Russia’s invasion of Ukraine has many layers. But it was a trade agreement that was one of the main triggers to the political unrest that preceded today’s war. In 2007, the EU and Ukraine started negotiating a so-called Association Agreement which also contained a free trade agreement between the two sides. In 2013, when the agreement was complete, the former Ukraine president and Vladimir Putin ally, Viktor Yanukovych, refused to sign it following pressure from Russia.
This triggered the Maidan revolution in Ukraine, which led to a change of government and the eventual signing of the agreement in the first half of 2014. Russia attacked Ukraine soon after, annexing Crimea and creating instability in other parts of the country. These events, which took place in 2014, were just the prelude to the full-scale invasion that Russia would carry out eight years later.
Nevertheless, if Russia’s invasion was intended to crush Ukraine’s resolve to move closer to the EU, it definitely failed. Shortly after Russian troops invaded, Ukraine launched a formal request for EU membership. Just one month later, the European Commission’s president personally travelled to Kyiv to lay the foundations for this process.
EU membership itself is no panacea to Ukraine’s current problems. Membership is a rigorous and long process that requires patience, perseverance and unanimous support on all sides. But a stronger trade relationship can come well ahead of any eventual membership, allowing both sides to fast-track a deepening of trade ties without getting held up with the complexities of membership.
Stronger trade between both parties will not only help Ukraine financially and materially as it tries to stay afloat during the war; it will also help to rebuild the country once peace settles in. In the longer run, stronger trade between the EU and Ukraine will also help Ukraine’s security by reducing its economic vulnerability to Russia.
Having already had to concede on NATO membership, Ukraine may not be ready to cast its eye away from EU membership. This is understandable when EU membership offers an EU mutual defence clause, considerable structural funding and the four freedoms of the EU Single Market (goods, capital, services and people). But there are three reasons why we think that discussions should already shift towards a stronger trade relationship outside the context of EU enlargement.
If Russia’s invasion was intended to crush Ukraine’s resolve to move closer to the EU, it definitely failed
The first reason is that Ukraine’s economy is in a dire state. With an annual per capita GDP of just €3,325 before the war, Ukraine’s economy was already much smaller than that of its Western neighbours. On a per capita basis, it was at just over one-tenth the size of the EU economy.
According to the World Bank, the Ukraine economy is expected to shrink by 45 per cent this year. This is a devastating reduction that makes the road to economic recovery all the more urgent and acute. But because necessity is the mother of invention, Ukraine’s leaders can be expected to prioritise the path to a more rapid recovery over the longer road to full EU integration.
The second reason is that the EU itself will push in this direction. The European Commission has already presented a proposal to remove all tariffs and safeguard measures from Ukrainian products entering the EU. This is over and above that which the prevailing trade agreement already removes. Although, for the time being, the measures in this proposal are limited to one year, they can open the door to a longer and deeper trade relationship. One hopes that this proposal will be adopted by the Council and the European Parliament in the coming weeks.
A third reason why the trade relationship can be expected to take a life of its own is because people and businesses will drive it. Many companies like WhatsApp, Grammarly and Gitlab were co-founded by Ukrainians. Others like Google, Samsung and Amazon have significant R&D centres in the country. The links are undoubtedly there and, as refugees continue to flow into Europe, those links will grow. As at early May, already 4.8 million Ukrainian refugees arrived into the EU; an amount equivalent to approximately one per cent of the entire EU population.
Many international companies are already offering targeted jobs to Ukrainian refugees with some, such as Spanish tech start-up Glovo, also assisting with relocation. Others, such as Etsy, Fiverr and Upwork, are helping Ukrainian freelancers to find work. In Malta, the Malta Chamber, in conjunction with Trade Malta, has been promoting an initiative by Ukraine’s Entrepreneurship and Export Promotion Office to support Ukrainian suppliers of goods and services.
In 1941, during the darkest hour of World War II, Winston Churchill and Franklin D. Roosevelt were already thinking trade and were working on a post-war economic and trading system that would bring peace and prosperity to all. We are still benefitting from this system up till this day.
This is the kind of visionary leadership that is needed. For the sake of keeping Ukraine afloat during this war and rebuilding a peaceful and prosperous Ukraine for the future, work on enhancing the EU-Ukraine trade relationship should start from now.
Matt Gatt is a political economist and member of The Malta Chamber and Jan Micallef is an International Relations Council member within The Malta Chamber.