Shaping Convergence with the EU in Foreign Policy and State Aid in Post-Orange Ukraine: Weak External Incentives, Powerful Veto Players

Abstract

This essay analyses convergence with EU rules in Ukraine in two policy areas—foreign and security policy and state aid regulation. Comparing the two, we find different levels of convergence, somewhat higher in foreign policy (but slowing down after 2010) than in state aid law regulation. We explain this by analysing the presence and actions of oligarchs as veto players that have had an extensive influence on policy in the Ukrainian political system in recent years. In policy areas where convergence with EU rules negatively affects the interests of oligarchs and their political allies, we see only limited convergence with EU legislation and policies.

Notes

¹ We would like to thank one of the anonymous reviewers for this point.

² As Fink Hafner (1999, p. 789) has noted, the symbolism of a successful ‘return to Europe’ or of joining the EU became an autonomous force for legitimising post-communist political elites in Central and Eastern Europe.

³ Most recent evidence of this is provided by the attendance at the Eastern Partnership Summit in Warsaw in September 2011. Analysts have commented on the lower level representation by France and the UK (Rettman 2011).

⁴ We use alignment with EU foreign policy as synonymous with convergence, as the Union's foreign policy does not require much regulatory adaptation. By contrast, internal market-related areas, such as state aid or company law, require more serious adaptation with a larger body of EU acquis. In those cases it makes sense to look for convergence by means of adopting concrete regulatory measures.

⁵ See also Buzogány, and Ademmer and Börzel, in this collection.

⁶ According to the agreement signed in April 2010 between President Yanukovich and Russia's President Medvedev, Ukraine extended the lease to station the Russian Black Sea Fleet in Sevastopol for the next 25 years in exchange for a 30% discount in the price of Russian gas deliveries (but not more than US$100 per 1,000 m³). See Centre for Eastern Studies, available at: http://www.osw.waw.pl/en/publikacje/eastweek/2011-09-07/ukrainianrussian-gas-dispute, accessed 3 October 2011.

⁷ According to Freedom House ratings, Ukraine dropped from the free to the partly free category in 2010. In a survey of economic freedom by the Heritage Foundations and the Wall Street Journal, Ukraine was rated 164th out of 179 countries in 2010—behind Russia, Belarus and Kazakhstan and in the lowest place among all European countries.

⁸ A study of legal reform in the area of company law shows, for example, that oligarchs have aimed primarily at the preservation of privatisation gains and influenced accordingly the voting behaviour of the Party of Regions despite fairly constant external pressure for legislative alignment with EU norms in this field (Dragneva & Dimitrova 2010).

⁹ For example, President Yanukovich's December 2010 reorganisation formally cut the number of ministers, but other changes broadened the scope of influence of deputy prime ministers linked to the Donetsk group of oligarchs, balancing their influence with the influence of the gas faction (Centre for Eastern Studies, available at: http://www.osw.waw.pl/en/publikacje/eastweek/2010-12-15/ukraine-s-president-balances-out-groups-influence, accessed 26 September 2011).

¹⁰ Another illustration of how Russia uses the symbolism of fraternity is the presentation of Presidents Yanukovich and Lukashenko with awards for contributing to the cause of Orthodox Christianity in January 2011.

¹¹ The Financial Times Brussels Blog scathingly commented that Commissioner Fule's indifference to this deal during his visit to Ukraine in the same week in which it was signed led to ‘surreal consequences’; available at: http://blogs.ft.com/brusselsblog/2010/04/russia-teaches-eu-a-lesson-in-its-ukraine-gas-for-naval-base-deal, accessed 26 April 2011.

¹² Pop (2011) reports a Commission proposal announced in September 2011 to enable the EU to negotiate strategic energy contracts with other countries and have a greater say when other countries strike bilateral deals with Russia.

¹³ Razumkov Centre, ‘What is Hidden Behind the Change of Foreign Policy Guidelines?’, available at: www.razumkov.org.ua, accessed 4 February 2011.

¹⁴ Razumkov Centre, ‘What is Hidden Behind the Change of Foreign Policy Guidelines?’, available at: www.razumkov.org.ua, accessed 4 February 2011.

¹⁵ Razumkov Centre, ‘What is Hidden Behind the Change of Foreign Policy Guidelines?’, available at: www.razumkov.org.ua, accessed 4 February 2011.

¹⁶ As witnessed by the president's yearly report to the Rada in 2010 where the issue of energy security is discussed on an equal footing with relations with neighbours and regional integration. See the official report to the parliament (in Ukrainian), available at: http://www.president.gov.ua/documents/, accessed 7 September 2011.

¹⁷ Council Decision 2010/639/CFSP, Official Journal of the European Union, 26 October 2010.

¹⁸ For an overview of the ENP instruments, including the Action Plans and other official documents, see: http://ec.europa.eu/world/enp/documents_en.htm#2, accessed 22 June 2012.

¹⁹ Section 39 of the EU–Ukraine Action Plan.

²⁰ The Association Agreement is to replace the expired Partnership and Cooperation Agreement (PCA). Association Agreement negotiations had been making little progress in 2010, and there was even the suggestion from some analysts that they were being sabotaged by influential oligarchs who had begun to realise the implications of the free trade area for their businesses (Valasek 2010, p. 5). At the end of 2011 the negotiations on the Agreement were finalised, yet its signing and completion remain stalled.

²¹ ‘Evaluation of the State of Adaptation of the Legislation of Ukraine to the European Acquis until 2008’, State Department for Legislative Adaptation, 27 January 2010, available at: http://eurodocs.sdla.gov.ua/DocumentView/tabid/28/ctl/Edit/mid/27/ID/10006025/Lang/Default.aspx, accessed 18 March 2011.

²² See Explanatory Note of the Anti-Monopoly Committee, available at: http://w1.c1.rada.gov.ua/pls/zweb_n/webproc4_1?id = &pf3511 = 17983, accessed 20 May 2011.

²³ Nonetheless, according to experts, the draft was lacking in a number of important ways, for example in relation to various notification requirements or the mechanisms for recovery of unlawfully granted aid (OECD 2008, p. 41).

²⁴ Article 15(2). For a more extensive discussion, see OECD (2008), pp. 39–41.

²⁵ Indeed, the EU Progress Report on Implementation of the ENP in 2009, Brussels, 12 May 2010, SEC(2010) 524, notes the breakdown of the intra-departmental group amidst disputes between the ministries on the legal basis for a state aid inventory (available at: http://ec.europa.eu/world/enp/pdf/progress2010/sec10_524_en.pdf, accessed 21 March 2011).

²⁶ See http://static.rada.gov.ua/zakon/skl4/6session/STENOGR/22120406_57.htm, accessed 20 May 2011.

²⁷ Timoshenko proposed David Zhvania in March 2008 and Volodimir Karetka in October 2009; see archive of the Rada, available at: http://portal.rada.gov.ua, accessed 10 September 2011.

²⁸ Kostuev left in 2010 to become the Mayor of Odessa, and was followed by Vasil Tsushko from the Socialist Party, who was prior to that in charge of the Economic Ministry in Azarov's government. The ‘Orange’ parties, Block Yulia Timoshenko (Blok Yuliyi Tymoshenko) and Our Ukraine (Nasha Ukrayina), opposed both nominations.

²⁹ Certainly Aleksander Savchuk from the Party of Regions and Dmitri Firtash, one of its key backers, feature prominently on the list; see Dubinskii et al. (2010).

³⁰ Interestingly, at the vote in May 2007 the Communist Party opposed the bill amending the Law on Competition, confirming the importance of ‘grand narratives’ to this party, i.e. ‘competition’ compared to ‘state aid’.

³¹ See records of parliamentary debates on 22 December 2004, available at: http://static.rada.gov.ua/zakon/skl4/6session/STENOGR/22120406_57.htm, accessed 21 March 2011.