UKRAINE AS STATE CAPTURE

I posted this deeply analytical article of  Andrew Wilson, because I support any kinds of freedom and democracy for all Ukrainians. Here is shorter variant this article in Ukrainian: http://www.ji-magazine.lviv.ua/anons/state_capture.htm

EUROPEAN COUNCIL ON FOREIGN RELATIONS

POLICY MEMO

UKRAINE AFTER THE TYMOSHENKO VERDICT

 Andrew Wilson

Summary

The   trial   and   sentencing   of   the   former   Ukrainian   Prime   Minister   Yuliya   Tymoshenko   in October 2011 generated many bad headlines. It also placed in doubt the two key agreements with   the   European   Union   that   Ukraine   has   been   negotiating   since   2008:   the   Association Agreement and Deep and Comprehensive Free Trade Agreement (DCFTA).

This memo argues that the EU-Ukraine summit on 19 December should initiate a twin-track   approach. The agreements cannot be formally signed, but should be kept alive until Ukraine is ready to implement the conditionality laid out in resolutions by the European Parliament   and other bodies. But lecturing Ukraine on human rights at the summit will have little effect.  The EU should also move towards sanctions that show its red lines have not been dropped; targeting   the   individuals   most   responsible   for   democratic   backsliding   and   signaling   more general vigilance against the Ukrainian elite’s free-flowing travel and financial privileges in the EU.

The trial and sentencing of the former    Ukrainian     Prime    Minister    Yuliya     Tymoshenko presents   a   double   challenge   for   the   European   Union.   Its   credibility is   on   the   line   after the Ukrainian authorities first ignored clear warnings from Brussels and key member states and then failed to deliver on promises of compromise. But the impasse is also testing the EU’s soft power and transformative capacity. Even Ukraine’s friends, who have long recognized its difficulties in transforming itself, would claim that this is at least in part due to the absence of any   reform   incentive   comparable   to   the   membership   perspective   enjoyed   by   the   accession states   of   the   1990s.   The   Association   Agreement   and Deep   and   Comprehensive   Free   Trade  Agreement (DCFTA) that were due to be signed in December 2011 are the closest equivalent  Ukraine has ever had or is likely to get.

Thus   there   seems   no   clear   way   out   of   the   current   impasse.   While   some   would   emphasise maintaining the red line over the Tymoshenko trial at the expense of the agreements, others argue   that   the   agreements   matter   more   in   the   long   run.     In   fact,   both   are   right.   Once   it   is understood that the trial was only a part of a longer process, the logical policy for the EU should be to both initial the accords and impose sanctions at the same time.

Yanukovych’s rollback of democracy  

The early signals after Viktor Yanukovych’s election in February 2010 were not all bad. His   first foreign visit to Brussels suggested that the constant conflict and paralysis of the “orange” era seemed to be over. But it soon became clear that not only was Yanukovych’s Ukraine still  pursuing a “multi-vector” foreign policy, it was doing so in a manner very different to the   Kuchma        era   (1994-2005).       Unlike    Kuchma,       the   Yanukovych        approach      is pendular and   sequential. Kyiv constantly switches from one partner to another, without keeping the other. More seriously, it also soon became clear that Yanukovych’s main priority was building his   domestic   power   base.   Even   though   he   was   only   elected   by a   narrow   margin,   Yanukovych   moved swiftly to   bring    every    branch     of   state   under    executive      control. Bribery and   intimidation of MPs were used to create a new parliamentary majority, even though the same parliament   had   supported   Tymoshenko   as   prime   minister   since   it   was   originally elected   in September 2007. The constitutional court was forced to reverse a previous ruling that only parties, not individual defectors from parties, could make up the “majority”. A legal reform in the    summer of   2010    imposed      executive      control    over    the   judiciary. In October, the constitutional court was persuaded to order the reversal of the power-sharing constitutional changes   agreed   at   the   height   of   the   Orange   Revolution   in   2004   and   restore   a   much   more presidential version of the constitution. To many analysts, this amounted to a “constitutional side happy while it deals with the other pole. It is also far too obvious in using one side to trade off the other. This annoys Russia as much as it does the EU.

The media was increasingly restricted. Human rights violations became more  widespread. In January 2011, Freedom House downgraded Ukraine to “partly free”. Moreover, the purpose of rebuilding a strong state  and “administrative vertical” was not to  force through reform or crack down on corruption, but the opposite – to protect the power of  the   “national   corporation”,   in   which   Yanukovych   saw   himself   and   his    associates   as   the “majority shareholder”.3 After the “chaotic corruption” of the orange era, grand larceny and state capture retuned, particularly in the energy sector. Independent businesses, or businesses  that used to support the opposition, were harassed or taken over. Growth in the SME sector  stalled and then actually reversed, with small businesses’ share of total sales dropping from   18.8 percent to 14.2 percent.

Yanukovych’s  rollback  of   democracy   was designed  to  make   him      a   southern     version     of  Vladimir Putin, but he lacked the instruments that Putin had used to build his power, namely  energy   resources   and   the   security   services.   In   Ukraine   these   two   factors   led   in   different  directions. Ukraine is an energy transit country not a producer country. Yanukovych’s victory led to “the revanche of RosUkrEnergo”, the controversial gas transit venture that had been  squeezed   out   of   the   market   by   Tymoshenko   in   2009.   Rinat   Akhmetov   is   well   known   as  Ukraine’s richest man; but Yanukovych’s main sponsor in 2010 was the energy lobby linked  to   RosUkrEnergo.   According   to   the   leading   energy   analyst   Mykhailo   Honchar,   they   were  more desperate to restore their business, other industries such as chemicals were desperate for  cheaper gas from Russia, and they had a “stronger cash flow, better mobilisation of resources  and synergy with the administrative resources of the new government to help enrich both”. Second, Ukraine’s security services are more independent and the last two years have led to  empire   building   by   the   current   head   and   energy   lobby   ally   Valeriy   Khoroshkovsky.   Both  groups wanted Tymoshenko out of the way.

Ukraine sees Russia playing tough with the EU and getting away with it. The Yanukovych  elite   has   therefore   tried   to   build   up   its   own   alternative   cash   base,   although   the   attempt   by  another   Yanukovych   ally   Yuriy   Ivanyushchenko   (who   has   faced   controversy  over   his   visa  applications to the USA) to utilise customs scams and monopolise the grain market has been  only partially successful, because it was too public.  Yanukovych’s Party of the Regions still faces difficult parliamentary elections in the autumn  of 2012. Their poll ratings are down, at barely over twenty percent. The economy is weak,  with   only   4.3   percent   growth   in   2010   and   5   percent  likely   in   2011   after   a   15.1   percent  contraction       in  2009.     The   budget      and   the   banking   sector   remain  fragile.   Ukraine   cannot  therefore   risk   the   benefits   of   WTO   membership   (Ukraine   joined   in   2008),   and   needs   to  restore   relations   with   the   IMF.   So-called   “administrative   resources”   do   not   have   the   same   effect in Ukraine in fixing elections as they do in Russia. Public institutions and channels of   

control are too thoroughly degraded.

As a result, the Ukrainian government has been forced to use the instruments that do work to try and ensure victory in 2012. Its most effective lever is tax terror: shaking down opposition business supporters and to build up local patronage power. Tax receipts are up 50 percent, though  the   public   sector   is   hardly   feeling   the   benefit. Another   instrument   is   legal   terror.  Having weakened but failed to destroy the opposition at the October 2010 local elections, the authorities resorted to cruder judicial methods. The Tymoshenko trial was only one of many, and part of a longer process of tightening political control. The trial of Tymoshenko’s former   Interior Minister Yuriy Lutsenko, for example, involved an even broader catalogue of human rights   abuses,   carefully documented   by local   sources,   including   Lutsenko’s   ill-treatment   in prison, the use of illegally-obtained evidence and the intimidation of witnesses.  The same organisations   have   collected   detailed   evidence   on   the   deteriorating human   rights   picture   in general, including abuse of detainees, torture and deaths in prison.

The Tymoshenko trial itself was held in one of Kyiv’s tiniest courtrooms to limit attendance,  but that only made it noisy and chaotic. A young and inexperienced judge looked out of his depth,   and   made   no        attempt   to   stop   a   string   of   prejudicial   comments         from     government officials while matters were still sub judice. Tymoshenko, on the other hand, was imprisoned  before   the   trial   ended   on   ill-defined   charges   of   “contempt”.   Tymoshenko   was   accused   of  exceeding her authority in negotiating gas prices with Russia in 2009; but the trial provided  no “smoking gun” evidence of any serious criminal act. After the verdict on 11 October, new  charges of fraud and tax evasion were laid - but not before – confirming that trial had always  been part of the authorities’ election strategy for 2012, for which they plan to deliver cheaper  gas   from   Russia   and   deliver   the   message   that   they   solved   the   problem   that   Tymoshenko  created   in   2009.   But   by   doing   things   this   way   round   they   only   made   the   trial   even   more  obviously political.

The same “legal” instruments are also being used against civil society leaders. Seven leaders   of the “Tax Maidan” protests in November 2010 (“Maidan” is the name of the main square in  Kyiv,      the  centre     of  the   Orange      Revolution       in  2004)    were     charged      with    damaging       the  pavement. The printers of popular t-shirts using anti-Yanukovych slogans were charged with  breaking UEFA Euro-2012 copyrights.  A third instrument is so-called “political technology” to manipulate the political process in  advance of the 2012 elections. The authorities are planning to split Tymoshenko’s party from  within   (the   Forward   Party)   and   without   (the   Radical   Party).   Tymoshenko’s   last   remaining  business   supporter,   Kostyantin   Zhevaho,   has   just   been   forced   to   make   his   peace   with   the  authorities. The authorities are also scheming to replace Tymoshenko’s party with a “loyal”,  i.e. fake, opposition. In 2010, the original candidate for this role was Deputy Prime Minister  Serhiy   Tihipko’s   Strong   Ukraine   party,   but   he   has   accepted   a   merger   with   Yanukovych’s   Party of Regions. Now it is Arseniy Yatsenyuk, who is alleged to have sold half the places on   his party list to Akhmetov. The boxer Volodymyr Klychko’s Punch! party has allegedly been  targeted by regime “parachutists”.

The final element in the equation is the use of a “scarecrow party” to rally support for the authorities   as   Vladimir Zhirinovsky  does   in   Russia.  In   the   Ukrainian   case   this   is  the   ultra- nationalist   Freedom   Party,   which   is   also   useful   for   taking   votes   off   Tymoshenko   in   west  Ukraine,   but   is   secretly   backed   by   the   First   Deputy   Prime   Minister   Andriy   Klyuyev   and  former Deputy Prime Minister Volodymyr Sivkovich.  Another   priority   is   to   manipulate   the   election   law  to   restore   the   system   used   before   the   Orange   Revolution.   Under   this   system,   only   half   of  parliament’s   450   members   would   be  elected      by    proportional        representation.       The     other    half    would      come      from     territorial   constituencies, where     corruption      and    administrative       resources      will   have    a  much     greater  effect. Other proposed changes to benefit the ruling party include the introduction of a five  percent   hurdle   to   get   into   parliament;   banning   smaller   parties   from   forming   coalitions;   a  blanket      ban    on   those    with    criminal     convictions  (from    politically-motivated trials)  from  standing; more easily corrupted election commissions; and a ban on the “against all” protest  vote.

The uses of “order” in Ukraine

However, Ukraine is not Russia. It has neither the strategic options nor a coherent narrative to   justify backing away from Europe. According to leading Ukrainian political scientist Oleksiy  Haran, “the Yanukovych elite might think like the Russians, but they can’t talk like them – at  least in public”. According to another analyst Rostyslav Pavlenko, Yanukovych has “a kind  of inner anti-Westernism”. However, “Ukraine is far less anti-Western than Russia: we have  a ‘leave us alone’ approach instead of Russia’s ‘we are the only true path, and we'll force you  to join’”.12 In late 2011, the Ukrainian media seemed to be preparing the ground for a rupture  with   the   West,   but   the   best   that   regime   supporters  could   come   up   with   was   the   idea   that  Ukraine’s alternative future rested on “Ukrainians themselves” and that “if we are strong, we  will be reckoned with”.

Isolationism does not make strategic sense for Ukraine. Although it is fashionable in Kyiv to  talk of emulating the “Turkish model” – Ukraine would also like to see itself as a powerful  state on the edge of Europe increasingly able to act on its own terms – Ukraine is not Turkey.  Firstly,   its   economy   is   much   weaker.   Secondly,   Turkey   stands   at   the   centre   of   concentric  circles   of   interest   –   neo-Ottoman,   Turkophone   and   the   business   world   –   whereas   Ukraine  doesn’t really get on even with its tiny neighbour Moldova. The world may be increasingly  multi-polar, but Ukraine is not a rival pole to the EU like China. Nor is Ukraine really drawn  to anyone else’s pole. After an initial rebalancing of foreign policy towards Russia in 2010, the Yanukovych regime stands or falls to the degree to which it stands up for local oligarchs’  economic interests. As a result, Ukraine is not abandoning – and cannot abandon – democracy and human rights  altogether. Instead, there is an obsession with the tropes of “order” and “stability”. The fact  that   political   debate   in   Ukraine   is   conducted   in   this   type   of   code   is   noteworthy  in   itself   – Ukraine       does    not   have    an   independent        alternative     dialogue     to   justify   any   more      explicit  backsliding        on   democracy.        Instead    of   openly     repudiating      democracy        and    human      rights,   Yanukovych   has   therefore   sought   to   justify   his   recentralisation   of   power   in   the   name   of  “order” after the “chaos” of the orange era. At Davos in January 2011, Yanukovych tellingly  attacked   the   events   in   Tunisia   for   “disrupting   the  stability   there.   In   a   state   where   on   the  outside everything was always stable…”. His spokeswoman and deputy chief of staff Anna   Herman was even more explicit when she told Le Monde that Russia could not allow “chaos”.  When asked whether democracy and order were compatible, she replied: “Alas, no”. On closer examination, however, the trope of “order” has been used in four competing ways,  none of which supplies the regime with a coherent alternative narrative. First, “order” was  sold as an end it itself. In its first few months in office, the Yanukovych regime was able to  exploit   the   very   real   phenomenon   of   “Ukraine   fatigue”   or   “Orange   fatigue”,   just   as   Putin

exploited   “Yeltsin   fatigue”   in   the   early   2000s.   This   brought   Yanukovych   some   breathing  space,   and    the   West   forgave   too   much   in   2010,   but   it   is   not   a   long-term   justification   for  staying in power.

Second, “order” was promised in exchange for, and as a facilitator of, reform. But the new  government   has   achieved   little.   Key   proposals,   such   as   the   2010   tax   reform,   have   been    warped to benefit its business supporters.  Third,      “order”     was    used     as  a   euphemism         for   control.    According        to   one   analyst,     “the  Yanukovych   team   understand   order   to   mean   the   ability   to   control   the   political   situation,  without outside challengers disrupting the inner circle from self-enrichment. Stability means  not making painful changes if they might threaten the elite’s position”. The elite is reluctant  to complete pensions and utility reforms that threaten their popularity and future power, but  has done enough to bring their ratings down. The Arab Spring, which has revived fears of the  “Maidan”, has strengthened the elite’s perceived need for   control.   It has led them to crack  down on seemingly innocuous environmental demonstrations and build a high fence around  parliament.   Yanukovych   supporters   are   once   again   talking   about   the   threat   from   George  Soros and NGOs financed from abroad.

A   fourth   possible   meaning   of   “order”   is   the   Putinist   contract   in   which   it   is   exchanged  for  prosperity. Neighbouring Belarus was also able to offer this deal until recently, albeit with  Russian money. But this approach seems out of Ukraine’s reach: energy-rich Russia may still have the resources to buy off potential discontent; Ukraine does not. Thus the current debate about “order” is largely chimerical. It also reflects the contradictions  of Ukrainian public opinion, which sees democracy both as a check on power and as a threat to stability. About 40 percent of Ukrainians demand stability but over 60 percent believe in freedoms and rights such as free elections and speech, private property and entrepreneurship. People would rather have both democracy (in the sense of protected rights and freedoms) and order   (low   corruption   and   crime,   coherent   work   of   government   bodies).  Often   these   two discourses   exist   in   parallel   and   are   not   seen   as mutually   exclusive.   In   any   case,   Ukrainian society is famously divided, and “not every part of society is ready for the idea of a strong hand”.

The EU’s mistakes

It is therefore a myth that Ukraine can turn its back on Europe. It is also myth that Ukraine will    be   “lost”    geopolitically      to   Russia     if  it  is  cold-shouldered        by   Brussels.     Despite      its pendular foreign policy, Ukraine will not swing too far towards Russia. Frustrated isolation is

a much more likely option. The EU still has leverage with the Ukrainian people. In a recent  survey carried out by ENPI, 68 percent of Ukrainians believed that EU cooperation aids the promotion of democracy in their country, and 61 percent thought that the EU could help bring peace and stability to the region.20 Elites may be wary of the EU agreements in the long run as   they   will   put   pressure   on   them   to   clean   up   their   act.   But   in   the   short   term,   Russia   is actually a bigger threat to the elite’s key priority, which is maintaining asset control. The EU needs to recover from the opposite mistakes it made in 2005 and 2010. In 2005, it  failed to give Ukraine sufficient credit for making the Orange Revolution and bolster fragile  political momentum. In 2010, when the EU was suffering from “Ukraine fatigue” after the chaos of the orange years, it gave Yanukovych the benefit of the doubt for too long. Earlier and   stronger   protests   against   democratic   rollback   may   have   prevented   the   situation   from deteriorating to its present point.

In   2011,   EU   leaders   found   a   welcome   degree   of   unity  to   condemn   the   Tymoshenko   trial.  However,   they   were   guilty   of   wishful            thinking   when  Yanukovych maladroitly   hinted at  compromise. The     Ukrainians        have     complained        there    were     too    many      foreign-policy  entrepreneurs, particularly at the Eastern Partnership summit in Warsaw in September 2011,  all eager to gain political capital from condemning Ukraine – though a chorus of disapproval  is exactly what the Ukrainians deserved. Kyiv betrayed its own arrogant assumption that the EU is a “soft power” by complaining that Brussels and Moscow had swapped positions, with  Russia suddenly forgiving and the EU playing Russia’s traditional “bad cop” role.

There     are   now    at  least   three   positions     within    the   EU.   Some      member      states   have    used  Ukraine’s backsliding on democratic standards to keep it where they have always wanted it: at arm’s length. Even Ukraine’s dwindling band of friends is divided, however. One group would emphasise the need to hold the red line that had been drawn in the clearest possible  

terms. The Ukrainians have not even met the minimal conditions laid down by the European Parliament   in   its   resolution   on   25   October.21       If   the   agreements   fall,   they   argue,   so   be   it. Ukraine has shown it is not ready.

Another       group    recognises      Ukraine’s      faults,   but   argues     that   this  is   precisely    why     the  agreements still  need to  be signed.    Their    transformative power     will   not    match     the  membership   perspective   enjoyed   by   the   accession   states   of   the   1990s,   but   it   is   the   best  Ukraine can get. Without the agreements, the abuse of democracy will get worse, and Russia  will be even freer to build up its influence within Ukraine.

On the other hand, it could be pointed out that Ukraine hasn’t followed the provisions of the European Energy Community since becoming a member in February 2011. It has ignored the unbundling   clauses   by  talking   to   Gazprom   about   forming   a   consortium.   Nothing   has   been down to split up the main state energy concern Naftohaz, despite a promise to divide it into

three separate companies by the end of 2011 (though technically the Ukrainians could take until   2015).   The   prospects   for   Ukraine   doing   the   hard   work   of   actually   implementing   the DCFTA         do   not   look   good.     Another     group    therefore     advocates      a  long    pause    after   the agreements are formally approved, as various technical details and translation will take six months or so. This would allow the EU to monitor the build-up to the 2012 elections. This position overlaps with that of the final group that wishes to avoid confrontation, as in present conditions several member states will refuse to ratify the agreements anyway.

Sign and Sanction

The answer is for the EU to combine these approaches with a “sign and sanction” policy that   would allow it to initial, or note the completion of, the agreements on 19 December with a minimum of fuss and at the same time impose targeted sanctions on Ukraine. The paradox is only superficial. In fact, the combination would align Ukraine policy more closely with the EU’s   emerging   line   on   Russia   and   Belarus,   where   it  is   trying   to   combine   simultaneous  policies of selective engagement and proactive sanction. The EU has several “partnerships for modernisation” with Russia, but several EU states are also contemplating following the US  lead   by   creating   a   “Magnitsky   list”.   Similarly,   the   EU   had   imposed   sanctions   on   Belarus since the December 2010 elections, but has also tried to broaden its outreach to civil society.  The   EU   should   go   ahead   and   impose   visa   bans on   Ukrainian   officials,   as   many states   like Germany   are   already discussing,   but   also   recognise that   the   Tymoshenko   trial   is   only one   element in a strategy for consolidating power. The current Ukrainian authorities are flouting European values across the board. As well as sanctioning those involved in the Tymoshenko trial, the EU should show its concern for the treatment of every prisoner in Ukraine, closely monitor “political technology” and “administrative resources” abuse in the run-up to the 2012 elections, and keep a much closer eye on the elite’s financial crime.

More   generally,   the   Ukrainian   leaders   who   have   been so   disingenuous   on   a   personal   level should be held at arm’s length. The EU should engage much more directly with the Ukrainian dialogue      on   “stability”.    The   EU    should     speak    up   for democracy       in   all its aspects.   In   particular, it should increase its outreach to NGOs, but concentrate on empowerment, public out reach,   educating   activists   and   strengthening   the   role   of   organisations   defending   human rights. It should keep negotiating on general visa policy and open skies to show that ordinary Ukrainians will not suffer.

It   should     impose      sanctions,     beginning      with    the   judge    and    the   prosecutor      who     put   Tymoshenko behind bars, but also signal more general measures against regime malpractice.  The   Ukrainian   siloviki,   the   “men   of   force”   who   have been   reducing  democratic   rights   and  harassing   the   opposition,   should   have   their   diplomatic   passports   and   visa   rights   removed,  especially   when   the   Ukrainian   authorities   have   been   quietly   celebrating   the   fact   that   even  their most odious members are still allowed freedom of travel, even after the Tymoshenko  verdict. Key officials from the Procuracy, SBU and Interior Ministry should be placed on a warning list. The constitutional court judges who undermined their credibility by agreeing to the coup d’état in 2010 should also be targeted. There should also be much closer monitoring of Ukraine’s follow-up on ECHR judgements.  It is high time to introduce closer monitoring of financial transactions for all East European states, not least in EU states like Austria and Cyprus. Removing Ukraine from the Financial Action Task Force (FATF) blacklist in October 2011 was bad timing. Ukraine should now be reincluded.      The    Ukrainian      economy      has    not   built   up its   defences     against    double-diprecession; but any IMF assistance in 2012 should be conditional on liberalising conditions for SMEs and removing monopoly privileges in the state sector.  

The     EU   should    project    confidence in its leverage     with   Ukraine     rather   than    constantly responding to the spectre of Russian influence.   It should draw Ukraine closer in return for respect for the fundamental values of the acquis communautaire. The negotiating capital that   exists   currently   within   the   discussions   over   the   DCFTA   should   be   used   to   insist   on   tough language on democratic standards and a keen focus on the 2012 elections. EU leaders should consider a boycott of official   ceremonies at the 2012.

Finals, if the prospects for those elections do not look good.   Ukraine is not a lost cause, but it is a difficult case. If Ukraine fully de-democratises after the hope invested in the Orange Revolution in 2004, it will be the worst possible example for potential new democracies in the Arab world. If, on the other hand, the EU holds the line, it will show that inevitable setbacks in the transition to democracy need not be fatal.

Source: http://ecfr.eu/content/entry/ukraine_after_the_tymoshenko_verdict