EU and former Soviet republics in economic ties

The European Union and three former republics of the defunct Soviet Union have signed separate agreements that appear to be an important turning point in the history of Europe.  

Last week, Ukraine, Georgia and Moldova, all former republics of the disbanded Union of Soviet Socialist Republics (USSR), signed “association agreements” with the EU.

Although they are essentially trade and economic agreements, the signing is an important step the three Balkan states have taken to become members of the EU.

Attaining membership of the EU is a long-cherished goal of the Balkan states. If that goal is achieved in a few years, it will complete the redrawing of the map of Europe.

Before the First World War of 1914 to 1918, the map of Europe then showed many of the Balkan states of Eastern Europe as independent nations.

The Russian Federation incorporated Ukraine, Georgia and Moldova into what became the USSR between 1922 and 1924.

Russia, other states of the Balkans and the three prospective members of the EU made up the Soviet Union.

Ukraine, Georgia, Moldova and other member republics of the Soviet Union became officially independent when the USSR was disbanded on December 26, 1991.

After the dissolution of the Soviet Union, all former Soviet republics, including Russia, grouped into an economic union known as Commonwealth of Independent States (CIS).

The idea behind the formation of the CIS was to keep economic relations among the former Soviet republics and Russia intact.

Meanwhile, former member states of the defunct Warsaw Pact Alliance, a military organisation, and Comecon, an economic community of former east European socialist countries of the Soviet Union, had applied for membership of the EU and NATO (North Atlantic Treaty Organisation) and were admitted.

Former east European Socialist countries such as Hungry, Poland, Slovakia, Czech, Slovenia and Romania are now member states of the EU and NATO.

In apparent bids to return their countries to their original status as free and independent capitalist nations, some of the former Soviet republics cherished the idea of becoming members of the EU and NATO.

For example, Latvia, Lithuania and Estonia applied for membership and joined the EU and NATO in 2004.

An attempt by Ukraine to sign the association agreement with the EU in November, last year was frustrated by a pro-Russia President of Ukraine, Victor Yanukovych.

President Yanukovych was toppled during many days of protests against his refusal to sign the agreement. Several Ukrainians died in clashes with the police.

Presidential elections held last May brought a pro-EU President, Petro Poroshenco, into office and that paved the way for signing of the association agreement. Moldova and Georgia also initialled the agreement separately at a ceremony in Brussels.

The agreements with the EU are, essentially, trade and economic pacts that permit free entry of goods and services from Ukraine, Georgia and Moldova into Europe. The agreements also proffer other economic benefits to the countries concerned.

After signing, President Poroshenco described the event as a historic turning point for Ukraine.

However, there is the fear that the Russian Federation will apply retaliatory measures that can harm the economies of the three countries.

The Russian Foreign Minister, Sergei Lavrov, was quoted as saying that the three countries would face “serious consequences” if the association agreements with the EU affected his country’s economy adversely.

He added that Russia had expected Ukraine to join the Eurasia Economic Union formed last May of which Russia, Kazakhstan and Belarus were members.

The Russian Foreign Minister continued that the agreements could hurt Russia’s economy through disruptions, co-operation and reduced trade.

He said under present circumstances, Ukraine would “face consequences from its present commitments” under the free zone arrangements made between Ukraine and the CIS.

“Negative impact on the functioning of the CIS free trade zone and on the terms of the World Trade Organisation,” according to the Russian Foreign Minister, “will be followed by retaliatory measures from Russia.”

For example, Moldova’s agreement with the EU might pose a “serious test” to relations with Russia.

The head of Moldova Central Bank, Dorin Dragutanu, has said: “The short-term of shock of joining the EU free trade zone amid a slowdown of economic activities and possible measures from Russia may lead to a recession.” 

“But recession is not the end of the world. There is life after recession,” she added.

The Deputy Foreign Minister of Russia, Grigory Karasin, has said that signing the agreement was a sovereign right of the nations concerned but it would lead to serious consequences for Ukraine and Moldova.

According to the head of the Moldova Central Bank, Russia could apply tougher trade and immigration terms that could push Moldova’s economy into recession.

“It is likely Russia will impose both duties and tariffs on various categories of goods and services,” Otilia Dhand, an analyst with Teneo Intelligence in London, UK, has said.

“The impact will certainly be felt in Ukraine and Moldova, less so in Georgia. However, these losses will be balanced by increased trade with the EU,” she added

Volumes of trade between Ukraine, Moldova and Georgia and the EU countries before the signing of the agreements were higher than those between those countries and the Russian Federation.

In 2013, Ukraine exported only 25 per cent of goals to Russia; in 2012, Moldova shipped 20 per cent of goods to Russia and 51 per cent to Europe and in 2012, Georgia exported 6.5 per cent of goods to Russia and 25 per cent to Europe.

In response to Russia’s concern about the negative impact of the EU agreements with the three former Soviet republics, EU President, Herman Van Rumpuy, has said: “There is nothing in this agreement nor in the EU approach that can harm Russia.”

He added, “The EU stands ready to engage with Russia as much as need be.”

The President of the EU Commission, Jose Baroso, has said that Russia’s President, Vladimir Putin, had assured him that there would be no negative reaction if Georgia signed the EU association agreement.

How will the first step by Ukraine, Georgia and Moldova to become members of the EU affect their economies?

The Director of the European Centre for International Political Economy in Brussels, Fredrik Erixon, has said: “Ukraine and the other countries will be more strongly anchored in the EU market but the EU market cannot substitute these countries’ trade and integration with Russia.”

“Trade agreements,” he added, “are no policies to deal with short or medium-term economic problems.”

The three countries have been aware that initial reactions of Russia will affect their economies adversely.

Ukraine, Georgia and Moldova have had long-term economic relations with Russia.   

Since they did not want to belong to the Eurasia Economic Union, the three countries must work out some arrangements that are acceptable to themselves and Russia.