This is the year in which the newly geopolitical EU is supposed to repurpose its long-established clout in trade policy into a tool for global strategic power. It isn’t going very well.
In the first two weeks of January the EU looked pretty weak in response to an immediate test case, China’s bullying of Lithuania. Latterly, the EU’s divisions over helping Ukraine to resist Vladimir Putin’s threats are a sharp reminder that it has tried using trade as a political lever before — with rather unfortunate consequences.
The immediate cause of Putin’s annexation of Crimea and proxy invasion of Donbas in eastern Ukraine in 2014 were the Maidan demonstrations in Kyiv, which began in November 2013. The protests forced out the Kremlin’s man in Kyiv, Moscow-aligned president Viktor Yanukovich. The context was the EU’s attempt, if not actually to turn Ukraine into an accession state, then to pull it into the Brussels orbit via a “deep and comprehensive free trade area” (DCFTA) embedded in a wider political association agreement.
The DCFTA, which provisionally came into force in 2016, is economically a pretty good deal for Ukraine. Some optimistic souls even cited it as a possible model for the UK’s relationship with the EU after Brexit. It gives privileged access to the EU single market but doesn’t require direct jurisdiction of the European Court of Justice. Critically, it is also loaded up with political and administrative conditions intended to draw its signatory towards the EU governance model. (That is, the model before Hungary’s Viktor Orban and Poland’s Law and Justice Party started trashing it, obviously.) The idea is market access and soft power combining to create a friendly and prosperous neighbour.
But the DCFTA conditions and the associated messaging reduced almost to nil any idea that Ukraine would be able to keep a firm foot both in the EU and Russian economic camps. The latter is the Eurasian Economic Union, a grouping into which Moscow has managed to entice or bully Armenia, Belarus, Kazakhstan and Kyrgyzstan, and which acts more like a protection racket than a trade agreement. Putin occasionally used to suggest tripartite talks to enable the EU, Ukraine and Russia to co-operate on trade, but Brussels — no doubt correctly — saw that as a disingenuous tactic to delay and distract.
For the EU, using a politicised trade deal to turn Ukraine’s eyes firmly to the west proved a dangerous game. It also inevitably fuelled concern in Moscow about Ukraine’s aspirations to join Nato.
Putin, despite signalling a commitment to norms of international governance by taking Russia into the World Trade Organization in 2012, turned publicly against the Ukraine DCFTA in 2013, and Yanukovich heeded his master’s voice.
Brussels negotiators were taken aback. Karel De Gucht, then the EU’s trade commissioner, says: “We were in fact surprised that all of a sudden they were so much against it.” He adds: “How, exactly, this idea developed within the circles of the Kremlin I don’t know.”
If it came as a shock to the trade negotiators, they were badly advised by the EU’s foreign ministers. It was not an issue on which so much should have been left to trade policy. Like the US in the cold war, the EU has tried to use soft power (and market access) to extend its influence eastward. Unlike the US in the cold war, it doesn’t have hundreds of thousands of troops lined up on its eastern border to back it up.
The Trade Secrets Newsletter is the FT’s must-read email on the changing face of international trade and globalisation. Written by FT trade specialist Alan Beattie, it is delivered to your inbox every Monday. Sign up here
Nor has the DCFTA produced spectacular results. More than five years after its preferential access began, Ukraine still sells only just over a third of its goods exports to the EU. This contrasts unfavourably with neighbouring Moldova, which has a similar DCFTA with the EU and which sends more than two-thirds of its exports there.
Ukraine, a dysfunctional economy with a woeful business climate, has failed to get itself in shape to take advantage. Nor has the EU been able to provide enough aid or crisis lending to rescue it from balance of payments problems and help it to develop. The EU has largely left it to the IMF to provide emergency external financing, and EU technical assistance has fallen short of expectations. EU-oriented Ukrainian elites remain firmly committed to looking westwards, but it has to be admitted there isn’t a great demonstration effect so far for the benefits of doing so.
We’re now in a place where the EU (as a collective entity rather than its individual member states), having helped to trigger Putin’s aggression, isn’t even considered to be a geopolitical actor worth inviting to summits to defuse it. Trade and soft power can be part of an effective strategic policy. But the recent history of the EU and Ukraine suggests they are not substitutes for big guns and cold cash.