an episode in economic colonialism
Yatsenyuk, 2013 - ‘What is the euro-assocoation agreement for all of us? It is salaries and pensions 5 times higher than now in Ukraine… It is modern medicine, which everyone can afford and the opportunity to live 15 years longer than now… It is new technologies, significant investments, a large market, cheap loans and new jobs… Ukraine will be in Europe, and Europe will be in Ukraine"
Post-euromaidan minister of economics, Pavel Sheremet, explaining how the loss of the Russian market will be compensated by the EU market: ‘"Potentially, this is a much larger market. The quality is higher there, the standards are higher. And, in the end, this is not only a market, this is not only trade, this is part of our European integration"’
President of the eurocommission Jose Borell, regarding Ukraine, Moldova and Georgia’s euroassociation agreements: ‘These agreements aren’t the end of cooperation. They are not the end of cooperation – they are the beginning of a new road.’
Head of parliamentary committee on questions of economic development Dmitro Natalukha, 2020 – ‘The EU doesn’t like protectionism? Why don’t they let us into the EU then.’
When people talk about the problems facing Ukraine, they generally talk about the war. Indeed, many polls show that this is question that worries Ukrainians the most – but only a few % points behind it, is unemployment. According to one poll, low wages and pensions were considered by far the worst problem in 2021, beating the war by 8%.
The official number of economically active people in the country (excluding inhabitants of Crimea and the territories of the Donbass region not controlled by the Ukrainian state) has declined from 16.4 million in 2015 to 15.9 million in 2020, and the official unemployment rate in 2021 was between 10 and 11%. According to official statistics, while in 2013 71.5% of Ukrainian earned $335 a month or less, in 2020 85% earned $320 or less. Recent opinion polls showed that 89.3% of Ukrainians feel that their financial positions have worsened or stayed the same over 2021. 2021 was the biggest year since 2010 in Ukraine’s history in terms of emigration, with 660 thousand people leaving the country, largely to EU nations, mainly Poland.
Generally, discourse around Ukrainian economic problems blames it on the war. This is the position of most Ukrainian and all western politicians. It was certainly a big loss to lose so many export markets in Russia (in 2013 Russia was the destination for 24% of Ukainian exports), for the main industrial region of the country to be engulfed by war – a problem only worsened by the decision by the Ukrainian government – at the impetus of radical veteran groups – to implement an economic blockade on the regions of the Donbass controlled by the ‘DNR/LNR’. However, what of Ukraine’s new ‘western partners’? Too often it is forgotten that the 2013-2014 Euromaidan protests and the subsequent war in Donbass were concerned with an entirely economic question – should Ukraine sign the trade agreement for association with the European Union? Well, have the richest countries on earth, officially associated in Ukraine, helped Ukraine in its economic woes?
The answer is that they have largely been responsible for these economic woes, along with strong domestic political lobbies only too eager to implement the destructive economic program pushed by the EU. The main problem of the Euroassociation agreement is that while it allows quite free entry to European goods into Ukraine, it restricts Ukrainian exports into the EU either through strict yearly import quotes, or through consumer quality and, more recently, ecological specifications which deny many Ukrainian producers from exporting into the EU.
Furthermore, Russia had already announced that it would increase tariff walls against Ukrainian goods if Ukraine signed the Euroassociation agreement, due to Russian fears of a flood of cheap European goods entering Russia through Ukraine. This problem was already pointed out by the Yanukovych government in 2013, with the former prime minister Nikolai Azarov calculating that Ukraine required 165 billion euros of assistance to adapt its economy to the technical standards of the EU. He was laughed at then, with his euro-optimist opponent, Yatsenyuk, confidently explaining that entering the EU would result in German level wages overnight. The EU, in its turn, offered 1 billion euroas for assistance, a patently pointless sum.
No enormous effort in modernizing the Ukrainian economy, a sort of Marshall-plan for Ukraine, has been forthcoming, with the expectable results – the deindustrialization of Ukraine and the exit of millions of Ukrainians to work in EU countries as underpaid ‘gastarbeiters’.
This substack will dedicate many of its posts to the economic problems caused in Ukraine by its so-called ‘civilizational choice’. Ukrainian liberals and various ‘euro-optimists’ love to use the example of Poland, saying that ‘if we had simply implemented liberal shock therapy in the 90s fully like Poland did, we would be in the EU and as rich as they are now’. The difference is that the EU never wanted Ukraine as a part of the EU, due to the already-mentioned prohibitive cost of modernizing Ukrainian industry to make this country – numbering 50 million people in the 90s, although now down to 37 million - a viable part of the EU economic space. Of course, there already are poor countries in the EU, like Bulgaria or Greece – but the richer countries of the EU are constantly preoccupied with paying for – or getting them to pay for – their economic problems and can hardly be expected to desire to do the same for a country 3 times more populous and with a GDP per capita almost 5 times lower than Greece.
Poland still receives far more from the EU budget than it gives - in 2018, Poland received €16.350 billion from the EU budget (3.43% of its GDP) and contributed €3.983 billion to the EU budget. The Ukrainian politician Dmitro Kisilevsky, on which more soon, said in an interview that Poland has received 100-150 billion euros in direct grants from the EU over the course of its membership. When Poland was integrated into the EU, it had far lower wages than other EU members, and the granting of full access of Polish commodities to the EU market put strong downwards pressure on the wages and easy employment of the EU ‘labor aristocracy’. Why should the EU make the sacrifices for Ukraine, which is much poorer than Poland was, and whose war-torn situation requires far more investments for reconstruction?
The EU’s strategy has been simple – gain what economic benefits are possible with Ukraine, but without any costly commitments to actively assist Ukraine’s economic modernization and growth. Besides, in this case active economic de-development of Ukraine is quite beneficial for the ‘developed societies’ of the EU. Where Poland received both huge EU budget assistance, itself spent on productive goals, and easy access for its exports to the huge EU market, Ukraine receives both miserly EU loans which cannot be spent productively on improving Ukrainian industry, nor does it have much access to EU markets. In return, EU countries – particularly Poland, whose growing domestic wages create a strong economic necessity for it – get millions of low-paid migrant workers, some easy export markets in Ukraine, and some cheap agricultural exports such as sunflower oil from Ukraine (though even their export remains limited by quotas it exceeds each year). The Polish national bank recently calculated that 11% of Polish GDP growth since 2014 has been due to Ukrainian migrants.
Ukrainian migrant workers in Poland
Attempts by the Ukrainian government to negotiate some aspects of the Euroassociation agreement throughout 2021 have so far come to naught. Finally, the disintegration of the Ukrainian economy is beneficial for the EU and the collective West for several reasons. The weaker Ukraine is, the more pliable a weapon it is against Russia and China.
The subtitle of this post refers to Ukraine’s ‘colonial’ status vis a vis the EU. This is hardly a marginal position in Ukrainian society. So-called ‘pro-russian’ TV channels, watched by millions in the country, and shut down by the president over the past year for spurious reasons, often discuss Ukraine’s ‘external management’ by the US and the EU. A poll conducted by the Kiev International Institute of Sociology revealed that 45% of Ukraine-wide respondents agreed that ‘a policy of colonization is currently being conducted in Ukraine’. Given that traditionally pro-NATO/EU western Ukrainian respondents were about 10% less likely than traditionally pro-Russian and anti-NATO/EU southern, eastern and Donbass Ukrainian respondents (43.9% agreeing against 53%, 52% and 47%), it can be assumed that those who agreed with this sentiment were likely to consider the colonizers to be Western.
This post will examine an example of the sort of EU influence over Ukrainian internal policies which have made many Ukrainians consider the former to be a destructive, colonialist power vis a vis Ukraine. Our example is the history of bill 3739. The history of this law is illustrative of three things – the fact that it is the EU and its domestic lobbyists in Ukraine which prevent the implementation of the most minimally progressive Ukrainian economic policies, that the discourse of ‘the struggle against corruption’ is really just a struggle against Ukrainian economic sovereignty and development, and that the only currently existing opponent of the destructive liberalization of the Ukrainian economy for EU interests is the so-called Ukrainian ‘oligarchy’.
This bill was first proposed in June 2020 and was finally accepted in a quite modified form in December 2021. Its full title is ‘on Amendments to the Law of Ukraine "On Public Procurement" to Create Preconditions for Sustainable Development and Modernization of Domestic Industry’. A public procurement is when the government buys products from a company. Since state procurements are not as affected by profitability or international crises as private purchases, if state procurements prefer domestic producers, it can be an important factor in maintaining and developing domestic industrial capacity. A law requiring localization of 40% means that the state can refuse to purchase production in the relevant sectors, less than 40% of which was produced domestically. The exact level of localization proposed by 3739 differed according to the sector, with the most targeted sectors that of heavy industry, such as turbines and motors, receiving 45% localization preference instantly, and other sectors receiving only 25% instantly. By 2024, the level of localization for various sectors was meant to rise to 45-60%. According to the bill, if a product had a lower level of Ukrainian localization, then it had to have additional superiorities to competing Ukrainian products to be purchased by the state.
There was little radical about the original bill, and it was framed as simply bringing to Ukrainian legislature what was normal elsewhere. Foreign examples were cited – one of the authors of the bill, Dmitro Kisilevsky, noted how the Czech Republic had recently denied a Ukrainian trolleybus producer in favour of a Czech one. The official site of 3739 mentions, among other examples, the 1933 ‘Buy American Act’. The EU has localization laws which allow states to refuse to purchase production with less than 50% EU localization. In the context of the Covid-19 economic crisis, other countries, particularly Ukraine’s ‘Western partners’, were happily implementing protectionist legislation, while Ukraine remained ‘happily’ liberal. Ihor Petrashko, the minister of economic development and trade who was the law’s most ardent supporter, also identified protectionist laws in particular EU nations, such as Italy, which aim to assist in the transition towards domestic solar energy. On this topic, I have already written about the threats posed to the Ukrainian economy by its government’s enthusiastic embrace of the EU’s ‘green new deal’ and the EU’s own carbon taxes, all while the EU does nothing to assist Ukraine in this ambitious ‘transition’.
The authors of the bill also brought attention to the dominance of foreign producers in Ukrainian state purchases. Kisilevsky has often noted how in the EU and USA, the proportion of foreigners who receive state purchases is 8% and 5% respectively, while in Ukraine it is almost 40%. One scandal around this topic erupted around the interior ministry’s purchases of French helicopters. Petrashko cited this episode while justifying the need for 3739 – Ukraine ended up spending over 1 billion dollars to buy 110 airbus helicopters. The president of Motor Sich – a famous, century-old Ukrainian aerospace factory involved in helicopter production which has greatly suffered by the loss of the Russian market after 2014 – called this a ‘step towards immiseration’. What’s more, the helicopters were in fact originally ordered by Poland, but it refused to go through with the deal in the interests of supporting Polish producers. Dmitro Natalukha, another one of those who proposed the law, pointed out in the Rada how the Ministry of Foreign Affairs had agreed with the US to import 16 Mark VI patrol boats for the Ukrainian navy. The terms of the contract were not very clear, but at 2014 prices, each of these boats cost 15 million dollars – all up, costing 240 million dollars.
Petrashko summed up the situation in the Ukrainian public procurement system as follows:
“During 2016-2019, within the framework of public procurement, railway cars, locomotives and public transport were purchased for UAH 10.2 billion, of which foreign manufacturers accounted for UAH 2.4 billion (23.5%). It should be noted that a significant share of purchases is carried out by intermediary companies (638.1 million hryvnia - 6.3%), which are registered in Ukraine, but are mainly engaged in the distribution of imported engineering products in the domestic market.
Ukraine practically does not use the potential of the public procurement system as a tool to attract investment and develop innovations in order to stimulate employment and ensure the technological ability of domestic industry’.
The justification for 3739 – deindustrialization
3739 was justified as a measure to assist heavy industry. The advocates of 3739 pointed that industry forms a third of GDP – ‘employing 14.8% of the population at more than 40.7 thousand enterprises. Industrial production is responsible for 79.3% of Ukrainian exports (65.7% of all products and services), 51.8% of capital investments and 25.4% of FDI, for all the period following independence”
The initial presentation of 3739 quite bluntly depicted the situation in Ukrainian industry. One wishes that those who laughed off Azarov’s warning about the negative effects of the euroassociation agreement had been shown the following figures. The first graph shows the 2019 level of production in several sectors of heavy industry, as compared their 2012 level. Automobile production – 31% of its 2012 level. Train wagon production – 29.7%. Railway production – 68.2%. Metallurgical production – 70.8%. Agricultural machine production – 68.4%.
“Over 2013-2019 domestic exports of aerospace production declined by 4.8 times (from 1.86 to 0.38 billion USD), of train wagons by 7.5 times (from 4.1 to 0.5 billion dollars), of metallurgical products by 1.7 times (from 17.6 billion to 10.3 billion USD), of chemical products – by 2.1 times (from 4 to 1.9 billion USD).”
Petrashko also identified a tendency towards ‘deindustrialization and agrarianization of the country’ over the past decade: the share of industrial value added in Ukrainian GDP fell by 3.7%, from 25.9% to 22.2%, while the share of agricultural value-added rose by 3.4%, from 7.1% to 10.5%. Petrashko pointed out how 4.06 million dollars of machine tools were imported in 2018, while only 3.8 million dollars of domestically produced machine tools were sold within the country.
Petrashko listed the following reasons for the degradation of this sector:
- The partial destruction of the economic potential of the Donbass area through the war and formation of ‘DNR/LNR’
- Loss of traditional export markets. By this he means Russia
- The low level of development of the internal market for industrial production and the passivity of the state in the solution of this problem
- The difficulty of re-orienting towards the markets of developed nations due to the high level of competition and trade barriers
- The growth of protectionist tendencies in other countries while the Ukrainian internal market remains liberally open to foreign producers.
Petrasjko highlighted the potential for multiplicatory effects on the economy through increased assistance to heavy industry – noting potential for growth in employment (62 thousand new jobs, and saving 200 thousand existing jobs), wages, tax revenue (by 8%), GDP, and a stimulus for public transport growth.
All in all, Petrashko and his allies delivered a sobering picture of Ukraine’s economic de-development in recent years.
The emergence of bill 3739 and the withering criticism it provoked revealed the contradictions and ambiguous loyalties that characterize the post-2014 Ukrainian elite, both within itself and in its relationship with its ‘international partners’.
First, it should be said that such disagreements among the elite didn’t really reflect sentiments in society as a whole. Ukrainian industry had a simple view of the initiative – in the words of a think tank representing the Ukrainian mining and steel industry, ‘there is probably no businessman or business-association in Ukraine that would oppose the idea of localization’. A website was created to support 3739, where over 160 thousand people registered their support of the initiative. If you asked the ‘man on the street’ their opinions on increased jobs in Ukraine through mild state intervention, I think one would be hard-pressed to find opponents. According to a 2019 poll (by a quite openly neoliberal publication), 73% of Ukrainians held ‘left-authoritarian’ views on the ideal relationship between the state and the economy.
In its first reading, the original version of 3739 which applied an equal standard towards all foreign producers was passed with 248 out of 350 deputies of the Verkhovna Rada voting for it. The main supporters of the bill in its first round through the Verkhovna Rada were certain members of the ruling ’Servant of the People’ (SoP) party, ‘the Opposition Party For Life (OPSFL) and ‘Fatherland’.
When it comes to the SoP, it is not worthwhile making inferences based on the votes of some members onto the interests of the party as a whole. The SoP is the first party in post-soviet Ukraine’s history to have a parliamentary mono-majority, but this is largely because of the vagueness of its electoral promises, which coexists with ideological heterogeneity. The party was only created in 2019 with the purpose of getting rid of Poroshenko, who had become increasingly unpopular with various sections of the Ukrainian elite, not to speak of the masses. As such, members of this party have quite little in common, ideologically speaking.
Despite this warning not to overly ideologize the SotP, it is still true that this party has partly rejected the extreme economic liberalism desired by the West. Even before his election, the Atlantic Council was warning how ‘a Zelensky election would be a disaster for Ukraine’, ostensibly because his ‘inexperienced’ status would lead to an ‘atrophy of relations with the West’. Zelensky’s first cabinet was filled with western educated ‘young reformers’ such as Oleksiy Honcharuk, who received plenty of praise from the Atlantic Council, and struggled to even mention the dirty word ‘industry’, preferring to talk about IT, finance, or omnipotent foreign investors.
But this cabinet was dismissed by Zelensky within several months of taking office and replaced with a variety of older politicians which weren’t as beloved by the West (though hardly antagonistic towardsit). This earned him plenty of animus from the same Atlantic Council. One US embassy funded think tank even wrote that ‘On international economy, Sluha Narody MPs leaned towards industrial protectionism’. All that I would say, is that Zelensky’s greater dependence on popular support rather than Poroshenko’s dependence on his own economic power and foreign political connections does manifest in a tendency for SotP to – at least rhetorically – occasionally support vaguely economically protectionist measures. After all, he did win on the slogan of ‘ending poverty’.
Zelensky was also quite clearly supported in his election campaign by the major Ukrainian ‘oligarch’ Igor Kolomoisky to defeat Poroshenko. Kolomoisky has serious contradictions with the US – with which he is locked in an ongoing legal struggle – and the post-maidan political class, who have either competed with him as fellow oligarchs (Poroshenko) in controlling economic assets or tried to remove his control over state enterprises. More recently, ‘populistically’ justified tax increases for several key sectors of the Ukrainian economy did not include raising taxes on sectors dominated by Kolomoisky. Liberal thinkers in Ukraine would naturally have one believe that any protectionist measures pushed by Zelensky are simply a corrupt ‘feeding trough’ for Kolomoisky.
Igor Kolomoisky and Zelensky
OPSFL is comprised largely of former Party of Regions members, the now-banned party that former president Viktor Yanukovych belonged to. They represent the industrial and mining regions of southern and eastern Ukraine, where – especially in the Donbass – the heart of the Soviet Union’s industrial potential was once concentrated. Although the industrial and mining sectors of these regions have been slowly contracting over the last 30 years, masked by short boom periods based on Chinese demand and corresponding growth in iron prices, the population of these areas remains highly dependent in its employment on the same sectors.
Viktor Medvedchuk, one of the leaders of OPFL, currently under house arrest for spurious charges
It is this part of the country which, relatively speaking, has lost a lot more by the post-2014 economic liberalization, since the western and central regions lacked major industry even before 2014. Although the eastern regions of the country played a highly disproportionate role in Ukrainian exports, the ‘pro-Western opposition’ of Yanukovych, which since 2014 has been in state power, always enjoyed countering the claims of those who said ‘the South-East feeds Ukraine’ with the idea that ‘the South-Eastern industry is dependent on handouts from the State budget’. Since 2014, the old industrial interests of the South-East have enjoyed much less access to the State budget, which has in any case decreased in size (eg from 53 million USD in 2013 to about 48 million USD in 2021).
Krivoy Rog, like many cities in eastern and southern Ukraine, was created for and is still oriented around industry. The dnipropetrovsk region it is located in is one of Timoshenko’s main constitut
Remaining budget revenues have been redirected towards ‘anti-corruption’ organs, which receive the highest salaries out of all state employees, paying off IMF debts, and other unproductive activities, but not towards encouraging industrial growth. It is hence natural that the party which represents the interests of southern and eastern Ukraine would support increased industrial localization. Privileged access to state procurements would benefit both the capitalist and working-class constituencies of the OPFL.
The motivations of ‘Fatherland’ in supporting the localization law are similar to that of OPFL. Fatherland is Yulia Timoshenko’s party, herself a famous ‘oligarch’ from the most industrially important region of Ukraine, now that Donbass is divided by the war – Dnipropetrovsk. Fatherland has traditionally been close to the major Ukrainian trade unions, and often voices various populistic statements with that in mind, even though Timoshenko’s time in power was also the period that Ukraine started becoming saddled with IMF debt.
She can be quite accurately be labelled populist. because her promises to assist the masses were generally linked to a pro-Western, economically liberal orientation. While a US embassy-financed think tank described the party’s policy recommendations – such as its condemnation of Ukraine’s existing IMF memorandum – ‘economically nationalist’, it also rightly pointed out the ‘inconsistency’ of also promising to ‘open all doors for…lending to the Ukrainian business on European terms”. Meanwhile, populist handouts such as ‘Yulia’s 1000’, when the government gave out 1000 hryvnias to every Ukrainian, were on the backdrop of continuing deindustrialization. Timoshenko’s gas and pipe wealth has been, like that of many oligarchs, closely linked with access to state procurements, so it is also possible to ascribe interest in bill 3739 to more strictly mercantile motives.
Yulia Timoshenko feeding some pigeons, as photographed no doubt by a patriotic passerby
Finally, it is interesting that 5 deputies from Poroshenko’s ‘European Solidarity’ (ES) party supported the bill. One member, Stepan Kubiv, even publicly supported the law before the Rada. Despite being from Western Ukraine and with an experience in the financial sector, which is often associated with more liberal economic views, perhaps the 6 years he spent as a Komsomol secretary and member of the Communist Party of the Soviet Union left some imprint. More seriously, Kubiv probably supported it just because it is a reasonable law for any state to adopt, and to accuse him of excessive ‘economic nationalism’ on this account would be strange.
Given the vitriol directed against 3739 by the EU, accession to which is proclaimed to be the main goal of ES, such support might seem strange. But it illustrates the contradictory status of ES – while it was vigorously ‘Euro-optimist’ in outlook, Poroshenko and many of the other party leaders were classic ‘oligarchs’ – big businessmen whose success depended in no small amount on protection from foreign competitors and ‘corrupt’ access to state procurements. The IMF and the ‘collective West’ wanted freedom for Western capital and no privileges for Ukrainian capital. Furthermore, any degree of autonomous Ukrainian political and economic power – which is only possessed by the ‘oligarchy’ – runs the risk of a Ukraine which has to capacity to disagree with how exactly the US wishes to use it in its struggle to ‘contain Russia’. Back to 3739, Poroshenko himself owns machine tools factories that could benefit from privileged access to state procurements. But voting for 3739 would anger the EU and the pro-EU sections of his party excessively, ruining his future chances as a Ukrainian ‘Juan Guaido’ (a role he is quite earnestly playing at the current moment). Faced with such a difficult choice, he decided to abstain from voting on the bill.
Poroshenko, pictured turning his recent court hearing into a publicity stunt. Tried for the same ‘crime’ of continuing trade with ‘DNR/LNR’ as Medvedchuk, he was allowed to go free on personal obligations on the same day that US state secretary Blinken arrived, while Medvedchuk has spent months under house arrest
3739’s opponents in the Rada
At its first reading in June 2020, the bill passed. It was voted for by deputies from all parties but one. However, it was instantly attacked by a variety of actors within the Ukrainian political system. Naturally, the party ‘Golos’, the most pro-west Ukrainian political party and the only party which did not support the bill whatsoever, quickly attacked the law, submitting a huge number of corrections to be taken into account by the second reading of the law in the rada. This party is the favorite of the Atlantic Council, and is filled with former journalists, musicians, and various Western grant-recipients (‘grantfeeders’, grantoedi) with little links to the real Ukrainian economy. However, it is a quite marginal party, having only 20 seats in the VR. The following graph shows its results in the 2019 parliamentary elections, where it only enjoyed success in the western Ukrainian Lviv region and Kiev:
Yaroslav Zheleznyak of Golos said that 3739 ‘is the creation of the latest corrupt feeding trough, it would be better to call it ‘buy from the oligarchs’ than ‘buy from Ukrainians’. While presenting his alternative draft law, Vladimir Tzibal’ also delivered his own explanation of Ukraine’s deindustrialization over the past 30 years:
‘“I am a supporter of supporting domestic producers, but the way it was done in the main draft law does not stand up to scrutiny. Support should be, first of all, stimulating, that is, one that helps the national producer to be more competitive, and does not give him preferences. In the past, our machine-building industry became uncompetitive precisely because we gave it restrictive preferences for 30 years, and not incentives. "’
In other words, a crystallization of the wise ideology which has ruled Ukraine since 2014 – economic problems are due to lack of liberalization. The less state intervention in the economy, the less corruption, the more economic development.
20 ‘servants of the people’ also refused to vote. 16 voted ‘abstain’. 4 voted against, we can briefly profile them. Marian Zablotskiy comes from Lviv, he was once the head of the NGO ‘Ukrainian Association of Economic Freedoms’ and the ‘Centre for Effective Legislature’ (one of the signatories of Transparency International’s letter against 3739), as well as the former deputy head of the ‘Ukrainian Agrarian Association’.
The agrarian lobby in Ukraine generally supports economic liberalization, since unlike industry, it is relatively successful on the EU market, and is allowed far more access by the euroassociation agreement. It is also largely controlled by fiercely liberal, pro-Western financial groups like Dragon Capital, a Soros affiliated investment bank with large shares in Ukraine’s largest agroholding company, Kernel.
Andriy Motovilovetz was one of the managers of Prozorro, which we will soon discuss. Vadim Galaichuk was educated in the USA and Sweden. A former lawyer for the original ‘revolutionary Western reformer’, Viktor Yuschenko, he received an award from USAID for his free legal services. His Wikipedia page includes in his selected works an essay titled ‘Does Russia exist? A debatable topic…’
Prime Minister Denys Shmyhal, a technocratic and pro-Western figure from Lviv, also critiqued the law for ‘contradicting the euroassociation agreement’. He still acknowledged the need to support Ukrainian producers. This was essentially the quandary of many of the deputies in the VR – on the one hand, this bill seemingly was quite ‘patriotic’ – support Ukrainian producers – but on the other hand, it conflicts with the wishes of the ‘Western partners’ whose will has also become fused with the ideological project of Ukrainian nationalism.
After its approval at the first reading, Shmyhal described 3739 in his working visit to Brussels as ‘quite tough for me and our international partners. It is quite interesting for our industry and economy,". The prime minister also noted that the authorities' task is to find a "golden mean" in order to support their own economy during the crisis, but at the same time, not to violate the international agreements that have already been signed. He emphasized his certainty regarding the possibility of a compromise – we shall soon see what exactly this ‘golden mean’ ended up looking like.
3739’s other domestic opponents – the brave fighters in the struggle against corruption
The first main group of opposition against 3739 was ‘liberal civil society’, which has certainly blossomed since Ukraine’s forceful democratization in 2014. Major liberal press like ‘European truth’ – among whose board of editors are Soros-partnered businessmen – came out with plenty of articles about how 3739 violates Ukraine’s obligations with the EU and the WTO.
Various NGOs dedicated to the struggle against corruption also heroically banded together under the aegis of the Open Society Foundation and State department-funded organization ‘Transparency International’. 15 other Ukrainian NGOs signed the statement, including the ‘Anti-Corruption Action Centre’ and ‘Effective Solutions Agency’, ‘Public Control Platform’, and ‘Anti-Corruption Headquarters’. These NGOs are all funded or supported by the US in some form, with for instance, State Secretary Blinken voicing his concern several days ago regarding who would be chosen to lead the ‘AntiCorruption Action Centre’, which is relatively integrated into the Ukrainian State.
Many ‘anti-corruption’ organizations enjoy a quite ambiguous juridical status, since while some, such as the National Anti-Corruption Bureau, can freeze the assets of businessmen or politicians under investigation for ‘corruption’ – a great way of putting pressure on figures disliked by the West – such an apparatus is absent in the Ukrainian constitution, and it is unclear how it is possible to appeal against such investigations. For these reasons, the constitutional court found the activities of many of these anti-corruption organs unconstitutional, to the immense displease of the EU, US, and IMF. IMF loans are also often tied to the ‘correct decision’ on not prosecuting the Western-educated cadres of these organizations, who often themselves have been accused of corrupt schemes.
Back to the letter, Transparency International Ukraine began with a clarion call to push back against 3739’s attack on the ‘reform of the system of state procurements’ started by Euromaidan. What is this reform?
In the heat of Euromaidan, many activists called for making state activities ‘more transparent’ through their computerization, a demand popular among the urban programmers which made up the lion’s share of euromaidan’s most active militants. The post-maidan regime did not renege on this promise, and a new system of electronic state procurement called ‘Prozorro’ was created by the post-2014 ‘civil society’, international grant organizations, and Western financial institutions such as the EBRD. Prozorro is a key project funded by all these figures. Petrashko had already called Prozorro ‘strange’ for its lack of localization parameters. All in all, this much-heralded ‘reform of public procurement’ is another example of how the discourse of anti-corruption is used to justify economic liberalization in a poor country in desperate need of industrial protectionism.
Back to Transparency International’s indignant letter - ‘The Ministry of Economic Development, headed by Ihor Petrashko, wants to roll back the procurement reform and violate the fair play principle, which is at the basis of Prozorro. The Ministry plans to introduce a non-price “localization” criterion in machine-building purchases… Transparency International Ukraine and other of civil society organizations urge the Government to reject this project, as it contradicts the current legislation and Ukraine’s international commitments. It would also entail corruption risks.
This initiative violates Ukraine’s international commitments undertaken as part of the Ukraine-EU Association Agreement and the Agreement on Government Procurement within WTO. Under those agreements, Ukraine should not give preference to any participants in public procurement but ensure “equal rules” in procurement for both foreign and domestic companies.’
There were many attacks on 3739 from various ‘activists in civil society’. Former head of the customs service Maksim Nefyodov called the initiative an attempt to ‘break the ProZorro system and open a new path for corrupt schemes’. The very liberal and europhile Kiev School of Economics published an investigation which claimed to prove that the negative effect from the initiative will bex` 0.573% of GDP per year, or about 643 million dollars. Finally, it should come as no surprise that the ‘heavy hitters’ of Ukraine’s post-2014 ‘anti-corruption’ apparatus of external control also came out against 3739. The National Agency on Corruption Prevention, a state structure set up on the impetus of the West and post-2014 ‘civil society in 2015, didn’t waste any time announcing the ‘corruption risks’ inherent in 3739 following its approval in the first reading.
3739’s foreign opponents
The EU’s domestic allies were right to worry – Ukraine did not have to wait long for a swift response from the ‘European partners’ regarding bill 3739. Matti Maasikas, Head of the Delegation of the European Union to Ukraine (himself Estonian), sent an official letter on July 4th 2020 to Ukrainian PM Denis Shmigal and speaker of the Parliament Dmitro Razumkov:
‘Having read the text of the draft, I would like to express our serious concern about its compatibility with Ukraine’s public procurement obligations under the EU-Ukraine Association Agreement and the WTO Public Procurement Agreement… We expect the Ukrainian side to refrain from adopting legislation that does not comply with the Association Agreement. This applies to the proposal to introduce requirements for localization in the field of public procurement”.
Maasikas did not forget to defend that important domestic apparatus of foreign control and economic colonialism created in Ukraine, Prozorro: ‘In recent years, Ukraine has been actively and with significant results reforming its public procurement system.’ According to Maasikas, the reforms in the public procurement system ‘made Ukraine an example in the region’ – an example of what exactly, he leaves it up to the reader to know.
Maasikas particularly focused on 3739’s violation of Ukraine’s WTO commitments: ‘"The introduction of discriminatory measures, as provided for by the draft Regulation on Draft Law No. 3739, will call into question these achievements both in the light of relations with the EU and in the context of the WTO Public Procurement Agreement. In relation to the WTO Public Procurement Agreement, this would violate its principles, and, accordingly, will also create a risk for Ukraine's access to the public procurement market. In addition, serious damage will be caused to the country's reputation built with other Parties to the WTO Agreement "’
His letter ended with a threat – ‘“In addition, we understand that the bill requires the Cabinet of Ministers to ensure that the same level of localization is introduced in future procurement related to projects financed by international financial institutions such as the European Investment Bank. In this regard, we would like to emphasize that these requirements could have a serious negative impact on the future of such institutions in Ukraine and the corresponding support of the EU."’
To counter such criticisms from the EU and from its domestic allies, Petrashko noted in January 2021 that Ukraine was trying to renegotiate parts of the euroassociation agreement. This proved irrelevant since the negotiations have thus far achieved no notable results.
The US also had its concerns about 3739. In July 2020, the US chamber of commerce critiqued the law for violating the WTO Agreement on Government Procurement (GPA), which Ukraine signed in 2016. This agreement limits Ukraine’s ability to implement industrial localization against other parties of this agreement, which are all high-income nations from the EU and elsewhere, apart from three poor nations with exceptionally comprador governments – Moldova, Ukraine, and Montenegro. Despite US imports only making up 2% of Ukrainian state procurements (around $10 million a year), a representative for United States Trade for Europe and the Middle East then wrote in August 2020:
According to liberal Ukrainian sources, the US considered 3739 to violate Ukraine’s WTO obligations. This intervention proved to be quite influential for 3739’s transformation – it proposed transforming 3739 so that it only excluded state procurements from non-party states of the GPA. This would mean giving the same access as before for state procurements to EU nations and the US, but excluding China, Belarus, Turkey and other nations.
Bill 3739’s transformation
After seemingly being forgotten, 3739 was finally passed at its second reading on December 16, 2021, and signed by the president into action on the 12th of January 2022. But a ‘painful compromise’ had been made, as one of its original proponents put it. It now looked quite different – it only applied to non-party states of the GPA. Of the party states of the GPA, I remind the reader, all are high-income nations, except for Ukraine, Moldova, and Montenegro. The ‘international partners’ won again. And indeed, the ‘modified’ 3739 is not only harmless for the nations of the EU and North America, but even beneficial – they will receive even more state procurements from Ukraine to make up for what was previously bought from Belarus, China, or Turkey, which made up 80% of Ukraine’s foreign public procurements.
There was one thing missing from the critiques of the original version of 3739 by liberal Ukrainian media. An acknowledgment of the objective economic disparity between Ukraine and EU nations. Liberal publications tried to show how it wasn’t true that the EU enacted protectionist laws like 3739, pointing out how EU legislation only allowed localization for EU nations – in other words, it forbids one EU nations from choosing its domestic production for public procurements over another EU nations. First of all, such a critique is still irrelevant, since as the same article acknowledges, Italy and Denmark have localization laws which contradict this law, to the impotent protest of Brussels. But in any case, it should be obvious that for France to open its public procurements to other EU nations is hardly the same as Ukraine doing so. France already has a large industrial basis, build over centuries of mercantilist economic nationalism and foreign colonialism – it can freely compete with the production of Poland or Germany.
Ukraine, obviously, does not have a strong industrial base, so any comparisons along these lines reek of the usual liberal economic idealism of self-regulating markets and blind Europhilia. As we have said, there can be no comparison with Poland since it received 10s billions of free EU subsidies. Certainly, Ukraine’s existing economic agreements contradict the original version of bill 3739, and there is no progress on their renegotiation – which is why it’s necessary to abandon these agreements, to save the real economy and the real people that depend on it.
Why on earth would a country as industrially weak as Ukraine sign an agreement (the GPA agreement) to grant the richest nations on earth equal access to Ukrainian state procurements? The reigning discourse in Ukraine of ‘Europhilia’ is nothing other than a crudely colonial one.
The modified version of 3739 is now simply another example where Ukrainian domestic policy has become transformed to best suit the needs of the rich Western nations in their struggles against rising nations of the third world. China, Belarus, and Turkey under Recep Erdogan all present threats to the rich nations through their economic nationalism (especially as concerns China and Belarus) or international political assertiveness (especially as concerns Turkey).
Despite the huge importance these countries play in Ukraine’s economy – China is by far Ukraine’s biggest trading partner, accounting for around 15% of imports and exports – Ukraine has been ‘enthusiastically’ raising the banner of democracy against their authoritarian might. The past year has seen Ukraine enter a trade war with Belarus and recognize the pathetic Svitlana Tikhanovskaya as the President of Belarus. This trade war has played a key role in the unfolding energy crisis in Ukraine, since 51.3% of Ukrainian energy imports came from Belarus in 2021.
Throughout 2020 and 2021, Ukraine also took Michael Pompeo’s hint regarding the American ‘concern’ about Chinese purchase of the strategic Ukrainian aerospace factory Motor Sich, banning the Chinese businessmen from using the already-purchased factory on quite spurious grounds. The Chinese investors are currently suing the Ukrainian government for 3.5 billion USD. Quite obviously in response, high level Chinese investors also broke China’s 7-year avoidance of Crimea, and visited in 2021, promising to invest huge amounts in the country, which clearly signals the beginning of the end of China’s non-recognition of Russia’s annexation. It also remains to be seen how this new version of the law will affect the cooperation with Turkey to produce bayracktar drones, the much-beloved wunderwaffe of the Ukrainian ‘national democrats’.
All in all, the modified version of 3739 promises to create new problems with these countries, whose share of Ukrainian trade remains high, or keeps growing rapidly. But what do such petty mortal problems matter, after all, Ukraine made a CIVILIZATIONAL choice in 2014, and to reject what the bearers of civilization demand must mean you want to remain an oriental troglodyte….
All in all, the story of bill 3739 excellently illustrates Ukraine’s post-euromaidan economic world. This is a situation where the EU nations dictate a destructively liberal economic policy, to the benefit of EU producers and workers, overriding the protests even of significant sections of the domestic Ukrainian economic and political elite. Historically, such situations have been named colonialist, and I see no reason to refuse the use of such a term in the case of modern Ukraine. I would call the situation colonial to distinguish it from the general situation prevailing in the world capitalist system, which is economic imperialism, where poor nations remain poor through the organic mechanisms of the global market, even despite the attempts of the state to improve the situation. A colonial situation maximally intensifies the imperialist economic exploitation of the colonized nation.
Any colonial situation requires a domestic support base. In Ukraine, this support base is not the ‘national bourgeois’ or the so-called ‘oligarchy’. They would prefer to return to a situation where their market is protected from stronger foreign competitors. It is also not exactly the ruling servant of the people party – the minister of trade and economic development from this party was among the initiators and defenders of this law, along with other deputies from SotP. Unlike Poroshenko’s European Solidarity Party, which is more closely tied to pleasing the ‘foreign partners’ (though Poroshenko himself is a bit conflicted on this account due to the interests of his own economic assets), SotP depends more on doing things that at least look appealing to the masses of the population.
Zelensky came into power – with the first mono-majority in the VR in Ukrainian history – on the promise of ending poverty (and the war), and he needs to do things which appeal to his mass base, since he can’t count too much on the ‘international partners’, which generally disdain him. Have a look at any of the Atlantic Council’s publications on Zelensky, which never forget to describe him as ‘populist’ and mention his ‘many Ukrainian critics’. The outcome of the law is also significant – SotP lacks any willingness to go through with progressive changes, hamstrung as it is by its ideological eclecticism, Ukraine’s unfavorable trade agreements and domestic opposition.
The domestic support base of the colonial administration of the country are the so-called ‘grantfeeders’ (granteaters) and ‘sorosyata’ (sorosite piglets), urban intelligentsia, often educated in the west, with a broadly humanitarian background in journalism and ‘civil society activism’, who have received all or a sizeable part of their income from EU and US grant structures. It is these figures which took the lead in critiquing bill 3739. Both because the EU told them to, and because they oppose any steps which would lead to a more sovereign and powerful Ukraine where their oversize influence in politics would end.
These characters exist in 3 forms: as politicians in the verkhovna rada such as Golos deputies, where they are fairly marginal, as NGOs, and as the leaders of the various anti-corruption organs set up after 2014 which have an unclear juridical status. Were it not for the official anti-corruption organs integrated into the state, they would have much less say over Ukrainian politics. But as part of the anti-corruption organs, they can push for policies through two tactics: first, by opening corruption probes against politicians, during the course of which their assets are frozen and the accused has no legal means of recourse. And send, because if their opinion is disregarded, the West starts inquiring as to why ‘anti-corruption reform is stalling’, and crucial IMF credits are withheld.
There are two main interests for the EU in keeping Ukraine in this position. First, and especially for countries such as Poland, the Czech Republic or Hungary, Ukraine is a market for their less competitive sectors which maintain employment in their countries. More developed countries like France also probably don’t intend to give up on a lucrative market for state procurements, as we say with Airbus helicopters.
Second, there is the more ‘geopolitical’ angle, which still retains a strong economic kernel. Ukraine must be kept economically weak and lacking sovereign economic policy, because the growth of either of these would lead to Ukraine looking east, towards economic zones that are – and have traditionally been – more willing than the EU to import Ukrainian goods and engage in productive economic cooperation. Ukraine’s crucial position in Eurasia is precisely why so much importance was placed on ‘neutralizing’ it as a possible member of the Russian economic project, and more broadly of China’s land bridge to Europe. But if Ukraine has its own sovereign economic capacity, then it has global political subjectivity, and it can no longer simply be used as a pawn by the US in its struggle to ‘contain Russia’.
Finally, this story has told us a lot about the function of the discourse of ‘corruption’. To put it bluntly, its purpose is to forbid any sovereign state capacity on the side of poor countries. Poor countries are accused of congenital ‘corruption’, said to be the cause of their poverty, and which can only be solved by intensified Western supervision over their economies (we will soon write more posts about these various organs in Ukraine, especially in the court system). These advisors naturally ‘recommend’ the most destructively liberal economic policies possible, which most benefit western capitalists and harm the country in question. ‘Corruption’ becomes identified with bureaucracy and the state broadly, and it becomes the task of any responsible activist to destroy all such sovereign state capacities.
To sum up, we end up with the following picture of post-2014 Ukrainian politics:
Principal contradiction: USA against Russia (itself over-determined by the USA-China confrontation)
Secondary contradiction: USA/EU against Ukrainian big business and protectionism
Domestic hirelings of the West: NGOs, grantfeeders, anti-corruption organs
Means of punishment to enforce desired policy in Ukraine: withhold IMF, EU credits, which would lead to devaluation of national currency. Legal confines of the euroassociation agreement. Economic threat of removing what little access Ukrainian producers have to EU market if Ukraine ‘violates the terms of the euroassociation agreement’. Threat of removing access to other high-wage market if Ukraine violates its WTO obligations. Less and less effective - mass protests lead by the domestic hirelings.
 Ukrainian income distribution data here https://ukrstat.org/en/operativ/operativ2007/gdvdg_rik/dvdg_e/roz2006_e.htm
Historical exchange rates here https://www.exchangerates.org.uk/USD-UAH-spot-exchange-rates-history-2013.html
Dollar inflation here https://www.officialdata.org/us/inflation/2013?amount=280
 Donetsk and Lugansk People’s Republics
It is also worth pointing out that 74% of Donbas respondents disagreed that the war in Donbass is one between Russia and Ukraine, while 60-80% of respondents in central and western Ukraine agreed with the same statement.
The following data in this section is all from the same source
 IN 2013, the last year where data on this is available, Donetsk region accounted for 20% of Ukraine’s exports and Dnipropetrovsk 16%, while the west Ukrainian regions accounted for <1%-2% of exports. https://ukrstat.org/en/operativ/operativ2013/zd/oet/oet_e/oet1213_e.html
It was 14% in 2020
, and recent data show that the first quarter of 2021 saw a third more trade between China and Ukraine than the corresponding period in 2020
 https://commons.com.ua/en/chomu-svit-rozdilenij-na-bidni-ta-bagati-krayini/ For more on the mechanisms of global economic imperialism
 See Kees Van Der Pihl, Flight MH17, Ukraine and the New Cold War: Prism of Disaster, 2018, for more on the China angle.