Ukraine's parliament Monday ratified a free trade agreement with the Commonwealth of Independent States, the post-Soviet bloc made up of Russia, Belarus, Moldova, Armenia, Azerbaijan, Kazakhstan, Uzbekistan, Kyrgyzstan and Tajikistan. The agreement was initiated by Russia, the bloc's largest and most influential member, whose Ministry of Economic Development drafted the original plan in 2008. Ukraine became the third member to ratify the agreement — after Belarus and Russia — and other countries are expected to follow.
The agreement aims to harmonize and eventually eliminate export duties among the Commonwealth's constituent members, thus facilitating trade. Moscow has been pursuing another economic project, the Customs Union, which at least officially has similar goals. Belarus, Kazakhstan and Russia are currently the only members of the Customs Union, and Russian officials have been urging Ukraine to join as well.
However, Ukraine has resisted becoming a member of the Customs Union due to the political nature of the group — the Customs Union has shifted Belarus' and Kazakhstan's import tariffs almost entirely toward Russia's much higher import duties. It has reoriented trade from these countries toward Russia and away from other countries. Ukrainian President Viktor Yanukovich has kept Ukraine out of the Customs Union because he views it as a bloc that transfers sovereignty not just in economic matters but also in political and potentially security affairs. One reason Yanukovich is not interested in membership is the plan for the bloc to evolve into the Eurasian Union by 2015. Ukraine's political and cultural split — it is Russian-oriented in the east and European-oriented in the west — makes the Customs Union a difficult political sell.
Ukraine has therefore chosen to move forward with the CIS free trade agreement — a safer option than the Customs Union and one with fewer built-in obligations. In the meantime, Kiev is also pursuing a separate free trade agreement with the European Union. Both markets are extremely important to Ukraine, and while Kiev is seeking to increase its trade with other countries such as China, the country's biggest trading partners are still the European Union and Russia. Ukraine relies heavily on international trade — the country is a significant exporter of metals, chemicals and agricultural goods and serves as a major transshipment point for Russian energy to Europe. These sectors were badly hit following the 2008 financial crisis, after which Ukraine's economy contracted by nearly 20 percent. These crucial areas need to be rebuilt while the country continues its slow and tenuous recovery.
But economic interests are just one component of geopolitics, and they cannot be neatly separated from political interests. The political component has hampered Ukraine's economic development both internally and externally.
Internally, Ukraine's economic development was negatively impacted by the post-Soviet transition from a command economy to a capitalist system. In practice, the move fostered a wealthy and powerful oligarchy and contributed to a culture of corruption among politicians and businessmen. Now the country has one of the poorest investment climates in the region. Meanwhile, political shenanigans such as the jailing of opposition leader Yulia Timoshenko have helped alienate Ukraine from Western investment, trade and funding sources. Externally, economic competition between Russia and the European Union over Ukraine's resources has in many ways limited and undermined the participation or cooperation of both powers in Ukraine's economy — particularly in strategic sectors such as energy. This helps explain why even though Ukraine is rich in natural resources, its per capita gross domestic product is comparable to that of countries like El Salvador and Namibia.
The signing of the free trade agreement with the Commonwealth of Independent States must be viewed within this context. While the accord will certainly lead to increased trade between Ukraine and other Commonwealth countries, truly liberalized trade and synchronized customs duties would encourage even higher levels of trade with these countries, particularly Russia. But the political price is simply too high for Ukraine, which must continue to choose from several less-than-favorable options. Such is the geopolitical fate of a country trapped between Russia and Europe, forced to contend with their influence.
