken to invest in large-scale Russian projects. Investors out of Russia at the end of 2014. Such a significant of the Middle Kingdom have their own interests in capital outflow will deteriorate the economic situ- other countries. This means that Beijing is aware ation in Russia. As a result, a further tax revenues of the role assigned to it Beijing does not reduction in the state budget, reduction of foreign by the Russian partner want to be an exchange reserves and the general stagnation of the and do not want to be an instrument economy will be observed. instrument of struggle of struggle Foreign trade activities. Russia imports a sig- in Moscow-Washington- in Moscow- nificant portion of food products from abroad. For Brussels confrontation. Washington-Brussels instance, in 2013, 40% of imported agricultural As a result, the Chinese confrontation products were produced in the EU, 4% - in the company CNPC refused United States. Due to the trade embargo and the to make an advance payment for the construction fact that Russia is not able to fully replace imports, of gas pipeline “Power of Siberia”. “Gazprom” had the increase in prices for some food products (meat to delay the launch of the project for two years. and dairy product group) by 40% is expected. Ukraine should use the drop in world oil prices Oil prices. The rapid decline in oil prices at the and domestic economic complications as a “trump world market in a complex with sanctions imposed card” in negotiations with Russia. It is illogical to by the USA, EU and other countries regarding the talk about gas price at USD 385/ thousand cubic Russian energy sector significantly affect the mon- meters, while the cost of oil is fixed in the gas pric- etary and banking system of Russia. The current ing formula and Brent oil price has dropped by 12% trend towards a drop in world oil prices, as evi- over the last 3 months. denced by EU tacit consent on sanctions abolition In general, economic situation in the Russian against the Iranian company NITC, will allow the Federation does not seem to be optimistic due to latter to resume cooperation with European part- the imposed sanctions and the drop in world oil ners and get access to previously blocked financial prices. Economic deterioration will be observed in and technological assets. the future. In particular, 2015 will be a year of the Strengthening the Iran’s position in the global greatest results reflection of the Russia’s military energy market will lead to a weakening of aggres- and trade aggression.

8 October 15, 2014 Regional and global focus: implications for Ukraine Reformatting the Polish government n October 1, 2014, the new Polish gov- Schetyna does not even speak English fairly fueled ernment, headed by Eva Kopacz, received debate among his critics. a vote of confidence from the Sejm. Gov- G. Schetyna’s appointment is considered rather Oernment’s reformatting has taken place due to the in the context of internal Polish politics and party election of Donald Tusk (who led the Polish gov- competitiveness. Leaders of the Poland’s ruling party ernment since 2007) as the President of the Euro- “Civic Platform” are trying to prevent a split in the pean Council. However, 13 ministers from the for- party. G. Schetyna was considered as Donald Tusk’s mer Tusk’s government kept their seats, and a new biggest rival in “Civic Platform”, but was subsequent- government has got 6 new personalities, including ly marginalized as a politician. There were concerns Prime Minister Eva Kopacz. inside the party that he or his supporters may form A particular interest was caused by the candidacy their own group. Thus, G. G. Schetyna’s of the new Minister of Foreign Affairs as regards the Schetyna’s appointment to appointment consequences of the gov- the post of the Minister of should be ernment’s changes in Po- Grzegorz Schetyna Foreign Affairs is, in fact, has been appointed considered in the land for the entire region. an attempt to “pacify” him as a head of context of internal For seven years, Radoslaw Poland’s MFA before the upcoming par- party competition Sikorski, which is consid- liamentary elections 2015. ered as the “Ukraine’s advocate” in the EU, has been Analyzing the first statements of Eva Kopacz, occupied the post of Poland’s foreign minister. As a the newly appointed government of Poland will be MFA head, Radoslaw Sikorski took steadfast posi- focused on its own domestic politics rather than tion against Russia’s ambitions in Eastern Europe. the “Ukrainian issue”, taking into account the fact Mr. Sikorski together with the former Minister of that the parliamentary elections in Poland will be Foreign Affairs of Sweden Carl Bildt initiated the held in autumn of the next year. The new govern- EU Eastern partnership program in 2009, which ment’s head, speaking on “pragmatism of the new provided for rapprochement of Ukraine, Moldova, Polish government as regards Ukrainian issue”, has Georgia, Azerbaijan, Armenia and Belarus with the already hindered that she was not inclined to follow member states of the European Union. Under his a policy of active support for Ukraine, conducted guidance, Poland has managed to play an important by the previous government. Such statements of the role in imposing EU sanctions against Russia as a government’s head and change of the foreign min- result of Russian activities in eastern Ukraine. The ister in times, when European eastern borders are new Prime Minister of Poland Ewa Kopacz decided under threat, fairly stirred up society and caused a to replace Sikorski in the new government and ap- number of questions concerning Poland’s position pointed Grzegorz Sche- The new MFA head on the Ukrainian crisis. As regards security policy, tyna. In turn, Sikorski re- lacks diplomatic Eva Kopacz intends to focus on closer cooperation ceived a post of the Polish experience with the EU and NATO, and not to “brandish the parliament’s speaker. sword around on their own”. G. Schetyna, in turn, Until the last moment, it was expected that the assured about his intention to follow the Sikorski’s post of the foreign minister will be given to former policy, albeit with his own corrections, emphasiz- Poland’s Minister of Finances Jacek Rostowski. ing the importance of foreign policy inheritance However, this candidacy was rejected by Broni- under current challenges. slaw Komorowski, who appealed to the lack of Obviously, Poland will be supporting Ukraine Rostowski’s diplomatic experience. The candidacy further, but as part of more powerful Western efforts, of the new MFA head has received a wave of criti- and will be playing a less central role in shaping the cism and surprise, as Grzegorz Schetyna also does international response. Even if government’s pri- not have extensive experience in the diplomatic orities will be changing in The new Polish field. Obviously, he does not enjoy such an author- the near future, Poland’s government will ity and does not have such international contacts foreign policy direction is focus on its own as his predecessor. In addition, information that unlikely to be changed. domestic politics

October 15, 2014 9 The aim of the publication is to provide analysis of Ukraine’s foreign policy in the context of global pro- cesses in the region and the world, as well as an overview of major world events that may have an impact on the further development of Ukraine and the region. Special attention is paid to the European integration of Ukraine, in particular implementation of Ukraine–EU Association Agreement.

@2014 International Centre for Policy Studies (ICPS) If citing please give reference on the ICPS

Idea of the project: Vasyl Filipchuk Responsible for the project: Vadym Triukhan Team of ICPS experts: Vadym Triukhan, Volodymyr Prytula, Iryna Ivashko, Olena Zakharova, Nataliia Slobodian, Vasyl Povoroznyk

ICPS experts are open to communicate with media. To receive professional comments on the issues covered by Foreign Policy Insight publication please contact Communication Director Ms. Svitlana Sudak at [email protected]

October 15, 2014