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Kremlin goes back to the DCFTA

March 4, 2015

Yesterday, away from all the headlines, EU Trade Commissioner Cecilia Malmstrom met with Russia’s Economic Development Minister Alexey Ulyukayev in Brussels – the issue discussed the EU-Ukraine DCFTA and The Kremlin concerns.

Kremlin meddling with the DCFTA at this time was to be anticipated, as this recent post made very clear.

“The Kremlin will now be swift to try and unpick these economy transforming and European integrating agreements prior to it coming into force on 1st January 2016. European political defeat lies in allowing an external 3rd party veto or amendment to a ratified bilateral agreement. Any such precedent would be a disaster for the EU.”

No surprises that The Kremlin was stone-walled over any chance of altering an already ratified bilateral treaty.

I place great importance on our trade and investment relationship with Russia, and it is in our mutual interest to overcome the current difficulties. To fulfil our relationship’s potential, the current Ukraine crisis needs to be solved. As I have stated in many occasions, this is a political problem requiring a political solution. I hope that the respect of the measures agreed in Minsk will lead to the way out of the crisis.

I therefore support the resumption of trilateral talks between the EU, Ukraine and Russia in order to achieve practical solutions to concerns raised by Russia with regard to the implementation of the DCFTA between Ukraine and the EU. We continue to stand ready to find ways to address the concerns expressed by Russia, within the flexibility provided by the EU-Ukraine DCFTA, which, however, will not be amended.

It is only via a solution to the Ukraine crisis that we can lay down the foundations for a renewed bilateral partnership based on dialogue and cooperation. Moreover, Russia needs to respect its WTO commitments in full. Once conditions are met, we can start envisaging something more ambitious for our bilateral trade relationship.”

Bravo – It is beyond time that Europeans stopped simply offering concessions, swiftly pocketed by The Kremlin, with no return.  A far more robust negotiating stance has to be adopted with the current Kremlin management.   The Kremlin has made it quite clear for several years, for those who have cared to look, that it has no intention of being like the rest of Europe – pretending otherwise is pointless, and also self-defeating.  Hopeful mirroring is not going to help, and is indeed a factor in how matters have been allowed to progress so far already.  Trust and goodwill are spent.

But what can be reasonably done to allay the purported/perceived Kremlin trade concerns (be they real or fabricated), beyond “country of origin” labeling/packaging/electronic tagging?  Should anything be done at all, and if so what is the cost of doing so?  Is it not beholding of Russia to insure its borders and customs deal with any such problem?  (Admittedly The Kremlin clearly has issues with the control of its own borders, when small armies and masses of military equipment pass through apparently unseen by the authorities after all.)

How much greater would the “reexport” problem become for Russia?  It does not complain about the (organsied) smuggling from Finland, or the Baltics.

The bilateral nature of the DCFTA was a point conceded by Mr Ulyukayev – at least publicly.  He stated “There is no doubt that the agreement is a matter between Ukraine and the EU, but our concern is to protect our companies, our business and economy from possible consequences.”  The anticipated threats to Ukrainian trade were also made “if Moscow’s concerns are not taken into account Russia would have to take protective measures, including the introduction or toughening of customs tariffs on Ukrainian goods.”  No surprise to anybody of course – though it is a double-edged sword when certain Russian industries, even in time of war, still rely on Ukraine.  The costs and timeliness of becoming self-reliant are not small.

If there is one place that the EU will beat the Kremlin without much effort, but simply due to natural design,  it is within its bureaucratic and technocratic system.  One of the very few advantages of being a behemoth of bureaucracy and technocracy, is that circumventing or short-cutting the system is simply not going to happen – not even for the Member States.    It is for this reason that The Kremlin stays as far from the EU machinery as possible, preferring far swifter bilateral agreements with Member States whenever possible.

Although rhetorical, there is the question as to why The Kremlin has a problem with the DCFTA, and yet Minsk and Astana have nothing to say.  They are now part of the same common economic space with Russia, that is the EurAsian Union after all.  What prevents European goods being reexported from Ukraine to Belarus or Kazakhstan, and then on to Russia?  Certainly not the rule of law, or the ethics of those meant to enforce it in those nations.  Thus, is it now, no longer a “Russia” issue but a “Eurasian Union” issue?

That said, the EU would be wise to avoid dealing with Kremlin concerns via the EurAsian Union entity.  Just as Russia avoids the EU structures and looks to bilateral national interaction as the preferred option, the EU should do the same.  Indeed both Belarus, Kazakhstan, and others, for the immediate future may also prefer to keep as many bilateral channels open as possible.

The war between Russia and Ukraine will not only be fought with tanks and guns, but also (and increasingly) with politics and economics (not to mention subversion, coercion, etc.)  It is also a war that will continue for as long as the current Kremlin management remains in place, or until Ukraine acquiesces and accepts The Kremlin yoke once more.  At least ten years of Kremlin obstructionism and aggressive interventionism awaits Kyiv (and Europe) – possibly longer.

In the meantime, if Russian concerns are to be met by “the flexibility provided by the EU-Ukraine DCFTA” one suspects that a lot of time will have to be spent upon the elasticity of the language therein, and agreeing upon some rather imaginative (bordering upon preposterous) interpretations thereafter, that do not entirely sacrifice the spirit or conditions of the bilateral agreement.

How far terms will be reasonably stretched to accommodate The Kremlin – if at all – remains to be seen in the months ahead.

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