Open Ukraine
Changing Course towards a European Future

Edited byTaras Kuzio and Daniel Hamilton

Center for Transatlantic Relations
Paul H. Nitze School of Advanced International Studies
Johns Hopkins University

Kuzio, Taras and Daniel S. Hamilton, Open Ukraine: Changing Course towards a
European Future.
Washington, DC: Center for Transatlantic Relations, 2011.
© Center for Transatlantic Relations, 2011

Center for Transatlantic Relations
The Paul H. Nitze School of Advanced International Studies
The Johns Hopkins University
1717 Massachusetts Ave., NW, Suite 525
Washington, DC 20036
Tel: (202) 663-5880
Fax (202) 663-5879
Email: transatlantic@jhu.edu
http://transatlantic.sais-jhu.edu
ISBN 0-9848544-2-8
ISBN 978-0-9848544-2-4

Cover photo credits, clockwise from upper left: Sergey Kamshylin/Fotolia.com,
Michal Bednarek/123rf.com, frog-travel/Fololia.com, Gudellaphoto/Fotolia.com,
Vladimir Nikulin/123rf.com

Table of Contents

Preface and Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
Executive Summary and Recommendations . . . . . . . . . . . . . . . . . . . . . vii
Introduction: Why an Open Ukraine is the Best Pathfor its Citizens, its Elites, and its Neighbors
Taras Kuzio and Daniel Hamilton. . . . . . . . . . . xxvii

Chapter One . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Politics and Democracy in Ukraine
Serhiy Kudelia
Chapter Two . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
National Integration and National Identity in Ukraine
Olexiy Haran
Chapter Three . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Corruption, Rule of Law and Ukraine
Bohdan Vitvitsky
Chapter Four . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
The Ukrainian Economy and Economic Reforms
Marcin Şwięcicki
Chapter Five . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Ukraine’s Energy Security Challenges: Implications for the EU
Frank Umbach
Chapter Six . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Ukraine and European Integration
Péter Balázs
Chapter Seven . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Ukraine and Transatlantic Integration
F. Stephen Larrabee
About the Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147

Preface and Acknowledgements

Events in Ukraine are headline issues and there is considerable
uncertainty about the direction of the country. With this in mind, theSAIS Center for Transatlantic Relations at Johns Hopkins University
and Poland's Institute for Eastern Studies, the organizer of the annual
Economic Forum in Krynica, Poland, asked the authors in this volume
to address current issues related to Ukraine's domestic and international situation, and to recommend steps that could be taken to forge
a more democratic, prosperous and secure Ukraine. Our intention isto evoke the political, economic and foreign policy possibilities of anopen Ukraine in the heart of Europe.
This project succeeded because of the partnership between our two
institutions. On behalf of the authors we would like to thank the manycolleagues who participated in the deliberations and meetings that
produced this book, including participants in the Ukraine Policy
Forum, our Center's regular meeting series examining Ukraine's current challenges and future possibilities.
We would also like to thank our colleagues at the Center forTransatlantic Relations and the Institute for Eastern Studies for their
help and good cheer throughout this project, and Peggy Irvine andPeter Lindeman for working with us on the many details related tothe production of the book. We are grateful to the Austrian MarshallPlan Foundation, which supports our work on Central European
issues.
Our authors express their own views, and do not necessarily reflect
views of any institution or government.
Taras Kuzio
Daniel Hamiltonv

Towards an Open Ukraine:
Policy Recommendations

Ukraine is one of the biggest, but also the second poorest countryin Europe after Moldova. Given its territorial size, its geographic position, its almost 50 million population and its role as the main transit
state for Russian oil and gas exports to central and western Europe,
Ukraine has been a critical strategic factor for Euro-Atlantic andEurasian security in the two decades of its independence. Today, it
stands at a critical crossroads between developing a more open society
increasingly integrated into the European space of democracy, prosperity and market-based economics grounded in respect for humanrights and the rule of law, or an increasingly autocratic system, miredin the economic stagnation and political instability that is historicallycharacteristic of Europe’s borderlands. The choice is straightforward:
Ukraine can either join the European mainstream or remain in a grayzone of insecurity between Europe and Russia.
The following recommendations outline how Ukraine could moveaway from immobility in the gray zone of domestic and international
politics in which it finds itself, break its reform logjam and become an
Open Ukraine—a democracy accountable to its people with a socially
responsible market economy, governed by an administration that
respects the rule of law, fights corruption and that can effectively
implement needed reforms, and that is increasingly integrated into theEuropean mainstream. These proposals are intended to expand thehorizons of Ukrainian elites and opinion leaders and equip them withconcrete reasons to move from short-term “momentocracy” to a more
powerful vision that could guide their country. They also suggest ways
Ukraine’s neighbors can make the costs and benefits of Ukraine’s
choices clear.

Political Reforms and Democratization
Ukraine’s fundamental problem has been government dysfunction
with leaders changing the constitution and election laws to deny power
vii

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to the opposition or maximize power for themselves after elections.
For Ukraine to have more effective governance, it must tackle seveninterrelated challenges: switching from a presidential to a parliamentary political system, which is better suited for encouraging democratization; parliamentary and legislative reform; administrative reform;
strengthening the rule of law; judicial reform; eradicating systemic corruption; and strengthening civil society and independent media.
• Switch to a Parliamentary System. The scholarly and policy
debate has been extensive whether presidentialism or parliamentrism is best suited for countries in transition. Of the 27
post-communist states, those with successful democracies inCentral-Eastern Europe have adopted parliamentary systems
while authoritarian regimes in Eurasia are primarily built onpresidential systems. Parliamentary systems have therefore
been successful in promoting democracy and European integration than presidential systems. Ukraine has had a presidential system for a decade (1996-2005) and again since 2010
when the Constitutional Court ruled under pressure from theexecutive that constitutional reforms adopted in December
2004 and going into effect after the March 2006 elections
were ‘unconstitutional’ (the same Court had refused to consider the same question under President Viktor Yushchenko).
Presidentialism in Ukraine has stifled democratic developments, encouraged authoritarianism, promoted censorship ofthe media and became a nexus of corruption and illegality.
Unelected regional governors, which duplicate elected local
councils and mayors, have traditionally been at the center ofelection fraud, patronage and corruption. Abuses of presidentialism are clearly evident under President Viktor Yanukovych,
who has sought to maximize power at the expense of parliament, the Cabinet, regions and local councils.
• Parliamentary and Legislative Reform. A strong and independent legislature is vital for jump-starting the reform
process in Ukraine, yet the Ukrainian parliament turned intoa rubber-stamp body with minimal political authority. Open
Ukraine requires legislation, drafted in a transparent mannerand be open to public deliberation, that would ensure a levelTowards an Open Ukraine: Policy Recommendationsix

playing field for competing political parties and their fair representation in the parliament. The mixed system, adopted in
November 2011 ignoring recommendations by the Council ofEurope’s Venice Commission, prevents this by skewing election results in favor of the Party of Regions. Provisions for full
disclosure of candidates’ funding sources and for challenging
election results are essential for a democracy. The law should
limit the ability of electoral commissions to interfere with theelectoral process. The parliament’s role in choosing candidates
for Cabinet positions must be revived. It must also havestrong oversight powers over the executive. Internal rules forcoalition formation should prioritize party factions over individual deputies; the majority coalition should be formed based
solely on parties elected to the parliament and not, as has been
the tradition until now, of new parties and factions createdafter elections within the life of parliaments. There should
also be a strict enforcement of the rules requiring deputies tovote individually (that is, a halt to the widespread practice ofabsentee voting) and disclose their personal incomes. The legislative process should be streamlined to improve the qualityof legislation, possibly with the assistance of a Council of Foreign Advisers, as was the case in the first half of the 1990s.
• Administrative Reform. The executive needs to be streamlined and decentralized to allow for more effective and accurate application of law. Many government ministries and statecommittees have overlapping responsibilities, duplicating
functions and wasting resources.
• Strengthen the Rule of Law. In Ukraine the law continues tobe viewed as an instrument of partisan governmental power.
That which is construed to be “illegal” is whatever the government in power finds to be politically expedient. Procedural
safeguards that are at the heart of a rule of law legal system
are absent or ignored. Ukraine should fundamentally and profoundly transform its legal system if it is to spread European
values and the rule of law. This means coming to grips withthe legal system’s catastrophic Soviet past; reforming the legal
academy; and reforming the laws, procedures and mechanisms

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O PEN U KRAINE : C HANGING C OURSE TOWARDS A E UROPEAN F UTURE

that remain in place as holdovers from Ukraine’s totalitarianlegacy. The Prosecutor’s office needs to be overhauled or
replaced. It has become highly compromised through corruption and under Yanukovych it has returned to its Soviet function as a state arm of repression.
• Judicial Reform. In a system that respects the rule of law,
judges are professional, independent and impartial; they are
not “accountable” to prosecutors. Prosecutors, in turn, do not
act as the partisan political arm of the government. That is
not the case in Ukraine today. The court system is endemically corrupt, incompetent and subject to commercial andpolitical influence. Judges are routinely bribed to secure convictions or release of those charged or to alter title deeds inbusinesses in the widespread practice of corporate raiding.
The President exerts political influence over the judiciarythrough the High Council of Justice, which is dominated byrepresentatives of the ruling party and the Chairman of the
Security Service, a direct conflict of interest. Ukraine’s judicial
system is in dire need of overhaul. The competence and jurisdiction of differing courts must be clarified. Training andselection of judges need to be made more transparent andmeritocratic. Courts and judges require sufficient financing so
as to discourage corruption. Concepts along these lines wereapproved five years ago, but have yet to be implemented.
Court proceedings should be made more transparent, impartial, and effective. Procedures for mediation, independent
arbitration, and enhanced use of notaries should be introduced. The power of the High Council of Justice to select ordiscipline judges should be transferred to a non-partisan bodycomprising of authoritative and experienced judges, such as
the High Qualifications Commission. The President’s andParliament’s role in appointing or removing judges should be
limited to mere approval of the Commission’s recommendations with few clearly specified exceptions.
• Eradicate Systemic Corruption. The presence or absence ofrule of law in a society is closely related to the level of corruption. Corruption has become endemic in Ukraine and isTowards an Open Ukraine: Policy Recommendationsxi

growing; it has degraded the country’s governance, undermined its democracy, reduced public trust in state institutions,distorted the economy, discouraged foreign direct investment
and been exported to Europe. To reduce corruption, Ukraine
needs political leadership committed to and greater societal
awareness that corruption impedes economic development,
democratization and European integration. Organizations andindividuals committed to combating corruption need to mobilize behind specific, concrete initiatives—such as draft laws
regarding codes of criminal procedure, professional ethics,
and financial declarations by public servants. There is a wealthof international experience on how to reduce corruption, particularly from other post-Soviet or post-socialist countries;
Ukraine should take advantage of such experience.
• Strengthen Civil Society and Independent Media. Media censorship under Yanukovych has not yet reached the level characteristic of Kuchma’s presidency and is different in nature.
Nonetheless, even though major media outlets in Ukraine
have not yet fallen fully under the government’s control, their
independence has eroded substantially due to the excessiveinterference of owners keen to remain on good terms with theexecutive in news coverage. Television news is dominated bygood media coverage of the authorities and either paints the
opposition in a negative light or ignores them. Only print andinternet-based media still function as an instrument ofaccountability and a source of reliable news. Further international assistance to these media outlets is vital for supporting
media pluralism.

Economic Growth and Modernization
During the last two decades Ukraine has moved from a command
administrative system but has still to arrive at the final destination of amarket economy, despite recognition by the U.S. and EU in 20052006 of a ‘market economy’ status. Ukraine’s ‘partial reform equilibrium’ is stuck between the Soviet past and European future and only
concerted reforms will move the economy towards a European-style

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social market economy. Ukraine was hit hard by the global economic
and financial crisis. The combination of weaker demand from
Ukraine’s trading partners, falling export prices, rising import prices
and reduced access to international financial markets sliced GDP by
14.8% in 2009, and it will take until 2013 to recover that lost ground.
Inflation is hovering above 9% and unemployment at 8%. The hryvnia, Ukraine’s national currency, has lost almost half of its value
against the U.S. dollar since July 2008. Pension expenditures increased
from 9% of GDP in 2003 to 17.6% in 2010, one of the highest levelsin the world—yet pension fund revenues cover only two-thirds ofexpenditures, the rest being covered by transfers from the budget.
Demographic pressures will increase the burden on the working population even further. Ukraine’s successful accession to the WTO in
May 2008, after 15 years of negotiations, was an isolated foreign policy achievement of the Yushchenko presidency. President Yanukovych
launched reforms in summer 2010, but implementation has been very
slow due to a lack of political will, populist concessions ahead of parliamentary elections in 2012, and a deficit in government capacity todraft EU-compatible legislation. The refusal to implement further
stages of the 2010 MF agreement, including raising household utility
prices for a second time, has led to the suspension of IMF tranches. It
is imperative that Ukraine return to the IMF agreement in order tointroduce reforms and boost foreign investor confidence.
The following areas are urgent on the road to an Open Ukraine:• Pension reform has been long delayed, yet is critically important for restoring Ukraine’s financial sustainability. The IMF
demand to raise the pension age from 55 to 60, as part of theJuly 2010 agreement for Ukraine, was adopted by parliamentin 2011.
• Simplified taxation and licensing, including simplified
accounting of revenues, should be introduced for small andmedium businesses. Previously introduced reform principles
must be made operational, such as the “one-stop shop” forregistering and licensing businesses. Any permits other thanthose directly stipulated by the law should be abolished.
Remaining permits and activities subject to mandatory licensing should be compiled into a single piece of legislation.

Towards an Open Ukraine: Policy Recommendations

xiii• Corporate legislation reform. The Economic Code of
Ukraine is a confused mix of Soviet command economy elements and market institutions. It should be abandoned. The
Civil Code of Ukraine should comply with EU Directives oncompany law. The new law on joint stock companies must be
amended to comply with EU Directives on company law, andinternationally accepted principles of corporate law and corporate governance best practices, by replacing the profitextracting legal model for such companies to one of investor
protection. Modern legal structures are needed for small andmedium enterprises and domestic and foreign investors via aseparate limited liability company law that provides for an
efficient system of governance, control bodies and reliable
protection of minority participants. The law on re-establishing solvency of a debtor or declaring a debtor bankrupt mustbe amended to prevent abuses by related-party (conflict ofinterest) transactions and by enhancing the personal responsibility (liability) of company officers and the bankruptcy commissioner.
• Agricultural Reform. The moratorium on trading agricultural land should be ended and free access of citizens and agricultural producers to land resources ensured. Prices for agricultural land should be liberalized and work on establishing aland cadastre should be continued. Consideration should begiven to allowing foreigners and foreign-owned companies toown some agricultural land deposits (e.g. up to 10% of land ineach region [oblast]). Such reforms would attract more capital,
help to import and disseminate modern agricultural technologies, and facilitate greater access to international channels of
distribution of agricultural products. Moreover, Ukraine has astrong interest in the liberalization of global trade in foodstuffs. Administrative restrictions on exports should be abandoned and delays in VAT refunds to exporters urgently fixed.
Targeted income support measures should be introduced forpoor families to compensate for the rise in foodstuff prices.
Social support and re-training programs for redundant agricultural workers need strengthening. Ukrainian law on state
support of agriculture should be consolidated into one piecexiv

O PEN U KRAINE : C HANGING C OURSE TOWARDS A E UROPEAN F UTURE

of legislation. An information service for agricultural markets
should be established to monitor and forecast global foodmarkets and collect information on standards in other countries. Sanitary and safety standards should, as a matter of highpriority, be aligned with international and EU norms. Establishing WTO-compatible free trade agreements with other
non-EU trade partners is in Ukrainian interests.

Energy Efficiency and Independence
Ukraine’s energy sector is plagued by aging infrastructure, widespread corruption, political manipulation of utility rates and statistics,
and minimal foreign direct investment. Although Ukraine has oil, gas
and coal reserves, it is one of the most energy inefficient economies in
the world and only able to cover 47-49% of its energy demand. Gas
imports account for 7-8% of Ukrainian GDP and are clearly unsustainable. Around half of Ukraine’s total energy consumption comesfrom natural gas. Although Ukraine has large conventional andunconventional gas resources, it will be unable to boost domestic gas
production without deeper and comprehensive reforms and significant
foreign direct investment. While it has coal reserves for another 100
years, the productivity of coal extraction is very low and its production
costs are high. Coal mining is highly dangerous and Ukraine has oneof the highest rates of accidents in the world, close to Chinese levels.
Without restructuring, modernization and liberalized market reforms,
Ukraine will be unable to cope with its energy supply challenges,
including decreasing its extremely high energy consumption.
Moreover, Ukraine is deeply dependent on Russia, which supplies
85-90% of Ukraine’s oil imports and 75-80% of its natural gas
imports. In addition, in 2010 Ukraine signed agreements with Russia
to build two nuclear reactors and to deliver only Russian fuel to all
Ukrainian reactors until they cease operation. These arrangements
have stunted necessary domestic reforms and weakened Ukraine’s bargaining position vis-à-vis Russia, particularly with regard to gas
imports and transit. Moscow uses the gas issue to exert pressure on
Kyiv over various bilateral issues. Kyiv signed a gas agreement with
Moscow disadvantageous to Ukrainian interests, yet Moscow insists

Towards an Open Ukraine: Policy Recommendations

xv

that any review of that agreement would only be possible if the stategas company Naftohaz Ukrainy merged with Gazprom, ownership of
the Ukrainian GTS was transferred to Gazprom, or if Ukraine joined
Russia’s Customs Union with Belarus and Kazakhstan. Yanukovych
has publicly rejected such conditions as “humiliating,” and Ukrainianlaw prevents the selling, renting or leasing of critical energy infrastructures to foreign countries and companies. Russia is pushing for a
new gas consortium over the GTS acquiring majority control, leaving
Ukraine just 20% of its shares. Such an arrangement would question
Ukrainian sovereignty and independence, threaten efforts at deeper
democratic and market reforms, and pose considerable challenges to
EU energy security and foreign policy. Giving up sovereignty over the
GTS is seen by the Nikolai Azarov government as a better option
than implementing unpopular IMF reforms (such as raising household
uility prices to reduce Naftohaz Ukrainy’s contribution of 2% to thebudget deficit) as Russia will provide gas at a subsidized price in a newcontract.
An Open Ukraine requires Kyiv to boost domestic energy efficiency; eradicate endemic corruption in the energy sector; adopt all of
the elements in the European Energy Community that it signed on to;and diversify its energy mix and strengthen its national security by
reducing its dependence on Russia.
• Boosting Energy Efficiency. Ukraine’s energy infrastructure isinefficient and wasteful. The country has invested little inenergy efficiency, yet such efforts are critical to Ukraine’s
energy security. A major step forward would be for Kyiv totake the politically unpopular decision to raise gas prices forhouseholds and utilities, which are heavily subsidized (a firstincrease was undertaken in 2010 but the Cabinet balked attaking a second increase ahead of the 2012 elections). The
domestic political fallout could be mitigated by compensatory
measures for low income households. Artificially low gas
prices in the past have dampened any incentive to boost
domestic gas extraction or to improve efficiency and a new gas
contract with a return to subsidized prices will again freeze
Ukraine’s inefficient and wasteful energy sector. These havefuelled high-price gas imports from Russia, compromisingxvi

O PEN U KRAINE : C HANGING C OURSE TOWARDS A E UROPEAN F UTURE

Ukraine’s national energy security and its overall economic
competitiveness. Most Ukrainian energy producers have been
unable to finance even their replacement investments because
their revenues from domestic sales do not cover their costs.
The only real beneficiary of the artificially increased demand
for gas is the Russian state gas company Gazprom. In contrast,
the Ukrainian state gas company Naftohaz Ukrainy needs
budgetary support because of highly subsidized utility prices.
• Eliminate endemic corruption in the energy sector. The lackof strong market reforms is linked to systemic corruption anda nebulous legal and legislative framework, which haveunnerved the markets and scared away foreign investment. If
Ukraine is serious about its energy security, it will work toeradicate systemic corruption and establish clear legal groundrules for investments in its energy sector.
• Adopt European Standards. On February 1, 2011 Ukraine
became a full member of the European Energy Community(EEC), which extends the EU’s internal energy market to
Ukraine. It is strongly in Kyiv’s interest to live up to the obligations such membership entails, including full adherence toanti-corruption norms of European law and implementationof the EU’s third energy package of unbundling energy production from its distribution in gas and electricity markets by
January 2015. The implications of this third package are farreaching and often not fully understood. EEC members are
obliged not only to revise their laws and to adopt secondary
legislation but also to promote fundamental changes in market structures by introducing market rules and legislation.
Central European practice offers Ukraine a means to implement EU acquis in energy despite its dense interwoven ties
with Russia, whereby long-term Russian contracts could enjoy
temporary derogation from EU regulations.
• Diversify. Energy cooperation with the EU and other foreign
partners could help Kyiv diversify its fossil-fuel imports andits overall energy mix and reduce its dependence on Russian
gas and oil. Ukraine has excellent wind resources and possesses significant unconventional (shale) gas deposits.

Towards an Open Ukraine: Policy Recommendations

xvii

Ukraine’s Parliament has already passed more investorfriendly legislation to open its domestic natural gas market toforeign shale gas and coal-bed producers. Exploitation ofthese reserves could give buyers more leverage to renegotiate
the high Russian oil-indexed gas price demands that areincluded in long-term contracts, and could drastically reduce
Ukrainian dependence on Russian gas. Moreover, the confluence of EU energy market liberalization, stepped-up antitrust
enforcement, and the emergence of unconventional gas supplies in European markets may prompt Russia to increase its
own efforts at energy efficiency and to invest in its own
unconventional gas resources, which may be much cheaper
than investing in the extremely costly Yamal Peninsula andShtokman projects, and perhaps lead to greater reciprocity
and symmetry in both Ukrainian and EU energy relations
with Russia. On the other hand, if Ukrainian and European
gas policies remain hostage to long-term contracts, “take-andpay” clauses and oil price linkages, prospects will be dim for
new and sustainable integrated energy and climate policies,
despite the fact that international gas markets have de-linked
from oil price markets.

A Strategy for the West:
Open Door, Straight Talk, Tough Love
Given Kyiv’s turn to autocracy, it would be tempting for Westernpolicymakers, besieged with other priorities, to turn their backs on
Ukraine. This would be a strategic mistake. The United States and the
EU have a strong stake in an Open Ukraine secure in its borders andpolitically stable. A more autocratic, isolated and divided Ukraine
would be a source of continued instability in the heart of Europe. It
would make it harder for Georgia and Moldova to pursue their proWestern course. It would diminish prospects for reform in Belarus. It
would perpetuate a gray zone of borderlands on a continent that has
until now enjoyed an historically rare moment to transcend thetragedies of its past divisions. Western leaders should avoid falling into
the same short-term mindset that currently befalls Ukrainian elites,
and adopt a broader strategic perspective.

xviiiO PEN U KRAINE : C HANGING C OURSE TOWARDS A E UROPEAN F UTURE

Ukraine is beset by regional and cultural divisions that will have a
profound impact on the country’s political evolution. As Ukrainians
debate the norms that should guide their society, normative consistency by their Western partners can provide orientation and strength.
This does not mean softening norms or conditions for effective
engagement, but it does mean being clear about the benefits that
could result from adherence to such norms. The West has a vested
interest in ensuring that Ukrainian leaders understand the opportunities and consequences that could result from their decisions, andshould be consistent in setting forth a coherent and coordinatedframework of relations that can help shape those choices.
As Ukraine struggles to find its place in 21st century Europe, therefore, the door to that Europe should be kept open. There is no consensus at present within the EU about the possibility of ultimate
Ukrainian membership. Yet if the door to Europe is closed, theUkrainian government will have little incentive to advance politicaland economic reforms, and could either turn to alternative geopolitical frameworks or remain isolated in a geopolitical gray zone, generating instability and insecurity throughout its wider neighborhood.
Clear EU support for the principle of the Open Door, on the other
hand, can help Ukrainians build the courage and political will to
implement tough reforms at home—not as a favor to others, but
because they understand it is in their own interest to do so. have aneffect on internal developments in Ukraine. And if Kyiv begins to
implement reforms that promise to move Ukraine towards an open,
democratic and market-based society, such actions can in turn affectwhat leaders in EU capitals are willing to offer Ukraine.
Based on the continued validity of the Open Door, Western strategy should advance along two tracks that work together. The first
track should demonstrate the genuine interest of North America andEurope in close and cooperative ties with Ukraine, and should set
forth in concrete terms the potential benefits of more productive relations. They should make it very clear that Europe and the U.S. standas willing partners if Ukraine decides to invest in its people, forge
effective democratic institutions, build a more sustainable economy
grounded in the rule of law, tackle endemic corruption, diversify andreform its energy economy; and build better relations with its neigh-Towards an Open Ukraine: Policy Recommendations

xix

bors. U.S. and European efforts should seek to strengthen democratic
institutions; promote the growth of civil society, especially independent media; support economic reforms; provide technical assistance forenergy reforms; and facilitate interaction between Ukrainian citizens
and their neighbors, including visa liberalization, business and student
exchanges. If Kyiv signals by its actions that it is interested in deepening its engagement with the West, North America and the EU shouldbe equally ready to engage while pushing for more comprehensive
economic and political reforms aimed at facilitating Ukraine’s integration into Euro-Atlantic institutions.
At the same time the U.S. and Europe should make it clear that if
Ukraine’s leadership abuses the rule of law, facilitates corruption, fails
to advance effective reforms, and resorts to intimidation tactics, as iscurrently the case regarding the Tymoshenko conviction, theprospects for an open, prosperous and secure European Ukraine will
fade. International efforts to deter Ukraine’s further backsliding
should combine the threat of costly sanctions towards the ruling elitewith calls for unencumbered engagement of citizens in political life,
targeted assistance to key civil society actors and specific proposals forreforms that could pave the way toward a more open Ukraine. Outsidepressure on Ukrainian authorities clearly has its limits, of course, andthe main brunt of responsibility for the evolution of Ukraine’s politicalregime lies with domestic actors. However, as the Orange Revolution
demonstrated, Western influence can restrict the range of options
available to authorities who choose to fight their own people, and canhelp to weaken the internal legitimacy of some of the government’s
anti-democratic policies.
In short, a proactive Western policy might be best characterized as
Open Door, Straight Talk, and Tough Love. Such an approachrequires persistence, patience, and consistent engagement on the following priorities:• Support Civil Society. By monopolizing political space andmarginalizing the opposition, Ukrainian authorities undermine the reform process and weaken public trust in government activities. Transformative reforms of the magnitude
needed in Ukraine require support across the country andfrom political forces on both sides of the major politicalxx

O PEN U KRAINE : C HANGING C OURSE TOWARDS A E UROPEAN F UTURE

divide. North American and European governments andinternational organizations should stress the critical importance of a free and fair parliamentary campaign in October
2012 ahead of the process and cast a spotlight on even minor
violations of democratic procedures. They should weigh inagainst any signs of abuse of state-administrative resources orbiased limitations on opposition activity or campaign financing, in order to prevent further emasculation of civic groups
or further closure of the civic space for independent politicalaction. They should encourage Kyiv to lower barriers to independent media and to ensure media access to the opposition.
They should encourage active involvement of opposition parties and leading NGOs in the process of drafting reform
strategies and ensuring government accountability at all levels. International organizations should provide technical assistance in training election observers and electoral commission
members representing all political parties.
• Advocate Institutional Reform. Western governments andinternational organizations, particularly representatives ofpost-communist countries, should advocate targeted institutional reforms aimed at establishing a legally-grounded balance of authority among the executive, legislative and judicial
branches; increasing the government’s accountability to theparliament; and strengthening oversight agencies, such as anindependent anticorruption bureau, accounting chamber, theoffice of the ombudsman and the financial regulatory body.
They should offer concrete suggestions to depoliticize thejudiciary and the civil service, which are still dominated byvested political and business interests.
• Support Ukrainian Efforts to Tackle Systemic Corruption.
The West should develop consistent medium- to long-term
strategies to help Ukraine fundamentally reform its legal system and to reduce systemic corruption.
• Offer Technical Support for Reforms. Ukraine’s Cabinet lacks
staff to develop draft legislation and government employees
are not qualified enough to develop modern economic legislation. Provision of technical assistance will be crucial toTowards an Open Ukraine: Policy Recommendations

xxi

Ukrainian political, administrative, economic and energy
reforms.
• Be Clear about the Consequences of Undemocratic Activities.
North America and the EU demonstrated impressive unanimity in condemning the trial and conviction of Yulia
Tymoshenko in October 2011 and issued strong demands forher release and resumption of her ability to participate in thepolitical life of the country. They should link such condemnation with concrete measures that would raise the cost to
Ukrainian authorities of further undemocratic steps. Suchmeasures should include suspension of Ukraine’s membershipin the Council of Europe; introducing visa bans for those officials responsible for ordering the crackdown against protesters or persecution of the opposition; a freeze on negotiations
for an Association Agreement (including the DCFTA); andlimiting bilateral contacts with top Ukrainian officials andstate visits to Kyiv. At the same time, the West must maintainits clear message that the door to Europe and Euro-Atlantic
institutions remains open should Ukraine work to create theconditions by which it could in fact walk through that door.
• Make Better Use of the Eastern Partnership. In order toarticulate a policy for neighbors for whom membership is adistant goal, the EU launched the Eastern Partnership in 2009
with Armenia, Azerbaijan, Belarus, Georgia, Moldova, andUkraine. Yet instead of using the EaP to deepen engagement
in Ukraine and other Partnership countries, EU officials
dampen their own influence with rhetoric that distances
themselves from the prospect of a space of stability, prosperity
and democracy stretching as far across the European continent as possible. The EU should be far more proactive in its
use of the Eastern Partnership.
• Combine Broad Visa Liberalization with Targeted Restrictions.
Kyiv has a strong interest in visa liberalization with theEU; one in every ten Schengen visas goes to a Ukrainian.
The EU should calibrate its approach by offering a generous broad-based approach to visa liberalization for Ukrainian citizens (particularly young people and students) andxxii

O PEN U KRAINE : C HANGING C OURSE TOWARDS A E UROPEAN F UTURE

facilitating special possibilities for study abroad and cultural, educational, business and local government
exchanges, so that the average man and woman in thestreet, especially in the east and south of the country, cangain personal awareness of the benefits to be derived fromcloser relations. This strategy of maintaining an Open
Europe for Ukrainian citizens should be combined withtargeted visa bans and restrictions for Ukrainian officials
engaged in undemocratic or illegal activities.
• Engage Ukraine Actively via a Transcarpathian Macro-Regional
Strategy. New EU macro-regional strategies, for instancewith the Danube states, offer a potential model for engagement with Carpathian states. This special area is surrounded by four EU member states, namely Poland, Slovakia, Hungary and Romania. All four are neighbors toTranscarpathia and to each other by cultural, historical andethnic ties. The Transcarpathian Region could be developed into a strategic Ukrainian bridgehead for integration
into Europe. It is already linked by broad-gauge railway to
Hungary and Slovakia, and its special location and multiethnic traditions are convenient for offshore zones andassembling factories.
• Support Ukraine’s Democratic Development. The proposed
European Endowment for Democracy should disburse aid to
Ukrainian civil society and encourage and defend Ukraine’s
democratic development to monitor Eastern Partnershippolicy toward Ukraine. The EU should ensure that its assistance is coordinated with U.S. and Canadian efforts toensure they are complementary and not duplicative.
• Use the Association Agreement and DCFTA to Advance theBroader Strategy. With neither NATO nor EU membershipon the horizon, the primary vehicle for keeping open theprospect for Ukraine’s closer ties to the European mainstream
is the Association Agreement and Deep Comprehensive Free
Trade Agreement (DCFTA) currently being negotiatedbetween Ukraine and the EU. However, the EU has frozen the
final negotiations slated to led to initialing of the agreement,Towards an Open Ukraine: Policy Recommendations

xxiii

due to concerns in various EU member states about the political repression and serious violations of rule of law—particularly the arrest and trial of former prime minister
Tymoshenko—that have occurred since President Yanukovych
took office. The DCFTA offers the EU a mechanism by which
it can calibrate a two-track approach to Ukraine. Initialing theagreement would signal that the EU is indeed ready to move
forward with a much closer relationship with Ukraine, withconcrete and substantial benefits for the Ukrainian government, Ukrainian elites, and Ukrainian citizens. But freezing
the formal signing and ratification process would also signalthat a fundamentally new partnership is only possible on thebasis of respect for human rights and the rule of law.
The DCFTA is in fact a new generation economic agreement
ranging far beyond a standard free trade agreement, not only
liberalizing 95% of bilateral trade but aiming for deep andcomprehensive harmonization of economic legislation. The
opportunities for Ukraine are immense, given that the EU is
the largest single market in the world, about 130 times larger
than the Ukrainian domestic market and 15-20 times larger
than the Russian, Belarus and Kazakhstan markets combined.
The benefits to all sectors of Ukrainian society of joining the
DCFTA far outweigh the small number of benefits fromentering a free trade agreement with the CIS.
• Keep NATO’s Open Door while Engaging Closely. Ukrainian
membership in NATO has again been pushed off the international agenda for the immediate future. While the door to
NATO membership remains open to Ukraine (and Georgia)
in principle, in reality there is little support in Western capitals for further enlargement of the Alliance in the near term.
Focusing on NATO membership now will only inflame thepolitical atmosphere and make progress in other important
areas more difficult. The main obstacle is not Russian
opposition—though this is an important factor—but low public support for membership in Ukraine itself.1 On the other1

Popular support for NATO—22-25 percent and below 10 percent in the Russified
areas of eastern Ukraine—is much lower in Ukraine in comparison to other states in
Eastern Europe. See the chapter by F. Stephen Larrabee.

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hand, Ukraine was the first CIS state to join the Partnershipfor Peace, has been one of the most active participants in its
exercises, and the NATO-Ukraine Charter on a DistinctivePartnership gives Ukraine a unique status. Rapprochementwith NATO increased Ukraine’s freedom of maneuver and led
to an improvement of ties with Moscow. Ukraine contributes
to nearly all UN and NATO peacekeeping operations, insome cases more than some NATO members.
Nonetheless, as long as only about a quarter of the population
favors membership, prospects for Ukraine being admitted toNATO remain remote. In the meantime, other steps in the
security field could be taken to strengthen cooperation within
the NATO-Ukraine Partnership in areas where there ismutual interest, while encouraging progress toward more
open democratic institutions. Such activities include engaging
the Ukrainian military in a dialogue on military reform; continuing to involve Ukraine in peacekeeping operations, bothwithin NATO and bilaterally; enhancing cooperation on
nuclear safety; further developing the crisis consultative
mechanism; and further developing ties in such areas as civilmilitary relations, democratic control of the armed forces,
armaments cooperation, and defense planning. Information
campaigns should highlight how NATO provides practical
help to Ukraine in emergency situations, cyber-security, security to the Euro-2012 soccer championship, orders for
Ukrainian industry, and support for the training of Ukrainian
officers. A critical area of concern, as Ukraine turns autocratic,is democratic control and reform of internal security forces(Security Service, Interior Ministry, border guards, customs
officers, Prosecutor’s office), which are far larger than thearmed forces, and which are used in political repression andinvolved in corruption.
• Engage Ukraine on Its Own Merits, Not as a Subset of Russia Policy. A successful Euro-Atlantic policy of engagement
toward Ukraine cannot be a subset of Western policy toward
Russia; the West must consider its own substantial interests inan open Ukraine on their own merits. At the same time, theTowards an Open Ukraine: Policy Recommendations

xxv

United States, Canada and European allies should send a clear
message to Moscow that they oppose any attempts to undermine the sovereignty of Russia’s neighbors, including threats
to their territorial integrity. Upon entering office Yanukovych
acted quickly to remove key irritants with Moscow, such as
the international campaign to recognize the Holdomor (1933
artificial famine) was genocide; shelving plans to join NATO;and ramming through an unconstitutional measure that prolongs the stationing of the Russian Black Sea Fleet in Crimea
to 2042-2047. Russia has demanded more, however, including
Ukrainian membership in its CIS Customs Union or Russianownership of the Ukrainian GTS. It is clear that Russia finds
it very hard to respect Ukrainian sovereignty and independence. Yanukovych has received little in return for his efforts at
appeasing Moscow, and despite his interest in closer relations
with Russia, he has also shown that he still prefers being theleader of a sovereign country to being the governor of a Russian province. Nonetheless, he faces strong and consistent
Russian pressure on key issues; Western policy should makethe implications of his choices clear. For instance, Ukraine
faces a choice between entering the CIS Customs Union of
Russia, Belarus and Kazakhstan, which is likely to block all
fundamental domestic market reforms; or proceeding with thekinds of domestic reforms that would enable Ukraine to reap
the benefits of the DCFTA with the EU and closer integration with the European mainstream, including visa liberalization, competitiveness, transparency and accountability in
Ukraine’s energy markets, greater investments in infrastructure and new technologies, and reduced energy dependency.
The first choice demands far less than the second choice interms of domestic reform, but the second choice promises
substantially greater rewards. And joining the Eurasian Customs Union with countries that are not members of the WTO(Russia may soon join, but not Belarus and Kazakhstan) would
require a renegotiation of Ukraine’s membership in the WTO
and end Ukraine’s hopes for an Association Agreement and
DCFTA.

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O PEN U KRAINE : C HANGING C OURSE TOWARDS A E UROPEAN F UTURE

We have no illusions about the difficulty of realizing the vision of
an Open Ukraine. Yet the gains, both for Ukraine and for Europe,
would be considerable. Ukraine’s choices are its to make, but it is theWest’s responsibility to make the costs and benefits of those choices
clear and credible to Ukraine’s leaders and its citizens.

Introduction:
Why an Open Ukraine is the Best Path for its
Citizens, its Elites, and its Neighbors

Taras Kuzio and Daniel Hamilton

In this volume a number of distinguished experts offer analysis andrecommendations in politics, the economy, rule of law and corruption,national identity, energy, European integration and foreign policy.
Together these contributions set forth a vision for an Open Ukraine, ademocracy accountable to its people with a socially responsible market
economy, governed by an administration that respects the rule of law,fights corruption and that can effectively implement needed reforms,
and that is increasingly integrated into the European mainstream.
This vision of Open Ukraine would fulfill the country’s enormous
potential, which has been beyond the grasp of every Ukrainian administration since independence.
Major strides forward in democratization following the 2004
Orange Revolution were combined with political instability and economic growth, until the 2008 global financial crisis. The Freedom
House human rights think tank upgraded Ukraine to ‘Free,’ the only
country in the CIS to receive this ranking. Progress in democratization in some areas, notably democratic elections and free media, however, were not matched by progress in the rule of law, fighting corruption and democratic control of law enforcement structures. Bohdan
Vitvitsky and Stephen Larrabee discuss how the failure to combat
these factors led to public disillusionment in the leaders of the Orange
Revolution and made it relatively easy to quickly dismantle Ukraine’s
democratic gains following Viktor Yanukovych’s narrow 3% election
victory in February 2010.
Widespread U.S., Canadian and European hopes that President
Yanukovych had accepted the democratic rules of the game and wastherefore different from Prime Minister Yanukovych, who had beenxxvii

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O PEN U KRAINE : C HANGING C OURSE TOWARDS A E UROPEAN F UTURE

accused of having orchestrated election fraud seven years earlier, have
proven to be unfounded. Today, a concerted effort is under way tobuild an autocratic regime, with significant implications for Ukrainiansociety and Ukraine’s integration into Europe, again preventing thecountry from fulfilling its potential as an Open Ukraine. In thisregard, the conviction of former Prime Minister and opposition leader
Yulia Tymoshenko in October 2011 to seven years imprisonment andthree years ban from holding office is a watershed event, the most visible and emblematic manifestation of the country’s turn away from
Europe toward autocracy. The sentence has jeopardized Ukraine’s
chances of entering into an Association Agreement (including a Deepand Comprehensive Free Trade Agreement—DCFTA) with the EUthat has been under negotiation since 2008, when the country joined
the WTO. Integration into Europe, while not the full membershipthat a majority of Ukrainians support, would bring enormous benefitsof access to the world’s largest trading area, giving unlimited opportunities for the Ukrainian economy and its companies; institutional andlegislative alignment that would strengthen the country’s state-building processes; and visa-free access for citizens—all areas analyzed ingreat detail by Peter Balazs in his chapter in this volume. If Ukraine’s
leaders truly desire an Open Ukraine, then European integration isthe country’s best—and only—option.
Ukraine held four democratic elections between December 2004
and February 2010, but concern whether future elections would
remain democratic became evident in widespread European and U.S.
criticism of the conduct of October 2010 local elections, which failed
to meet international standards. With Tymoshenko and other opposition leaders in jail it will be difficult for the OSCE and Council ofEurope to recognize the 2012 elections as democratic. The conduct ofparliamentary elections in October 2012 and strategic decisions aboutmuch-needed reforms will remain key benchmarks for Ukraine’s likely
direction over the coming decade. Other manifestations of democratic
backsliding since 2010 include a decline in media freedom and theright to peaceful assembly, the erosion of parliamentary independence
and monopolization of political power, and un-democratic practices
against the opposition by the Interior Ministry, Prosecutor-General’s
office and Security Service (SBU).

Why an Open Ukraine is the Best Path for its Citizens, its Elites and its Neighbors

xxix

While the crucial domestic and foreign policy decisions are for
Ukrainians to take, signals sent from abroad could make a difference.
The policy recommendations and expert opinions outlined in this volume present an alternative direction to that taking place in Ukraine, apath that is beneficial to all sectors of society and all regions of
Ukraine, a path towards an Open Ukraine.
Despite the country’s great potential, its political culture has been a“momentocracy,” a Yushchenko reference to a collection of short-term
policies that benefit a small group of elite insiders yet lack longerterm vision or strategies towards a better future for the country as awhole. A number of factors, most of which tend to feed on each other,have rendered Ukraine an immobile state1 that exists not for its citizens but instead for the benefit of a small group of ruling elites, who
remain concerned only with dividing up a rather small existing pie,rather than expanding that pie through reforms that could lift the livesof its people and integrate the country into a much larger space ofprosperity, democracy and security. As Frank Umbach points out, themost brazen example of the prioritization of short term rents at theexpense of reforms is the country’s unreformed energy sector. With
very few exceptions, Ukrainian politicians have succumbed to thetemptation of seeing the energy sector as a cash cow for short term
financial gain.2
The first factor inhibiting Ukraine from moving beyond an immobile state is the Soviet legacy of state control: deeply embedded traditions of markets distorted by monopolies, systemic corruption, manipulated elections, and a politically captive judiciary. When the Soviet
Union disintegrated, Ukraine had to undertake a “quadruple transition.” It needed to create the mechanisms and institutions of a sovereign state; build a nation from a quasi-republic in the Soviet empire;transform the command-administrative Soviet economy into a market
economy; and establish an effective democracy out of a totalitarian
1

This phrase is taken from Taras Kuzio, “Political Culture and Democracy: Ukraine
as an Immobile State,” East European Politics and Society, vol. 25, no. 1 (February 2011),
pp. 88–113.

2

This was pointed out in detail by Margarita Balmaceda in Energy Dependency, Politics
and Corruption in the Former Soviet Union: Russia’s Power, Oligarch’s Profits and Ukraine’s
Missing Energy Policy, 1995–2006 (London and New York: Routledge, 2008).

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O PEN U KRAINE : C HANGING C OURSE TOWARDS A E UROPEAN F UTURE

political system. Ukraine has been only partly successful, and since2010 some critical gains have been reversed, as Serhiy Kudelia succinctly analyses in his chapter on the politics of the Yushchenko andYanukovych presidencies.
A second factor important to Ukraine is national integration.
Ukrainian society is divided along regional lines, and between Russian
and Ukrainian language speakers, which makes it more difficult toconsolidate Ukraine’s elites around united goals of democratic andmarket economic reforms, improving the rule of law, reducing corruption and clear foreign policies, thus trapping the country in what havebeen described by Western experts as ‘muddled’ policies in a gray zoneof uncertainty and instability.3
Ukraine’s two decades of independence can be divided into two
periods. Whereas national integration prevailed in the 1990s, regional
divisions have grown since the 2000 “Kuchmagate” crisis. In Ukraine’s
first decade, reformist political forces on the center-right, popular in
the western-central regions, cooperated with centrist forces popular ineastern-southern Ukraine, to advance Ukraine’s “quadruple transition.” In the last decade, however, growing regional divisions exploitedby both sides of the political fence have divided reformers and, asOlexiy Haran analyzes in his chapter, distracted them from the pursuit of much-needed reforms and Euro-Atlantic integration. As arecent New York University policy paper points out, of the threepotential scenarios facing Ukraine up to 2020 the only one leading to
an Open Ukraine is that of a grand bargain between eastern and western Ukraine, a ‘National Consensus Leading to Reform.’4 UnlessUkrainian elites overcome their regional divisions, it will be difficult
to fashion an elite and public consensus for the reforms outlined inthis volume that would facilitate both an Open Ukraine and the country’s European integration. Selective use of justice against opposition
3 On Ukraine’s “muddle way” see Alexander J. Motyl, “Making Sense of Ukraine,”

Harriman Review, vol. 10, no. 3 (September 1997), pp. 1–7; Dominique Arel, “TheMuddle Way,” Current History, vol. 97, no. 621 (October 1998), pp. 342–46; andAndrew Lushnycky and Mykola Riabchuk, eds., Ukraine on Its Meandering Pathbetween East and West (Bern, Switzerland: Peter Lang, 2009).
4

Center for Global Affairs, New York University, Ukraine 2020. http://www.scps.nyu.edu/
export/sites/scps/pdf/global-affairs/ukraine-2020-scenarios.pdf.

Why an Open Ukraine is the Best Path for its Citizens, its Elites and its Neighbors

xxxi

leaders who are popular in one half of the country, as is being practiced today in Ukraine, only deepens regional divisions and makes
reforms and European integration far less likely.
A third factor, an unreformed, largely dysfunctional bureaucracy,
stymies efforts at reform even in areas where there is general agreement within the ruling administration and opposition to move forward. Marcin Swiecicki’s chapter analyzes the main areas of progressin Ukraine’s transition to a market economy and the many areas wherereforms remain to be implemented. Rent-seeking clans and oligarchs,
most with close ties to the Party of Regions, extract what they canfrom the existing system without looking ahead to how the economicpie could be expanded for the benefit of themselves and Ukrainian citizens. Economic and social reforms in the last two decades have been
piecemeal in response to IMF pressure (1994, 2008-2009, 2010-2011),
and failed to meet all the conditions set forth by the IMF in its assistance programs.
Of Ukraine’s fourteen governments since 1991, the most reformist
was led by Viktor Yushchenko and Yulia Tymoshenko in 2000-2001,
when their cooperation in introducing reforms showed signs ofprogress in moving towards an Open Ukraine. Unfortunately, theircooperation was not evident following the Orange Revolution, whenfractious disagreement led to policy stagnation at home and frustration among Ukraine’s U.S. and European partners.
A fourth factor, rule of law and corruption, is analyzed in great
depth by Bohdan Vitvitsky. No Ukrainian president has seriously
fought corruption, and policies in this field have remained virtual
rather than real, especially in the energy sector.5 Transparency International only noted progress in reducing corruption in 2000 and in2005 during the respective Yushchenko and Tymoshenko governments. Vitvitsky underscores the essential point that rule of law is thefoundation of a democratic political system and market economy andtherefore of an Open Ukraine. The ten or more criminal cases opened
against Tymoshenko, in addition to the charge she was sentenced for,are understood by European and U.S. governments and international
5

T. Kuzio, ‘Virtual Reform in a Virtual State,’ Kyiv Post, May 8, 2003. http://www.kyivpost.com/news/opinion/op_ed/detail/15621/.

xxxiiO PEN U KRAINE : C HANGING C OURSE TOWARDS A E UROPEAN F UTURE

organizations as selective use of justice that does not meet democraticrule of law standards
These four factors, together with others, have conspired to preventthe emergence of the type of transformational leadership seen elsewhere in the countries that emerged from the post-communist world
over the past two decades. The Orange Revolution inspired hopes
both in Ukraine and in the U.S., Canada and Europe that the country
had turned an important corner politically that could end the country’s immobility and lead to an Open Ukraine and European integration. Kudelia explains how these hopes were dashed, however, as“Orange” authorities maintained symbiotic relationships with the oligarchs, preserved the rent-seeking traditions of their predecessors,
used administrative levers to influence the courts and failed to makeany substantial progress in integrating Ukraine more deeply into theEuropean mainstream (the one exception being membership of the
WTO in May 2008). The “Orange” administration did little tostrengthen government accountability and the rule of law, or to place
law enforcement structures under democratic control, which has madePresident Yanukovych’s democratic rollback easier.
The fierce competition for power and rents between former allies
destroyed the “Orange” coalition and paralyzed policymaking, leading
to widespread Ukraine fatigue in Washington, Ottawa and in European capitals. Systemic corruption, which most reports show is growing, has devastated public trust in all branches of government and in
the country’s leadership making Ukrainians less eager to defend theirdemocracy against attacks upon it by the current leadership. Following Yushchenko’s successful visit to Washington in April 2005, theU.S. and NATO sent a strong signal to Ukraine that the country
could enter a Membership Action Plan (MAP) towards NATO membership at the November 2006 Riga summit, but the opportunity was
missed. Similarly, a second signal by the EU to Ukraine of signing an
Association Agreement and Deep and Comprehensive Free Trade
Agreement may be frozen again because of domestic political developments. In both cases, NATO and EU integration has been de-railed bydivisive policies, disunity, weak political will and lack of strategic
vision among Ukrainian elites.

Why an Open Ukraine is the Best Path for its Citizens, its Elites and its Neighbors

xxxiiiIn retrospect, the Yushchenko presidency took the form of what
Kudelia describes as “feckless pluralism,” a lost opportunity to forge
an Open Ukraine that instead paved the way for the country’s authoritarian retrenchment under Yanukovych. Democracy as a model ofgovernance has been tarnished in the public eye due to poor governance and the inability of “Orange” leaders to prove they were betterand less corrupt than their political opponents. As a consequence, government institutions have been severely weakened; elites are
extremely polarized and democratic forces are fractured; and public
cynicism about the role of government is pervasive. Ukrainian politicians of all stripes face incredibly high levels of public distrust.6
The lack of unity among top government officials in Ukraine andtheir inability to move beyond an immobile state and implement longpromised reforms has led to Ukraine fatigue among European, Canadian and U.S. leaders. Brussels, Ottawa and Washington are unable tocomprehend how the current Ukrainian authorities could chose toprioritize the imprisonment of an opposition leader over the benefits
that would accrue to the population at large and country of European
integration. Poland, which held the presidency of the European
Council in the second half of 2011, is especially disconcerted that its
staunch support for Ukraine’s European integration has been spurned.
As the European Union grapples with the euro-zone crisis,
Yanukovych’s democratic backsliding offers those Europeans whoalways were skeptical about EU engagement with Kyiv, and who
feared that the Association Agreement was merely the thin edge of awedge that would lead to membership, a handy excuse to oppose it.
Yanukovych’s policies have left Ukraine more isolated internationally, thus creating the conditions for Kyiv’s potential drift back into
the Russian economic and political orbit. In late April 2010, the coalition headed by Yanukovych railroaded through parliament a 25-year
extension of the existing 1997 temporary basing agreement, allowing
Russia to base the Black Sea Fleet in Sevastopol until 2042 with thepossibility of a five year extension to 2047. As Stephen Larrabee
points out, the agreement was ratified without proper parliamentary
oversight and in violation of a constitutional provision forbidding for6

See numerous surveys by the International Foundations for Electoral Systems:
http://www.ifes.org/countries/Ukraine.aspx.

xxxivO PEN U KRAINE : C HANGING C OURSE TOWARDS A E UROPEAN F UTURE

eign bases on Ukrainian territory. In return for extending the baseagreement, Russia agreed to lower the price of imported gas by 30
percent from the price determined by the January 2009 contract
signed by then Prime Minister Tymoshenko that ended a 17-day
European gas crisis. However, due to the falling demand for gas, Russia had already begun renegotiating contracts in Europe and giving
customers discounts. Thus, as Frank Umbach writes, the 30% discount simply brought the price negotiated with Yanukovych down tocurrent European average prices. The 2010 gas agreement, and the
new agreement signed in late 2011 which lowered the price further,
reduces the country’s incentive to reform its inefficient and corrupt
energy sector, and commits it to buy more gas in future than it may
need. At the same time, it increases Ukraine’s economic and energy
dependence on Russia.
Yanukovych has also reversed the strategy of Ukraine’s first threepresidents and overturned parliamentary legislation geared towardseeking NATO membership. While distancing himself from NATO,
Yanukovych has often expressed his goal of EU membership, andUkrainian negotiators even demanded that Ukraine’s membershipgoal be fixed in the text of the Association Agreement. EU leaders
have failed to offer a membership perspective for Ukraine or any CIS
country, however, and relations have focused on negotiation of a
DCFTA as part of an Association Agreement, which had been slated
for completion by December 2011. Initialing of the Association
Agreement was to have been undertaken at the December 19, 2011
EU-Ukraine summit in Kyiv followed by the European Council signing of the agreement in 2012 and recommendation for its ratificationby the European Parliament and 27 EU member state parliaments.
While initialing may go ahead, it is unlikely that signing and especially ratification will follow. The trial and conviction of Tymoshenko
is the major obstacle to the agreement entering into force.
As the 2012 parliamentary and 2015 presidential elections loom,
Yanukovych faces a dilemma. He will either have to accept the possibility of opposition parties gaining substantial representation in the
new parliament and being defeated by opposition leaders, or he will
have to undertake election fraud of a scale that would surpass that
conducted in 2004. The stakes are high. Having established the prece-Why an Open Ukraine is the Best Path for its Citizens, its Elites and its Neighbors

xxxv

dent of criminal persecution of his predecessors, Yanukovych and hisallies face the possibility that they could become the target of similar
policies if opposition forces record significant gains in 2012 and an
opposition candidate wins the presidential election in 2015. Unless
Yanukovych is prepared to change course and embark on reforms that
could lead to a more open, prosperous and secure Ukraine, through agrand bargain between eastern and western Ukrainian elites, thetemptation to falsify the elections could be irresistibly high, leading tofurther international isolation.
In short, Ukraine again stands at a critical juncture. The country cancontinue its slide into autocracy and watch as its chances of integrating
into the European mainstream fade. Alternatively, as we argue, thecountry can move towards an Open Ukraine—an effective democracy
governed by the rule of law, free of systemic corruption, with a functioning market economy integrated into a far larger European space ofprosperity and stability. Actions taken at home and abroad can focus
this choice and make the consequences clear to Ukraine’s leaders.

Chapter One
Politics and Democracy in Ukraine

Serhiy Kudelia

For most of its two decades of independence Ukraine’s politicalregime has been stuck in the “grey zone” between a developed democracy and a consolidated autocracy.1 The state’s attempts to limit the
space for independent political activities and consolidate autocraticrule were successfully resisted by mobilized society actors and vocal
opposition groups. The Orange Revolution was expected to put an
end to Ukraine’s “hollow decade” and push it decisively in the European direction. However, the equilibrium of “partial reforms” proved
more resilient then observers imagined at the time. The new post-revolutionary authorities avoided costly institutional reforms that would
have harmed particularistic interests, but could have strengthened
state capacity and promoted democratic consolidation. As a result,
Ukraine’s political regime under Viktor Yushchenko’s presidency
turned into ‘feckless pluralism’—one variation of “grey zone”
politics—marked by broader space for political contestation, but also
destructive elite competition and pervasive corruption. This allowed
his successor Viktor Yanukovych to reverse quickly the few democratic
gains of the Orange Revolution and move Ukraine to a more authoritarian ‘dominant-power’ model based on the political monopoly of
one political force, the Party of Regions.
This chapter will first look at the political legacy of Yushchenko’s
presidency that prepared ground for an authoritarian revival. It willthen analyze key political reversals under Yanukovych focusing on theclosure of main arenas for political contestation and enhanced capacity of the new authorities to neutralize civil society mobilization. The
chapter will conclude by outlining a set of recommendations on how
1Thomas Carothers, “The End of the Transition Paradigm,” Journal of Democracy, Vol.
13, No. 1 (January 2002), pp. 5-21.

1

2

O PEN U KRAINE : C HANGING C OURSE TOWARDS A E UROPEAN F UTURE

to deter Ukraine from turning into a full-blown authoritarian regime
and promote its greater political openness.

The Legacies of Yushchenko’s Presidency
Yushchenko came to power in January 2005 on the heels of thestrongest popular democratic movement in Ukraine’s history. It coalesced around the promises to introduce political freedoms, eliminate
corruption, end oligarchic influence on politics, establish clear andtransparent rules equally applicable to everyone and integrate Ukraine
into Euro-Atlantic structures. Most of these promises, however,proved to be mere campaign rhetoric. The new authorities maintained
a symbiotic relationship with big business, preserved the rent-seeking
traditions of their predecessors, used administrative levers to influence
courts and failed to make any substantial progress in relations with
NATO and EU. While abstaining from direct coercion of their opponents or attempts at media censorship, they did not introduce any
institutional changes that would strengthen government accountability or the rule of law. The fierce competition for power and rents
between former allies produced the breakdown of the Orange coalition and a virtual paralysis of policy-making. Frequent changes of government and several attempts by the president to disband the parliament only exacerbated the major deficiencies in governance. In afashion typical of “feckless pluralism,” competing political forces“traded the country’s problems from one hapless side to the other.”2
Incessant corruption scandals, which were never properly investigated,
contributed to the dramatic decline in public trust in all branches ofgovernment and the country’s leadership. In 2009 only 6.7% trusted
the Cabinet of Ministers, 5.3% trusted the courts, 4.7% trusted thePresident and 4.2% trusted the parliament.3 As a result, five years of
Yushchenko’s presidency became an era of “lost opportunity” forpolitical or economic reforms.4 This dismal governance failure opened
the path for a comeback in 2010 of the Kuchma era officials grouped
2 Carothers, p. 10.
3 Stan Koruptsii v Ukraini. Porivnialnyi analiz zagalnonatsional’nyh doslidzhen’: 2007-2009(Kyiv: International Institute for Sociological Studies, 2011), p. 15: http://kiis.com.ua/
img/pr_img/20110920_korup/Corruption%20in%20Ukraine_2007-2009_2011_
Ukr.pdf, accessed on October 15, 2011.

Politics and Democracy in Ukraine3

around the Party of Regions and led by ex-Prime Minister Viktor
Yanukovych.
Five legacies of Yushchenko’s presidency made possible Ukraine’s
authoritarian reversal under Yanukovych. Firstly, democracy as amodel of governance has been tarnished in the public perception due
to the poor governance record of democratic forces. According to2009 Pew Research poll, Ukrainians had the lowest support for a multiparty system and one of the lowest levels of satisfaction with democracy in Europe.5 Only 30% of Ukrainians approved of a shift to a multiparty system and 70% said they were dissatisfied with democracy.
Also, less then half believed in the importance of the freedom ofspeech and free media. The one democratic principle Ukrainians valued most—a fair judicial system—was also the one that remained a
distant ideal even under Yushchenko’s presidency.6
His second legacy has been a severe weakening of all state institutions exacerbated by the semi-presidential model that fueled infighting among political elites. The constitutional amendments introducedin December 2004 produced an overlap of many executive functions
between the president and the government. The president’s failure tosecure a loyal majority in parliament led to the rotation of combative
Prime Ministers (Yulia Tymoshenko in 2005 and 2007-10; Yanukovych
in 2006-07), who attempted to accumulate additional powers at theexpense of the presidency. In response, Yushchenko used his power tosuspend government resolutions in order to subordinate the Cabinetof Ministers and regain some influence over policy-making. During
his one term Yushchenko tried to stop over hundred government resolutions or five times more then Kuchma vetoed during his ten years in
office. Given that he lacked other levers to influence the government’s
4 Taras Kuzio, “With or Without Baloha, Yushchenko’s Unelectable,” Kyiv Post, May

28, 2009.
5“The Pulse of Europe 2009: 20 Years after the Fall of the Berlin Wall,” http://pewglobal.org/2009/11/02/end-of-communism-cheered-but-now-with-more-reservations/, accessed on September 1, 2011.

6

According to a Pew poll, 67% of Ukrainians believed in the importance of a fair judicial system. For the analysis of Ukraine’s judiciary system under Yushchenko see
Alexei Trochev, “Meddling with Justice: Competitive Politics, Impunity, and Distrusted Courts in Post-Orange Ukraine,” Demokratizatsiya: the Journal of Post-Soviet
Democratization, Vol. 18, No. 2 (Spring 2010), pp. 122-147.

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O PEN U KRAINE : C HANGING C OURSE TOWARDS A E UROPEAN F UTURE

policies, such as the power to fire disloyal Cabinet members,
Yushchenko resorted to the one that had the most destructive effects
on government’s work. Moreover, with the President maintaining thepower to appoint oblast governors the government also faced difficulties implementing its decisions on the local level. As a result, Ukraine’s
amended constitution, which expanded the role of the parliament andcould have potentially strengthened horizontal accountability, was discredited as a recipe for dysfunctional governance.
Yushchenko’s third legacy has been further polarization among elitegroups and the fracturing of the national-democratic forces. President
single-handedly promoted a number of divisive issues, particularly thehonoring of the World War II nationalist movement and accelerated
integration with NATO. This deepened Ukraine’s regional divisions
and heightened the intensity of political conflict. Furthermore,
Yushchenko also set against himself most of his former allies in the
Orange camp by making erratic appointments and entering into suspectdeals with shady oligarchs. His attempts to undermine Tymoshenko’s
government in 2008-2009 produced a series of political crises that led toa final breakdown of the Orange coalition. As a result, public support
for a pro-presidential party ‘Our Ukraine’ dwindled, while many of the
President’s earlier supporters started their own political parties (Vyacheslav Kyrylenko, Anatoliy Grytsenko, Mykola Katerynchuk) or joined
forces with Tymoshenko (Yuriy Lutsenko, Borys Tarasyuk).
Another legacy of Yushchenko’s presidency has been the overall
alienation of society from the state reflected in rising political apathy
and cynicism. This has been partially the result of the economic crisis
hitting Ukraine in late 2008, but it also reflected society’s sense of
powerlessness to affect the status quo. Frequent elections failed to
improve the quality of governance or produce new leaders. At thesame time, protest actions became largely discredited as a mechanismof change due to a widespread practice of hiring protesters and thelack of impact on government. The rising popularity of the radical
nationalist party “Svoboda” (“Freedom”) in Western Ukraine in 20092010 was another way that voters expressed their disillusionment with
the inability of a national-democratic leadership to deliver.7
7Anton Shekhovtsev, “The Creeping Resurgence of the Ukrainian Radical Right? The
Case of the Freedom Party,” Europe-Asia Studies, Vol. 63, No. 2 (March 2011), p. 222.

Politics and Democracy in Ukraine

5

Finally, the lack of unity among top government officials in
Ukraine and their inability to implement promised reforms produced‘Ukraine fatigue’ among Western leaders. Despite their generalapproval of Yushchenko’s record on democracy, Ukraine’s integration
with the EU and the development of strategic partnership with the
US have been sidetracked by poor governance and continued corruption on the highest levels of government. With no clear negotiating
partner in Kyiv and continuous policy zig-zags, the West could not
pursue any coherent policy towards Ukraine.

Ukraine under Yanukovych
Elected in February 2010, Yanukovych inherited a dysfunctional
state and a divided society. However, rather than reforming the inefficient bureaucracy, strengthening the rule of law and engaging civilsociety in policy-making, Yanukovych opted to introduce an authoritarian ‘dominant-power’ model without precedents in Ukraine’s independent history. Even at the height of Kuchma’s autocratic rule
Ukraine’s political regime maintained a competitive nature,8 allowing
political contestation in several key arenas, particularly in the electoral
field, the legislature and the media. The opposition could stage massprotests and demonstrations in Kyiv and elsewhere across Ukraine,
while parliament could successfully resist some of the president’s key
initiatives. Moreover, Kuchma’s regime was characterized by a limited
scope of control over the economy with a diverse distribution of private wealth among business groups outside of the authorities’ direct
influence. The organization of the political elite under Kuchma was
weakened by the lack of a single ruling party that could coordinate theactivities of key elite actors. Instead, Kuchma allowed various politicalparties to engage in bitter competition for patronage and rents. This

8

Steven Levitsky and Lucan Way, “The Rise of Competitive Authoritarianism,” Journal of Democracy, Vol. 13, No.2 (April 2002), pp. 51-65; Taras Kuzio, “Ukraine’s
Orange Revolution. The Opposition’s Road to Success,” Journal of Democracy, Vol.16,
No. 2 (April 2005), pp. 117-130; and Paul D’Anieri, “The Last Hurrah: The 2004
Ukrainian Presidential Elections and the Limits of Machine Politics,” Communist andPost-Communist Studies, Vol. 38, No. 2 (June 2005), pp. 231-249.

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O PEN U KRAINE : C HANGING C OURSE TOWARDS A E UROPEAN F UTURE

made it easier for the opposition to attract private funds and encourage elite defections prior to, and during, the Orange Revolution.9
By contrast, Yanukovych has sought to manage political contestation, constrain civil society, subordinate the private sector and enhancethe organization of the ruling elite. The lessons from Kuchma’s failed
authoritarianism, the successful example of Russia’s relatively stable
autocracy and Yanukovych’s own experience as a governor of Donetsk(1997–2002) provided the new Ukrainian authorities with an institutional know-how to build a stable, authoritarian regime.
The Parliamentary Arena

Over the first year of Yanukovych’s presidency the Ukrainian parliament turned into a rubber-stamp body with minimal politicalauthority. Although the Party of Regions failed to form the majority
coalition following 2007 elections after Yanukovych became President his entourage resorted to a mixture of threats and bribery to
encourage the defection of several dozen deputies from other factions. A change in the procedural rules for coalition-formation
allowed the new ruling party to form a pro-presidential majority inparliament and vote on the new government. The new cabinet
included mostly Yanukovych’s loyalists from the Party of Regionswith his long-standing ally Nikolai Azarov at the helm. The weaknessof the two opposition factions in the parliament became further
apparent when they failed to prevent the ratification of the RussianUkrainian Accords extending Russia’s lease of the Black Sea Base inSevastopol for another 25 years. Finally, October 2010 ruling of theConstitutional Court annulled the 2004 constitutional reforms
returning Ukraine to the semi-presidential system of the 1996 constitution, that transferred control over the government from parliament
to the president. As a result, Yanukovych could now select and fire thePrime Minister, appoint and dismiss cabinet members as well as vetogovernment resolutions. The president also regained decisive influence over agencies of coercion with his power to dismiss single-handedly any top law-enforcement officials without parliament’s consent.
9

Lucan Way, “Authoritarian State-Building and the Sources of Regime Competitiveness in the Fourth Wave. The Cases of Belarus, Moldova, Russia and Ukraine,” World
Politics, Vol. 57, no. 2 (January 2005), pp. 231-261.

Politics and Democracy in Ukraine

7

With renewed subordination of the government directly to the president the legislature lost much of its earlier political weight.
The pro-presidential parliamentary factions also acquired total
control over the legislative process. The Rada’s (Parliaments) new procedural rules adopted in October 2010 left opposition factions without
any oversight mechanisms to control the government’s decision-making and state budget expenditures. They also lost their earlier powers
to influence the agenda of parliamentary sessions. The two opposition
factions—Bloc of Yulia Tymoshenko (BYuT) and Our Ukraine-SelfDefense (NU-NS)—currently lack strong leadership and remain
deeply fractured. They have also been weakened by the jailing of their
two leaders Tymoshenko and Lutsenko, which encouraged further
defection of their members to the pro-presidential Stability and
Reforms coalition.
A strong and independent legislature is vital for jump-starting thereform process in Ukraine. A number of comparative studies havedemonstrated that a post-communist countries with a parliamentary
system have been most successful in reforming their economies andconsolidating democracy.10 Coalition governments could minimize
the influence of rent-seekers on decision-making, prevent the monopolization of the political process and promote consensus-building
within the polity.
The Electoral Arena

The electoral process under Yanukovych has been purposefully
skewed to favor the ruling party. The new mechanisms to limit theelectoral arena included the Rada’s legislative innovations that introduced a mixed election system for local councils, expanded the powersof territorial election commissions and adopted new staffing rules forthe commissions that benefitted pro-presidential parties in parliament.
Although local elections were earlier scheduled for May 2010, parliament voted to postpone them until October 31, 2010. In the mean10

Joel Hellman, “Winners Take All: The Politics of Partial Reform in Postcommunist
Transitions,” World Politics, Vol. 50, No. 2 (January 1998), pp. 203-234 and Grzegorz
Ekiert, Jan Kubik and Milada Anna Vachudova, “Democracy in the Post-Communist
World: An Unending Quest?” East European Politics and Societies, Vol. 21, No. 1 (February 2007), pp. 7-30.

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O PEN U KRAINE : C HANGING C OURSE TOWARDS A E UROPEAN F UTURE

time, the pro-presidential majority changed the electoral law reviving
the mixed system with half of the seats in the local councils filled by
the candidates winning in single-member districts (SMD) and anotherhalf based on the closed party-list proportional representation. As aresult, while winning 39% of votes across Ukraine on the party list,
the Party of Regions acquired the majority of seats in oblast and city
councils in 10 oblasts and formed majority coalition in another 12
oblasts with the help of SMD deputies. Although most of the candidates (45.7%) winning in single-member races were not affiliated withany political party, they overwhelmingly joined the Party of Regions
faction upon entering councils.
The Party of Regions and its allies also had majority control in the
territorial electoral commissions where opposition parties wereseverely underrepresented. Using their expanded powers territorialcommissions could refuse the registration of party candidates, fire any
commission member and certify election results with the minimum
quorum of just three members present. Several local opposition candidates were excluded from the election process in 2010 campaign. The
authorities also prevented Tymoshenko’s Batkivshchina party fromparticipating in local elections in Kyiv and Lviv oblasts by refusing torecognize its new local party chairmen, which helped radical nationalists to gain the absolute majority of seats in the Lviv local council.
The new electoral law pre-approved by the president for the October 2012 parliamentary elections revives a similar mixed electoral system on the national level. It will allow the ruling party to form a propresidential majority with the support of non-partisan deputies
winning in single-member districts, repeating what already happenedin 2002. The draft electoral law also raises the electoral threshold to
5% and bans electoral blocs, which would prevent a broad opposition
alliance similar to “Our Ukraine” in 2002 from emerging out of a fractured national-democratic field. Finally, the law preserves a closed
party list system, which gives the party leadership exclusive powers todecide the candidates who will represent the party in parliament.
According to the conclusions of the Venice Commission, the draft law
fails to address several critical areas of concern, particularly it lacks
clarity on the possibility of challenging election results, lacks provision
for full disclosure of funding sources and the amount of contributions
and bans anyone convicted of a criminal offense from participation inPolitics and Democracy in Ukraine9

the elections. Most importantly, the new electoral law was drafted in a
non-transparent manner without any public deliberations or participation of opposition parties and non-governmental organizations, which
seriously undermines its legitimacy.
The Judiciary

Yanukovych showed few scruples in using the judicial branch forpolitical purposes. In April 2010 the Constitutional Court confirmed
the legitimacy of the new rules of coalition-formation in the legislature that allowed the president to form a loyal parliamentary majority
by attracting deputies from opposition factions. This decision was particularly stunning given that the Court issued an opposite ruling lessthen two years earlier banning individual deputies from joining amajority coalition if their faction ruled against it. Out of eight judges
who voted against the April decision, four lost their positions in the
run-up to the October court hearings on the 2004 constitutional
reforms. All the newly appointed judges of the court voted in favor ofannuling the amendments and restoring the Kuchma-era constitution.
Yanukovych also used judicial reform to limit the role of Ukraine’s
Supreme Court, which was headed by Tymoshenko’s ally Vasyl
Onopenko. The new July 2010 law on the judiciary transferred mostof the Supreme Court’s appelate jurisdiction to specialized higher
courts, such as a new court for civil and criminal matters, which wascontrolled by judges loyal to the president. Judicial reform also provided the High Council of Justice, which is run by the president’s
long-time ally Sergei Kivalov, broad new powers to appoint andremove lower-level judges. As the Council of Europe’s Venice Commission noted, given the politicization of the Council this change
became a major setback for judicial independence in Ukraine. One
particularly progressive element of the law, which received praise fromthe Venice Commission, was the new procedure for automatic caseassignement. Earlier, the courts’ chairmen were in charge of assigningcases to paritucular judges making the whole process non-trasparent
and ripe for corruption. However, as the mounting evidence indicates,
the automatic system could be circumvanted by running the program
several times until the “right” judge is selected.11
11

Marta Dyczok, “The Ukrainian Blues (and Yellows),” The Wall Street Journal, August 26, 2011.

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O PEN U KRAINE : C HANGING C OURSE TOWARDS A E UROPEAN F UTURE

The failures of the new program for the selection of judges came tothe fore in the criminal cases against opposition leaders Tymoshenko
and Lutsenko. In both instances the chief judges were relatively inexperienced and had a history of suspect rulings in the past,12 making
them particularly vulnerable to outside political pressure. The twocases also demonstrated new limits on the judiciary. In semi-authoritarian regimes judges can still rule against the interests of the authorities, as was demonstrated by the refusal of Ukraine’s Supreme Court
to recognize the April 2000 referendum results as binding or by
Tymoshenko’s release from prison in March 2001 on the court’sorder.13 However, there have been no court decisions during
Yanukovych’s presidency that havecontradicted his personal politicalinterests. The trial of opposition leader Tymoshenko, which the EU’s
High Representative for Foreign Affairs Catherine Ashton characterized as failing to respect international standards of fairness and independence, only reinforced this trend towards continued manipulationof the judiciary for political purposes.
The President currently exerts political infleunce over the judiciarythrough the Higher Council of Justice, which is dominated by representatives of the ruling Party of Regions. Hence, the first step towards
a genuine judicial indepence would require minimizing the role of theCouncil in judicial affairs. Its powers to select or discipline judges
should be transferred to a non-partisan body comprising of authoritative and experienced judges, such as the High Qualifications Commission. Finally, the President’s and Parliament’s role in appointing or
removing judges should also be limited to mere approval of the Commission’s recommendations with few clearly specified exceptions.
Media and Civil Society

Media censorship under Yanukovych has not yet reached the level
characteristic of Kuchma’s presidency. There is no centralized systemof agenda-setting for news coverage on major television channels,
which existed under Kuchma in the form of ‘temnyky’ (talking-points
sent by the presidential administration for reporters). However, con12

13

Tetiana Chornovil, “Zlochyny ta pokarannia Rodiona Kireeva,” Ukrainska Pravda,
September 1, 2011.

Levitsky and Way, op. cit., p. 56.

Politics and Democracy in Ukraine

11

trol over the leading television channels by oligarchic moguls close to
Yanukovych has produced a more decentralized system of self-censorship. The news reports provide selective coverage and usually portray
opposition activities in a negative light. According a study of seven
leading Ukrainian TV channels, over 70% of the news broadcasts in2011 focused on the authorities and less then 20% mentioned theactivities of the opposition.14 Moreover, the news reports covering the
opposition tend to be more critical in tone and less balanced in substance. Pro-government television channels ignored the Western condemnation of the sentencing of Tymoshenko. Rather than banning the
opposition all together, talk-show hosts often invite moderate opposition figures with little public following. The one television channel
which has maintained its independence—TVi—lost some of its broadcasting licenses in a court dispute with the major TV channel “Inter”
owned by Security Service of Ukraine (SBU) Chairman Valeriy
Khoroshkovskiy. It was also sidelined in the recent distribution of frequencies for digital broadcasting.
The Presidential Administration also introduced new limits on thejournalists’ access to the President and high-ranking government officials. Prominent investigative reporters are rarely given a chance topose direct questions to Yanukovych during his press-conferences,while government officials ignore requests for public information submitted from independent media outlets only pre-selected group of
loyal journalists was allowed to participate in a round-table with the
President in his private residence outside of Kyiv. Overall, major
media outlets in Ukraine have not yet fallen fully under the government’s control, but their independence has eroded substantially due tothe excessive interference of owners in news coverage. Only print andinternet-based media still function as an instrument of accountability
and a source of reliable news. Further international assistance to theseoutlets is vital for assisting the Ukrainian media maintain some degreeof independence.
The authorities have used a variety of administrative levers in orderto deter the organization of civic actions or increase participation
costs for civic activists. The local authorities have renewed the prac14“Telekanaly adresuyut negatyv opozytsii,” Telekrytyka, July 20, 2011: http://www.media
osvita.com.ua/material/2919.

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O PEN U KRAINE : C HANGING C OURSE TOWARDS A E UROPEAN F UTURE

tice of appealing to courts to ban opposition demonstrations orprotests. Local courts have banned a number of large protest actions,
including the rally against the new tax legislation on the Maidan(November 2010), tent cities in support of Tymoshenko in Kyiv,
Kharkiv, Odesa and Rivne (July 2011), and opposition demonstrationsin the Ukrainian capital on Independence Day (August 2011). The
courts’ verdicts then became a pretext for the use of spetsnaz police
units to violently disband protests or prevent the demonstrators frommobilizing. Furthermore, the authorities also pursued criminal actions
against leading protest organizers, including prominent opposition
figures, charging them with illegal activities and resistance to the lawenforcement. These actions serve to threaten civil society activists anddeter the public from wider participation in protest actions. International institutions should step up their criticisms of the Ukrainian
authorities in order to prevent further emasculation of civic groups
and the closing of public space for independent political action.
State PowerThe power of the state apparatus is a key indicator of an incumbents’ capacity to resist political challenges.15 Its main components are
the level of control over subordinates and the scope of state activity.
State control was particularly weak under Yushchenko as the President
lost power to appoint his candidates to most government positions,which often resulted in a refusal to subordinate lower-ranking government officials. The strength of control over subordinates has
improved markedly under Yanukovych and he has not revoked any
government resolutions, an indication of a renewed informal coordination between the Cabinet and Presidential Administration. Higher
elite compliance is partially the result of President’s renewed power toappoint and fire government officials on all levels. It has also become
possible with the President’s reliance on the Party of Regions andwhich serves as a mechanism to select and test political loyalists.
The degree of state monopolization of economic and politicalpower reflects the existence of autonomous power centers outside ofstate control. One of the most important factors needed to maintain
political competition and a vibrant civil society has been large inde15

Way, op. cit., p. 234.

Politics and Democracy in Ukraine

13

pendent private business. The high level of economic dispersion in
Ukraine and the willingness of wealthy business leaders to fund the
opposition helped it to wage a successful campaign in 2004.16 Politicalpreferences of big business remained divided under Yushchenko withmajor oligarchs backing competing political leaders and presidential
candidates in the 2010 elections. After the first year of Yanukovych’s
presidency, however, wealth has been increasingly concentrated in thehands of the members of the Party of Regions. According to the estimates of the weekly magazine Korrespondent, 25 out of the 100 wealthiest Ukrainians are members of the ruling party17 and their total
wealth has been estimated at $31.1 billion. By contrast, there were
only two businessmen close to the largest opposition party
Batkivshchyna (Fatherland), with a total wealth estimated at $3.2 billion. Most of these funds belong to a billionaire Kostiantyn Zhevago,
whose businesses have been recently pressured by the tax inspectors
and has resigned from the BYuT (Bloc of Yulia Tymoshenko) parliamemtary faction. All other major funders of Tymoshenko’s presidential campaign, such as banker Oleksandr Buriak and car-maker
Tariel Vasadze, defected to Yanukovych following his election victory.
The current high level of state control over big businesses is likely toincrease even further resulting in the complete cooptation of major
businessmen into the ruling party.
Elite Organization

Another factor ensuring the sustainability of authoritarian regimes
has been the strength of elite organization. Kuchma relied on diverse
elite groups with no coherent organizational structure, which madethe regime particularly vulnerable to defections and weakened thelevel of control over subordinates in the regions. Yanukovych’s comeback, first as Prime Minister in 2006 and then as President in 2010,
became possible largely because of his reliance on the organizational
resources of the Party of Regions. His appointment policy reflects thesignificance of the party’s role. The party leadership controls all of the
key positions in the Presidential Administration and the Cabinet of16

17

Scott Radnitz, “The Color of Money: Privatization, Economic Dispersion, and the
Post-Soviet ‘Revolutions’,” Comparative Politics, Vol. 42, No. 2 (April 2010), pp. 127-46.

“Zolotaia Sotnia,” Korrespondent, June 10, 2011.

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O PEN U KRAINE : C HANGING C OURSE TOWARDS A E UROPEAN F UTURE

Ministers. Azarov, Party of Regions leader, is also the prime minister,while the two Deputy Prime Ministers and the Head of the Presidential Administration are members of the party’s highest governing
council. Similarly, nineteen out of twenty four chairmen of oblast
administrations are members of the Party of Regions. The mergers of
the Strong Ukraine party led by Deputy Prime Minister Sergei
Tigipko and the People’s Party led by Parliamentary Chairman
Volodymyr Lytvyn with the Party of Regions would further indicatethat the authorities intend to consolidate a dominant-power system in
Ukraine.
In the dominant-power systems a single political force maintains
strict control over key state resources and a commanding presence inall power branches and on all levels of government.18 The ruling party
is also a focal point coordinating the activities of lower-level officials,
which allows for a more efficient use of administrative resources in theinterests of the ruling elite. Finally, the existence of a single party of
power ensures the redistribution of rents among loyalists, creates aclear mechanism for career promotion and raises the costs of defection to the opposition. The Party of Regions has thus turned into thecountry’s largest patronage network, which limits political competition by controlling the distribution of government positions and providing privileged power access to its members. However, the exclusionof other political groups from the decision-making adversely affects
the quality of reform proposals and weakens their public support
across Ukraine.
Know-How

The final factor contributing to the stability of an autocratic
regime has been the skill with which autocratic leaders can neutralize
the opposition and consolidate their power. Yanukovych’s team drew
lessons both from its own political defeat in 2004 and from the examples of neighboring autocracies in Russia and Belarus. There are fivemain elements of a successful autocratic model that Yanukovych may
try to implement in Ukraine. First of all, reliance on a dominant
political party helps to eliminate ‘rapacious individualism’ that led topersistent political conflicts throughout the last two decades of18

Carothers, op. cit. p. 12.

Politics and Democracy in Ukraine

15

Ukrainian independence.19 Second, political control over big businessundercuts funding for the opposition and limits negative coverage inthe media. Third, consistent use of excessive coercion against protesters helps to deter anti-incumbent mobilization by civil society.
Fourth, jailing of key opposition leaders weakens the opposition
movement and demoralizes opposition supporters. Fifth, subordination of autonomous institutional power bases such as parliament,
local government and the courts marginalizes the opposition leaving
it devoid of any legal means to mount a successful challenge to autocratic incumbents. During the first two years of his presidency
Yanukovych has been persistently implementing each of the five elements of the model described in this chapter.
In addition, there has been a new element in autocracy-building
possibly introduced in Ukraine. The wide media promotion of theradical right nationalist party Svoboda (Liberty) that won the 2010
local elections in the three Galician oblasts of Western Ukraine bysidelining mainstream national-democratic parties may indicate thatthe authorities were informally backing its campaign. The strengthening of an ultra-nationalist party in the region, which was once astronghold of the democratic opposition, further weakens democratic
forces and helps to rally Yanukovych’s voters in Eastern and Southern
Ukraine around the Party of Regions who felt threatened by Ukrainian nationalism.

Policy Recommendations
The first step to a goal of an Open Ukraine is reviving the parliament’s role in choosing candidates for Cabinet of Ministers positions
and giving it strong oversight powers over the executive, particularly
by establishing a clear procedure for impeaching the president. Theinternal rules for coalition-formation should prioritize party factions
over individual deputies and provide for the majority coalition based
solely on parties that entered parliament. There should also be a strict
enforcement of the rules requiring deputies to vote individually anddisclose their personal income declarations. In addition, opposition
19

Lucan Way, “Rapacious Individualism and Political Competition in Ukraine, 19922004,” Communist and Post-communist Studies, Vol. 38, No. 2 (June 2005), pp. 191-205.

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O PEN U KRAINE : C HANGING C OURSE TOWARDS A E UROPEAN F UTURE

factions in parliament should be guaranteed chairmanship positions in
the committees overseeing the law-enforcement, judiciary, media freedoms and budgetary policies and the power to nominate the head of
the Accounting Chamber.
An Open Ukraine requires an electoral law that would ensure alevel playing field for competing political parties and their fair representation in parliament. Mixed electoral systems prevents this byskewing election results in favor of the ruling party and opening thepossibility for distorting society’s aggregate political preferences. Proportional representation with open party lists has proven to be themost successful electoral model for post-communist states as it
engages citizens in selecting their representatives and minimizes thepossibility for usurping power by one political force. It would also
help to develop Ukraine’s nascent party political system, which still
remains highly volatile. Legislation should also minimize the ability ofelectoral commissions to interfere with the electoral process and makearbitrary decisions that could distort the election outcome. In addition, targeted assistance by international actors, particularly the funding of independent media and monitoring groups, should help to neutralize the structural advantages of the incumbency in Ukraine.
A strategy of moving Ukraine out of its current ‘grey zone’ andbecoming an Open Ukraine should be based on five policy proposals:1) Support Dialogue
By monopolizing political space and marginalizing the opposition
the Ukrainian authorities undermine the reform process and weaken
public trust in policy outcomes. Hence, international organizationsand Western governments should encourage active involvement of
opposition parties and leading NGOs in the process of draftingreform strategies and policy proposals. Opposition factions in parliament should also be granted greater oversight powers in order to control budget expenditures and the functioning of the law-enforcement
bodies. The President and Prime Minister should rely on consensusbuilding mechanisms and public dialogue in pushing their legislative
initiatives through parliament. Without the opposition’s ability toshape the policy-making process and influence the legislative process
Ukraine is unlikely to fulfill its obligations under the Deep and Comprehensive Free Trade Agreement with the EU.

Politics and Democracy in Ukraine

172) Advocate Institutional Reforms
The European governments, particularly representatives of postcommunist countries, should advocate targeted institutional reforms
aimed at limiting the powers of the presidency, increasing the government’s accountability to parliament and strengthening oversight agencies, such as an independent anticorruption bureau, accounting chamber, the office of the ombudsman and the financial regulatory body.
Another major area of reform is depoliticizing the judiciary and thecivil service, which are still dominated by vested political and businessinterests. This requires introducing a transparent and clear mechanism for hiring and promoting judges and civil servants.
3) Leverage External Pressure
The U.S. and EU demonstrated impressive unanimity in condemning the trial and the conviction of opposition leader Tymoshenko andissued strong demands for her release. However, Western governments and organizations should act in concert not only in condemning the persecution of the opposition, but also in developing a set ofmeasures that would raise the cost of further undemocratic steps for
the Ukrainian authorities. Such measures should include the suspension of Ukraine’s membership in the Council of Europe, introducing
visa bans for officials responsible for ordering the crackdown against
protesters or persecution of the opposition, freezing negotiations on
DCFTA and limiting bilateral contacts with top Ukrainian leadership.
At the same time, the EU should make it clear that Ukraine could
receive a formal membership offer if it returns to the democratic path.
EU conditionality has been most effective when target countries havereceived a clear promise of EU membership. As long as the EU avoids
extending this promise to Ukraine, the Ukrainian government will havelittle incentive to undertake political and economic reforms. The EU’s
promise to accept Ukraine as a credible candidate for EU membershipmay strengthen its authority within Ukrainian society and deter thecountry’s ruling elite from further rollback of democratic freedoms.
4) Target Support to Civil Society
The main source of threat for the sustainability of dominant-powersystems has been an independent civil society capable of monitoring
the authorities and publicizing their transgressions. The U.S. and EU
should provide most of their financial aid to support national and local

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O PEN U KRAINE : C HANGING C OURSE TOWARDS A E UROPEAN F UTURE

NGOs and media outlets that ensure government accountability on alllevels.
5) Push for Democratic Elections in October 2012
Western governments and international organizations should stressthe critical importance of a free and fair parliamentary campaign in2012 early in the process and quickly react to even minor violations ofdemocratic procedures. They should also form a political monitoringteam consisting of prominent public figures with a strong reputationin Ukraine. This group should visit the country on a bimonthly basis
and provide interim assessments of the electoral process. It is important for the group to visit all of Ukraine’s regions and meet local officials to convey the special importance of the upcoming parliamentaryelection. Finally, international organizations should provide technicalassistance in training election observers and electoral commission
members representing all political parties. The ability of the new parliament to legislate a progressive reform package critically depends on
the legitimacy of the election itself and its recognition as free and fairby all major political actors. A new democratically elected parliament
could also act as a stronger counterweight against the excessive political dominance of the President.

Conclusions
Ukraine’s competitive authoritarian system, which took the form of‘feckless pluralism’ under Yushchenko, has been gradually transformed
into a ‘dominant-power’ model under Yanukovych. Its main characteristics include (1) limiting political contestation through coercion andadministrative interference; (2) monopolization of power by the presidency that controls other branches; (3) restricting access to public
offices exclusively for members of the ruling party. Heightened
repression against the opposition, however, indicates that the politicalregime in Ukraine risks degenerating into a full-blown autocracy. This
trend may accelerate with further decline of popular support behind
Yanukovych and his increasing international isolation. Already in thefirst year of his presidency Yanukovych’s approval rating dropped from
40% in May 2010 to 9.7% in June 2011.20 The loss of support for
20“Idol Sdulsia,” Korrespondent, July 22, 2011.

Politics and Democracy in Ukraine

19

Yanukovych has been most substantial in his core electoral areas ofEastern and Southern Ukraine.
If public support behind the president remains at the same lowlevel, Yanukovych will face a dilemma in the run-up to 2012 parliamentary elections. He will either have to accept the possibility of
opposition parties gaining substantial representation in the new parliament, or he will have to use administrative levers to an unprecedented degree to interfere with the election process and rig the election results. However, if the Party of Regions understands that it
would fail to win fairly the latter option may be increasingly likely.
First, Yanukovych needs to have a compliant legislature with a significant pro-presidential majority in order to secure re-election in 2015.
Parliament proved to be an effective institutional forum for the opposition in the run-up to the presidential election in 2004. It provided
opposition leaders with immunity from persecution and allowed themto resist some of Kuchma’s key legislative initiatives. Moreover, theopposition’s strong showing in 2002 demonstrated the vulnerability ofthe existing regime, which encouraged further political resistance andelite division. At the same time, the stakes of the 2015 presidential
election for the ruling elites has increased substantially so they can nolonger afford to lose it. Having established the precedent of criminal
persecution of his predecessors, Yanukovych and his allies are now
likely to become the target of similar actions if an opposition candidate wins election in 2015. Moreover, with executive powers again
concentrated in the presidency the next presidential race will turn into
yet another winner-takes-all contest. Hence, the current ruling party
will risk losing most of its influence over decision-making if the president changes.
Finally, the experience of the Orange Revolution may have taught
Yanukovych’s oligarchic entourage that any transfer of power to an
opposition may also threaten their ownership rights and lead to aredistribution of property. Given that the key oligarchic groups within
the Party of Regions have gained major new assets under
Yanukovych’s presidency, they will be keen on maintaining him in
office at any cost as long as he could guarantee the safety of theirproperty. Another lesson Yanukovych may have drawn from his campaign in 2004 is that unless the opposition is marginalized early on it

20

O PEN U KRAINE : C HANGING C OURSE TOWARDS A E UROPEAN F UTURE

can turn into a serious challenge at a later stage. Hence, real presidential contenders, such as Tymoshenko, need to be excluded from theelection process prior to the launch of the presidential race. This will
be much easier if they end up being either in jail or outside parliament.
International efforts to deter Ukraine’s further backsliding should
combine the threat of costly sanctions against the ruling elite withdemands for greater involvement of opposition parties in policy-making and a targeted assistance to key actors in civil society and calls for
specific institutional reforms that would lead to a more balanced political system in Ukraine. Outside pressure on the Ukrainian authorities
clearly has its limits and the main brunt of responsibility for the evolution of Ukraine’s political regime lies on domestic actors. However, as
the Orange Revolution also demonstrated, Western influence canrestrict the range of options available for the authorities in fighting
the opposition and weaken the internal legitimacy of some of the government’s anti-democratic policies. Given that the balance of powerhas been strongly in favor of the authorities, a harder line by the Westcombined with a promise of EU membership may strengthen thosecivil society actors and opposition figures who have been resisting
Ukraine’s autocratic reversal.

Chapter Two
National Integration andNational Identity in Ukraine

Olexiy Haran

The issue of regionalism is extremely important in understanding
Ukrainian politics and geopolitics. Most of Ukraine suffered fromthree centuries of overt Russification (culminating in the 1876 Ems
Decree that banned all publications in the Ukrainian language as wellas public readings and stage performances) and subtle Russification in
the Soviet Union, which was especially prevalent in south and east of
the country.
On the other hand, most of Western Ukraine was part of the Austrian-Hungarian empire before 1918, then part of Poland in the interwar period, and annexed by the Soviet Union in 1939-1940. Thisregion underwent Russification for only about 40 years and, therefore,
in its traditions, political culture, geopolitical orientations this regionis quite similar to the three Baltic states.1
In this situation, independent Ukraine faces the challenge to build
simultaneously not only a democracy and market economy but also
state institutions, and a modern civic nation; that is, a “quadruple transition.”2 The fundamental nature of such a transition ensures it ismore difficult compared to Poland, Hungary, and the Baltic countries,
an important fact which is quite often overlooked by Western policymakers. In a nutshell, national integration is an important precursor
for successful introduction of democratic and economic reforms.

1 It is important to stress that since 2004, not only Western but also Central Ukraine

votes for Orange and post-Orange political forces.
2 See Taras Kuzio, “The National Factor in Ukraine’s Quadruple Transition,” Contem-

porary Politics, Vol.6. No. 2 (June 2000), pp. 143-164.

21

22

O PEN U KRAINE : C HANgINg C OURSE TOWARDS A E UROPEAN F UTURE

Towards the end of the Soviet regime, in 1990, only 45% of pupils
studied in Ukrainian, and in higher education about 90% of subjects
were taught in Russian. In independent Ukraine, the Russification of
education has been halted. Nevertheless, in 2009 18% of pupils werestudying in Russian, and if one considers those who study the Russian
language as a subject the figure increases to more than 45%.3
In higher education, 12% of Ukraine’s students (as of 2009) studiedin Russian, but the actual figure is higher (it is difficult to determine
exact figures as one professor can teach in Russian, another in Ukrainian).The numbers for higher education in Ukrainian drop dramatically in the eastern and southern regions. In the Crimea, Ukrainians
comprise 24% of the population, but only 7% of pupils are taught in
Ukrainian. In vocational schools in the Crimea all subjects are taught
in Russian, 90% of university students study in Russian, and in the
Donbas (Donetsk and Luhansk oblasts)—50%. More than 40% of allbooks in circulation in Ukraine are in Russian (as of 2009) and given
the large volume of book imports from Russia the figure rises to 90%.
Two-thirds of the country’s newspapers and 90% of journals, and halfof TV programs are in Russian.4
The Russian language still dominates in the business sphere andmass entertainment. Despite articles in the 1996 Constitution, which
stipulates Ukrainian is the only official state language, many deputies
do not bother to learn Ukrainian and continue to speak Russian inparliament. Therefore, making Russian a second state language, assome politicians (including Viktor Yanukovych as candidate for president in 2004 and 2010) advocate, would threaten the existence of the
Ukrainian language.
In the late 1980s, when Ukraine was on the path to independence,
there were attempts by the KgB and elements within the Communist
Party to halt this by making territorial claims on Kyiv. The pretext
that was used was the claim that current Ukrainian borders wereformed during World War II (as a result of the Soviet invasion of
Poland and the threat of force against Romania following the Molo3 Most figures on the language situation are taken from Dzerkalo Tyzhnia, August 15,

2009 and September, 25, 2010.
4 Ibid.

National Integration and National Identity in Ukraine23

tov-Ribbentrop Pact). Territorial claims were not dominant in thepolitical life of most of Ukraine’s neighbors. In their turn, the leadersof the Ukrainian state and its national-democratic opposition were infavor of the principle of inviolability of postwar borders. This principle is seen as a sine qua non of Ukrainian foreign policy and all
Ukrainian presidents have supported the territorial integrity of georgia and Moldova.5 In September 2008, Yanukovych and the Party ofRegions did though support Russia’s recognition of South Ossetianand Abkhaz independence through resolutions in the Ukrainian andCrimean parliaments (the former failed but the latter was adopted).
Despite predictions on the eve of Ukrainian independence based on
the depth of Russification of eastern Ukraine, the country did not split
even in the most difficult crisis year in 1993 when hyper-inflation
soared to 10,000%. Polls taken in 1994 showed that only 1% of
respondents in Lviv and 5% in Donetsk (the main cities in the west
and the east of Ukraine, respectively) wanted Ukraine to cease to exist
as a united nation. According to polls conducted by the Kyiv International Institute for Sociology, after a short decline in 1993 the numberof those who support Ukraine’s independence has returned to thelevel of the 1991 referendum result.6
The risk of ethnic confrontation within Ukraine diminishes as
ethno-linguistic boundaries are blurred, and the Russian and Ukrainian languages are closely related. In fact, the very division of Russian
and Ukrainian-language speakers is to a certain extent exaggerated
because most of the population is bilingual. The younger generationof Ukrainians knows Russian even if half of them do not study it atschool because Russian TV programs are broadcast in Ukraine andmost radio programs in Ukraine are still conducted in Russian or inboth languages.
As for the question of citizenship, Ukrainian leaders adopted in
October 1991 the “zero option” where everyone living in Ukraine was

5

Moldovans comprise only 32% of the self-proclaimed Transnistrian Moldovan
Republic, while Russians make up 30% of the population and Ukrainians 29%; before
1940 this region was the Moldovan Autonomous SSR within the Ukrainian SSR.

6

Valerii Khmelko, Suverenitet yak zahalnonatzionalna tzinnist: sotziolohichnyj aspekt.
http://www.kiis.com.ua/pub/2011/sverenitet.pdf.

24

O PEN U KRAINE : C HANgINg C OURSE TOWARDS A E UROPEAN F UTURE

eligible for citizenship without any pre-conditions. Thus, Ukrainian citizens’ socio-economic and political opportunities were not limited or
circumscribed by ethno-linguistic criteria. In fact, Ukraine stands incontrast to many other former Soviet republics in that it gained its independence peacefully and without interethnic conflict. This was a resultof firstly, a compromise between the national-democratic oppositionand national-communists and secondly, tolerant interaction between
Rukh (the Ukrainian Popular Movement established in 1989) and ethnic
minorities.7 In its preamble, Ukraine’s 1996 Constitution defined “theUkrainian people” as “citizens of Ukraine of all nationalities.”
Thus, modern Ukrainian civic nationalism is based upon territorial,
not ethnic, criteria and “inclusive” rather than “exclusive” citizenship.
The results of the 2001 census (the first to be held in independent
Ukraine) showed a slow Ukrainization of Russophone Ukrainians.
Compared to the 1989 Soviet census, the number of ethnic Ukrainians increased from 72.7% to 77.8 % while the number of ethnic Russians decreased from 22.1% to 17.3 %, which was signified a return tothe ethnic composition of Ukraine found in 1959 Soviet census.
But, the number of those who consider Russian as their “mothertongue” is higher—29.6% and the Russian language still dominates inthe eastern and southern regions of the country. Russian-speaking
politicians do not feel excluded from the political process in Kyiv andthey feel it is more realistic to compete for power and resources in
Kyiv rather than in Moscow. Ukraine’s independence elevated the status of what had previously been a provincial Soviet republican eliteand became the basis for political and business elites irrespective ofthe language they speak.8 Ukraine is also regionally and politicallydiverse which prevents a single political force to monopolize power(or “pluralism by default”).

7

Many Jewish dissidents supported Ukrainian dissidents and the creation of Rukh. Inturn, Rukh issued a special appeal to Jews, Russians, and Crimean Tatars and established a Council of Nationalities within Rukh.

8

Characteristically, Ukraine’s second President, Leonid Kuchma (1994–2004), relearned
Ukrainian (which he had forgotten during his years at university and in the militaryindustrial complex). Kuchma published a book in Russian and Ukrainian titled Ukraine
Is not Russia in which he explained why the Russian language cannot receive state status.

National Integration and National Identity in Ukraine

25

Although the electoral divide between the south and the east, on
the one hand, and west and the center of Ukraine, on the other, hasbeen evident in every election since 1990 (the only exception is the1999 presidential election), there are signs that major players are moving into regions that have traditionally supported their opponents. At
the same time, radical nationalist forces (both Russian and Ukrainian)
have not received votes above the 3% parliamentary threshold.

Russian Influence and Polarization of the Country Since 2004
Despite three centuries of shared existence in one state with Russia,
Ukrainian politics cannot be explained by its intertwined history andculture (or the “clash of civilizations” approach according to which
only Western Ukraine belongs to Western civilization) or even by its
economic dependence on Russia. Ukrainian politics is the result of thecorrelation of domestic political forces and the position of the Ukrainian elites.
Moscow and Kyiv viewed the future of the Commonwealth of
Independent States (CIS), established on December 8, 1991, from
opposite perspectives—as “reintegration” or a “civilized divorce,”
respectively. Ukraine has not ratified the CIS Charter and therefore,
despite being one of its founding states, Ukraine is not formally amember of the CIS. Ukraine also refused to sign the 1992 Tashkent
Treaty on Collective Security and Kyiv only has observer status in theEurasian Economic Community which was launched in 2000.
During Leonid Kuchma’s 1994 election campaign he referred several times to the so-called ‘Eurasian space.’ Two central issues in his
campaign were increasing Ukraine’s cooperation with Russia, first of
all in the economic sphere, and granting official status for the Russian
language. However, very soon after his election victory Kuchma pursued policies that strengthened the Ukrainian state to a greater extent
than Ukraine’s first President Leonid Kravchuk. He defeated separatist forces in the Crimea and in 1997 signed both the Treaty on
Friendship, Cooperation and Partnership with Russia (which finallyrecognized Ukraine’s borders!) and NATO-Ukrainian Charter onDistinctive Partnership. Balancing between Russia and the West andpursuing a policy of “multi-vector diplomacy,” Kuchma pursued inte-

26

O PEN U KRAINE : C HANgINg C OURSE TOWARDS A E UROPEAN F UTURE

gration of Ukraine with the West while cooperating with the CIS.
While distancing himself from his predecessor, whose policies hejudged to be “nationalistic,” Kuchma at the same time had to take into
consideration the position of those who had voted for Kravchuk inwestern and central Ukraine.
One of the main reasons for Viktor Yushchenko’s election in 2004
were slogans common to the whole country that appealed to European values, social justice, rule of law, and struggle against corruption.
Kuchma’s administration did everything possible to prevent
Yushchenko from winning the 2004 elections by presenting him as aradical nationalist who would “oppress” the Russian-speaking population, whereas Yanukovych was portrayed as a great friend of Russia.
Yanukovych’s Russian and Ukrainian election consultants also promoted the idea of a “schism” in Ukraine between the “nationalistic”
West and “industrial” East, depicting Yushchenko in fascist uniform or
Ukraine divided into three segregated parts. They also launched ananti-Western, anti-American campaign. The Russian president andRussian election consultants openly supported the Yanukovych campaign, and President Putin twice congratulated Yanukovych on his falsified victory. The country emerged from the 2004 elections extremely
polarized with tensions that had already built up between national
democratic and Russophone political parties on the increase since theNovember 2000 Kuchmagate crisis.
Although the “Russian factor” continues to play an important rolein Ukrainian domestic politics, Moscow could not prevent
Yushchenko’s victory in 2004 or the 2007 pre-term elections whichremoved Yanukovych as prime minister.
Ukraine’s economic dependence on Russia has also decreased.
Although Russia remains the main trading country for Ukraine, its
proportion of Ukrainian trade declined dramatically from 47.5 % in1994 to 23.05% in pre-crisis 2008. Exports to Russia fell from 37.4 %in 1994 to 23.5% in 2008, and imports from 58.1 % to 22.7%. But in
absolute figures the trading situation is different as trade with Russia
fell from $17.8 billion in 1994 to $11.7 billion, but then increased in
2004 to $17.7 billion, and $35.2 billion in 2008. Therefore, contrary
to what Russian leaders say about the “anti-Russian” nature of theOrange administration which allegedly opposed cooperation with

National Integration and National Identity in Ukraine

27

Russia, trade doubled from 2004 to 2008. Ukrainian exports to Russia
grew from $5.9 billion to $15.7 billion (that is in 2.7 times) and
imports from $11.8 billion to $19.4 billion.9
Despite the good and growing economic interaction between
Ukraine and Russia an ideological war continued unabated with
Moscow continuing to wage massive propaganda campaigns against
Ukraine to discredit its democratic experiment. As an example, on
May 19, 2009, Russian President Dmitrii Medvedev issued a decree
establishing “a Presidential Commission to combat efforts to reinterpret history in ways that damage Russia’s interests.”10 Russian propaganda continued in the Soviet tradition of portraying the Ukrainian
national liberation movement as ‘fascist and anti-semitic’.11
As a result of such campaigns, according to a poll conducted by the
Russian Levada Center in January-February 2009, 62% of Russians
viewed Ukraine in a negative way and Ukraine rose to third on the listof “unfriendly states” after the U.S. and georgia. At the same time,
90% of Ukrainians retained a positive attitude towards Russia as there
was no concerted, state-led anti-Russian campaign by the Yushchenko
administration.12

President Yushchenko:
Good Slogans, Counterproductive Policies
Yushchenko’s accent on issues of social justice in the 2004 campaign
helped to overcome the anti-Western stereotypes and polarizing
strategies of his opponents. Following his victory Ukraine needed
long-awaited reforms, including unpopular ones and it was important
to show that new leaders were fighting corruption at the highest levels
9 The data is taken from official sites www.ukrstat.gov.ua and www.me.gov.ua.
10

Commission members included the head of the Presidential Administration alongwith the chief of staff of the Armed Forces, the deputy minister of Foreign Affairs,
the deputy secretary of the National Security Council, representatives from the Foreign Intelligence Service, Federal Security Service, and other ministries.

11

Moscow promoted this stereotype in the Western media as well. See, for example,
Moses Fishbein, “The Jewish Card in Russian Special Operations against Ukraine,”
http://maysterni.com/publication.php?id=35257.

12

Dzerkalo Tyzhnia, February 27, 2010.

28

O PEN U KRAINE : C HANgINg C OURSE TOWARDS A E UROPEAN F UTURE

and within their own ‘inner circle’. Such a public perception would
have given them the moral authority to ask Ukrainians to ‘tighten
their belts’. However, the fight against corruption remained on paperand virtual, as it was under Kuchma and remains the case under the
Yanukovych administration.
If reforms had been successful, it would have been possible to raiseissues which otherwise would not normally receive sufficient support
in the country. On the contrary, when in 2008 Yushchenko’s ratings
declined to 3-5% it was counter-productive to raise the issue of entering NATO’s Membership Action Plan (MAP) merely serving to playinto the hands of the opposition which increasingly mobilized aroundanti-Western slogans.
Paradoxically, support for Ukrainian membership in NATO washigher under Kuchma than under Yushchenko. Polls by the Kyivbased Razumkov Center for Economic and Political Studies showedthat in June 2002 the numbers of those who supported joining NATOand those against were nearly equal—approximately 32% each. In July
2009, at the end of Yuschenko’s term, only 20% supported NATOmembership while 59% opposed this step.13 Under Yushchenko, theagreement on Ukraine’s accession to WTO was finalized and ratified
in 2008. But as there were no economic successes within the country,
the step was used by the opposition to blame Orange forces “for selling out Ukraine to the West.”
Yanukovych mobilized the Party of Regions and eastern Ukrainian
Russophone voters against Yushchenko’s policies in support of European and Euro-Atlantic integration, respect for Ukrainian history, culture, and language, the need to overcome divisions in Ukrainian
Orthodoxy, and mutual respect in Ukrainian-Russian relations. Con13 http://razumkov.org.ua/eng/poll.php?poll_id=46. The figure of 32% was a goodlaunch for an informational campaign compared with some Central-Eastern European countries (i.e., Slovakia or Bulgaria) or Spain (when it joined NATO in 1982
public support stood at only 18%). The decrease in public support can be explainedby an intensive anti-Western, anti-American campaign supported by Russia and key
figures in Kuchma’s entourage in the 2004 elections. It is important, however, tostress that up to 90% of Ukrainian security experts are in favor of joining NATO.
While disapproving NATO membership 53% of Ukrainians, at the same time, do
not consider NATO to be a threat (according to an April 2009 Razumkov Centerpoll).

National Integration and National Identity in Ukraine

29

trary to the lessons of the 2004 election campaign, when Yushchenko
avoided polarizing issues, his presidency and 2010 presidential campaign deeply divided Ukrainian society. In the 2010 elections hereceived only 5% of the vote and fifth place.
The paradox is that negotiations with the EU for an Association
Agreement and Deep and Comprehensive Free Trade Agreement(DCFTA) were boosted only after Orange forces lost the 2010 presidential elections and Ukraine under Yanukovych suffered from democratic regression. Therefore, if the negotiations will end successfully it
would be the new anti-Orange regime which could claim credit for
Ukraine’s European integration.

Federalization or Real Local Self-Government?
The idea of federalization for Ukraine was put forward in 1989 by,among others, Vyacheslav Chornovil, a former dissident and then thehead of Rukh. However, during Ukraine’s drive to independence theSoviet authorities tried to use this idea to polarize the country andmobilize separatist movements. During the first years of Ukrainian
independence it became clear that federalization, attractive as a model
for a democratic and multicultural society, could encourage centrifugal tendencies in Ukraine. Therefore, Chornovil very soon changed
his initial position and dropped his support. The l996 constitution did
not include the idea of federalization or Russian as a state language.
National-democrats, pro-business centrists and the moderate left-in
parliament joined forces to adopt the constitution.
During and after the Orange Revolution the Party of Regions also
used the idea of federalization to secure its position in its electoral
strongholds, to challenge the Orange authorities in Kyiv and also as
an election campaign slogan. given the regional polarization of thecountry, the absence of administrative-territorial reform and, therefore, a weak financial basis for self-government, federalization could
lead not to the development of self-government but to regional “feudalization” of the country. The key issue is to strengthen self-government at the local level: village, town, rayon (district).
The country’s main political forces agree on the necessity of thisstep although characteristically, the Party of Regions has after coming

30

O PEN U KRAINE : C HANgINg C OURSE TOWARDS A E UROPEAN F UTURE

Table 1. Would You Like to Have Your Region Separated From
Ukraine and Joined to Another State?
Percent
Yes
No
Difficult to answer

West
3.4
91.3
5.3

Center
1.4
93.1
5.5

South
11.6
75.1
13.3

East
10.4
77.9
11.7

The poll was taken by the Razumkov Center on May 31 – June 18, 2007. 10956 respondents aged above
18 years were polled in all regions of Ukraine. The sample theoretical error does not exceed 1%(www.razumkov.org.ua/eng/poll.php?poll_id=318)

Ukraine’s regions are defined as follows: South — Autonomous Republic of Crimea; Odesa,
Kherson, and Mykolaiv oblasts; Center — Kyiv; Vinnytsia, Zhytomyr, Kyiv, Kirovohrad, Poltava,
Sumy, Khmelnytsky, Cherkasy, and Chernihiv oblasts; West – Volyn, Zakarpattia, Ivano-Frankivsk,
Chernivtsi oblasts; East – Dnipropetrovsk, Donetsk, Zaporizhzhia, Luhansk, and Kharkiv oblasts.

to power avoids mentioning “federalization” in its program. It is
important to stress that Ukrainian surveys and polls show that separatist ideas were overwhelmingly rejected throughout the whole country (see table 1).

Crimean Autonomy
The August 2008 Russian invasion of georgia raised again the issue
if Russia can play the separatist card in Crimea as it is the only region
in Ukraine where ethnic Russians comprise a majority of the population (58%). It is also the historic land of Crimean Tatars, who weredeported by Stalin in 1944 to Central Asia and were only allowed toreturn to the peninsula after 1989 and today constitute 12% of the
Crimea’s population. Russia’s Black Sea naval base in Sevastopol,
extended in April 2010 until 2042-2047, remains an instrument ofpressure on Ukraine. The Russian consulate has been issuing passports
to Ukrainian citizens in Odessa and Crimea, although dual citizenshipis prohibited in Ukraine. Nevertheless, it would be premature to
extrapolate the “South Ossetian/Abkhazian” scenario to the Crimea.
The rights of ethnic Russians are not under threat in the Crimea(although this is often raised by Russia and pro-Russian forces in
Crimea). It is the Ukrainian language and culture that need state support in the Crimea, not Russian (see above). According to the March2011 poll by the Razumkov Center, 70% of Crimeans consider Ukraine

National Integration and National Identity in Ukraine31

as their Motherland. For the Crimean elites (most of whom are members of all-Ukrainian parties) it is much more profitable to stay within
Ukraine and to negotiate with both Kyiv and Moscow. If the Crimea
was part of authoritarian Russia it would lose this bargaining position.
The position of the Crimean Tatars is crucial for the future of
Crimea and regional stability. Since the end of the 1980s, Rukh andthe Crimean Tatars have supported each other. Crimean Tatar leaders
were elected to the Ukrainian parliament within Rukh and subsequently on the list of the Yushchenko’s Our Ukraine bloc.
But, if Crimean Tatars feel their rights are not protected, first of all
in being given land to build homes, this could strengthen radicals outside the Mejlis (the Crimean Tatar parliament), which for decades has
managed to maintain the movement as a moderate and non-violent
force. In general, Ukraine’s tolerant attitude towards Crimean Tatars isin sharp contrast to the spread of anti-Islamic rhetoric in Russia.
Finally, any large-scale conflict over the Crimea would provoke astrong reaction from the international community, to a far greater
degree than that which happened in South Ossetia. However, Moscow
could exploit the situation in the Crimea to destabilize the region inorder to pressure Kyiv and hinder Ukraine’s Euro-Atlantic integration.
That is what happened when Ukraine sought a NATO Membership
Action Plan in 2008, after which anti-NATO demonstrations wereorganized in the Crimea. Hardliners in Russia could organize clashes
between Crimea’s ethnic Russians and Crimean Tatars over land orwith Ukrainian nationalist organizations over the Sevastopol Black Sea
Fleet naval base.

Religious Divisions: The Split in Ukrainian Orthodoxy
Most Ukrainian believers (about 2/3) are members of Orthodox
churches. The greek Catholic Church (which was underground from1945-1990) is concentrated in Western Ukraine and comprises about
1/5 of religious believers.14 There are also Roman Catholic, Protestant, Judaic and Muslim believers in Ukraine.
14

See, the 2006 poll by the Razumkov Center at www.uceps.org/ukr/poll.php?poll_id=
300.

32

O PEN U KRAINE : C HANgINg C OURSE TOWARDS A E UROPEAN F UTURE

The Russian Orthodox Church in Ukraine split after Ukraine
became independent leading to the emergence of the Ukrainian
Orthodox Church–Kyiv Patriarchate (UOC-KP) which supports theidea of an autocephalous Ukrainian Orthodox Church independent
from Moscow. However, this church is not recognized by othercanonical Orthodox Churches nor by the Ukrainian Orthodox
Church under the Moscow Patriarchate (UOC-MP), which, in termsof the number of parishes, remains the largest church in Ukraine.
The UOC-MP enjoys autonomy, including the right to form its
own Synod and appoint bishops without formal approval of the
Moscow Patriarch. Some of its bishops support the idea of a united,
autocephalous Ukrainian Orthodox Church. Between 2007 and 2009,
the UOC-MP and Kyiv Patriarchate opened a cautious dialogue which
was cancelled after Yanukovych was elected. In November 2008, theUOC-MP Synod pronounced the 1933 artificial famine in Ukraine(holodomor) as a genocide of the Ukrainian people, a stance thatstrongly contradicts Russia’s denial of an artificial famine unique to
Ukraine. But, these are only initial steps. Patriarch Kiril of the Russian
Orthodox Church is seeking to limit the autonomy of the UOC-MP.
On the other side, there are signals that the Ecumenical Patriarchate ofConstantinople may recognize the autocephaly of the UOC-MP which
will open the way for its unification with the UOC-KP.

President Yanukovych:
A Second Round of Regional Polarization
In the 2010 presidential elections Yanukovych’s team mobilizedaround public disillusionment into the performance of Orange governments. His campaign also exploited slogans from the 2004 elections for mobilizing the regional electorate in the east and south ofthe country, including anti-NATO sentiments, promises to makeRussian a second state language, and insistence that there was no falsified vote in 2004 when “our victory was stolen.” Yanukovych evenmentioned the possibility of recognizing the independence of South
Ossetia and Abkhazia, a step totally in contrast with other Ukrainianpresidents who made the territorial integrity of states a cardinal principle in Ukrainian politics.

National Integration and National Identity in Ukraine

33

As a result of this electoral rhetoric, the country was again polarized, this time by Yanukovych. In the second round in February 2010
Prime Minister Yulia Tymoshenko won in 16 regions and the capital,
while Yanukovych won only in 9 regions and the city of Sevastopol.
Despite his election promises to seek to overcome Ukraine’s regional
divisions his steps merely served to deepen them.
The April 2010 Kharkiv Accords with Russia permit the lease of theRussian naval base in Sevastopol for an additional 25 years (after the
1997 agreement expires in 2017) and prolong it after 2042 for another5 years. This was signed even though it infringed the Ukrainian constitution, which declares there should be no foreign military troops on
Ukrainian soil on a permanent basis. The decision was approved inparliament against the advice of three parliamentary committees andwithout necessary discussions, provoking a riot.
One of the most symbolic concessions to Russia was on the NATOquestion (see the chapter by Stephen Larrabee). Under Kuchma theposition of the Party of Regions was quite conformist and in the Strategy for Ukraine for 2004-2015 prepared under the auspices of then Prime
Minister Yanukovych, the deadline for joining NATO was set at 2008.
The Party of Regions unanimously voted in 2003 for the Law on theFundamentals of National Security which clearly states that Ukraine’s
aim is to join NATO as well as a Memorandum with NATO to provide
it with support in multinational exercises and peacekeeping operations.
In 2006, during Yanukovych’s second premiership, the Party of Regions
supported the Memorandum with NATO on the participation of
Ukraine’s strategic transport aviation in NATO operations. This
demonstrates that anti-NATO election campaigns by the Party ofRegions were populist and designed to mobilize their electorate.
However, on July 2, 2010, the new law on Fundamentals of Domestic and Foreign Policy of Ukraine was adopted by parliament that proclaimed a non-bloc status for Ukraine aimed at establishing good relations with the Russian leadership. Yanukovych also played on theambivalent geopolitical orientations of Ukrainians. According to a
April 2010 poll by the Institute of Sociology, Ukrainian National
Academy of Sciences, 62% were in favor of Ukraine joining the unionof Russia and Belarus (negative attitude dominated only in Western
Ukraine). The explanation is that this union is associated with cooper-

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O PEN U KRAINE : C HANgINg C OURSE TOWARDS A E UROPEAN F UTURE

Table 2. How Do You Assess Ukraine’s Entry to the European Union?
Percent
Rather negative
Difficult to answer
Rather positive

West
6.6
27.3
66.1

Center
16.7
38.2
45.1

South
22.1
41.5
36.4

East
28.2
33.3
38.5

Ukraine
19.1
35.3
45.5

April 2010 poll of Institute of Sociology, Ukrainian National Academy of Sciences http://www.niss.gov.ua/
articles/457/.

ation and visa-free travel. Simultaneously, as seen in Table 2, in all
regions the number of those who support Ukraine’s accession to the
EU exceeds the number of opponents (the paradox is that the highest
support was not under Yushchenko, but in 2000-2001 under Kuchma,when anti-Western campaigns has not yet been launched).
In the educational sphere Yanukovych also made concessions which
helped Russia to strengthen its ideological influence in the region. In
April 2010, during his visit to the Council of Europe in Strasburg,
Yanukovych rejected the view that of the holodomor as genocide.15 The
appointment of Dmytro Tabachnyk as Minister of Education cameafter he was lobbied by Patriarch Kiril. His promotion served topolarize the country in the cultural-linguistic sphere as he is known
for pejorative statements regarding the Ukrainian intelligentsia andfor Soviet interpretations of Ukrainian history; for example, using thesame Soviet allegations against the 1940s nationalist movement thatthey were “Nazis.”
In contrast to all other Ukrainian presidents, who sought to strike aneutral balance between rival Orthodox Churches, Yanukovych has
openly aligned himself with the UOC-MP. Symbolically, he received
blessing in Kyiv from Russian Patriarch Kiril before he went to his
inauguration in the Ukrainian parliament.
Parliamentary deputies from the Party of Regions submitted a draft
law on languages in summer 2010 which would have upgraded Russian to the status of a ‘regional language’ throughout most of Ukrain15

Parliaments of more than 20 countries, including the USA, Canada, Spain, Poland,
Hungary, Argentina, Australia, Brazil, Baltic states and elsewhere have recognized theholodomor as a genocide.

National Integration and National Identity in Ukraine

35

ian territory. This would be a further blow to the Ukrainian
language—as stated in the recommendations of the OSCE and theletter of OSCE High Commissioner on National Minorities Knut
Vollebaek to Ukrainian Parliamentary Chairman Lytvyn.16
It seems that President Yanukovych made concessions on issues thatare symbolically important to Russia but do not threaten his power.
While playing on contradictions between different regions, theYanukovych administration is seeking a monopolization of power over
all of Ukraine and therefore would try to avoid threats of separatism orraising the issue of federalization. For example, Yanukovych’s concessions to Russia on the Sevastopol naval base do not benefit local
Crimean elites. Although Crimea’s Prime Minister Vasyl Jarty is formally subordinated to the Crimean Parliament he and his entourage
come from the town of Makeevka in the Donetsk region and de facto
control the Crimean peninsula.
Many analysts have concluded that the Party of Regions is tacitly
supporting the nationalist Svoboda (Freedom) party. In the October2010 local elections Svoboda won in the three oblasts of galicia. Their
success coincided with the plans of the Party of Regions to destroy
Tymoshenko and other radical opposition forces thereby opening up
political space into which controlled, loyal nationalists such as Svoboda could be interjected.17

Conclusions and Recommendations
National integration, on the one hand, and democratic and market
reforms, on the other, reinforce one other. National integration permits the introduction of painful reforms which are difficult to introduce in divided societies. At the same time, if reforms are successful,they provide the basis for national cohesion on other issues.

16

17

These documents were released in www.RFE/RL.org, January 14, 2011. See
http://docs.rferl.org/uk-UA/2011/01/14/original.pdf.

See, for example, Mykola Pysarchuk and Olena Mihachova, “Partia ‘Svoboda’—viddushyna dlia znevirenykh chy tekhnologia bahatorazovoho vykorystannia,” UNIAN,
January 20, 2011.

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O PEN U KRAINE : C HANgINg C OURSE TOWARDS A E UROPEAN F UTURE

Despite the fact that the goal of European integration is not viewed
by the majority of Ukrainians as a vehicle which could become a‘national idea,’ the development of relations with the EU and integration into the EU is viewed positively in all regions of the country.
Therefore, it is important that the average man and woman in thestreet, especially in the east and south of the country, would see benefits from these relations in the form of a visa-free regime, possibilities
for younger Ukrainians to study abroad, the growth of cultural, educational, and professional exchanges, and learning from the European
experience in providing local and regional self-government. The
establishment of the Deep and Comprehensive Free Trade Agreement
could provide additional ‘carrots’ for Ukrainian entrepreneurs toreform themselves and become more transparent in their businesspractices.
Information campaigns on NATO should highlight how NATOprovides practical help to Ukraine in emergency situations, cybersecurity, security to the Euro-2012 football championship, orders for
Ukrainian industry, and support for the training of Ukrainian officers.
NATO was for post-communist countries the stepping stone fromwhich they joined the EU.
Legal changes at the national level should stimulate cooperation
between regions and provide a framework for this endeavor. Constitutional reform should not be viewed as a zero-sum game and any
reforms and establishment of a political system should have as animportant objective the prevention of the monopolization of power.
Instead of vacuous rhetoric about federalization, there should be realreform of local self-government which decreases the dependence ofregions upon an all-powerful ‘center.’ Despite popular support for a
return to a majoritarian electoral system (because it allegedly provides
for a ‘connection’ between deputies, his district and voters), most analysts agree that the best way to support party development is to introduce open and regional party slates.
An Open Ukraine keen to introduce the radical reforms outlined inother chapters requires national integration and the overcoming ofregional tensions that have become exasperated under Yushchenko
and Yanukovych. It means that Ukraine should find a balance between
support for the Ukrainian language and culture with respect for theNational Integration and National Identity in Ukraine37

rights of ethnic minorities. At the same time, the latter is impossible if
Ukrainians continue to feel their culture and language is being subjected to discrimination. Therefore, the Ukrainian authorities should
avoid policies that polarize the country, avoid the appointment of officials who are considered to be offensive to the majority of the Ukrainian population.
It is important to increase the role of civil society, for example, toinvolve competent experts in debating key appointments in the education sphere and in developing modern Ukrainian history textbooks.
These textbooks should not be limited to the history of ethnic
Ukrainians but be based on the standard Western frameworks of territorial, inclusive histories.
An Open Ukraine requires policies to develop modern Ukrainian
culture, including popular culture. The biggest challenge for Ukrainian nation-building is to promote Ukrainian-language publications in
the media, on talk shows, during popular performances, and throughcomputer games. For example, it is important to keep a 50% quota on
the radio for Ukrainian-language performances, in music and authors,
and to develop clear criteria for what it means to support ‘Ukrainianlanguage products.’18
For Western policymakers it is important to understand why theissue of keeping Ukrainian as the only state language is so sensitive to
Ukrainians, why double citizenship is unacceptable and why they urge
Russia, Hungary and Romania to respect Ukrainian laws regarding
this issue. In general, Polish-Ukrainian reconciliation could serve as amodel for relations between Ukraine and its neighbors.
In the sphere of inter-ethnic and inter-regional relations, an Open
Ukraine requires policies that could be drawn from formulations
drawn up by the Razumkov Center. These include:• popularization of works by outstanding Ukrainian and foreign
writers who advocated inter-ethnic tolerance and their inclusion in secondary school programs in literature;18

See the recommendations of the NgO expert consortium Ihor Burakovsky ed., Nova
vlada: vyklyky modernizatsii (Kyiv: KISS, 2011), pp. 216-218.

38

O PEN U KRAINE : C HANgINg C OURSE TOWARDS A E UROPEAN F UTURE• creation of a network of courses on the Ukrainian language
for the adult population in Russian-speaking regions, including for specific target audiences such as civil servants, representatives of the judiciary and security forces;• introduction of knowledge tests for civil servants of the statelanguage and the language of communication of the overwhelming majority of local residents;• inclusion of obligatory excursions, including to other regions,
into school programs;• implementation of a comprehensive national information
campaign publicizing Ukraine’s history and culture, theUkrainian language, state symbols, and achievements of thecountry in different domains;• familiarization of Ukrainian society (first of all, youth) withthe history, culture, spiritual and household traditions of ethnic minorities;• encouragement of inter-regional migration of youth to enter
higher education;• prevention of ‘enclavization’ of higher education due to the“approach to places of residence.”19
Strong Western support remains important for the territorial
integrity of Ukraine, in general, and for stabilization in the Crimea, inparticular. To resolve the problems of deported ethnic groups, andfirst of all Crimean Tatars, it is important to adopt a law on the rightsof these groups and in the socio-economic area to conduct an inventory of the land in the Crimea. The authorities should not attempt tosplit the Crimean Tatars and undermine the authority of the Mejlis;
on the contrary, the role of consultative bodies of Crimean Tatars is to
be increased. More Crimean Tatar youth should be provided with possibilities to study outside the Crimea, including abroad.

19

See Common identity of the citizens of Ukraine, National Security and Defence, no.
9, 2007, pp. 28-31. Available at www.uceps.org/eng/files/category_journal/NSD93_
eng.pdf.

National Integration and National Identity in Ukraine

39

A difficult question is how to make Sevastopol survive economicallywithout a Russian naval base? This is part of a more general questionof how to create a favorable investment climate in the Crimea, especially in tourism.
No preferences should be given to any religious confession. The
question of the unity of divided Orthodox churches should be left totheir own competence as the Ukrainian state can only support dialogue between them. The Ukrainian authorities should not be permitted to get away State Channel 1 devoting too much time to visits andstatements by the Moscow patriarch: religious activity should be covered in media without its politicization. The role of the All-UkrainianCouncil of Churches and religious organization should be increased,
and draft laws regarding religious issues should be passed to the
Ukrainian parliament after consultations with the council.

Chapter Three
Corruption, Rule of Law, and Ukraine

Bohdan VitvitskyThis chapter is simultaneously addressed to two audiences: a Western one and a Ukrainian one. During my tenure in Ukraine, I often
found that although many Ukrainians had learned and adopted terminology familiar in the West, they either had little understanding ofwhat those terms and concepts meant or understood them in a waythat was substantially different from the way in which they are understood in the West. In order to facilitate fruitful dialogue in the future,
it is important to bridge those two conceptual worlds through conceptual elucidation. But even in the West, key notions such as rule of law
are used far more frequently as platitudes than as clearly defined andunderstood concepts. Thus to advance discourse about corruption,
rule of law and how high levels of the former and low levels of the latter relate to Ukraine, this chapter begins by offering a comprehensive
conceptual framework for rule of law and corruption. It also introduces a distinction between episodic and systemic corruption, and it
addresses Ukraine’s post-Soviet “virtuality” problem. The chapter
then discusses the current state of affairs in Ukraine as exemplified by
the 2011 prosecutions of Yulia Tymoshenko and other former highgovernment officials and discusses the Marxist-Leninist causes/
sources of this state of affairs. It concludes with some suggestions andrecommendations for reform in Ukraine and with some thoughts
about an “Open Ukraine.”
I begin with two propositions that are non-controversial.1 First, as
reflected in all recent surveys, it is undeniable that there are high lev1 The views expressed in this paper are not necessarily those of either the U.S. Depart-

ment of Justice or the U.S. Government but are simply those of the author.

41

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O PEN U KRAINE : C HANGING C OURSE TOWARDS A E UROPEAN F UTURE

els of corruption in Ukraine.2 Second, high levels of corruption canand do infect a country’s politics and significantly impede its economic
development.3
Expanding upon these propositions further, let us ask why Ukrainians should care about whether there is a high level of corruption in
Ukraine. The answer is that it is in their interest to care for several
reasons. Most importantly, high levels of corruption can and do
degrade the entire system of governance within a country, and they
undermine the possibility of real, instead of make-believe, democracy.
Second, high levels of corruption significantly distort a country’s
economy because, at a minimum, they create a large degree of uncertainty and allow for large-scale theft of money, property and otherpublic assets. At a maximum, they can suffocate an entire economy
through monopolization, confiscation and other practices.
But why should countries outside of Ukraine care about levels ofcorruption in Ukraine? Again, there are multiple reasons. First, thereis the contagion problem. It is difficult to quarantine corruption
within a given country. Because we live in an increasingly globalized
economy and interconnected world, corruption in one country caneasily spill over to its neighbors. For example, if contraband—whether
consisting of drugs, weapons or humans trafficked illegally—needs tocross a border, customs or transport officials on both sides of the border will likely need to be corrupted.
Second, high levels of corruption can lead to a partially failed state,with all of the attendant headaches that such states can cause the international community. Third, the international community has spent

2 See, e.g., the set of 61 surveys of corruption in Ukraine conducted in 2008-2009 by

MSI for the Promoting Active Citizen Engagement in Combating Corruption in
Ukraine Project. The surveys and accompanying analyses included national surveys,
surveys by individual oblasts and surveys by sectors (e.g., corruption in the judicial
system, in education, in connection with real estate transactions etc.). These surveys
are available from Dr. Lyubov Palyvoda at palyvoda@ccc.kiev.ua. See the Freedom
House evaluation of corruption at http://www.freedomhouse.org/images/File/nit/2011/NIT-2011-Ukraine.pdf; and the Transparency International survey of perceived corruption for 2010 at http://www.Transparency.org/policy_research/surveys_indices/cpi/2010/results.
3

See the chapters in this volume by F. Stephen Larrabee and Serhiy Kudelia.

Corruption, Rule of Law, and Ukraine

43

millions on helping countries such as Ukraine try to reduce corruption, improve their systems of governance and promote economic
development. Presumably the international community has an ongoing interest in seeing returns on its investment for humanitarian,political and economic reasons.

What Is Corruption?
To speak constructively about corruption in a country such as
Ukraine, that is, to say something more than that there is much corruption there and to bemoan that state of affairs, we need to do someprefatory work by establishing a key distinction about manifestationsof corruption and also by explaining the relationships between corruption and rule of law. The working definition of corruption I propose
is: corruption is an act or omission committed by a public servant who
unlawfully and/or wrongfully uses his/her position to obtain someundeserved benefit for him/herself or his/her allies, contrary to duty
and the rights of others. Before proceeding, let me explain what ismeant by a public servant, a concept that I found to be foreign tosome people in Ukraine. A “public servant” is anyone who works forthe state; it is, thus, anyone whose salary is paid by the state. This
includes the president, ministers, judges, policemen, custom agentsand many others.
The most common forms of corruption are bribe-taking andexploiting conflicts of interest. By conflict of interest I mean a situation in which a public servant makes a decision, whether regarding
hiring of personnel, procurement of goods or services for a government entity, or making a judicial or ministerial decision that is influenced by the financial, familial or partisan political interests of theindividual public servant making that decision. Thus, to cite but a few
examples, a judge who rules in favor of his political party in order toadvance that party’s interests or a minister who sells government
property at a discount to his brother-in-law or the police official whobuys computers for his police force from his wife’s computer company
are all guilty of a conflict of interest.

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O PEN U KRAINE : C HANGING C OURSE TOWARDS A E UROPEAN F UTURE

Systemic Corruption and Episodic Corruption
Corruption appears in all countries, and news of its occurrence canbe found circulating around the world. This sometimes prompts people in countries such as Ukraine to say, “what’s the big deal about corruption in Ukraine? Every country has corruption.”
Yes, it’s true that every country has corruption. But there is a fundamental difference between those countries in which corruption is systemic, and those in which it is merely episodic. Countries in which
corruption is merely episodic demonstrate the following characteristics. When corruption occurs, the victims, or the witnesses to, that
corruption have someone or some institution to which to report it,
and they can do so with a reasonable expectation that, in most
instances, that corruption will be investigated, stopped and its perpetrators punished. In such societies, the broadly and sincerely held
belief is that corruption is not normal or acceptable behavior, and thisbelief is reflected in the laws, institutional arrangements and mechanisms adopted both to prevent corruption and to punish it when it isuncovered.
In countries in which corruption is systemic, its occurrence is widespread. There are no effective means of challenging it, that is to say,there are no institutions with the will and the authority to properly
investigate and to punish those who engaged in corrupt acts. There
are also no mechanisms in place to prevent corruption. And, the general societal assumption is that corruption is more or less normal, thatit’s just the way things are in the world.
A moment’s reflection will probably persuade one that episodic andsystemic corruption are polar opposites on an imaginary scale onwhich all countries can be placed. And there often are differences
within a country as to location on the episodic/systemic corruption
scale. For example, a country in which corruption can fairly be said tobe episodic may nonetheless have a region or a city in which corruption is systemic.
When people speak about combating corruption, what they probably mean is that they want to help reduce a country’s systemic corruption to merely episodic corruption. One more introductory point thatneeds to be made is that, thanks to the inventiveness of human ingenu-

Corruption, Rule of Law, and Ukraine

45

ity, combating corruption can itself be corrupted. This occurs when, forexample, a government pursues its own partisan agenda of persecuting
its opponents under the guise of supposedly combating corruption.

Corruption, Rule of Law, Economics and Culture
There are several relationships between corruption and rule of law,and they are very important. But before turning to that subject, it
would be fruitful to note the importance of economic and cultural factors in any successful campaign to control corruption.
Public servants need to receive adequate salaries and benefits suchas pensions in order to avoid the situation in which the authority or
responsibility with which the public servant is charged is out of balance with that person’s salary, benefits and working conditions. A
policeman, customs official or judge who is paid a completely inadequate salary will be much more inclined to ignore his/her conscienceand to sell his/her authority for a bribe or to engage in conflicts ofinterest to his/her benefit than is one who is adequately paid. This isso because if a public servant is adequately paid and can expect an adequate pension, that person is less likely to want to risk losing it all byengaging in corruption. As a practical matter, post-Soviet countries
often have far too many public servants, and one of the first steps theyneed to take is to reduce those numbers in order to be able to pay adequate salaries to the smaller number of public servants.
With respect to cultural factors, what a society considers “normal”
or “acceptable” behavior will have a profound influence upon whatmembers of that society do or refuse to do, and this of course also
applies to public servants. If bribe taking by judges is considered commonplace or inevitable, then it is much more likely that a new judge
will have fewer reservations about taking his/her first bribe. If, on theother hand, bribe taking is considered by a society to be a shameful
betrayal of public trust and of the oath of office that the judge swore
upon becoming a judge, then it is much, much less likely that a newjudge would even think about taking a bribe.
In addition to the impact of social norms upon the behavior of individual public servants, institutional pride and “esprit de corps” are also

46

O PEN U KRAINE : C HANGING C OURSE TOWARDS A E UROPEAN F UTURE

very important factors in the level of professionalism demonstrated byany particular category of public servant. Professional pride and professional integrity can be created and maintained by good leaders who
demonstrate professional dedication to their particular institution, careabout its reputation and care about the well being of the rank and fileof that institution. Such leadership is perhaps most visible in the military of some countries, but it can also be created in any other institution, whether the police, the prosecution service or the health ministry.

Corruption and Rule of Law
In addition to societal attitudes about the unacceptability of corruption as well as institutional professionalism and esprit de corps being
very important contributing factors to controlling corruption, a functional legal system is another very important factor. By a functional
legal system I do not merely mean a system that has judges, police,prosecutors, lawyers and jails, but I mean a legal system characterized
by rule of law, because, unfortunately, there are various legal systems
with judges, police, prosecutors, lawyers and jails that are dysfunctional. To paraphrase a statement once made by the president of theRussian Republic, dysfunctional legal systems are those characterized
by legal nihilism.

What Is Rule of Law and Why Is It Critically Important?
To start with the second question first, rule of law is criticallyimportant to the overall well being of any complex, modern society
and it is very difficult to control corruption without it. Rule of law
may be analogized to the spinal structure of a complex, modern society. If it develops straight and strong, then that society’s economic,
political and legal systems are likely to develop in a normal fashion. By
normal fashion here I mean a market economy with proper regulation; a genuinely democratic political system; and a legal system that iscommitted to discovering facts, not inventing them, that provides balance between the rights of the accused and the authority of the government, and whose overall goal is justice, however imperfectly that
may sometimes be achieved.

Corruption, Rule of Law, and Ukraine47

If the rule of law is weak, that is akin to a human skeletal structure
being bent, deformed or stunted in its development; when that occurs,
the entire body will be deformed. So it is with a society’s economic
and political structures. Without rule of law, a country is likely to beplagued by power hierarchicalism and/or the law of the jungle; bylegal and/or political arbitrariness and, thus, economic unpredictability; and by social atomization and alienation from a society viewed as
unfair and “other.” By power hierarchicalism I mean a state of affairs
in which the oligarch or dictator or commissar decides what right,
benefit or punishment should be meted out to whom, and does so noton the basis of some neutral principles but on the basis of what is tothat person’s advantage or to the advantage of the group or system ofwhich that person is a part.
Rule of law is also important for controlling corruption because
without rule of law, it is very difficult to be able to formally enforce
laws and rules intended to control corruption. Even in countries inwhich society expects its public servants to be honest and where theprofessional integrity of public servants is high, there still are public
servants who are corrupt because of greed or lack of conscience. It is,therefore, necessary that every country have an effective enforcement
system to investigate, prosecute and punish those public servants who
have betrayed their public trust. A legal system with a low level of ruleof law will not be capable of any effective enforcement.

What Are the Constituent Elements of Rule of Law?
I propose the following working definition of rule of law: it is a setof legal mechanisms and institutions that collectively produce whatmost citizens most of the time consider to be results that are just, inthe sense of fair, and reasonable. Thus in a rule of law culture, citizens
assume and expect that the legal system will provide justice. By contrast, in a culture in which rule of law is mostly absent, what can also
be called a culture of legal nihilism, citizens assume and expect thatthe legal system has little to do with justice and is instead an instrument employed with few, if any, constraints by the more powerful inorder to obtain further advantage by bureaucratic force.

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O PEN U KRAINE : C HANGING C OURSE TOWARDS A E UROPEAN F UTURE

In a complex, modern society, rule of law is maintained by and is
the product of the interaction between a set of societal attitudes andexpectations on the one hand, and the infrastructure of the rule of law
on the other. By societal attitudes and expectations I mean, first, an
understanding and appreciation on the part of society at large of thecritical importance of rule of law as well as a commitment to its core
principles. By core principles I mean a strong sense that the legal system must be just, which at a minimum means that every man/woman
is equal before the law (as captured by the aphorism that “no man isabove the law”); that the law should be applied consistently, rather thanarbitrarily; and that those who apply the law must do so impartially (ascaptured by the aphorism that those who administer the law must playby the rules, not with the rules).
Second, by societal attitudes and expectations I also mean that there
needs to be an understanding on the part of political, legal and journalistic elites of the infrastructure needed for rule of law as well as a commitment to its defense and preservation.
So, again, rule of law is the product of the interaction between, on
the one hand, societal attitudes and the expectations of the kind I havejust outlined, and the so-called infrastructure of rule of law on theother. What makes up this infrastructure? Two kinds of things: thetechnical components of rule of law and the institutional arrangements involved in implementing rule of law. By technical components
I mean an appropriate constitution, laws and rules. By an appropriate
constitution I mean one that can be and is taken seriously—one that,for example, does not contain multiple promises that everyone knows
the government cannot possibly keep but does contain a clear statement of those that it can and must keep. By an appropriate constitution I also mean a constitution that accomplishes at least three keytasks. First, it needs to set out the separation of powers among
branches of government as well as to clearly designate and circumscribe those powers. Second, it needs to identify an individual’s rights
vis-à-vis the state. And third, it needs to provide for its own orderly
amendment.
A second technical component of the infrastructure of rule of law
consists of laws that are adopted after notice and public debate, andthat reflect the will of the majority without violating the constitutional

Corruption, Rule of Law, and Ukraine49

rights of those in the minority. The third type of technical componentof the infrastructure of rule of law consists of what those in the AngloAmerican legal world call due process rules. These fundamental procedural rules require three things whenever the government intends totake any action against or affecting an individual, his rights or his
property. First, the individual must receive adequate advance notice ofthe judicial or governmental action against him. Second, the individual must be provided a hearing before an impartial tribunal that willrule on the validity of the governmental action. Third, the individual
and his counsel must be provided with a full and adequate opportunity
to be heard at such a hearing.
But rule of law will not exist no matter how good the constitution,
laws and rules may be if there is not an appropriate human element toimplement them, and by appropriate human element I mean institutions such as a judicial system, a prosecution service, the police, an
independent and active bar, and an independent legal academy. Most
important among these is a judiciary that consists of judges who areprofessionally competent, independent, impartial and minimally corruptible. Rule of law also requires prosecutors and police who are professionally competent and minimally corruptible. Lastly, it also
requires an independent bar and legal academy whose members arecommitted to the constitution, its primacy and to the defense of ruleof law, and whose leadership is willing to defend rule of law publicly
when it is being undermined.

Rule of Law in Ukraine and Selective Justice
The conviction and sentencing of former Prime Minister Yulia
Tymoshenko on October 11, 2011, generated a firestorm of criticism.
The European Union issued a stinging rebuke to Ukraine that same
day by High Representative of the Union for Foreign Affairs andSecurity Policy Catherine Ashton.4 The White House, the U.S. Congressional Helsinki Commission and a plethora of editorial pages in
European and US media expressed similar criticisms. The Ukrainian4“Declaration by the High Representative Catherine Ashton on behalf of the European Union on the verdict in the case of Ms. Yulia Tymoshenko,” press release 364 at
http://www.consilium.europa.eu/Newsroom.

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American Bar Association aptly summarized the basis for the criticism
as follows:
The prosecution alleged the former Prime Minister hadabused her authority in causing the state run energy company NAK Naftogaz to conclude an agreement with Russia
for the supply of natural gas, an agreement which now isclaimed to be financially disadvantageous for Ukraine. The
agreement was executed openly and publicly debated at thetime, and no fraud or collusion was ever alleged even during the Tymoshenko trial. The former Prime Minister’s
actions, therefore, constituted a political act involving
another sovereign state. If the former Prime Minister
exceeded her authority, the Ukrainian judicial system or
Verkhovna Rada (Parliament) of Ukraine could have, andcan still, act to void and repudiate the agreement. However,ultra vires acts, untainted by fraud, cannot be sustained as
being criminal under any interpretation or view of the ruleof law in any democratic society.5
But, the high profile conviction and sentencing of Tymoshenko
should not obscure the even more profound and systemic problems
with the Ukrainian legal system. Many of these problems were highlighted in an important report issued on August 12, 2011, prior to the
Tymoshenko verdict and sentencing, by the Danish Helsinki Committee for Human Rights. The report is titled “Legal Monitoring in
Ukraine II”6 (hereafter “Legal Monitoring”). The specific subject ofLegal Monitoring is the 2011 prosecutions of Tymoshenko and threeother prominent members of the former Ukrainian government;
namely, the former Minister of Interior Yuriy Lutsenko, the former
First Deputy Minister of Justice Yevhen Koyniychuk and the former
Deputy Minister of Defense Valeriy Ivashchenko. It is authored by a
man who in addition to possessing extensive international experience5“Statement of the Ukrainian American Bar Association on the Trial and Sentencingof Julia Tymoshenko,” October 11, 2011, at http://www.uaba.org; “ultra vires acts”
means acts that are beyond the scope of authority.

6

The Danish Helsinki Committee for Human Rights, “Legal Monitoring in Ukraine
II,” available in English and Ukrainian at www.helsinki-komiteen.dk.

Corruption, Rule of Law, and Ukraine

51

has also served as a Danish public prosecutor, as a chief of police andas deputy chief of the Danish Security Service. It is an outstanding
report in the thoroughness and impartiality of its analysis.
More importantly for our purposes, Legal Monitoring is a scathing
indictment of Ukraine’s legal system from the perspective of what
constitutes a civilized legal system in the 21st Century, regardlesswhether one is comparing Ukraine’s legal system to a civil law or common law system.7 Twenty years after Ukraine became independent,
one finds that one after another of the procedures and practices
employed today by the criminal justice system are patently unfair and,in some instances, extraordinarily so.
To cite but some of the examples discussed in Legal Monitoring,
the young judge in the Tymoshenko case will in 3 years come before
the Higher Council of Justice that will decide whether or not to reappoint him. Three prominent members of that Council are the Chief
Prosecutor and two of his deputies, representing the same office thatis prosecuting Tymoshenko before that same young judge. This is an
obviously unacceptable conflict of interest to the detriment of the
defendant.8 Furthermore, incredibly—as this violates every precept of
judicial independence—the Ukrainian Prosecutor General exercises acontrol function with respect to the judiciary. Thus, for example, inthe last year the prosecution initiated 600 disciplinary cases against
judges that resulted in 38 judges being dismissed, only a few of whichcases had anything to do with criminality; in other words, only a few
had anything to do with corruption.

7 The term “civil law” system refers to any legal system that is a descendant of Roman,

Justinian and later Napoleonic law; this is the system that can be found in various
forms in continental Europe and South America. The common law system arose in
England and is the system found today in England, the U.S., Canada and other present or former members of the British Commonwealth.
8

Although the Council of Europe’s Venice Commission emphasized that it was
beyond its competence to take a position on the verdict in the Timoshenko case, on
October 15, 2010, the Commission criticized the appointment of the judge charged
with hearing the Timoshenko case on the grounds that as a temporary or probationary judge, i.e., as one whose reappointment was to be reviewed in 3 years, his independence could be questioned. “Venetsians’ka komisiya: spravu Timoshenko ne
mozhna bulo viddavati Kireyevu,” Ukrayinska Pravda, October 15, 2011.

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The Lutsenko defense was not allowed to copy the case files containing thousands of pages of documents and was only given shortperiods of time within which to look at those documents. That is unacceptable in a rule of law system. It is also fundamentally unfair that
under Ukrainian law the defense cannot appeal to a judge in order toforce the prosecution to treat the defense fairly in such instances. Similarly, defense counsel for Tymoshenko was only given several days
within which to prepare for trial in a case involving tens of volumes of
documents. That is also unheard of in a rule of law system.
It is also unheard of in a rule of law system for a government to filecriminal charges against high-ranking members of a former government where the gist of the allegations is that the defendants madepolitical or economic decisions with which the current government
disagrees. The same applies to questioning Tymoshenko on 42 separate occasions by the prosecutor’s investigator; or jailing these defendants, none of whom is alleged to have committed a violent crime nor
has a criminal record; or delaying medical care for Ivashchenko whilein jail; or handcuffing defendants Lutsenko, Ivanshchenko, andKorniychuk and keeping them in a cage in court, and so on.

The Genesis of the State of Rule of Law in Ukraine
and the Marxist-Leninist Destruction of Legal JusticeBecause today’s legal system in Ukraine is in most respects a continuation of the Soviet legal system, it is impossible to understandsome of the bizarre legal practices and procedures going on in contemporary Ukraine without some familiarity with Soviet history andthe Marxist theory that influenced its development. According toMarxist-Leninist theory, law as it existed in, for example, the West waspart of the so-called “superstructure” of society. As such, so the theory
went, law reflected and served the interests of the capitalist class
rather than representing any general human ideal of justice or humanrights. The law was, therefore, nothing more than a supposed instrument of the state in waging class war against the workers.
As recounted by the historian Richard Pipes, one of the first things
that Lenin and the Communists did in December 1917 was to issue a“Decree on Courts” that did away with almost the entire then-existingCorruption, Rule of Law, and Ukraine

53

legal system.9 It did so by dissolving almost all of the courts and by
doing away with the Procuracy, the legal profession and the justices ofthe peace. In its place Lenin’s regime established Peoples’ Courts as a
substitute for local courts. The Peoples’ Courts were intended to deal
with crimes of citizens against citizens. More importantly, it also created so-called Revolutionary Tribunals to deal with people accused of“counter-revolutionary” crimes as well as speculation, looting andembezzlement.
Arbitrariness was a central feature of proceedings before these Tribunals insofar as they were charged with determining penalties while
being, “’guided by the circumstances of the case and the dictates ofrevolutionary conscience.’”10 As Pipes describes it, since how “the circumstances of the case” were to be determined and what constituted“revolutionary conscience” were left unexplained, the Tribunals operated as kangaroo courts and sentenced people to death or other punishment on the basis of the appearance of guilt. By 1920, procedural“bourgeois” holdovers such as the questioning of witnesses or the confrontation of defendant and plaintiff were discarded as overly burdensome and, the Tribunals’ “judges” were selected by the Bolsheviks.
The result was courts without laws to guide them, and a situation inwhich people were punished for crimes without the crimes having
been given even semi-precise definition.
The system of “justice” was thus subjugated by Lenin to be wholly
subservient to politics. And since there were no legally objective conceptions of right or wrong, or of guilt or innocence, there remained“only subjectively determined political expediency.”11 As the “law” wasapplied without the benefit of any formal legal guidelines, it ended up
being interpreted very loosely, “as a political device serving the interestsof the regime, whatever these happened to be at any given time.”12 As
Pipes correctly described it, this was a world of legalized lawlessness.

9

Richard Pipes, Legalized Lawlessness: Soviet Revolutionary Justice (London: Institute forEuropean Defence & Strategic Studies, 1986).

10

Pipes, op, cit., p. 9, quoting the January 1, 1918, instruction to such Tribunals issued
by the Commissariat of Justice.

11

Pipes, op, cit., p. 13.

12

Pipes, op. cit., p. 14.

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Once Lenin hijacked the legal system for the purpose of having it
assist a totalitarian government control its population, there were no
limits to how what passed for the “law” could be perverted. That is
why the Soviet system staged show trials that more resembled the theatre of the absurd rather than any genuine legal proceeding, and thatis why under Soviet leader Josef Stalin this system provided for fakelegal proceedings that gave mass murder a make believe justification.
The fake legal proceedings to which I am referring involved the socalled “troikas” of which the Soviet government made extensive use in
the 1930’s.
As recently described by the historian Timothy Snyder in his book
Bloodlands,13 the troikas were legal commissions used to implement
state terror and mass murder. They consisted of a decision-making
team of three persons: one member was the regional chief of theNKVD, one was the regional Communist Party chief, and one was theregional prosecutor. Prosecutors were ordered to ignore legal procedures. Confessions were elicited by torture. The three members of thetroika would usually meet at night with investigating officers. They
would hear a very brief report accompanied by a sentencing recommendation: either execution or the Gulag. The troikas handled hundreds of cases at a time at the pace of sixty per hour.
Why the Soviet government went to the trouble of organizingthese farcical legal proceedings instead of simply killing the people it
was going to kill or send to the Gulag anyway is an interesting question, but not one relevant to our discussion. The issues that are both
relevant and important to our discussion are that such troikas werecreated and widely used and that prosecutors participated in them, asthese facts exemplify the perversions in which the legal system was
implicated.
During my anti-corruption work with the Ukrainian Parliament in2009, I was told on one notable occasion that a major piece of anticorruption legislation was not adopted because a prominent legal
authority who had spent most of his life as a leader of the Soviet legal
academy had declared that this legislation was inconsistent with
“Ukrainian legal traditions.” A Ukrainian colleague once told me that
13

Timothy Snyder, Bloodlands (New York: Basic Books, 2010).

Corruption, Rule of Law, and Ukraine

55

upon hearing such declarations he could not decide whether to laughor to cry. But in some sense the prominent Ukrainian legal academic
who made that statement was right. Given that the Ukrainian legal
system is the direct descendent of the Soviet legal system, then it
would indeed be inconsistent with that system to allow for anyone totry and make those in power accountable to the law or the people.
As is apparent from the Danish Report on Legal Monitoring, what
has remained unchanged from Soviet times14 is, first, the government’s
manipulation of the criminal justice system through its influence overthe prosecution.15 Secondly, its domination of the criminal justice system through, and by, the prosecution so that there is no impartial andindependent arbiter standing between the prosecution and the defendant, a role that is performed in all rule of law systems by an independent judiciary. In rule of law systems, the prosecution is therefore
accountable, as regards compliance with rules of fair procedure, to anindependent judiciary. And furthermore, for example, in rule of law
systems of the common law type, the prosecution’s entire case isaccountable to a jury of citizens that is held to be the “judges of thefacts” and, thus, the ultimate judges of a defendant’s guilt or innocence.
The continuities between what goes on in the legal world in
Ukraine today and what Lenin and Bolsheviks initially wrought cannot be ignored. The law continues to be viewed as an instrument ofpartisan governmental power. That which is construed to be “illegal”
is whatever the government in power finds to be politically expedient.
And the various procedural safeguards that are at the heart of a rule oflaw legal system are absent or ignored. This state of affairs prompts
the following conclusion. It is questionable whether a legal system
14Surprisingly, even Ukrainians with a democratic bent seem unaware that their legal

system suffers the fatal flaw of being the direct descendant of the Soviet legal system.
As I learned from conversations with individuals from all different political camps,
the self-conception of Ukrainian lawyers regardless of their political or ideologicalinclinations is that the Ukrainian legal system is a “Roman” system, i.e., a civil law
system, and that the system does not need to be changed. There seems to be little
awareness that although the Soviet system had the appearance of a civil law system, it
was fundamentally different from both civil and common law systems for the reasonsdescribed above.
15

It didn’t even occur to Ukraine’s Chief current Prosecutor that he should not openly
declare, as he has done, that he is a member of President Yanukovych’s “team.”

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that was perverted to the point that, for example, prosecutors participated in pseudo-legal proceedings in which issues of guilt and death
sentences were decided within a minute or two that has not yet confronted its past and has not yet cleansed itself of that terrible past can
now be expected to know how to create, maintain and fortify the ruleof law.16“Virtuality,” Reality and the Law
A functional legal system, one characterized by rule of law thatseeks justice, is also a legal system that seeks to establish what within acourt of law is true and what is false. This search for the truth, notsome metaphysical or mathematical truth, but truth in the sense of
believable facts, is of course necessary in the quest for justice. Rule oflaw systems have a candid understanding that there is no infallible
process for the establishment of truth in the form of believable facts.
But rule of law systems go to great trouble and great lengths to try
and succeed at discovering the truth. That is why, for example, common law legal systems have extraordinarily elaborate rules of discovery, evidence, cross examination and trial procedure developed andrefined over centuries. That is also why there are courts of appeal thatare required to explain in detail in their published written opinions for
all to see the justifications for their decisions to affirm or reverse
lower court rulings. It is these rules and procedures in the aggregatethat help these legal systems arrive at the truth in a large majority ofcases and situations.
Unfortunately, by contrast to rule of law systems, there is in
Ukraine, as is the case in most post-Soviet countries, a phenomenon I
will refer to as the “virtuality” problem. By this I mean the widespread16

In news items on August 24, 2011 (Ukraine’s Independence Day) it was reported thatfrom jail Tymoshenko stated, among other things, that in five years the real criminals
will be in jail. Based on the contents of the Danish report, one can certainly understand Tymoshenko’s frustrations with the numerous injustices to which she has been
subjected. Nonetheless, it is discouraging that instead of speaking about who is goingto put whom in jail, neither she nor anyone else in speaking about the need to fundamentally reform the Ukrainian legal system so that it begins to resemble a rule of law
system and so that every citizen of Ukraine can be assured that he or she will not beabused and mistreated by it.

Corruption, Rule of Law, and Ukraine

57

tolerance for making believe, for pretending that something is different from or even the opposite of what it actually is. Soviet legal history, with its political show trials, is filled with virtuality. The Soviets
also sought to export this virtuality to the Nuremburg trials when
their prosecutors sought to try and prove in court that the twentysome thousand Polish officers murdered at Katyn and elsewhere werevictims of the Nazis, whereas they had actually been murdered by theSoviet NKVD.
More recently in Ukraine, one can encounter the pretense that allprosecutions are independent and merit-based whereas there is goodreason to believe that some are commenced at the direction of thegovernment to camouflage a political vendetta. Or, for example, one
can find that draft legislation intended to help curb corruption is thenrevised so as to make the legislation practically useless, and that this isdone by none other than those who earnestly proclaim their devotion
to combating corruption. As documented back in 2002 by Taras
Kuzio, Ukraine’s virtual struggle against corruption is a play that has,
unfortunately, had a long run.17
That virtuality is not only tolerated but also accommodated in the
Ukrainian legal system, has had catastrophic effects because in everyday affairs, the legal system must be, and in rule of law systems is, thelast refuge of reality and truth. In connection with this it is noteworthy that historians have recently realized that, for example, in 16th and17th century England, the process in courts of law for establishingfacts and citizens’ exposure to that process as jurors or court observers
served to educate and sensitize the entire English population to thevalue and importance of ascertaining facts in everyday affairs.18 Thus,
the procedures and mechanisms created in law to ensure impartiality
on the part of the judge and jury to the extent humanly possible and toensure credibility in the information provided to the judge and jury
were subsequently adopted and/or influenced the development of
establishing facts in history, science and other human endeavors.
These procedures and mechanisms reflected an emphasis on obtaining
17

Taras Kuzio, “Ukraine’s Virtual Struggle Against Corruption and Organized Crime,”
RFL/RL Crime, Corruption and Terrorism Watch, September 6, 2002.

18

Barbara J. Shapiro, A Culture of Fact; England 1550-1720 (Ithaca & London; Cornell,
2000).

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and presenting testimony by impartial witnesses with first handknowledge of the issues being examined and an emphasis on seeking
corroborating evidence consisting of relevant documents or additional
testimony. For a culture, such as Ukraine, in which virtuality continues
to be a curse in public life, what might be thought of as the collateral
ramifications of genuine legal reform could not be more welcome.
Although the virtuality problem extends far beyond the legal system,19 our focus is on corruption and the legal system, so we need atleast to understand that virtuality is a major impediment to real, rather
than make believe, legal reform and combatting corruption. We also
should understand that reformers need to be constantly vigilant
against it. For example, the term “reform” has in Ukraine been virtualized and the Ukrainian word “reform” is translated into, and is supposed to have, an identical meaning to its counterpart in English.
Every standard definition of “reform” interprets that term to signify achange that involves an improvement to or in something. Yet the term
“reform” is routinely appropriated for all kinds of changes, whether bylegislation, constitution or otherwise, that involve a change, butchange without improvement. One needs, therefore, to avoid being
duped by misuse of the term “reform.”

What Needs To Be Done To Reduce
Systemic Corruption To Episodic Corruption?
What Ukraine needs in order to reduce corruption is heightenedsocietal awareness that corruption is a major impediment to economic
development as well as a major impediment to full democratizationand European integration. This awareness can be and needs to be
spread by multiple social segments such as the business community,
the portion of the legal community that services the business community, the media, religious institutions, universities, NGOs and others.
But if everyone waits for someone else to do it, then it is not going to
19

To the extent that post-Soviet virtuality has received attention, it has been in the context of political corruption. See, e.g., Andrew Wilson, Virtual Politics—Faking Democracy in the Post-Soviet World (New Haven and London: Yale, 2005) and T. Kuzio,“Political Culture and Democracy—Ukraine as an Immobile State,” East European
Politics and Societies, vol. 25, no. 88 (February 2011), pp. 88-113.

Corruption, Rule of Law, and Ukraine

59

happen. Reform also obviously requires political leadership that isgenuinely committed to reducing corruption. In some historicalinstances, leaders have responded to what a society demands—recall
what has just recently happened in India where a hunger strike by anactivist and citizens’ outrage over corruption forced a reluctant parliament into action; in other instances far-sighted politicians have acted
as true leaders by creating reform because they understood its longterm necessity.
In addition to helping the citizenry understand the great economic
and political costs of corruption for the purpose of mobilizing public
support for combating corruption, individuals and organizations interested in reducing corruption need to mobilize behind specific, concrete initiatives. For example, in 2009 two draft anti-corruption laws
were introduced in the Ukrainian Parliament that were the productsof two years of intensive work on the part of working groups of
Ukrainian officials aided by international and local experts.20 One
draft law set out a detailed code of professional ethics for public servants that included specific rules relating to conflicts of interest. The
other draft law set out in great detail the rules and design for an effective system of financial declarations by public servants. These two
draft laws were evaluated by international experts to be, if they were to
be adopted and properly implemented, among the very best in
Europe. Such projects, and others like them, need to be actively discussed and debated in the Ukrainian media, in university classrooms,
on talk shows and in various other public arenas. This is the only way
that support for such reforms can be initiated and mobilized. Civil
society must push for its adoption.
Lastly, Ukraine does not exist on an isolated planet far from anyother society that has sought to reduce corruption. There is a wealthof international experience on how to reduce corruption, and Ukraine
can and should take advantage of such experience. Ukraine can andshould learn from the successes and failures of nearby countries, particularly from post-Soviet or post-socialist countries as Georgia,
Poland and the three Baltic countries as well as from the successes and20“Project Zakonu pro pravila profesiynoii etiki na publichni sluzhbi ta zapobihannia
konflictu interesiw (4420-1)” and “Project Zakonu pro zachodi derzhawnoho
finansovoho kontroliu publichnoyi sluzhbi (4472).”

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failures of Western European and North American countries. But
there is valuable experience to be gained from around the world. Albania introduced a model financial disclosure system. And one can learn
from the long and difficult experience that Hong Kong and Singapore
had in eliminating systemic corruption.

Establishing and Strengthening the Rule of Law
The level of corruption present in a society and the presence orabsence of rule of law in that society are very closely connected in several different ways. In a modern, complex society, the absence of ruleof law is legal corruption, and, furthermore, weak rule of law makes itvery difficult to reduce any kind of corruption and make much senseto speak about corruption without also speaking about rule of law.
Ukraine, as do other post-Soviet states, needs to fundamentally andprofoundly transform its legal system if it is to enjoy a rule of law system. As a practical matter, there is probably no other way of doing it
than by coming to grips with the legal system’s catastrophic Soviet
past and the causes of that past. This needs to be done by studyingthat past from the perspective of analyzing to what extent that whichhappened was “just,” in the sense of having been fair, and to what
extent and how legal practices, procedures and institutions betrayedthe core value of any rule of law legal system; namely, justice as fairness. Such analysis, combined with a genuine commitment to avoid
the mistakes of the past, could then be used to reform the entire legal
system, ranging from reform of the Legal Academy to reform of thelaws, procedures and mechanisms that are a carryover from when thelegal system was used to serve the purposes of a totalitarian government rather than to produce justice. Judges, thus, cannot be “accountable” to prosecutors, as was the case in the Soviet Union and remain
the case in Ukraine today. Prosecutors should not be the partisan
political arm of the government. Furthermore, anyone who is incapable of acknowledging the perversions of Soviet “legality” is not
likely to be someone who is qualified to be a judge or to teach at a law
school if Ukraine is to evolve to a state guided by the rule of law.
In common law systems, the rules governing the adversarial system
keep everyone in line so that justice is undertaken in the majority ofCorruption, Rule of Law, and Ukraine

61

cases. Most often judges are appointed or elected after gaining many
years of experience as prosecutors or defense lawyers. Once someone ischarged with a crime, judges act like referees who rule on the fairnessof whatever the prosecutor or defense lawyer seeks to do both before
trial and during the trial. In civil law systems, magistrate judges whoare part of an elite and independent judiciary perform many of theinvestigatory tasks that a prosecutor undertakes in common law systems, while trial judges play a much more active role in questioning
witnesses and evaluating evidence. In such systems, prosecutors play aless important role than they do in common law systems. Justice isaccomplished because an elite judiciary is highly professional, independent and impartial. Although this is a very complicated question,
given the historical and cultural conditions prevailing in Ukraine, thatthe adoption of an adversarial system may be the more realistic methodof establishing a rule of law legal system because it may not be feasible
to expect to create a highly professional, independent and impartial
judiciary on whom much of the system would be built from scratch.
So as to avoid the impression that problems with the legal system
are somehow confined to the way criminal law is practiced, it is worth
noting that practices that occur in Ukraine outside the criminal law
are likewise unacceptable in a state governed by the rule of law. For
example, it is unthinkable in a rule of law state for a squad of masked
police special forces with machine guns to barge into a major law firm
for purposes of rooting through that law firm’s files at will, yet that issomething that happened in Ukraine in 2010. It is also unthinkable forjudges to be bribed to provide legal cover for patently illegitimate corporate raiding of businesses or “raiderstvo.” This is when a criminalgang decides to expel the rightful owners of a business and sends asquad of masked gunmen to evict the rightful owners of that businesswhile using as legal camouflage a court order granting the gunmencontrol of the business, is based on some fabricated legal basis andobtained from a corrupt judge.
Although, given its Soviet past, the changes that the Ukrainian legal
system needs to undergo are systemic, specific concrete changes canand should be implemented immediately. To cite but one example,
work on drafts of a new, reformed criminal procedure code has been
going on for years with assistance from the European Union andNorth Americans. It is high time to adopt such a code and thus to help

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eliminate some of the worst abuses allowed by the current code that
dates back to Soviet times.

Helping Ukraine Help Itself Reform
With regards Western assistance on reform of the rule of law andcorruption in Ukraine the most important starting point is straighttalk and tough love. Straight talk and tough love are somewhat inhibited by the dictates of diplomacy and by considerations of sovereignty,
but an artful exercise of straight talk and tough love can overcome
those inhibitions. U.S. Ambassador to Ukraine John F. Tefft gave agood speech at a public roundtable in Kyiv at which he spoke about
how an independent judiciary and courts of appeals are central to protecting an individual from the state. As he explained:
This is the essence of democracy and is the exact oppositeof the way the judiciary and the legal system is used inauthoritarian and totalitarian states where its purpose is toprotect the state from individuals. Moreover, on a practicallevel, an independent judiciary promotes transparency byrequiring the state to provide reasons and justification for
its actions as it applies the law in particular cases.21
It would also be valuable for the West to develop a long term strategy to assist Ukraine to fundamentally reform its legal system andreduce systemic corruption. With respect to rule of law, there should
be some serious consideration given to examining to what extent historical and cultural factors applicable to Ukraine’s experience may
resemble those that, for example, existed when the common law system was developed such as distrust of government. It would be also
important to think about whether it might not make sense to recommend that Ukraine adopt certain features of the common law withrespect to criminal procedure.

21

Statement of U.S. Ambassador John F. Tefft at the Roundtable on the Role ofSupreme Courts in Protecting Human Rights at the National Level, held at theSupreme Court of Ukraine, September 22, 2011; http://ukraine.usembassy.gov/
supreme-courts.html.

Corruption, Rule of Law, and Ukraine63

As regards corruption, it is useful to keep in mind that it took Hong
Kong and Singapore, the two best examples of countries that eliminated systemic corruption, about 20 years to achieve this objective. So
persistence and patience are obviously necessary. It is, however, very
noteworthy that Georgia has made significant strides to reduce corruption since the 2003 Rose Revolution.
It would also be useful for there to be coordination among Westerncountries and institutions in this endeavor. Furthermore, this endeavor
should be focused on what is best for Ukraine rather than on what may
be best for any given international organization involved in assisting
Ukraine to undertake reforms. Finally, individuals from the West
engaged in such endeavors must be knowledgeable both about legal
systems and recent Ukrainian and Eastern European history. If an individual is unfamiliar with the nature of the Soviet system and the rolethat the Soviet legal system played within it, that person is unlikely tounderstand the legal culture in Ukraine or how to assist reforms. That
person is unlikely to recognize manifestations of the virtuality problem
and that person is unlikely to understand how to avoid overt and covert
attempts to sabotage genuine anti-corruption efforts.

Open Societies, Trial and Error
In this chapter I have been critical about various aspects of the
Ukrainian legal system and of Ukraine’s high levels of corruption. It is,however, important to remind oneself that all societies make mistakes
as all societies have people who are greedy and/or unprincipled and/or
just stupid. But, rule of law develops and improves only if a society iscapable of recognizing problems and also learning from its mistakes.
Thus, English common law with its protections for the individualfrom the state can be said to have developed as an attempt to provide
relief from the abuses of those in power. Much more recently, the U.S.
introduced various reforms in the late 1970s in response to abuses ofpower of then President Richard Nixon carried out as part of the socalled Watergate scandal. For example, we greatly expanded the system of Offices of Inspector General so that every Department andagency has one. The mandate of Offices of Inspector General is to
reduce fraud, waste, abuse and corruption in each Department or
agency. Another reform the U.S. introduced was to make it illegal for

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the U.S. Internal Revenue Service (the Tax Service) to share anyone’s
tax or financial information with anyone else in government without awritten order from a Federal judge. Even Federal prosecutors have toobtain judicial orders before he/she can obtain tax records in connection with a criminal investigation. This requirement was introduced
because Nixon’s team had ordered the Internal Revenue Service toprovide it with tax and financial information relating to those whomthey considered to be its political enemies.

Conclusions
In the face of a significant problem, such as Ukranie’s high levels ofcorruption and weak rule of law, there are two possible strategies. One
is to adopt the posture of an ostrich; that is, to hide one’s head in thesand and to pretend that all is well. The other strategy is to acknowledge the existence of the problem, to confront it and develop policies
to solve it. Central to the notion of an “Open Ukraine” is the idea of asociety that is open to acknowledging everyday realities which meansa society that is capable of realizing and recognizing its shortcomings.
This means a society that is willing to view life as a process of trial anderror in which we have the capacity to learn from past mistakes inorder to create a better present and future. It is in this context that I
urge Ukraine and that segment of the international community interested in its evolution to help it become an “Open Ukraine.”Chapter Four
Ukrainian Economy and Economic Reforms

Marcin Święcicki

The first section of this chapter analyzes the state of Ukrainian economic reforms following two decades of transition to a market economy. This analysis is followed by a summary of recent macroeconomic
results and an overview of cooperation with IMF in combating theconsequences of the global financial crisis. In the next section the business climate in Ukraine is investigated. The following sections analyze
corporate legislation and trade in agricultural land, and compliancewith WTO obligations as examples of how external actors can influence economic systems in transition economies. The crucial role of the
Association Agreement and Deep and Comprehensive Free Trade
Agreement between EU and Ukraine is discussed, and the chapter isrounded off with an investigation of the potential role of oligarchs. The
chapter concludes with a set of policy recommendations.

Economic Reforms after Two Decades
After two decades of transition Ukraine is still far behind countries
that joined the EU, including the three Baltic states, in economic
reforms. According to the EBRD transition index Ukraine scoresbehind Georgia and Armenia in 4-5 dimensions out of nine andbehind Mongolia in some of them (such as large scale privatization,and price liberalization).1 The most advanced areas in Ukraine’s transition to a market economy by 2010 were small scale privatization,
price liberalization, and trade and the foreign exchange system. The
least advanced were governance and enterprise restructuring, competition policy and infrastructure.2
1

Transition Report 2010 (London: EBRD, 2010), p. 4.

2

Ibid.

65

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The slow pace of economic reforms in Ukraine can be explained by
the following factors. When the USSR disintegrated, unlike Central
Europe, Ukraine faced a triple transition: building sovereign state
structures; transforming the economy; and establishing democratic
institutions. The Baltic states spent only 45 years under communism,
whereas Ukraine was part of the USSR for almost 70 years. Unlike theBaltic states, Ukraine had no recent tradition of statehood and therefore no ability to revive pre-communist institutions.
Ukraine opted for a presidential, rather than parliamentary, systemof power in the 1996 constitution, which was in effect until 2005, andto which it returned in 2010. The experience of 20 years of transformation proved that presidential systems in transition countries makes
it more difficult to ensure the rule of law, checks and balances, an
independent media and judiciary. All countries that have been successful in transformations in Central, Northern and Southern Europe
adopted parliamentarian systems. Of course, the presidential systemdoes not preclude the adoption of reforms. There are exceptions, suchas President Mikheil Saakashvili, who has undertaken radical reforms
in post Rose Revolution Georgia. A series of reforms were implemented by President Leonid Kuchma in the mid 1990s. Following the2004 Orange Revolution, President Viktor Yushchenko missed theopportunity to introduce reforms in the first years of his presidential
term when Ukraine had a presidential constitution. On the other
hand, four years of parliamentary rule—2006-2010—were marked byweak majorities and personal conflicts between President Yushchenko
and Prime Ministers Yulia Tymoshenko and Viktor Yanukovych.
Ukraine’s successful accession to the WTO in May 2008, following
15 years of negotiations, was one of the very few achievements of thisperiod in the area of economic reforms. President Yanukovych, elected
in 2010, launched an ambitious plan of reforms in summer 2010, but
implementation has been very slow due to a lack of political will, populist concessions ahead of parliamentary elections in 2012, and a
deficit in government capacity to draft EU-compatible legislation.
An EU membership perspective was and remains the most powerful external factor contributing to successful transformations in postcommunist Europe. In countries offered membership by the EU agreat deal of new legislation was adopted and modern institutions

Ukrainian Economy and Economic Reforms

67

were established. Ukraine has been denied a membership perspectiveby the EU, and among the former Soviet republics only the Baltic
states were invited to join the EU. The Orange Revolution was a perfect opportunity for such an offer to be made to Ukraine when it
would have led to discipline and provided direction for political leadership, experts and the general public. Denying a membership perspective was a historical mistake by the EU, as Gunter Verheugen
observed after he had left the office of Vice President of the European
Commission.3 A Plan of Action between Ukraine and EU was adopted
in 2005 and an EU-Ukraine Association Agenda approved in November 2009, but these were poor substitutes for membership, as they
lacked sufficient technical support and disciplining measures.

Macroeconomic Balances
Following a 15 percent GDP decline in 2009, the Ukrainian economy grew 4.2 percent in 2010 and is expected to grow by 4.5% in2011 and 5.0% in 2012. By 2012 Ukraine’s GDP will exceed its precrisis level. Economic growth is led by consumption that declined by
12.2% in 2009 and is expected to recover by 4-5% per year. Investment in fixed assets were slashed by half in 2009 and are recovering at
a similar speed. The CPI is expected to grow by 11.4% in 2011 after it
remained down by 9.1% in 2010.
In 2009 exports declined by 22% whereas imports were slashed byalmost 40%. Both recovered in 2010 and 2011. Ukraine’s current
account deficit declined from 7.0% of GDP in 2008 to 1.5% of GDP
in 2009. However, the World Bank expects the current account deficit
to increase to 4% in 2011 and 5% in 2012 and 2013. FDI declined
from $10.9 billion in 2008 to $4.8 billion in 2009 and remained low in2010 and 2011. Nevertheless a surplus in FDI has compensated forthe deficit in Ukraine’s current account.
In 2011 proceeds from the privatization of Ukrtelecom and successful Eurobond placement contributed to an increase in the foreign
reserves of the National Bank. The external debt is to decline from
91% of GDP in 2009 to 78% in 2011. While the indebtedness of3

For example, during the Economic Forum in Kyiv in February 2011.

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companies and business persons is declining as a share of public debt
while government debt is growing. Ukraine’s public debt has been
growing rapidly during the crisis from the low level of 12.4% of GDP
in 2007. The World Bank predicts that public and guaranteed debt of
Ukraine will grow to 40% of GDP in 2011 and will stay at this level
for a couple of years requiring fiscal discipline and substantial reforms
envisaged in the 2010 Standby Agreement with the IMF.
International reserves declined from $38 billion in August 2008 to$24 billion in April 2009 but have been recovering since then. Devaluation of the hryvna from 5 to 8 hryvna per U.S. dollar during the lastquarter of 2008 had a positive impact on reducing the foreign trade
deficit and contributed to the arrest of the depletion of Ukraine’s currency reserves.
Ukraine’s future fiscal balance is heavily dependent upon two
reforms: energy tariffs (including gas prices for household consumers)
and pension reform. Both are part of the IMF Standby Arrangementwith Ukraine. In 2010-2011, Ukraine introduced the first stage of tariff reforms by raising household utility prices by 50% but balked atdoing this a second time. Pension reform was adopted by parliamentin summer 2011.

Cooperation with the IMF
Ukraine signed a Standby Arrangement (SBA) in an early phase of
the global financial crisis in November 2008. However, in the courseof the 2010 presidential election campaign Ukraine did not implement
reforms aimed at lowering fiscal deficit, in particular reforms in thepension system and household tariffs. In October 2009 a new SocialStandards Law was adopted by parliament that resulted in “significant
budget pressures due to indexation of wages and pensions to the minimum wage and subsistence levels”.4 In July 2010 a new SBA wasapproved with the IMF worth $16 billion, available to Ukraine over
2.5 years, conditioned by reforms in its financial sector. The SBA
entailed a new approach, the so-called “Exceptional Access Criteria,”
which allows for increased amounts of the loan for a member country
4

IMF Country Report No. 10/262 (August 2010).

Ukrainian Economy and Economic Reforms

69

that is experiencing “exceptional balance of payment pressures” but at
the same time having the “political capacity” to deliver sustainableadjustment measures in the medium term. Structural reforms are to
bring the budget deficit down to 3.5% of GDP in 2011 and 2.5% of
GDP by 2012.
The agreement with the IMF assumes a wide range of reforms
aimed at improving the financial sector, in particular through therehabilitation of the banking sector, improved tax collection, strengthening independence of the National Bank, and an increase in
exchange rate flexibility. But reforms to the pension system andenergy sector are critically important for restoring Ukraine’s financial
sustainability.
Pension expenditures increased from 9% of GDP in 2003 to 18%
in 2009, one of the highest levels in the world. At the same time, pension fund revenues cover only two-thirds of expenditures, the rest
being covered by transfers from the budget. Demographic pressures
will increase the burden on the working population even further. The
reform of Ukraine’s pension system has been long delayed until summer 2011. The new law provides for raising the pension age forwomen from 55 to 60 years over 10 years by half a year per annum;
raising the pension age for male civil servants from 60 to 62 years,
increasing the qualification period for pensions from 25 to 30 years
for women and from 25 to 35 years for men, lifting the minimum
insurance period from 5 to 15 years and capping maximum pension
benefits for new pensioners to 10 “living wages” (currently 7,600
hryvni, or about $950) The transition from the pay-as-you-go system
to a capital accounts system is delayed until the budget of the pension
fund and general budget are balanced.
According to the EU/UNDP BRAAC report, only a gradualincrease of the retirement age to 65 years for both genders by 2050
would prevent a dangerous increase in demands placed on the pension
system.5 If the pension age remained unchanged, 55 for women and60 for men, the Ukrainian population of pension age would increase
from 11.7 million in 2009 to 14 million in 2050, whereas the workingage population would decrease from 27 to 17 million.
5

Demographic and Financial Preconditions of Pension Reform in Ukraine: Forecast 2050
(Kyiv: EU/UNDP Blue Ribbon Analytical and Advisory Centre, 2010), pp. 8-9.

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Ukraine is one of the least energy-efficient countries, consuming
2.6 times more energy per GDP unit than on average in OECD countries. Industrial prices for energy are already at market levels. But
prices for gas for households and utilities are heavily subsidized, andowners of large apartments and dachas are the greatest beneficiaries oflow domestic prices for gas. With low gas prices there is neither the
stimulus nor ability to invest in increasing the domestic extraction ofgas. Therefore, Ukraine’s domestic extraction of gas is “well below
potential.”6 The only beneficiary of the artificially increased demand
for gas are foreign suppliers, in particular the Russian state gas company Gazprom. In contrast, the Ukrainian state gas company Naftohas
needs budgetary support.
According to the IMF SBA, Naftohaz’s deficit is to be eliminated,
beginning in 2011. The SBA provides for strengthening the social
safety net for the poorest segments of the population as household
utility prices are increased, with domestic gas prices being brought
into parity with import gas prices. The first increase of household utility prices by 50% was implemented in September 2010. However, thenext 50% increase, planned for April 1, 2011, was not introduced, due
to the upcoming 2012 parliamentary elections.
Following two tranches (2.250 billion SDR), further installments of
the SBA are suspended because prospects for sustainable finances
remain uncertain. The third tranche was to be provided following asecond review in March 2011. Yet an IMF mission to Kyiv to continue
discussions on the second review of the SBA in October 2011 did not
produce a breakthrough.

Business Climate7
The new Nikolai Azarov government (March 2010-) gave its commitment to deregulation but has prioritized big industrial business.
Small and medium businesses feel neglected and are afraid of a further
toughening of the administration of taxes.
6

Ukraine—Request for Stand-By Arrangement, IMF Country Report No. 10/262(August 2010) p. 12.

7This subchapter draws upon the study by Volodymyr Dubrovskiy prepared for
BRAAC in March 2011.

Ukrainian Economy and Economic Reforms

71

Administrative reform has led to elimination of the SCURPE - aninstitution playing the role of “Ombudsman” for small businesses. Its
functions were transferred to the Ministry of Economic Development
and Trade (former the Ministry of Economy), creating an obvious
conflict of interests.
Business registration is not a big issue, compared to other barriers.8
According to the Doing Business 2012,9 Ukraine was ranked 112 among
183 countries in the field of ease of registration procedures, and had
overall rating of 152, a decline by 3 positions in comparison to the2011 Report.10 These conditions are worse than in OECD countries(especially, in terms of length and number of procedures, as registration in Ukraine takes almost twice as long and requires almost twice as
many procedures), and even in comparison to Eastern Europe andCentral Asia. The minimal capital requirement for a limited liability
company was decreased to one minimal monthly wage (about $100),11
which has made Ukraine look better in international comparisons.
According to the Law on State Registration, the entire procedure ofregistration in the State Tax Administration, State Pension Fund andState Statistics Committee should go through the “one-stop shop.”
But, in reality it works in such a manner only in the city of Vinnitsa andpartly in a few other towns. The problem is that the law allows forother opportunities too, and applicants are compelled to use them.
Although registration is definitely not a bottleneck in businessdevelopment and should not be prioritized at this moment, there is a
lot of room for improvement. Closing a business is more cumbersome.
In the Doing Business 2012, the country’s rating on this position is 156.

8 The respective question was last asked in a survey in 2004, (http://www.ifc.org/ifcext/

uspp.nsf/AttachmentsByTitle/IFC_Ukraine_BE_Survey_2005_Eng/$FILE/IFC_Uk
raine_BE_Survey_2005_Eng.pdf). At that time only 44% of respondents consideredregistration as as a significant impediment to their business compared to 54% a year
before, while 66% complained about taxation. Registration does not seem to be a big
issue for small and medium enterprises.
9

Doing Business 2012 (Washingon DC: World Bank, October 18, 2011).

10

http://doingbusiness.org/data/exploreeconomies/ukraine#starting-a-business.

11

Law No. 1759-VI of December 15, 2009 “On the Legal Amendments Concerning
Simplification of the Business Conditions in Ukraine.”

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Licensing12 and permits13 are much greater issues for SMEs than registration. According to the IFC (2005)14 they were rated third after
taxation and cross-board trading. In this category Ukraine was ranked
as 179 in Doing Business 2011 and 180 in Doing Business 2012.15 The
total cost (as a percentage of per capita GDP) for obtaining a typicalset of construction permits is almost three times higher than theregion’s average, and more than ten times higher than in OECD
countries. Completion of the process of obtaining these permits
requires much more time as well: 374 days compared to 166 on average in the OECD. The situation with construction permits is just an
example that reflects the overall problem of registration. In the Doing
Business 2012 rating for Ukraine there is a further decline by threepositions to 182.
The “silent is consent” principle was introduced by the Law on
Amendments of Some Laws of Ukraine regarding Simplification ofBusiness Conditions in Ukraine (No. 1759-VI of December 15, 2009)
but it still does not work because another law stipulates a penalty forundertaking business activity without a permit. This contradiction is
expected to be resolved by another bill (No. 633916).
The same law introduced the most substantial improvement in thefield of licensing as, unlike before, most licenses are now in perpetuity.
By the government’s own admission,17 in 2010 it cancelled licensing of
90.2% (2046 out of 2268) kinds of businesses, and 27% (23 out of 78)
kinds of activities. The simplification mainly boils down to aggregation of the licenses; for example, instead of licensing of each particularkind of construction work, like plaster, the entire complex is coveredby a single license. This is, of course, a simplification of the paperwork
12 A license is official permission to perform certain types of economic activity (forinstance, sell alcohol).
13 Permit is a general name for documents certifying that certain conditions are met

and therefore a certain type of economic activity can be performed (for instance, apermit is required to start construction or use certain types of machinery).
14Business Environment in Ukraine, 2005. Ukraine Business Enabling Environment Pro-ject’s report (Washington DC: The International Finance Corporation (IFC), 2005).
15

Doing Business 2012, op. cit.

16

http://w1.c1.rada.gov.ua/pls/zweb_n/webproc4_1?id=&pf3511=37592.

17

http://www.dkrp.gov.ua/control/uk/publish/printable_article?art_id=171378.

Ukrainian Economy and Economic Reforms

73

but not a genuine deregulation. Also, there are widespread apprehensions that the new Town Planning Code makes developers’ life easierat the expense of the interests of local communities, the environment,
and architectural issues.
All in all, deregulation was undertaken mostly in respect to licenses18
and permits that were in relatively short demand. As a result, despite an
impressively long list of cancelled licensing procedures,19 these coverjust a few per cent of the total number of licenses that businesses
should obtain. The most substantial improvements are in the cancellation of licensing for tourist agencies (but not operators), custom brokers, fitness and health-improvement. Nevertheless, the real situation
with permits remains unclear as there is no register of them.
Standardization and certification procedures inherited from the Soviet
command economy were burdensome and anti-innovative, imposing
precise requirements regarding materials, components, and procedures of production. All industrial sectors had to produce the samefew sort of sausages or shoes that were precisely described by the
GOST-state agency, which determined standards. The safety of consumers was not specifically described but was assumed to be guaranteed by precisely required components and technologies.
Only in December 2010 did parliament approve two key laws, one
on state market surveillance of non-food products and the other onbasic safety of non-food products. These provide for the introductionof EU principles and procedures of market surveillance. The mainidea of the EU system is to focus on safety features for consumers,
regardless of what components and procedures are used in production.
Introduction of the EU system requires—as was the case in all former
Soviet bloc countries that joined the EU—enormous work in adopting
EU safety directives and building new institutions, and in terms ofacquiring the human capacity required for market surveillance. There
are some laboratories and competent staff in Ukraine that could be
employed with the new model, but only after extensive training andfollowing institutional and technical adjustments. Besides, these new18

Law No. 2608-VI of October 19, 2010.

19

For example, http://ukr.lcg.net.ua/licences/cancelled/.

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laws do not apply to foodstuffs, which is the main and most problematic type of goods.
Taxation is certainly the main problem in Ukraine’s business climate.
In the Doing Business Paying Taxes 2011 and 2012 rating Ukraine isgiven the 181th position, the lowest among all country ratings, and thethird from the bottom. The December 2010 Tax Code provides for:• gradual reduction of rates of corporate income tax from 2516% by 2014;• reduction in VAT rates from 20-17% by 2014;• reduction in some fines.
The vast majority of business entities are sole proprietors who normally use the simplified taxation system, which entails fewer costs inaccounting and compliance, and attracts fewer inspections.20 Sole proprietors were allowed to pay a unified lump-sum tax of up to –200
hryvni monthly, according to Presidential Decree No. 727/98 of July
3,1998. Revenues were shared between the state (local) budget and thePension Fund. Businesses using the simplified taxation were exemptedfrom full bookkeeping.
The new Tax Code reforms the simplified taxation in five major
ways:
a. major increase in lump sum tax for sole proprietors. The tax
was frozen at 200 hryvni since its inception in 1998 despite themultiple growth of CPI and salaries. Since the implementation of the unified tax, average salaries have grown more than
20 times and the CPI has increased more than 5 times. Nevertheless, the abrupt increase in lump sum tax has eliminatedmany small companies.
b. introduction of monthly, instead of quarterly, reporting basedon books that in practice eliminated substantial simplifications
for sole proprietors.

20

Investment Climate in Ukraine as Seen by Private Businesses. Ukraine Business Enabling
Environment Project Report (Washington DC: The International Finance Corporation (IFC), 2009).

Ukrainian Economy and Economic Reforms

75

c. introduction of “special factual inspection’ that, in fact, nullifies restrictions on the number and time length of inspections
in some sectors.
d. demanding bookkeeping be based on primary documents.
e. exclusion of payments to sole proprietors using simplified taxation from business costs, making such contracts prohibitively
expensive.
VAT refunds remain a major problem, as they are being paid backinitially to well-connected firms, with the remainder waiting forrefunds for years. The Code stipulates so-called “automatic” VAT
reimbursement, although only for firms meeting very strict conditions.
Changes in the rates should be introduced steadily in order to allow
businesses to become adjusted to them. They should be also supportedby the lowering of non-tax barriers. Hundreds of thousands, if not
millions, of people working in businesses because taxes were so low
have moved into the shadow economy or become unemployed.
The new Law on a Single Social Contribution (No. 2464-VI of July
8,2010) has merged a number of minor payroll taxes with the mainone (contributing towards the Pension Fund) and delegated theadministration of this tax to the State Pension Fund. This law simplifies payments and reduces inspections for companies using the basic
system of taxation and unified tax payers who have employees (onwhich they have to pay the payroll tax). In the meantime, it complicates tax compliance and effectively increases the rate more than twotimes for sole proprietors who are paying a unified tax. In addition to
single quarterly payments of the unified tax, they now have to makeanother one that exceeds by half the upper level of the unified tax rate.
Although the 2010 tax code has partly reduced the complexity of paying taxes, the code did not address the main problem of mandatory
contributions and payroll tax which remains set at a very high rate.
Here reforms would need to be more radical.
The 2010 Tax Code is a controversial document because it introduces some positive amendments, especially for large business andsome negative, mainly for small and medium businesses. The Tax
Code partly simplifies the structure of tax legislation by converging it
into a single law. The Code allows the “administrative” (hence, with-

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out a court’s sanction) arrest of a taxpayer’s property for 72 hours,
which in many cases is sufficient for inflicting unacceptable losses tobusinesses, especially to SMEs that are generally more financially andlegally vulnerable than larger companies. Third, it introduces arequirement for monthly reporting on personal income tax. The
attempt to drastically increase tax rates of simplified taxation for sole
proprietors was reduced by massive protests of entrepreneurs in Fall2010 (the so-called Tax Maidan).
Improvements in transparency and accountability should be accomplished by the new Law on State Procurement, adopted on January
28, 2011. More competitive procedures should help mid-size companies and, in some cases, larger business entities. However, the law inpractice would not allow small- and medium-sized businesses to participate in public procurement.
The burden of regulations related to export (and import) activities
is also very high. In addition to VAT reimbursement, the Doing Business rates in “Trading Across the Border” rank Ukraine 139th, which
is better than the country’s overall rating, but much worse than forOECD countries. This is mainly due to custom clearance times thatare estimated at 31 days for exports and 36 days for imports—almost 3
times more than the OECD average. The 2010 Tax Code attempted
to forbid any kind of foreign trade activities for sole proprietors using
simplified taxation arguing that some of them do not pay VAT on
imports and import duties—which are not valid for exporters.
Ukrainian corporate legislation21 is considerably underdeveloped incomparison not only to EU member states, but even to such countries
as the Russian Federation, Kazakhstan or Mongolia.
The Economic Code. The distinctive feature of Ukrainian corporate
legislation is preservation of out-dated Soviet-era concepts that leaveunclear divisions of property rights and management functions. The
Economic Code of Ukraine, the law on enterprises in Ukraine and thelaw on management of state property objects permit daily administrative interference in management of state enterprises, maintain the primacy of the state over private property, and confuse owners’ and man21

This subchapter draws upon the study by Anatoliy Yefymenko prepared for BRAAC
in 2009-2011.

Ukrainian Economy and Economic Reforms

77

agement decisions. Uncertainty over the legal status of property of“economic entities” leads to corruption (especially in state-owned
enterprises), avoids responsibility for breach of legal obligations andprovokes unfair behaviour by parties, thereby undermining stability ofproperty ownership and hindering of the development of economic
growth due to a high risk of non-payment. Until the Economic Codeis abolished, progress in the development of corporate legislation andimprovement of regulation in other spheres will be difficult toachieve. Therefore, for an “Open Ukraine” to become the future of
Ukraine, the Economic Code should be abolished.
The Civil Code of Ukraine (CCU). Provisions in the CCU on regulation of legal entities are mostly consistent with legal approaches common to all European countries. A few provisions contain mistakes thatcreate unjustified risks and undermine efficiency of regulation (e.g.
provisions on artificial requirements on maintaining a ratio between
net asset value and charter capital for joint-stock and limited liability
companies). These should be brought into conformity with therequirements of the Second EU Company Law Directive.
Law of Ukraine on Joint-Stock Companies. In September 2008,
Ukraine adopted a law on joint-stock companies which was an important step in moving Ukraine closer to modern corporate law standards. However, the law preserved the out-dated “the winner takes all”
principle, according to which the controlling shareholder has the possibility to subdue the joint-stock company’s activities to his or herinterests. Minority shareholders are regarded as a source of problems,such as difficulties reaching quorum and useless expenses (i.e. burdensome notification requirements). The situation is aggravated by thefact that the capital of most Ukrainian joint-stock companies is excessively concentrated and the minority shareholders’ stake does notallow them to influence the company’s policy.
However, Ukrainian joint-stock companies will not be able toattract substantial investments without realizing that nobody will
invest without guarantees of their participation in profit-sharing anddecision-making. Minority shareholders should be provided withpowerful enough instruments allowing them to protect their interests
in a reliable manner. According to the World Bank Doing Business
2012, Ukraine poorly protects investors, not providing even half of the

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protection level of, say, New Zealand.22 The corporation’s legal model
under the Ukrainian law on joint-stock companies vests the controlling shareholder with powers of unrestricted domination in company
management and tools to misappropriate all the company’s profits,
factors that reduce incentives for investors.
Building investors’ confidence in Ukrainian joint-stock companies
requires revision of legal concepts of the law on joint-stock companies
and substantial amendments to the text of law. For Ukrainian jointstock companies to be able to perform the function of capital accumulation (through raising investments) in an efficient manner, it is necessary to replace the “winner takes it all” with an “investor friendly”
model, which would allow minority shareholders to feel secure.
Limited Liability Companies. Limited liability companies are themost common organizational and legal form for small and mediumsized business. More than 400,000 limited liability companies are registered in Ukraine, and their share in GDP output shows a steadygrowing trend. However, the quality of legal regulation of limited liability companies remains unsatisfactory thereby reducing the capacityof these organizations.
Legislation on limited liability companies suffers from numerous
deficiencies that unnecessarily restrict the flexibility of this form ofcorporation,23 and fails to secure effective protection of minority
shareholders’ rights. Limited liability companies regulating legislation
also reproduces the “winner takes it all” model that does not allow
Ukrainian limited liability companies to efficiently perform the function of the pooling of capital and turning relations among company
members into a bitter struggle for control over the company’s executive body and its cash flows. Moreover, legal tools to control managers
remain too weak leading to unnecessary and often inefficient concentration of ownership, thereby complicating the separation of management from ownership. This makes the attraction of additional
investors risky and unattractive and brings a number of other adverse
consequences. Therefore, there is a need for a new law that would
22

Doing Business 2012, op cit., p. 12.

23

http://brc.undp.org.ua/img/publications/TOB%20-LLC%20law%20ENG(23)%20(1).ppt.

Ukrainian Economy and Economic Reforms

79

resolve these and other problems that are hampering the developmentof limited liability companies.
The lack of proper regulation of limited liability companies hinders
direct foreign investment in Ukraine. Foreign investors do not wish toengage Ukrainian partners or managers due to high risks of corporate
raiding or loss of investment arising from conflict between company
members. The draft Law on limited liability companies is an interpretation of the Russian law and continues to include the shortcomings
found in the law of Ukraine on business associations.
Regulation of Insolvency and Bankruptcy. Ukraine ranks 156th among
183 countries in the world in the “closing business” indicator. The
average duration of bankruptcy procedures in Ukraine is 2.9 years, thecosts of bankruptcy proceedings reach as high as 42% of the debtor’s
property value on average, whereas the collection rate is at most 7.9%of the value of creditors’ claims.
Under these current conditions, the law of Ukraine on re-establishing solvency of a debtor or declaring a debtor bankrupt encourages
unscrupulous conduct and provides grounds for illegal enrichment.
This is undertaken through companies escaping compliance withcommitments or through seizure of somebody else’s assets, two factorsthat adversely affects the macroeconomic situation in Ukraine andresults in degradation of its industrial base and human capital. Legal
concepts dealing with regulation of insolvency and bankruptcy
towards identification and respect of personal interests of all parties
involved should be revised. There needs to be introduced sound motivation of a bankruptcy commissioner through a combination of legal
tools for control over his decisions, fair compensation for performanceand liability for losses.
Establishment of an Agricultural Land Market. Land reform, which
has been implemented in Ukraine since 1991, has not created a fullyfledged market for agricultural land. Most of Ukraine’s agriculturalland is parcelled into 6.7 million plots of only 1.5 to 15 hectares The
average size of land holdings is approximately 4 hectares. Trade in
farmer’s land certificates began in Ukraine in 1994, but without the
adoption of proper legislation that would have resolved the transfer ofland certificates.

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A temporary moratorium on the sale of agricultural land was introduced on January 1, 2002. This moratorium has been extended several
times since then and is still in effect today. The moratorium does not
restrict the exchange of land holdings through family succession, as a
gift or in the form of an exchange.
The leasing of land is the main way of transferring land due to theeffective moratorium on sale of agricultural land. Lease agreements
are typically being concluded for a term of 4 to 5 years (accounting foralmost 50% of all lease agreements). The moratorium on trade in
agricultural land is to be lifted provided legislation is adopted thatwould regulate the land market and cadastral system. The law of
Ukraine on the land market (developed by the State Agency for Land
Resource of Ukraine) was adopted in summer 2011 and proposed toestablish a special state institution for managing state owned lands
that are cultivated for agricultural purposes.
This specialized institution is responsible for:• ensuring implementation of state policy on regulation of thecultivated land market and for state policy of preserving andenhancing the state fund of agricultural lands;• consolidating agricultural land;• resolving problems associated with ownership rights ofdeceased private land holders;• realizing the right to the primary acquisition of agriculturalland shareholdings on behalf of the state in the event of theirsale;• issuing mortgage securities;• carrying out activities related to the planning of land use andcontrol over and protecting agricultural lands.
The law on the land market does not permit foreign individuals orcompanies to own agricultural land. The adoption of the further legislation is envisaged to open up trade in agricultural land on the StateLand Cadastre, on Consolidation of Lands, and on a Land Inventory.

Ukrainian Economy and Economic Reforms

81

Compliance with WTO commitments.24 Ukraine became the 152th
WTO member in May 2008, following 15 years of negotiations. In
the years preceding WTO accession Ukraine adopted or revised 55
laws to comply with WTO rules within the 5 year transition period
granted to Ukraine to fully comply with its commitments.
Ukraine undertook steps in order to adjust its system of foreign
trade to meet WTO commitments. External tariffs were transformed
into ad valorem and rates are to be set in accordance with Ukrainiancommitments. Quantitative restrictions are to be abandoned. Ukraine
is committed to decrease export duties and refrain from applying any
obligatory minimum export prices. Sanitary measures are to be
applied according to WTO requirements.
Subsidies, in particular in the agricultural sector, are to be graduallyreformed in order to reduce measures falling into the “amber box” anddevelop the “green box” of instruments. Domestic support for agriculture under the “amber box” in 2009 did not exceed the Aggregate
Measure Support permitted by the WTO.
Development and implementation of new “green box” programs
should become a fundamental direction of state policy on agricultural
support following Ukraine’s accession to the WTO. The WTO does
not impose any restrictions on the amount of state financing for“green box” measures. Around 95% of the budget funds under
Ukraine’s “green box” programs are aimed at the financing of socalled “general services,” which cover scientific research, pest and disease control, training and re-training services, obtaining professional
higher and technical education and general inspection services(including inspecting agricultural raw materials and foodstuffs). Direct
payments to farmers based on acreage are also counted as “green box
measures” although their usefulness is questioned support for thelargest and usually wealthiest farms are very costly. Since 2009,
Ukraine has adhered to its commitments on the gradual decrease ofexport duties for sunflower seeds, live cattle, animal hide and nonferrous metal scrap.

24This section draws upon the study by Iryna Kobouta, prepared for BRAAC in 20092011.

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The 2008-2009 global financial crisis came only a few months after
Ukraine’s WTO accession, and therefore became a serious test for
Ukraine’s ability to uphold its commitments. Parliament rejected thedraft law on customs tariffs, which aimed to reduce import duties for
3,000 items. However, the Custom Service continued to apply tariffs
established by the Protocol on the Accession of Ukraine to the WTO
that was ratified earlier by parliament. In February 2009 parliament
approved a law introducing a 13% surcharge to applied rates ofimport duties for several goods. The WTO agreement contains noprovision that allows a country to implement such duties by blaming
the global financial crisis and in June 2009 the WTO Committee on
Balance of Payment Restrictions declared them as infringing WTO
rules. Ukraine did not renew the surcharges and they expired on September 7, 2009. Nevertheless, in 2010 parliament again attempted tocircumvent WTO rules and introduce protective duties for producersof automobiles, refrigerators and some foodstuff products aimed at theprotection of the interests of a narrow groups of producers but to thedetriment of Ukrainian consumers.
After joining the WTO the Tymoshenko government lifted export
quotas for grain, wheat (mixture of wheat and rye), barley, corn, andrye. The restrictions on the export of grain and oil-yielding crops
were introduced in 2006-2008 under the pretext of protecting foodstuff prices on the domestic market but damaged the interests ofexporters and producers. Tons of grain prepared for export wereruined in ports and warehouses.
The following are the negative consequences resulting from export
quotas:• Decrease in foreign currency inflows to the Ukrainian economy;• Increase in devaluation pressure on the hryvnia that led toincreases in costs of imported goods;• Loss of attractiveness for domestic and foreign investors;• Long-term decrease in the production of goods subject to quotas.
The image of Ukrainian exporters as reliable suppliers of foodstuffs
was ruined. Ukrainian producers were pushed out of profitable markets because they are considered unreliable.

Ukrainian Economy and Economic Reforms

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The WTO permits export restrictions in cases of “critical deficiency of foods” (paragraph 2 (a) of Article XI of GATT 1994) which
would be rather difficult to prove in the case of grain and sunflower
products in Ukraine. Certainly, the export of food products that would
benefit from world prices may push domestic prices up. The recipe todeal with this is to keep the indexation of income for poor families tocompensate for price increases, and food stamps or other similar
measures targeted on poor. The state reserves accumulated in good
harvest years can be utilized in poor years to moderate possible pricehikes on critical food products.
Unfortunately, the Azarov government resorted to old practices
again in 2010 and 2011, when restrictions were introduced throughthe imposition of extremely bureaucratic measures to control thequality of exported grain. Finally, in October 2010 the government
issued a decree introducing an export quota of 2.7 million tons ofgrain from the beginning of 2011. The export quota for wheat is 0.5
million tons, for barley 0.2 million tons, for corn 2 million tons andquotas for exports of rye and buckwheat of 1,000 tons each.
The other impediment to export activities is the long-standing
problem of VAT refunds to exporters. Despite a serious effort to
reduce VAT refund arrears through the issuing of VAT bonds andtransition to on-time refunds, the problem remains in place.
A Cabinet of Ministers decree from December 13, 2010 establishesa mandatory registration of export contracts for some agricultural
goods at the Agrarian Exchange or at exchanges provided with theright to register foreign economic contracts. This Decree distorts
market competition and imposes technical barriers to the efficient
operation of the agricultural market.

Economic and Trade Impact of the Deep andComprehensive Free Trade Agreement (DCFTA)
In view of the absence of an EU membership perspective, the
DCFTA may become a milestone vehicle for modernization of the
Ukrainian economy, if it is signed, ratified and implemented. The
DCFTA between Ukraine and EU is not a standard free trade agree-84

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ment, and from the very beginning it was conceived as a new generation agreement. Besides liberalization of trade, the DCFTA is aimed atdeep and comprehensive harmonization of economic legislation. Chief
EU negotiator Philippe Cuisson compared the legal status of relations
with Ukraine after implementation of the DCFTA with that of Norway or Switzerland. The DCFTA will provide access for Ukrainiancompanies to EU markets and public procurement meaning thatUkrainian companies can compete on an equal footing in construction
work, transportation services, and supply of goods and services for central and local governments throughout the European Union.
In the sphere of trade at least 95% is to be fully liberalized with theelimination of quotas and tariffs. The EU is the largest single market
in the world, about 130 times larger than the Ukrainian domestic market and 15-20 times larger than the Russian, Belarus and Kazakhstan
markets combined. Free trade between Ukraine and the EU will open
up opportunities for deep integration, including in highly specialized
intra-industrial integration. Evidence from Central-Eastern European
countries proves that open access to the EU market gave enormous
stimuli to small enterprises as well as to big business. In 1995-2003,
that is after Poland signed the Association Treaty but still before
becoming an EU member, exports from Poland to the EU increased
2.6 times.
Ukraine will also become more attractive for foreign investors. Of
course, the DCFTA will be an insufficient factor attracting foreign
investors to Ukraine. There is also a need for reliable protection ofproperty rights, independent judiciary, and other reforms.
The DCFTA will, however, impose costs on Ukrainian businesses.
The most costly rules are to be implemented gradually over a periodof time, at least over 10 years, and for some areas even longer. Ukrainian companies will also secure measures protecting them against
unfair competition. It is worth pointing out that the Ukrainian market
is already relatively open for competition.
When Ukraine changes its legislation and administrative procedures and restructures some of its institutions in order for them tomirror the rules and regulations of the 27 EU member states, the EU
will treat Ukrainian institutions as their own and will accept their

Ukrainian Economy and Economic Reforms

85

authority and judgement. It means that products approved in Ukraine
will be accepted without any further checks in the EU.25
Ukraine can maintain its Free Trade Agreement (FTA) agreementswith other countries, including with Russia, Belarus and Kazakhstan.
The rules of origin protect unlawful flow of EU goods into other markets through Ukraine, as in all other free trade agreements across theworld. However, joining the CIS Custom Union with the RussianFederation, Belarus and Kazakhstan would make the DCFTA with the
EU technically impossible. Ukraine cannot be a member of two customs unions. Joining the CIS Custom Union with countries that are
not members of the WTO (Russia, Belarus, Kazakhstan) would
require a renegotiation of Ukraine’s accession agreement with the
WTO. FTAs and custom unions with countries that are not membersof the WTO, deprived such countries of WTO arbitration in theevent of trade disputes. Joining an FTA with any country or group ofcountries, even those not belonging to the WTO, is compatible with
the EU’s DCFTA, but membership of the CIS Custom Union is not.
The most disputable part of the DCFTA consists in restrictions to
trade in some agricultural products. The EU—as in the case of other
FTAs—wants to protect its domestic market for a few agricultural
products, but the problem is that some of these are very important for
Ukraine. Ukraine was the granary of Europe, as 70% of European
black soil is to be found in Ukraine. Ukraine has a large underutilizedlabor force and excellent climate. According to FAO estimates
Ukraine could more than double its agricultural production. The consequences of restrictions in agricultural trade between the EU andUkraine will be the following:• EU consumers will be deprived of food supplies that are morediversified in price, assortment, and quality;• Ukraine will not receive a stimulus to develop its agricultural
sector to its fullest potential;• the best European soils will remain underutilized;

25Mark Hellyer, The Ukraine-EU FTA: What’s it All About?, (Kyiv: British Embassy,
Kyiv, September 2009), p. 8.

86

O PEN U KRAINE : C HANGING C OURSE TOWARDS A E UROPEAN F UTURE• the worst European soils will be still cultivated because they
are subsidized by taxpayers;• migratory pressure from Ukraine to EU will continue.
The DCFTA is to be reviewed after 5 years. Restrictions in agricultural trade should be lifted at that stage to benefit both sides of theagreement. The vested interests of small groups of the EU farmers
that are not competitive, despite the provision of heavy subsidies,should not be permitted to prevail over the interests of European consumers, taxpayers, and the EU’s strategic interest in integrating
Ukraine into the European economy and structures.
The EU’s Association Agreement with Ukraine, including the
DCFTA, could be the first of its kind under the European Neighborhood Policy and Eastern Partnership. On October 20, 2011 Deputy
Prime Minister Andrey Klyuyev and EU Trade Commissioner Karel
De Gucht reached an agreement on all elements of a free trade deal.
But—as De Gucht said—“we still have to fine tune some technicaldetails. It is now up to the Ukrainian leadership to create the politicalconditions wherein this deal can materialize. This should allow us totechnically conclude the Association Agreement including the deepand comprehensive free trade area by the end of the year; of course
provided that the political conditions are created so that this deal canhappen in practice.”26 The EU and U.S. had condemned the sentencing of Tymoshenko to seven years imprisonment on October 11, 2011
and Yanukovych’s visit to Brussels planned for nine days later was cancelled by the EU.

Oligarchs and Reforms
Privatizing on advantageous terms, obtaining preferences in lucrative tenders, and limiting internal and external competition are themost widespread arenas within which rent-seeking oligarchs operatein Ukraine. Unlike the Russian oligarchs, who are subordinated topolitical rulers since Vladimir Putin first came to power in 2000,
Ukrainian oligarchs are active in politics and have influence on politicians from various groups. Their political preferences are diverse,26

http://ec.europa.eu/commission_2010-2014/degucht/.

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87

although they tend to seek to be on good terms with the winning
camp. Despite their widespread influence, oligarchs did not prevent anincrease in gas prices for the industrial sector or the opening of
Ukraine to external competition after the country joined the WTO.
Legislation introducing additional tariffs to protect a few inefficient
producers in breach of WTO commitments were introduced but aftera dispute with the WTO were cancelled. Oligarchs have accumulated
enormous assets due to non-transparent privatizations, unclear rules,
private connections, and high-level corruption in the government andcourts. “The systematic plunder of economic resources, perpetrated
under the oligarchic system, has imposed great costs upon Ukrainiansocietyn” observed Rosaria Puglisi.27
Can Ukrainian oligarchs become more interested in the protectionof property rights, good legislation, and an independent judiciary?
They are certainly afraid of the introduction of the Russian model ofrelations between political leaders and the business community. Someof them, such as two leading oligarchs Rinat Akhmetov and Viktor
Pinchuk, promote European values and rapprochement with the EU
through the financing of seminars, events, scholarships, including withreformers in the presidential team. Oligarchs are also becoming awarethat developing ties with the EU, and eventually joining the EU, will
open new business opportunities and, even more important, will maketheir assets more valuable. They are also interested in social and political stability, as seen in their facilitation of compromise in the spring2007 political crisis, when President Yushchenko disbanded parliament, leading to early elections in September of that year. Some
Ukrainian oligarchs have recently started to improve their reputationand public relations.
Nevertheless, it would be naive to assume that one day oligarchs
will stop abusing opportunities for corrupt rents. Established tycoons
might contribute to reforms, but their approach to reforms willremain multifaceted. As Slawomir Matuszak from Poland’s Center ofEastern Studies states, “A Majority of the oligarchs treats the association agreement with the EU above all as a way of blocking Russian
integration projects and consolidating their political position with
27

Rosaria Puglisi, “The Rise of the Ukrainian Oligarchs,” Demokratization, Vol. 10,
No.3 (Autumn 2003), p. 99.

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regard to Russia.(..) The reluctance to sign the agreement is caused by
the fear that it will lead to a fierce conflict with Russia.(...) The signing of the DCFTA may be even of advantage to Firtash’s interests if itboosted exports of chemical goods to Western countries. The conclusion of the DCFTA will hurt smaller oligarchs, e.g. the owner of the
AvtoZAZ car company.”28
Freedom of media, a parliamentarian system of government andindependent NGOs combating corruption could contribute to disciplining oligarchs. It would be also advisable to work with them,including them in meetings with delegations of foreign leaders visiting
Ukraine, inviting some to prestigious gatherings, and encouraging
them to fund philanthropic educational activities. They need to beconvinced of the advantages of an alternative way of doing businessthan the one to which they have become accustomed.

Conclusions and Recommendations
There have been a number of programs of reforms consisting oflists of recommendations during the two decades of Ukrainian independence.29 However, the implementation of reforms is very slow.
The Tymoshenko cabinet lacked a parliamentary majority, was in conflict with President Yushchenko, and was preoccupied with theupcoming 2010 presidential elections, neglecting difficult reforms.
However, the Tymoshenko government solicited a reform programfrom a group of international experts that would be ready following
the presidential elections. These proposals were not used, however, as
Tymoshenko lost the 2010 election to Yanukovych.
The Azarov government elaborated a “Presidential” program ofreforms entitled “Affluent Society, Competitive Economy, Efficient
28Slawomir Matuszak, “How Ukrainian Oligarchs View Economic Integration with the

EU and Russia,” EASWEEK, September 14, 2011.
29 Affluent Society, Competitive Economy, Efficient State. Program of Economic

Reforms for 2010-2014, Committee for Economic Reforms under the President of
Ukraine, June 2010; Policy Recommendations on Economic and Institutional
Reforms 2009 (Kyiv:EU/UNDP Blue Ribbon Analytical and Advisory Centre, April2009). Anders Aslund and Oleksandr Paskhaver, Proposals for Ukraine: 2010—Time for
Ukraine, International team of experts, Kyiv 2010.

Ukrainian Economy and Economic Reforms

89

State” that was adopted in June 2010. But the program was merely alist of tasks and government capacity in developing modern legislation
remains low. Highly qualified lawyers work for private companies,
banks and Western foundations—not for the government.
Coordination of foreign assistance is poor. EU donor countries
base their plans on directives from their national capitals and perceive
the EU-Ukraine Association Agenda as a guide, ignoring the presidential program of reforms. Coordination of foreign assistance was nottransferred from the remote Division of Foreign Cooperation at the
Ministry of Economy to the Presidential Administration’s Committee
on Reform that became a hub for generating reform ideas. The Committee on Reform lacks staff to develop draft legislation and government employees are not qualified enough to develop modern economic legislation. Under these circumstances, some external support
that would enable the hiring of lawyers and experts from the private
sector has been provided by Akhmetov’s Foundation for Effective
Governance.
Successful adoption of WTO-related regulations or first steps in
implementation of the IMF’s SBA are important examples of how
international organizations can play an important role in reforms.
Therefore, it is justified to consider implementation of the DCFTA asa potentially very powerful vehicle for modernization of Ukraine andimplementation of reforms. However, the organization of technicalassistance will be crucial in making the DCFTA an effective tool forthe modernization of Ukrainian legislation and economic institutions.
Cooperation with the IMF as a source of affordable support for thebalance of payments, as a generator of confidence for investors in
Ukraine, and as a sound and professional point of reference forreforms should be continued. Foreign investors trust in the IMF andappreciate a country’s cooperation with this institution. Two politicallydifficult reforms that Ukraine agreed to undertake with the IMF are
pension reform, especially raising the retirement age, and bringing
household utility tariffs in line with market prices. Any energy tariffreform should be accompanied with compensatory measures for low
income households. Developing energy savings projects with theWorld Bank and EBRD based on returns from energy savings willbring enormous savings in energy consumption. If added to this there

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is the elimination of obstacles such as price controls and restrictive
licensing for extraction of domestic gas and oil there will be a dramatic increase of Ukraine’s energy independence.
Simplified taxation should be introduced for small and medium
businesses, to include simplified accounting of revenues with norequirement for primary documents or cash registers. The schedule
for an incremental increase in unified tax rates and ceiling in order toadjust them to changes in social welfare and inflation should be basedon an indexation linked to the CPI or subsistence level. The one-shotincrease in the rates should not exceed 25% each quarter. Previously
introduced principles of the “one-stop shop” for registering andlicensing businesses, “silent is contest,” self-certification and thedeclaratory principle should be made operational. All types of permits
other than those directly stipulated by the law should be abolished.
Business associations could play an important role here. The reduced
number of permits and activities subject to mandatory licensing
should be compiled into a single piece of legislation.
Despite a new law on joint stock companies the corporate legislation that Ukraine still uses is in dire need of reform. The Economic
Code of Ukraine, which combines element of the Soviet command
administrative economy and market institutions, should be abandoned. The norms of the Civil Code of Ukraine dealing with legal
entities should be in compliance with requirements in EU Directives
on company law.30 The law of Ukraine on joint-stock companies
should be amended in order to comply with requirements of EU
Directives on company law, and internationally accepted principles ofcorporate law and corporate governance best practices. The mainchange that is required is to transform the legal model of a joint–stockcompany from one of “profit-extracting” to “investor protection.”31
There needs to be a separate law on limited liability companies, with
an efficient system of governance, control bodies and reliable protection of minority participants in order to provide modern legal structures for the most advanced small and medium enterprises, domestic
30

31

The text of the draft law could be found at http://brc.undp.org.ua/img/publications/ProposalsCivCode%20.doc.

The text of the draft law developed by BRAAC can be found at http://brc.undp.org.ua/
img/publications/JSCAmd2010%20.doc.

Ukrainian Economy and Economic Reforms

91

and foreign investors.32 An amendment to the law on re-establishingsolvency of a debtor or declaring a debtor bankrupt is also necessary,with provisions that prevent abuses by related-party (conflict of interest) transactions, and that enhance the personal responsibility (liability) of company officers and bankruptcy commissioner in order toprevent abuse of power, while permitting quick sale of businesses.
Ending the moratorium on trading agricultural land and ensuring
free access of citizens and agricultural producers to land resources arelong overdue actions. Prices for agricultural land should be liberalized
and work on establishing a land cadastre should be continued. Allowing access of foreigners and foreign-owned companies to ownership ofsome agricultural land deposits (e.g. up to 10% of land in each oblast)should be discussed. Such reforms would attract more capital, help toimport and disseminate modern agricultural technologies, and facilitate greater access to international channels of distribution of agricultural products.
Administrative restrictions on exports should be abandoned. Targeted income support measures for poor families, as an instrument forcompensating the rise in foodstuff prices, should be implemented. The
Agricultural Fund and State Reserves can be drawn upon to moderate
the domestic impact of price fluctuations on the internal market.
It is in the interest of Ukraine to liberalize global trade in foodstuffs. Ukraine might contribute to enhancing this step through lobbying in the Doha round of multilateral trade negotiations. It would
be also useful to establish an information service for agricultural markets that would monitor and forecast the situation on the global foodmarkets and collect information on standards in other countries.
Speeding up the harmonization of Ukraine’s certification and standardization system with international and European systems, to bringsanitary and safety standards up to the levels of the European Union,
are important reforms. Establishing free trade area agreements basedon WTO rules with other non-EU trade partners is also in Ukrainian
interests. The scandalous problem of delays in VAT refunds forexporters should be urgently fixed.
32

BRAAC has prepared the text of the draft law which is available at http://
brc.undp.org.ua/img/publications/Draft_LLC.doc.

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The strengthening of programs of social support and re-training
programs for redundant leased agricultural workers is also important.
Transforming the law of Ukraine on state support of agriculture into asingle piece of legislation would simplify and rationalize the questionof state support to this important sector of Ukraine’s economy.

Chapter Five
Ukraine’s Energy Security Challenges:
Implications for the EU

Frank Umbach

The decision by the European Union to cancel a high-level meetingwith Ukrainian President Viktor Yanukovych on October 20, 2011 wasa protest against the jailing of his political opponent and former prime
minister, opposition leader Yulia Tymoshenko, who was sentenced toseven years imprisonment, and a signal that such actions threaten
Ukraine’s integration into the EU. It also highlighted the contradictory
policies of the present Ukrainian President and government.
After the second round of presidential elections in February 2010
resulted in a narrow victory of the pro-Russian candidate Viktor
Yanukovych, leader of the Party of Regions, he quickly improved
Ukraine’s relationship with Moscow, suppressed the political opposition and reduced political freedoms, including a tougher scrutiny ofmass media.1 But, instead of becoming too dependent on Russia, President Yanukovych has also sought to follow a “multi-vector foreign
policy” by playing a balancing act of Ukraine between Russia and the
EU and by using the differences and rivalries between them tostrengthen Kyiv’s position and leverage.2 He even chose Brussels for
his first foreign visit and declared European integration to be a strategic aim of his presidency. By recognizing Ukraine’s independent
national interests from Russia’s, he had promoted an association

1 See Pavel Korduban, ‘Ukrainian President Yanukovych Determined Not to Let

Tymoshenko Go,’ Eurasia Daily Monitor, Vol. 8, Issue 191 (October 18, 2011) andTaras Kuzio, ‘Can Ukraine Hold Free Elections Next Year,’ Eurasia Daily Monitor,Vol. 8, Issue 191 (October 18, 2011).
2 See also James Sherr, The Mortgaging of Ukraine’s Independence. Briefing Paper (Lon-don: Chatham House, August 2010).

93

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agreement instead of joining a Russian-led CIS Custom Union.3 In
August 2010, President Yanukovych stated:
I believe Ukraine’s future belongs in Europe. While ourhistorical connection to Russia will continue to be very
important, the key to prosperity for our people and thedevelopment of our national and human resources lies in a
deeper and more developed integration with Europe andthe West.... Our current exploration of shale and offshore
reserves will diversify energy supplies and help avert future
crises. Our strong economic ties with the EU will only
increase after we finalize an Association Agreement later
this year—a springboard to future EU membership.4
However, he did not recognize that an association agreement and acloser integration policy with the EU should be based not only on
economic interests but also on democratic values and principles thatwould lead to an “Open Ukraine” as part of a European perspective
for his country.
For the EU, the imprisonment of Yulia Tymoshenko has caused acomplex dilemma in its relations with Ukraine, because its firm standon human rights and democratic principles may compromise the EU’s
wider geo-economic and geopolitical interests and could drive
Yanukovych closer into Moscow’s arms. Furthermore, the real victim
might not be so much the Yanukovych entourage and Party ofRegions as an isolated Ukrainian society from Europe, a factor the
Ukrainian opposition fears.5
Given its size, its geographic position, its population of almost 50
million, and its role as the main transit country for Russian oil and gas
3 See Joshua Chaffin, ‘EU Postpones Ukraine Meeting,’ Financial Times, October 18,

2011 and Stephen Castle and Ellen Barry, ‘Europe Cautiously Signals Its DispleasureOver a Prosecution in Ukraine,’ New York Times, October 18, 2011.
4 President Viktor Yanukovych, ‘Ukraine’s Future Is with the European Union. Our

Unpredictable Relationship with Russia Has Long Blighted Our Energy Security,’
Wall Street Journal, August 25, 2011.
5 See Silke Mülherr, “Janukowitsch isoliert unser Land”. Die ukrainische Opposition-

spolitikerin Korolewska warnt trotz des skandalösen Timoschenko-Urteils vor einer
neuen Eiszeit,” Die Welt, October 19, 2011.

Ukraine’s Energy Security Challenges: Implications for the EU

95

exports to Europe, Ukraine has always been a critical strategic factor
for European and Eurasian security. When the Soviet Union collapsed, Ukraine inherited an economic planning and decision-making
system that was previously controlled by Moscow. From the very
beginning, Ukraine’s energy sector has been plagued not just by anaging infrastructure, inefficiency and widespread corruption, but also
by “a disconnect between stated policy priorities and real actions,political games with utility rates during election campaigns, a flawedrate policy, the lack of foreign investment, and energy sector statistics
that do not reflect the real situation.”6 These are typical phenomenonof Ukraine’s culture as a “momentocracy” where short-term policies
and lack of long-term visions dominate the country’s elites.
It was only in 2006 that a Ukrainian government approved an“Energy Strategy of Ukraine to 2030” that outlined a vision for its
future energy policies. However, government policies often contradicted the strategy’s objectives, lacked effective mechanisms for its
implementation and any market-oriented competition strategy thatwould remove monopolies and enact transparent regulations in theenergy sector. The 2006 energy strategy envisaged a reduction of perunit GDP consumption, strengthening government oversight to protect the interests of energy consumers, institutionalizing organizational and legislative changes and reducing Ukraine’s energy dependence by increasing the production of domestic oil and gas reserves,modernising energy infrastructures (coal-fired and nuclear plants) andreducing energy consumption (i.e. gas). But the strategy lacked a qualitative approach and failed even to bring quantitative results. Some of
Ukraine’s figures have even declined in comparison with 2006.7
Instead of defining its long-term national interests and guaranteeing
the country’s energy security, Ukraine’s energy policies and energy
sector became increasingly hostage to internal power conflicts. As
Ukrainian energy experts have criticized, “Without investment inUkraine’s energy system, which can only be gained by ensuring a freeenergy market, the Strategy remains little more than paper wishes.”86

I. Patronyk and I. Zhovkva, Energy Security Challenges in Ukraine: A Snapshot-2010.
Policy Paper (Kyiv: International Centre for Policy Studies (ICPS), 2010), p. 7.

7

See also Oleksiy Petrov, Diagnostic Report: Ukraine’s Energy Security and Policy Implementation: Oil and Gas (Kyiv: ESBS-Project, October 2010).

8

Patronyk and Zhovkva, op, cit., p. 18.

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Even in 2010, Ukraine’s energy consumption per unit of GDP was
still 3.9 times that of the EU and 2.6 times more than the average
GDP energy consumption in the world. Together with Russia,
Ukraine is one of the most energy inefficient economies in the world.
The Russian-Ukrainian gas conflicts in 2006 and 2009 have highlighted their direct implications for the EU’s energy security and the
EU-Russia-Ukraine triangular relationship. During the 2009 gas conflict Russia’s disruption of gas supplies not only affected Ukraine, but
17 other European customers. If a gas pipeline supply disruption istaking place, there is hardly any diversification option available in the
short-term, whereas a tanker can be re-routed to another oil producing country and/or oil terminal. Hence, pipeline dependencies may
have very different crisis management implications for the security ofenergy supplies.9
The first gas crisis in January 2006 led to the birth of the EU’scommon energy policy. Just one year later, the EU adopted the world’s
most ambitious and first “integrated energy and climate policy” that
focused on the security of the EU’s future energy supplies by increasing energy efficiency and conservation and by diversifying energy mix
and imports; in particular, due to its forecasted rising demand for gas.
Moreover, the EU’s new June 2007 Central Asia policy and its Neighborhood Policy in Eastern Europe and Eurasia has been perceived in
Russia as a challenge to its own geopolitical interests in the former
Soviet Union and South Eastern Europe.10
While the EU was hoping that the Orange Revolution would promote and quicken the transition of Ukraine’s political and economic
system to a democracy and market economy, Moscow perceived theOrange Revolution as a threat to its economic, energy and foreignand security interests in Eurasia and the wider European theatre.
When the pro-Russian candidate Yanukovych won the presidential
elections in the spring of 2010, Moscow expected a much closer economic and foreign policy orientation by the new Russian-friendly
9

See Frank Umbach, “Global Energy Security and the Implications for the EU,”
Energy Policy, Vol. 38, Issue 3 (March 2010), pp. 1229-1240.

10

See also Frank Umbach, “Energy Security in Eurasia: Clashing Interests,” in Adrian
Dellecker and Thomas Gomart eds., Russian Energy Security and Foreign Policy (Abingdon and New York: Routledge, 2011), pp. 23-38.

Ukraine’s Energy Security Challenges: Implications for the EU

97

Ukrainian government. While the “Kharkiv Accords” of April 21,
2010 extended the lease of the Sevastopol harbour in Crimea for theRussian Black Sea Fleet until 2042 in exchange for a 30% discount of
Russian gas prices and seemed to underline the new political rapprochement in their bilateral relations,11 it was also the starting pointof mutual disappointments.
This chapter will analyze Ukraine’s energy policies in the wider
context of an “Open Ukraine” vision within the common and competing interests of Ukraine and Russia. I will describe Ukraine’s present
energy dilemmas and mid- and long-term challenges. In this regard, I
will also review the “Kharkiv Accords” as an example of “virtual gas
discounts” and explain the on-going crisis in Russian-Ukrainian gas
relations. Thereupon I will analyze Ukraine’s diversification options
for its gas imports and future energy dependence on Russia. Against
this background and on-going discussions of Ukraine’s choosing
between an EU Association Agreement and a Russian-led CIS Customs Union, I will also highlight their strategic implications for
Ukraine as the EU’s main transit country for Russian gas to Europe.
Finally, I will analyze what this means for Ukraine’s future reform
policies and energy dependency on Russia.

Ukraine’s Energy Dilemmas and Challenges
Although Ukraine has oil, gas and coal reserves, it is only able tocover 47-49% of its energy demands. Russia has continued to be thebiggest supplier of energy to Ukraine covering 85-90% of oil and 7580% of natural gas imports.12 Around half of Ukraine’s total energy
consumption comes from natural gas. Although Ukraine has larger
conventional and unconventional gas resources, without deeper andcomprehensive reforms and foreign investments it will unable toincrease its domestic production of gas. Similar problems can befound in the coal sector. While Ukraine has coal reserves for another11

12

See also Frank Umbach, “The Black Sea Region and the Great Energy Game inEurasia,” in Adam Balcer ed., The Eastern Partnership in the Black Sea Region: Towards a
New Synergy (Warsaw: demosEUROPA (supported by the Polish Foreign Ministry),2011), pp. 55-88.

See also Patronyk and Zhovkva, op. cit., p. 21.

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100 years, the productivity of coal extraction is very low and its production costs are high.
Without restructuring, modernization efforts and liberalized market reforms, Ukraine will be unable to cope with its energy supply
challenges, including reducing its extremely high energy consumption.13 For Ukraine’s energy security, raising energy efficiency is oneof the most important tasks and challenges and Kyiv needs to recognize that the cleanest, most reliable and cheapest energy is the energy
it doesn’t use. Energy efficiency is about delivering sustainable economic growth that minimises economic, environmental and social
costs, and thereby, reduces import demands and dependency on foreign suppliers. In 2010-2011, Ukraine’s investment in energy efficiency projects increased but still only amounts to US$51 million.14
A major pre-condition for enhancing energy efficiency and reforming the energy sector within a market economy is the political will toraise prices. Subsidised gas prices have delayed long-overdue reformsof the country’s inefficient and wasteful energy infrastructure, they
have fuelled high-price gas imports from Russia, compromising its
national energy security and its overall economic competitiveness.
Most Ukrainian energy producers have been unable to finance even
their replacement investments because their revenues from domestic
sales do not cover all of their costs. Most energy prices only cover
operating costs but do not include the longer-term costs of security ofenergy supplies and higher energy imports. Ukraine has never developed specific energy taxes except the value added tax (VAT) of 20%.
The lack of strong market reforms is linked to widespread corruption and politically connected business groups who have taken control
of controlling stakes in state-owned enterprises through non-transparent insider privatization deals and other opaque economic activities.
These groups and their vested short-term interests are not interested
in market reforms and transparent privatization. As a critical Ukrainian study concluded:13

See also Teyana Kistnyuk, “Energy Efficient Ukraine: Is There a Light at the End of
the Tunnel?” Ukrainian Energy, August 31, 2011.

14

See “Investment in Energy Saving Projects Reaches USD 51 mln in 2010-2011,”
Ukrainian Energy, September 12, 2011.

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99

The key players in energy security in Ukraine, those whoform or influence the formation of energy policy, include
the government, international partners, business, and consumers. None of these players defends the country’s
national interests, nor have any of them guaranteed its
energy security.15
As a result, Ukraine will also face an increasing environmental challenge as the share of coal in energy consumption is planned to growfrom 22% in its energy mix in 2005 to 33% in 2030, which may double Greenhouse Gas Emissions (GHGE), according to its 2006
Energy Strategy.16 In this regard, independent energy experts andNGOs in Ukraine have expressed their concerns about the closed andnon-transparent update of Ukraine’s Energy Strategy until 2030
appealing for a public discussion of proposals and inclusion of independent experts.17
The mechanism for adopting appropriate legislation and signinginternational agreements in the energy sector is ineffective andanother factor that has contributed to an inadequate investment climate and the absence of structural reforms in the energy sector. One
reason for the failure to attract investments is Ukraine’s power grid
system. This is essential for both raising energy efficiency and conservation as well as modernizing Ukraine’s energy sector, industry andhouseholds as well as diversifying its national energy mix by expanding renewable energy sources.
The only sector that has received substantial investments is thenuclear power industry which currently is operating 15 nuclear powerblocks in the country. Ukraine is the seventh largest nuclear power
producer in the world and the fourth largest in Europe. But, its electricity grid is also aging rapidly and at present, electricity is being
exported to only Poland, Hungary, Romania and Slovakia. To increase
its electricity exports from 11.35 billion (bn) kWh in 2010 to 25 bn
15Patronyk and Zhovkva, op.cit., p. 7.

16

See Patronyk and I.Zhovkva, op. cit., p. 24.

17

See “Appeal to the President of Ukraine Concerning the Update of the Energy Strategy of Ukraine,” Ukrainian Energy, October 17, 2011. Available from http://uaenergy.org/en/post/12522.

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kWh by 2030 and integrate its power grids with European UCTE
standards will only be realistic through massive modernization andinvestments. In 2010 Ukraine signed agreements with Russia to build
two nuclear reactors giving Russia a monopoly on the supply of fuel to
Ukrainian reactors until they cease operation and plants producing
nuclear fuel will be constructed on the basis of Russian technology.
Taking this path, the Ukrainian government gave up the option ofreceiving alternative deliveries of American or other foreign fuels andtechnologies18 and ignored its own energy strategy that calls for thediversification of deliveries of nuclear fuel, as well as technologies.
This may result in Russia’s complete domination of Ukraine’s nuclear
energy sector as the energy agreements will not only make Ukraine
more dependent on Russia but also threaten its declared and urgent
reform policies in the energy sector.

The 2010 “Kharkiv Accords:” Virtual Gas Discounts
On April 21, 2010, Russia and Ukraine signed the “Kharkiv
Accords,” which extended the lease of the Sevastopol harbor in Crimea
for the Russian Black Sea Fleet from 2017 until 2042 in exchange for a
30% discount of Russian gas prices. Despite Yanukovych’s claim that
the Accords were a success, the new gas deal maintained higher gas
prices than those paid by Belgium and Germany. Indeed in summer
2010, Russia had been forced to decrease and de-link at least 15% of its
contracted gas supplies to the EU from the oil price as the result ofoversupply on the global gas markets. Furthermore, the discount pricefor Ukraine was not fixed in contracts but granted in discretion of theRussian side. While Russian and Ukrainian leaders claimed the April
2010 gas agreement would give Ukraine’s economy a US$40 billion
injection until 2019, the actual gas discount and benefits were in reality
only “virtual discounts” and “virtual benefits” based on wrong promises. They misled the West in general and the EU in particular, which
had been concerned about the security of its own energy supplies.

18

For background of potential nuclear fuel diversification options see also “Diversification of Nuclear Fuel Supply to Ukrainian NPPs” in Diversification Projects in
Ukraine’s Energy Sector: Progress, Problems, and Ways of Implementation, National
Security and Defence, no. 6 (Kyiv, Razumkov Centre, 2009), pp. 38-50.

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101

Following the Accords, Russian Prime Minister Vladimir Putin
proposed the merger of state gas companies Gazprom and Naftogaz,
which are inefficient and non-transparent monopolists. Putin’s proposal was received in Kyiv not as a merger but as a takeover thatshocked Yanukovych and the Nikolai Azarov government. While the
Ukrainian President and government resisted the proposals for amerger in July 2010, they permitted the potential sale of assets from
Naftohaz Ukrainy to foreign investors.19 As U.S. expert Edward C.
Chow had earlier predicted:
What is almost certain is that it will be discovered in a year
or two that Ukraine once again owes Russia billions of dollars in past gas debts. This perfectly fits the debt-for-equity
dirty privatization model of Russia in the 1990s and of
Ukraine even today. Ukrainian debt can then be converted
into Russian assets.20
Yulia Tymoshenko’s seven-year prison sentence, issued on October
11, 2011, was based on charges that she harmed Ukraine’s national
interests by agreeing to pay Russia an excessively high price for gas in
the January 2009 contract. Nevertheless, her political trial was largely
politically motivated and the charges against her overlooks the factthat Ukraine’s negotiation position at the time was very weak becauseof its failure to liberalize its energy sector and decrease its gas importdependence on Russia. The “Kharkiv Accords” also reflected theincreasing asymmetric nature of the bilateral power balance between
Moscow and Kyiv.21
The January 2009 gas contract eliminated the opaque gas intermediary RosUkrEnergo (jointly owned by Gazprom and two Ukrainian
oligarchs) which allegedly channeled funds to Russian elites as well as
to Yanukovych’s allies and associates of former President Yushchenko.
The elimination of RosukrEnergo removed a large source of corruption.22 Furthermore, Tymoshenko managed to change the gas contract19

See also Vladimir Socor, “Ukrainian Government Prepares Public Opinion for Possible Sales of Naftohaz Assets,” Eurasia Daily Monitor, Vol. 8, Issue 132 (July 11, 2011).

20

Edward C. Chow, “Neighborly Corporate Raid,” Kyiv Post, May 7, 2010.

21

See also Jonas Grätz and Kirsten Westphal, “Die Ukraine in der Energiegemeinschaft: Die Zukunft des Gastransits,” SWP-Aktuell 13 (Berlin), March 2011.

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in January 2009 by decreasing the mandated purchase of gas from 53
bcm to 33 bcm per year.
Nevertheless, the Russian “guarantee” to sell on average 40 bcm ofgas per year to Ukraine until 2019 is higher than Ukraine’s imports in2009 and 2010.23 Kyiv is forced to import more (36.5 bcm in 2010 and
40 bcm in 2011) than its present domestic demand is which is around33 bcm while not being allowed to re-export any of the imported gas.
Furthermore, Kyiv learned from the June 2010 energy conflicts thateven pro-Russia Belarus, once the Kremlin’s staunchest ally, could faceenergy supply cuts. Besides the price conflict and Gazprom’s understandable refusal to accept payment for debt in foodstuffs and othermeans of payment, the conflict was also an outcome of Russia’s political pressure on Belarus to join the CIS Custom’s Union and its unwillingness to sign until Moscow lifted custom duties on oil exported toBelarus.
It is understandable that the Yanukovych government wants toincrease domestic gas production (which only meets 30% of its
domestic demand) and diversify its gas imports (see below). It also
explains why EU-Ukrainian energy cooperation in the fields ofnuclear safety, integration of electricity and gas markets, security ofenergy supplies and transit of hydrocarbons and the coal sector has
continued.24
In the EU, the April 2010 Russian-Ukrainian agreement to guarantee gas transit of 112 bcm of gas annually through Ukrainian territory
over the next five years was perceived as an important step forward in
reducing the likelihood of gas disputes between Moscow and Kyiv.
The capacity of Ukraine’s Gas Transport System (GTS) with its
39,800 km of pipelines, 112 compressor pants, 13 underground storage sites (with a total volume of 32 bcm) and 75 compressor stations iscurrently around 142 bcm per year, albeit its potential capacity could
22 See also Derek Fraser, “What Was Really in Tymoshenko’s 2009 Gas Agreementwith Russia,” Kyiv Post, October 12, 2011.
23

See also E. C. Chow, “Even Azarov Now Admits Ukraine Got a Lousy Gas Deal,”
Kyiv Post, September 3, 2010.

24

See European Commission, EU-Ukraine Energy Cooperation. Fifth Joint EUUkraine Report: Implementation of the EU-Ukraine Memorandum of Understanding on Energy Cooperation during 2010, Brussels, November 22, 2010.

Ukraine’s Energy Security Challenges: Implications for the EU103

be 175 bcm. If Ukraine’s GTS, its “crown jewel,” would be modernized with the EU’s support, Ukraine could transport more than 230
bcm of gas every year to Europe. In July 2010, Ukraine launched themodernization and upgrading of the first section of the UrengoyPomary-Uzhgorod pipeline which carries gas from Western Siberia to
the EU. The upgrading should be completed within three years andthe costs of $539 million are financed by Naftohaz ($231 million) andthe remainder by the European Bank for Reconstruction and Development (EBRD). According to Kyiv’s estimates, the total cost to
upgrade the Ukrainian gas pipelines transporting Russian gas toEurope will be around $6.5 billion (one-fourth of the South Stream
pipeline costs) and seven years are required for this.25
The EU needs to also follow very closely any Russian efforts to buy
and control Ukraine’s gas pipeline network infrastructure. Although
the Yanukovych government have blocked Russian efforts to take overUkraine’s gas pipeline network Ukraine’s July 2010 adopted law on thegas sector does not prevent foreign monopolies, such as Russia’s
Gazprom, from operating in the Ukrainian market. The Azarov-government’s proposal to separate the GTS and its underground storagesites from Naftohaz Ukrainy and transfer it’s partial or full management or ownership to Gazprom could even be ideal for Russia, “whowould then gain control over key assets without taking on any of
Naftohaz’s debts.”26
The EU needs to take into account that Russia benefits from theuncompetitive and corrupt market in Ukraine. In this regard it is irritating not just for Ukraine, but for the EU’s own future energy security, if EU officials such as Marlene Holzer, EU spokeswoman for
Energy Commissioner Guenter Oettinger, declare that a takeover of
Ukraine’s transit gas system would be a purely bilateral matter
between Russia and Ukraine.27 That position not only contradicted
EU policy towards Ukraine but also lacked a deeper understanding
and any strategic thinking of EU energy security. If Russian efforts are
25

26

See P. Korduban, “Ukraine Starts Upgrading Gas Pipelines, Hoping for EU Assistance,” Eurasia Daily Monitor, Vol. 8, Issue 144 (July 27, 2011).

Patronyk and Zhovkva, op. cit., p. 32.

27

See P. Korduban, “Ukraine Wary of Putin’s Proposal to Merge National Gas Companies,” Eurasia Daily Monitor, Vol. 7, Issue, May 12, 2010.

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successful, the EU’s dependence on Russia will not only increase further but also deprive the EU of soft power tools in its neighborhood
policy and thus have wider foreign policy implications beyond
Ukraine.28

Yanukovych’s New Gas Crisis with Russia
The renewed price conflicts of imports of gas from Russia is areminder for the EU not just of the previous gas conflicts in 2006 and2009 but that any energy conflicts between Russia and Ukraine may
have severe consequences for the EU as Ukraine is the main transit
country for Russian gas supplies to Europe. With 95.4 billion cubic
meters (bcm) through Ukrainian pipelines in 2010, these transported
75-80% of EU gas imports from Russia. The latest price conflictraises even more fundamental questions for the EU’s future gas policies and gas contracts of European gas companies with Russia.29
The reason behind the Ukrainian government’s statement tolaunch a legal challenge over what it should pay for natural gas
imports from Gazprom and receive a “fair price” (like other European
gas partners of Russia) is linked to Gazprom’s and the Kremlin’s insistence on “unconditional adherence” of long-term contracts and theirlinkage to the price of oil and oil products.30 Even before 2008 and theglobal financial-economic crisis, many energy and economic experts
had questioned whether those long-term contracts and their linkage
to oil prices are still justified.31 While this price linkage could be historically explained, the previous advantage of a cheaper gas pipeline
for Europe was in decline relative to Liquefied Natural Gas (LNG)
due to technology innovations, a rapidly growing LNG market, more
expensive new gas fields in Russia’s north (Yamal Peninsula) or even
28See also Natalia Shapovalova, “The Battle for Ukraine’s Energy Allegiance,” Policy

Brief, FRIEDE, No. 55, September 2010.
29See also Frank Umbach, “Energy: What Russia’s Long-term Gas Contracts Mean for

the EU and Ukraine,” Special Report, Geopolitical Information Service (GIS www.geopolitical-info.com), October 6, 2011.
30

31

See also Roman Olearchyk and Neil Buckley, “Ukraine Poised to Mount Gazprom
Challenge,” Financial Times, August 31, 2011.

See, for instance, Josef Auer, “Gas and Oil Prices End Long-Standing Relationship,”Talking Point-Deutsche Bank Research, Frankfurt/Main, February 23, 2011.

Ukraine’s Energy Security Challenges: Implications for the EU

105

Barents Sea (Shtokman-project) and more costly undersea pipelines(like North Stream, Blue Stream or the planned South Stream gas
pipelines). Russia has no interest to drop long-term contracts in its
business strategy, Ukraine has demanded a return to annual gas contracts instead of the 10-year contract concluded in January 2009. In
September 2011, the Russian Foreign Ministry argued strongly
against Polish Foreign Minister Radoslaw Sikorski’s idea for an independent external audit of Russian-Ukrainian gas contracts.32
Moreover, those states which are heavily dependent on gas imports
from Russia (like the former Warsaw Pact members and successor
states of the USSR) are also more interested in diversification of theirgas imports and thereby a reduction of imported Russian gas. Therefore, the share of LNG for the EU is expected to increase from 10%
in 2009 to more than 24% by 2020.
While the Ukrainian government wants to change the “enslaving
gas contract” and reduce its Russian gas imports from 40 bcm in 2011
to 27 bcm in 2012 and even 12 bcm in 2014, Russia has insisted it pay
for at least 33 bcm even if Kyiv would reduce its gas imports to zero
cubic meters from Russia. Instead of Russia’s gas exports to Ukraine,
Kyiv wants instead to buy 25-30 bcm of gas from Central Asia at $220
per 1,000 cubic meters compared with $350 from Gazprom in thethird quarter and more than $400 in the fourth quarter of 2011. BothRussia’s President Medvedev and Prime Minister Putin have repeatedly made clear, any review of Russia’s gas contract with Ukraine
could only be solved either firstly, by the merger of Naftohaz Ukrainy
and Gazprom accompanied by the transfer of ownership of the
Ukrainian GTS to Russia’s gas monopoly Gazprom or secondly, by
Ukraine joining the Russian led CIS Customs Union with Belarus andKazakhstan.33 President Yanukovych turned down these two offers, as
had other Ukrainian governments,34 and dismissed the pressure as“humiliating”: “We will not allow to talk to us in such a way ... (They)
32“Russia Deems Unlawful EU’s Presumable Audit of 2009 Gas Contracts,” UkrainianNews Agency, September 8, 2011.

33

See R. Olearchyk and N. Buckley, “Ukraine Poised to Mount Gazprom Challenge,”
Financial Times, August 31, 2011.

34

See “Yanukovych Says Ukraine Not Considering Merger between Naftogaz and
Gazprom,” Ukrinform, September 5, 2011 and Robert Coalson, “Putin Visit to Test
Ukraine’s Resolve on EU Trade Talks,” Radio Free Europe/RadioLiberty, April 12, 2011.

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pushed us in the corner, at first, and then started to dictate terms.
Today it humiliates not only me, but it humiliates the state, and I cannot allow it”.35 This harsh statement reflects the difficult dilemma
Yanukovych faces, namely that if Russia does not reduce its gas priceto Ukraine, the Ukrainian government will have to raise its domesticgas prices, which Yanukovych and the Azarov government seek toavoid in the run up to the October 2012 parliamentary elections,when the popularity of the Party of Regions is declining.36
Russia has always demanded that price conflicts be solved byBelarus and Ukraine selling their gas and oil pipelines and otherstrategic energy infrastructures to Russia. While Belarus was ultimately forced to take this step, the Ukrainian parliament adopted anational law in February 2007 that prevents the selling, leasing or
renting of energy infrastructures to foreign countries and companies.
The law was adopted by 430 out of 450 deputies, including the Partyof Regions. In voting for the law the Ukrainian Parliament recognizedthat if Russia controlled the Ukrainian gas and oil pipeline network,
its entire economy and foreign policy would be controlled by Moscow.
However, the 2007 law was undermined in July 2010 by new legislations permitting a restructuring of Naftohaz Ukrainy by separating
the GTS and underground gas storage sites for sale to foreign
investors, including Gazprom.
In Russia’s view, a merger between Gazprom and Naftohaz Ukrainy
could only mean absorption and takeover, with Moscow controlling atleast 51% of its common shares, rather than a joint venture with equalshares for both sides. Energy and Coal Industry Minister Yuriy Boyko
invited the EU to jointly modernize the Ukrainian GTS, but Gazprom’s
involvement through granting Moscow a majority control of shares of abi- or tripartite consortium depends on the future state of EU-Ukrainian relations. Following EU and U.S. condemnation of Tymoshenko’s
imprisonment, it remains unclear if the EU will sign the Association
Agreement (which includes the Deep and Comprehensive Free Trade
Agreement) with the EU and live up to its obligations as a full member
35

36

Quoted from P.Korduban, “Ukraine to Seek Better Gas Deal Without Gazprom
Merger,” Ukrainska Pravda, September 5, 2011.

See P. Korduban, “Ukraine-Russia Talks Deadlocked,” Eurasia Daily Monitor, Vol. 8,
Issue 165 (September 9, 2011).

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107

of the European Energy Community (EEC)37 Kyiv’s membership of the
EEC since February 1, 2011 extends the EU’s internal energy market to
Ukraine, including the anti-corruption norms of European law and theseparation of energy production from distribution. Based on this,Gazprom cannot manage the Ukrainian GTS. The EU has also
included Ukraine in a new “gas ring” of the European pipeline network
uniting the fragmented energy markets of southeastern Europe belonging to the EU’s “Southern Corridor” project.
It remains to be seen whether Ukraine is ready to join the third
energy package of the EU in 2012, as Vasyl Filipchuk, the director of
the EU Department in the Ukrainian Foreign Ministry, has claimed,as this appears ever more uncertain followng the EU’s protest against
Tymoshenko’s imprisonment.38 EEC members are obliged to implement the EU’s third energy liberalization package in their gas andelectricity markets by January 2015, the implications of which are farreaching, often underestimated and never fully understood by members of the EEC. They not only have to revise their legislation andadopt secondary legislation but also promote fundamental changes inmarket structures by introducing market rules.
The 2006 and 2009 Russian-Ukrainian gas conflicts, which werethe most severe energy crises since the oil crisis of 1973, were neverjust price conflicts, as claimed by some Western economic experts andobservers. In these two conflicts, as in the Russian-Belarusian cases,
Russia always used unresolved price conflicts for its geopolitical ambitions.39 Ukrainian energy experts believe: “The ‘gas factor’ is used by
Russia for the solution of other problems of bilateral relations and has
become a ‘classic means’ of political pressure on Ukraine.”40
Since the dissolution of the Soviet Union, Moscow has often useddifferent gas prices, dependent on whether it perceives a particular37

See also the website of the Energy Community, http://www.energy-community.org/
portal/page/portal/ENC_HOME.

38

See “Gazprom Cannot be Attracted to Management of Ukrainian GTS—Expert,”
Ukrainian Energy, September 20, 2011.

39

See also John Lough, “Russia’s Energy Diplomacy,” Briefing Paper, Chatham House,
London, May 2011.

40“Diversification of Sources of Natural Gas Supply in Eurasia” in Diversification Projects in Ukraine’s Energy Sector: Progress, Problems, and Ways of Implementation, pp. 10-25.

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country as friend or opponent of Russia’s interest, to keep adjacent
former republics within its sphere of influence. Moscow has therefore
punished Ukraine, Georgia and the three Baltic states for their proNATO and Western-oriented foreign, security and energy policies.
This has in turn led to concerns not just in the countries directly
affected but also within the remainder of the EU with its evolving
common security and foreign policies.
Following the 2004 Orange Revolution, Ukraine was punished withhigher gas prices, whereas Yanukovych benefited from 30% price discounts (around $100 for 1,000 cm) through the “Kharkiv Accords.”
However, in 2010 these discounted gas prices were higher than what
German companies had to pay for LNG at “spot prices” and even for
Russian pipeline gas, if one excludes the longer transportation costs.
Similarly, the Baltic states are paying higher prices for Russian gas
than other European countries and companies in Germany, if one
excludes the much longer transportation costs to Germany. In 2011,
Russia’s gas prices for Ukraine increased to $295 for 1,000 bcm in thesecond quarter and $355 in the third quarter. If Ukraine followed theprice formula established for Germany, its price would be reduced bymuch shorter transportation costs and the $100 discount per 1,000
cubic meters in the “Kharkiv Accords.” Based on this calculation,
Ukraine would be paying less than Germany but in fact Ukraine ispaying $5-6 billion per year arising from the terms of 2009 gas contract with Russia and $60 billion during the next decade.41
The “Kharkiv Accords” weakened Ukraine’s negotiating positioneven further. Given the dependence of Ukraine’s heavy industries oncheap gas prices, Russia still sees an opportunity to achieve its ultimate
goal in its foreign policy, acquisition and control of the Ukrainian
pipeline network and other strategic energy infrastructures. The
launch of the North Stream pipeline in the midst of the new RussianUkrainian price conflict deprives Ukraine of lucrative transit fees in
the future by bypassing and isolating Ukraine, Poland and the Baltic
states, strengthening the position of Russia in gas price negotiations
with Ukraine. Prime Minister Putin declared that 25% of Russia’s gas
exports to Europe is more stable and hailed “freedom from the dictateof transit states,”42 the asymmetry of the power balance in Russia’s
41

See “Ukraine Seeks “German Price” for Gas from Russia—Ukrainian President,”
Worldwide News Ukraine, September 7, 2011.

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109

favour in future gas negotiations is growing. Ukrainian state energy
suppliers may suffer a reduction in sales of about 20% from 2012 as
Kyiv fees from gas transit decline.43
By pressuring Ukraine with the South Stream pipeline, which
would take its gas primarily from the existing Ukrainian gas pipelines
to Europe, Russia has signaled that it has no interest in the modernization of Ukraine’s aging pipeline infrastructure in a tripartite consortium with the EU. Such an idea was rejected by Prime Minister Putin
in summer 2010. Prime Minister Mykola Azarov has reassured the EU
and Russia of the fulfillment of the 2009 gas agreement until bothsides find a new agreement44 but the overall intention of the Ukrainian government remains to reduce its energy dependency on Russia.
From Moscow’s point of view, Ukraine has remained the most unpredictable partner in the former Soviet Union. Thus, another RussianUkrainian energy conflict growing out of mutual competing interests
and Moscow’s geopolitical ambitions may already loom in the near
future when Russia’s attempts to take control of the Ukrainian GTS
would fail.

Ukraine’s Diversification Options for
its Energy Mix and Natural Gas Imports
Independent Ukrainian energy experts have long criticized official
energy policies and the ruling elites for ignoring and overlooking fundamental changes in global energy and gas markets. This concerns thepotential for energy efficiency gains and positive results for overall
energy security from the expansion of renewables and LNG.45 President Yanukovych and the Azarov government are investigating alternative options to decrease Ukraine’s energy and gas dependency on
42

Quoted following “Nord Stream to Make Supply Disruptions a Thing of the Past,”
RT, September 6, 2011 (http://rt.com) and “Nord Stream: Kyiv Loses Gas Noose,
ibid.

43

See “Nord Stream to Sap Revenue at Ukraine Gas Companies—Fitch,” Bloomberg,
September 9, 2011.

44

See “Ukraine Will Fulfil ‘Gas Agreement Until New Deal Struck with Russia’,” Interfax, September 5, 2011.

45

See “Diversification Projects,” op. cit.

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Russia because the president “wants to remain the independent leaderof a sovereign nation, not the governor of a Russian province.”46
Ukraine’s energy cooperation with the EU could become more
important for Kyiv by expanding its renewable energy resources(RES) in order to reduce dependency on Russian gas and oil by diversifying its energy mix as well as its fossil-fuel imports. Ukraine has
excellent wind resources on its Black Sea coast (in particular in the
Crimea and the eastern shores of the Black Sea which is sparsely populated and ideal for large wind farm installations) and possess a
declared large potential of unconventional (shale) gas deposits.
According to Ukrainian energy experts, the country has a potential
wind power of 33 million (m) gigawatt (GW) or 6,000 times morethan the total electricity generated by the country’s present power system.47 But by the end of 2010, Ukraine had only 87 megawatt (MW)of installed capacity which is only a small fraction compared with
Romania’s 482 MW, Germany’s 27,124 MW or the U.S., which has
40,180 MW. The expansion of RES is not only hampered by insufficient investment funds but also by a lack of stable legislative framework, unnerving the market and foreign investors in capital-intensive
industries; in recent years, regulations in Ukraine’s energy sector havechanged on an annual basis.
In order to reduce Ukraine’s gas dependency on Russia, theUkrainian government plans to introduce more energy saving programs and replace its gas consumption with domestically produced
coal. Moreover, Ukraine seeks to develop offshore gas fields in theBlack Sea (portions of its shelf hold about 380 cubic feet), import natural gas from Azerbaijan via Georgia as LNG (2-5 bcm) and Turkmenistan and build an LNG terminal by 2014 (with a capacity of 5bcm) on its Black Sea coast.48

46Olga Shumylo-Tapiola, “Ukraine and Russia: Ever Closer Neighbors?” Policy Outlook(Washington DC: Carnegie Endowment for International Peace, June 8, 2011) p. 2.
47See I.Patronyk and I.Zhovkva, Energy Challenges in Ukraine, p. 28.
48

The Ukrainian LNG-Project to import gas from Azerbaijan is similar to the Azerbaijan-Georgia-Romania Interconnector (AGRI) project, transporting gas from Azerbaijan through Georgia and the Black Sea to Romania. See also Vladimir Socor,“Ukraine and Azerbaijan Mao Out LNG Project via Georgia and Black Sea,” Eurasia
Daily Monitor, Vol. 8, Issue 179 (September 29, 2011).

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111

The Ukrainian government plans to expand domestic gas production to 21.7 bcm in 2012 which might further increase by exploiting its
potential unconventional gas resources. In November 2010, theUkrainian Ministry of Environment and Natural Resources and the
National Joint Stock Company (NAK) “Nadra of Ukraine” declared
Ukraine had the largest, shale gas deposits in Eurasia and Europe. If
these reserves can be confirmed and drilled they could drasticallychange the Ukraine’s dependence on Russian gas. A U.S. study of the
impact of shale gas in Europe, for instance, has predicted that the Russian share of European gas consumption (outside the former Soviet
Union) could decrease from 26% in 2007 to about 13% in 2040.49
The Ukrainian government believes the potential volume of shale
gas by mid-2012 is between 10-30 trillion cubic meters (or twice aslarge as those of its natural gas resources) and has invited foreign
investors to develop its shale gas deposits.50 In February 2011, at theStrategic Partnership Commission of the U.S.-Ukraine Energy Security Working Group, both sides signed a ‘Memorandum of Understanding’ to establish a framework for technical cooperation thatwould assess the potential of unconventional gas resources in Ukraine.
This agreement brings in the U.S. Geological Survey (USGS) which
is currently undertaking a global unconventional gas resource assessment.51 Lacking technologies, drilling and management experience toexploit its unconventional gas resources, Ukraine’s parliament has
already passed more investor-friendly legislation to open its domestic
natural gas market to foreign shale gas and coal-bed producers. Meanwhile, Exxon Mobile, Chevron, Total, Eurogas (a U.S. company),
TNK-BP and Royal Dutch Shell have announced they will conduct
exploratory tests and feasibility assessments.
If anticipated shale gas resources can be explored at reasonable
prices, they would offer the most important diversification options to49

See Kenneth B. Medlock III, Amy Myers Jaffe, Peter R. Hartley, “Shale Gas and U.S.
National Security” (James A. Baker III Institute for Public Policy, Rice University,2011), p. 45.

50

51“Ukraine Claims to Possess World’s Biggest Shale Gas Deposits,” PR Newswire,
November 29, 2010.

“U.S.-Ukraine Unconventional Gas Resource MOU Signed,” Embassy of the UnitedStates, Kyiv, Ukraine, February 15, 2011.

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reduce Ukraine’s gas dependency on Russia and Gazprom. If the“silent revolution” of new drilling technologies for unconventional gas
resources will take place also outside the U.S. it would have fundamental implications for the world’s future gas supplies and businessstrategies. According to the IEA, unconventional gas could cover morethan 40% of the global increase of gas demand up to 2035 and would
be the major reason for a “Golden Age” of conventional and unconventional gas.52
The advantage of unconventional gas is that it is a domestic, nationalsource of fuel supply enhancing the energy security of each country
that is not subsidized like renewables, nuclear power and coal. For
both the EU and Ukraine, it could become the most important diversification option for their future gas supplies and would increase thesecurity of their energy supplies.53 Unconventional gas also gives buyers more leverage to renegotiate the high Russian oil-indexed gas
price demands that are included in long-term contracts that are an
obstacle for a European and Ukrainian expansion of unconventionalgas, given Russia’s strategic interests and the leverage it has towards its
gas partners.
The Russian government and Gazprom try to downplay the importance of shale gas in Europe and Ukraine and point to very negative
implications of unconventional gas production for the environment.54
If Ukrainian and European gas policies remain hostage to long-term
contracts, “take-and-pay”-clauses and the oil price linkage (even wheninternational gas markets have been de-linked from oil price markets),
new and sustainable integrated energy and climate policies cannot be
implemented as their energy mix and gas volumes will remain fixed
52 See International Energy Agency (IEA), “Are We Entering a Golden Age of Gas,”

Special Report. World Energy Outlook 2011, 2011.
53

54

See also Maximilian Kuhn and F. Umbach, “Strategic Perspectives of Unconventional Gas in Europe: A Game Changer with Implications for the EU’s Common
Energy Security Policies,” EUCERS-Strategy Papers, King’s College, Vol. 1, No. 1(May 2011).

“Alexander Medvedev Answers Your Questions—Part One,” Financial Times, February 18, 2011; “Gazprom Chief Steps Up Attacks on Shale Gas’, ibid., February 18,
2011, “Gazprom Chief Calls Shale Gas a ‘Bubble’,” Financial Times, February 18,
2011, and Andrey Konoplyanik, “The Economic Implications for Europe of the
Shale Gas ReVolution,” Europe’s World, January 13, 2011.

Ukraine’s Energy Security Challenges: Implications for the EU

113

over the next 25 years or longer. For Ukraine, those long-term contracts and “take-and-pay”-clauses have a considerable short-term
impact and implications which the EU should not overlook andignore. These diversification projects may come too late or cannot be
implemented because of their high costs (i.e. LNG options). Moscow
may have already succeeded in acquiring a majority control of the
Ukrainian GTS in a tripartite consortium with a German company(dependent on Gazprom), leaving Ukraine with only just 20% of theshares.55 If this would turn out to be the case, Ukraine’s sovereignty
and independence would come under threat and undermine future
democratic and market reforms. In addition to this, such a development would have considerable geo-economic and geopolitical implications for the EU’s energy security and foreign policy.

Conclusions and Perspectives for an“Open Ukraine” in Energy Policies
As Ukraine’s domestic policies and non-democratic tendencies indicate, Kyiv’s future relationship with the EU will remain difficult anduncertain. Tymoshenko’s imprisonment highlighted “selective justice,”
subservience of the judicial system to the executive power and thereturn of political persecution to Ukraine. For a large part of the
Ukrainian population and the West, Yanukovych government and theemerging Ukrainian regime have nothing to do with Western standards of democracy, freedom of speech, independent courts, rule oflaw, transparent political processes and fair elections. Influential
Ukrainian oligarchs have no interest in transparency of their businessactivities and market reforms. Ukraine’s intentions to integrate with
the EU is not based on shared democratic values but arises out of not
becoming too dependent on Russia, albeit Russia will remain the
country’s main trading partner in the near future.
An “Open Ukraine” as an increasingly integrated associated partnercountry of the EU needs to implement structural market reforms inorder to enhance transparency as a pre-condition of economic competitiveness and energy security. If energy and gas prices remain low they55

See P. Korduban, “Ukraine and Russia Prepare New Gas Agreement,” Eurasia Daily
Monitor, Vol. 8, Issue 178 (September 28, 2011).

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will further hamper any larger and substantial energy reforms aiming
to increase energy efficiency and conservation. By utilizing Soviet-era
legislation against his political opponents, President Yanukovych hasbrought his country into a collision course with the EU.
Even with a pro-Russian president of Ukraine, Kyiv’s energy, economic orientation and foreign policies have been disappointing for
Russia given its great hopes that Ukraine would return within its
sphere of influence. Russia is only interested in joining a bi- or tripartite consortium of the Ukrainian GTS if it were to gain a dominantrole through control of the majority of shares. Russia is not interested
in a consortium with equal shares for participants. Yanukovych
believes he already made many concessions with Russia on recognition of the 1933 famine) as a “genocide,” NATO membership and theRussian Black Sea Fleet base. But, these steps appear only to haveincreased Moscow’s appetite in Ukraine. Progress in Russian-Ukrainian relations would seem to be impossible without accepting Russia’s
economic domination through membership in the CIS Customs
Union or by Russia taking control of the Ukrainian GTS. From
Yanukovych’s point of view, despite his concessions and pro-Russian
attitudes he has received almost nothing in return and Russia still does
not accept and respect Ukrainian sovereignty and independence.56
Ukraine’s official accession in February 2011 to full membership ofthe EU-sponsored Energy Community treaty was an important step
towards growing energy cooperation with the EU. But given
Yanukovych’s domestic power base and his close ties to Ukrainian oligarchs and their vested interests in a non-transparent business environment, deep-rooted structural market reforms are unlikely to materialize. Ukraine’s commitments under its European Energy Community
membership to liberalize its energy markets and implement key EU
legal acts seems unlikely therefore in the near future. These include
fundamental reforms in its energy sectors towards a “pan-European
market, based on the principles of solidarity and transparency.”57

56

57

See also T. Kuzio, “Poor Ukrainian-Russian Ties Reflect Yanukovych-Putin Relationship,” Eurasia Daily Monitor, Vol. 8, Issue 180 (September 30, 2011).

See Umbach, “The Black Sea Region...,” op. cit., pp. 75.

Ukraine’s Energy Security Challenges: Implications for the EU

115

Although Yanukovych has followed a “multi-vector foreign policy”
by playing a balancing act between Russia and the EU, his multi-vectorism is far more limited than Kuchma’s. He can no longer use theNATO card and has given away the jewel in the crown (Sevastopol)
for a “virtual” gas discount. But this multi-vector foreign and energy
policy has now come to an end as the Ukrainian authorities need tochoose between a re-orientation towards Russia and entering theRussian-led CIS Customs Union. If Kyiv chooses the latter option thepath will block domestic market reforms and Association Agreementwith the EU which offers a path towards closer integration with the
EU and stabilizing the country’s long-term energy security. Simultaneous membership of the CIS Customs Union and EU Association
Agreement is impossible. Only the Association Agreement would
ensure future competitiveness, transparency and accountability in
Ukraine’s energy market, offer greater investment in infrastructureand new technologies and thereby decrease the country’s dependency
on gas imports from Russia. Two U.S. experts concluded that “Partnership with the EU is not a silver bullet for the troubled Ukrainian
energy sector, but it is certain to reduce the volatility of future pricing
disputes and is perhaps the only solution that does not leave Ukraine’s
fate entirely in Russian hands.”58
While the EU and European Parliament have expressed their concern about the direction of the president’s and government’s antidemocratic tendencies and deterioration of human rights in Ukraine
the country is too important for the EU’s future energy security to beisolated. But the stakes are also high for Ukraine as the EU is
Ukraine’s main commercial partner accounting for a third of its total
external trade. While Ukraine no longer seeks NATO membership,
Kyiv’s aspiration for EU membership remains a declared goal,
although rhetoric means very little if it is not backed up by policies.
Domestic policies under four Ukrainian presidents have never been
consistent with their declared goals in the energy field.
Given its present weak economic and political position vis-a-vis
Russia, Ukraine needs to be offered in the future new economic and58

Richard B. Andres and Michael Kofman, “European Energy Security: Reducing
Volatility of Ukraine-Russia Natural Gas Pricing Disputes,” Strategic Forum (INSS),
February 2011, p. 14.

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political incentives from the EU and the U.S. to avoid a further deterioration of the European-Ukrainian relationship. Traditionally,energy security has been one of the weakest links in Ukraine’s national
security strategy. In the words of Prime Minister Azarov:
The dire state of the Ukrainian economy should provide
the EU with the necessary impetus to act. Time is a factor
as Ukraine’s negotiating position continues to weaken.
Ukraine cannot be viewed as a business opportunity alone,rather as a long-term partner imperative to ensure European energy security. Without greater EU investment,
Gazprom will likely force Ukrainian cession of ownershiprights over its pipeline network in future negotiations overgas prices and modernization.59
However, despite the EU’s wider geo-economic and geopoliticalinterests for a close relationship with Ukraine, particularly with regard
to energy cooperation, the signing of an Association Agreement cannot be completely decoupled from European values and democratic
principles. This is something the Ukrainian authorities still have tolearn and to recognize.

59

Quoted following James George Jatras, “Ukraine’s Energy Policy: Strategic Path orTactical Squirming?” Global Security News, April 28, 2011.

Chapter Six
Ukraine and European Integration

Péter Balázs1

The Economy
Ukraine was hit hard by the global economic and financial crisis.
The combination of weaker demand from Ukraine’s trading partners,
falling export prices, rising import prices and reduced access to international financial markets led to a sharp drop of GDP in 2008 and2009 (-14.8%). Import and export flows have been compressed andthe trade deficit has also fallen sharply. Table 1 also shows that inflation slowed down in 2009 but remained in double digits (15.9%).
Unemployment increased to 8.8% in 2009. The hryvnia lost almost
half of its value against the U.S. dollar since July 2008.2

Table 1. Main Economic Indicators for Ukraine

Real GDP (%)*
Inflation rate (%)*
Unemployment (% of total labor force)*
Current account balance (% of GDP)*

2007
7.9
12.8
6.4
-3.7

2008
1.9
25.2
6.4
-7.1

2009
-14.8
15.9
8.8
-1.5

2010**
4.2
9.4
8.1
-1.9

2011**
4.5
9.2
7.8
-3.6

2012**
4.9
8.3
7.2
-3.8

*Source: IMF (World Economic Outlook, April 2011).
**IMF estimations.

1 This chapter was prepared by the Center for EU Enlargement Studies in Budapest

and contains contributions from Péter Balázs, András Deák, Áron Szele and Antónia
Molnárová.
2 European Bank for Reconstruction and Development: Ukraine—Key Developments

and Challenges: http://www.ebrd.com/pages/country/ukraine/key.shtml.

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Table 2. GDP of Selected Countries
Real GDP (%)*
UkraineRussiaGermany
Hungary
PolandSlovakia
Czech Republic

2007
7.9
8.5
2.8
0.8
6.8
10.5
6.1

2008
1.9
5.2
0.7
0.8
5.1
5.8
2.5

2009
-14.8
-7.8
-4.7
-6.7
1.7
-4.8
-4.1

2010**
4.2
4
3.5
1.2
3.8
4
2.3

2011**
4.5
4.8
2.5
2.8
3.8
3.8
1.7

2012**
4.9
4.5
2.1
2.8
3.6
4.2
2.9

*Source: IMF (World Economic Outlook Database).
**IMF estimations.

To restore financial and economic stability in Ukraine, in November 2008 the IMF approved a two-year stand-by arrangement in theamount of a $16.5 billion loan.3 Another agreement was signed with
the IMF in July 2010.
however, the economic situation has improved since 2010. For
2011, the World Bank has raised its forecast for Ukraine’s economic
growth to 4.5% and GDP is expected to grow by 4.9% in 2012. The
European Bank for Reconstruction and Development (EBRD) has
also improved its assessment of the economy to grow by 5% in 2011.
This reflects improving conditions in the Ukrainian economy and thecountry emerging from the 2008-2009 crisis.4
Table 2 shows economic growth in Ukraine since the outbreak of
the global economic and financial crisis in comparative perspectivewith Russia, Germany and the Visegrad Group of countries. Table 2
shows that in 2009, when the global recession was deepest, GDP
growth in all countries, except Poland, was negative but with thebiggest decline in Ukraine that was almost twice that experienced by
Russia.

3 IMF press release No. 08/271: http://www.imf.org/external/np/sec/pr/2008/pr08271.htm.
4 Centre for Eastern Studies OSW: A positive economic forecast for Ukraine, July 27,

2011: http://www.osw.waw.pl/en/publikacje/eastweek/2011-07-27/a-positive-economic-forecast-ukraine.

Ukraine and European Integration

119

Trade and Foreign Investment
Ukrainian exports to the EU are to a very large extent liberalized
due to the Generalized System of Preferences (GSP) granted by the
EU to Ukraine since 1993. Following WTO membership in May
2008, the EU and Ukraine launched bilateral negotiations for a Deepand Comprehensive Free Trade Agreement (DCFTA) that would
replace the Partnership and Cooperation Agreement signed in 1994
(going into effect following parliamentary ratification by EU members in 1998). The DCFTA is designed to deepen Ukraine’s access to
the European market, modernize the economy and encourage European investment in Ukraine. Negotiations between the EU andUkraine were planned to be finalized under the Polish Presidency of
the European Council in December 2011 but this could be suspended
in retaliation for the trial and sentencing to imprisonment of opposition leader Yulia Tymoshenko on October 11, 2011.5 The case will
make ratification of the Association Agreement by the European Parliament and 27 EU member parliaments difficult.
Ukraine is one of the biggest and, at the same time, poorest countries in Europe, although it possesses vast potential. As Table 3 shows,
Ukraine has a relatively low per-capita GDP even among the Eastern
Partnership countries. In comparison, Ukraine lags behind the Western Balkan countries (i.e. Albania, 3800 USD) or CEE countries at thetime of their respective associate status.
Ukraine has an open economy, with total foreign trade accounting
for 81% of GDP and exports/GDP ratio equal to 0.44. The geographic distribution of Ukraine’s foreign trade is relatively balanced
between East and West, with Russia taking a slightly bigger share bothin exports and imports than the EU. Russian imports are mainly
energy-related with the gas import bill 45% of total imports. Exports
are heavily dominated (up to 60% by metallurgical and related products that are primarily exported to the EU. Energy imports do not
impact directly and significantly on the performance of exports as theshare of gas among inputs into metallurgy is low.

5

European Commission, DG Trade, http://ec.europa.eu/trade/creating-opportunities/bilateral-relations/countries/ukraine/.

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Table 3. Gross Domestic Product Per Capita in EaP and Some
Selected Countries
Current prices, 2009 USD
Country
Armenia
Azerbaijan
BelarusGeorgia
Moldova
UkraineCzech Republic
Germany
Hungary
RussiaTurkeyGDP/capita
2614.704798.245190.792455.371524.23
2568.65
18170.87
40831.66
12893.96
8614.038711.16

Ratio in HU level
0.20
0.37
0.40
0.19
0.12
0.20
1.41
3.17
1.00
0.67
0.68

*Source: International Monetary Fund.

Table 4. Ukraine’s Major Foreign Trade Partners, 2010
Billion USD
Exports
Imports

Russia
13.43
22.2

EU
13.05
19.1

Other
19.62
14.94

Source: Ukranian Statistical Office.

Unlike foreign trade, the EU has a major role in foreign investments into Ukraine with 79% of foreign direct investments from theEU-27 (with 28% of this is from Cyprus). Net inflow was in a range
of $5-10 billion during the last five years, a very high level for a CIS
non-energy economy. Foreign investment is important because it sets
the milestones for further DCFTA implementation and creates strategic corporate actors interested in Ukraine’s further European integration. The banking and finance sector is almost completely under foreign ownership. Foreign investors have also moved into the foodstuffs
sector, as in Russia and some other CIS states. Ukraine has a goodrecord of integration into the world economy compared to other CIS
countries and a big potential for growth due to its size, large population and low level of GDP.

Ukraine and European Integration

121

Russia has lobbied for Ukraine’s accession to the CIS Customs
Union of Russia, Belarus and Kazakhstan. While free trade with Russia has an unambiguous rationale from Kyiv’s perspective, the Custom
Union—apart from its negative consequences for EU integration—
would be beneficial only for some selected industries, such asmachine-building. Understandably, the Yanukovych administration
does not want to close this door and therefore has kept the discussion
on Ukraine and the Custom Union alive in exchange for energy concessions. At the same time, Russia has not been ready to provide
Ukraine with a free trade status without Ukraine also entering the
CIS Customs Union. Such a step would further complicate negotiations between EU and Ukraine.

EnergyUkraine’s bargaining position in gas transit and imports issues visà-vis Russia has been gradually deteriorating. Transit volumes havebeen decreasing since the first pipe of the North European Gas
Pipeline was commissioned (via the Baltic Sea) and since the 2009 gas
war that produced a contract whereby Ukraine would be paying European prices (even with a Russian discount). Non-transparency in the
Russian-Ukrainian energy relationship makes it difficult to analyze
Ukraine’s energy sector.
Nevertheless, the following four points should be considered.
First, Ukraine’s current gas import bill (even at discounted prices) isan extremely heavy burden for the country as it comprises 7-8% of
GDP in comparison, for hungary it comprises around 3%). Sustainability of these price levels in the current macroeconomic situation ishighly questionable.
Second, Russia does not want to give any further price concessions.
The Russian state gas company Gazprom publicly stated that pricecuts are only possible in exchange for control over property Ukrainian
energy assets, such the state as company Naftohaz Ukrainy or the
pipeline system (that is, the Belarusian and Armenian models).
Third, EU companies do not want to control energy assets or provide financial assistance to the modernization of the Ukrainian

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pipeline system. Gazprom is not very supportive and profits will
decline in coming years. The energy sector is corrupt and heavily regulated by the Ukrainian authorities. Without a clear positive signal
from Russia, an idea of future plans and readiness to welcome Western
partners and Ukrainian guarantees on regulation, Western investors
will not invest into Ukraine’s energy sector. Despite public announcements, there are no prospects for large-scale Western investment into,or assistance for, the Ukrainian pipeline system, except for symbolic
aid and loans from the European Commission (that were bundledwith certain conditionality requirements).
Fourth, Ukrainian adoption of EU regulation practices will generate conflicts in the Ukraine-Russian energy relationship. Gazprom
very much relies on long-term contracts on pipeline capacities while
the philosophy of EU regulations is based on third-party access andshort–term capacity allocations. Kyiv may prefer to adopt EU-regulations and, at the same time, seek to “overwrite” past contracts with
Gazprom. Russia is very much against dividing Naftogaz according to
the European unbundling model or providing third-party access, suspecting Ukraine of undermining existing trade and transit patterns
unfavorable to its position.
Thus, the key question is the manner in which the Ukrainian
authorities will implement the EU acquis in the field of energy. A possible solution could be the Central-Eastern European model wherelong-term Russian contracts enjoyed temporary derogation from EUregulation following these countries EU accession. Another alternative
could be a shallower implementation of European regulatory practices.
however, it is reasonable to assume that for Kyiv one of the main benefits of adopting EU regulations is to counterbalance Russia, whilepatience and tolerance is scarce in Moscow. The threat for the European Commission and EU members is that they involved in any energy
conflict where Western actors do not have real influence, while at least
one of the parties will refer to existing agreements with the EU.
On the basis of the factors mentioned above, the Ukraine-Russia
gas dispute will continue. Yanukovych refused to follow Belarus andArmenia in bowing to Russian demands even if negotiations still cushion the tensions. however, there is a Rubicon that Russia would liketo cross; namely obtaining majority control over the UkrainianUkraine and European Integration

123

Figure 1. Global View of International Student Origins, 2009/10

Source: http://www.iie.org/Research-and-Publications/Open-Doors/Data/International-Students.

pipeline system. Such an objective might cause further large-scale
conflicts between both sides.

Education
Ukraine is not well connected to the European or American educational systems. Such networks are normally at the level of higher education through a number of scholarly networks and funding, such as
scholarship opportunities. Improved networks would improve thesocial and psychological attitudes of Ukraine’s younger generation andimprove the academic level at Ukrainian academic institutes.
Statistically, Ukrainian students are present in the United States in
low numbers—under 5,000 in 2010 (see figure 1).
Similarly, enrollment in EU higher education institutions is verysmall. A case-study for this is the UK where Ukraine is not among the
top ten donor countries, being again in the sub-4000 sender category(see table 5).
Ukrainian higher education institutions are also not members of
the Erasmus Mundus network. Establishing a connection to this academic network of exchange scholarships would be important for student mobility and improvement of teaching methodology.

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O PEN U KRAINE : C hANGING C OURSE TOWARDS A E UROPEAN F UTURE

Table 5. Top 10 Non-EU countries That Send Students Abroad
Top 10 non-EU senders
China (PRC)
India
Nigeria
United States of America
Malaysia
Hong Kong (Special Administrative Region)
Pakistan
Saudi Arabia
CanadaThailand2009-1056.99038.50016.68015.06014.060
9.945
9.815
8.340
5.575
5.505

2008-09
47.03534.06514.38014.34512.695
9.600
9.610
5.205
5.350
4.675

Source: UK Council for international Student Affairs, http://www.ukcisa.org.uk/about/statistics_he.php#table4).

Table 6. Gross Enrollment Ratios in Tertiary Education by Sex, 1991–2009
Percent

Male/Female
Male
Female

1991
47
—
—

1999
47
44
50

2002
57
52*
62*

2009
81
72
91

2009 regional
average
65**
57**
73**

Source: UNESCO Institute for Statistics, http://stats.uis.unesco.org/unesco/TableViewer/document.aspx?
ReportId=121&IF_Language=eng&BR_Country=8070&BR_Region=40530).

Among existing funding and scholarship opportunities, there is
DAAD (German Academic Exchange Service), The Fulbright Program and Visegrad Fund,6 that has taken an active role in regional collaboration. The Visegrad Fund’s activities aim to improve regional
collaboration and extend influence under the EU’s Eastern Partnership. A component of the Visegrad Fund’s educational opportunities
offered to Ukraine is the Central European University and multiple
educational and research programs.
The number of students remains very small, when compared to thenumber of students in tertiary education, which was 2,296,221 in thesame year. The Ukrainian government spends approximately 5.4% of
6

http://visegradfund.org/scholarships/.

Ukraine and European Integration

125

GDP on education, about 20%, which in comparison with othercountries is very good, but still small when compared to the actual
country’s GDP.
We may therefore conclude that Ukrainian higher education lacks
sufficient interconnection and networks with international educational
facilities.

Ukraine and the Visegrad Group
Ukraine’s relations with the Visegrad countries are of unique
importance due to geographical and historical reasons. In the 1990s
the four countries had close economic ties with Ukraine in the Soviet
Union and was their major foreign trade partner (links with Romania
also show similarities to the V4–Ukrainian relations). The Visegrad
countries remain important trading partners for Ukraine.
The share of the V4 in Ukrainian exports and imports of goods
from and to the EU 27 is between 25-30%, with Poland in first place.
The figures in Table 7 show that the share of the V4 and Poland’s
leading role have remained stable. The hungarian share of Ukrainian
exports and imports is rather modest, but interestingly, Ukraine’s tradebalance in goods with hungary has recently changed from positive tonegative. The share of Slovakia and Czech Republic is marginal andsurprisingly, exports from the Czech Republic, a non-neighboring
country with Ukraine, surpassed exports from Slovakia in 2010.
Overall, the share of the V4 in total Ukrainian foreign tradeturnover is significant. Nevertheless, Ukraine’s major trading partners
from the EU-27 remain in Western Europe, such as Germany and
Italy. however, it must be noted that Ukrainian customs statistics
should be treated with caution because they may not always reflect thereal state of affairs. Official counterpart statistics from the Visegrad
countries are contradictory and there are cases when Ukrainian data ishigher or vice versa, probably due to tax-avoidance schemes on the
Ukrainian side.7
7

Ludvig Zsuzsa, “What may the Visegrad countries offer to Ukraine with special
regard to hungary,” in Gábor Fóti and Zsuzsa Ludvig, eds., Eurointegration Challenges in Hungarian-Ukrainian Economic Relations (Budapest: Institute for World Economics of the hungarian Academy of Sciences, 2005), pp. 225-248.

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O PEN U KRAINE : C hANGING C OURSE TOWARDS A E UROPEAN F UTURE

Table 7. Ukraine’s Foreign Trade in Goods with the
Visegrad Countries
Million USD
Export Import
Export Import
Export20102010 Balance 20092009 Balance 2008
EU 27 total 13051.9 19101.2 -6049 9499.3 15392.7 -5893 18129.5

Import2008 Balance
28868.4 -10739

Italy
Germany2412.4 1390.3
1499.5 4605.3

1022.1-3106

1227.6 1139.8
1248.1 3852.1

PolandHungary
Czech Rep.
Slovakia

1787.2 2788.8
860.1 1214.6
626.2 747.9
568.2 442.6-1002-354.5-121.7
125.6

1208
730.2
340.7
433.7

V4 total
3841.7 5193.9
in % of EU 27 29.4
27.2

87.8
-2604

2911.7
1837.12432.1 479.6
7165.3 -5328.2

2170.3 -962.3
678.3
51.9
622.2 -281.5
306
127.7

2338.31367.1670.8
910.2

4280.31282.71376
742.5

5286.429.1

7681.526.6

2712.6 3776.8
28.6
24.5

-1942
84.4
-705.2
167.7

Source: Ukrainian Statistical Office (www.ukrstat.gov.ua).

Economic ties are also reflected through foreign capital movements. The share of the Visegrad countries in total FDI invested into
Ukraine has been marginal, lower than their share in trade flows. The
main foreign investors in Ukraine are Russia, the U.S. and Western
European countries (the list also includes some offshore tax havens
such as Cyprus and the Virgin Islands, with Russian and Ukrainian
capital re-entering Ukraine through them).
From the V4, Poland is the biggest investor in Ukraine, followed byhungary. however, hungary no longer appears on the list of countries
with the largest investment into the Ukrainian economy, even thoughdata for hungarian outward investment shows that Central-Eastern
European countries (including the Western Balkans) are among its
major destinations. The greatest hungarian investment is into hungarian small and medium enterprises in the Transcarpathian region,
where there are partners within the hungarian ethnic minority.8

8

Ibid.

Ukraine and European Integration

127

Table 8. Foreign Direct Investment in Ukraine
Million USD

Total
CyprusGermany
RussiaVirgin Islands
USA
Italy
PolandHungary

FDI as of
1.1.2011
44708

in % ofthe total
100

FDI as of
1.1.2010
40026.8

in % ofthe total
1009914.67076.93402.81460.81192.4
982.4
935.8

22.2
15.8
7.6
3.3
2.7
2.2
2.1

8593.26613
2674.61371
1387.1
992.2
864.9
675.1

21.5
16.5
6.7
3.4
3.5
2.5
2.2
1.7

Source: Ukrainian Statistical Office (www.ukrstat.gov.ua).

Towards an Open Ukraine
EnergyDespite controversy, Ukraine is one of the success stories in EUCIS countries relations. Kyiv joined the WTO, has negotiated a
DCFTA with the EU, is open to foreign investment and relatively
democratic. Economic growth will be crucial to Ukraine’s future
Ukraine and low GDP per capita levels will set constraints for further
co-operation and limits to integration capabilities.
There are no influential strategic actors in Ukraine fully committed
to EU-integration; those that exist are politically weak. Domestic
business groups should be interested in opening up exports andreceiving access to EU-related funds and partners, although corporate
actors and the general political culture of the Ukrainian population isprotectionist. For political actors the gap between domestic conditions
and ambition remains far too wide.
At the same time, EU-Ukraine relations are crucial for Kyiv even
without the prospect for accession for three reasons that provide theEU with real influence over Ukrainian matters. First, the EU is a significant economic and political partner, which could provide real ben-

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efits. Second, counterbalance against Russian interests. Third, important source for domestic legitimization.
Russia is neither interested, nor capable of solving Ukraine’s economic problems. There is a capacity constraint on both the Western
and Russian side. Ukraine needed both IMF-loans and Russian gas
price concessions in order to maintain its economic situation. Given
the vulnerability of the Ukrainian economy it is reasonable to formulate policies based on three assumptions. The first is that Kyiv needs
both Russia and Western support in order to sustain economic andpolitical order. The second is that neither of the parties has enoughpotential, resources and ambitions to integrate Ukraine. The third isthat even if it is not acknowledged, both sides are needed to sustain
Ukraine’s economic and political growth and stability.
Domestic policies in Ukraine will remain a perennial source ofproblems for EU-Ukraine relations because Ukrainian politics willcontinue to be characterized by a mixture of weak statehood, authoritarian reflexes and oligarchic corporate interests. Short-term improvements are unlikely and therefore the EU will need to formulate amedium to long-term strategy in the field of economic growth,energy, and democratic institutions.
Ukraine and the EU

Relations between the EU and Ukraine have intensified since the2004 Orange Revolution which opened a new chapter in Ukraine’s
history as an independent state. Orange forces had set out to quickly
integrate Ukraine into Euro-Atlantic structures, position the country
as a regional leader and promoter of democracy and regional integrator in the post-Soviet space. Despite Ukraine’s Western orientation
the Orange Revolution failed to bring any changes in the EU policies(see chapters by Stephen Larrabee and Serhiy Kudelia).
Beside the general conditions set out in the EU’s founding treaty inarticles 6 and 49, which state any European country which respects
the principles of liberty, democracy, respect for human rights and fundamental freedoms and the rule of law may apply to become a member of the Union, the EU has never offered any membership perspective to Ukraine. Unfortunately, Ukraine’s 2004 democratic
breakthrough came when the EU was enlarging into the post-commu-

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nist world and going through an institutional crisis after rejection of
the draft EU constitution by France and the Netherlands.
The EU developed the European Neighborhood Policy (ENP) as aframework policy for relations with the entire EU neighborhood,including Ukraine. The “carrot” of the ENP, defined as a stake in the
EU’s internal market, brought countries such as Syria, Libya andBelarus into the same policy group as Ukraine which disappointed thepro-European sectors of Ukrainian elites and society.
In 2009, the EU launched the Eastern Partnership, the Eastern
dimension of the ENP framework, which provided Ukraine with anopportunity to become a regional leader on European integration as
the most advanced of the six Eastern Partnership states. Ukraine
became a pioneer country within the post-Soviet space for the
DCFTA as part of an Association Agreement.9 The Association Agreement would replace the Partnership and Cooperation Agreement andthe EU–Ukraine Association Agenda replaces the Action Plan as an
instrument of the European Neighborhood Policy. however, while
the Association Agreement is symbolically important, it will not represent a breakthrough unless it mentions a membership perspective.
Even though Ukraine’s ties to the EU have considerably strengthened over the past decade, the issue of Ukraine’s EU membership
remains a remote and uncertain perspective. The EU does not haveany clear vision concerning the sequencing of its further enlargement.
The 2011 Enlargement Strategy and Progress Report lists the countries with a perspective of accession in the future as Iceland, the Western Balkans and Turkey—but not Ukraine. The EU could not offer
membership prospects to only Ukraine within the Eastern Partnershipwhich is another stumbling block for Kyiv. Realistically Ukraine
therefore does not have the possibility of receiving EU membership in
the foreseeable future. Nevertheless, in order to facilitate and continue with the reform processes and strengthen pro-EU forces in
Ukraine, it will be crucial to provide Ukraine with a clear European
perspective through the attainment of realistic objectives.
9

See L. Zsuzsa, “Troublesome triangle: The European Union, Russia and Their Common Post-Soviet Neighbourhood. The European Union’s Eastern Partnership,” East
European Studies, No. 3. 2011, pp. 93-111.

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Macro-Regional Integration

Ukraine has received new perspectives in its cooperation with the
EU through macro-regional strategies that represent a new and promising answer by the EU to the growing number and diversity of member states. The Baltic Sea Strategy is a pilot project establishing theblueprint with the ‘three no’s’ of no new institutions, no new legislation and no new funds. The new framework for regional cooperation
could become popular with other member states not directly involvedin the Baltic Sea region.
The next step was the Danube Strategy, which was adopted by theEuropean Council at its June 2011 meeting at the end of the hungarian Presidency. The Danube Strategy follows in the footprints of theBaltic Sea Strategy and unites eight EU member states and six
regional neighbors of the EU, including Ukraine.
There is a potential third macro-region for the EU of the Adriatic
Sea area that could include most of the Balkan states together with
Italy and Greece. however, most of its potential members are, for thetime being, not members of the EU.
All three macro-regions are located around important internal EU
waterways: the Baltic Sea, the Danube River and Adriatic Sea andinclude most of the medium-sized and small EU member states. The‘circle of the big’ and three macro-regions cover almost the entire territory of the EU (except Ireland and Portugal), together with countries that are within future enlargements and immediate neighborhood.
In the spirit of this new, macro-regional approach, Ukraine has two
further opportunities for deepening and enriching its relations with
the EU. Following the accession of Romania and Bulgaria and thelaunch of accession negotiations with Turkey, the EU has gained apotential dominant position in the Black Sea area. Two other‘giants’—Russia and Ukraine—are present and highly interested inthat region. Furthermore, the Black Sea is directly connected with theSouth Caucasian area that possesses strategic importance for energy
supplies to Europe. Instead of multi-vectoring between Russia and theEU, Ukraine should promote a complex ‘win-win’ strategy for theBlack Sea region.

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The second macro-regional opportunity for Ukraine is the economic potential of its Western region, Transcarpathia, which is surrounded by four EU member states, Poland, Slovakia, hungary andRomania. All four countries and EU members are linked to Transcarpathia and each other through cultural, historical and ethnic ties.
The Transcarpathian region could be developed into an EU bridgehead into Ukraine that would promote its integration into continental
Europe. The region is already linked by broad-gauge railway to hungary (Záhony) and Slovakia (Kosice) and its geographic location andmulti-ethnic traditions are convenient as potential a offshore zone andfor factories assembling products for the EU market.

Chapter Seven
Ukraine and Transatlantic Integration

F. Stephen Larrabee

The Orange Revolution inspired hopes both in Ukraine and in theWest that Ukraine had turned an important corner politically and thatthe election of Viktor Yushchenko as president would lead to
Ukraine’s rapid integration into Euro-Atlantic institutions. However,Ukraine’s integration into these institutions, especially NATO, has
proven to be considerably more difficult than many in Ukraine andthe West anticipated.
Several factors contributed to these difficulties. First, unlike in
Eastern Europe, where NATO enjoyed a positive image, NATO had anegative image in Ukraine due to decades of anti-NATO propaganda
by the Soviet authorities. As a result, popular support for NATO ismuch lower in Ukraine in comparison to other states in Central-Eastern Europe. For example, popular support for NATO is close to 80%
in Poland and Romania, whereas in Ukraine it has hovered between
22-25%. Moreover, in the Russian-speaking areas of Eastern-Southern Ukraine it is below 10%.
Second, there was no consensus in the West about its policies
toward Ukraine. While some countries, such as Poland and theUnited States, favored an active effort to support Ukraine’s integration
into Euro-Atlantic institutions, many European countries had doubts
whether Ukraine was really an independent country and continued toview it, implicitly if not explicitly, lying within Russia’s sphere of influence. This lack of unity inhibited the development of a coherent
Western strategy toward Ukraine.
Finally, Russian opposition also played an important role. Ukraine’s
integration into Euro-Atlantic institutions—above all NATO—was
seen in Moscow as representing a major strategic setback. In Russian

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eyes, it would alter the balance of power in Central-Eastern Europe to
Russia’s disadvantage and foreclose any residual possibility of buildinga “Slavic Union” of Russia, Ukraine and Belarus.
Psychologically, moreover, many Russians find it difficult to accept
the idea of an independent Ukrainian state. The countries of CentralEastern Europe had served as an important strategic buffer between
Russia and ‘Europe’ during the Cold War. However, they were neverpart of Russian or Soviet territory (except for parts of Poland before1918). Most of Ukraine, by contrast, had been an integral part of Russia and the Soviet Union for over three hundred years. Thus, psychologically, the loss of Ukraine was much harder for many Russians to
accept and Russia has used various means, especially economic leverage, to inhibit Ukraine’s closer integration into NATO.

Evolving Ukrainian Policy Toward NATO
Unlike most countries in Central-Eastern Europe, Ukraine did notinitially aspire to become a member of NATO. In the early years after
becoming independent, Ukraine pursued a non-aligned policy in partto avoid antagonizing Russia. kyiv initially opposed NATO enlargement to Central-Eastern Europe because it feared that it would create
new dividing lines in Europe and lead to increased Russian pressure on
Ukraine. However, Moscow’s hard-line opposition to NATO enlargement and kyiv’s desire to improve relations with the West contributed
to a gradual shift in Ukraine’s approach to enlargement. during 1995,
kyiv dropped its opposition to enlargement and began to regard themembership of Central-Eastern European countries, especially Poland,in NATO as giving security benefits for Ukraine as well.1
At the same time, under President Leonid kuchma, Ukraine consciously began to strengthen ties to the Alliance. Ukraine was the first
CIS state to join the Partnership for Peace (PfP) in January 1994, andit has been one of the most active participants in PfP exercises. At the1

For a detailed discussion on the shift in Ukraine’s attitudes see F. Stephen Larrabee,“Ukraine’s Place in European and Regional Security,” in Lybornyr A. Hajda ed.,Ukraine in the World: Studies in International Relations and Security Structure of a Newly
Independent State (Cambridge, MA: Ukrainian Research Institute, Harvard University,1998), pp. 249-270.

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NATO summit in Madrid in July 1997, kyiv signed the Charter on a
distinctive Partnership with NATO. Although the Charter did notprovide explicit security guarantees, it called for the establishment of acrisis consultative mechanism that could be activated if Ukraine perceived a direct threat to its security.2 This mechanism failed during
the fall 2003 Tuzla crisis3 when Ukraine tried to activate it.
The Charter also foresaw a broad expansion of ties between NATOand Ukraine in a number of key areas such as civil-military relations,democratic control of the armed forces, armaments cooperation, anddefense planning. Thus, the Charter established a deeper relationshipwith Ukraine than with any non-NATO member—with the exceptionof Russia. Ukraine also built individual security relationships with
Britain and the U.S.
The rapprochement with NATO was not undertaken because
Ukraine felt a strong military threat. Rather it was part of a carefully
calculated political balancing act pursued by kuchma who sought tostrengthen ties to NATO as a means of increasing his political leverage with Moscow.4 Contrary to the concerns of many critics whofeared that intensifying ties to NATO would lead to a sharp deterioration of relations with Russia, the rapprochement with NATO
increased Ukraine’s freedom of maneuver and led to an improvementof ties with Moscow. President Yeltsin’s decision to sign the longdelayed Russian-Ukrainian Friendship and Cooperation Treaty in1997 was in large part motivated by a desire to counter Ukraine’s
growing rapprochement with NATO. It reflected recognition by
Yeltsin that his delaying tactics were driving kyiv more strongly into
the arms of the West.

2

For the text of the Charter see “Charter On A distinctive Partnership Between the
North Atlantic Treaty Organization and Ukraine,” NATO Review, Vol. 45, No. 4(July-August 1997), documentation Section. See also david Buchan and david
White, “NATO signs charter with Ukraine,” Financial Times, July 10, 1997.

3

Tuzla lies to the West of the Crimea. In Fall 2003 Russia sought to build a dam connecting the North Caucasus to Tuzla. President kuchma cut short a visit to Brazil
and sent security forces to protect Ukraine’s border.

4

See F. Stephen Larrabee, “Ukraine’s Balancing Act,” Survival, Vol. 38, No. 2 (Summer 1996), pp. 143-165.

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In May 2002, President kuchma announced that Ukraine intended
to abandon its policy of nonalignment and apply for NATO membership. Here again the decision was part of a calculated effort to counterbalance Russia. President Putin’s decision to support the UnitedStates in the war on terrorism and the subsequent improvement in
U.S.-Russian relations raised the prospect that Russia would have acloser relationship with NATO than Ukraine.
Ukraine’s application for NATO membership was designed toundercut this prospect. However, kuchma’s increasingly repressiveinternal policies as well as suspicions that Ukraine had sold aircraft
tracking systems to Iraq (the kolchuga affair), led NATO to put relations with Ukraine on hold. The Alliance decided to wait until after
the 2004 presidential elections before taking any new initiatives with
Ukraine.

The Impact of the Orange Revolution
Yushchenko’s election as president in december 2004 opened a
new stage in Ukraine’s relations with NATO. In an attempt to encourage Yushchenko’s pro-Western reform course, NATO offered Ukraine
Intensified dialogue status in April 2005—a preparatory step toward
an individualized Membership Action Plan (MAP). By the spring of
2006, there were widespread expectations that Ukraine would beoffered MAP at the NATO summit in Riga (November 2006), with apossible membership invitation in 2008 leading to full membership in
2010-2012.
However, the collapse of the Orange Coalition in the summer of2006 and Yanukovych’s return to power as prime minister dashedthese hopes. during a trip to
Brussels in September 2006 Yanukovych withdrew Ukraine’s support for MAP and the issue became a dead letter until after September
2007 pre-term elections that resulted in a victory of the Orange
Coalition.
One of the first acts of the new Ukrainian government, headed byPrime Minister Yulia Tymoshenko, was to revive Ukraine’s application
for MAP. In January 2008, Tymoshenko, Yushchenko, and Rada (Par-Ukraine and Transatlantic Integration

137

liament) Chairman Arseniy Yatseniuk sent a letter to NATO seeking a
MAP and NATO membership at the Bucharest summit. Ukraine’s
request for a MAP along with that of georgia touched off a lively
debate within the Alliance in the run up to the NATO summit in
Bucharest in April 2008. President Bush pushed hard for the Allianceto grant Ukraine and georgia MAP status, which was viewed by many,
especially the Russian leadership, as being a precursor to NATOmembership. France and germany, however, opposed the idea, fearingthat it would undercut any hope of an improvement in NATO’s relations with Russia.
As Ronald Asmus has noted, the debate over MAP at Bucharest was
not just a debate about Ukraine and georgia’s technical performanceand whether they met the loose standards set down in NATO doctrine. It was really a debate about the future of enlargement and moregenerally about relations with Russia.5 Those who opposed granting
georgia and Ukraine a MAP did so not only because they doubted
whether georgia and Ukraine were really prepared for NATO membership, but also because they feared granting georgia and Ukraine a
MAP would be the first step down a slippery slope they could not control and which threatened to strain NATO’s cohesion and relations
with Moscow.
The Bucharest summit ended with a confusing compromise. France
and germany succeeded in blocking the granting of MAP to Ukraine
and georgia. However, the communiqué issued at the end of the summit by the NATO Heads of State and governments stated thatUkraine and georgia would one day be admitted to NATO, althoughno specific date or timetable was mentioned.
Thus, from Moscow’s point of view the outcome was even worse
than the Russian leadership had expected. Ukraine and georgia had
been denied MAP but had been given a formal commitment that theywould one day become members of the Alliance.

5

See Ronald d. Asmus, A Little War That Shook The World (New York: Palgrave
Macmillan, 2010), p. 117.

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The Changing International
Context for Ukrainian Membership
The Bucharest summit marked the high-water mark of Ukraine’s
advance toward NATO membership. Since the summit, prospects for
Ukraine’s entry into NATO have declined. Several factors contributed
to pushing the issue of Ukrainian membership in NATO off the international agenda for the immediate future.
The first was the Russo-georgian war in August 2008. The Russian invasion of georgia was a sharp reminder that power politics stillmattered and underscored that Russia was prepared to defend its
interests in the post-Soviet space with force, if necessary. The invasion made clear that Russia was still a power to be reckoned with andthat any attempt to promote security interests in the post-Soviet
space would need to take Russian security concerns more directly
into consideration.
At the same time, it underscored the limits of American power.
Faced with a kremlin determined to defend its interests in a region
that Moscow regarded as part of its sphere of ‘privileged interests,’ theUnited States could do little but utter meek verbal protests. Whenpush came to shove, few NATO members—including the UnitedStates—had much stomach for a military confrontation with Russia
over georgia. Moreover, the Russian invasion raised fears that South
Ossetia could be a trial run for an attempt by Moscow to raise territorial claims on Crimea, especially in light of Putin’s remark at the
Bucharest summit that Ukraine was an “artificial entity.”6
In short, the invasion of georgia had a sobering impact on Western
thinking about the modalities and wisdom of NATO’s enlargement
into the post-Soviet space. In the aftermath of the invasion, the issueof NATO membership for Ukraine and georgia was put on indefinite
hold. While the door to NATO membership remains open to Ukraine(and georgia) in principle, in reality there is little support in Western
capitals for further enlargement of the Alliance in the near term, especially as long as Yanukovych remains Ukraine’s president.

6

See Taras kuzio, The Crimea. Europe’s Next Flashpoint? (Washington dC: Jamestown
Foundation, November 2010).

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Western relations with the East, in fact, appear to be entering a newphase. For the past two decades, enlargement has been the main vehicle for promoting stability and security eastward in both NATO andthe EU. But as Bruce Jackson has noted, this “go-go period” of NATO
expansion to the East has ended. 7 Macedonia and perhaps Serbia may
at some point become NATO members. However, further enlargement of the Alliance into the post-Soviet space has essentially been
put on hold.
Within the EU as well, the momentum behind enlargement has
slowed visibly in the last few years. The top EU priority since 2006
has been ensuring ratification of the Lisbon Treaty and other major
initiatives have been subordinated to that goal. As a consequence,
there has been little active support for new initiatives aimed at further
enlargement and in effect, further enlargement to the East has been
put on hold.
The Eastern Partnership—the EU’s main policy instrument for
dealing with countries on its eastern periphery—emphasizes tradeand soft power as instruments for fostering closer ties to the countries in the western periphery of the post-Soviet space. However,unlike the association agreements with the states of the Western
Balkans, the Eastern Partnership does not offer a prospect of membership. Ukraine’s Association Agreement with the EU likewise differed from the Association Agreements signed in the 1990s with Central-Eastern Europe, which contains a commitment to eventual
membership. Ukraine’s Association Agreement contained no suchcommitment.
With neither NATO nor EU membership on the horizon the only
vehicle for keeping open the prospect for Ukraine’s closer ties toEuro-Atlantic institution is the deep Comprehensive Free Trade
Agreement (dCFTA) being negotiated between Ukraine and the EU.
However, that agreement could be frozen due to concerns in various
EU member states about political repression and serious violations ofrule of law—particularly the arrest and trial of former prime minister
Yulia Tymoshenko—that have occurred since President Yanukovych
7

Bruce Pitcairn Jackson, “A Turning Point for Europe’s East,” Policy Review, No. 160(April-May 2010), pp. 49-61.

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took office. Following her sentence in October 2011 to seven years
imprisonment the EU cancelled a visit to Brussels by Yanukovych andit remains unclear if the negotiations towards the signing of an Association Agreement will be completed. Most certainly, even if it was
signed, the Association Agreement would not be ratified by the European Parliament, which issued a damning resolution on October 28,
2011, and 27 EU members parliaments.

U.S. Policy
At the same time, U.S. policy toward the post-Soviet space has
shifted in small but important ways. The Bush Administration pursued
an active policy towards the western periphery of the post-Soviet
space. Along with georgia, Ukraine was seen as poster child for theadministration’s democracy promotion program as both countries
underwent color revolutions in 2003-2004. As noted earlier, Bushstrongly supported awarding MAP status to Ukraine and georgia at
the 2006 Riga and 2008 Bucharest summits.
The Obama Administration, by contrast, has been much more cautious and circumspect in its approach to the expansion of Westerninterests into the western periphery of the post-Soviet space. Whilethe door to georgian and Ukrainian membership in NATO has been
kept open rhetorically, in practice membership for both countries has
been put on hold and subordinated to the Obama administration’s
effort to ‘reset’ relations with Moscow.
In addition, the democratic revolutions in the Middle East havediverted attention away from the CIS. With the Middle East in turmoil, Washington has been forced to focus increasing attention on
trying to stabilize the Middle East and has had less time to pay attention to developments in the CIS. The EU, in turn, has been increasingly preoccupied with fallout from the sovereign debt crisis and thecrisis surrounding the euro.
The Obama Administration’s more cautious policy toward NATOenlargement has brought U.S. policy more in line with European policy. At the same time, it has generated concerns among some CentralEastern European allies, particularly Poland and the Baltic states, that

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the United States is losing interest in promoting democracy andreform in the western periphery of the post-Soviet space.8
However, the Obama reset policy does not mean that the UnitedStates is abandoning support for democracy and reform in Ukraine
and the western periphery of the post-Soviet space.9 This is clearlyseen in the strong U.S. condemnation of selective justice and of
Tymoshenko’s sentence. U.S. officials have repeatedly stressed that theUnited States does not accept the idea of “spheres of influence.”
Indeed, “completing Europe”—that is, extending stability, security,prosperity and democracy to the entire European continent—is one of
the explicit goals of the Obama Administration’s European policy.

Yanukovych’s Election: Back to the Future
The third—and most important—factor influencing the issue of
Ukrainian membership in NATO has been the change in Ukrainianpolicy under President Yanukovych. When Yanukovych was elected in
February 2010, many observers expected that he would pursue a “multi
vector” policy similar to the one pursued by President kuchma thatsought to balance relations with Russia with good ties to the West.
However, these expectations proved to be wrong. In his first two
years in office, Yanukovych has pursued a series of policies that haveexacerbated internal divisions, diminished the prospects for closer ties
to the West, and reduced Ukraine’s freedom of maneuver. This has left
8 This unease was reflected in an Open Letter to President Obama in the autumn of2009 signed by a distinguished group of Central and East European intellectuals andformer officials, including former Polish President Lech Walesa and Vaclav Havel,
former president of the Czech Republic. For the text of the letter, see “An Open Letter to the Obama Administration from Central and Eastern Europe,” Radio Free
Europe, July 16, 2009. Available at: http://www.rferl.org/content/An_Open_Letter_
To_The_Obama_Administration_From_Central_and_Eastern_Europe/1778449.html.
Also see Pavol demes, Istvan gyarmati, Ivan krastev, kadri Ljik, Adam Rotfeld, andAlexandra Vondra, “Why the Obama Administration should not take Central andEastern Europe for granted” (Washington dC: german Marshall Fund of theUnited States, July 15, 2009).
9

For a more skeptical view of Obama’s reset policy, see Taras kuzio, “Obama’s RussiaReset Masks the Fact that Eurasia Including Ukraine, Is No Longer a US Strategic
Priority,” Ukrainian Analyst, Vol.3, No.4 (January 31, 2011).

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Ukraine more isolated internationally and created the conditions forkyiv’s potential drift back into the Russian economic and politicalorbit.
In April 2010, the Stability and Reforms coalition headed by
Yanukovych railroaded through parliament a 25-year extension of theexisting twenty year agreement (signed in 1997) allowing Russia tobase the Black Sea Fleet in Sevastopol until 2042-2047. The agreement was ratified without proper parliamentary oversight and in violation of a constitutional provision forbidding foreign bases on Ukrainian territory. It provoked a virtual riot in the parliament and led to fist
fights between members, the hurling of eggs and igniting of smokebombs. In return for extending the base agreement, Russia agreed tolower the price of imported gas by 30 percent. However, due to thefalling demand for gas, Russia had already begun renegotiating contracts in Europe and giving customers discounts. Thus, the 30 percent
discount simply brought the price negotiated with Yanukovych down
to current European average prices.
Moreover, the gas agreement reduces the incentive for Ukraine toreform its inefficient and corrupt energy sector, and commits thecountry to buying more gas in subsequent years than it may need. At
the same time, it increases Ukraine’s economic and energy dependence on Russia, strengthening kyiv’s single-vector foreign policy.
In summer 2010, Yanukovych withdrew Ukraine’s support for
NATO membership—a policy he had not opposed as Prime Ministerin kuchma’s cabinet in 2002-2004. A July 2010 law on foreign policy
described Ukraine henceforth as a “non-bloc” country. However, itremains unclear how Ukraine can be a neutral country while having along-term foreign (i.e., Russian) base on its soil. In addition, the term
“non-bloc” is a throw back to the Cold War and fails to take into
account that the EU is an emerging bloc seeking to develop its own
security and defense policy (ESdP).
In practical terms, Ukraine’s withdrawal of its support for NATOmembership does not mean much since there is little support within
NATO for admitting Ukraine in the near future. Routine PfP cooperation with NATO has continued but any progress toward membershipwill have to await the election of a more democratic government inkyiv committed to genuine reform and Euro-Atlantic integration.

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On the domestic front, there has been a clear step back from democratic practices under Yanukovych, especially trials of opposition leaders, that threatens to jeopardize negotiations on the dCFTA.10 Corruption has visibly increased which is having an economic impact.
Foreign direct investment is falling and the European Union has currently frozen $100 million of financial assistance as a direct result of
the administration’s failure to curb graft in public-sector procurement.
Harassment of opposition parties has also been stepped up. The mostegregious example is the arrest and sent former Prime Minister
Tymoshenko, who was accused of abuse of office and was sentenced toa seven years in prison in a trial that was clearly politically motivated.
The sentence led to a storm of protests from the US, Canada, EU andEU members.

A Western Policy for the Long Haul:
Toward an “Open Ukraine” in the Euro-Atlantic Community
Against the background of these changes since Yanukovych’s election in February 2010 Western policymakers may be tempted to write
off Ukraine and turn their attention elsewhere. However, this would
be a strategic mistake. The United States and the EU have a strong
stake in keeping open a European and Transatlantic orientation for
Ukraine. A reorientation of Ukrainian policy toward Russia would
shift the strategic balance in Europe and have a negative impact on theprospects for democratic change on Europe’s eastern periphery, making it much more difficult for georgia and Moldova to pursue theirpro-Western course. It would also have a dampening impact on thelong-term prospects for reform in Belarus by creating an eastern
Slavic bloc of nations suspicious of the West.
While it is difficult to predict Ukraine’s political trajectory, theUnited States and EU need to take the long view. Ukraine, like
Turkey, is in the midst of an identity crisis which will have a profound
impact on the country’s political evolution. This struggle is between
Ukraine’s eastern orientation, promoted by elites in the Russified east10

For a detailed analysis of the backsliding see the annual report, Freedom in the World
2011 (Washington d.C.: Freedom House, 2011). See also Vaclav Havel, “Ukraine is
Losing its Way,” Moscow Times, August 31, 2011.

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ern parts of Ukraine, and a western orientation advocated by the prowestern elites in Central and Western Ukraine. This identity crisis is
likely to take time to sort out.
Economic and oligarchic elites around Yanukovych fear Russian
economic domination and prefer the dCFTA to the CIS Customs
Union. At the same time, they want to have their cake and eat it too byenjoying the economic benefits from the economic and trade provisions of the dCFTA while simultaneously undertaking policies athome that violate European values and seek to establish political andeconomic monopolization of power. This attempt to combine a typeof Ukrainian “Putinism” at home with European integration abroad
has nearly derailed the Association Agreement and dCFTA andthreatens to hamper its ratification.
As Ukraine struggles to define its identity and find its place in the
new European security order, the door to Europe should be kept open
to Ukraine. U.S. and European policy should be aimed at strengthening democratic institutions and promoting the growth of civil society,especially an independent media, and business and student exchanges.
As Bohdan Vitvitsky shows in his chapter, rule of law and corruption
issues are central to the emergence of an “Open Ukraine.”
While the door to NATO membership for Ukraine should be kept
open in principle, the issue of NATO membership is likely to remainon the back burner for the immediate future. Focusing on NATOmembership now will only inflame the political atmosphere and makeprogress in other important areas more difficult. The main obstacle is
not Russian opposition—though this is an important factor—but low
public support for Ukrainian membership. As long as only about aquarter of the population favors membership, the prospect for
Ukraine being admitted to NATO will remain remote. With a moredemocratic and Western-oriented political leadership in power, support for Ukraine’s integration into Euro-Atlantic institutions—especially NATO—could increase. But changing Ukrainian attitudes
toward NATO will take time. However, until there is stronger support
for NATO among the Ukrainian population, the question of Ukrainian membership in NATO will remain largely theoretical rather thanan important issue on the political agenda.

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While Ukrainian membership in NATO is not feasible for the time
being, other steps in the security field could be taken to strengthen
Ukraine’s ties to the Euro-Atlantic community. The United States andits European allies should seek to engage the Ukrainian military in a
dialogue on military reform and continue to involve Ukraine in peacekeeping operations, both within NATO and on a bilateral basis.
Nuclear safety is another area where the United States and Ukraine
could usefully increase cooperation. With growing “Putinization” ofthe security forces, their democratic control is an important area forpolicy makers in NATO and NATO member governments to focus
on. greater emphasis should be placed on democratic control of theinternal security forces (Interior Ministry and Security Service) thathave been used as the vanguard for the growing authoritarianism.
The main objective of such contacts and dialogue should be tostrengthen cooperation in areas where there is mutual interest while
encouraging progress toward establishing more open democratic
institutions. In many cases, this may not necessarily involve highly visible projects but rather efforts to enhance cooperation at the grassroots level. The goal should be to strengthen ties that can lead to theemergence of a more pluralistic and democratic Ukraine over the
medium-long run.
This is particularly important in light of the election of Vladimir
Putin as the next president of Russia in the March 2012 Russian presidential elections. Putin’s election could result in a toughening of Russian policy toward Ukraine, especially in the economic area. Such a situation could provide new opportunities to engage the Ukrainian
leadership and strengthen Ukraine’s ties to the Euro-Atlantic community. While Yanukovych favors strong ties to Russia, he does not want
Ukraine to become a Russian satellite or himself a Russian gubernator.
Nor do the Ukrainian oligarchs who are an important interest groupwithin the Yanukovych administration.
Indeed, there are already signs of growing differences between
Ukraine and Russia in the economic area. These could increase under
Putin. If they do, Yanukovych could begin to show greater interest in
closer ties to the West—especially Europe—in order to counterbalance ties with and pressure from Moscow, as kuchma did.

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Whether Yanukovych has the political skill to pursue such a policy
is far from clear. But if he shows an interest in trying, the UnitedStates and the EU should be ready to engage him while at the sametime continuing to push for more comprehensive economic and political reforms aimed at facilitating Ukraine’s integration into EuroAtlantic institutions.

About the Authors

Péter Balázs is Professor at the Budapest Corvinus University andthe Central European University (CEU) as well as director of the
CEU’s EU Enlargement Center. An economist and diplomat by training, he was Minister of Foreign Affairs of Hungary from in 2009 to
2010. In 2002, he was appointed Secretary of State for Integration andForeign Economic Policy. In 2004, he held the position of EU Commissioner for Regional Policy.
Daniel Hamilton is the Austrian Marshall Plan Foundation Professor
and director of the Center for Transatlantic Relations at Johns Hopkins University’s School of Advanced International Studies. He also
serves as Executive director of the American Consortium for EU
Studies, designated by the European Commission as the EU Center of
Excellence Washington, dC. He has held a variety of senior positionsin the U.S. department of State, including deputy Assistant Secretaryfor European Affairs, responsible for NATO, OSCE and transatlantic
security issues; U.S. Special Coordinator for Southeast European Stabilization; Associate director of the Secretary of State’s Policy Planning Staff; and director for Policy in the Bureau of European Affairs.
In 2008 he served as the first Robert Bosch Foundation Senior diplomatic Fellow in the german Foreign Office. He has also taught at theHertie School of governance in Berlin, the University of Innsbruckand the Free University of Berlin. Recent publications include Europe’s
Economic Crisis (2011); Preventing Conflict, Managing Crisis: Europeanand American Perspectives (2011); Transatlantic 2020: A Tale of Four
Futures (2011); Europe 2020: Competitive or Complacent? (2011); Shoulder to Shoulder: Forging a Strategic U.S.-EU Partnership (2010), Alliance
Reborn: An Atlantic Compact for the 21st Century (2009); The Transatlantic Economy (annual editions, 2004-2011); The Wider Black Sea
Region: Strategic, Economic and Energy Perspectives (2008), The New Eastern Europe: Ukraine, Belarus and Moldova (2007), and Terrorism andInternational Relations (2006).
Oleksiy Haran is professor of political science at the University of‘kyiv-Mohyla Academy.’ He is the author of Ukraine in Europe: Ques147

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tions and Answers (2009), Kill the Dragon: History of the RUKH (Movement) and New Parties in Ukraine (1993). He was co-editor of Emerging
Authorities in Ukraine (1997), Ukrainian Left: Between Leninism andSocial Democracy (2000), and Economic and Political Transformation in
Russia and Ukraine (2003). He has been Ukraine Editor of the yearbook Nations in Transit published by Freedom House. He has been avisiting professor and guest lecturer at Harvard University, Columbia
University, University of California-Berkeley, Stanford University,
Carnegie Endowment for International Peace, RANd, and the Brookings Institution. He has published monographs for the Harvard
kennedy School, Center for Strategic and International Studies, andFederal Institute for Eastern Studies (Cologne).
Taras Kuzio is a Visiting Professor in the Slavic Research Center,
Hokkaido University and Non-Resident Fellow at the Center forTransatlantic Relations, School of Advanced International Studies,John Hopkins University. Previously, he was an inaugural AustrianMarshall Plan Foundation Fellow at CTR. He has been a Visiting Professor at the Institute for European, Russian and Eurasian Studies,
Elliott School of International Affairs, george Washington University
and Senior Research Fellow in the Centre for Russian and East European Studies at the University of Birmingham. He has also served as
Head of Mission of the NATO Information and documentation Centre in kyiv. He is the author and editor of 14 books, including Theoretical and Comparative Perspectives on Nationalism (2007) and UkraineCrimea-Russia: Triangle of Conflict (2007). He is the author of 5 thinktank monographs, 25 book chapters, and author of 60 scholarly articles
on post-communist and Ukrainian politics, nationalism and European
security. He has guest edited 6 special issues of Communist and PostCommunist Studies, Problems of Post-Communism, East European Politics
and Society, Nationalities Papers and Journal of Ukrainian Studies. Taras
kuzio received a BA in Economics from the University of Sussex, an
MA in Soviet and Eastern European Studies from the University of
London and a Phd in Political Science from the University of Birmingham, England. He was a Post-doctoral Fellow at Yale University.
Serhiy Kudelia is a Visiting Fellow at the Elliott School of International Affairs, george Washington University and a professorial lecturer at Johns Hopkins University-SAIS. He has held teaching andresearch positions at the University of Toronto and National Univer-About the Authors

149

sity ‘kyiv-Mohyla Academy.’ He served as an advisor to the deputy
Prime Minister of Ukraine in 2008-2009. His articles have appearedin the Journal of Communist Studies and Transition Politics and Communist and Post-Communist Studies and in the edited volume Orange Revolution and Aftermath: Mobilization, Apathy and the State in Ukraine(2010). He is co-author of The Strategy of Campaigning: Lessons from
Ronald Reagan and Boris Yeltsin (2007) with kiron Skinner, Bruce
Bueno de Mesquita and Condoleezza Rice. Serhiy kudelia received an
MA in political science from Stanford University and a Phd in international relations from Johns Hopkins University-SAIS.
F. Stephen Larrabee holds the distinguished Chair in European
Security at the Washington dC office of the Rand Corporation.
Before joining RANd, he served as vice president and director ofstudies of the Institute of East–West Security Studies in New York
from 1983 to 1989. He was a distinguished Scholar in Residence at
the Institute from 1989 to 1990. From 1978 to 1981, he served on the
U.S. National Security Council staff in the White House as a specialist
on Soviet–East European affairs and East-West political-military relations. His recent RANd monographs include Troubled Partnership:
U.S.-Turkish Relations in an Era of Global Geopolitical Change (2010);
Turkey as a U.S. Security Partner (2008); The Rise of Political Islam in
Turkey (with Angel Rabasa, 2008); and Encouraging Trade and Foreign
Direct Investment in Ukraine (with keith Crane, 2007). Recent articles
include ‘Arming Europe,’ in The National Interest (with Seth g. Jones,
Winter 2005–2006); and ‘ESdP and NATO: Assuring Complementarity,’ in The International Spectator (January–March 2004). In addition, he is the coauthor (with Julian Lindley-French) of Revitalizing
the Transatlantic Security Partnership: An Agenda for Action (RANd/Bertelsmann Stiftung, 2008); the editor of The Volatile Powder Keg: Balkan
Security After the Cold War (American University Press, 1994); and coeditor (with Robert Blackwill) of Conventional Arms Control and EastWest Security (duke University Press. He holds a B.A., Amherst College, M.I.A. in international affairs, Columbia University; and Ph.d.
in political science, Columbia University.
Marcin Święcicki has been an economist, government minister,
Mayor (President) of Warsaw from 1994-1999, parliamentarian andcity councillor. He has been an adviser to the Lithuanian President,
United Nations Blue Ribbon Commissions and the United Nations

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development Program (UNdP). He was director of Economic andEnvironmental Affairs at the Organization for Security and Cooperation in Europe (OSCE) in 2002-2005. From 1972 to 1989 he worked
in various economic capacities in the Polish government and from1989 to 1991 was Minister for Foreign Economic Cooperation in the
Tadeusz Mazowiecki government, where he signed Poland’s firstagreement with the European Union. He was an activist in the
Catholic Intelligentsia Club (1965-1972) and Union of Socialist Youth(1969-1979). Marcin Święcicki has received a BA, MA and Phd in
Economics from the University of Warsaw and has been a Visiting
Professor at Harvard University and george Washington University.
Frank Umbach is Senior Associate of the Centre for European Security Strategies (CESS) in Munich-Berlin and a Consultant on International Energy Security. From 1996-2007, he was the Head of the‘International Energy Security’ and ‘Security Policies in Asia-Pacific’programs at the german Council on Foreign Relations (dgAP) in
Berlin. Since February 2007 he has been an official advisor to the
Lithuanian government on international energy security. He is also
Co-Chair of the European Committee of the Council for Security
Cooperation in Asia-Pacific (ESCSCAP/CSCAP-Europe) and a member of two expert groups on transatlantic energy security. He was a
research fellow at the Federal Institute for East European and International Affairs (BIOst) in Cologne (1991-1994) and at the JapaneseForeign Ministry’s Institute for International Affairs (1995-1996). He
was a Research Assistant in the Office of the ‘Special Advisor for Central and East European Affairs,’ Office of the general Secretary ofNATO, in Brussels. He studied Political Science, East European history and international law at the universities of Marburg and Bonn,and received his Ph.d. in Bonn. He has been a consultant to the german Foreign and defense Ministries. Frank Umbach is the author of
more than 200 publications, including Global Energy Security: Strategic
Challenges for the European and German Foreign Policy (2003); Cooperation or Conflict in Asia- Pacific? China’s Tying into Regional Security Structures and the Implications for Europe (2003); and The Red Alliance. Development and Decay of the Warsaw Pact 1955-1991 (2005).
Bohdan Vitvitsky is a U.S. federal prosecutor and legal adviser for
the U.S. department of Justice in Ukraine. In 2007–09 he was the
Resident Legal Advisor at the U.S. Embassy in kyiv, focusing on theAbout the Authors151

rule of law and corruption issues. He has written and lectured on law,philosophy and history. Bohdan Vitvitsky is the founder of the
Ukrainian American Professionals and Businesspersons Association of
New York and New Jersey. He holds a Juris doctor and a Phd in philosophy from Columbia University.