Matiyeshyn on Europe, through a Ukrainian eye

Difficult political and economic relations between Ukraine and Russia have become even more complicated with the beginning of this year due to another trade war. This time — a cheese one. Out of 15 Ukrainian companies which deliver cheese to Russia, import of production has been banned to three of them starting from February 7 of this year. This list can be extended. This is when the Russian market makes up 85-90% of sales for Ukrainian cheese makers, and annual losses of a considerable share of the Russian cheese market for Ukraine can exceed 300 million dollars.

Yet again experts reasonably criticize the authorities for an excessively high economic dependence which Ukraine has in relations with Russia. However, is the Ukrainian economy able to survive without Russia in present world conditions?

If we take a look at the Ukraine’s state statistical data, we will observe that in 2011 38% of all goods were exported to the CIS countries, and 27% – to the EU countries. And in terms of import, in 2011 45% of all goods were imported from the CIS countries, and 31% – from the EU states. In addition, Russia continues to be the greatest trading partner of Ukraine holding 29% of export and 36% of import.

Despite problematic issues in economic relations between Ukraine and Russia, like different trade “wars”, an annual goods turnover between the countries continues to grow and has already exceeded an indicator of 50 billion dollars. Hence, it is possible to say that a positive dynamics is observed in the development of economic interrelations, although this is in no small measure due to the rise of Russian gas and oil prices.

Consequently, in present world conditions, with a narrowed access to foreign capital and growth of protectionism, Ukraine can’t reject a close economic cooperation with Russia. The question is not only in energy resources. The thing is that the curtailment of economic cooperation with the greatest trading partner will by all means lead to the state bankruptcy of Ukraine with all corresponding consequences. Especially in the social sphere.

But what then? The launching of the Russian project of the Customs Union led to the destruction of an old concept of economic and political relations between Ukraine and Russia. The old economic model will no more work between the states. This has been brightly demonstrated by “dairy, meat, sugar, caramel and pipe wars” which were arising serially after the launching of the Customs Union in the middle of 2011.

Hence, Russia is vividly demonstrating what sort of model of bilateral economic relations Ukraine will get in case it abstains from joining the Customs Union and the Eurasian Economic Community (EAEC), which has formally started working since January 1, 2012. And the free trade area agreement with the CIS, which was signed by Ukraine in autumn, 2011, won’t allow Kyiv to protect its own trade with Russia due to numerous exceptions in the agreement which, first of all, have to do with the agricultural goods. Securing itself against risks of the decreased economic interaction with Ukraine, Russia already now has begun an intensive development of its own enterprises, which can replace Ukrainian import.

Which other way do the Ukrainian authorities have? Joining the Customs Union and the EAEC will mean a gradual handover of control over the Ukrainian economy to the Russian capital. Big Ukrainian business will be the greatest opponent of such scenario. Apart from this, the Russian capital will worry less about the maintenance of the social sphere of Ukraine and its infrastructure as well. In addition, Ukrainians can negatively estimate the loss of the Ukrainian economic sovereignty at the following parliamentary and presidential elections.

Hence, the Ukrainian authorities are compelled to make a strategic choice of a model of economic relations with Russia, while not forgetting about the consequences of such a step.

Anyways, the Ukrainian government should be ready to implement real reforms aimed at the optimization of economy of Ukraine by means of changing the structure of import and export, raising competitiveness of goods production technologies and a considerable reduction of possibilities at foreign markets.

However, Russia also shouldn’t forget that a bankrupt Ukraine isn’t profitable for it. Who else then in Europe will annually buy 40 billion cubic metres of Russian gas at the highest prices? The loss of the Ukrainian gas market can annually cost about 10 billion dollars to “Gazprom”.

Weird. Is the bankrupt Ukraine indeed favourable to Europe? After all, this is a consumer market which amounts to 46 million citizens.

 

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