EU-Ukraine DCFTA Negotiations. It is more than the Economics!

LOGO BIULETYN CIM

ANITA SĘK

Analiza CIM no. 18/2012

Maj 2012

The European Union (EU) – Ukraine Deep and Comprehensive Free Trade Agreement (DCFTA) negotiations’ reasoning and handling is the object of this paper. It will be analysed through the logic of Robert Putnam’s ‘game’,[1] adapted by Alasdair Young and Sarah Collinson to EU’s environment as the ‘double-two-level’ or ‘three-level’[2] ‘multi-issue’[3] game.

Analysing the win-sets

In order to analyse the possibility of EU-Ukraine DCFTA (non)agreement, one must take into consideration the circumstances which affect the win-set size on each level: domestic level IIa, European level IIb and Ia, and international level Ia.

Level II: two layers

I propose to decompose the level II into layers. First one takes shape of the governmental (within a state: IIa) or the inter-governmental (within the EU Council: IIb) relations. There, national and inter-national interests, concessions and fears are defined. For some EU Member States (MSs), as for Italy or France, Ukraine has a merely economic significance.[4] Nevertheless, some are sensitive on specific Ukrainian sectors or standards, like of the agriculture products (France, Poland), transport services, energy, confectionery (Belgian ‘Leonidas’)[5] , rules of origin etc., which define difficulties on later stages.[6] Looking at the issue from another, normative perspective, for Germany, Sweden, the United Kingdom[7] and new MSs, particularly for Poland, Czech Republic and Hungary,[8] meaningful relations with Ukraine are not constituted by trade only, although it defines enormous part of their exchange. Particularly Warsaw adopted a vision of ‘Eastern Europe’s advocacy’[9] , having recently supported “Orange Revolution” and proposing the “Eastern Partnership” (EaP) for strengthening EU’s ties with Eastern Europe and Caucasus.

All of these ‘multi-issues’ of cooperation take also place in the second layer, represented by bottom-up processes of non-governmental national (IIa) and transnational (IIb) flows (NGOs, business, think-tanks etc.), called by Ernst Haas a ‘notion of spillover’.[10] Centre for Eastern Studies, Carnegie Endowment, European Business Association, Ukrainian Foundation for Democracy etc. – all of them lobby in order to structurally encourage the integration of Eastern partners (Ukraine), on the base of European principles. Believing in the importance of these flows, I decided to underline it as the second layer in the level II.

Middle level

In the following section the Ukrainian initial negotiation position will be compared with Brussels’, as the second level of analysis is of the European nature.

  • Institutional complexity

The European game takes place in a complex institutional and ‘multi-issue’ framework which – according to Collinson – is being comprised of more than one interacting governance ‘system’. (…) EU policy-making is multi-layered and involves a multiplicity of actors[11] : the MSs in the Council (level IIb) and the European institutions (Ia).[12] In order to analyse the latter, I propose three transnational bargaining dimensions: (1)between Council and appointed by it negotiator: European Commission (EC), scrutinized by Trade Policy Committee (TPC) [13] – Council’s ‘watchdog’; (2)within the EC, between different geographic and thematic Directorates Generals. Empowered – after the Treaty of Lisbon – European Parliament (EP) is the last proposed dimension. It not only observes the whole process through the International Trade Committee (INTA), but must also, in a procedure of co-decision, give its consent to the agreement, having consulted its internal case-related bodies.[14]

  • Power of interests

The game on the European level is also a function of the interests. Out of six EaP countries, Ukraine is the EU’s biggest trading partner. Nonetheless, beside the fact that it has been growing steadily in recent years, the trade exchange accounts for only 1% of the whole, reaching over €28,3 billion in 2010 and taking 23rd position among all trade partners. The situation is radically different from the Kiev’s side, for whom the EU is the first trade partner, followed by Russia (31% to 28%).[15] Additionally, Kiev perceives the DCFTA as an agreement which will bring more sustainable results, in contrary to disappointing effects of EU Generalized System of Preferences.[16] As a result of the DCFTA experts estimate possible Ukrainian overall social welfare progress on more than 5%.[17] Moreover, while converging with aquis communautaire, Kiev believes not only in country’s modernization, but also in closer European integration, including the possibility of accession.[18] The Russian factor is not without significance, too. Biding itself with the EU’s economy, Kiev acquires better negotiating position against Moscow.

All of above-mentioned assumptions might suggest that the bargaining fields of the EU and Ukraine are highly asymmetric,[19] with relatively wide win-set of Kiev and one much smaller of ‘hegemonic’ Brussels.[20] A notion of “deep and comprehensive” limits the latter’s field of maneuver even more, as DCFTA goes much further [than simple FTA]. Ukrainian laws and standards will become compatible with those of the EU in trade and trade-related areas.[21] In this case Council shall act unanimously.[22] This need, as well as EP’s consent, reduce the agent’s (EC) win-set size.

  • Normative assumptions

Bearing in mind the EU’s external actions’ objectives, listed in the Art. 3 and 21 TEU, which link the notion of ‘civilian power Europe’[23] with its development and trade tasks, adding above-mentioned devotion of some MSs, as well as Trade Commissioner Peter Mandelson’s words: [t]he process we are about to begin is not just about trade (…). It is a mark of Ukraine’s continuing political and economic integration (…) and deep partnership with the EU [24], it must be asked whether this conditionality [25] stretches or diminishes negotiating set. Depending on the stage of talks, both answers are correct. It may widen the field when it enables the EU to enter into talks and proceed with them in order to strengthen its image of ‘soft power’. It can nevertheless block the agreement as soon as negative conditions, not acceptable for internal principals, occur.

  • International level

The last level (Ib) is an international game of actual negotiations between the EU and Ukraine, opened by the Commissioner for Trade and Ukrainian vice-prime-minister in February 2008.[26] Three and a half years later, on October 19, 2011, after months of stalked talks, the sides finally came to the agreement.[27] During the bargaining process, Karl de Gucht, Trade Commissioner since 2010, reiterated:

[i]n these negotiations, the EU has put on the table the highest level of trade liberalisation

ever offered to a third partner. (…) However, we are not asking Ukraine to reciprocate immediately.[28]

Example of agricultural commodities, when the parties agreed upon a 200-400% import increase of Ukrainian agricultural commodities to the EU, as well as upon abolishing of the import duties completely in the following 15 years, proves Gucht’s promises came true. It seems the Union tactic of ‘side-payments’[29] – under the shape of transitional periods’ offers – worked.[30] The agreement on abandoning of export duties is a concession by Kyiv. The compromise reached in energy sector, in current version deciding that no party can be held liable for an interruption in deliveries caused by the actions of the third party [31] , is an evident success of Ukraine and does not resolve EU’s problems.

Restructuring the game

The negotiations and current stage of signing and (non?)ratifying has been disrupted by three situations of ‘changing the rules/context of the game’. The first uncertainty was caused by the ambiguous attitude of important policy actors: Ukrainian oligarchs.[32] Generally, positive image of the DCFTA was outlined, proving that it would enhance their position vis-á-vis Moscow. Nonetheless, oligarchs’ willingness to keep close relations with Russia might result in changing the game by pushing Ukrainian politicians into direction of Moscow-led Customs’ Union (CU), instead of the Union’s DCFTA. So far, on 18 October 2011 finishing-DCFTA-talks Ukraine signed an agreement on FTA within Commonwealth of Independent States, causing confusion in Brussels.[33]

The Russian diplomatic courtships towards Ukraine, offering lower gas prices[34] and financial assistance for accessing the CU[35] , together with new idea of “Eurasian Union”[36] , constitute the second uncertainty. It shrinks the Ukrainian win-set and simultaneously widens the EU’s one, reminding that the Union does not act in a political vacuum.[37]

The last ‘restructure of the game’[38] was caused by Yulia Tymoshenko’s prison sentence, which resulted in raising the question of ‘BATNA’ (Best Alternative To Negotiated Agreement) within the EU, unless Ukrainian authorities resign from bending the rules.[39] The need of democratic conditionality is underlined by the EP (‘yes’ to sign, ‘no’ to ratify) ,[40] European leaders (a Council’s President Herman van Rompuy’s decision postponing the Ukrainian president Victor Yanukovich’s visit to Brussels)[41] , experts (Timothy Ash: It is the Politics, stupid!)[42] . In response, Kyiv demonstrates that it does not intend to make any concessions concerning its domestic politics.[43]

(Not)To conclude

Paradoxically, having reached the agreement on all economic issues, the ratification by MSs capitals is currently impossible, as it goes beyond Union’s ‘tolerance of the difference’ and ‘deliver-ability’.[44]

Some authors suggest that the EU uses its trade policy to pursue strategic interests, either of a geopolitical or a mercantilist type.[45] Promotion of its model, aiming at stabilizing and integrating the Neighbourhood, even for the price of non-agreement, is mirrored in negotiating DCFTA with Ukraine. It is more than the Economics.


[1] R. Putnam, “Diplomacy and Domestic Politics: The Logic of Two-Level Games”, International Organization, vol.42,no.3,1988,pp.427-460.
[2] A. Young, “What Game? By Which Rules? Adaptation and Flexibility in the EC’s Foreign Economic Policy”, in M. Knodt, S. Princen (eds.), “Understanding the European Union’s External Relations”, London, Routledge, 2003,pp.54-71.
[3] S. Collinson, “’Issue-Systems’, ‘Multi-Level Games’ and the Analysis of the EU’s External Commercial and Associated Policies: a Research Agenda”, Journal of European Public Policy, vol.6, nr2, 1999,pp.206-224.
[4] http://ukrstat.gov.ua/ (21.10.2011).
[5] “Ukraine and EU clash in ‚candy row’”, 15.02.2011, http://www.euractiv.com/east-mediterranean/ukraine-eu-clash-candy-row-news-502149 (20.10.2011).
[6] O. Shumylo-Tapiola, “EU and Ukraine: Trade is Not the Main Issue”, New Europe, 10.04.2011; Y. Lyovochkina, “Ukraine free-trade deal – a test of the EU”, New Europe, 19.07.2011.
[7] J. Gotkowska, “Germany and the Eastern Partnership”, OSW Commentary, 18.06.2010; ”Raising awareness on EU-Ukraine free trade”, http://ukinukraine.fco.gov.uk/en/news/4838914/public-diplomacy/current-projects-fta, (21.10.2011).
[8] http://ukrstat.gov.ua/ (21.10.2011).
[9] More: O. Ali (eds.), “Eastern Partnership: New Perspectives for a New Europe”, CII, Cracow 2010.
[10] E. Haas, “The Uniting of Europe: Political, Social and Economic Forces 1950-1957”, Stanford University Press, 1958.
[11] Collinson, op.cit.
[12] Art. 3(1) TFEU.
[13] Art. 207, 218 TFEU.
[14] Ibidem.
[15] “Ukraine“, EC, http://trade.ec.europa.eu/doclib/docs/2006/september/tradoc_113459.pdf (19.10.2011).
[16] M. Emerson (eds.), “The Prospect Of Deep Free Trade Between The European Union And Ukraine”, CEPS, Brussels 2006.
[16] K. De Gucht, “A trade deal for growth”, Diplomatic Academy, Kiev, 28.10.2010, http://trade.ec.europa.eu/doclib/docs/2010/october/tradoc_146837.pdf, (19.10.2011).
[17] “Ukraine to push for enlargement promise in treaty”, 22.06.11, http://euobserver.com/15/32532 (18.10.2011).
[18] “New Neighbours”, Sept.2011,N°249, http://www.europolitics.info/pdf/new_neighbours_en/este0249.pdf (18.10.2011).
[19] E. Treshchenkov, “Ukraine’s Economy Between Political Pressures”, 27.05.2011,
[20] http://www.easternpartnership.org/community/debate/ukraine-s-economy-between-political-pressures, (18.10.2011).
[21] De Gucht, op.cit.
[22] Art. 207(4) TFEU.
[23] J. Orbie, “Civilian Power in the World? Instruments and Objectives in European Union External Polices”, in J. Orbie (ed.), Europe’s Global Role: External Policies of the European Union, Farnham, Ashgate, 2008, pp. 1-34.[24] “EU and Ukraine launch FTA negotiations”, EC, http://trade.ec.europa.eu/doclib/docs/2008/february/tradoc_137782.pdf, (18.10.2011).
[25] O. Tregub, “Survey of German Experts on Ukraine II: Wilfried Jilge”, 11.10.2011, http://www.opednews.com/articles/The-Kyiv-Post-s-Survey-o-by-Olena-Tregub-111003-738.html, (19.10.2011).
[26] “New Neighbours”, op.cit.
[27] “On negotiations”, http://www.mfa.gov.ua/eu/en/publication/content/47313.htm, (19.10.2011).
[28] De Gucht, op.cit.
[29] Putnam, op.cit.450.
[30] “EU Raises Duty-Free Quota for Ukrainian Agricultural Goods”, 26.09.2011, http://wnu-ukraine.com/news/economy-business/?id=779, (19.10.2011).
[31] “Piatnytsky: Kyiv, Brussels resolve all major issues on FTA, planning to complete work by mid-October”, The Kyiv Post, 26.09.2011.
[32] O. Shumylo-Tapiola, “EU-Ukraine DCFTA: How Close, How Deep and How Expensive?”, 26.05.2011, http://carnegieeurope.eu/events/?fa=3323, S. Matuszak, “How Ukrainian oligarchs view economic integration with the EU and Russia”, OSW EASTWEEK 14.09.2011.
[33] ”Підписано угоду про вільну торгівлю в СНД. Знову”, http://www.bbc.co.uk/ukrainian/business/2011/10/111019_cis_free_trade_az.shtml, (23.10.2011).
[34] “EU-Ukraine trade talks enter defining stage”, 13.09.2011, http://www.euractiv.com/specialreport-eu-ukraine-relations/eu-ukraine-trade-talks-enter-defining-stage-news-507561, (20.10.2011).
[35] “EU missing an opportunity on Russia”, 07.06.11, http://euobserver.com/7/32454.
[36] “A new integration project for Eurasia”, http://premier.gov.ru/eng/events/news/16622/, (23.10.2011).
[37] N. Buckley, R. Olearchyk, “West fears Kiev’s drift into Russian embrace”, Financial Times, 11.10.2011.
[38] Putnam, op.cit.454.
[39] T. de Waal, “Europe Urgently Needs a New Ostpolitik”, Financial Times, 28.09.2011.
[40] R. Jozwiak, “Relations With EU In Question Following Tymoshenko Verdict”, 11.10.2011, http://www.rferl.org/content/relations_with_the_eu_under_question_following_tymoshenko_verdict/24356583.html; R. Olearchyk, “Ukraine: losing friends”, 20.10.2011, http://blogs.ft.com/beyond-brics/2011/10/20/ukraine-losing-friend,s/; P. Zalewski “Draft Opinion on the recommendations on the negotiations on the EU-Ukraine Association Agreement (2011/2132(INI))”, http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//NONSGML+COMPARL+PE-472.335+02+DOC+PDF+V0//EN&language=EN (23.10.2011).
[41] http://www.twitlonger.com/show/dmic8o, (20.10.2011).
[42] T.G. Ash, “As Poland shines, Ukraine sinks. Yet both their trajectories can be changed”, The Guardian, 19.10.2011.
[43] T. Iwański, “Completion of Ukraine/EU negotiations on DCFTA”, OSW EASTWEEK 19.10.2011.
[44] Putnam, op.cit.439.
[45] A. Dür, H. Zimmermann, “Introduction: The EU in International Trade Negotiations”, JCMS 2007,Volume 45,Number 4,pp. 771–787.

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