News

6 December, Tuesday
5 December, Monday
2 December, Friday
30 November, Wednesday
26 November, Saturday
24 November, Thursday
21 November, Monday
18 November, Friday
16 November, Wednesday
15 November, Tuesday
12 November, Saturday
11 November, Friday
10 November, Thursday
1

Calendar

December
  • January
  • February
  • March
  • April
  • May
  • June
  • July
  • August
  • September
  • October
  • November
  • December
2016
  • 2016
  • 2015
  • 2014
  • 2013
  • 2012
MON TUE WED THU FRI SAT SUN
1 2 3 4
5 6 7 8 9 10 11
12 13 14 15 16 17 18
19 20 21 22 23 24 25
26 27 28 29 30 31

OFFICIAL WEBSITE OF THE GOVERNMENT OF THE RUSSIAN FEDERATION

Russia and Ukraine: Living by new rules

Article by Dmitry Medvedev

COMMON PAST 
   How are Russia-Ukraine relations special? 
   How Ukrainian industry was built 
   How Russia supported the Ukrainian economy
TURBULENT PRESENT
   Ukraine on the brink of a precipice
   Dictating EU rules to Ukraine
   Why Ukraine is not welcome in the EU
PRAGMATIC FUTURE
   Ukraine erects walls
   Russia will protect its markets
   Risks for Russia
   New principles for our relations

“Russia and Ukraine: Living by new rules” by Dmitry Medvedev

About a year ago, in the late fall of 2013, when the crisis broke out in Ukraine, no one could imagine the fallout of this "bitter November" in a neighboring country.

Society split, dividing even families. The economy turned down. There was an outbreak of radicalism involving in-your-face demonstrations of Nazi symbols. Flows of refugees to neighboring countries. Fighting between fellow countrymen. The result has been thousands of casualties, including civilians.

In a matter of one year only memories remain of the country that was close to us, and with which we maintained friendly trade relations. A country where we went on vacation or to see our relatives. In Russia, it pains us to see this happen. We are helping even those in Ukraine who accept our aid with an ironic smile, continuing to live under the slogan, "Ukraine is not Russia." I’m genuinely sorry that this is the only strategic program for the development of the country that the Ukrainian elite could come up with. As Prime Minister, I see the numbers that confirm that, unfortunately, the worst for our neighbors is still to come.

No matter how they try to attack us verbally, we cannot fall for these provocations. We do not have the right to forget that the people living on the other side of the border are close to us in their outlook on life, culture and mentality, and their fate will always matter to us.

COMMON PAST

How are Russia-Ukraine relations special?

There are many things that unite us. Our relations have their roots in ancient times. Unfortunately, in order to pit our two nations against each other, official Ukraine is denying objective facts, including our common culture, faith and centuries-long common history. They are speculating on the past, imposing ideological constructs that have nothing to do with historical reality. This is understandable: the closeness that has developed between the Russians and the Ukrainians is unique and enormously strong. It was a determining factor in the relations between our two countries after Ukraine became independent, in any case, no less than the economy. It was certainly more important than other factors for millions of people from Russia and Ukraine, whose lives and families have always been tightly knit.

After all, Ukrainian culture is close to every Russian, and we listen to Ukrainian folk songs as if they were our own. Rich in talent, the Ukrainian soil has given the world artists, musicians, poets and writers whose work is our common heritage, such as Repin, Kuindzhi, Yaroshenko, Bulgakov and Babel. Having lived many years of their lives in Ukraine, they maintained warm feelings for it and expressed them in their paintings, novels and short stories. Russian literature was greatly embellished by Ukrainian motifs in the works of Pushkin, Tolstoy, Kuprin, Chekhov, Blok, Pasternak and Mandelstam. How can one say whether the immortal books by Gogol are more Ukrainian or Russian?

This culture belongs to both our peoples. Tolerant and open, it has always brought us closer to each other and has been a source of concord between us. It brought up in us similar values and ideals, principles of human relations, and rules of behavior in society and family. These are things that cannot be destroyed overnight. Even when we started living in different states, we kept reading the same books, enjoying the work of the same actors and watching the same movies. We kept speaking one language, which almost a third of Ukrainians consider their native tongue and which is understood by everyone in Ukraine. And we thought that there would never be any spiritual or cultural borders between us.

How Ukrainian industry was built

We were united not only by common historical and spiritual roots, but also the close interconnectedness and interdependence of our economies, where manufacturing and production links have been formed over decades.

Back in the 19th century, as part of a single state with Russia, Ukraine emerged as a major industrial region, and the Donets Basin as one of the key mining and metallurgical centres. As a part of the Soviet Union, Ukraine not only became stronger, but in addition to being an agrarian republic, it also became a developed industrial region. Dneproges, Europe's largest hydroelectric power plant, was built in Ukraine by a truly nationwide effort. In a similar manner, under the slogan “All for Donbass!” this entire coal-mining region was retrofitted. Such giants of mechanical engineering and metallurgy as the Kharkov Tractor and Turbine plants, the Krivoy Rog Metallurgical Plant, the Zaporozhstal and Azovstal steel plants and transport infrastructure, including a network of seaports, and a strong agricultural and defence industry have been built. Unique manufacturing and research and technical centres, such as Yuzhmash, Yuzhnoye Design Bureau and the Paton Centre were created.

As a result, Ukraine became one of the most technologically advanced Soviet republics. The bulk of its industry, agriculture and trade was financed from the budget of the Soviet Union. The Druzhba oil pipeline, five nuclear power plants and seven hydroelectric power stations, which now form the basis not only of Ukrainian energy, but also the entire national economy, were built by many people from many Soviet republics. Also, thanks to the scientific and technological potential created in the Soviet era, Ukraine still has basic aerospace technology and can manufacture competitive products in certain aircraft-building segments. Indeed, almost one-third of all missile and aircraft enterprises and design bureaus built in the Soviet times are now located in Ukraine.

How Russia supported the Ukrainian economy

After the collapse of the Soviet Union, all of this (including the gas transport system) went to Ukraine. In addition, Russia took on the entire Soviet debt. Ukraine entered a new era in its history, free of any burden. That is why in 1991 its initial conditions for economic growth were among the best in the post-Soviet space. And that's precisely why the economy of independent Ukraine managed to remain afloat. Until recently, Ukraine was using its past achievements to survive. It continued to rely on cooperation with Russia. And it used our resources.

In a difficult period for Russia, in June of 1993, our country issued a loan to Ukraine in the amount of about 250 billion roubles. Special support from Russia allowed Ukraine to successfully develop many sectors of its economy, including the aviation and space industry. As a result, Ukraine’s first National Space Programme was created. The level of technical relations, including nuclear power, between our two countries was higher than that of many European countries within the EU. Exports to Russia promoted successful development of eastern Ukraine.

Russian investments in engineering, metallurgy and metal processing, aviation, shipbuilding and oil refining played an important role for the Ukrainian economy, primarily, its basic industries. Russian investments were also a major factor that strengthened the banking sector. The bulk of these investments were made amid the global financial crisis of 2008-2009, when Ukrainian lending institutions were strapped for cash due to a mass-scale loan default and a bank run.

Favourable conditions in the energy sector were created by Russia for Ukraine alone. For a long time (through 2006), the price for gas sold to Ukraine was extremely low, at $40-$50 per 1,000 cubic metres. The amount of gas supplied to Ukraine exceeded that which Gazprom was selling to Germany and Italy combined. Thus, our country was, in fact, propping up the Ukrainian economy for decades.

Since a separate contract for transit was not available, we paid for it with gas. And Kiev was taking more gas than Russia owed to Ukraine for transit. Thus, the Ukrainian debt to Gazprom was mounting. When we limited the supply, Ukraine started illegally pumping, or to be more precise, stealing gas intended for European consumers.

Of course, Russia was trying to negotiate with Ukraine in order to put cooperation on a civilised track, including during the talks between President Putin and President Yushchenko in 2005, when the Russian side proposed giving up barter deals and going straight to cash settlement and separating supply and transit. However, Kiev was extremely unhelpful and demanded special conditions. It wanted to charge European prices for transit and enjoy low prices for Russian gas for itself. The Ukrainian side rejected almost all of our proposals (including the provision of a loan of $3.6 billion to repay its debt). But even in such circumstances, Russia continued to make compromises.

Notably, Ukraine was the last former Soviet republic to adopt market relations in its dealings with Gazprom. In 2009, for the first time in the history of relations with that country, a long-term contract was signed, which is fully consistent with the international practice of doing gas business. On 19 January 2009, following talks between Vladimir Putin and Yulia Tymoshenko, Gazprom and Naftogaz signed new long-term contracts. The price for gas and transit tariffs have since been calculated according to the generally accepted European formula. But even after that Ukraine continued to violate its payment commitments and continued to illegally pump gas. In 2010, President Yanukovych and I signed a new set of Kharkov agreements, according to which Ukraine extended the stay of the Black Sea Fleet in Sevastopol for 25 years, and Russia reduced the price per 1,000 cubic metres by $100.

Erratic payments only served to accumulate Kiev’s debt. By the autumn of 2013, it stood already at $2.7 billion. But even then, the Russian side helped Ukraine out. On 1 January 2014, Naftogaz was to pay $268.5 per 1,000 cubic metres, a significant discount. This would have allowed Ukraine to save about $7 billion annually. In addition, the Russian Government issued a loan of $3 billion to Kiev, which, among other things, was to be used to pay off the gas debt. But no one was thinking about paying. Therefore, in April 2014, we were forced to cancel the December discount, and switch – strictly in accordance with the contract terms – to the price of around $485 dollars per 1,000 cubic metres, which Ukraine didn’t like. Starting in June, Gazprom asked Naftogaz to prepay all its gas supplies. At that time, Ukraine's debt stood at $4.5 billion.

The Russian side has never used the economic factor as a lever in addressing any political issue. So, the signing of the CIS Charter by Ukraine, the establishment of the Russian-Ukrainian state border or the Black Sea Fleet stay in Crimea were addressed on the basis of international law.

Clearly, any move by Russia can be interpreted in a negative way, such as expansion or addiction, which is what some are actually doing. However, they disregard the fact that we are talking about the jobs and wages of Ukrainian citizens and taxes to the Ukrainian budget. But the truth is that the economy of independent Ukraine was created largely owing to Russia’s support. The amount of Russian investments, easy loans and supplies on favourable terms has so far exceeded $100 billion. Ukraine has saved over $82.7 billion on low gas prices alone. Not a single former Soviet republic has ever received that much financial aid. In fact, we were not just helping the Ukrainian economy, in fact, we were maintaining it. It is unlikely that Kiev could have received such gifts for decades from any other country. But, unfortunately, this economic reality was improperly construed by the Ukrainian leadership.

TURBULENT PRESENT

Ukraine on the brink of a precipice

The outgoing year will go down in the history of Ukraine as one of the most difficult and tragic. President Yanukovych negotiated an association deal with the EU, promising a “European choice” for the country, while trying to continue to play nice with Russia. In the end, he looked at the economic analysis of all the risks and possible consequences, and given that there was no guarantee of significant and rapid financial injections from the West, he decided to put the brakes on the EU association process. As a result, the Ukrainian government was toppled on 22 February.

Subsequent actions by Ukraine’s leadership, including its military, have led the country to the edge of economic disaster where it remains poised.

I’m not going to delve into detailed social and economic statistics, especially since many countries, not just Ukraine, are experiencing difficulties, and that includes Russia. However, in the case of Ukraine, we are talking about a 7 to 9 percent decline in GDP according to the IMF and Ukraine’s Finance Ministry, 20 percent annual inflation, an almost 40 percent drop in gold and foreign exchange reserves, a 50-100 percent increase in utility bills, and the closure or bankruptcy of large enterprises. Ukraine is plagued by an external debt which will exceed GDP by late 2014, and it’s unclear if the country will be able to finance it. It seems our neighbours will have to relive the 1990s. The potential for default and the looming threat of social and economic collapse in Ukraine were not dreamed up by political strategists in the Kremlin or anywhere else. Incidentally, much of Ukraine’s debt is held by Russia. Just in the past few years, Russia has invested about 33 billion dollars in Ukraine, including bank capital, loans, and Gazprom money.

The Ukrainian elite tries to reassure itself and ordinary Ukrainians, promising that “everything will work out” thanks to the country’s “European choice,” the EU Association Agreement and “independence” from Russia.

Dictating EU rules to Ukraine

Many of Ukraine’s problems can be traced back to when the leadership in Kiev, clearly prodded by their Western partners, started talking about the need to reduce the country’s much maligned dependence on Russia. Politics prevailed over economics. Major projects, including economic ones, came to be evaluated through the prism of possible changes in the balance of political forces worldwide. After 2009, Ukraine and a number of other countries were essentially pressed into reducing cooperation with Russia and participating in the Eastern Partnership.

In economic terms, the European approach looked more like simply dictating to Ukraine, in detail, what to do in almost all areas of life. We are not talking about a small European country with a population of several million people, but one of the largest countries on the continent.

This fact is clearly reflected in the EU Association Agreement. It requires that Ukraine bring its legislation fully in line with EU standards as part of a “deep and comprehensive free trade area,” despite not receiving EU membership, and to amend it accordingly as EU legislation changes. What this does, in effect, is establish the absolute supremacy of European regulations and directives over Ukrainian laws and, by the same token, over Ukraine’s national interests. A case in point: the obligation to adopt a law on restitution may result in total chaos in matters of property ownership. Moreover, the right to property can be claimed not only by citizens of Ukraine, but also a large number of citizens of Russia, Poland and other countries, whose ancestors owned such property before 1940.

In terms of economic cooperation, the EU-Ukraine relationship looks more like neo-colonialism. Under the guise of “fair” competition, Europe pushed for advantages for European companies and the Ukrainian firms they worked closely with. The European Union needs Ukraine primarily as a source of raw materials and, of course, as a market for European companies. Looking at the structure of Ukraine's trade with the EU, it’s clear that vast majority of imports include consumer goods (food, medicine, cars, electronics, household appliances, etc.), while exports are dominated by commodities.

A significant portion of Ukrainian enterprises will not be able to compete with the European products that will flood Ukraine in the free trade area created under the terms of the Association Agreement, which almost completely abolishes import duties. No one seems to have thought about what will happen to the Ukrainian producers in these conditions. Moreover, no one can say how much real opportunity there will be for Ukrainian enterprises on the highly competitive European market. The total value of preferences to be provided to Ukraine by Europe was estimated at 400 million euros a year. However, that is unlikely to compensate for even a fraction of future losses. Tariff liberalisation, which will cover up to 98 percent of goods coming from Europe, will gradually result in European goods ousting all competitors' products from the Ukrainian market. The second wave of the European trade “tsunami” will carry these goods to the Customs Union markets, harming the business environment within its bounds. Of course, we will not just sit by and watch this unfold. We will respond by drastically reducing exports of Ukrainian goods to Russia, Belarus and Kazakhstan, which could cost Kiev up to $15 billion.

Speaking about Ukraine’s agricultural sector, which accounts for 17 percent of its GDP and 27 percent of exports, its prospects are not very bright, either, despite the fact that the country has always been a breadbasket. Now, Ukrainian farmers, through no fault of theirs, are getting the short end of the stick, in no small part because of the subsidies received by European farmers, which Ukrainians farmers can only dream of. And this despite the unmatched quality of Ukraine’s farmland and the proven high skills of the country’s agricultural workers.

According to experts, under the Association Agreement with the EU, Ukraine will face a discriminatory quota system that is absolutely inconsistent with the principles of free trade. For example, the annual quota for wheat exports to the EU is set at 950,000 tonnes, rising to 1 million tonnes in five years. That means that only 50 percent of wheat exported to the EU will be free from export duties. The rest will be subject to a duty of 95 euros per tonne, which will increase the price of Ukrainian grain for the consumer by at least 50%.

Transitioning to European technical standards and regulations, which the manufacturing industry and agriculture will have to do several years from now, will also come at enormous costs. In some sectors, the transition will have to be completed even sooner. For example, machine engineering will need to switch to the EU standards in just two years. Ukraine will have 5 to 10 years to travel a path that took industrialised countries of Europe (Germany, France, the Netherlands, etc.) 50 to 60 years. To understand whether this is realistic, consider the fact that a significant share of Ukrainian enterprises still use Soviet-era equipment and production processes.

It may well be that the estimated cost of these changes provided by the Yanukovych government – 160 to 500 billion euros over 10 years – was overstated. But in any case, it will require major funding, and expecting the EU to cover these costs is simply naive.

Why Ukraine is not welcome in the EU

Unsurprisingly, the funding promised to Ukraine by the West is becoming increasingly modest. An American pledge (note, a pledge, not actual money) of $1 billion was portrayed as a new Marshall Plan. But when Ukraine needed 1.45 billion euros to pay in advance for Russian gas – as a loan or otherwise – the Europeans recognised the need for help, but refused to provide it. In the end, Kiev said it would dip into its foreign exchange reserves, which are themselves heavily dependent on foreign aid.

In fact, no one is eager to give Ukraine money even to cover its most pressing needs. If push comes to shove, Europe may provide a loan to finance Ukraine’s debt, as the country is on the verge of default. But Europe's economy is still struggling to recover from the crisis. Brussels will not help Ukraine the way it helped Greece, Spain, Ireland and others during the 2008 crisis, and even then it took the EU a while to do what was needed. Not all countries were prepared to hand over taxpayer money to help their “European brothers.” Back then, the debate concerned EU members, whereas now it’s about a country that no one is willing to accept in the EU.

Ukraine's leaders are, to some extent, repeating Yanukovych’s mistakes by talking about their country’s “European choice” and the possibility of joining the EU in the near future. But there was one key difference: Yanukovych realised his mistake and tried to stop the process. The current Ukrainian government doesn’t trouble the people with “small stuff.” It doesn’t tell them that Ukraine has assumed all the obligations of a candidate for EU membership without gaining the status of a candidate. Ukraine hasn’t had a public discussion about what’s in the Association Agreement or an honest accounting of its pros and cons for the economy in general, individual businesses and industries, and different groups of the population. For a long time, a Ukrainian translation of the document wasn’t even available.

The Association Agreement does not contain any commitments to accept Ukraine into the EU, nor does it even mention the prospect of membership. No one is talking about the possibility of Ukrainian representation in the European Parliament or other governing bodies, not to mention equal rights on par with EU citizens, European-level healthcare and social services, or visa-free travel for Ukrainian citizens.

The EU is in no hurry to give Ukraine a seat at table of European powers as an equal partner. It is not even asking Ukraine to pull up a chair. It’s a courtship that will never end in marriage. Just look at Turkey, which signed an Association Agreement 51 years ago and still is not a member of the European Union. The situation has already become a punch line. Viktor Chernomyrdin, when asked a while back when Ukraine would become an EU member, said: “After Turkey.” “And when will Turkey become one?” came the follow-up. “Never.”

Kiev should also look at what has happened to the economies of its neighbours to the southwest who joined the EU: whether their GDP has gone up or down, what happened to wages and unemployment rates, and most importantly, if there has been an increase in foreign investment over these years or, on the contrary, if it has fallen many times over. For example, after Bulgaria joined the EU in 2007, unemployment rose from 6.9 percent to 11.8 percent in a matter of six years. The amount of foreign investment declined over the same period almost nine-fold from 9.051 billion euros to 1.092 billion euros. These countries are not inferior to Ukraine in any respect, and are roughly comparable in terms of economic development and climate.

On a separate note, we should mention the role played by the EU’s desire – back during the times of Yanukovych – to push Ukraine to sign the Association Agreement. As you may be aware, Russia, as Ukraine’s largest trade partner, repeatedly offered to discuss related issues on a trilateral basis (Ukraine, Russia and the EU). Each time, EU dignitaries said that Russia had nothing to do with it, that it’s a two-way process and Moscow should wait on the sidelines. They didn’t want to hear us. We now know what this selective hearing loss has led to. Even the new Ukrainian leadership that replaced Yanukovych is growing increasingly aware that they can’t ignore Russia’s position. Otherwise, the talks between Ukraine, Russia and the EU on association-related issues wouldn’t have been held in Brussels in July, and the parties wouldn’t have agreed in September that certain provisions of the Agreement would be delayed until early 2016. However, there was a dramatic sequence of events between the refusal and then the consent to jointly discuss these issues. And it’s impossible not to wonder what might have happened had Europe “deigned” to enter into the kind of joint discussion which was absolutely normal and necessary in this case? Many tragedies could have been avoided. There would not have been a civil war in eastern Ukraine. Hundreds of thousands of refugees wouldn’t have had to seek refuge in Russia. Of course, we will continue to provide humanitarian aid to those troubled regions. But the Ukrainian authorities – if they really believe that eastern territories are part of Ukraine – should realise that returning things to normal there is primarily their responsibility, just like we assumed responsibility for people's lives in Crimea after it decided to return to Russia in the 16 March referendum. This was Crimea’s decision, and we believe the matter is closed.

Judging by its latest actions, Kiev is not willing to take responsibility for its eastern regions, and Donbass and Lugansk now face an economic blockade imposed by the central government. Is it not enough that Ukrainian troops are shooting at their own civilians? Must they also economically destroy these people and the entire region? This is unprecedented. Or was the hope in issuing the executive order to suspend the work of government organisations, withdraw their property and documents from the region, and terminate banking services for individual and corporate accounts there, that hunger and poverty would make residents of the eastern regions more tractable? Clearly, this is how Kiev sees the peace process. Surely this is the “strongest” argument to convince Eastern Ukraine to follow the rest of Ukraine down the European path.

PRAGMATIC FUTURE

Ukraine erects walls

The current mood in some corners of the Ukrainian elite is reflected in the plans to erect various types of “walls” between Kiev and Moscow: some high and others not so high, some electric or barbed-wire, some backed up by a trench. These props are being moved from the political theatre to the real economy.

We hear that Ukraine is prepared to sever trade and economic ties with Russia, or at least minimise them wherever reducing them to zero is not possible. No gas or engines, and as little oil, equipment, pipes, metal, and construction materials as possible, should pass over the “wall”.

For example, the Ukrainian authorities, with US support, actively promoted a completely unviable project to build the Odessa-Brody oil pipeline as a way to reduce the transit of Russian oil via Ukrainian territory. A lot of effort went into searching for alternative natural gas suppliers, and while this may have helped exercise the imagination, it had no basis in reality.

Russia will protect its markets

I seriously doubt that the strategists in Kiev will be able to realise their plans to end all trade and economic ties between our countries, although, of course, they can still cause severe damage. Both countries are already feeling the effects. Russia isn’t happy about the losses, but economically, it will get over them.

What about those who in their minds are already living “behind the wall”? In the spring, our Trade and Industry Ministry estimated Russia’s total orders placed with Ukrainian enterprises at $15 billion (or 8.2 percent of Ukraine’s GDP). No one in Ukraine has explained – to us or to themselves – how the loss of those orders will be compensated for, or what will happen to hundreds of enterprises and industrial areas, including such unique production facilities as Yuzhmash, which is now on the verge of bankruptcy.

In November, a Russian-Ukrainian carrier rocket Dnepr was launched from the Yasny base in Russia’s Orenburg Region and launched into orbit a Japanese remote sensing satellite and another four Japanese spacecraft. It wasn’t a huge event, but in hindsight it’s revealing: It took decades to build up this cooperation, and now Ukraine is trying to destroy it within a matter of months.

We warned our Ukrainian partners in advance: our relations will immediately suffer if the Association Agreement is applied as written. According to some estimates, the Ukrainian economy will lose at least $33 billion a year. Russia will protect the interests of its producers and its markets.

In September, I signed a directive raising customs duties for goods from Ukraine to the level set by the Customs Union for non-members, and it will be enforced if certain provisions of the trade and economic parts of the Association Agreement come into effect before 1 January 2016. We have also launched a system to monitor the implementation of the economic part of the Association Agreement to look out for EU goods disguised as Ukrainian appearing on the Russian market at dumping prices. The watch list includes virtually the entire range of Ukrainian goods – from pork to ships. If such “Ukrainian” goods are discovered, the appropriate duties will be applied in order to protect our producers against unfair competition.

The agreement with the EU creates other problems as well. If Ukraine complies with its obligations to harmonise the legal and regulatory environment in the country with EU standards, we expect this to result in a sharp reduction of information exchange between our customs services. Ukraine is essentially being gradually stripped of its sovereignty in customs regulation. This will significantly complicate preliminary information exchanges between us as neighbours and impair the customs control mutual recognition system, which helps expedite customs clearance on the border. This is hardly surprising. Instead of communicating through long established channels, Moscow and Kiev will have to talk via Brussels, with Ukrainian officials simply carrying out orders from European bureaucrats.

Because of the differences in technical regulations, norms and standards, Ukrainian agricultural producers will be simply unable to enter the Russian market, as is evident from the events of recent months. As soon as spot checks were conducted on Ukrainian agricultural products, widespread violations of our quality and consumer safety standards were identified. Today, this economic sector has fallen on hard times. The lack of regionalisation in Europe will compel us, for safety reasons, to close our market to Ukrainian goods if there is a disease outbreak in the opposite part of the EU. We see significant risks both for the economies of our Customs Union partners and for other CIS countries, particularly Belarus, which does significant trade with Ukraine.

Risks for Russia

Although not directly related to the agreement, there are a number of other problems associated with this new economic reality in Ukraine. We are alarmed by cases of violations of Russian companies’ property rights and by populist slogans like “don’t buy Russian” heard in Ukraine. While there were isolated cases of pressure long before the events of this year, it is now widespread. Many business owners have admitted that it is becoming increasingly difficult to protect property rights under the new Ukrainian authorities.

Some cases sound more like Makhnovism than European values. In March the press extensively covered the expropriation of a few dozen new KAMAZ lorries by “Maidan self-defence fighters.” The Russian oil company Lukoil, which is able to operate normally even in Iraq, was forced into selling a petroleum station in Ukraine. Armed men raid Russian banks and companies under the pretext that they are funding terrorism. Right Sector commits acts of vandalism in many cities. I’ll note that oversight bodies have had no complaints against Russian banks and companies, which meet all their obligations. It’s a real racket. The fact that Ukrainian securocrats do not protect Russian businesses suggests that it is official policy.

We can’t help but be concerned by the Ukrainian leadership’s effort to scuttle nuclear power cooperation. The attempts to use American fuel in Soviet-made nuclear reactors at Ukrainian stations is a grim example of the dangerous influence that politics can have on the economy. Our nuclear engineers were not consulted. Meanwhile, the experiments conducted under pressure from American producers are not safe. There had already been attempts to replace Russian fuel with American fuel in Ukraine and Eastern Europe, for example in the Czech Republic. These experiments ended in serious technological problems and shut down reactors. Luckily, common sense prevailed and Russia and Ukraine reached agreement on nuclear fuel supplies for the coming year.

Even at the peak of the domestic conflict in Ukraine, Russia fully honoured its commitments to supply nuclear fuel to Ukrainian power stations.

Ukraine planned to build its own fuel production facility with Russia’s assistance. We have already developed a number of production technologies, but Ukraine won’t build the necessary production facilities in the Kirovograd Region.

The risks to pipeline and other forms of transit through Ukraine are growing considerably, despite the major advantage the country’s geography gives it in this respect. Customers are dubious about the safety of shipping by road and rail or using Ukrainian ports. Many customers, and not only in Russia, will probably have to alter the routes of their shipments to Central and South Europe. This calls into doubt Ukraine’s continued participation in East-West and North-South global transit routes.

Meanwhile, working in Russia is the only source of income for many Ukrainians. Russia will have to shut down this source due entirely to actions taken by Ukraine. Starting 1 January, quasi-legal Ukrainian guest workers that make up the majority of arrivals will not be able to work without a permit. We will monitor more closely the length of their stay in the country, enforcing the limit of 90 days in any six-month period. In the past it was possible to leave Russia and come back to work for the next three months without a problem. Now Russian border guards will give more scrutiny to Ukrainian travellers who lack permits.

Ukrainians stand to lose an estimated $11-$13 billion, or about seven percent of Ukraine’s GDP, from not being able to work as freely in Russia. It would be interesting to know whether Ukrainian politicians are factoring in this additional burden on the national budget, not to mention the budgets of Ukrainian families.

New principles for our relations

Revolutionary euphoria seems to have convinced many Ukrainians that they can discard centuries of shared history, start with a clean slate and live better. But the slate is already stained with blood. Ukrainian society is already paying for the illusions fostered by ruling elites who dream of European passports for themselves. We hear every day about the victims of these illusions. Soldiers and civilians in Ukraine continue to die despite the ceasefire. More victims are inevitable in a country where people don’t have enough money to buy food and medicine, or provide for and educate their children – in short, to lead a decent life. We sympathise with them all.

However, Ukraine has made its choice. Even if our neighbours have a very vague idea of the final price to be paid, they are entitled to their opinion, even if it’s mistaken.

Russia, of course, finds it difficult to accept such a choice, but not because of the “imperial ambitions” attributed to Moscow. For 360 years after the Pereyaslavl Rada, we have considered each other family. And like any family, we have occasionally had arguments. But we have always faced difficulties and dangers together. And we have been united in times of joy and trouble, and, of course, in our common victory in the Great Patriotic War.

The best way to prove that Russia respects Ukraine as a sovereign nation is to recognise its right to the choice that it has made. But Ukraine should keep in mind that any choice comes with responsibility. In a prosperous European future, you can’t do the bare minimum, you have to work hard. If you want to live like they do in Europe, first learn to pay your bills – for starters, the bills you owe Russia.

Our countries are neighbours and have no choice but to cooperate. However, from now on, this cooperation will be strictly “European,” i.e. rational and pragmatic. Russia will act in its national interests and firmly uphold them, as with any other equal partner. We will leave our emotions and feelings of kinship out of it, as we proceed to build our relationship in a new environment. And we will no longer be the steward of the Ukrainian economy. It doesn’t make any economic sense. And, frankly, we’ve had enough of it.

Of course, gas transit through Ukraine has been on our agenda for a long time. The gas issue has been resolved for now. According to the agreements reached in Brussels, Ukraine must pay off $3.1 billion of the $5.3 billion it owes to Gazprom before the end of 2014 and prepay in the future. From 1 November 2014 to 31 March 2015, Ukraine will enjoy a discount of $100 per 1,000 cubic metres from the contract price, making the price of Russian gas for Ukraine in November and December $378 per 1,000 cubic metres. In early December, Naftogaz paid $378 million as an advance payment for 1 billion cubic metres of gas.

The “winter package” of agreements was made possible by direct cooperation between representatives of Russia and the EU. The EU understood the threat Ukraine posed to the transit of Russian gas to Europe. And it took steps that made at least a temporary agreement possible. The terms of future cooperation will be the subject of negotiations and depend on Kiev’s strict adherence to the payment schedule.

Another brick in the wall being erected by the Ukrainian authorities are their plans to introduce visa regulations with Russia. But has anyone considered the ramifications this would have for Ukrainians and the Ukrainian economy, and the general deterioration it would cause in relations between our two countries?

The decline in remittances sent home from Ukrainians working in Russia will hurt. As of today, there are almost 400,000 highly skilled Ukrainian professionals who hold work permits or patents in Russia. These are the official statistics that don’t provide the full picture given our close ties and open borders with Ukraine. According to experts, about 6 million Ukrainians are employed seasonally in Russia. Notably, over 4 million Ukrainians have entered Russia since 1 January 2014 alone. This is almost one-tenth of the total population of Ukraine. Russia is a second home to them – a place of family, friends, and work, including seasonal jobs. It’s like the saying, eastern Ukraine works for Russia, while western Ukraine works in Russia.

Perhaps a dash of cold political and economic pragmatism is what our countries needed in the years following the collapse of the Soviet Union. Now, after all the hardships and losses, we have a chance to build truly businesslike and mutually advantageous relations.

Originally published in Nezavisimaya Gazeta.

Highlight selection