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Eastern Neighbourhood

49 - Relations with the Eastern Neighbourhood on trade and energy

Grade: B+
Unity 5/5
Resources 4/5
Outcome 5/10
Total 14/20

The EU is united on trade liberalisation but progress has proved very slow because of a lack of commitment on both sides.

Promoting functional integration is a key interest for the EU because of the economic opportunities it creates for both members and partner countries and the potential to strengthen stability across borders. As trade is a core issue, EU institutions such as the European Commission have a very strong mandate to negotiate on behalf of the EU as a whole. Even in energy, where member states’ policies diverge, there is a fairly coherent set of demands vis-à-vis eastern neighbours (with the exception of Azerbaijan) to do with liberalisation and harmonisation with the acquis that would improve security of supply to EU consumers.

The EU’s key resource is access to its vast internal market. In 2010, the EU launched Association Agreement (AA) negotiations with Moldova in January, and Georgia, Armenia and Moldova in July. In addition to trade issues, AAs cover areas such as political dialogue, justice and home affairs, sectoral co-operation, people-to-people contacts. They are considered an intermediate step to the completion of Deep and Comprehensive Free Trade Agreement (DCFTA).

Yet the EU’s impact is still limited. DCFTA talks with Ukraine have stalled because of the imposition of import duties contrary to WTO obligations. President Yanukovych stated publicly that the proposed EU terms are not in Ukraine’s interests due to the loss of revenue. Kyiv is said to be reluctant to push with the talks due to oligarch interests.

In 2010, the EU enlarged the Energy Community, a multilateral arrangement geared towards harmonisation with the acquis. Moldova acceded in May, followed by Ukraine in September. To meet entry criteria, Ukraine agreed to unbundle Naftogaz (its gas utility company) and its electricity operator by 2012. If implemented, this legislation would mean a significant decrease of government subsidies to the energy-intensive industries in the east of the country (see also components 21 and 22).