Issue 2 (2), 2015

ARMENIA AZERBAIJAN VYSHEGRAD 4 VYSHEGRAD

UKRAINE ENERGY SECURITY ENERGY EASTERN PARTNERSHIP PIPELINESREVISION POLICY NEIGHBOURHOOD DCFTA POLITICS CHOICE TRADE ECONOMYFINANCIAL CRISIS

BLACKASSOCIATION SEA FRAMEWORK AGREEMENT UNION EUROPEAN

• Politics vs Economy • Energy Security • Association Agreements UA: Analytica · 2 (2), 2015 1

Issue 2 (2), 2015 BOARD OF ADVISERS

Politics vs Economics Dr. Dimitar Bechev (Bulgaria, Research fellow, London School of Economics and Social Science)

Dr. Iulian Chifu (Romania, Director of the

Editors Conflict Analysis and Early Warning Center) Dr. Hanna Shelest Dr. Igor Koval (Ukraine, Rector of Odessa Dr. Mykola Kapitonenko National University by I.I. Mechnikov)

Dr. Sergey Minasyan (Armenia, Deputy Publisher: Director at the Caucasus Institute) Published by NGO “Promotion of Intercultural Cooperation” (Ukraine), Stephan Meuser (Germany, Director of Centre of International Studies (Ukraine), the Representation of the Friedrich Ebert Foundation in Ukraine and ) Representation of the Friedrich Ebert with the financial support of the Foundation in Ukraine. James Nixey (the United Kingdom, Head of the Russia and Eurasia Programme at Chatham House, the Royal Institute of International Affairs) academic/analytical journal in English UA: Ukraine Analytica is the first on International Relations, Politics Dr. Róbert Ondrejcsák (Slovakia, Director of and Economics. The journal is aimed for Center for European and North Atlantic Affairs) experts, diplomats, academics, students interested in the international relations and H.E., Dr. Oleg Shamshur (Ukraine, Ambassador Ukraine in particular. Extraordinary and Plenipotentiary of Ukraine to France)

Contacts: Dr. Stephan De Spiegeleire (The Netherlands, website: http://ukraine-analytica.org/ Director Defence Transformation at The Hague e-mail: [email protected] Center for Strategic Studies) Facebook: https://www.facebook.com/ ukraineanalytica Ivanna Klympush-Tsintsadze (Ukraine, Twitter: https://twitter.com/UA_Analytica Member of the Parliament of Ukraine)

Dr. Dimitris Triantaphyllou (Greece, Director of the Center for International and European Studies, Kadir Has University (Turkey))

Dr. Asle Toje (Norway, Research Director at the Norwegian Nobel Institute)

UA: Ukraine Analytica · 2 (2), 2015 1 TABLE OF CONTENTS

TO BUILD A FOREIGN POLICY CAPABLE OF DEVELOPING ...... 3 Interview with Hanna Hopko, MP, Head of the Committee on Foreign Affairs of the Parliament of Ukraine for UA: Ukraine Analytica

AT THE RIGHT TIME IN THE RIGHT SHAPE ...... 8 Amb. Andri Veselovsky

EASTERN PARTNERSHIP UNDER RECONSTRUCTION: THE UKRAINIAN TEST...... 18 Hennadiy Maksak

FACTORS INFLUENCING THE PERCEPTION OF AZERBAIJAN IN RELATIONS WITH THE EUROPEAN UNION...... 25 Rovshan Ibrahimov

EASTERN EUROPEAN REGIONAL COOPERATION AFTER CRIMEA: THE ART OF THE POSSIBLE ...... 32 Iryna Maksymenko

POLITICAL AND ECONOMIC CONSEQUENCES OF THE EU’S AUTONOMOUS TRADE PREFERENCES FOR UKRAINE ...... 41 Anton Kuchukhidze

LIVING IN SUSTAINED UNCERTAINTY. THE BLACK SEA REGION AFTER THE 2008 GLOBAL FINANCIAL CRISIS...... 48 Panayotis Gavras and Panagiota Manoli

ENERGY PROJECTS AROUND THE BLACK SEA: GEOPOLITICS VS. ECONOMY...... 56 Amb. Sergiy Korsunsky

POLITICS VS. ECONOMY IN EUROPEAN ENERGY AFFAIRS AND THE ROLE OF UKRAINE...... 63 Andrii Chubyk

2 UA: Ukraine Analytica · 2 (2), 2015 TO BUILD A FOREIGN POLICY CAPABLE OF DEVELOPING

Interview with Hanna Hopko, MP, Head of the Committee on Foreign Affairs of the Parliament of Ukraine

What are the key problems of the establishment, whether we call it “elite” further European integration of or not, as some would argue. Stability and Ukraine? predictability should become precursors for economic recovery. The implementation It is critically important to establish a of a free trade area agreement between single governmental coordination unit Ukraine and the EU will become a certain responsible for Ukraine’s further move to test for Ukrainian institutions’ capabilities to enhance national interests, boost exports, a vice-Prime Minister for Eurointegration — thisEurope. idea It couldhas been be, for discussed example, in an Kyivoffice for of economy. In 2015, we witnessed a certain quite a while already — keeping in touch dropand strengthenin Ukrainian the export specific not only branches to the EU, of but also to Asia, Africa, and other directions for the implementation of European norms, due to overall economic problems. standards,with all ministries and regulations. and offices responsible

In Poland they had a vice Prime Minister It is critically important to establish a single governmental «coordination unit responsible outand ansectoral office ofreforms, about four adapt hundred legislature, people. for Ukraine’s further move to Europe andWe mayelaborate well usefree this trade experience regulations to carry and all other norms necessary to get closer Economic recovery, increased military things were moving regarding a visa-free regimeto Europe. for Ukraine. We have Politicians seen how promised slowly should be kept in focus while moving its delivery on several occasions, namely furthereffectiveness, on our andway to overall the European state efficiency Union. in February and May of 2015. As a result, people’s expectations were exaggerated, and when a positive report by the European Should the role of the Parliament Commission on Ukraine’s progress in developing and carrying out towards the visa-free regime was released the foreign policy of Ukraine be in December, it was received sceptically increased? by many. The European Commission’s positive signal was largely misperceived Already in February 2015, the Committee by Ukrainians due to their inadequate on Foreign Affairs prepared a draft law, expectations generated by earlier promises which could amend Article 13 of the current Law on Diplomatic Service, allowing preliminary consultations with Itof Ukrainianis also extremely officials. important to achieve the Parliamentary Committee regarding political stabilization in the country. It is the appointment of ambassadors. I am a tough challenge for Ukrainian political stressing that such consultations would

UA: Ukraine Analytica · 2 (2), 2015 3 have an advisory function only, so that offered so far was more a survival budget no one suggests that the Parliament is unsuitable for development. targeting the powers of any other state

in mind is sharing responsibility. This is commoninstitutions. practice. What Take the a look Committee at the Baltic had andAlong technological with the ratificationcooperation, of basicthe States or the USA, where the Senate plays an international treaties in military, scientific, exceptionally important role in appointing other international documents, say, the ambassadors. Unfortunately, the draft has treatyParliament on protection speeded upof theinvestments ratification with of not been supported by the Parliament, . Another very important initiative, although the Rada is responsible for overall supported by the Parliament, was Horizon control over foreign affairs, as well as for elaborating foreign policy in general. It is projects, aimed at enhancing academic critically important that we work together exchange,2020 project innovations, — one of theand EUeducational scientific as a national team, coordinating our cooperation. Our Committee initiated efforts with the President, the Ministry of Parliamentary discussions of the strategy Foreign Affairs, and the Administration of for protecting national interests in what the President in what concerns resistance concerns resisting acts of aggression, the to Russia’s aggression, contributing to annexation of the Crimean Autonomous trans-Atlantic unity in assisting Ukraine to Republic, and other crimes committed by overcome the consequences of the crisis in the East and further economic recovery. clear vision was evident in what concerned protectingRussia against national Ukraine. interests, When thenamely lack in of The Parliament is also a place where pursuing international lawsuits against important draft laws on issues of foreign Russia for the annexation of the Crimea, policy and national security are being we initiated wide discussions on these prepared. They also touch on aspects of international security. Our Committee has to mechanisms and ways to control the initiated several meetings on reforming effectivenessissues. We alsoof transparency paid special in attention using security and defence, especially after international assistance to Ukraine. Each attending The Marshall Center in Garmisch- time we ratify agreements concerning these Partenkirchen, focusing on cooperation issues, we have to understand that the with NATO. After the Parliament cancelled the non-block status of Ukraine, getting the international reputation of Ukraine. closer to NATO standards and criteria has Startingways these from funds April, are we used have are paid influencing special become an important priority in reforms attention to these issues. of security sector. Our Committee has launched series of consultations with Another important question we raised Parliamentary Committee on European jointly with the Parliamentary Committee Integration and Parliamentary Committee on Industrial Policy and Entrepreneurship on National Security and Defence focusing concerns the “economization” of foreign policy. Increasing Ukrainian export is parliamentary delegation to NATO, headed important, while in many of Ukraine’s trade on these reforms. We also have a very active missions there is lack of staff and there is no Ivanna Klympush-Tsintsadze. strategy for promoting Ukrainian export. by the first deputy head of the Committee, This year, it was the Parliament lobbying to assessing trade agreements, free trade areas,We need and a the more development professional of approach closer economic cooperation worldwide. Special for increased financing for the Ministry of Foreign Affairs. What the Ministry has been 4 UA: Ukraine Analytica · 2 (2), 2015 attention should be paid to promising partners, e.g. China and Turkey, as well as The Parliament is playing an to perspective Ukrainian industries: food, increasingly important role in construction, and military. «foreign policy by strengthening Ukraine’s diplomatic “fortifications”

Committee, encompassing representatives ofWe the have country’s also created most a Civilprominent Board ofthink- the diplomacy: they exchange visits with tanks, NGOs, and expert groups. It is their foreign counterparts, participate actively involved with the efforts to reform in parliamentary assemblies of NATO, Ukrainian diplomatic service, enabled by OSCE, the Council of Europe, and other the recent Law on State Service, which international organizations. hope that certain analytical pressure from On the other hand, more efforts should civilwill comesociety into will force speed on upMay the 1, efforts2016. Weof the do be put into building a stronger Ukrainian Ministry of Foreign Affairs to present its position at major international security vision of reforms in the diplomatic service forums, like the recent one in Halifax, of Ukraine as well. Canada. These should be used to raise the issues of rebuilding Ukraine’s territorial integrity, as well as to broadly discuss the We usually speak about coordination problems of damaged international security between ministries of defence or architecture. It is important to cooperate ministries of foreign affairs when with various ministries and institutions analysing cooperation between inside Ukraine on these issues as well. It is states. How important is inter- becoming evident that there is a problem of coordination in the sphere of security and parliamentary cooperation today? foreign policy in Ukraine. Our Committee, To a certain extent, we have witnessed for instance, is working together with the a renaissance of the parliamentary Ministry of Defence of Ukraine to monitor have changed the criteria for selecting the carryingWorld Congress out of ofa Ukrainiansbilateral asUkrainian- well as headsdiplomacy of “groups during of thefriendship”, recent as year. well We as the heads of parliamentary assemblies, is very important to communicate with our with the knowledge of foreign language internationalCanadian Defence partners, Agreement. to be Wetransparent, believe it becoming one of the prerequisites. A and to inform them as fully as possible how number of successful resolutions passed decisions are taken within Ukraine as well. by OSCE and Parliamentary Assembly of the Council of Europe indicated that Ukrainian MPs are not just international What is more important in today’s tourists, but effective advocates of national international relations — politics, interests worldwide. security or economy?

The Parliament is playing an increasingly important role in foreign policy by important for a human body — a brain, strengthening Ukraine’s diplomatic aWell, heart it or is lungs. close toIn askingboth cases what there is more is a huge interconnection. Politics, security, parliamentary “friendship groups” were established.“fortifications”. The InMembers 2015, of 68parliament inter- are taking an active part in parliamentary development.and economy are influencing each other and define the general framework for state

UA: Ukraine Analytica · 2 (2), 2015 5 The world is watching Ukraine, as Joseph Among the main achievements of Ukrainian Biden put it during his recent visit to . Not only Ukrainians in Ukraine and all over European Commission positive report on the world, but also many other people are theforeign visa-free policy regime in 2015, should first be mentioned. of all, the wondering whether Ukraine will become It is a good signal for business and an example of a complex transformation, society. However, it also means additional encompassing economic, political, and security dimensions. The issues of politics recently passed anticorruption laws are not and security are highly interconnected in justresponsibilities. on paper, that We they have are real to instruments prove that the East of Ukraine, which is suffering from the Russian aggression. The assistance from the international community in moneyfor preventing for anti-corruption and fighting institutions corruption in dealing with the consequences of the the state country. budget We for have 2016. to provide enough crisis is also designed in a way that In 2016-2017 Ukraine will be a non- various aspects of security in a modern permanent member of the UN Security world.reflects Many interconnection states offer help between to Ukraine, the Council, which is also an important some of them, like Japan, for instance, achievement of our diplomacy. In the clearly understanding that breaches of the Security Council Ukraine will concentrate international law and revisionism from on protecting its sovereignty and territorial Russia are vital threats. Not only security integrity, investigating the tragedy with the

also events and processes in distant parts and the Security Council. ofand the politics world are caninfluencing generate each far-reaching other, but flight MH-17, and ways of reforming the UN consequences. Also, in 2015 a number of resolutions were passed by international organizations I would say that various elements and calling for Russia to withdraw its troops dimensions of security are interconnected from Ukraine, condemning annexation of in a modern world. One cannot be safe only the Crimea, and expressing support for economically or just politically. Security Ukraine. encompasses numerous dimensions and elements. That is why it is sometimes so It is important for us to keep the trust of hard to achieve. the international community. There were many issues important for Ukraine in 2015, when international support turned out What are the main achievements to be stronger than the actual Ukrainian and mistakes in Ukraine’s foreign policy in 2015? in lobbying and using international forums forparticipation. enhancing Weour haveinterests. to be more effective Ukrainian foreign policy has to be more Extremely high expectations in the realms use all opportunities offered by the modern of foreign policy and security were among meansactive, ofinnovative, communication and creative. to deliver We a positiveneed to Ukraine’s weak points in the recent couple image of Ukraine to the world. Ukraine is a of years. For instance, we expected — often country with rich cultural traditions and a publicly — a visa-free regime at the Riga long history. It is a European country with Summit, which was certainly too early. European people, paying a high price for the Sometimes we do not have an effective crimes of corrupted elites and willing to live planning of activities and lack coordination according to European values. among various institutions.

6 UA: Ukraine Analytica · 2 (2), 2015 defense sector — one of the most important We also have to be more onesWith regardtoday —to reformingwe still lack the securitycooperation and sustainable and to build a foreign between ministries. The same is true about «policy capable of developing cultural diplomacy and economic aspects of regional cooperation in vital spheres foreign policy: Ministry of Foreign Affairs keeps pulling the blanket with Ministry of Culture and Ministry of Economy, in both States, Belarus is important. At the same cases having no clear strategy of dealing time, there is no Ukrainian ambassador in with urgent issues. Minsk, a city that has become one of the peacemaking capitals for Ukraine in the There are also problems with staff. In many context of the Minsk process. The same is countries, there are still no appointed true about Hungary, taking into account ambassadors, and having ambassadors in Hungarian minorities in Transcarpathia. some of these countries is really crucial. On one hand, Eurointegration, keeping Euro- scenario”, when the world could just be Atlantic unity and broadening international tiredWe also of badhave news to think from of Ukraine. avoiding a “fatigue coalition to contain Putin’s aggression are important. But on the other hand, enhancing relations with our neighbors has always been a top priority. Focusing buildWe have a foreign to be policymore capableactive in of key developing regions. on Poland, Hungary, Slovakia, the Baltic regionalWe also havecooperation to be more in vital sustainable spheres. and to

UA: Ukraine Analytica · 2 (2), 2015 7 AT THE RIGHT TIME IN THE RIGHT SHAPE

Amb., Dr. Andri Veselovsky

The article describes the relations between the European Community and Ukraine since 1994 when the Partnership and Cooperation Agreement was signed, analyzing the factors of time, when this cooperation has been developed, and personalities involved in both the EU and Ukraine. The article is based on the personal observations of the author who served both as a Deputy Minister of Foreign Affairs of Ukraine (2005-2008) and as the Permanent Representative of Ukraine to the EU (2008-2010)

The formal rapprochement of Ukraine to Still, Ukraine is not a member neither a the European Union started in 1994. The candidate to the EU, and the Association Partnership and Cooperation Agreement Agreement signed in June 2014 does not (PCA) was signed1, which took effect only include any hints or provisions of the possibility. Few took notice of a vague formula pronounced at the ceremony by eveon 01.03.1998 of the occasion, due to it the was long declared process by of the the President of the European Commission Ukrainianratification side by the that EU “the Member perspective States. goalOn the of Ukrainian foreign policy is the membership partners’ aspirations to go further; and in the European Communities…” These weJ. M. acknowledge Barroso “We their are European well aware choice. of our As words matched fully with the earlier we have stated before, these agreements expressed national strategic goal “to assure do not constitute the endpoint of the integration of Ukraine into the European EU’s cooperation with its partners. Quite political, economic, legal space in order to the opposite. Signing these Association acquire the membership in the European Agreements with Deep and Comprehensive Union”2. Initially the goal was announced Free Trade Areas should not be seen as in the Resolution of the the end of the road, but as the beginning (Parliament) of Ukraine “On the main of a journey on which the European Union directions of the external policy of Ukraine” and these three partner countries are embarking together today.”4 Answering tentative announcement of being interested him from the Ukrainian side President P. inas earlyjoining as theJuly future1993. Moreover,EU could thebe firstfound ever in Poroshenko did go much further. “During the para X (International relations) of the today’s signing ceremony I’d like to make Declaration on State sovereignty of Ukraine3, a unilateral statement — when signing a year before the Independence of Ukraine. the Agreement on Association with the EU

1 Partnership And Co-Operation Agreement Between The European Communities And Their Member States, And Ukraine, 1994 http://trade.ec.europa.eu/doclib/docs/2003/october/tradoc_111612.pdf 2

3 Закон Украї�ни «Про засади внутрішньої� і зовнішньої� політики» (Відомості Верховної� Ради Украї�ни (ВВР), 2010, № 40, ст.527) http://zakon5.rada.gov.ua/laws/show/2411-17 4 Three partners meant Georgia, Moldova, Ukraine. Декларація про державний� суверенітет Украї�ни / Верховна Рада УРСР; Декларація від 16.07.1990 № 55-XII.

UA: Ukraine Analytica · 2 (2), 2015

8 Ukraine, as a European Nation, sharing the properly the Luxembourg documents and same values as a rule of law and freedom, then prepare papers and speed up reforms. stressing on the future membership of Ukraine in the EU. The Association Agreement is but a tool to prepare us for Wasn’t the second EU-Ukraine Summit of the future accession”. Could1998 in Ukraine Vienna trya step to convertin the right its directionPCA into aand “European why didn’t itAssociation grow into a Agreement” firm walk? or at least “Stabilization & Association goal, Ukraine remains at the same starting Agreement”? Why is it that 25 years after declaring the after the annexation of Crimea and Russian aggressionpoint of a neighbour?in Donbas Why the even most in 2014,”pro- conclusions nor comment on the details. Ukrainian” ever commissioner Stefan Fule Instead,We are we neither are pointing willing at to the contest time-factors others’ had to announce dryly that the “Association and personal factors, which contributed Agreement is an agreement about reforms. to the non-success story of the EU-UA It is a proposal of the way, how the EU relations. The study will be limited by the partners can get closer to the EU and become a part of the EU in an economic sense — after implementing a considerable limitfirst two the Ukrainian negative presidenciesinternal developments period and part of the EU’s know-how”.5 inthe Ukraine, executive as branch it will only.be shown, Within coincided this time the reasons for the EU frigidity towards with the periods of the EU’s concentration Ukraine if not repulsion? What are on non-Ukrainian issues, while the pro- Ukrainian tendencies in the EU institutions Many answers have been given and many had been ruined by Ukrainian political have been extensive. The simple one would strife and so on. A look at the history of the be as follows: Ukraine never applied to bilateral relations through this optic may the EU. Some Ukrainians say they could help to avoid mistakes in the future. submit a formal application, but it would be rejected according to the Copenhagen In spite of the formal success of installing criteria of 1993 (we come to this subject contractual relations with the united below), and they knew that. That is why Europe, the PCA was quite a shallow the Ukrainian case was not on the table document. There was no vision of of the historic December 1997 European Ukraine as a part of the future Union in Council in Luxembourg, which adopted the it. There were no such important words main lines of the Central Eastern Europe to Ukraine as “association” in the sense + Cyprus enlargement6. Still the answer of the commitments given to the Central is not fully fair. The real problem was to and Eastern Europe states — today’s EU take a bold decision and to convert it into Members, or ‘candidacy”, “membership a policy, in spite of the rejections. Neither prerequisites” and so on. The PCA was a framework document and its only subjects of the December 1997 Council, andBulgaria their fate nor was Romania decided weretwo years officially later with the post-Soviet country, save the Baltic in Helsinki. Similarly, Ukraine could study ones.excellence was being the first ever PCA

5 Füle: Bulgaria and Romania’s accession questioned the credibility of EU enlargement, 26 June 2014 http://www.euractiv.com/sections/enlargement/fule-bulgaria-and-romanias-accession-questioned-credibility-eu- enlargement 6 Luxembourg European Council 12 And 13 December 1997 Presidency Conclusions http://www.europarl.europa.eu/summits/lux1_en.htm

UA: Ukraine Analytica · 2 (2), 2015 9 sic!, justice and wanted to join the European The personal factor plays a Community7. The Ukrainian authorities felt sizeable role in the relations perfectly well the pressure of electorate and «between the EU and post- the pro-European slogans were, as it would Soviet countries, comparing to be in the future, an inalienable part of their those between the states of the rhetoric, independently of the real state of Central and Eastern Europe play. President L. Kravchuk, representing Ukrainian side in the PCA, paid special attention to the topic of the European The very fact of negotiating and signing of the choice in his campaign for 1994 elections, PCA did not sound loudly in the Ukrainian representing himself as a guarantor of media and the nascent civil society. The the European future of Ukraine vis-à- citizens had been preparing for the early vis the “red director and old guard chap” presidential election in a less than a month L. Kuchma, who was campaigning under time, in July 1994. A former secretary of the the banners of “restoring ties with Russia”. Central Committee of the Communist Party of Ukraine and a member of its Politburo President Leonid Kravchuk lost the elections demonstrated a steady growth of support to Leonid Kuchma, a former secretary of the forThe the publicintegration polls by all in groups 1992-1998 of the Communist party committee of the world’s biggest rocket-building plant. Mentioning the be relevant to stress that both presidents Party ranks is intentional. The same intention werepopulation, exploiting varying the fromEU integration 28 to 39%. topic It will in concerns the biographies of other actors of a their political activity. 25-years long story of EU-Ukrainian relations. The personal factor plays a sizeable role in One shouldn’t go as far as to simplify the relations between the EU and post-Soviet Ukrainian politics of the time as an activity countries, comparing to those between the of the presidents and their cronies only. states of the Central and Eastern Europe, or Other actors manifested themselves in the Baltic, where institutions damped personal European discourse as well. Those were grievances. Parliaments, Governments, including the foreign ministers, and the party structures. Due to the absence of “de-communisation” process in Ukraine similar to the one in been the so-called pro-European tune in the Baltic States in 1991-1994, the post- theStarting Ukrainian from civil 1986-87 society there coupled had with always the Soviet mentality and oligarchic capitalism anti-Chornobyl protest activity. The tune took effect. The active civil society, presented itself through its convergence which embodied the movement to the towards NATO and rapprochement/ independence initially through the political accession to the EU. The tune has never party “People’s Movement of Ukraine” matured into a single ideologically (the” Ruh”) and large layers of citizens motivated political party but its slogans supporting it, viewed the EU implicitly as a were borrowed later by different parties guarantee of their well-being, stability and, and political projects . 8

7 Although the Single European Act, which designed the prospects of the European Integration took effect on

One01.07.1987, good example the Maastricht would be Treaty the “Our enabling Ukraine” the opposition European party Union founded as such on was 26.07.2001 signed in asFebruary the basis 1992 of the and opposition became valid by the end of 1993 only. The membership consisted of 12 States compared to today’s 28. 8 “Viktor Yuschenko Block Nasha Ukraina”, which documents proclaimed European integration to be the national goal. Just at that time, the party of power under V. Pustovoitenko “For the single Ukraine” preached for the same goal.

10 UA: Ukraine Analytica · 2 (2), 2015 and strengthening national security. The Presidency (Leonid Kravchuk, 1991- new foreign minister H. Udovenko was 1994),After thea more first organized tumultuous and Ukrainian strong building steadily the basis for the diplomatic Presidency of Leonid Kuchma (1994- service of Ukraine, cemented the role of 2004) was, at the beginning, interpreted the MFA as the centre for formulating in the EU institutions and Member States foreign policy and managing international as a window of opportunity to close the gap between Ukrainian and the European the countries of Central-Eastern Europe, societies, economies, and legislations. It especiallyrelations, Poland, gained where incredible he used influence to be an in didn’t happen as a result of the deviation ambassador, as well as in the Baltics, on the of the Ukrainian government from the Caucasus, the Balkans and the Middle East. policy of democratic transformation, Deputy Minister B.Tarasiuk was responsible return to the post-Soviet practices of for and served as a true engine of the cronyism, paternalism, and creeping European and Euro-Atlantic integration, to “oligarchization” of the national economy. Hasty and sometimes controversial decisions to “activate” the integration build on during his first tenure as a foreign process did not mask the obvious minister (1998-2000). degradation of the rule of law and market integration act happened with founding economy standards in the country. The inWithin October this 1997 period, a anotherspecial international visible pro- deviation cost a lot to Ukraine: Brussels political format, soon to become the dropped the idea to discuss a possibility “Organization for Democracy and Economic of its inclusion to the Bulgaria-Romania Development – GUAM” of Georgia, Ukraine, accession package of 2002-2007 and Azerbaijan and Moldova. In the Kyiv brought the country into the European Declaration on establishing the “ODED – Neighbourhood Policy group together with GUAM10 in 2006 it was said that their the Mediterranean Arab States, Belarus cooperation was founded on the “common and Moldova. In that sense, it would be aspiration to expedite advancement toward possible to designate the period of 1991- European integration”, and that in their activities the GUAM States would “strive to of the nascent European Union and lost deepen European integration and enhance 1998 as a romantic negligence by Ukraine relations with the European Union and Eastern Enlargement9. NATO”. opportunities to join the first wave of the After coming to power in 1994 and It is important to underline that the designating a new foreign minister, not relatively warm climate of this period only did president L.Kuchma fully embrace the European speeches of the predecessor sphere and on the bilateral level between Ukrainefound reflection and theboth EUin the member-states. parliamentary use EU and NATO interest towards Ukraine Appreciation of a state of play was duly forbut thehe wassake able, of modernizing during the first the tenure,system toof expressed in the EU-Ukraine Summit Statements, which were largely crafted by the presiding EU State. At the third state power (Constitution), beefing up the economy and finance (national currency) 9 Ukraine at any rate was not prepared to join the EU in 2004 together with 4 CEE, 3 Baltic States and Slovenia. Still, the fact of being chasing the goal and competing with the successful neighbors would possibly allow doing it within the Black Sea Enlargement of Bulgaria and Romania. 10 Kyiv Declaration on establishment of the Organization for democracy and economic development — GUAM, 2006

http://guam-organization.org/en/node/468

UA: Ukraine Analytica · 2 (2), 2015 11 Ukraine-EU Summit in 1999 several when the European Economic Community months before the presidential elections, transformed into the European Community (1993), the Maastricht Treaty was signed and took effect, the EU citizens received proceedingthe EU confirmed with the reforms. its willingness The fourth to Summitsupport of Ukraine 2000 indubbed joining as thea “reverence WTO and and the EU Parliament elections in their diplomatique”, held in Paris, was known countrythe right of to residence vote and regardlessrun for office of national in local for the rumours about preparing the citizenship. In these very days, the basic association agreement with Ukraine. The Copenhagen criteria for the membership level of frankness of the parties could not was adopted, representing together with the article 49 of the Lisbon treaty conditions for newcomers. discussedhave been Russia reflected as an better issue than of common in two paras in the joint communiqué: “We also Hans van den Broek, EU Commissioner willingness of the new Russian leadership for External Relations and CEE (1993-95) towardsinterest. modernization We welcomed and the reform expressed and was the last with overall functions13 and underlined that it was in the interests of his successor Gunter Verheugen was the the EU as well as Ukraine to maintain a strong and healthy partnership with Russia The decision, to our mind, made a big blow based on common values, notably on the tofirst the EU idea Commissioner of Ukrainian forintegration. Enlargement. The respect of human rights and fundamental questions of the external relations (where the neighbours were in focus) and of the that developing our strategic partnership enlargement process were bureaucratically willfreedoms” contribute (para 20),substantially and “We concludedto peace, separated. Ukraine was cut out of the stability and economic prosperity in latter to be placed in the former for years. Europe as a whole and will help us meet Minding the role and attractiveness of our common challenges” (para 22)11, 12. Ukraine, High Commissioner J. Solana applied incredible efforts to cover both That was the context of the Ukrainian issues and narrow the split. He was admitting, privately, that the geography seven years of independence, which looked quiteEuropean hectic, integration not well established during theand, firststill ruined by the intransigence of the rivalling promising. It changed for the worse a year leaderscould be of amended. Ukraine, non-interference His good offices of were the after the re-election of the president L. second commissioners and stubbornness Kuchma in November 1999. of the third commissioners on enlargement.

One important detail is worth mentioning. At that very moment, Russian President Yeltsin resigned and gave way to the admitIt was that G. Verheugen Ukraine could who wasbecome the firstthe EUamong member: the top “European EU officials perspective to publicly for it was a period of active, hectic and swift Ukraine doesn’t imply membership for the institutionalyoungish President changes, Putin. membership Within growing the EU, next 10-20 years although it is possible”. and general restructuring. It was then His political background explains why

11 12 Chris Patten. https://en.wikipedia.org/wiki/Chris_Patten Joint Statement. 4th Summit Ukraine-EU, 15.09. 2000 http://ukraine-eu.mfa.gov.ua/ua/page/open/id/2858 13 Commissioner L. Brittan (195-99) and Broek’s successor, was in fact European Commissioner for Trade and Euro- pean Commissioner for External Affairs and cared less about the latter.

12 UA: Ukraine Analytica · 2 (2), 2015 it was him, who apparently broke the an independent genuine European power. ranks. An active member of the German Hence, the mechanical linkage of Ukraine’s FDP (liberals), he left the party together European future with the position of Russia with many left-liberal party members and was implied. later joined the SPD (social democrats) to become the minister of State in the MFA in The second stage of the EU-Ukraine relations started in 2000, when the the SPD government of Chancellor Helmut oligarchic system of power was established Schmidt,1998-1999. a Heproponent was an active of thesupporter Eastern of in Ukraine. The second term of President German Policy of rapprochement with L. Kucma developed into purging the so the , German Democratic called pro-European ministers and fully Republic and Poland. transferring the process of conceiving and implementing foreign policy from the MFA G. Verheugen became a good interlocutor to to the Administration of the President. The former deputy foreign minister A. Orel is not accidental that in 2015 G. Verheugen (1999-2000) became the deputy head of wasthe Ukrainianvisible in officials installing who the trusted Agency him. for It the Administration — Director General of modernization of Ukraine14, headed the Main Directorate for foreign policy in 2001- European integration work stream there, 2005 and Secretary of the State Council concentrating on the institutional reforms on European and Euroatlantic integration recommendations aimed at the integration (2003-2005). of Ukraine into the EU. Together with a team of professionals, G. Verheugen was The man played an unprecedented role in engaged in the programme development the decision-making at the Administration, for the Ukrainian economy as well as in the especially taking into account his evaluation of the relevant amount of funding background as a student and later on a (dubbed Marshall Plan for Ukraine). One lecturer at the Military Institute of the would draw from the words of G. Verhaugen Ministry of Defence of the USSR15, than a that the left European politicians, who were coming to the European institutions, looked of the Communist Party Central Committee more positively at the European aspirations ofdesk the officer USSR, inand the the International Counsellor Departmentat the Soviet of Ukraine and were even ready to trespass Embassy in Rome. Under his instructions, a the limits of the given mandate, at least in special presidential Decree was prepared rhetoric. A closer look tells that the situation in 2003, depriving the Ministry of Foreign was quite the opposite. Independently Affairs of Ukraine of the right to nominate of the country of origin (except Poland, diplomats without his consent. No written to which the perspective membership of document or statement could appear from Ukraine was one of its important strategic the Ministry without Orel’s agreement. All goals), the representatives of the left parties pro-EU tendencies vanished and pro-NATO of the EU states considered Ukraine as a words disappeared, and their authors part of the post-Soviet space rather than quitted.

14

theThe threat Agency to for be modernizationbrought to justice of Ukraine by the American with G. Verheugen court for fraudat the and banner corruption. was nothing To present but the himself artificial as institutiona Ukraine’s benefactorto clean the he public created profile the ofabove-mentioned one of the biggest Agency Ukrainian and announced oligarchs D. his Firtash aim to living invest temporarily billions to thein Austria national under econ - omy. It is a known fact that the billions of D. Firtash were made through criminal contracts with Gazprom company of Russia. This made him wanted by the American Justice and his billions by the Ukrainian budget. 15 - tioning was depicted in details in the famous “Aquarium” novel by the Soviet author and defector Viktor Suvorov. The role of the Institute was (and still is) to form officers for the Main Intelligence Directorate (GRU) and its func

UA: Ukraine Analytica · 2 (2), 2015 13 The “late Kuchma” or “Kuchma-2” the Orange Revolution, admired in the EU phenomenon appeared after the member States and in Brussels and wasted presidential elections of 1999. It was in Kyiv. a case of political corruption of the leader keeping him dependent in case Change of guards happened in Brussels, of his “wrong behaviour”. It also allowed too. President J. Santer stepped down arranging ruining political scandals and because of the corruption scandal and making him weak and always worried the Italian R. Prodi stepped in. Prodi of further revelations. This was exactly was the Prime Minister and the leader what happened in 2000-2003 through the of the Italian left party, who supported Kolchuga story and Gongadze killing cases. Russia concerning the EU enlargement The people of Ukraine gathered quickly (no inviration to post-Soviet States). The around the opposition in the parliament former ambassador of Ukraine in Italy A. and the two-year long action “Ukraine Orel (1993-97) had access to the chancery without Kuchma” invaded the country and of Prodi. It resulted in a decrease of the capital. support of the European integration as a “strategic national choice” in Ukraine. Both cases were crafted to demise Ukraine’s The large part of the civil society had to European and Euroatlantic efforts. As a way accept as inevitable the Brussels European to bring Kuchma out of the deep political geography, which excluded the post-Soviet isolation his team pushed him to spur states, except of the Baltic ones. the economic relations with the Russian Federation and their “common economic It was R. Prodi, who shaped the policy of space” and, mend the spat with the EU by enlargement of the EU for years to come, creating fake integrationist’ institutions. and he who declared that Ukraine and Thus, the State Council on European and Moldova (and Israel) would never be Euroatlantic integration was installed EU members.16 “to coordinate the governmental bodies’ in 1999, he proposed “negotiating with activity on the matter”. The State Council them (Ukraine and When Russia coming in particular) to power was tasked to reactivate the Strategy of the real association agreements which lead to European Integration of Ukraine, started joint decision-making”17. Two years later, on paper already in 1999 to usher the he was stating that Ukraine or Georgia, or Program of the Integration of Ukraine to Moldova would never be in the club. Thus, the EU. As a result, no major goals were the positions of Prodi and Verheugen were reached. The judicial reform went slowly identical, in spite of some differing accents. and halted because of the political climate Speaking at the joint press-conference with in the country. The economic reforms could the then prime-minister (later President) not cross the barriers put by the oligarchs, V. Yanukovych in 2003 in Brussels, Prodi the Anti-Monopoly agency was closing underlined the EU’s readiness to share eyes to grotesque concentration of wealth with Ukraine “everything but institutions”. and major industries in few hands. The “Ukrainian membership is not on today’s autocratic and greedy clan of Yanukovych EU agenda, — he said, — but the EU will was looming on the horizon. The nation do everything to be open and step up the was heading towards the uprising called rapprochement”. Yanukovych accepted

16 Speech by Mr Romano Prodi, President of the European Commission on enlargement. European Parliament, Brus- sels, 13 October 1999 http://europa.eu/rapid/press-release_SPEECH-99-130_en.htm 17 Ibid.

14 UA: Ukraine Analytica · 2 (2), 2015 the stance. Prodi has never changed his States as well as his tough view on Putin’s approach towards Ukraine. He was saying Russia cost him the commissioner’s seat in April 2013 to an American paper that and precluded, by the efforts of Germany and France from any international carrier best served by engaging Ukraine as a solid in the future. Europeanthe ”Western partner.., interests as a source and of values economic are growth and energy security, as well as a The successor of C. Patten was an Austrian bridge to Russia”, not as a member. 18 understood from the very beginning which Ukraine was not successful with the next proposalssocial-democrat are not B. Ferrero-Waldner,welcome by certain who commissioner on enlargement O. Rehn member States. She was particularly (2004-2009) from Finland. In view of the precise in repeating time and again decisions taken earlier on the admission that Ukraine belonged to the European of two countries of the South-Eastern Neighbourhood Policy and stressed on that Europe into the EU by 2007 (Bulgaria and publicly and privately. During the early Romania) and simultaneous preparation days of the presidency of V. Yuschenko she for the accession of Croatia and other was feeling side-lined from commanding Balkan States, the role of the commissioner her domain of responsibility and later, was reduced to constant shepherding when Ukraine’s image tarnished because and corralling the group and controlling of internal strife, she was using every candidates promises. The commissioner democracy and internal reforms. She was literallythe complicated lived in the process plane ofand fulfilling didn’t stop the atopportunity odds with the to remindUkrainian of Prime the fiascoMinister of 24-hour negotiation rounds with the Y. Tymoshenko and did not approve the future EU members separately and jointly. attention towards Ukraine by the High Ukraine under President Kuchma had been Representative of the Common Foreign provoking nausea and worry because of the and Security Policy Dr. J. Solana. daily scandals and political killings Both J. Solana and the President of the The enlargement portfolio was of a big European Commission Jose Manuel Barroso interest to the Ukrainian pro-European (2004-2014) had less restrictive views on forces, still formally the topic of Ukraine the European geography than Prodi. The belonged to a sphere of the Commissioner reasons could have been different, but the on External Relations. The man to hold the fact is that both men came from the former portfolio was C. Patten, one of the leaders dictatorship states (Spain and Portugal) of the conservative party, who was privately having a good understanding of the inclined to see Ukraine in the candidates problems of the post-Soviet States. It was group. By the efforts of R. Prodi his role was J. Solana, who, according to the American reduced to the responsibility of working on the Union’s development and co-operation 2005 invited Ukraine’s new President programmes, as well as liaison with Javier Viktorgeneral Yushchenko Wesley Clark, to discuss “on 21 future January EU Solana, the High Representative of the membership”.20 It was Barroso, who, in Common Foreign and Security Policy19. his famous interview to Financial Times,21 His keen interest towards the post-Soviet

stated the following: “We were perfectly R. Prodi. EU should welcome Ukraine as a partner for Europe’s own good, The Christian Science Monitor, April 2, 18 2013. http://www.csmonitor.com/Commentary/Opinion/2013/0402/EU-should-welcome-Ukraine-as-a-partner- for-Europe-s-own-good 19 Chris Patten. https://en.wikipedia.org/wiki/Chris_Patten

UA: Ukraine Analytica · 2 (2), 2015 15 The next and most controversial (so far) The puzzle of Ukrainian inte- Ukrainian Presidency of Viktor Yanukovych gration could not have been began with an unexpected decision to «resolved without any of the instead of Moscow. The visit was successful named elements: Russia’s neutral- andmake the his EU first leaders foreign made visit tothemselves Brussels ity, Ukraine’s zeal, EU’s consent. ready to deal with the authoritarian but responsible partner. That was the mood at the beginning of 2010, and the designation aware of all the risks (of concluding the AA with Ukraine)… I spoke with Putin several times, and he told us how important for him Ministerof the English-fluent of Foreign Affairs S. Liovochkin added certainty as a was the customs union, the Eurasian Union, tohead their of staffhopes. and President refined K.Yanukovych Hryschenko called as a for a special gathering of his political party should we have given up? Should we say, bosses and MPs to declare his decision to ‘OK,and Vladimir,a specific Ukrainerole he issaw yours, for Ukraine.do whatever But keep the talks on the Association Agreement you want?’ That is the logical consequence and to sign it as soon as possible. The story of what they are saying. That’s perfectly would not be complete without mentioning unacceptable.” His devotion to the emerging that the representative of Ukraine to the democracies of Central and Eastern EU was immediately recalled and the new Europe — a stance heavily coloured by his one has been designated. The formally own political awakening as a young activist pro-integration position of Yanukovych against Portugal’s dictatorship — put corresponded to the appetites of the most Barroso “on the wrong side of Mr Putin”, the educated western-minded groups from journalist raps up. his party wary of the steady move of the Russian business circles to Ukraine. “Later The Presidency of Victor Yuschenko (2005- Yanukovych”, as “later Kuchma” 13 years 2010) started from the highest “European” earlier, was stopped and reversed by the expectations both within the country concerted Russian economic, media and and in Europe. It is worth reminding that political actions and by Putin personally, the members of the Bundestag met the which led to halting the already arranged AA Ukrainian head of state with the oranges signing ceremony in Vilnius on November installed on their desks in support of 23, 2013, and to his demise and shameful the Orange revolution and the ideals of escape to Russia. the Maidan (December 2004 — January 2005). The enthusiasm of the kind spread The puzzle of Ukrainian integration could throughout Europe and very much alarmed not have been resolved without any of the neighbouring Russian Federation with the named elements: Russia’s neutrality, the autocratic Vladimir Putin. Due to the Ukraine’s zeal, EU’s consent. cunning Moscow policy and Ukrainian The situation is different nowadays. Ukraine rivalries inside the Ukraine’s government, is largely embracing the integration and theleaders’ NATO selfishness, and the coupledEU aspirations with personal were necessary reforms start, unevenly. Most

shelved into the (indefinite) future. of the foreign agents fled or got irrelevant. 20 21 José Manuel Barroso: ‘Not everything I did was right’ / Financial Times, 4 November 2014 http://www.ft.com/intl/ Clark, Wesley K. Waging Modern War. New York: Perseus Books Group, 2001–2002, p. 15

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16 UA: Ukraine Analytica · 2 (2), 2015 Russia is isolated and cannot stop Ukraine economically (the trade leverage practically Dr. Andri Veselovsky is the Advisory Board member lost), politically, and, hopefully, militarily. Big of the Institute for Social and Economic Studies in Kyiv EU Member States cannot allow themselves and the leading researcher at the National Institute of to say “NIET” to Ukraine as before, and the Strategic Studies. He used to be a Ukrainian diplomat in EU gradually digests the Balkan enlargement, 1986-2014, serving at different posts abroad, including migration wave and Greek crisis. Turkey’s on the horizon only, which makes the issue of Deputy Minister of Foreign Affairs (2005-2008) and UA/MD integration opening possible. As in Permanent Representative of Ukraine to the European 1992-1993, or in 1995-1997 the fate of the Union (2008-2010) and holding the rank of Ambassador European integration is in Kyiv’s hands. If the Extraordinary and Plenipotentiary. repeated, the attempt might prove successful. mistakes of the internal political fights are not

UA: Ukraine Analytica · 2 (2), 2015 17 EASTERN PARTNERSHIP UNDER RECONSTRUCTION: THE UKRAINIAN TEST

Hennadiy Maksak, Foreign Policy Council “Ukrainian Prism”

The whole idea behind the launch of the European Neighbourhood Policy was to secure the near environment on the EU’s border perimeter after the enlargement wave in 2004. Neighbouring states to the East and South, which differed drastically in terms of their geographical and historical background, political system and level of democracy have been united in “one fits all” policy with the declared aim to “foster stability, security and prosperity” in the region. As a result of a more serious division among countries in the European Union over participants of the ENP, a new Poland-Sweden initiative “Eastern Partnership” started as the EU policy in 2009. Despite some positive changes in partner- countries as well as on a bilateral track with Brussels, Eastern Partnership failed to effectively address the challenges on the ground. The only possible way to correct the Eastern Partnership policy is to take into account the present miscalculations in relations with Russia and address precisely the needs of each partner. At the moment, the preliminary results of the ENP revision seem to have difficulties in passing the Ukrainian test.

Ukraine-EU relations under the ENP internal market, policies, and programmes. phase After the 2004-2005 Orange revolution in Ukraine, the European aspirations of new In general, Ukraine-EU relations during political elite in Kyiv increased the level of the whole cycle of the ENP were highly dependent on the political situation in the of the PCA, the EU-Ukraine Action Plan was country. The level of performing reforms adoptedbilateral incooperation. February 2005. Within the framework under the Ukraine-EU Action Plan and later Association Agenda was very low when it In 2007, the EU and Ukraine opened came to structural democratic changes and negotiations on a New Enhanced Agreement liberalization.

EU and Ukraine established contractual talksand afteron the Ukraine’s DCFTA related accession issues. to the In 2009, WTO relations in 1994 by signing the EU-Ukraine thein MayAction 2008, Plan progress was substituted was achieved by the in Partnership and Cooperation Agreement Association Agenda. An Action Plan on Visa Liberalization was announced at the the ENP launch in 2003 both sides agreed EU-Ukraine Summit in November 2010 to(PCA), cooperate which entered within intothis force initiative, in 1998. which After and in 2011 Ukraine acceded to the Energy could facilitate Ukraine’s access to the EU’s Community Treaty.

UA: Ukraine Analytica · 2 (2), 2015

18 In March 2012, the EU and Ukraine initialled January 1, 2016. The second phase of the the text of the Association Agreement (AA) Action Plan on Visa Liberalization was and its Deep and Comprehensive Free commenced in June 2014. Trade Area (DCFTA). At the same time, Ukraine’s progress in achieving important On September 17, 2014, the Action Plan on structural reforms and implementing the Association Agreement Implementation for Association Agenda priorities remained the period of 2014-2017, which includes below expectations. In December 2012, the about 490 short-term and medium- term tasks in all spheres of cooperation the Association Agreement as soon as between Ukraine and the EU determined UkraineEU reaffirmed demonstrates its commitment tangible toprogress signing in the Agreement was approved by the on addressing selective justice and the government. In March 2015, the Association implementation of Association Agenda. Council approved by letters’ exchange the Notwithstanding this fact, Ukraine embarked renewed Association Agenda. The agenda on the path to correct shortcomings before envisages 10 top priority reforms crucial the EaP Summit in Vilnius, in November for Ukraine. 2013 Ukrainian authorities decided to suspend the preparations for signing. It has The 17th EU-Ukraine summit took place contributed eventually to dramatic events in Kyiv on April 27, 2015. This was the of political crisis in Ukraine, the Revolution of Dignity, and Russian military aggression framework of the Association Agreement. towards Ukraine22. Thefirst European summit Union taking was place represented under theby the President of the European Council In February 2014, the Revolution of Dignity Donald Tusk and the President of the became a new reference point in the European Commission Jean-Claude Juncker. European integration of Ukraine. It brought Ukraine was represented by its President to life new political elite with pro-European . In Joint Statement aspirations and a more empowered civil of the Summit, the parties welcomed society to stand for its rights. By signing the Association Agreement the country in key areas, notably the constitutional manifested its strong will to embark on the the first reform steps taken by Ukraine democratic path of value-based reforms. corruption, the reform of the justice sector, thereform, restructuring decentralization, of the energy the fight sector against and Ukraine signed the political provisions the improvement of the business climate23. of the Association Agreement on March 21, 2014 and signed the provisions of As for now, there are some success stories the remaining parts on June 27, 2014. and setbacks in the reforms implementation On September 16, 2014, the Ukrainian process under the Association Agreement and the Association Agenda in Ukraine. Agreement and the European Parliament Some shortcomings are attributed to the gaveParliament its consent, ratified enabling the the Associationprovisional internal political problems but some are application of the relevant provisions of directly connected to the hostile policy the agreement on November 1, 2014 and of Russia, which annexed the Crimea and the DCFTA section of the agreement on unleashed a hybrid war in Donbas trying

22 H. Maksak Focus on Ukraine / Eastern Partnership Revisited. Associated countries in focus, the Stefan Batory Foun-

23 17th EU-Ukraine Summit: Joint Statement, 27 April 2015, http://www.consilium.europa.eu/en/meetings/interna- tional-summit/2015/04/27/dation, FES Representation in Poland, Warsaw, 2015

UA: Ukraine Analytica · 2 (2), 2015 19 benchmarks of action plans or association the absence of hard security agenda (as in case of Ukraine). assurances to the partner «countries within the framework underestimated the potential of Russia in of the ENP or under other EU’s What is more, the European Union had policies provoked Russia to launch undermining the political and economic stability in the region. In this regard, a hybrid war in Ukraine in 2014 2013 was crucial for Eastern Partnership when two partners-countries (Armenia and Ukraine) were forced to abandon to initiate a political turmoil in Ukraine their plans to respectively initial and sign coupled with economic and energy crisis. association agreements with the EU. To make things more complicated, Armenia Nevertheless, there is no doubt that the joined the Eurasian Economic Union along European approach towards the region of with Russia, and Belarus, yet Eastern Partnership should be reconsidered and enhanced with new dimensions and interpretation of European standards and recourses. values.another InEaP parallel, partner countryAzerbaijan with cherished a specific its own stance in bilateral relations based Revision of the Eastern Partnership: on profound economic cooperation with matching with Ukrainian expectations Brussels while demonstrating enormous violations of human rights and lack of Eastern Partnership as part of the interest in political reforms in the country. European Neighbourhood Policy from the On top of that, the absence of hard security assurances to the partner countries within features, which set it apart from the the framework of the ENP or under other previousvery beginning approach obtained towards the some neighbours specific EU’s policies provoked Russia to launch a in the region of the Eastern Europe and hybrid war in Ukraine in 2014. South Caucasus. Firstly, on a bilateral track a partner country, which covers all Against the backdrop of Russian aggression the requirements and commitments, can against Ukraine, prolonged crisis in Syria, conclude a new generation Association and other challenges in the neighbourhood Agreement with the EU, including area, the European Commission took a DCFTA as its integral part. Secondly, the decision to launch the revision of the multilateral track with intergovernmental, ENP in early 2015. It started with a parliamentarian, business, civil society and consultation process from March until June other institutional levels was supposed and eventually resulted in the recent joint communication “Review of the European six partner countries needs and interests Neighbourhood Policy” issued in November (Azerbaijan,to find a common Armenia, denominator Belarus, Georgia, with all 2015. This document outlines the basic Moldova and Ukraine). approaches for the Eastern Neighbourhood in the mid-term prospective. The ideas described will be discussed with member the same frames and values to all six. That states and other stakeholders in EU before promptedOver the time, the EU it appeared to make the difficult next frame to apply for the ENP with introducing “more for more” document in 2016. and “differentiation” principles, making their transformation in the final policy progress in relations between EU and a As stated in the joint communication, during the consultation process more than

partner-country dependant on the fulfilling 20 UA: Ukraine Analytica · 2 (2), 2015 250 inputs have been received from partner countries, think tanks and academia24. “differentiation” principle Ukrainian experts have been actively should be levelled with real participating in the consultations as well. «aspirations of the partner Some ideas and recommendations were countries and their expectations in issued in personal or corporate endeavours cooperation with the European Union while some have been produced in collective efforts of the Ukrainian authorities and expert community. One can single out the policy brief developed by the enlargement policy could be a reward for “champions”. Yet as another option available for European Integration and experts from for the European Union, one can name the therepresentatives Ukrainian think of the tanks Governmental25. Office possibility of further integration in spirit of “everything except institutions”. It became Back then, the majority of experts obvious that two groups of countries have in Ukraine agreed that the Eastern already appeared in terms of their ambitions: Partnership policy had to address the Association Agreement “club” (Georgia, common challenges for the EU and partner Moldova, and Ukraine) and “sector partners” countries. Differentiation, conditionality, (Armenia, Azerbaijan, and Belarus). It is “more for more” principle, co-ownership, even next to impossible to tally obligations and solidarity are the basic principles to taken by Ukraine with commitments of less be applied in further policy development. ambitious partners, which prefer to follow Although those principles were already their own path in European integration. Just on the table, experts agreed that it is very to provide an example, under the terms of the Association Agreement Ukraine has to make them more ambitious26. transpose more than 350 legal acts of the EU important to fill them with substance and during the implementation process in 3 years. In this vein, “differentiation” principle should be levelled with real aspirations of “Solidarity” principle in its turn has to the partner countries and their expectations serve for generating a real joint answer to in cooperation with the European Union. It common challenges we face in the region, has to provide a clear framework to deploy from economic crisis to the Russian military available instruments and resources of the aggression.

At the moment, the level of political “MoreEU in a for more more” coherent principle and flexibleshould beway. more association and economic integration detailed in terms of clear benchmarks and embodied in the Association Agreement indicators for countries with a better history record in aligning with the EU standards and framework for Ukraine to foster reforms norms. The invitation to participate in the providedcan be all considered parts of the document as a sufficient are fully

24 Joint communication to the European Parliament, the Council, the European Economic and Social Committee and the Committee of Regions “Review of the European Neighbourhood Policy”, European Commission, High Repre-

25 European neighborhood policy review: expectations of Ukraine. Ukrainian independent experts’ contribution, Internationalsentative of the Renaissance Union for foreign Foundation, affairs June and 2015, security source: policy, http://www.irf.ua/knowledgebase/publications/euro Brussels, 18.11.2015 - pean_neighbourhood_policy_review_expectations_of_ukraine/ 26 H. Maksak Focus on Ukraine / Eastern Partnership Revisited. Associated countries in focus, the Stefan Batory Foun-

dation, FES Representation in Poland, Warsaw, 2015

UA: Ukraine Analytica · 2 (2), 2015 21 implemented, including DCFTA provisions. The main stress should be given to the concessions to Russia in the question implementation process where the EU ofIn energymaking field, exceptions Brussels from should the not Third make support is highly needed. Energy Package for establishing routes for transportation of Russian energy to the EU member-states, which are able to create the Eastern Partnership, the Ukrainian additional risks to energy security for the expertsReferring found to the it sectorreasonable specific to askissues the under EU to partner countries. As a sound option in a extend its support to Ukraine predominantly trilateral format, the joint feasibility study in political, security, economic and energy can be arranged on the possible impact of domains. The vital appeal from expert the DCFTAs with Ukraine, Moldova, and community was to strengthen the EU’s role Georgia on Russian economy in order to in security dimension. The EU is promoting prevent further pressure and trade wars itself as a global security actor while it is waged by Moscow under this pretext27.

about its military or peacekeeping presence As a result of consultation process, inunable a neighbourhood or unwilling area. to take Ukrainian firm decisions experts the EU admits the necessity of greater argued that the EU should review its policy differentiation and mutual ownership on regional presence in peacekeeping as hallmarks of the new ENP. There is operations under the CSDP and expand the more stress on the tailor-made approach, mandate on the Eastern neighbourhood looking for better ways to launch reforms with a clear focus on Ukraine. For longer- in each partner-country, paying more term security efforts, some steps have to be attention to civil society. At the same time, taken to develop effective military-technical the commitments of 2015 Riga Summit cooperation between the EU states and referring to the EaP region will be met. Ukraine, creating industrial clusters in order to build Ukrainian military potential in the On the horizon of 3-5 years, the EU predicts European joint military production cycles. that the most pressing issue on the agenda In addition, cooperation in the framework of the ENP will be stabilization. However, of the CFSP and the CSDP could be included this goes beyond security related needs, in the ENP instruments for preventing the creating additional stress for political and economic stabilization. The Eastern crime, and terrorism. Partnership is not an exception in this line. threats from conflict escalations, organized It was explicitly stated alluding to Russia Although the document lacks some details that the European Union can work out referring to the future instruments and some instruments to motivate Russia to be procedures, some ideas echo with the engaged in policy but a point of departure ones proposed by Ukrainian experts. It here should be Russian compliance with is especially evident in parts of the joint demands of the EU to withdraw from communication devoted to economic and Ukraine and to restore Ukrainian territorial energy cooperation. integrity. The same approach has to be considered in relations with the Eurasian To this end, EU’s Macro-Financial Economic Union as a political project of Assistance operations will remain the main Kremlin. tool to foster macroeconomic stability and

27 Hennadiy Maksak. Position Paper on Ukraine / Reassessing the European Neighbourhood Policy. The Eastern Dimension, F. Hett, S. Kikic, S. Meuser (Eds.), Friedrich-Ebert-Stiftung, June 2015, source: http://library.fes.de/pdf-

files/id-moe/11483.pdf 22 UA: Ukraine Analytica · 2 (2), 2015 economic reforms in the ENP target-states. (support of ultra-left and far-right political For Eastern Partnership the idea of creating projects, business ties, engagement an economic area with those partners of national minorities and so on) and who signed the Association Agreement multilateral initiatives in Iran, Syria, Libya and entered DCFTA regime with European and North Korea. Union will be especially interesting. Although the authors of the communication As part of future Energy Union strategy, EU note that the EU’s relations with Russia is ready to start a dialogue with neighbours have deteriorated as a result of the illegal on the issues of energy security, energy annexation of the Crimea and Sevastopol market reforms and the promotion of and the destabilization of Eastern Ukraine, sustainable energy. Symbolically Ukraine still, on a conditional level, some joint activity addressing common challenges and exploring further opportunities in the towas Ukraine. directly To mentioned attract new as a investments beneficiary region is not excluded. inof establishingenergy sectors gas of reverse the AA flow signatories, capacity EU is ready to extend full energy market On one hand, the presence of security integration with Moldova, Georgia and cooperation in the framework of the Eastern Ukraine through the Energy Community. partnership policy can be regarded as a positive shift in the EU’s position toward Unfortunately, there is no direct reference dealing with neighbours. But if we take to the Russian aggression against Ukraine, a closer look at the spectrum of security when it comes to security dimension of cooperation it becomes clear that the the Eastern Partnership. The focus is put majority of threats of the Russian origin to traditionally on security sector reform. Other the EaP region still remain unanswered in domains where the cooperation is possible are tackling terrorism and preventing further escalation of the situation in partner radicalization, disrupting organized crime, countries,the EU’s offices especially in Brussels. in areas It ofmay ongoing provoke or radiological, and nuclear risk mitigation, into account the instruments of hybrid war, crisisfighting management cybercrime, and chemical, response biological,. This wagedfrozen conflictsby Russia, backed one cannotby Kremlin. exclude Taking the is a solid list, but it does not fully 28answer possibility of deterioration of the security the pressing needs of partner countries, situation in Ukraine and other EaP target especially Ukraine, which suffers from the countries. Russian military aggression.

Conclusions devoted to “neighbours of neighbours”, RussiaWhat isis more, not inalways part portrayed of the document as an The joint communication has indicated aggressor and a lawbreaker of international the formal conclusion of the consultation law. Such a distorted vision of Russia process within the ENP review. The year from the EU side is a product of Kremlin’s endeavours to affect the public opinion in discussion of the ideas outlined in the document.of 2016 will Some be formats devoted of to consultation the official Union through various bilateral channels to determine the future policy shape with specific member-states of the European

Joint communication to the European Parliament, the Council, the European Economic and Social Committee and 28 the Committee of Regions “Review of the European Neighbourhood Policy”, European Commission, High Repre-

sentative of the Union for foreign affairs and security policy, Brussels, 18.11.2015 UA: Ukraine Analytica · 2 (2), 2015 23 member-states and the EaP partners are envisaged. That is why it is important to The club of the Association continue efforts to address the European Agreement signatories deserves Commission to be more focused on «to be granted a more profound enhancing security potential of the Eastern support even in the framework of Partnership to deal effectively with common cooperation in the Common immediate challenges on the ground. foreign and security policy. To succeed in this, some additional steps should be taken by the EU itself while drafting Global EU Strategy, which is to At the same time, the stress on the security substitute the outdated European Security sector reform should be preserved. EU Strategy of 2003. The new strategy should encompass a more sober stance towards negotiations with authorities of the EaP Russia and pay much more attention to the countriesofficials have to make to bethe more SSR the persuading priority on in cooperation between the European Union the national reforms agenda. and NATO. The active peacekeeping role of the EU in neighbouring countries should be At the end of the day, Brussels has not on the agenda as well. Only after generating passed the Ukrainian test yet. Nevertheless, a new security potential within the Global Strategy, it will be possible to extend it to the EU capitals should always bear in mind the framework of the ENP. thatofficials this intest the is Europeanvital for the institutions future of andthe European Union itself. The multilateral track should be preserved but separated according to the concentric circles of leaders in approximation with Hennadiy Maksak is the head of the Foreign Policy norms and standards of the EU. The club Council «Ukrainian Prism». He is also a member of the of the Association Agreement signatories Steering Committee of Ukrainian National Platform of deserves to be granted a more profound the EaP Civil Society Forum. Fields of expertise: the EU’s support even in the framework of common foreign policy, the EaP policy, CFSP, CSDP. cooperation in the Common foreign and security policy.

24 UA: Ukraine Analytica · 2 (2), 2015 FACTORS INFLUENCING THE PERCEPTION OF AZERBAIJAN IN RELATIONS WITH THE EUROPEAN UNION

Dr. Rovshan Ibrahimov Hankuk University of Foreign Studies (South Korea)

Since its independence, Azerbaijan and the EU maintained relations, which phased development. The EU developed new tools that transformed the form of these relations from purely economic to legal and had to be found within the constraints of integration. However, for the first time, this format of relations development does not suit Azerbaijan; so it is taking an initiative to create the future scenario of cooperation with this organization. This article provides analysis of the perception of Azerbaijan's relations with the EU and the possible reasons for their development.

Beginning of relations between the region and the New Independent States sides (NIS).29 independence of Azerbaijan together with Both Azerbaijan and the European Union the other The former EC Soviet officially Union recognized states on the31 (EU) became subject to international law December 1991. In 1993, the EU began to at about the same time. However, their assist those countries, which faced political relationship is not an interaction in the and economic troubles. This was of great classical sense, since the EU is not a nation importance to the countries, which were state. In addition, the EU is also not an suffering a deepening economic distress, international organization in the classical starting from the last days of the Soviet conception. That is why the level and Union. The EU’s relations with Azerbaijan degree of the relationship between the EU progressed through a similar process to and Azerbaijan is highly dependent on the that with other NIS states. characteristics of the EU. Actually, relations with the European After the collapse of the Soviet Union, Communities and Azerbaijan SSR started to there was a brief period of uncertainty and develop in the time of the Soviet Union (via the European Communities and then EU central government in Moscow) within the continued to pursue a Russia-based policy framework of TACIS30 and other initiatives. towards relations with the countries of the One of the important initiatives within

29 Former Soviet Union Republics. 30 Technical Assistance for the Commonwealth of Independent States.

UA: Ukraine Analytica · 2 (2), 2015 25 TACIS Program was TRACECA31 — an became the next step in development of inter-state regional improvement program relations between the parties. In 1992, the initiated by the EU in 1992. The major European Council decided to sign a new objective of this program was the formation agreement with NIS as the result of the of an international network, which would formation of a new political and economic create infrastructure (both national and situation. PCA, which would confer a new international), develop common standards impetus for the development of relations, and facilitate the application process in was signed between the European Union the covered areas, which could be done and Azerbaijan on 22 April 1996.33 The at minimal cost. The program considered networks in transport, energy, and provisions promoting the creation of a dialoguefirst article framework of the for agreement the development included of political relations with Azerbaijan, the Aftertelecommunications two years since fields. Azerbaijan regained development of democracy and economy; its independence, on September 20, 1993, and the provision of assistance by the EU it signed an agreement with the European to Azerbaijan in order to complete the Economic Community on regulating trade process of transition to a market economy, the development of trade and investment, the development of relations was given on harmonious economic relations between Septemberin the field of1997, textiles. by Azerbaijani A further impetus President to the agreement parties, and provision of Heydar Aliyev and Georgian President economic sustainability and cooperation in Eduard Shevardnadze, who both understood the opportunities of the TRACECA Program and desired to develop their relations with legal, economic, social, financial, scientific, Anothertechnological, tool of and foreign cultural policy fields. developed by to the EU to hold a conference within the the EU towards the neighbours, including frameworkthe EU. In 1998, of the these TRACECA two leaders for signing proposed the NIS is the New Neighbourhood Policy, was Multilateral Transportation Treaty introduced in order to establish stability, EU supported this offer, and a conference security, and welfare of the surrounding « Revitalization of the Silk Road». The areas of the EU. The enlargement process cannot continue forever, therefore the EU, on the « Transport Corridor»’ was which aims to complete its political alliance Europe-Caucasus-Asiaheld in Baku on September, for the 8, Development1998. At the in the future, needed a new instrument to ofend International of the conference, Multilateral « Treaty support political and economic reforms in signed.32 the neighbouring countries.34 » was Successful implementation of the NNP Forging a new EU foreign policy would provide a similar status for towards the former Soviet countries participants to the one for the members of the European Economic Area aiming Partnership and Cooperation Agreement to fully realize economic integration (PCA), a new tool developed by the EU, with neighbouring countries without the

31 Transit Corridor Central Europe-Caucasus-Central Asia. 32 http://www.mfa.gov.az/az/foreign_policy/inter_affairs/econom/regional/11.shtml, 33 AnnotatedAzərbaycan Summary Respublikas of Agreementsının TRASEKA Linking layihəsində with Non-member iştirakı, Countries, 2000. 34 Foreign Affairs Review, Volume 11, No 2, Holland, Kluwer Law International, Summer, 2006, pp. 139-140. B. Ferrero-Waldner, “The European Neighbourhood Policy: The EU’s Newest Foreign Policy Instrument”, European

26 UA: Ukraine Analytica · 2 (2), 2015 prospect of political integration.35 The cooperation between the parties in the basis of this initiative lies in a differentiated Azerbaijan step-by-step approach. Accordingly, a considered the proposal by 38the EU as a proposed individual action plan should be continuationfield of energy ofand the transport. bilateral relations developed with each of the neighbouring between the parties. the common criteria determined in the processstates and of integration would aim into at the EU fulfilling common of the framework of the NNP, the EU made market.36 itWith clearly the developmentunderstood that of relations the countries under of the former Soviet Union which are The talks between the EU and Azerbaijan in located in Europe and are theoretically the framework of the NNP were completed eligible for membership in the organization should have quite different mechanisms of Brussels on November, 14, 2006. This Plan cooperation than those in Africa and Asia wasby signing signed the on behalffirst National of the EU Action by External Plan in that were also participating in the New Relations and European Neighbourhood Neighbourhood Policy. Since the EU was not Policy Commissioner Benita Ferrero- ready to begin the process of integration with these countries, it was necessary to of Azerbaijan Elmar Mammadyarov.37 The create a framework of relations at a level NationalWaldner andProgram the Minister was signed of Foreign for a Affairsperiod superior to that of all earlier proposed programs, while not offering to these states the rapprochement between the EU and membership in the organization. partnerof five years state andand requireddetermine consolidation the adaptation of process of norms and standards. Additionally, offering this kind of initiative was, in some ways, a reaction to To summarize, the main general objectives international developments, and events in of the Action Plan were to consolidate some countries of the post-Soviet world. the rule of law; strengthen respect for In particular, there were so-called “Colour human rights, fundamental freedoms, Revolutions” in Ukraine and Georgia, not and democratic institutions; initiate a transparent privatization process; resulted in each country publicly stating its improve business and investment climate; desirewithout to theintegrate support into of the the Euro-Atlantic West, which improve legal regulations on economic implementationstrengthen the fightand against management corruption; structures. Moreover, after a «five days consolidation; develop regional co- inwar» any between way to support Russia andits ally Georgia, Georgia, when it wasthe West necessary (U.S., toEU develop and NATO) a mechanism did not react that develop the appropriate measures. Action would, at least partially, compensate for Planoperation; also included solve regionalmeasures conflictsto strengthen and this passivity.39

35 R. Aliboni, “The Geopolitical Implications of the European Neighbourhood Policy”, European Foreign Affairs Review, Volume 10, No 1, Holland, Kluwer Law International, Summer, 2006, p. 3. 36 37 http://www.day.az/news/politics/63732.html.Достижения и Иллюзии Концепции Расширенной� Европы, http://dialogs.org.ua/ru/print/material/5/322. Евросоюз Подпишет Соглашения с Тремя Государствами Закавказья, 14.11.2006, 3839 Tomislava Penkova, “EU Eastern Partnership Policy: a Second Chance for the EU Transpormative Power?”, The EU EU/Azerbaijan Action Plan, http://ec.Europa.eu/world/enp/pdf/action_plans/azerbaijan_enp_ap_final_en.pdf. 2012, p.25. Eastern Partnership: Common Framework or Wider Opportunity?, edu. Carlo Frappi, Gulshan Pashayeva, ISPI, SAM,

UA: Ukraine Analytica · 2 (2), 2015 27 The EU Eastern Partnership Program membership of these countries, and on the other hand, creates new partners on its As a result of all these developments, the border in accordance with its wishes. new Eastern Partnership program was proposed by Poland with the support In order to achieve these objectives the of Sweden at the Prague Summit in May EU plans to deepen relations with partner 2009. The Eastern Partnership (EaP) is states: it offered policy instruments, a new an upgraded form of the NNP. Despite the type of new Association Agreement, and far- fact that the main goal of this program, reaching integration into the EU economy by as in the case of the NNP, is the export of forming the Deep and Comprehensive Free the EU rules and regulations to target Trade Area (DCFTA) with partner states. In countries, this program aimed to reach its addition, this program intends to encourage goals without offering the prospect of full mobility of partner states’ citizens, and to membership. This fact is very important this end the Eastern Partnership initiative because a number of states associated with the EU within the framework of the readmission agreements, later to be followed partnership have expectations regarding byoffers a visa-free in its first regime. stage visa facilitation and their full membership in the organization. In addition, countries such as Ukraine with the proposals of the EU, including Azerbaijan.However, not In short, all countries by the time were of the satisfied third the error of the EU, which is summit of the EaP in Vilnius, the six countries still trying to fit relations with of the former Soviet Union had advanced «Azerbaijan into a regional view differently in their relationships with the EU. This is because expectations and desires of based on a now inaccurate perception

than twenty years since their independence, these countries havesignificantly progressed varied. quite In a more long and Georgia are considering cooperation way, which eventually led to differences within the EaP as one of the stages towards among them. Herein lays the error of the EU membership. Consequently, countries included in the Eastern Partnership have Azerbaijan into a regional view based on a seriously criticized this policy due to the nowEU, which inaccurate is still perception. trying to fit relations with lack of new proposals and the prospect of membership. This discontent was Such was the situation on the eve of the expressed during the second EaP Summit Vilnius Summit, which was held from

short, Ukraine, Georgia, and Moldova were doubt, the state of affairs and the perceptions held in September 2011 in Warsaw. In ofNovember the partner 28th countries to 29th, affected 2013. Without the work a or “partner”, considering them excessively undertaken and results achieved. Summit neutralnot satisfied and not using implying the terms the “neighbour”prospect of results for partner countries were not integration.40 Azerbaijan considers that this program does not include the possible its own roadmap in relations with the EU. prospect of full membership, and sees it identical and each partner country defined only as a new instrument of EU foreign the EU’s readiness to offer a broader policy, which on one hand, prevents the perspectiveThis fact was to influenced partner countries,by several besidesfactors:

40 Tomislava Penkova, ibid., p. 26.

UA: Ukraine Analytica · 2 (2), 2015

28 the correspondence between the proposals and expectations, and Russia’s position. One of the drawbacks of EaP is that it does not include any Armenia, which originally intended to sign «political guaranties against the agreement, refused to do so literally on the Russia's negative reaction the threshold of the summit. Its rejection was announced during the visit of President Serzh Sargsyan to Russia on 3 September 2013, where he made a statement about policy, tried to negotiate appropriate deals his country’s readiness to join the Eurasian without overestimating their values and Customs Union, an organization initiated by opportunities. Taking into account the Russia. Being politically and economically potential geopolitical problems that may dependent on Russia, Armenia was forced arise from signing the agreement with the as soon as possible to drastically change the EU, Azerbaijan agreed to limit cooperation direction of its foreign policy. Ukraine also to the level that suits its national interests. refused to sign the agreement, but unlike The EU and Azerbaijan signed an agreement Armenia, this state expressed its opinion on visa facilitation at the Vilnius Summit in a few days before the Summit. Hence, 2013,43 and shortly thereafter, on 3 February the Ukrainian government temporarily suspended the process of preparation for agreement.44 signing the Association Agreement and 2014 the Azerbaijani parliament ratified the DCFTA and signed the documents later by One of the drawbacks of EaP is that it does the new after-revolutionary government.41 not include any political guaranties against the Russia’s negative reaction. The possible the outset that this country would not sign reaction of Russia is not taken into account. anyWith agreements regard to Belarus, with the it wasEU, knowndue to from the If any problems arise, it is not a direct fact that Belarus has close integration with concern of the EU. It is basically a feature of Russia and was a member of the Customs EU foreign policy towards the former Soviet Union with Russia and Kazakhstan. This republics. EU does not want to deal with the precluded the possibility of participation possible geopolitical risks that could come in the two opposing integration processes from Russia. In this case, such challenges simultaneously.42 Only Georgia and Moldova are to be faced by EU partner-countries. joined the Eastern Partnership program.

Azerbaijan: to this day, there are discussions Azerbaijan expectations in relations aboutOne ofthe specificimplementation examples of the concerning Trans- with the EU Caspian pipeline to transport Turkmen natural gas to the European markets via the A different approach in its relations with South Caucasus and Turkey. In the EU, the the EU was taken by Azerbaijan. This project is regarded as purely commercial, country, in pursuing a balanced foreign despite the fact that it is of great geopolitical

41 Eastern Partnership: the way ahead, 02. 12.2013, http://www.eu2013.lt/en/news/statements/-joint-declara-

42 Belarus, 23.01.2014, http://www.easternpartnership.org/partner-states/belarus tion-of-the-eastern-partnership-summit-vilnius-28-29-november-2013 43 Strategic Eastern Partnership agreements signed in Vilnius, 29.11.2013, http://www.eu2013.lt/en/news/pressreleases/strategic-eastern-partnership-agreements-signed-in-vilnius- 44 http://news.day.az/politics/463521.html Азербай� джан ратифицировал Соглашение об упрощении визового режима с ЕС, 03.02.2013,

UA: Ukraine Analytica · 2 (2), 2015 29 importance. The EU does not accept the Tbilisi-Erzurum. Azerbaijan initiated and possible negative reaction of Russia and Iran, currently supports the construction of two and wants the project to be implemented regional gas pipelines: Trans Anatolian under the agreement between Turkmenistan Pipeline (TANAP) passing through Turkey, and Azerbaijan. It is impossible for geopolitical and the Trans Adriatic Pipeline (TAP) reasons, in connection with what the through Greece, Albania and Italy. In its question arises — whether the EU provides turn, the EU-supported projects Nabucco any security guarantees that would make and trans-Caspian pipeline have not been the implementation of this project possible. implemented. The EU’s response to this question does not exist. In the 1990-ies the implementation of Another example of functional cooperation such projects as the Baku — Tbilisi — Ceyhan would be signing the agreement on oil pipeline was only possible thanks to the political will and the support of the United which took force in September 2014. This States, without which the project would not willsimplified allow visa a greaterregime betweenintegration the parties,at the have been realized. movement of certain groups of people In this regard, the EaP for the EU is a desire concernedlevel of society, — instudents, this case —businessmen, a simplified to create a kind of buffer zone between tourists — which could also encourage Russia and the enlarged EU and to expand the integration at the community level, so common values to this area. Therefore, for people to people contacts will be increased. Azerbaijan EaP is a project, which does not meet its national interests and does not respond to its questions. Thereby Azerbaijan persuades the EU in following: for Azerbaijan EaP is a project, which does not meet First of all, it is to give up the regional «its national interests and perception of the EU in the framework of does not respond to its questions the EaP with respect to the six countries. Azerbaijan is inclined to the development of bilateral relations with the EU. Bilateral cooperation would be on a functional basis: In short, Azerbaijan is considering the areas in which relations would be formed possibility of cooperation and further integration with the EU in separate sectors implementation of the project further expansionshould be defined,and deepening in case ofof the the successful relations the EaP does not provide the necessary would be possible. platformwith their for further the successful diversification. development While of relations with all partner-countries, This format of relations between the Azerbaijan expects a new agreement on parties exists. The realization of energy and strategic partnership with the EU. Instead transport projects between the parties was of an Association Agreement within the EaP quite successfully promoted, but it is worth initiative, Azerbaijan is looking to conclude noting that Azerbaijan is more often an an agreement on Strategic Modernization initiator of these projects than the EU. Even Partnership. Azerbaijan hopes that the if we consider those energy projects that have been proposed by the EU, none of them the country that have been expressed above. has been fully implemented. Azerbaijan agreement will reflect the expectations of has initiated the construction of the Baku- Azerbaijan perceives the integration Tbilisi-Ceyhan and Baku-Supsa and Baku- processes if a series of conditions are met:

30 UA: Ukraine Analytica · 2 (2), 2015 the resolution of the Armenian-Azerbaijani for possible delegation of its political sovereignty,firstly, the existencewhat Azerbaijan of a rational will basisget conditions determine the strategy of instead. Secondly, the economic feasibility AzerbaijanNagorno-Karabakh with respect conflict. to any These proposed three of participation in integration processes. integration project. consists of oil and oil products. It is a commodity,For example, for 90% which of it Azerbaijan’s is not necessary exports to Dr. Rovshan Ibrahimov is an Associated Professor at as it is always in demand. In turn, there are Hankuk University of Foreign Studies (South Korea). He create a simplified format of trade relations, sectors of the Azerbaijan’s economy (such previously worked as the Head of Foreign Policy Analysis as agriculture, banking and insurance at Center for Strategic Studies under the President of sectors), which will be negatively affected Azerbaijan Republic. Dr. Ibrahimov is the expert in the number of strategic centers in Turkey, Russia, and Great Azerbaijan prefers primarily to build andby the strengthen simplification sectors of that the tradecan compete regime. Britain. Author on more than two hundreds articles and successfully in the international economy, comments. Research interest: Energy policy and security, and then to participate in integration Azerbaijan Foreign Policy, International Politics, projects. Finally, the third condition is how Theories of International Relations, Conflict Studies. the integration process will contribute to

UA: Ukraine Analytica · 2 (2), 2015 31 EASTERN EUROPEAN REGIONAL COOPERATION AFTER CRIMEA: THE ART OF THE POSSIBLE

Iryna Maksymenko, Odessa I.I. Mechnikov National University

Russia’s policy towards Ukraine did not simply change the system of international relations, rebuilding the relations between its key elements. Moscow’s actions in Crimea and eastern Ukraine have urged the need for sub-regional cooperation. Regionalization is one of the key trends in international relations. The author examines factors that stimulated sub-regional cooperation on the European continent (Central and Eastern Europe, South-Eastern Europe, the Black Sea region), the impact of the current global and regional processes on regional interaction, as well as the question of whether the Russian-Ukrainian crisis has raised the issue of a sub-regional security system formation due to a sharper sense of insecurity among states of CEE, SEE and the Black Sea region The factors that facilitate or hamper efficiency of regional cooperation are studied as well.

Transforming the system of international second one is a violation of the principle of territorial integrity of sovereign states. as well as forming new elements of the Thirdly, it is the ineffectiveness of the structurerelations and in rebuilding the post-Cold the links War among period its existing mechanisms of international key elements is extensively examined. The organizations under international law. revisionist policy of the Russian Federation Altogether, these points indicate that the in the post-Soviet space enhances academic period of “Cold Peace” is over. They also interest to these issues. However, while the aggravated a sense of insecurity in the Ukrainian-Russian crisis is studied in the countries of the region, which belong to the context of the geopolitical confrontation area of “priority interests” of the Russian Federation. Thus, the aim of this study is to comprehend the consequences of the relations,between Russianot enough and attention the West is andpaid itsto theinfluence effects on of the this system confrontation of international on the and SEE states, to identify trends that will system of relations in the region of Central Russian-Ukrainian conflict for the CEE and Eastern Europe (CEE) and South- the short and medium term. Eastern Europe (SEE). define the system of regional relations in

The annexation of the Crimean peninsula Regionalization and the modern by the Russian Federation has raised some system of international relations issues in the modern system of international The role of regional cooperation increased return to the use of force in foreign policy asrelations. a means The to firstachieve one stateamong interests. them is Thethe significantly just after the end of the Cold War. In Europe regionalization occurred 32 UA: Ukraine Analytica · 2 (2), 2015 framework of transatlantic cooperation on main features of the post- securitysimultaneously (NATO atand three the levels: OSCE); first, secondly, in the bipolar regionalism is the «emphasis on equal partnership process — establishing the European in the process of regional cooperation Unionwithin and the Westernits subsequent European enlargement; integration in contrast to the dominance of large states over the small ones whereand thirdly, cooperation in the was former developing Warsaw during Pact thearea. second In contrast half of to the the twentieth first two century, levels, the CEE and SEE countries began to create is the least war prone of all structures46. regional structures only with the end of the Therefore, it should be more secure, allowing the focus on the development interdependence among the participants of Cold War. The system of interaction and reduces the sense of threat or even danger of their collaboration was so obvious that toof some mutually extent beneficial since the states cooperation. unanimously This itthe made first themtwo areas the centreand the of high attraction efficiency for the post-socialist countries, as well as an norm and rules. So regional cooperation impetus to develop their own formats of hasshow become their wish one to of be the guided key mechanisms by the Western of regional cooperation. integration of the CEE and SEE states.

It should be noted that one of the main Among the factors that contributed to the features of the post-bipolar regionalism consolidation of the regional relations, the is the emphasis on equal partnership in the process of regional cooperation in aspirations of CEE and SEE states: most influential ones were the following contrast to the dominance of large states to get out of the scope of Russia’s sole over the small ones. At the same time, the leading regional states help to strengthen • to restructure the economy, trade and ties and cooperation structures in order influence as a successor of the USSR; to pursue their interests as effectively economic ties; • as possible. The second characteristic of to obtain security guarantees; modern regionalism is institutionalization: establishing economic, political and These• factors had a clear external origin military structures that provide a platform and links with a subjective external for dialogue on preferential issues among the states of the region as well as with the Thus, the imperative of regional cooperation existing unions — the EU, NATO45. wasidentification the accumulation of countries of resources in the region. and successful integration into the EU and The regionalization of the CEE and SEE NATO. The traditional perception of Russia states started during the transition from a as a threat — a state that implemented the bipolar to a unipolar international system, hegemonic policy — laid at the heart of the Euro-Atlantic aspirations, especially for which, according to William C. Wohlforth, 45

Восток/Запад: Региональные подсистемы и региональные проблемы международных отношений� - row),(Voskreesenskiy Publishing A.House (ed.), “Economica”: East/West: Regional Moscow, subsystems 2002. — p. and420. regional problems of international relations), 46 ROSSPEN: Moscow, 2002, р. 33; Европа: вчера, сегодня, завтра (Shmelev N. (ed.) Europe: yesterday, today, tomor- ledge Taylors & Francis Group: London and New York 2006, p. 116. W.C. Wohlforth, The stability of a unipolar world, [in:] R. Little, M. Smith (ed.), Perspective in world politics, Rout

UA: Ukraine Analytica · 2 (2), 2015 33 some of the CEE states. A Ukrainian expert in the ineffectiveness of multilateral Olga Brusylovska argues that the EU’s diplomacy and institutions’ weakness. The role in the processes of post-communist result is a raise of the regional countries’ transformation of CEE states was role in international processes49. This situation generates a “variability order” the estimation of NATO’s role requires when alliances and associations are considerablebeneficial without caution any because exaggeration, of its whileboth established in response to the situation or internal contradictions and ambiguous current interests50. results47. Nevertheless, the perspectives of NATO and the EU membership became A special meaning of this approach is those fundamentals, which allowed underlined in the use of force for enhancing integrating into these structures in a national interests or to getting control relatively short period of time, greatly over resources. That really provokes the reduced the degree of tension, and inspired increase in the total sense of danger and with a sense of security. contributes to emerging new threats. The existing system of international security The occupation of Crimea and the under such conditions practically ceases to exist due to the lack of trust among key in the East of Ukraine undermined that. The actors, lack of solidarity within the Euro- eventsinternational of 2014-2015 context ofin the Ukraine, armed asconflict well Atlantic area with regard to Russia’s role in the new Eastern Europe and a model of demonstrated that the international system relations with Russia as a whole, as well as todayas the is reaction not a system of the of Western“co-ordinates countries with the marginalization of Russia. clear balance of power and the capacity of States” . Many experts have concluded that the period48 of unipolarity has ended Russia’s interests in the CEE and SEE and the world has become “nonpolar” or “multipolar” where the centres are not To understand Kremlin’s approach to the only superpower, but also alliances of security in Europe we should take into account the following cornerstones of the its dynamics and vagueness, which lead Russian worldview. First, “a genuinely states. Specific features of this system are inclusive and symmetrical post-communist states actively involved in a dialogue on key political and security order” was not issues,to a significant looking for increase joint solutions. in a number It should of be stressed that these states prefer to rely the emergence of new resentments and on domestic imperatives and subjective created after the Cold War,51 . whichThe Russian led to assessments. Under these circumstances perception of the world was built on a a “diffusion of power” occurs and results potentialstrengthened for newsense conflicts of marginalization of

47 - formation of the Eastern European States), Astroprint: Odessa, 2007, p. 14. Брусиловська О. Посткомуністичні трансформації� краї�н Східної� Європи (O. Brusylovska, Postcommunist trans

48 49 Т. Бордачев, Возвращение внешней� политики (T. Bordachev, Return of foreign policy), “Russia in Global Affairs”, April, 2010 [www.globalaffairs.ru/number/Vozvraschenie-vneshnei-politiki-14955 access: 17 April 2014].

50 С. Толстов, Міжнародна система початку ХХІ століття (S. Tolstov, The international system of the beginning of 21st century), “Foreign Affairs”, September, 2013, р. 10. 51 J. Steele, Frontline Ukraine: Crisis in the Borderlands by Richard Sakwa review — an unrivalled account, “The R.N. Haas, The age of non-polarity: what will follow US-dominance “Foreign Affairs”, May/June, 2008. -

Guardian”, 10 March 2015, [http://www.theguardian.com/world/2015/mar/10/ukraine-russia-richard-sakwa-ex tract access: 15 October 2015].

34 UA: Ukraine Analytica · 2 (2), 2015 Moscow, a feeling that Russia was seen as and Eastern Europe and the Baltic. Their a regional state, excluded from a global collective actions unintentionally generate dialogue of the centres of power, as well a spiral of insecurity for Russia. In extreme as on a tense perception of threats to the cases, says Jervis, states that seek security national and state interests. In this context, may believe that the best, if not the only, Russia’s actions should be viewed through route to that goal is to attack and expand54.

He notes that when the leading state Such a strategy is at the heart of Moscow’s excelsthe approach in the production of William of economic C. Wohlforth. and policy towards Georgia, Moldova and naval capabilities but not conventional Ukraine. It creates hotbeds of unresolved land power, it may seem simultaneously powerful and vulnerable. Therefore, other show their aspirations to integrate into states that are powerful militarily, but lack Europeanconflicts on structures. the territory To use of countriesthis approach, that economic and political authority get to the Kremlin seeks to get the maximum increase the share of military capabilities in foreign policy. This results in ambiguity — Moreover, by this aggressive policy towards which state is more powerful, which is more Georgiapolitical and influence Ukraine, with Russia minimal demonstrates efforts. secure, which is threatening, and which that it no longer sees itself as a part of the might make a bid for hegemony. In the common space of security and stability, but end, the situation will come to the fact that efforts to produce a counterbalance globally turned into an isolated and unpredictable will generate powerful countervailing actor,“as a resultwhich ofwill the use policy all the of the resources West” has to action locally52. return its hegemonic status. As a Ukrainian expert M. Vorotnyuk pointed out, Russia’s Secondly, Russian strategic culture is based upon two qualities: a deep feeling of Soviet area is based on identical premises insecurity, and a major emphasis on power totactics insist regardingon its exclusive conflicts status on of the observer post- projection53. Still perceiving NATO and the as well as to hamper the capacity of the the Kremlin starts to strengthen its security. internationaland mediator community, in conflicts, in self-inspired, particular ThisEU as demonstrates threats to its the geopolitical security influence,dilemma the EU, to play a more active role in the 55. Robert Jervis: all states tend to assume the worstof the in Russian others Federationand respond as accordingly. defined by Byprocesses recognizing of conflict the resolution independence of Thus, the attempts of one state to achieve Abkhazia and South Ossetia and signing security precipitate a feeling of insecurity the agreements on alliance and strategic in other states. However, the Kremlin is partnership with them at the end of 2014, as taking steps, which are inevitable seen as well as by annexing Crimea in March 2014, offensive rather than defensive by other Russia anchored its position in the Black states, especially by the states of Central Sea, minimizing one of the greatest dangers

52 - ledge Taylors & Francis Group: London and New York 2006, p. 113-117 53 W.C. Wohlforth, The stability of a unipolar world, [in:] R. Little, M. Smith (ed.), Perspective in world politics, Rout

54 R.P. Sinovets,Jervis, Perception C. Becker, and H. Reisinger, Misperception B.S. Windsor, in International Ukraine Politics,and its Neighbourhood Princeton University How toPress: Deal Princetonwith Aggressive 1976, p. 63. Russia, “NDC Conference Report”, March, 2015 [http://www.ndc.nato.int access: 10 August 2015] 55 M. Vorotnyuk, Ukraine in the Black Sea region after annexation of Crimea: position and interests, “Russian-Ukrain-

- ian conflict: possibilities for de-escalation Collection of analytical works”, 2015 [https://www.academia. edu/14568534/Ukraine_in_the_Black_Sea_region_after_anexation_of_Crimea_position_and_interests_in_Rus sian-Ukrainian_conflict_potential_for_deescalation_2015 access: 21 October 2015] UA: Ukraine Analytica · 2 (2), 2015 35 for itself — “the potential deployment of Kremlin aims at gaining control over the the NATO troops in Ukraine, particularly in key internal areas of a state — military, Crimea, which would further reduce Russian strategic depth”56. The Republic of Moldova cultural. It is emphasized in the Foreign can be a next one, where Transnistrian Policypolitical, Concept financial, of the economic, Russian social,Federation and in 2013 that the global competition is acquiring a civilizational dimension for the aimingconflict tostill weaken exists, orNATO even by the invading Baltic states, these stateswhere 25%using ofa thehumanitarian population areintervention Russian, the rivalry of different values and models of concept as a cover. developmentfirst time in modern based on history, universal and isprinciples put into of democracy and market economy. Thus, Therefore, the question whether Moscow the Russia’s actions regarding Ukraine will be acting in the same way in the Baltic and other Eastern European countries will direction, which is included in the zone of “vital interests” of Russia, is still open. However, Russia is now actively using the world”continue and to thatbe guided is not bythe the boundary logic of offixing the Kaliningrad region for the promotion of formerthe “red Soviet line” Union that or defines the Russian the “Russian empire, but Russia’s ideas about “what resides to in almost all CEE and SEE states. There is it”59. Therefore, Russia, in accordance with nothe direct “Russian threat World” yet, however, branches the established Kremlin this logic, is obliged to play a defensive role keeps using in its geopolitical rhetoric in Eastern Europe to the extent of using the theses on priority to “take care of the armed force and to intervene into the the Russians who found themselves territory of another state on the basis of a outside the Russian Federation”57 and the simple reference to the history, geography exclusive right to “fully protect the rights and culture (or civilization). and legal interests of Russian citizens and compatriots abroad” . Such a stance and The Kremlin’s approach to getting its methods already used58 in Ukraine largely superpower status back constitutes the undermine the national security of the international system that is characterized Baltic states and the stability in the region. by asymmetric and multivector links between its elements. It will lead to the The Balkan region is also of great interest to Russia because of its strategic importance potential. Under these conditions, the as a major infrastructure component of oil strengtheningpreservation of of instability interaction and conflictwithin and gas transportation system to Europe. regional organizations and structures can It should also be kept in mind that the be a compensatory factor.

56

57 P. Sinovets, C. Becker, H. Reisinger, B.S. Windsor, Ukraine and its Neighbourhood How to Deal with Aggressive Russia, “NDC Conference Report”, March, 2015 [http://www.ndc.nato.int access: 10 August 2015] Послание президента Б. Ельцина Федеральному собранию РФ: «Об укреплении Россий� ского государства» - 1994 год (Message from the President Boris Yeltsin to the Federal Assembly of the Russian Federation “On the strengthening of the Russian State” 1994) [http://www.intelros.ru/strategy/gos_rf/psl_prezident_rf_old/58-poslani ja_prezidenta_rossii_borisa_elcina_federalnomu_sobraniju_rf_1994_god.html access: 23 October 2015] 58 Концепция внешней� политики Россий� ской� Федерации от 12 февраля 2013 года (The Foreign Policy Concept 59 of the Russian Federation 12 February 2013) Ministry of Foreign Affairs of the Russia [http://archive.mid.ru// brp_4.nsf/0/6D84DDEDEDBF7DA644257B160051BF7F access: 15 March 2013]. Ф. Лукьянов, Принуждение к новому миру (F. Lukyanov, Сonstraint to a new world) “Russia in Global Affairs”, March, 2014 [http://www.globalaffairs.ru/redcol/Prinuzhdenie-k-novomu-miru-16452 access: 12 February 2015]; A. Makarychev, EU & Russia: сompeting realities and misperceptions “PONARS Eurasia Policy Memos”, March, 2014 [http://www.ponarseurasia.org/article/eu-russia-competing-realities-and-misperceptions access: 12 February 2014]. 36 UA: Ukraine Analytica · 2 (2), 2015 Prospects for Regional Cooperation Battle Group within the European Union after 2014 (HELBROC) etc. Moreover, Romania and Bulgaria are active participants In the context of Kremlin’s geopolitical in the regional structures of the Black Sea region — the Black Sea Economic creating a hotbed of instability and armed Cooperation (BSEC), the Black Sea Naval counteractions to the Western order, Force (BLACKSEAFOR), where the priority that shut the “arc of instability” from the is given to the development of trade and Balkansconflict to at the the Middle edge ofEast, the it unitedis strategically Europe economic relations and cooperation of navy important to intensify regional cooperation as well. from the Baltic to the Black Sea. The regionalization of the CEE and SEE indeed The Kremlin’s policy towards Ukraine, the is one of the main tools to defend their own visible violation of the basic principles of interests and to boost security. These states international law and Russian international already have the experience of sub-regional obligations, as well as the purposeful cooperation; however, in the context of the manipulation of European dependence on Russian energy — all of these have structures as well as states’ dialogue are become an unprecedented challenge for facingUkrainian-Russian new challenges. conflict, the existing regional cooperation. On one hand, security issues have been put to the fore; the role of The existing sub-regional cooperation can be divided with certain reservations into revised. On the other hand, the difference three dimensions: Central and Eastern inregional the approaches organizations to security in this field and hassecurity been European, South Eastern European threats within the region has become sharp. and the Black Sea. The conditionality is determined by the fact that many countries Historically, Poland, the Baltic states, are simultaneously involved in the regional and Romania share misgivings regarding structures of different geographical and any demonstrations of neo-imperialist geopolitical areas. Thus, the Visegrad policy of the Kremlin, especially towards Group and the Central European Initiative the states that are placed in the buffer remain important platforms for inclusive line — Ukraine, Moldova and Belarus. Pro- dialogue over regional problems and European choice of Kyiv and Chisinau, and were included in the agenda indirectly, values are seen in Moscow as a tool to mostlydefining as ways a component to solve them. of Securitysocial, energy, issues their adoption of the Western democratic and transport interaction. the region. The Russian-Ukrainian crisis limit and neutralize Russia’s influence in The mechanisms for cooperation the Baltic states, Poland, Romania, as among the countries of South Eastern wellhas alreadyas the system had a of significant regional relations. impact onIt reveals the multidimensional nature of the current problem of the European security inEurope concentration developed on undersecurity the issues influence and that in addition to energy dependence on deepof conflicts cooperation in the with Balkans. NATO, That the resulted OSCE Russian energy sources also faces hybrid and the EU. The greatest attention is paid threats. These threats are characterized to the development of such structures by asymmetry and unavailability of any as the Regional Cooperation Council, European or Euro-Atlantic structures South East Europe Defence Ministerial (EU and NATO, even the OSCE) to their (SEDM), Multinational Peace Force South- counteraction. Among these hybrid Eastern Europe SEEBRIG, and the Balkan threats, “dirty” media campaigns and

UA: Ukraine Analytica · 2 (2), 2015 37 mass propaganda, support for separatist sentiments using the slogan of the right the difference in the of nations to self-determination and evaluation of threats from protection of rights of national minorities, «the Kremlin for the security as well as providing military-technical of the CEE and SEE states has a assistance to insurgents within so-called direct impact on the integrity and “humanitarian aid” should be pointed out. effectiveness of the regional system One of the main consequences of the Ukrainian crisis for these countries is the preservation of their unsettled status. The longer it lasts, the more Russia traditionally behaves like a Russian satellite will be perceived as a “winner” in the inRussian the Balkans businesses62. These instates’ Sofia. leaders Serbia are

powers, unable to prevent the protracted an external threat, but it is rather “internal confrontation with the EU and the Western turbulence”confident that63, themoreover, situation inthey Ukraine nourish is not dangerous “illusion that these countries importantconflicts innegative countries consequence that strive will be to are protected from the invasion of Russia”, disappointmentintegrate into Western and big structures. divergences Another within that Russian aggression against Ukraine the integration structures that are not will not have any effect on the Eastern able to defend the values, norms and rules Europe and the security of the EU64. First on which these institutions are based60. of all, the experts are worrying about weak Such outcome is unacceptable for Poland, political, economic and security structures Romania, Estonia, Latvia and Lithuania. of these states that are still in the process of transition, and that combined with the At the same time the Czech Republic, Moscow pressure may lead to the rise of Slovakia, Hungary, and to some degree corruption, delay in reforms and social Bulgaria are opposing them. The policy of unrests inside of the EU. this group of states is primarily based on pragmatic interests: to support economic Thus, the difference in the evaluation of ties with Russia and to maintain the volume threats from the Kremlin for the security of the CEE and SEE states has a direct Hungary has behaved less and less as a impact on the integrity and effectiveness NATOof investment or a EU member flow from state. this Hungarian country. of the regional system. The threat of a leaders are open to Russian propositions repetition of the “Eastern scenario” on the on the nuclear power plant in Paks, and Southern border of the EU (Moldova) and dependence on Russian energy61. Bulgaria the EU member states (the Baltic States), has serious problems with aggressive where there is a lot of Russian-speaking

60 in Ukraine: Lessons for Europe. University of Latvia Press: Riga, 2015, p. 33 61 E.R. HajdúBambals, The European ugly truth security, of project defence, V4. Can and a few global common role: a goals year moveafter Crimea Visegrad [in:] cooperation A. Pabriks, forward? A. Kudors Visegrad (ed.) The In war-

62 sight, 5 January, 2015 [http://visegradinsight.eu/the-ugly-truth-of-project-v405012015/ access: 25 January 2015] Romania Needs a Real Partnership with Poland : An interview with Armand Goș�u, a professor at the Faculty of 63 Political Science, Bucharest University, “The New Eastern Europe”, 11 March 2015 [http://www.neweasterneurope.- eu/interviews/1522-romania-needs-a-real-partnership-with-poland access: 20 October 2015]. 64 B. Jarabik, Russia, Ukraine, and the Visegrad: Time to Get Real, “Visegrad Revue” 14 November, 2014 [http://viseg- radrevue.eu/russia-ukraine-and-the-visegrad-time-to-get-real/ access: 17 February 2015]. J. Dempsey, Not Another Iron Curtain, “Carnegie Europe”, 23 February 2015, [http://carnegieeurope.eu/strategi ceurope/?fa=59150 access: 25 February 2015]. UA: Ukraine Analytica · 2 (2), 2015

38 population, increases Europe’s security Baltic states, to win over Polish partners in vacuum, while the question of who will be V4 and to strengthen NATO presence. in charge of the European security provokes the securitization of the region. Romania A number of steps to enhance regional has already adopted a new National Defence cooperation in the sphere of security and Strategy, where the regional instability defence have already been taken; among them, there are the following: 65 Chapter . It also emphasizes the change of Declaration of the Visegrad 4 “Long is put on the first place in the “Risks” the global paradigm that heightens security vision of the Visegrad countries on risks for Romania, situated in a region that • deepening their defence cooperation”, March 2014 that may increase the cohesion of the V4 group by practical was defined for a long time by the presence defence cooperation in the frames of V4, of frozen conflicts, and today is marked by relations between NATO and the Russian the EU and NATO; Federation.active conflicts The and Strategy the deterioration also notes of that the new challenges of the security environment Poland-Romania declaration on strengthening security and defence within international cooperation • ties that “would allow the opening of a mechanismsrequire effective and and formats efficient — collaboration especially new stage in the strategic partnership with NATO, the EU, in the framework of between Romania and Poland” . the strategic partnership with the United Poland-Bulgaria memorandum68 on States and other international actors. The leaders of Poland, where Law and Justice • and defence, a letter of intent, pertaining Party won the recent elections, also stated thecooperation collaboration within involving the field the of securitydefence the need to revise the National Security industries of both states. Strategy. According to Judy Dempsey, In spite of these, there is a clear trend to party and ex-Prime-Minister, is very anti- deepen the partnership with the US in RussianJaroslaw66 . Kaczyński,Poland’s thepresident founder Andrzej of this the context of strengthening NATO in the Duda has already signalled that building region. Lithuania signed a memorandum of an alliance of Eastern European countries understanding on cooperation of Lithuania running from the Baltic Sea down to the military force and the US Army in Europe Black Sea that would keep Russia at bay will 2015-201769. Poland has already purchased be a priority of his presidency67. To achieve American-made Patriot missiles for its own that A. Duda is going to run some tracks national missile defense system and agreed concurrently: to deal with Romania and with the US to deploy heavy weapons in 2016

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66 Romanian National Defense Strategy 2015-2019 [https://www.presidency.ro/static/National%20%20De - fense%20Strategy%202015%20-%202019.pdf access: 01 November 2015]. 67 V.J. Dempsey,Gera, M. Scislowska, Poland’s Euroskeptic Poland’s new Future, leader “CarnegieEurope”, seeks greater regional 26 October, unity, 2015,NATO [http://carnegieeurope.eu/strategi bases, “The Big Story”, 21 August, ceurope/?fa=61741 access: 05 November 2015] -

2015 [http://bigstory.ap.org/article/b00343b6e0a24c2595a56b15c35ae2f6/polands-new-leader-seeks-great er-regional-unity-nato-bases access: 05 November 2015] 68 Romania Needs a Real Partnership with Poland : An interview with Armand Goș�u, a professor at the Faculty of 69 Political Science, Bucharest University, “The New Eastern Europe”, 11 March 2015 [http://www.neweasterneurope.- eu/interviews/1522-romania-needs-a-real-partnership-with-poland access: 20 October 2015]. - Литва и США подписали меморандум о сотрудничестве (Lithuania and the United States signed a memo randum of cooperation) “Weekly Mirror” 5 July 2015 [http://zn.ua/WORLD/litva-i-ssha-podpisali-memoran dum-o-sotrudnichestve-181581_.html access: 20 October 2015]

UA: Ukraine Analytica · 2 (2), 2015 39 that will be based in the west and northeast part of the new Russian “transregional of the country amid tensions with Russia70. empire” the situation in the region of the CEE Romania as another stalwart NATO ally is going to deepen military cooperation with the US and NATO as a whole. It has already Ukraineand SEE iswill affecting definitively the stability return to and the security state of announced its strong support for hosting the ofa “new the CEECold andWar”. SEE Thus, region the destabilizationas a whole. The of NATO missile defense system in Deveselu, a main challenge in the region, provoked by former Romanian military airforce base, as well as for the new Spearhead Force and the split between the states. Poland, Romania, Lithuania,the Ukrainian-Russian Latvia actively conflict, support is Ukrainethe growing and As a Black Sea state, Romania will evidently declare their readiness to expand regional other decisions taken at the Wales summit. contacts to ensure stability and strengthen effective counter-strategy. Bulgaria and the security. Undisputed is the opinion of experts Baltichave astates strong also central agreed role to host on definingUS military an that the policy of these countries is the most equipment. important for the development of a new system of regional relations. Sharing the On one hand, Europe will be forced perception of threats and challenges, these to increase its defense capabilities in countries are ready to move from declarations the future if it wants to deal with the to real formats of reasonable defense. The myriad of threats in its neighbourhood, lack of resources is covered by the expanded including those related to energy, technical assistance from the United States transport, and transit security and illegal and NATO. Nevertheless, the main task is still immigration, uncontrolled borders, the to reach a common vision of regional security. proliferation of weapons, drugs and Questions remain regarding other countries following this initiative group, but the fact that the Ukrainian issue has become an andsmuggling, potentially intensification unstable regions; of separatist as well unprecedented challenge for the unity of the asmovements the growth in of areas ethno-national of existing tensions conflicts states of the region and the European system and the subsequent manipulation of public of values is evident. Obviously, the system of consciousness within national minorities. relations in the CEE and SEE countries will no On the other hand, those issues relate to the longer be the same as well as Ukraine itself. strategic priorities of all states in the region and should contribute to the evolution of existing regional structures and initiatives Iryna Maksymenko, PhD in Political Sciences, of CEE and SEE states. Department of International Relations, Odessa I.I. Mechnikov National University. In 2004-2015, she was a Senior Research Fellow at Odessa Regional Branch of Conclusion the National Institute for Strategic Studies. Iryna has numerous articles regarding the EU foreign and security The continuation of the expansionist policy policy, the EU and the Black Sea region, Ukraine’s foreign of the Kremlin towards the states of Central and South-Eastern Europe seems unlikely. policy, and Transnistria conflict. However, if Ukraine and Moldova become

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E. Cadei Poland: military superpower? “OZY”, 29 May, 2015 [http://www.ozy.com/acumen/poland-military-super power/41673?utm_source=FBOrganic&utm_medium=Social access: 20 October 2015]; US heavy weapons to be deployed in Poland next year, “EUOserver”, 28 August, 2015 [https://euobserver.com/tickers/130027 access: 29 October 2015] 40 UA: Ukraine Analytica · 2 (2), 2015 POLITICAL AND ECONOMIC CONSEQUENCES OF THE EU'S AUTONOMOUS TRADE PREFERENCES FOR UKRAINE Anton Kuchukhidze

The article examines the political and economic meaning of the EU's Autonomous Trade Measures for Ukraine. The article questions the effectiveness of granting such measures on the political and economic levels and explores its impact on the bilateral trade relations of the European Union and Ukraine.

The EU-Ukraine Association agenda has dramatic history. In this article we will not the advantages offered in the Deep and evaluate the historical background of the Comprehensiveallow Ukraine to Freebenefit Trade substantially Area, DCFTA, from EU's autonomous trade preferences (ATP) and this even before the signature of the granted to Ukraine, instead we will examine Association Agreement with Ukraine. the nature of such measures. 2014 was a to Ukraine of around 500 million euros for its independence and territorial perThis year...” will represent72, — stated an President economic Barroso benefit integrity.very difficult At the year same for time, Ukraine, it was extremely especially on 11 March 2014, when the Commission important for the EU-Ukraine relations. adopted these measures. These measures The EU strengthened its role as one of the were effective from 23 April 2014 to main partners and donors for Ukraine. 31 December 2015, according to the The EU provided comprehensive support appropriate European Parliament and for different spheres: since spring 2014, European Council regulations”.73 support package for the next few years to In such a way the EU opened its doors support“the EU the has reform committed process. a To €12.8 date, the billion EU for Ukrainian exporters, in other words, this tool became a chance for Ukraine to mobilized, that is committed or disbursed, overand €7 European billion”. 71 financial institutions have However, Ukraine did not use this chance to thedouble fullest its because profit from it faced trade some with objective the EU. Granting the autonomous trade preferences challenges. ATP tool is like a small prototype was an additional act of support for the of a free trade agreement between the EU and Ukraine: “the autonomous trade set of unilateral trade provisions that will preferences can be regarded as the EU's Ukrainian economy. “We have agreed a

71

72 EU-Ukraine relations, Fact Sheet [http://eeas.europa.eu/ access: 3 December 2015] 73 RegulationRemarks by (EU) President No 374/2014 Barroso ofon the unilateral European trade Parliament measures and for of Ukraine, the Council 11 March of 16 2014April [http://europa.eu/access:2014 and Regulation (EU) No20 November1150/2014 2015] of the European Parliament and of the Council of 29 October 2014

UA: Ukraine Analytica · 2 (2), 2015 41 Political consequences under the DCFTA”.74 unilateral fulfilment of their obligations The political will of the EU concerning the The systematic and comprehensive analysis granting of the ATP was one of the signs of of the ATP tool will help us to determine the the EU's strong political support for Ukraine. possible development of trade relations It was a signal that Ukraine remained between the EU and Ukraine when the one of the key partners for the EU in the Association Agreement enters into force. framework of the European Neighbourhood It is worth to mention that every process Policy and Eastern Partnership. The in politics and economy has both positive and negative results. Therefore, it is very Eastern Partnership formula: “to create theEU reaffirmednecessary conditions, its commitment to accelerate to the which we can examine the political and political association and further economic economicimportant consequences to define the offramework, the ATP granting. within integration between the European Union The main components of analysing this and interested partner countries”.75 The EU framework shall be the following: Security Strategy 2003: a) aim of the ATP granting (to allow also reaffirmed some basic principles of its “– Europe should be ready to share the preferential access to the EU market) responsibility for global security and Ukrainian exporters to benefit from in building a better world. b) character of the initiative (the EU unilateral initiative and decision); – Even in era of globalization, geography is still important. It is in the European c) validity period of the ATP (from 24 interest that countries on our borders April 2014 to 31 December 2015); are well-governed. Neighbours who are

d) indicators of bilateral trade relations between the EU and Ukraine; dysfunctionalengaged in violent societies conflict, or weak exploding states populationwhere organized growth on crime its borders flourishes, all e) geopolitical, political and economic pose problems for Europe. realities for the above mentioned period. – It is not in our interest that enlargement should create new dividing lines in

above in order to give an answer to the of economic and political cooperation questionWe will examine concerning the five the criteria effectiveness mentioned of toEurope. our neighboursWe need to extendin the theEast benefits while these trade measures. tackling political problems there”.76

74 According to Annex I to Regulation No 374/2014 of the European Parliament and of the Council of 16 April 2014, the autonomous trade preferences provide for the reduction (cancellation) by the European Union of import duties

for Ukrainian exports to the EU market. This implies the cancellation of 83.4% of import duties on agricultural and food products (referred to groups 1-24 of the HS classification) and 94.7% of import duties on industrial products 75 (referred to groups 25-97 of the HS)/ Autonomous Trade Preferences: Impact on Ukrainian Export [http://www. ier.com.ua/ access: 23 November 2015]

76 Joint Declaration of the Prague Eastern Partnership Summit, 7 May 2009 [http://www.consilium.europa.eu/ access: 18 November 2015] A secure Europe in a better world [http://www.consilium.europa.eu/ access: 18 November 2015] 42 UA: Ukraine Analytica · 2 (2), 2015 since 2014, it became a source of threats for In 2014, the ATP granting theUkraine EU, so has the been EU's engaged involvement in a violent was conflict logical was the first sign of the EU's as it correlated with its security and political «flexibility concerning the values, based on the principles of the security Association Agenda with Ukraine interdependence of the European Union and its neighbours. The EU strongly supports Ukraine: “since spring 2014, Ukraine and Association Agenda. According to U.Speck, the EU suddenly and surprisingly changed andthe EUhas have followed together up closely defined on a itsjoint progress. reform Constitutionalagenda (the so-called and electoral «Association reforms, Agenda») the has no right to interfere in its relations with Ukraineits long andon Septemberfirmly held 12,position 2014, that when Russia the judiciary, improvement of the business EU Trade Commissioner Karel De Gucht climatefight against and public corruption, administration the reform reform, of the announced that an agreement had been including decentralisation, are among the reached between the EU, Russia, and Ukraine issues that are high on the joint priority list. to delay the implementation of a deep Moreover, the European Commission has and comprehensive free trade agreement put in place a dedicated Ukraine Support (DCFTA) between the EU and Ukraine. In Group, composed of experts from the EU fact, it was a political compromise between78 institutions and Member States in different the EU and Russia. From that moment ATP priority sectors giving advice and support to did not merely become a symbol of support, the Ukrainian authorities in the mentioned but it also became something similar to a 77 temporary limited Association Agreement between the EU and Ukraine. The geopolitical Onreform one sectors». hand, the conclusion is obvious — challenges, which Ukraine and the EU faced in the EU strengthened its comprehensive 2014, were the main reasons for the EU's new support for Ukraine. In 2014, the ATP Agenda of Ukraine in relations with Russia. flexible approach concerning the Association Agendagranting with was Ukraine. the first This sign mechanism of the EU'shad On the political level, we can see a aflexibility potential to concerning become an effective the Association economic transformation of the ATP from the temporary to the prolonged initiative. ATP adopted when the Crimea was annexed and became a tool, which promoted deeper tool of support and benefit, but it was relations with Ukraine on the way to its these circumstances had a negative effect integration with the EU and at the same onthe Ukrainian armed conflict economy, in the its East industrial started, and so time a start of the trilateral consultations export facilities. with Russia. It is worth reminding that the provisions for such consultations became a On the other hand, the ATP granting is a part of the Minsk Agreements: “They (ed. — little part of a big story. Later in 2014 the leaders of Normandy format) also support EU demonstrated a strategic and principal trilateral talks between the EU, Ukraine shift in its foreign and economic policy and Russia in order to achieve practical towards Russia's concerns on Ukraine's solutions to concerns raised by Russia with

77 - EU-Ukraine relations, Fact Sheet [http://eeas.europa.eu/ access: 3 December 2015] 78 Speck U. Postponing the Trade Agreement with Ukraine: Bad Move, EU [http://carnegieeurope.eu/publications/? fa=56795 / access: 16 November 2015]

UA: Ukraine Analytica · 2 (2), 2015 43 plurilateral cooperation frameworks. ATP became a tool, which promoted deeper relations potential practical solutions and are ready «with Ukraine on the way to its toParticipants continue talks have at identified ministerial a numberand expert of levels.” It is important for Ukraine to save integration with the EU and at the same time a start of the trilateral such a 81trilateral format with the Russian Federation, as it will reduce the weaknesses consultations with Russia of Ukraine during bilateral negotiations, where relations are more asymmetric.

regards to the implementation of the Deep In addition, it is worth mentioning that and Comprehensive Free Trade Agreement the Russian Federation will try to pressure between Ukraine and the EU”.79 This fact Ukraine, when Association Agreement stresses once more the high importance of enters into force. The restrictive measures the mechanism for these consultations for against Ukrainian producers can be the Russian Federation. adopted, and Ukraine should be ready for such challenges. Among other plans, At the same time, the European Commission has drawn some clear red lines: it is help its exporters, as most probably Russia absolutely impossible to change the text of willUkraine continue should the have politicization a specific plan of how trade to the agreement and the entry into force of the relations, as well as taking into account that DCFTA will not be further postponed after it is impossible to exclude the adoption of 1 January 2016 irrespective of an earlier restrictions against Ukrainian companies Russian request to do so. According to the by other members of the Eurasian Union. opinion of P. Elsuwege, at best, “the trilateral Ukraine will have to diversify its export building measure’ within the broader including Asia, Africa and Latin America contextnegotiations of the can Minsk be regarded peace as arrangement. a ‘confidence and it is a challenge for Ukraine, but it is They are a useful tool to address the also a chance to create a global economy economic implications of the new trade deal model in Ukraine. “Ukraine’s exports to EAEU countries consist mainly in 80 machinery and transport equipment Thebetween role the of EUthe and trilateral Ukraine». talks format is strengthening. This mechanism can become (34% of the total), while railway vehicles systematic contacts with the negotiating times,and equipment and it is unlikelyaccount forthat 41%. such This exports is a parties,efficient especially as it is very when important their relations to have couldproduction be diverted profile inheritedto the EU, from given Soviet the lack of demand for these products and diplomatic format will be saved for future the differences in standards and quality. negotiationsare difficult. on It isdifferent most probable issues: “For that some this Conversely, Ukraine exports to the EU other concerns solutions can be available consist mainly in metal, scrap, iron ore, in the context of bilateral or trilateral and seeds and wood.” So, the EU market will 82

79 - Annex II, S/RES/2202 (2015) [http://www.un.org/ access: 17 November 2015] 80 OutcomeElsuwege ofP. theEU-Russia Trilateral Relations Talks on and the the Implementation crisis in Ukraine: of the how EU-Ukraine to proceed? Association [http://jog.tk.mta.hu/ Agreement/Deep access: and 20 Com No - vember 2015] 81

prehensive Free Trade Area [http://europa.eu/ access: 1 December 2015] 82 Autonomous Trade Preferences: Impact on Ukrainian Export [http://www.ier.com.ua/ access: 23 November 2015] 44 UA: Ukraine Analytica · 2 (2), 2015 not fully substitute Ukrainian companies but a part of this growth was recorded before export to the Eurasian Union countries. the introduction of the autonomous trade

months of 2014, exports to the EU increased Economic consequences preferences. In particular, during the first four December 2014, when the ATPs were already The EU political will to grant ATP presented by 8.9%, while over the period from May to an opportunity for Ukrainian companies to exports decline rate accelerated — over the introduced, it declined by 2.9%. In 2015 results do not only depend on political will,get morebut also profit. on economic Nevertheless, competitiveness. good trade first half of the year Ukrainian84 exports to the Unfortunately, there is a political and EU decreased by 35.5%. economic turmoil in Ukraine, which has It is the first practical sign for a great impact on export facilities. In Ukraine before Association accordance with the data of the Institute for «Agreement entering into Economic Research and Policy Consulting: force, how the homework on the the Crimea annexation led to the loss reform agenda has to be done in order to have some benefits from productionof about 1.6% resulted of exports.in a sharp The decline military in the Association Agreement conflict in the East and the suspension of

theexports corresponding from Donetsk rate Oblast of decline (-32.3%) in total and To make further conclusions, it is necessary Luhansk Oblast (-46.3%), which exceeded to assess ATP at the microeconomic level: during the period from May to December exports (-23.5%). In this respect, the region ofsaw exports a significant originated reduction directly in from its valueDonbass for in exports to the EU market. Their number the national exports. As of 2013, about 25% increased2013, 6,113 up exporting to 9,116 firmsin the were same engaged period Luhansk region); while in 2014 Donbass of 2014. Therefore, the net increment was (19.6% — Donetsk region and 5.6% — export during May-December 2013 entered share in exports declined to 19% (15.6% — the3,003 European firms: market 5,302 during enterprises the application with no Donetsk 83 region and 3.5% — Luhansk of the ATPs in 2014, while 2,299 exporters Economistsregion)». argue that there are other terminated/suspended their export factors, which have an impact on Ukraine’s operations to the EU market. Besides, we export such as depreciation of the national can emphasise the 'core' exporters, which currency, price trend at global markets, exported to the EU both in 2013 and decrease in trade turnover with other main continued trade with the EU in 2014. This trade partners etc. In 2014, due to the above mentioned factors, total exports decreased by exporters in 2014, however, the dynamics ofgroup their includes exports 3,814 to the enterprises European or market42% of However, total Ukrainian export to the EU 23.5% and by 35.1% in the first half of 2015. was different — most of them, 2,106 firms85 member-states in 2014 increased by 1.5%, or 55% reduced their supplies to the EU.

83 Autonomous Trade Preferences: Impact on Ukrainian Export [http://www.ier.com.ua/ access: 23 November 2015] 84 - Autonomous Trade Preferences: Impact on Ukrainian Export [http://www.ier.com.ua/ access: 23 November 2015] 85 vember 2015 Elsuwege P. EU-Russia Relations and the crisis in Ukraine: how to proceed? [http://jog.tk.mta.hu/ access: 20 No

UA: Ukraine Analytica · 2 (2), 2015 45 that during the internal crisis the ATP could The abovementioned figures demonstrate importancefinancial assistance for the EU fromin the area the of EU Eastern were for Ukraine before Association Agreement Partnership.a confirmation Unfortunately, that Ukraine Ukraine has a greatwas enteringnot be beneficial. into force, It ishow the thefirst homework practical sign on not ready to fully use the opportunities the reform agenda has to be done in order granted by the EU, because of a wide range

Agreement. As Commissioner Malmström annexation of territories, internal political said:to have “DCFTA some isbenefits not magic, from it the is a Association possibility. chaos,of objective devaluation reasons: of the national military currency conflict, It gives Ukrainian companies access to the and reduction in production. It is clear EU market, but to this end, they should that Ukraine cannot be successful on its Ukraine European integration path without its shall understand the interdependence86 of its internal political and economic stability. internalfulfil rules situation and be with competitive”. the success on the way The ATP tool could be useful for Ukraine in to use this possibility when your economy case of its political and economic stability. isto theweak. integration Nevertheless, with the EU.every It is process,difficult The annexation of the Crimea and the war in especially in international relations, has two impacts — both positive and negative. On not only for the political and economic one hand, at political and macroeconomic stability,the East butwere also the for most the territorialdifficult challenges integrity levels, granting such preferences could be and sovereignty of Ukraine. Despite such a an effective tool for Ukrainian exporters, preferential regime, the Ukrainian export but Ukrainian economy was very weak to to the EU has drastically reduced. Ukraine use such an opportunity. On the other hand, must achieve peace in the East in order to restore the stability and development increased: 5,302 enterprises entered the of the country. Minsk agreement’s Europeanthe number market of Ukrainian during exportingthe application firms implementation by all participants can of the ATPs in 2014. Unfortunately, the facilitate this process. 87 a direct impact on the Ukrainian export At the same time, it is vital for Ukraine to increaseincreasing to the number EU. of firms did not have provide reforms. The war cannot explain their absence. The corruption has strong roots in the state system and it is also a Conclusions and recommendations challenge for Ukraine, which prevents it from the sustainable development The Autonomous trade preferences and success in the European integration process. It is very important for Ukraine approach since its adoption. It opened opportunitiesgranting has been for thea sign Ukrainian of the EU exporters flexible from the political association and economic before the Association Agreement entering integrationin order to with take the comprehensive EU to demonstrate benefits into force. In other words, the ATP tool concrete results. Ukraine should be a much became the mechanism of unilateral more responsible partner for the EU, it should be a reliable partner. In the nearest by the EU. Its mechanism and other macro- future, the EU will tighten its control over fulfillment of the Association Agreement

- 86 Commissioner Malmström: DCFTA is not a magic, it is possibilities [http://euukrainecoop.com/ access: 23 Novem ber 2015] 87 Autonomous Trade Preferences: Impact on Ukrainian Export [http://www.ier.com.ua/ access: 23 November 2015]

46 UA: Ukraine Analytica · 2 (2), 2015 the implementation of its obligations need to search new partners worldwide. by Ukraine within the framework of the Association Agreement. The experience of ATP granting

Ukraine to increase its export facilities to in a broad sense, we cannot omit attention thedemonstrated EU, when thatthe Association it will be difficultAgreement for toWhen the examiningRussia’s position. the EU-Ukraine In that sense, relations the enters into force. The ATP tool was a little prolongation of the ATP was a political model of the comprehensive Association compromise. However, it is necessary process. In case of political instability to mention that this compromise has a and economic weakness, the Association restrictive nature. On one hand, the EU agenda is more a challenge, rather than an changed its principal position and started opportunity, but if Ukraine starts a reform trilateral talks. On the other hand, the EU and Ukraine do not accept any amendments economic integration with the EU in a long- to the Association Agreement text. termprocess, perspective. it will have great benefits from the However, Ukraine will have to diversify its trade relations with the Russian Federation, Belarus, Kazakhstan and other states of Anton Kuchukhidze is a political analyst, social activist the CIS, as it is possible that they might and co-founder of the NGO “Way to Revival”. adopt some restrictive measures against Ukrainian exporters, so Ukrainian exporters

UA: Ukraine Analytica · 2 (2), 2015 47 LIVING IN SUSTAINED UNCERTAINTY THE BLACK SEA REGION AFTER THE 2008 GLOBAL FINANCIAL CRISIS

Panayotis Gavras and Panagiota Manoli*

This article looks into the variable impact of the global financial crisis of 2008 on the economies of the Black Sea region. In most cases, the impact was swift and negative but short-lived. What pervades the post-crisis environment is an underlying sense of uncertainty. This is a necessary development to a degree, a correction of the recklessness which had become a hallmark of the latter phase of the pre-crisis boom, during which over-leveraging had reached dangerous levels and ultimately unraveled at a high economic and social cost. However, it is a key factor behind sluggish post-crisis investment, reducing observed economic growth rates and potentially suppressing longer-term growth prospects. The article also supports that the variable impact of the crisis has demonstrated the persistent heterogeneity of the Black Sea economies, which is attributable to structural factors. The latter makes the delineation of any region specific strategy for economic growth, or crisis management, difficult.

Introduction The repercussions of the crisis were felt in the Black Sea economies , three of which The bankruptcy of the investment bank are EU members, and one89 overlaps as a

in the United States and western markets Greece and Turkey, the other Black Sea Eurozone member. With the exception of butLehman then Brothers spread inthroughout September the2008 rest began of from centrally planned to market oriented economies.countries concluded A common a difficult feature transition is that periodic “cyclical” economic crisis but a the world. The 2008 crisis was not just a during the last two decades of economic which befell and political transition, the Black Sea the international market order,88 along the region was no stranger to economic crises linessignificant of those “structural in the 1930s crisis” and, to a lesser degree, in the 1970s. the Turkish crisis of 2001. However, the such as the ruble crisis of August 1998, or

* the Black Sea Trade and Development Bank. TheGamble, views A. expressed2009. The inSpectre this paper at the are Feast: those Capitalist of the authors Crisis andand thedo notPolitics necessarily of Recession, reflect Houndmills, the policies Basingstoke,or views of 88 Hampshire: Palgrave Macmillan The wider Black Sea region covers the twelve member states of the Organization of the Black Sea Economic Co- 89 operation: Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, Russia, Serbia, Turkey and Ukraine.

UA: Ukraine Analytica · 2 (2), 2015

48 the affected economies, their linkages with The impact on Black Sea other economies and the kind of policy economies was for the most responses adopted.93 «part differentiated according to economic fundamentals, the structure of the affected economies, their The Financial Crisis Reaching the linkages with other economies and Black Sea the kind of policy responses adopted.

extended period of economic growth dating current, major crisis to strike the region backThe 2008to 2000 crisis which brought underpinned to a sharp the haltend anof “... is different from its predecessors both a long transition period for most of the Black in terms of scope and nature”90. The Sea economies. Buoyed by favourable global previous ones were driven primarily by local economic conditions or geopolitical wereeconomic undertaken conditions during and reapingthe 1990s, the regionalbenefits of difficult fiscal and structural reforms that94, crisisevents of — 1997 although — while the 1998the current ruble crisis income and living standards rose while poverty isarguably global hadin nature, roots inresulting the Asian from financial events GDPrates growth declined rates substantially. averaged 5.9% In the per early annum phase taking place in developed economies. of this growth cycle, productivity gains and rising investment levels contributed a higher The impact of the crisis on the Black Sea share of the growth whereas in the later phase, region was “swift and negative”91. The onset growth became more consumption dependent of the crisis created similar effects from fuelled by rapid credit growth. Economic “overheating” symptoms95 emerged in several came under stress, lending came to a halt and Black Sea economies, including (i) increasing therecountry was to a country.painful process The financial of deleveraging systems growth of private sector credit, (ii) rising that resulted in a downturn in economic asset prices, consumer prices and wages, (iii)

not collapse, and countries mostly avoided current account imbalances. bankactivity. failures However, that marred financial previous systems crises did increasing external net flows and (iv) a rise of and in turn led to a feeling of panic in places 92 investment into the Black Sea region abruptly The impact on Black Sea economies was In autumn 2008, external financing and likefor the Russia most in part 1998 differentiated or Turkey inaccording 2001. to economic fundamentals, the structure of ceased as a result of the global financial crisis. Governments, financial institutions and private companies with significant external 90 Gavras, P. and G. A. Iorga. 2009. The Impact of the Current Economic and Financial Crisis on the Black Sea Region,

91 BSTDB. 2013. Annual Report 2013. Thessaloniki: BSTDB, p.11 ICBSS Policy Brief 18, Athens: ICBSS 92 economic crisis, Xenophon Paper 9, Athens: ICBSS 93 EuropeanPapava, V. Commission.2010. The economic 2009. The development impact of the complex global in crisis the Blackon neighbouring Sea area: The countries impact of the globalEU, Occasional financial and

94 AgenciesPapers 48, of Brussels: BSEC countries European and Commission the 2013 and 2014 Annual Reports of the Black Sea Trade and Development Bank. Unless otherwise specified, Black Sea region data mentioned is based on calculations from National Statistical

Additional sources include World Bank. 2013. Global Economic Prospects 2013, Washington D.C.: World Bank and 95 BSTDB.IMF. several 2009. years. Annual World Report Economic 2009. Thessaloniki:Outlook, Washington BSTDB, D.C.:p. 13 IMF IMF. 2011. Regional Economic Outlook: Middle East and Central Asia, Washington D.C.: IMF, April

UA: Ukraine Analytica · 2 (2), 2015 49 left regional banks less susceptible to the In the Black Sea region, commodity exporting countries «were able to draw upon overallimmediate slowdown effects ofin theeconomic global financialactivity in crisis the accumulated reserves in order to EU-than in in particular- the case ofwhich Western is the banks)main economic and the offset the decline in private activity partner of the countries in the region for trade,

the whole, the Black Sea region experienced exposures lost direct access to the foreign investment and other types of financing. On

and loans and suddenly faced the threat of Anothera foreign factortrade contractionamplifying theof -34%. downturn was bankruptcy.financing needed A general to slowdown service their in economic deficits activity ensued. The countries with economies available to most countries. Policy-wise, the largely integrated into global markets were responsethe deficiency to recession of mitigating is to policy increase responses public spending – both discretionary as well as dependence on foreign capital and deeper automatic stabilizers (e.g. unemployment externalthe first trade ones toand be investment affected dueties, tomainly their with EU member states. As the economies of exporting countries (such as Azerbaijan and the EU countries contracted and commodity Russia)benefits). were In the able Black to draw Sea region,upon accumulated commodity prices plummeted, demand for exports from reserves in order to offset the decline in the Black Sea declined, especially from those private activity, and also in order to stabilize countries whose economy depended on commodity exports. The downturn in the more a euro country, prior to the Eurozone crisis, globally integrated economies led to a rise in hadthe financialaccess to system. cheap Forborrowing its part, allowing Greece asit unemployment, affecting immigrant labor to increase public spending. However, most from smaller and poorer economies such as Black Sea countries lacked such options and Moldova- in which remittance levels amounted 96 — and which experienced receipts,were obliged but to possibilities undertake fiscalto cutbacks.increase to 31.4% of GDP governmentDeficits rose, spending mainly were due toconstrained reduced taxby toa 21.4%these smaller, decline isolated in remittance economies flows that in the lack of access to resources, and thus public were2008/9. dependent The resulting upon declinetransfers in remittancesfrom their spending cuts exacerbated the recession large emigrant populations threw them into caused by reduced private spending. recession as well. As the global economy recuperated by the During 2009, the Black Sea region end of 2009, so did most of the Black Sea cumulatively experienced the most severe region, and in certain cases it happened in a very robust fashion over the next two in real terms. The key reasons for this were years. The downturn, though sharp, was thefall inreliance GDP of of any the region, economies contracting in the Black by -6.4% Sea short-lived with private domestic demand picking up vigorously and becoming the most important factor behind the return region on external financing, the weakness to growth. Additionally, a key factor for of local financial systems, which could not the recovery was the resilience of the systemscompensate were for small the andloss oftenof foreign less integrated financing (although the fact that these financial financial sector. The anticipated collapse 96 - search on Southeastern Europe, LSE, April, pp. 14-15 Bartlett, W. and I. Prica. 2012. The variable impact of the global economic crisis in South East Europe. LSEE-Re

50 UA: Ukraine Analytica · 2 (2), 2015 In 2013, real GDP growth slipped slightly Sea economies did not materialize, either dueof the to fragileits small financial size or sectorbecause in it the was Black less exposed to the ruinous lending that caused Agriculturalto 1.8%. However, production there rebounded were shiftsrobustly in afterthe contributinga poor 2012, factorsand became to this a positive figure. contributor to growth. External trade was stabilizedthe global bycrisis successful, in the first albeit place. expensive, In many governmentcountries the support. financial sectorA further was furtherlift to growth was the recovery of external trade theweaker, geography as regional of growthexports roseshifted, only as 1.3%, the countrieswhile imports that grew had 4.2%.previously More significantly,experienced in 2010, reaching new highs as both exports downturns or stagnation in 2012 improved, andflows, imports which grewsurpassed by 25% the and pre-crisis another peak29% while those that had driven regional growth started to slow down. A part of this can be explained by ‘recovery effects’ as the western levels. As a result, regional GDP grew 4.3% part of the region recovered from the output However,in 2010 in realin the terms, late and 2011, 4.1% ina 2011.recovery dip in 2012, while external trade received momentum petered out and growth slowed a proportionately greater boost from the after a series of destabilizing events, including nascent recovery in the EU. In the eastern the earthquake in Japan, geopolitical part of the region, where the post-crisis developments such as the Arab uprising recovery was mainly consumption driven, (which also created upward volatility in the persisting lag in investment has become energy prices), and the Eurozone crisis. As a drag on national economies and led to the the latter worsened and provoked recession appearance of capacity constraints. in the Eurozone region, uncertainty in This trend continued through 2014 into recovery and overall output growth in the 2015. In 2014, GDP growth slowed further Blackfinancial Sea marketsregion. In resurfaced, 2012, nine impedingout of twelve the countries experienced lower growth, and better, aided to some degree by the three experienced outright contractions as amelioratingto 1.1%. The Balkanssituation again in the fared Eurozone. relatively By contrast, the eastern part of the Black Sea The slowdown was more pronounced in the was affected by the worsening economic westernGDP growth part inof thethe regionregion, halvedthe economies to 2.0%. slowdown in Russia, which in turn was of which are more tightly linked to the EU. aggravated by declining commodity prices, The growth slowdown in the euro area and an uncertain global monetary environment, and above all, a geopolitical turmoil which acted as negative shocks for the region, and led to the imposition of sanctions and deleveraging by Western European banks counter-measures between Russia on The eastern part of the Black Sea performed one hand, and the US and EU on the other better,weighed with heavily private on consumption financial developments acting again hand. In 2015, the Black Sea region fell as a positive driver of growth, while private into recession, with real GDP contraction investment was sluggish and government spending restrained97. In contrast to 2010- 11, external trade ceased to contribute Atexpected the end to of be 2014, slightly GDP worse in real than terms -1.0%. stood

average growth rate for the region between significantly to growth, as export growth fell about 6.3% higher than in 2008, and the to 2.7%, while imports were essentially flat. 97 Roaf, J., R. Atoyan, B. Joshi and K. Krogulsk. 2014. 25 years of transition. Post-Communist Europe and the IMF, Regional

Economic Issues Special Report, Washington D.C.: IMF, October, p. 47

UA: Ukraine Analytica · 2 (2), 2015 51 by exogenous factors completely beyond Post-crisis liquidity has grown the control of countries, as evidenced by the in importance and represents destabilizing impact of US monetary policy «a prominent and volatile factor trends, such as the debate about “tapering” . that is difficult for countries to 98 manage or even gauge, and it has The heightened focus on the external affected risk premiums adversely position conceals the fact that most key macroeconomic indicators were better at the end of 2014 than they were prior to the

hide sizeable disparities in the performance exception to this, as they remain stubbornly of2009-14 individual was 1.1%.countries. However, Azerbaijan these figures and highercrisis. Unemployment than during the rates pre-crisis are a significant period. Albania grew moderately but steadily; Going forward, reducing unemployment Georgia and Turkey recovered quickly and will be a central challenge for certain Black have since posted robust results; Greece Sea countries for a number of years. As a rule, public debt levels are also higher than the rest contracted sharply in 2009 and thenand Ukrainefollowed contracted varying paths significantly; of recovery, and with bumpier year on year results. However,they were whileat the theend region of 2008. experienced This is a legacy two sovereignof the sharp debt rises crises, in fiscal in deficitsthe majority in 2009. of Instead of being swayed by broader global cases the increase in public debt as a share or regional trends, individual country performances have become more decoupled were stable or even slowly declining. and their performance is increasingly of GDP was less than 10%, and debt levels determined by individual country’s structural Otherwise, the picture is positive and a issues, policies, and overall economic testament to the commitment of Black Sea situation. In particular, a lingering legacy of countries to sustained macroeconomic the crisis is extra scrutiny and heightened stability. Current account imbalances, for sensitivity (at least as far as markets are example, still persist, but they are far more concerned), of a country’s external position. And while the focus on indicators such as having achieved considerable strides current account balances, foreign exchange towardsmuted withrebalancing, perennial and deficitgenerally countries relying reserve levels, import cover ratios, short and more on increased exports rather than on

new for identifying possible vulnerabilities as a rule, lower than they were prior to the long term external financing needs, etc. is not crisis,reduced and imports. Black Sea Inflation countries rates have areachieved also,

concernand perceived about dependencethe ease of access upon inflowsto foreign of funding.external financing,Put differently, there the is also focus a heightenedused to be sustainabilityimpressive fiscal and consolidation adjusting to the in new the loweryears primarily on calculations of solvency, while growthsince 2010, environment, quickly where restoring simple finances reliance to liquidity- at least in recent years- was largely on rising receipts can no longer be assumed. assumed. Post-crisis liquidity has grown in importance and represents a prominent and One consequence for the Black Sea region

manage or even gauge, and it has affected risk region-wide trends. Economic performance premiumsvolatile factor adversely. that is difficultIt is also for often countries affected to duringis that the there post-crisis are not period easily has identifiable become

The term “tapering” refers to the reduction of the Federal Reserve’s quantitative easing policies, or bond buying. 98

52 UA: Ukraine Analytica · 2 (2), 2015 increasingly divergent. The lack of a neat Lower investment levels over a prolonged thread common to all countries in the period are particularly pernicious since they region remains an interesting question for do not only reduce growth in the present; debate, since on one hand it can be argued but they also constrain potential output in that this reduces the risk of contagion while on the other it may be a function of may result in capacity constraints, reduced a slower regional integration and foregone productivity,the longer and term. over-reliance Insufficient on investmentantiquated opportunities for countries to cooperate or achieve greater complementarities. permanent unfavorable impact upon economicor inefficient growth processes rates. It with renders prospectively tackling high unemployment impossible. Heightened Uncertainty Part of the “New Normal” In many Black Sea countries, investment has been weak in the post-crisis period, with growth reliant mainly on private consumption and exports. Public investment, crisisGlobal and financial have markets experienced have returned upswings to like public consumption, has been hindered andfunctionality downswings. in the This years volatility since thehas 2008been shocks (e.g. volatility in food and energy andby fiscalpublic constraints debt levels. and However, the efforts private of prices),influenced the byEurozone natural crisis, disasters, political economic crises investment,governments unlike to reduce private budget consumption, deficits (e.g. Arab uprising, the Ukrainian crisis), and year period, with uncertainty, higher risk premiums,has remained and muted fear throughoutof continued the five-and stimulativesignificant policymonetary measures policies such of the as world’s major economy fiscal stimuli in 2009, the highly principal reasons for the abandonment or announced in 2013 to start moving back to deferralunfettered of investment access to financing,decisions. among the moremost influentialconventional central policies banks, (e.g. and “tapering”). the steps 99 (GFI) data, trends for One important feature of the current global which are highly correlated to those for GDP, economic environment that also pervades highlightGross fixed this investment ongoing weakness. From 2000- the Black Sea markets is an “underlying sense of uncertainty”. Insofar as this uncertainty is the result of a greater caution, it is a normal during08, GFI inthe the period. Black GFISea regioncontracted fluctuated sharply from by development, deterring the recklessness year to year, but averaged 10.6% per annum which had become a characteristic of However, from 2010-14 GFI averaged a mere the pre-crisis boom, during which over- -18.0% in 2009, and subsequently recovered. leveraging had reached dangerous levels 2011 has declined, exhibiting a similar trend and both borrowers and lenders were stuck to2.5% GDP and growth. after a decent recovery in 2010 and in an unsustainable spiral which ultimately unraveled at a high economic and social cost. Foreign direct investment (FDI) into the However, until the right balance between Black Sea region has also slowed. It peaked uncertainty can easily result in excessive risk aversion,confidence which and especially caution is deters found, investment. persisting billionin 2008, in at 2009, US$144 and billion in the or subsequent nearly 4.5% four of regional GDP. It more than halved to US$65

99 - vate plus government. Gross Fixed Investment- a component of GDP formation, is the sum of gross fixed investment in an economy, pri

UA: Ukraine Analytica · 2 (2), 2015 53 to shocks is weakened. ofyears GDP recoveredrange. In 2014, unevenly, it fell sharply around again, 40% diversification is reduced and its resilience below pre-crisis peak levels in the 2.5% For countries that were overheating and expectations for 2015 are even worse. to US$53 billion or 1.5% of GDP, and the Seven years after the outbreak of the global beendependent and remains on continued the priority. and ever This greater requires flows crisis, a much debated question with respect takingof external measures financing, to increase reducing domestic this reliance savings has to the Black Sea region- and to Eastern levels so as to strengthen and help to deepen Europe as a whole — is to what degree the model upon which growth in the region was and building upon the generally solid track recorddomestic of bankfinancial regulation. systems, as well as updating

considerablebased has changed. degree. This In the was 2000-08 both desirable boom era, external financing fueled the growth to a necessarily a slow and deliberate process, and markets in most Black Sea countries were theBuilding promotion domestic of domestic financial savings systems implies is tooand small necessary, and underdeveloped since domestic to financialbe able reduced domestic consumption in the short to mobilize the large amounts of capital term, which in its turn implies lower economic

highnecessary growth to rates finance possible. accelerated However, growth; by raisesgrowth investment rates. While costs, excess and externalcan limit financingavailable thequite later simply, stages external of the financingboom, the made external the maturitiesis problematic, and insufficientinstruments external in the market. financing It thus suppresses growth and results in higher investment (particularly for tradable unemployment, lower living standards, and goodsfinancing and shiftedservices) from — mainlywhich increases financing less poverty reduction than might otherwise productivity and economic capacity over a be achieved. The key is to strike an appropriate longer period of time and is thus considered lower cost, longer maturity, more sophisticated either inward oriented investment (for balance, since external financing can provide non-tradablemore sustainable goods — toand primarily services) financing and channeled into productive uses, and will consumption (including asset purchases)- remainfinancing a thatnecessity can befor highly convergence beneficial towards when which provides a short term boost to growth wealthier country income levels to occur. but also tends to exacerbate imbalances that arise over the course of a business cycle. In particular, rapidly rising levels of imports of FDI, especially in tradable sectors, it resulted in the mushrooming of trade and generallyWhere external plays a financingmore constructive takes the role form in improving an economy’s competitiveness, facilitating technology transfer and Ultimately,current account re-balancing deficits inwas many necessary countries. not increasing wealth-generating capacities. just for macroeconomic indicators such as Unlike other external sources, FDI the current account, but also for the structure constitutes a long-term commitment –i.e. of the economy. An appropriate balance it cannot enter and withdraw quickly- and between (i) domestic demand driven and therefore tends to be less volatile than export driven growth, and (ii) investment in tradable sectors and non-tradable sectors, is required to provide a sustainable basis. Beyondcapital marketsector-related inflows. conditions, a stable and business friendly environment (political, one direction, imbalances may appear, while economic, judicial) is a key determinant for vulnerabilityWhere an economy’s also rises structure since the tilts economy’s too far in attracting investment. In this respect, the role

54 UA: Ukraine Analytica · 2 (2), 2015 of the public sector is crucial in implementing there is a need for further maintaining good standards of governance regulatory and institutional andeffective a competent fiscal andand monetarydiligent regulatory policies, «reforms in the region’s economies regime. The Black Sea countries have achieved that compete with other emerging substantial progress in improving the external economies in global markets to business environment in the last decade, as attract investment capital. and Euromoney’s country risk evaluations. Still,measured there byis a the need World for furtherBank’s Doingregulatory Business and institutional reforms in the region’s economies Sea region, in the short and medium term. that compete with other emerging economies could have a significant impact on the Black in global markets to attract investment capital. Moreover, political and security risk factors strong in the decade of 2000s, it has weakened afterWhile the the crisis,growth while in the remaining Black Sea susceptibleregion was to external volatility and dependent on Transnistriaare significant and deterrentscurrently in to Crimea investment. and easternUnresolved Ukraine conflicts deter inmarket the Southentry. Caucasus, of the decoupling of the Black Sea economies commodities and external financing. In spite discernible geographic division between Conclusions westernafter the and 2008 eastern crisis and Black the imperfectSea markets but there is a common uncertainty on (how to The Black Sea region enjoys a number improve) their growth model. A policy toolbox of competitive advantages including geographic proximity to the wealthy of commodity-based economies, improving markets of the EU, improving business for growth includes further diversification environments, commodities wealth and investment (which requires further improving high quality of human capital (education, theaccess business to financing climate), especially and pursuing through balanced foreign skills) at a relatively low cost. The recent multilateral and regional trade integration. experience of 25 years of economic Though many of these tools require mainly transition and crisis management for most domestic reforms, the external anchors of Black Sea countries provided resilience irreplaceable given the current dearth of policy responses than that observed in growth (i.e. foreign capital flows) remain theand wealthier greater but flexibility more rigid in implementingeconomies of increasingdomestic sources wealth-creating of financing. capacity Foreign incapital the realflows economy, can benefit and the not growth merely if directedto fuelling to inWestern terms Europe. of structural The Black reforms, Sea has technical further consumption or speculative asset purchases. assistancereceived significantand project supportfunding. from IFIs,

However, economic activity in the Black Sea Panayotis Gavras is Head of Policy and Strategy region is weakening compared to the pre- Department at the Black Sea Trade and Development crisis period, mainly because of the short-term Bank, Thessaloniki, Greece. slowdown and regional tensions engaging Russia, the largest regional economy, as Panagiota Manoli is Assistant Professor at the well as weak domestic demand in a number Department of Mediterranean Studies, University of the of Black Sea countries. In particular, the deepening of geopolitical tensions between Aegean, Rhodes, Greece. Russia, Ukraine and the European Union

UA: Ukraine Analytica · 2 (2), 2015 55 ENERGY PROJECTS AROUND THE BLACK SEA: GEOPOLITICS VS. ECONOMY

Amb., Dr. Sergiy Korsunsky, Ambassador of Ukraine to Turkey

In the 21st century, it has become even whims because it has its own natural gas clearer that political considerations come sooner than economy when global goals assuming an important role of a transit and concepts are at stake. Unfortunately, stateand oil.to Weadd areeven now more witnessing visibility Turkeyto its it will be an exaggeration to say that the already well-deserved position among the contemporary globalized world is ruled Organisation for Economic Co-operation by markets only. More and more often and Development (OECD), G-20 and NATO economy follows political decisions and member states as a country with a strong that brings turmoil into the well-being of industrial base. even the most developed members of the international community. Number one area of such unbalanced approach is energy, in Europe knows too well that particular oil and gas. diversification of energy «sources and routes as well as There is a number of economic factors the development of gas pipelines that determine the political weight of a infrastructure inside Europe is a key for its national security volume of GDP and amount of foreign investments,particular country. GDP Itper is capita, definite export/ that a import ratio and technological strength Next year will mark the 10th anniversary are among them. But in case of Eurasia, as a whole, and the Black Sea region in Ukraine. Since the harsh 2005/2006 winter, particular, this list is not complete without of the first gas war Russia opted against energy infrastructure considerations. of energy sources and routes as well as the For example, in terms of GDP or level developmentEurope knows of too gas wellpipelines that diversificationinfrastructure of technology, Russia cannot compete inside Europe is a key for its national with the vast majority of the EU member states and yet it is an important supplier the potential of the Caspian basin came of natural gas to Europe and oil to the intosecurity. fruition Slow while but definite Russia efforts started to tounlock lose world market. Ukraine is an indispensable its strategic importance because of the part of this supply chain as a transit hub, unwise pricing policy, shadow business although country’s GDP is far below schemes and most recently its aggression its potential. Iran, Turkmenistan and against Ukraine. Here Turkey came into the picture as a major emerging link between of all because of their carbohydrates the enormous potential of Azerbaijan, resources.Azerbaijan Romania are important is able to players conduct first its Turkmenistan and Iran on one side, and foreign policy independently of Russia’s European consumers on another. It is

56 UA: Ukraine Analytica · 2 (2), 2015 expected that being a candidate country for Russian energy geopolitics the EU membership and a seasoned NATO member Turkey will play its role well. The state of Russia’s gas sector is dire. Gas production has been falling for several years It is not an easy task. There is no doubt that if Russia stopped seducing Ankara with a downfall of almost 20 percent. To save its highly suspicious proposals, Turkey would facein a row the and Russian in the firstGovernment half of 2015 made it reached those follow the most logical path of becoming data secret since July 2015100. Gazprom a transit hub for all sources of natural was taken to arbitrage in Stockholm after gas coming to Europe from the Caspian several consumers demanded price cuts basin and even the Middle East. But such based on market realities. Some of them, a development will be a major geopolitical including Poland, succeeded. The most blow to Russia. The leaders in Kremlin feel striking case is the recent appeal of the threatened with democratic developments Turkish state petroleum pipeline company in Ukraine and its rapprochement with the European Union. Moscow has developed a Commerce to resolve a row over the price policy of bypassing Ukraine with politically ofBotaş Russian to thegas after International two countries Chamber failed to of motivated gas pipeline projects. been saying it had obtained a 10.25 percent On January 1, 2016, the Deep and sign a deal. Since February 2015, Botaş has Comprehensive Free Trade Zone between (bcm) of gas it buys from Russia each year Ukraine and the EU will enter into full force butdiscount the two on sidesthe 28-30 have beenbillion at cubic loggerheads meters to deep and comprehensive dissatisfaction of over the deal for months101 Russia, making things worse. Being desperate also Turkey’s state pipeline operator, said to achieve its political goals with political . Botaş, which is harassment and direct bribery of corrupt Gazprom of arbitration aiming to cover politicians of Yanukovich’s government, thein its price statement of Russian that itnatural had notified gas purchased Russia’s since the beginning of the year. If Gazprom’s infrastructural projects threatening to bypass Ukraine,Moscow createddiminish a itsfictional value realityfor Europe of energy as a its disputes in court, what would one transit country and block any alternative expect“strategic from partner” Gazprom like Botaşin relation has to resolveto less valuable consumers? This Turkish-Russian controlled by Gazprom. Only after a two-year dispute is only one of many, including anti- “soaproutes opera” from Eastworth to 5 Westbillion other USD thanRussia those had monopoly investigation against Gazprom in to abandon the politically motivated South the EU, which as well has a terrible smell of widespread corruption. from the economic point of view and this exampleStream project.allowed ItEuropeans was initially to learn unjustified a lot Russian president Putin made a surprise about the Russian way of shaping foreign announcement about the plans to construct policy. Let us take a closer look at what is a new “Turkish Stream” pipeline that going on around the Black Sea since Russian had to replace the failed “South Stream” propaganda mastered the creation of a project during his December 1, 2014 parallel reality to perfection. visit to Turkey102. Since then the Russian

100

101 S.Korsunsky.В Росії� засекретили Turkey as статистичні a regional energy дані про hub: видобуток dreams and газу realities // Украї�нська // Daily sabah,правда, January 19 серпня 24, 2015 2015 // р. // http://www.dailysabah.com/opinion/2015/01/24/turkey-as-a-regional-energy-hub-dreams-and-realitieswww.pravda.com.ua/news/2015/08/19/7078268/ 102

С.Корсунський� . Що насправді відбулося під час візиту Путіна в Анкару? // «День», 16 грудня 2014 р., №236 UA: Ukraine Analytica · 2 (2), 2015 57 propaganda has done a lot to push Stream is important but not vital” and put Europeans to “accept the reality” that forward another hoax project — North after 2019 Ukraine is out of the picture Stream-2. The North Stream-1 is half-empty as a transit state. European Commission has been urged to invest tens of billions when it comes to harassment techniques of dollars into infrastructure in Greece Gazpromand hardly stops economically at nothing. In profitable, October 2015, but to bring Russian gas through this newly Turkish Minister of Energy said that his designed route. But it was too late. country “is not ready to discuss Turkish European Commission has learned a lot Stream” and drew a Russian response that from the South Stream saga and did not buy “discount for gas prices could be discussed this threat. In its turn, Russia announced in connection with the project”106. Then that “the agreement with Turkey is almost Alexei Miller made an announcement at signed” and Miller even visited Turkey the Saint-Petersburg economic forum that “to determine the route of the Turkish Gazprom decided to cut initially planned Stream”103. The EU stood still. Then on capacity of the Turkish Stream in half. July 3 2015, Italian Saipem’s pipe-laying The Turkish Government responded that vessel Castro Sei set sail to Russian waters it has interest only in one lane and has no to prepare for the offshore construction of intentions to waste money rather than the Turkish Stream. Saipem had signed a 2 billion euros contract for the construction ended up at the arbitrage. invest into something profitable. Then it all Offshore Pipeline. After Russia terminated thisof theproject, first it lane was ofsaid the that South Saipem Stream now Competing projects works for the Turkish Stream, since “it is almost the same route”104. Six days later, Facing cold shoulder from Europe and on July 9, Russian authorities cancelled increased competition at home, Russia’s their commission to Italian Saipem and Gazprom has struggled to assert dominance announced that “the future of the Turkish on the global energy market. But Gazprom Stream is no longer dependent on this is grappling with a series of issues, contract”105. South Stream Transport, including the recent loss of the Ukrainian Gazprom’s wholly owned subsidiary market — a direct consequence of the has to pay Saipem 300 million Euros as compensation. It was announced that the efforts, the US shale gas revolution and South Stream Transport would enter into increasedaggression, competitionEurope’s energy on diversificationthe domestic negotiations with other constructors. The and LNG markets, which jeopardize its point is that there are none. slipping into recession due to lower oil But the game continued. In September, status as a gas giant. With Russian economy Turkey said it completely freezes the it is predicted that Gazprom would produce Turkish Stream. Gazprom said that “Turkish 414prices bcm and of Western gas this sanctionsyear, an all over time Ukraine, low for

103 - - Turkey, Russia’s Gazprom survey new pipeline route // Hurriyet Daiy News, February 8, 2015 // http://www.hur 104 Saipemriyetdailynews.com/turkey-russias-gazprom-survey-new-pipeline-route-.aspx?pageID=238&nID=78053&News prepares to start Turkish Stream pipeline construction // July 3, 2015 // http://en.trend.az/business/ energy/2413979.htmlCatID=348 105 Gazprom scraps Turkish Stream’s phase with Saipem // Daily Sabah, July 9, 2015 // http://www.dailysabah.com/ energy/2015/07/09/gazprom-scraps-turkish-streams-phase-with-saipem 106 Turkey not yet ready to discuss Turkish Stream — Minister // October 3, 2015 / http://en.trend.az/business/

economy/2439687.html UA: Ukraine Analytica · 2 (2), 2015

58 the public company sitting atop some of the world’s largest natural gas reserves. monopolistic situation in a strategic commodity like natural Gazprom market capitalization has «gas, which can determine plummeted in recent years as well. Prior to economic cycles, means the lack of market approach in the entire region the company was worth more than 300 billion USD.2008 Itsfinancial value crisisnow isand even the belowcrisis in 50 Georgia, billion USD107, trailing far behind the world’s other strategic perspective the Trans-Anatolian Gas major energy companies (for comparison — Pipeline (TANAP) is the most important part Exxon Mobil — 360 billion USD, Petro of the Southern Energy Corridor, which will China — 330 billion USD). Gazprom has carry Azeri, Central Asian, Middle Eastern been slow to react to the ever-changing gas and Eastern Mediterranean gas reserves to market, clinging to lengthy contracts based comes into operation, the energy monopoly, the foreign policy does not bode well with whichEurope is through mostly supervised Turkey. When by Russia TANAP today, fully on oil prices. Definitely, its role as a tool for will be broken. The Turkish Stream idea is directed at preventing this from happening torealities. their post-Soviet The Ukrainian nadir, conflict, has exacerbated which has and here again politics prevail over economy Europe’spropelled desire Russian to dissociate relations with Gazprom. the West and reason. Even the traditional supporters of Gazprom turned away from the company and its It should be noted that a monopolistic unpredictable behaviour. Russia’s authorities situation in a strategic commodity like blamed Bulgaria’s Government and the natural gas, which can determine economic European Commission for the failure of the cycles, means the lack of market approach South Stream although it was a direct result in the entire region where monopoly of their own decisions based on political and voluntarily determined prices reasons rather than economic ones . prevail. Therefore, the fact that Turkey 108 and Azerbaijan have started to nourish It is estimated that gas consumption in the European markets in energy through Eurozone will reach 760 bcm by 2030, which the Southern Gas Corridor will not only indicates that the EU’s dependency on the affect price regulations in Europe, Turkey and Asia Minor. In this case, TANAP is an short, the EU’s gas imports will increase to economic and political instrument that 240energy bcm imports or so by will 2030 reach109 . aroundEU has 80%.to meet In brings (i) energy safety, more democracy, political stability and peace in the region; through the Southern Gas Corridor that passesthis energy through deficit Turkey. either It is also from well Russia known or energy-related commodities; (iii) more that several new LNG terminals have recently regional(ii) market integration defined pricesand cooperation for energy in and a been built in France, Poland and Lithuania peaceful way, including the creation of a vast to accommodate the Unites States shale gas integrated and interconnected economic export opportunities, which are going to zone from the Balkans and Eastern Europe be operational very soon. But so far, from a to Caucasus and Asia Minor.

107 com/world/2015/aug/07/gazprom-oil-company-share-price-collapse How Russian energy giant Gazprom lost $300bn // The Guardian, August 7, 2015 // http://www.theguardian.

108 2015 109 Roberts, John. The �mpact of Turkish Stream on European Energy Security and the Southern Gas Corridor, July

Tagliapietra, Simone and Zachmann, Georg. designing a new EU-Turkey Strategic gas partnership, July 2015, №10 UA: Ukraine Analytica · 2 (2), 2015 59 In addition, an Italian energy company Eni Nuclear energy factor has recently announced that it discovered However, it is not only oil and gas Egyptian shore, which, it said, is the that constitute the issue when energy largesta “super ever giant” to have natural been gas found field offin the blackmailing can be used. Nuclear energy Sea110 is no less important and dangerous. In by the Egypt’s oil ministry and could hold recent decades, the nuclear energy sector . The discovery was also confirmed experienced a renaissance. After Three Mile about 100 square kilometres. Thus, it Island’s accident in the US in 1979 and the coulda potential be one 850 of the bcm world’s of gas largest in an natural area of gas reserves. This discovery combined a number of developed countries decided to postponeChernobyl the catastrophe construction in Ukraine of new inNuclear 1986, Cyprus brings another wider opportunity Power Plants (NPP) and even decommission whenwith offshoregas from gas the and Mediterranean oilfields found will in those already built. As it turned out, in the

territory. In this way, the Black Sea and the impossible to survive without nuclear Mediterraneanflow to Europe regions through could thebe combined Turkish energy,contemporary particularly world for it isthose difficult economies, if not into a huge zone of cooperation and which are not rich in oil, gas or coal. prosperity. Among the countries that joined the pool of To achieve this goal the Middle East needs nuclear energy community most recently, peace. The war in Syria, fuelled most there are two notable newcomers — Iran and recently by Russian involvement, ignited Turkey. The NPP in Busher (Iran) was built by even more violence than before. Trying to Atomstroyexport of the Russian Federation distract attention from its adventures in and became operational in 2011. It is not Ukraine and to prevent Iran from further entirely clear why the country with vast oil and gas reserves spent billions of dollars on leaders sent troops and ammunition to the NPP, but the plant was constructed. As supportrapprochement the regime with of the Bashar West, al-Asad. Russian for Turkey, the decision to introduce nuclear Thus, European Union now sees more energy sector into its growing economy refugees, while Saudi Arabia, Iran and other oil rich countries have to spend options to satisfy industry and population more on war thinning high currency and withis definitely a stable and justified. reliable Turkey supply has of electricity very few gold reserves already severely damaged and the construction of a NPP could be a by the low market prices. So far, the international community was able to chosen, it is going to be in Akkuyu and it is withstand this move of Kremlin, but the goingsolution. to be The Russian-made. first site has been already question is how long the war in Syria will last. In 1973, an oil embargo created the Nevertheless, devil is in the details. There are no small issues in the nuclear energy were used as a political tool. The Russian sector and Ukraine knows that better than Federationfirst precedent, learned when that energy lesson resourceswell and anybody else does. Nowadays there are four has been using it extensively in Europe and now in Asia. reactors, all of them being Russian-built NPPs in Ukraine, which encompass fifteen

110 Dipaola, Anthony. Eni Discovers Massive Gas Field in the Mediterranean // Bloomberg Business, August 30, 2015 //

http://www.bloomberg.com/news/articles/2015-08-30/eni-discovers-super-giant-natural-gas-field-offshore-egypt

60 UA: Ukraine Analytica · 2 (2), 2015 The construction of NPP is NuclearVVER-types. Power The firstPlant. NPP It builthas inbecome the early a not an end but a beginning symbol1980s byof Russiatechnological is the failure famous and Chernobyl human «of a long journey into the imperfection. Combined, those two factors world of nuclear technologies caused the worst technological catastrophe in the history of mankind. Amazingly, another recent tragedy at Fukushima NPP in Japan NPP is being operated. It is absolutely not happened the same year that the Busher enough just to teach Turkish students the NPP started to generate electricity. Ukrainian basics of nuclear energy industry. But what engineers and environmentalists were asked is necessary is to learn from experience to help Japanese colleagues to cope with of other countries. It is absolutely vital to the disaster since Ukrainian experience in understand every detail of a wider picture dealing with Chernobyl is unique. of the chain: fuel production (where, by whom, is it a monopoly?); delivery of the fuel (how can it be done, is it safe enough?); to follow a long list of very strict security, operation of NPP (is it environmentally safetyWhen a countryand environmental decides to build regulations.a NPP, it has safe? do we know what to do if there is a a result of decades of sector experience. waste disposal (on-site storage? to store Particularly,They are not several artificially questions imposed, should but arebe deepleakage in orthe fire?);ground spent somewhere? fuel and to nuclear send asked and answered. Firstly, how is nuclear it to another country?). The construction fuel going to be supplied to the plant? In of NPP is not an end but a beginning of a case of Russian-made fuel, it is of unique long journey into the world of nuclear composition, which can only be delivered in technologies. It is just wise to get ready special casks. If it is going to be delivered through the Bosporus, what kind of safety procedures should be put forward to Andeven beforeyet money-stripped the construction Russia is finished. agreed exclude accidents with highly enriched to invest 22 billion USD into a four-unit uranium? Secondly, what is going to happen Nuclear Power Plant in Turkey in exchange with spent fuel? Until recently, Ukraine for a simple obligation from the Turkish had been paying hundreds of millions Government to purchase electricity of dollars to Russia for re-processing of produced at a certain tariff. Obviously, spent fuel and then decided to store it on no country around the globe could afford its territory until technology to process such an agreement, which is very good for it in Ukraine is in place. In case of Turkey, Turkey. Moreover, there is little doubt that this should be taken into account because it was done with politics in mind, since such technology requires thoroughly Russian technology could be attained by enforced regulation and the construction Russian engineers only, as only Russian of in-site storage facilities. Thirdly, it is very fuel could be supplied for Russian reactors. important to evaluate environmental risks Monopoly in nuclear industry is far more in case of an accident, giving the proximity dangerous than monopoly in oil and gas, of touristic Antalya and Cyprus to Akkuyu and international community will have to site. Unfortunately, the information site deal with it rather sooner than later. developed by Rosatom for Akkuyu project has no answers to those questions. Russia has publicly touted an array of natural gas export projects over the recent It is absolutely not enough just to show years, a web of pipelines that would connect Turkish engineers how a Russian-made Russian gas to some of its largest customers

UA: Ukraine Analytica · 2 (2), 2015 61 while also achieving important strategic be based on good economy and never on objectives like circumventing Ukraine. arm-twisting and intimidation. Invasion in However, many of those projects have not Ukraine made Russian cooperation with and will not come to pass. Only one of the the most sophisticated transit network in two proposed Blue Stream lines was built Europe almost impossible. Ukraine should and put into operation in 2005 after eight integrate its energy network with Europe years of wrestling, and only half of the and let Russia deal with China instead. And widely advertised North Stream is now let the economy prevail. in action delivering half of its capacity of natural gas to Germany. In spite of all efforts, Atomexport failed to build new Nuclear Power Plants in Europe switching to Asia Dr. Sergiy Korsunsky is Ambassador Extraordinary instead. Similarly, Gazprom is trying to and Plenipotentiary of Ukraine to Turkey, a well-known compensate its losses in Ukraine and across expert in the field of energy security. He is an author the region with China, India, Pakistan and of more than 150 academic papers and numerous Japan deals. Moscow found pretty tough publications on the topic, including six books, among negotiators in Asia, because it does not want them “Energy Diplomacy” (2008). He was awarded the to learn that times have changed since the disintegration of the Soviet Union. In order title “the Distinguished Economist of Ukraine” (2008). to be successful today good politics should

62 UA: Ukraine Analytica · 2 (2), 2015 POLITICS VS. ECONOMY IN EUROPEAN ENERGY AFFAIRS AND THE ROLE OF UKRAINE

Andrii Chubyk Centre for Global Studies “Strategy XXI”

The European energy market emerged primarily due to economic interests under the European Coal and Steel Community with politics overtaking only in 1973 because of the oil embargo. Politics in energy affairs has been prevailing on the EU agenda since 2007 after the “third energy package” was introduced and Ukraine played a significant role as a catalyst for progressive development. Since 2014, politics has been dominating energy sector development in the EU because of Russia’s aggressive behaviour against both Ukraine and the Member-States.

energy sector in 1996 systematically strongly against radical market changes, The EU started to influence the European tryingGermany to andprotect France their specificallyown big energy were directives111. It has not yet introduced companies from losing their power on the with the first package of liberalization market113. development besides a higher degree ofsignificant competition. incentives The forsecond energy package market of liberalization directives followed in happened in Europe. Formally recognized 2003 with a prolonged timeframe for its asIn 2005-2006,a price dispute, the first it started large-scale directly gas crisisafter implementation and the aim to initiate V.Yuschenko became the President of unbundling as the instrument to counter Ukraine and announced clear messages energy monopolies. However, in 2007 about its integration into the EU and NATO. the European Commission published a From March to December 2005, Russian pressure against Ukraine raised little malfunctions of the energy legislation in doubts within the EU, because the latter forcecompetition112. The enquiry,above was claiming a result significant of a very traditionally perceived relations between strong superiority of national political both states as something internal, far away interests over general European energy from the European interests. It has been one market needs and the resistance towards of the reasons for the still existing system of the long-term agreements between Russian approach versus energy monopolism. and European companies on gas supply with a new paradigm — a customer-oriented

111 -

112 Liberalisation of the electricity and gas markets. European Commission. April 2012, [http://ec.europa.eu/competi- tion/sectors/energy/overview_en.html, access: 02 November 2015]

113 Commission threatens EU power giants. EurActiv, January, 2007, [http://www.euractiv.com/energy/commis sion-threatens-eu-power-giants/article-160804, access: 13 November 2015] Michael Glos, Minister of Economics and Technologies, Pressemitteilung, Juni 2007, [http://www.consilium.europa. eu/uedocs/cms_data/docs/mailing/file374.PDF , access: 13 November 2015]

UA: Ukraine Analytica · 2 (2), 2015 63 the delivery point at the western border implementation has not been completed so of Ukraine, thus excluding it from legally far despite several deadlines. binding documents on supply and transit. As a response to the Russian aggression Only the reduction of gas supply to against Ukraine in 2014, where gas several European companies in January blackmailing became an important 2006 slightly stirred the blood of western instrument, the idea of Energy Union politicians114. Russian propaganda blamed emerged117. Initiated by the Polish Prime Ukraine for illegal “gas siphoning” and Minister Donald Tusk as a mechanism was echoed by many western media, thus of solidarity against Russian energy creating a negative image of an unreliable expansion, it has been changed already transit country. European politicians by European Commission to the new refused to conduct an open comprehensive “envelope” for existing energy acquis . investigation of this case and called only to Once again, the EU started discussions118 immediate resolution. It helped Russia to on the basis of medium-to-long-term insist on a higher price, the introduction of development of the energy market instead RosUkrEnergo intermediary for gas supply of emergency talks about instruments for to Ukraine and disguising the blockade of making its own stronger foreign energy gas transit from Central Asia to Europe. policy under “single voice” umbrella. Price blackmailing became the constant Russian instrument to “divide and rule” in countries supplied by Gazprom. European economic and political interests The efforts of the European Commission to introduce updated energy regulations The EU aims to gain “secure, sustainable, starting in September 2007115 resulted competitive and affordable energy”119. in nearly two years of negotiations116 and Every effort of politicians is directed proceedings. Only the second “gas war” in towards internal energy market and the January 2009 pushed top politicians from achievement of “noble” political goals of Member-States to a consolidated policy climate and nature protection. External with regard to a more active campaign challenges in the form of an oil embargo against energy monopolies and the in 1973, the above-mentioned “gas crisis” creation of competitive energy market. and the necessity to ensure energy imports The European Parliament and the Council have little effects on European foreign of the European Union adopted the “third energy policy. The latter is subordinated energy package” in July 2009 coming into force on 03 September 2009. However, its European business. to economic benefits of consumers and

114

115 EnergisingUkraine ‘stealing’ Europe: Europe’s A real market gas, BBC, with January secure 2006, supply. [http://news.bbc.co.uk/2/hi/europe/4574630.stm European Commission Press Release, September 2007,, access: 14 November 2015]

116 Law[http://europa.eu/rapid/press-release_IP-07-1361_en.htm?locale=en, § Business, Volume 2, Issue 2, February 2009, Pages 96 — 116. access: 14 November 2015] 117 Johann-Christian Pielow, Legal and economic aspects of ownership unbundling in the EU, Journal of World Energy

EnergyPiotr Buras, Union The package. Polish Communicationinitiative for an energy from the union. Commission European to Council the European on Foreign Parliament, Relations, the May Council, 2014, the [http:// Europe- www.ecfr.eu/blog/entry/polish_initiative_for_an_energy_union, access: 14 November 2015] 118 an Economic and Social Committee, the Committee of the Regions and the European Investment Bank, 25 February

119 Ibid., p.2. 2015, p.4 [http://ec.europa.eu/priorities/energy-union/docs/energyunion_en.pdf, access: 14 November 2015]

64 UA: Ukraine Analytica · 2 (2), 2015 of transit. Peculiar “economics” underlies the External challenges in the form of an oil embargo in 1973, to support the construction of “Nord stream” «the above-mentioned “gas gasdecisions pipeline of Finnish with the and “Shroeder German top case” officials and crisis” and the necessity to ensure the possibility of its reiteration by German energy imports have little effects on socialists in 2017121 after the eventual European foreign energy policy resignation of the acting Federal Chancellor.

Countries like Austria and the Netherlands The EU institutions, in particular the Energy Commission, have been working on investments and preferential energy regulations in order to change the energy cooperationhave used for to many benefit years, thus from remaining Russian market and make it more consumer-friendly. pro-Russian at least in compromises This should be achieved through growing on sanctions. Slovakia and Hungary are competition, access to different energy supplies of energy sources and try to keep and supply routes. Being an attractive still significantly dependent on Russia’s marketplacesources and in diversification terms of effective of suppliersdemand, losses for their own energy companies. the EU considers every supplier around the Reversean ongoing gas cooperation supplies cannot to reduce supplement financial the downturn of revenues after 2012. cooperation. As a result, it is used to rely onglobe the to USA be interested for ensuring in mutually security profitable on main maritime energy supply routes and refused European energy companies to accept Russia as a threat for European often served as effective energy security until 2014. «lobbying structures for Russian interests in the EU, aiming to gain National governments of many western advantages in downstream and countries have been enjoying preferential midstream of the energy supply chain relations with Russia in energy sector and

avoid hampering Russian interests. The most European energy companies often served evidentoften sought case tois thefind German compromises attitude in towardsorder to as effective lobbying structures for the construction of a bypass pipeline “Nord Russian interests in the EU, aiming to gain stream” via the Baltic Sea after the “Orange advantages in downstream and midstream Revolution” and the Memorandum of of the energy supply chain. Some German

of energy between the European Union andUnderstanding Ukraine120 , onwhich co-operation has evidently in the been field a GmbHcompanies & Co. (Verbundnetz KG) are joint Gas ventures AG, Wingas with damage to Ukraine and several EU Member RussianGmbH, WintershallGazprom Erdgasand enjoy Handelshaus special States in Central Europe due to the reduction terms and conditions for gas supply122.

120

Memorandum of Understanding on co-operation in the field of energy between the European Union and Ukraine, 121 Gabriel01 December spielt in2005, Moskau p.8 [https://ec.europa.eu/energy/sites/ener/files/documents/2010_ukraine_mou.pdf, den Gerhard Schröder, (Gabriel plays in Moskau according to Gerhard Shroeder style), access: Die 14 November 2015]

122 Welt, [http://www.welt.de/politik/ausland/article148156440/Gabriel-spielt-in-Moskau-den-Gerhard-Schroeder. html, access: 14 November] Gazprom ‘adjusts’ prices for selected European clients, EurActiv, Januar 2012, [http://www.euractiv.com/energy/ gazprom-adjusts-prices-selected-news-510253, access: 14 November 2015]

UA: Ukraine Analytica · 2 (2), 2015 65 prices in the second quarter of 2015. It Despite the new Ukrainian managed to play its political cards by using legislation in gas sphere and a combined strategy of request and offer in «external challenges, Ukrainian relations with the EU institutions and single government failed to introduce state national governments. United efforts opened programmes on energy efficiency three directions of reverse gas supply with annual volumes over 15 bcm. Starting from October 2015, Ukraine has been offering Even Sakhalin problems,123 the delays of direct access to consumers for European gas Stockman124 suppliers. Since 2017, Ukrainian internal gas pressure on British Petroleum125 have not market will become completely liberalized, cooled down field the developmentinterests of andEuropean strong excluding Russian suppliers. companies to cooperate with Russian state- owned energy counterparts. from the European direction is still under the Several European energy giants have threat,Nevertheless, because many the growing politicians diversification and oligarchs often used a factor of social responsibility want to return to former opaque gas deals for politicians, claiming that losses are with Gazprom and to continue earning money happening because of changes on energy on sold volumes and price differences. They market and threatening politicians with are used to making populistic statements and a huge reduction of workforces and taking advantage of the acting government in destabilization of energy supply. They do not want to change their own development the Ukrainian government makes mistakes strategies and try to keep status quo in regardingunjustified other pricing issues. and tariff setting. However, terms of their own energy mix and partners. Despite the new Ukrainian legislation in gas sphere and external challenges, Ukraine — cooperation versus confrontation Ukrainian government failed to introduce 126 Despite two “gas wars” with Russia in 2006 in order to build up preconditions and 2009, Ukraine started to reduce gas statefor sustainable programmes reduction on energy efficiencyof energy imports from Gazprom only in the late 2012 consumption in the future. The current because of enormous pricing. However, it fall in gas consumption was a preliminary was only after the open military aggression result of a drop in industry demand. that Ukrainian government changed its Raised gas prices for private households economic attitude for a political one with will affect consumption only during the regard to gas imports, preferring supply heating period, because in summer time from the EU Member-States despite higher gas consumption is rather low.

123 independent.co.uk/news/business/analysis-and-features/shell-cedes-control-of-sakhalin-2-as-kremlin-exerts-its- Shell cedes control of Sakhalin-2 as Kremlin exerts its iron fist, The Independent, September 2011, [http://www. 124 iron-fist-428157.html, access: 14 November 2015] 125 Gazprom’s Shtokman Project: Relic of a Past Era, Jamestown, August 2012, [http://www.jamestown.org/single/?tx_- ttnews%5Btt_news%5D=39757&no_cache=1#.VkdPE_nhDIU, access: 14 November 2015]

126 Rosneft takes over TNK-BP in $55bn deal, The Guardian, March 2013, [http://www.theguardian.com/busi ness/2013/mar/21/rosneft-takes-over-tnk-bp, access: 14 November 2015] Проект розпорядження Кабінету Міністрів Украї�ни “Про затвердження Національного плану дій� з енергоефективності на період до 2020 року” (Draft Decree of the Cabinet of Ministers of Ukraine “On approval of the National action plan for energy efficiency for the period until 2020”, [http://saee.gov.ua/uk/activity/ zakonoproektna-diyalnist, access: 14 November 2015]

66 UA: Ukraine Analytica · 2 (2), 2015 The following recommendations are inadequate in comparison to programmes demonstrate the conceptual approach • ofState subsidies programmes with nearly to support one billion energy UAH, efficiency spent for an updated Energy strategy of Russia accounts to over 25 billion only for 2015 of energy policy for concerned period until 2030 (draft): «…main priorities andon the is firstexpected one (programme), to increase in while coming the years.latter are <…> effective deployment of The government does not want to introduce Russian energy potential with regard incentives in the form of monetized support to international economic and political with time- limited but close to zero or zero- relations <…>, ensuring geopolitical interest rates instead of subsidies. Only in and geo-economic interests of Russia in September 2015, private consumers eligible Europe and neighbouring countries, as . Now, while Russia formulates 128the basic well as in Asian-Pacific region» (thermalto subsidies modernization were allowed and to requestequipment), 70% provisions of the Energy strategy until whilereimbursement authorized for energybanks efficiency still experience measures • 2035, an additional dimension of the problems with transactions from state budget as a responsible state, considers external energyexternal policyenergy policynot from is revealed: the exporter’s «Russia, to reimburse energy efficiency credits. narrow point of view intended to maximize Russia’s game with energy supplies short-term revenues, but as a tool to solve 129. After V. Putin came to power in Kremlin in 2000, energy sources and transport Theboth above national makes and itglobal evident problems» that Russia infrastructure have become an has used primary gas supply as an instrument for comprehensive offensive instrument to keep control over Ukraine. It operations against independent states became possible because of the two main in neighbourhood and the EU Member- States. Utilizing energy assets for political purposes is a long-term strategy of V. Putin, andfactors Ukrainian — opaque sides gas and negotiationscorruption. with as indicated in several documents and top officials involvement from both Russian Russia has been deploying energy supply as Energy Strategy of Russia: “Russia the leverage for political pressure against statements of Russian top officials: possesses huge energy resources deposits Ukraine since late 1990s. For instance, it • and powerful fuel energy complex, requested Ukraine to prolong the leasing which is the base for development of its economy, an instrument of foreign and until 2017 and 2042 in exchange for for Russian Black Sea fleet in the Crimea domestic policy implementation127”; restructuration of the so-called “gas debts” in 1997130 and 2010 respectively. In 2014,

127 - Энергетическая стратегия России на период до 2020 года (Energy Strategy of Russia till 2020), May 2003, p.4 128 129 Energy Strategy of the RF Concept till 2030 (project). Institute of the Energy Strategy. [http://www.energystrate gy.ru/editions/concepc.htm, access: 14 November 2015] Энергетическая стратегия России на период до 2035 года (проект) (Energy Strategy of Russia for the 130 period till 2035) (draft). Institute of the Energy Strategy. [http://www.energystrategy.ru/ab_ins/source/ES- 2035_03_2014.pdf , access: 14 November 2015] Подолати корупцію — означає подолати ї�ї� в газовій� сфері. З іншими різновидами буде легше (To counter - corruption means to do it in the gas sector at first. It will be easier to repeat successfully with other kinds of corruption), Dzerkalo Tyzhnia (Weekly Mirror), December 2014, [http://gazeta.ua/articles/events-journal/_podo lati-korupciyu-oznachaye-podolati-yiyi-v-gazovij-sferi-z-inshimi-riznovidami-bude-legshe/589670?mobile=true, access: 14 November 2015]

UA: Ukraine Analytica · 2 (2), 2015 67 Russia’s instruments of offensive energy EU and full-scale Russian involvement into aggression were enhanced by diversion acts on main gas pipelines in Ivano-Frankivsk is coming to an end with little progress of and Poltava131 regions, damage and capture Moldovaconflict with in termsUkraine. of In the 2015, EU theintegration, situation of coal mines in Donbass, destruction several corruption scandals and political of transportation infrastructure and instability, which also might delay serious electricity generation enterprises along the gas blockade. Moreover, Kremlin’s confrontation line132. aggression toward Moldova is limited, because the main pipeline goes through the Russia has gained better political results self-proclaimed Transnistria and in case of in Belarus, Armenia and Moldova than in emergency, it might become a victim too. Ukraine. Belarus sold to Gazprom its gas transportation system in two tranches Georgia faced a full-scale energy blockade in 2007 and 2011133 in order to keep from Russia in winter 2006. Sabotage acts moderate prices on Russian gas after on electricity lines and gas cut-offs were facing strong pressure and threat of gas used together with political pressure. Since cut off. Armenia followed the same route that time, the main source of gas comes in 1997 and 2013134 from Azerbaijan, while Russia is dependent were sold after the rapid turnover from on Georgia because of the gas pipeline to association agreement, the lastwith 20% the of EUstocks to Armenia and pays for transit of up to 300 mln Eurasian Union. Sometime before, Kremlin m3 of gas annually. During the confrontation

it to abandon closer cooperation with the pipelines from Azerbaijan via Georgia to intensified pressure on Armenia to force Turkey,in August which 2008, resulted Russia threatenedin a two transitweeks increase of gas prices135. shutdown. The supply of gas and oil to Turkey EU, in particular, by threatening with 60% was affected; hereby the oil pipeline Baku- Moldova has accepted dominance of Tbilisi-Ceyhan exploded the day before the aggression because of a hacker attack136. The its creation in 1999. Since that time, explosions on a hydrocarbon infrastructure theGazprom Russian (51%) monopolist in Moldova-gaz has threatened since also occurred during the negotiations about numerously to cut off gas because of debts, the Turkish stream pipeline, after Turkey made by the self-proclaimed Transnistrian clearly insisting on price reduction before Republic, not paying for the gas consumed, any concrete agreement on the mentioned but receiving it directly from Russia. project could be signed. It has been put on Decreasing export volumes and revenues hold so far. prevented Gazprom from introducing gas leverage against Moldova in 2014 after The most evident approval of Russian signing the association agreement with the politically motivated approach toward

131

132 Ukraine Suspects Terrorism in Pipeline Explosion, NY Times, June 2014, [http://www.nytimes.com/2014/06/18/- world/europe/ukraine-suspects-terrorism-in-pipeline-explosion.html, access: 14 November 2015]

133 Centrenergo power station damaged by shelling in Donbas, July 2015, [http://www.fixygen.ua/rs/companiesre views/20086/ , access: 14 November 2015] 134 Beltransgas, history of the company, official website [http://www.btg.by/about/history/, access: 14 November 2015] 135 Armgazprom, history of the company, official website, [http://armenia.gazprom.ru/about/history/, access: 14 - November 2015]

136 Armenia in the Custom Union, New Eastern Europe, [http://www.neweasterneurope.eu/subscribe-now/20-east ern-europe-50/854-armenia-in-the-custom-union, access: 14 November 2015] U.S. Intelligence: Russia Sabotaged BTC Pipeline Ahead Of 2008 Georgia War, Eurasianet, [http://www.eurasianet. org/node/71291, access: 14 November 2015] UA: Ukraine Analytica · 2 (2), 2015

68 energy exports is a comparison of gas Conclusions prices for different countries of the EU in 2013137. For instance, Slovakia, being a The above-mentioned makes it evident that transit country for Austria, paid at least 50 the EU, Ukraine and other neighbouring USD more (than Austria), Poland, transiting countries consider energy sector as an via Yamal-Europe pipeline gas to Germany, paid about 150 USD more than Germany. of national and private dimension. Even the EU,important as the globaltool for economic economic power, benefits does both not Kremlin waged politically motivated have political ambitions and instruments to restrictions of energy supplies to Baltic play an active foreign energy policy aiming to enlarge its own presence and secure its privatization, against the Czech Republic, interests, including “hard power” similar to tryingStates to in prevent 2004, encroaching the deployment on refineries of NATO the USA. and to, Slovakia, Austria, Poland, and138 Germany Russia has very ambitious goals and little anti-missilewith the aim shield to stop in reverse 2008 supply to respect to internationally acknowledged Ukraine in 2014. principles of relations with counterparts. Given the lack of economic advantages, V. Russian “carrot” style approach brought Putin has chosen the way of compulsion more in terms of political success and to reintegrate countries of the so-called personal enrichment of V.Putin’s nearest circle of politicians in Duma and top destruction and ignorance of Moscow’s managers of Gazprom, Rosneft, etc. In “super“Soviet power”. space” and punish the West for February 2003, Gazprom started to deliver gas to Turkey via Blue stream, Having no chances in regular economic or the newly constructed maritime gas military confrontation, it has started a long- pipeline through the Black Sea. However, term strategy to destroy the EU, playing as pipeline construction started at the with differences and spreading corruption. beginning of 2001, a large-scale bribery scandal139 threatened the entire project becomesEnergy sector the corewith instrumentits large-scale to financial“poison” it evident that apart from gas, Russia also Europeans,turnover and “divide significance and rule”for every by abusingcountry exportsand engulfed corruption. several Corruption, top-officials, political making democratic rights and freedoms. advantages and private interests underlie the construction of the Nord stream Post-Soviet space has had little attention pipeline via the Baltic Sea with Gerhard from the EU for a long time, which allowed Shroeder, appointed evidently according to “casus foederis” as a Chairman of the Nord in many neighbouring countries. Energy Stream Shareholders' Committee140. dependencyRussia to initiate was andused “freeze” for gaining local conflictspolitical

137 Gazprom Isn’t Being Run By Evil Geniuses, It’s Being Run By The Keystone Cops, Forbes International, February,

2013, [http://www.forbes.com/sites/markadomanis/2013/02/20/gazprom-isnt-being-run-by-evil-geniuses-its- being-run-by-the-keystone-cops/, access: 14 November 2015] 138 139 Czechs See Oil Flow Fall and Suspect Russian Ire on Missile System, NY Times, July 2008, [http://www.nytimes. com/2008/07/12/world/europe/12czech.html?_r=0 , access: 14 November 2015] - Prosecutors widens corruption probe to the Blue Stream project, Hurriyet Daily News, April 2001, [http://www. 140 Ourhurriyetdailynews.com/prosecutors-widens-corruption-probe-to-the-blue-stream-project.aspx?pageID=438&n= Management, Nord Stream AG, Gerhard Schröder, prosecutors-widens-corruption-probe-to-the-blue-stream-project-2001-05-04, access: 14 November 2015]

[http://www.nord-stream.com/about-us/our-management/ , access: 14 November 2015] UA: Ukraine Analytica · 2 (2), 2015 69 should become a core priority for the Starting an open military next 5-10 years, as it is the cheapest way confrontation against to strengthen energy security of the «Ukraine, V. Putin intensified country and ensure the competitiveness European efforts toward more of industries. The second precondition is energy efficiency and saving, the the shift from short-term priorities of state development of renewables and budget balancing by taxing hydrocarbon cooperation with new suppliers production to incentive reduction of rent payments in order to increase domestic output. Both elements should become a advantages and control over foreign policy of Belarus and Armenia. It is still considered by V. Putin as a core precondition to keep onunified the energy comprehensive supply routes approach together for with the supervision over Moldova, Georgia and Russiannext years. aggressive Growing behaviour tensions and make conflicts this Ukraine, as all these countries remain strategy inevitable for Ukraine, as it needs to energy intensive and import dependent. survive as an independent state.

Starting an open military confrontation Therefore, Ukraine will most likely prefer a rather political than economic approach European efforts toward more energy toward energy policy and security in against Ukraine, V. Putin intensified coming years, which is needed to push of renewables and cooperation with new forward reforms and damage interests of suppliers.efficiency However, and saving, the theexpansion development of the Nord stream can erode unity within the In its external energy policy, Ukraine is EU and threaten the development of single forcedoligarchic to have financial a stronger and industry dialogue groups. with energy market. Russia tries to target two both European and Russian counterparts. main European drivers, using “carrot” for Germany, which is concerned by the an important role to gain affordable prices growing costs of “Energiewende” and forThe energy achieved and diversificationto demand changes results in long- have “sticks” for France, supporting right and left term contracts with European companies wings of Eurosceptic parties. towards the eastern border.

The EU might face a large-scale reduction of energy supplies during the next heating period to multiply negative consequences and worsen security. The EU Member-States Andrii Chubyk is the Executive Director of the Centre should be ready to gain control not only for Global Studies “Strategy XXI”, a NGO, specializing over their domestic critical infrastructure, in energy security and energy policy studies. Fellow of but also over main maritime routes and Goerdeler College for Good Governance, WEASA and pipelines, in particular from the Southern Think Visegrad, the author of numerous articles on the Supply Corridor (North Africa, Middle issues of energy sector developments. Research interests East), including the help of military means. include transparency of energy sector, energy policy, The reduction of energy intensity in energy security and energy efficiency. Ukraine’s economics and private households

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