Better together?

Ukraine has pinned its colours to the European mast, while Russia has formed the Eurasian Economic Union with Belarus and Kazakhstan. Global Insight assesses the pro and cons of such alliances

RUTH GREEN

After months that have seen widespread demonstrations, bloodshed, Russia’s annexation of Crimea, snap elections and ongoing turmoil in Ukraine, it is easy to forget that it was the decision by former President Viktor Yanukovych to pull out of a much-anticipated trade pact with the European Union that sparked the protests in the first place.

Wind on nine months and the EU has signed an association agreement with Ukraine, Georgia and Moldova. Russia has also forged ahead with expanding its own trade relationships and signed the Eurasian Economic Union (EaEU) with Belarus and Kazakhstan. As the fallout from the tragic downing of flight MH17 over Ukraine on 17 July continues and relations across the EU and beyond become increasingly strained, the question remains: is it always better, together?

Lourdes Catrain, Vice-Chair of the IBA International Trade and Customs Law Committee and director of Hogan Lovells’ European international trade and investment group, believes the June association agreement signed between the EU and Ukraine is a significant step for European trade relations. ‘It’s important to remember that it was the proposed Ukrainian association agreement with the EU that triggered the Russia-Ukraine crisis, and which shows that Ukraine has made a strong bet for the EU,’ she says. ‘The association agreement with the EU shows that at least, a very large part of the population in Ukraine is prepared to follow the EU. Given the size of Ukraine that’s an important message. [Although] Georgia and Moldova have much smaller economies, it’s significant that the three of them have joined what could become a very deep association with the EU.’

As for the EaEU, Edward Borovikov, a trade and competition specialist and director of Dentons’ Brussels office, says the union builds significantly on the existing relationship established between Russia, Kazakhstan and Belarus under the Customs Union (CU) since 2010. ‘There are substantial differences between the CU and EaEU,’ he says. ‘The latter is the next stage of economic – and


‘The EU portrays itself as an economic union but it promotes democracy and the rule of law. [So it] will be very cautious in how it treats external trade relations with countries with weak human rights records’


Lourdes Catrain
Director, Hogan Lovells’ European international trade and investment group, Vice-Chair, IBA International Trade and Customs Law Committee

to a certain extent, political – integration among those three countries.

‘There are many […] important institutional and functional developments introduced into the EaEU legal framework that resulted in the creation of a new regional supranational organisation with international legal personality.’

And as Armenia and Kyrgyzstan look set to join the EaEU later this year, Borovikov believes their accession could have far-reaching consequences. ‘Accession of Armenia and Kyrgyzstan, both being members of the World Trade Organization, would not only enlarge the EaEU but would also increase its influence in the WTO and increase powers in any potential bilateral as well as multilateral negotiations with major trade jurisdictions.’

Ever expanding Unions

Despite a growing tide of Euroscepticism in some corners of the EU, there are strong signs that its attraction as a trading group is far from waning. ‘The EU continues to explore possibilities of expanding and recently granted Albania candidate status and other countries such as Montenegro and Serbia have also expressed an interest in joining the EU, so I think it does remain an attractive club in terms of European trade relations,’ says Catrain.

Indeed, with the West and Russia trading tit-for-tat sanctions over the Crimea crisis, Catrain believes that the EU has more reason than ever to look for new, enduring trade relationships. ‘Firstly this indicates a weakness in EU-Russia relations and because of this weakness there has been more emphasis put on the need for the EU to find allies and long-term trade partners that it can trust,’ she says.

Recent discussions between German Chancellor Angela Merkel and Brazilian President Dilma Rousseff highlighted the EU’s ongoing interest in inking a long-awaited trade deal with the region’s major trade bloc, Mercosur.

But as the negotiations rumble on, another trade debate has opened up in Latin America – the potential integration of Mercosur, a union between Argentina, Brazil, Paraguay, Uruguay, Venezuela, and the region’s latest trade bloc, the Pacific Alliance, which currently comprises Chile, Colombia, Mexico, and Peru.

Although some argue that the merger could create an ‘ideological conflict’, Ricardo Veirano, Senior Vice-Chair of the IBA Latin American Regional Forum and a corporate partner at Veirano Advogados in São Paulo, says there are strong arguments for developing a larger trading group. ‘A merger of the trade blocs would not be necessary, although it could certainly be beneficial,’ he says. ‘I suppose a merger of the two trade blocs, if well executed and implemented, could result in a sizeable impact on the dynamics of global trade and a very significant impact on the South American and Latin American region.’

Catrain agrees: ‘There might be room for both unions but it doesn’t make too much sense to have one larger union and one smaller union in the same region, I think the EU is the best example of this.’

Veirano stresses that it is still very unclear whether all members of Mercosur, as the larger union, would want to formalise a trade pact with the Pacific Alliance. ‘It depends mainly on which presidential candidates win the upcoming elections in Brazil and Argentina, and their respective visions with respect to international policy.’

While the tangible economic benefits of trade relationships are fairly clear-cut, a number of considerations need to be taken into account when countries choose to join forces. ‘There are a lot of challenges starting from different economic systems,’ Borovikov says. ‘Legislative rapprochement which is indispensable may be challenging. The EaEU will have to deal with this and it will take quite a lot of time and efforts.’

Certainly, as far as human rights issues are concerned, as Catrain notes, historically the EU has had no qualms in laying down the law when necessary. ‘It’s a very interesting dilemma. On one hand the EU portrays itself as an economic union but it promotes democracy and the rule of law. Hence the EU will be very cautious in how it treats external trade relations with countries with weak human rights records and it seems doubtful that it wouldn’t act in the wake of continued breaches.’

Recent developments in Ukraine have proved this: under growing pressure to take a tough stance on Russia following the crash of Malaysia Airlines flight MH17, the EU Committee of Permanent Representatives agreed to impose stage three sanctions, restricting Russian state-owned banks and companies from accessing EU capital markets, banning trade in arms, sensitive technologies and dual use goods.

In a letter to EU leaders, European Council President Herman Van Rompuy said the sanctions package ‘should have a strong impact on Russia’s economy while keeping a moderate effect on EU economies.’

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Ruth Green is a freelance journalist. She can be contacted at ruthsineadgreen@gmail.com