Moscow, EU Battle for Ukraine’s Economic Future

Kyrgyzstan’s Economic Minister Temir Sariev announced this week that his country would seek to join the fledgling Eurasian Customs Union (ECU) next year.  The announcement puts a firm timeline on a commitment Foreign Minister Erlan Abdyldaev made to his Russian counterpart, Sergei Lavrov, last fall.  Kyrgyzstan will become the fourth member of the common customs union along with neighbor Kazakhstan, Belarus, and Russia.

The ECU is the brainchild of Russian President Vladimir Putin, who may have borrowed the idea from a 1994 speech by Kazakhstan’s President Nursultan Nazarbayev.  The union is the latest in a series of post-Soviet efforts — spearheaded by Russia — to reintegrate the newly independent former Soviet republics.  Most of these efforts have languished or collapsed due to a lack of commitment from Russia, or suspicion of Moscow’s intent in members’ capitals, or both. However, the ECU is different, as Moscow seems to be making a determined push to develop an organizational structure, based on the European Union model, to counter the EU’s recent outreach to its eastern neighbors.

Nowhere can this be seen more clearly than in the competition between Moscow and Brussels over Ukraine.  The EU has been in negotiations with Kyiv for some time over that country’s hoped-for accession to the EU.  But Russia holds some very important bargaining chips in its efforts to woo its former subject, not the least among these is its near-monopoly on the supply of natural gas to Ukraine.  And Moscow is not afraid to play its hand aggressively.

Moscow has reportedly (PDF) (pg. 11) offered Ukraine a significantly reduced price for Russian gas, estimated to be worth up to $8 billion per year in savings for Kyiv, in exchange for joining the ECU.  Russia has also promised to cover any costs associated with Ukraine increasing its tariffs to the ECU’s level, which is higher than the World Trade Organization tariffs Ukraine currently imposes as a member state.  If Ukraine chooses to continue its push toward integration with Europe, Putin has all but promised that ECU – read Russian – markets would be closed off, effectively imposing economic sanctions on Kyiv and its export-based economy.

The EU has been playing hardball, too, recently warning ECU observer Armenia that membership in the ECU is “not compatible” with a bilateral free trade agreement between Yerevan and the EU.  EU Foreign Policy and Security chief Catherine Ashton’s office explained the reasoning.  “A customs union has a common external-trade policy and an individual member country no longer has sovereign control over its external-trade policies,” Ashton’s spokeswoman told Radio Free Europe/Radio Liberty.  Armenia has long been a Russian client state, however, and seems least likely of the Caucasus nations to eventually align with the West.  But Ashton’s warning doubtless was heard loud and clear in Kyiv.

The US is skeptical of the ECU as well.  Late last year, Secretary of State Hilary Clinton called the customs union, “an effort to re-Sovietize the region,” shortly before a meeting with Lavrov.  She said openly that the US intended to thwart the ECU.  “It will be called Eurasian Union and all of that, but let’s make no mistake about it. We know what the goal is and we are trying to figure out effective ways to slow down or prevent it.”

Putin has countered US and European warnings by insisting that Ukraine and other EU target states would actually fare better in dealings with the EU as members of the customs union than on their own individually.  “[S]oon the Customs Union, and later the Eurasian Union, will join the dialogue with the EU,” Putin has said. “As a result, apart from bringing direct economic benefits, accession to the Eurasian Union will also help countries integrate into Europe sooner and from a stronger position.” (PDF) (pg. 12) The price of international clout is high, however, requiring no less than the surrendering of Ukraine – and any other former Soviet republic’s – economic sovereignty to a cartel of undemocratic governments, led by the Kremlin.

While some observers, such as the Carnegie Endowment for International Peace, see the ECU as a genuine attempt to improve economic prospects for the developing nations of the former USSR, Ukraine is wise to remain wary.  Kyiv holds the key to the future direction of the ECU.  Ukraine’s accession to Russia’s club will heighten Moscow’s desire to bring more of Eastern Europe, Azerbaijan in particular, back into the fold.  Failing to get Ukraine will likely cause Russia to look more to Central Asia, and greatly diminish the ECU’s chances of long-term success.

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