Last month, Ukraine opted against signing an Association Agreement with the EU at the Eastern Partnership summit in Vilnius. As Rilka Dragneva and Kataryna Wolczuk write, Ukraine’s decision has raised the possibility of the country joining the Customs Union between Russia, Kazakhstan and Belarus as an alternative to closer ties with the EU. Assessing the potential benefits the Customs Union would offer Ukraine, they argue that even under the most optimistic estimates there would remain serious doubts as to how beneficial this policy would be in practice.

Ukraine is again at the centre of global attention after its government failed to sign the Association Agreement with the EU. This failure was interpreted as succumbing to Putin’s pressure to join the Customs Union of Russia, Kazakhstan and Belarus instead of re-orienting westward. There is little doubt that Ukraine’s full accession to this Union would be a major trophy for Putin, both domestically and internationally. The details of this volte-face remain obscure, but after years of negotiation, it was unexpected to say the least.

Credit: Ivan Bandura (CC-BY-SA-3.0)

Credit: Ivan Bandura (CC-BY-SA-3.0)

Ukraine has faced a dichotomy: Eurasia or Europe? Either choice carries hefty implications. Not signing was seen in the West as evidence of Ukrainian ruling elites acting on their old rent-seeking inclinations, fearful of the costs of EU-style modernisation. In contrast, Russia viewed the decision as a valiant refusal to submit to EU pressure and a pragmatic rejection of a deal with ephemeral, long-term benefits in favour of current and visible gains.

However, does the rejection of the EU deal in Vilnius mean that membership of the Eurasian Customs Union is Kiev’s best option? How clear is the commitment and how credible is the Customs Union’s promise?

‘The Road Map’

No formal decision to accede to the Customs Union has been made by the Ukrainian government. We know that Kiev is keen to restore ‘normal trade relations’ with Moscow and is considering a ‘Road Map’ for cooperation with the Customs Union (interestingly, the same phrase used to name the accession instruments of Armenia and Kyrgyzstan). In the case of Ukraine, detail as to this ‘Road Map’ is absent – other than Prime Minister Azarov’s cryptic message that ‘we have many plans’. Putin-Yanukovych’s meeting failed to shed further light either. The Ukrainian government’s priority appears to be the return of the status quo: i.e. the situation before Russia woke up to the reality of the EU option.

Ukraine has been a reluctant participant in Post-Soviet integration regimes, exhibiting a preference for ‘pick and mix’ formats (the Commonwealth of Independent States), observer status (the Eurasian Economic Community of 2000) or general, declarative frameworks (the Common Economic Space of 2003). In 2011, it joined the revamped CIS free trade area, a non-institutionalised treaty regime. Thus, since independence Ukraine has demonstrated an on-going recalcitrance to submit to a binding, asymmetric integration regime. However, it may be that the political tensions in Ukraine, underpinned by Russia’s pressures, will force the issue.

Certainly, President Yanukovich has declared his ‘dream of European integration’. As the post-Vilnius flurry of activity to extract a better deal from the EU has shown, there is some substance to his assurances that Europe remains the geopolitical choice of Ukraine. Yet, his room for manoeuvre is becoming ever more circumscribed, meaning that he may well ‘sit on the fence’ as long as possible. This is at best a strategy for avoiding decision-making rather than looking to the future.

Joining which Union?

Perplexingly, it is unclear which Eurasian integration regime Ukraine might join. Currently, there is the Customs Union which has no legal personality: it is an institutionalised treaty regime within the Eurasian Economic Community. As this status complicates rules on membership, accession is a function of signing the numerous agreements establishing the Customs Union and the Single Economic Space.

A new Treaty on the Eurasian Economic Union is currently in preparation with the official draft likely to be publicly available in the spring of 2014. The Eurasian Economic Union will incorporate the Customs Union and disband the Eurasian Economic Community. The Treaty is likely to have several chapters distinguishing commitments within the Customs Union, the Single Economic Space and other areas of cooperation. It is thought that some countries, like Kyrgyzstan, are to join only the Customs Union. Therefore, there are likely to be several membership categories. It is unclear whether the different degree of integration will translate into different terms of participation in the bodies of the Eurasian Economic Union. At present, institutional uncertainty prevails.

How real is the promise of the Customs Union?

The Eurasian Development Bank has highlighted the systemic as well as sector-specific economic advantages of Ukraine’s membership in the Customs Union. Other economic analyses are not as optimistic. While this is a complex issue, several points stand out.

The Eurasian choice might benefit sectors in Ukraine with strong dependencies on the Russian market. Yet, it will not be a costless option. Ukraine has relatively low trade tariffs and imports technologically sophisticated goods from the EU. These goods are important for Ukraine’s modernisation. Because of trade diversion, the Eurasian choice would result in a decrease of EU imports and increase (of lower quality items) from the Eurasian market and, above all, Russia.

More importantly, the Customs Union fails to address the modernisation of domestic institutions. Underestimated by many observers, the Customs Union has led to the adoption of new customs regulations aligned with international norms and has thus been an important vehicle for domestic legal reform. Yet, as many years of transition studies show, changing laws on the books does not necessarily lead to improved business practices and implementation. The Customs Union does not purport to change the nature of domestic institutions in the manner that the EU does. The powers and functioning of customs authorities, for example, remains a domestic matter. The Customs Union strives for improved coordination and exchange of information, but it is coordination of what is in place. Additional agreements aiming at capacity building might be put in place but they are clearly the subject of a process of separate negotiations with its own (geo)political dynamics.

While the importance of rule-compliance is noted (at least by experts in the permanent regulator of the Union, the Eurasian Economic Commission) it has been insufficiently addressed. The prevailing view is that if a high political decision is made, the authority of the Presidents will ensure its implementation. Clearly, despite the various monitoring powers granted to the Commission and the Court of the Eurasian Economic Community, access to the highest political level is the best way to get things done. It is direct access to the top that will ensure discipline rather than dependence on rule-based compliance by domestic institutions, as is the case in the West. Thus, the inescapable fact is that the Customs Union is based on (and perpetuates) the politically centralised model prevailing in most post-Soviet states.

The speed with which the Eurasian project has developed is noteworthy – often, the quality of the institutional and legal design has been sacrificed to ensure that deadlines are met. Its current legal regime is over-complex and fragmented (see our book Eurasian Economic Integration: Law, Policy and Politics [click here to download Chapter 1]). There is the promise of the codification and simplification of that regime going on in parallel to the drafting of the Treaty on the Eurasian Economic Union, itself subject to tight deadlines and an ambitious agenda for cooperation.

Finally, particularly as far as sensitive issues are concerned, it is consensus at the highest level that determines decisions. Asymmetries in bargaining power may be somewhat constrained, yet Russia ultimately remains able to shape trade-offs. In areas which remain subject to bilateral cooperation, such as energy, the multilateral framework is very ‘thin’ at present: in that field, Ukraine would remain one-on-one with Russia.

Thus, even if one accepts the optimistic scenarios emanating from Ukraine’s membership of the Customs Union, the realisation of the predicted benefits is far from guaranteed. Whether the current Ukrainian government realises this remains to be seen.

This article originally appeared at the Elgar blog

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Note: This article gives the views of the authors, and not the position of EUROPP – European Politics and Policy, nor of the London School of Economics.

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About the authors

Rilka Dragneva – University of Birmingham
Rilka Dragneva is a Senior Lecturer in Law at the School of Law in the University of Birmingham.

Kataryna Wolczuk – University of Birmingham
Kataryna Wolczuk is a Reader in Politics and International Studies at the Centre for Russian and East European Studies in the University of Birmingham.

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