European Union and Ukraine

The Committee consisted of the following Members:

Chair: Andrew Rosindell 

Baron, Mr John (Basildon and Billericay) (Con) 

Barwell, Gavin (Croydon Central) (Con) 

Clwyd, Ann (Cynon Valley) (Lab) 

Coffey, Dr Thérèse (Suffolk Coastal) (Con) 

Connarty, Michael (Linlithgow and East Falkirk) (Lab) 

Elphicke, Charlie (Dover) (Con) 

Hilling, Julie (Bolton West) (Lab) 

Lidington, Mr David (Minister for Europe)  

Munn, Meg (Sheffield, Heeley) (Lab/Co-op) 

Shannon, Jim (Strangford) (DUP) 

Smith, Henry (Crawley) (Con) 

Thomas, Mr Gareth (Harrow West) (Lab/Co-op) 

Williams, Mr Mark (Ceredigion) (LD) 

Matthew Hamlyn, John-Paul Flaherty, Committee Clerks

† attended the Committee

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European Committee B 

Monday 11 November 2013  

[Andrew Rosindell in the Chair] 

European Union and Ukraine

4.30 pm 

The Chair:  Does a member of the European Scrutiny Committee wish to make a statement? 

Michael Connarty (Linlithgow and East Falkirk) (Lab):  I will explain some of the background to the documents and why the European Scrutiny Committee recommended the debate. 

The four relevant decisions of the Council of the European Union are the legal instruments for authorising the signature, provisional application and conclusion of a proposed association agreement between the EU and Ukraine. The EU’s European neighbourhood policy—in this case, through the Eastern Partnership—seeks to achieve the closest possible political association and the greatest possible degree of economic integration short of accession. EU association agreements are central to the partnership. The agreement with Ukraine will be the first of its kind. Similar agreements are being negotiated with Moldova, Georgia, Armenia and Azerbaijan. The partnership also seeks to promote democracy and good governance. 

Owing to democratic backsliding under President Yanukovych, the December 2012 Foreign Affairs Council made signing of the provisional application of the agreement conditional on progress being made on electoral reform, addressing selective justice and implementing the reforms in the association agenda. The Council indicated that if the conditions were met, signature might take place at the Eastern Partnership summit in Vilnius on 28 and 29 November. 

The European Scrutiny Committee retained the proposals under scrutiny for two reasons. First, the Government say their policy has been to support a closer relationship between the EU and Ukraine, while continuing to make clear to Ukraine that it needs to deliver demonstrable improvements—but without saying what they consider those demonstrable improvements must consist of. For some member states, a major determinant—the key selective justice concern—is whether President Yanukovych facilitates the release of his political opponent and former Prime Minister, Yuliya Tymoshenko. 

The Government, for their part, say that other member states are concerned that if the EU does not sign the association agreement, Ukraine will move closer to Russia, which is putting substantial pressure on Ukraine not to sign; that if Ukraine were to integrate more closely with the EU and adapt to EU norms and principles, it could send a very strong signal to Russia; and that Ukraine is, in the Minister’s words, 

“the swing state in the region that could have an exemplary effect on the governance related change we would like to see in Russia.” 

It is plain to the Committee that the Government will declare their position only at the last minute—or perhaps today, we do not know—before the 18 November Foreign Affairs Council that will decide whether to adopt the

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Council decisions. It is also clear that, without saying so specifically, the Government favour adoption. Member states appear to be divided on the best approach. 

The agreement will have significant implications for EU enlargement policy, which is likewise supposed to be conditions-based and which continues to be toughened up since the accession of Bulgaria, Romania and, latterly, Croatia. The agreement will also have major implications for EU-Russia relations. The relevant EU Commissioner has openly criticised Russian pressure, which has been applied not only to Ukraine but to other former Soviet bloc countries that are negotiating similar agreements. The European Scrutiny Committee accordingly judged that a debate before any Council decision on this important, precedent-setting agreement would be appropriate. 

The Committee welcomed the decision to split the original Council decisions into two concerning justice and home affairs measures, to which the UK’s opt-in applies, and two concerning non-justice and home affairs measures. The addition of title V legal bases provides for greater legal certainty on the UK’s participation in justice and home affairs measures, and is something for which the Committee has called since early in this Parliament. 

In our last report, however, we were concerned to note that the Minister chose not to assert the opt-in protocol, and the time frames within it, from when a title V legal base was added in the course of negotiations. That approach has obvious ramifications for the two-month period in which Parliament can consider the Government’s opt-in decisions in general. The Committee will follow that up with the Government in due course. 

4.35 pm 

The Minister for Europe (Mr David Lidington):  I welcome you to the Chair, Mr Rosindell. I welcome the opportunity to debate the possible signature and provisional implementation of the association agreement, with the deep and comprehensive free trade agreement, with Ukraine. 

Ukraine is an important country; it matters in bilateral terms and in the broader network of relationships we have with the countries of the Eastern Partnership and with the eastern members of the European Union. As the hon. Member for Linlithgow and East Falkirk said a moment ago, it has the potential to make a significant contribution to the economic and political development of the eastern European region. 

A closer relationship between Ukraine and the European Union is the best way to anchor political and economic reform in that country. An EU-Ukraine association agreement would be an important milestone on the road to a closer relationship, which would be of symbolic and practical importance. 

The agreement is broad in scope. It covers political dialogue, justice, freedom and security, economic and sectoral co-operation, and financial issues. The free trade area that forms part of the agreement would give Ukrainian and UK businesses access to new markets, and it will cover a wide range of reforms aimed at improving standards and consumer protection, as well as at stimulating sustained economic growth. The agreement would therefore bring advantages for Ukraine and this country, as well as for the European Union and its eastern neighbourhood more widely. 

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With our EU partners, the Government have been consistent in making clear to Ukraine what is on offer and that that offer comes with conditions attached. Following the election of President Yanukovych in 2010, we were concerned to see a negative trend on democratic values, the rule of law and the business climate. We and other European partners were determined that that trend should not continue. The association agreement and the commitments in it would create a framework for Ukraine to modernise and transform its institutions, legal system and economy. The Foreign Affairs Council’s conclusions of December last year reiterated the European Union’s determination to promote substantial reform in Ukraine. 

We have looked carefully at the agreement and at how it could be provisionally applied after signature, but before full ratification. Provisional application would be important because it would bind Ukraine to its commitments at an earlier stage in the process, ensuring that the Government there remained engaged in reform. 

Provisional application did carry some risks related to the EU’s competence to act on behalf of member states, but after lengthy and difficult negotiations in Brussels, the Government achieved our objective of narrowing the scope of provisional application. In particular, we secured exemptions from provisional application to protect the current balance of competencies. We also secured a clear joint declaration setting out the limits of the EU’s scope to act. We achieved a change to the legal base and the splitting of each original Council decision into two, covering justice and home affairs and non-JHA matters. We will also enter minute statements when the decisions are adopted, to set out the UK position, including making it clear that the provisional application of the Ukraine agreement does not necessarily set a precedent for other, comparable agreements. 

The signature of this agreement is in the United Kingdom’s interests. The key question is, when can it be signed? Are the conditions right to sign at the Vilnius Eastern Partnership summit at the end of this month? We hope they will be. The Foreign Affairs Council last year reiterated the EU’s determination to promote substantial reform in Ukraine, and it called on Ukraine to demonstrate determined action and tangible progress to enable signature to go ahead at Vilnius. Since then, Ukraine has made progress on reform. I went to Kiev in September to meet both Government and Opposition leaders, and I was struck by how much support there was for the association agreement right across the political spectrum in that country. I was also struck by how the pace of reform had accelerated after the summer; before that, there had frankly been a dismaying lack of energy in taking forward the reform agenda. 

When my right hon. Friend the Foreign Secretary met Ukrainian Deputy Prime Minister Gryshchenko on 31 October, he urged Ukraine to make use of the last few weeks before Vilnius to accelerate the pace of reform further, and we continue to stress that message to Ukrainian Ministers. 

Although some of the association agreement will be provisionally applied if signature takes place at Vilnius, the agreement cannot be ratified until the Parliaments of all EU member states and the European Parliament have agreed it, and I expect Parliaments throughout the European Union to want evidence of Ukraine’s continued commitment to deep and sustained reform. 

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In reaching our decision on whether to sign at Vilnius, we will clearly need to consider closely Ukraine’s progress and the broader picture. We cannot ignore the geopolitical context of the association agreement, and similar ones negotiated by the EU with Georgia and Moldova. We have repeatedly made it clear that the Eastern Partnership, related association agreements and deep and comprehensive free trade areas are not a threat to others in the region; they are an opportunity to modernise, create more wealth and improve living standards. All countries in the region should benefit from such developments. The reforms to which Ukraine has committed itself will help to build a stronger Ukraine that is better able to withstand external pressure. 

Countries have a sovereign choice to determine their own course, including whether to sign association agreements with the European Union. Ukraine has decided that its interests are best served by such a closer relationship. Others, including Russia, should respect Ukraine’s sovereign decision. More widely, prosperous and stable neighbours are in Russia’s own interests. Association agreements and deep and comprehensive free trade areas help to deliver such objectives. 

We want to consider closely the views of our European partners, with whom we will remain in close contact in the last few weeks before Vilnius, and with whom we are sharing our assessments of Ukraine’s progress. It is important that the EU and its member states maintain and reinforce common messaging on support for Ukraine’s closer integration with the EU and the continued need for reform. As I said in correspondence with the European Scrutiny Committee, we would need to think hard about how to justify a British Government decision that was different from that of the majority of our European partners on this issue. 

The Government remain committed to a closer relationship with Ukraine, and to signature of the association agreement. Signature at Vilnius would represent an important milestone in the development of that relationship, and I hope that we can achieve it. A decision about whether the time is right cannot be taken lightly, and it remains one that we will need to take close to the Vilnius summit. 

I welcome the opportunity to debate the subject, and look forward to hearing the comments and observations of hon. Members on both sides of the Committee. 

The Chair:  We now have until 5.30 pm for questions to the Minister. May I remind Members that questions should be brief? Subject to my discretion, it is open to a Member to ask related supplementary questions. 

Mr Gareth Thomas (Harrow West) (Lab/Co-op):  Even though the western suburbs of London are clearly better than the eastern ones, it is a pleasure to serve under your chairmanship, Mr Rosindell. My questions for the Minister are essentially in two groups—those about the complex legalese relating to whether the opt-in applies, and those about the nature of the agreement more generally. 

First, will the Minister comment on the plight of Yuliya Tymoshenko, which is clearly the issue of most public concern and perhaps a barometer issue in determining whether reform is genuinely moving in the right direction in Ukraine? 

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Mr Lidington:  We have consistently told the Ukrainian Government and partners around Europe that the key issue is the systemic problem of selective justice in Ukraine, and Yuliya Tymoshenko’s case is the best-known example. We have not expressed, and do not intend to express, any view on whether she, as an individual, is guilty or innocent of particular allegations against her, but I made it clear in a speech in Kiev during my visit in September that it would help Ukraine in taking forward its hopes of signature of the provisional application to see her released from jail, because there are a number of EU countries for whom her case is the critical issue in deciding their position. 

Mr Thomas:  Related to that, there has been speculation, particularly as a result of the recent visit by the two European Union envoys to Ukraine—former Polish President Alexander Kwasniewski and former European Parliament president Pat Cox—that former Prime Minister Tymoshenko might be allowed to be flown to Germany for medical treatment if the Ukrainian Parliament can adopt a law by this Wednesday. Can the Minister give us any more clarity about the discussions between the two envoys and the Ukrainians, and particularly about that law? 

Mr Lidington:  I am able to say that the mission by Pat Cox and Mr Kwasniewski is important. It is indeed exploring options regarding the terms under which Mrs Tymoshenko might be allowed to come out of prison and travel to Germany to seek medical treatment. There are differences between some of the parties in Ukraine—between Mrs Tymoshenko and her supporters and the Government and their supporters—about the terms of any such deal. It is not yet clear to us whether she will be released and, if so, under what terms that will take place. However, her release would certainly help the process move forward. 

Mr Thomas:  Let me, then, specifically ask the Minister this: if former Prime Minister Tymoshenko has not been released by the Vilnius summit, will that have a powerful bearing on the UK Government’s signature or otherwise of the agreement? 

Mr Lidington:  As I said earlier, it is the systemic and selective use of justice that is the key thing here. The political reality is that it will be much more difficult for Ukraine to achieve agreement to signature at Vilnius if Yuliya Tymoshenko has not been released. As the hon. Gentleman will know, any decision to sign and provisionally to implement the association agreement requires the unanimous consent of all member states, and it will be very hard going for Ukraine if she is still in prison. 

Mr Thomas:  The Minister is being admirably cagey in answering a key question. Let me come back to that a little later. 

In the Minister’s letter of 9 October to the European Scrutiny Committee, he suggested that there were signs that the business climate was deteriorating in Ukraine. Given that the free trade area is such a significant part of the association agreement, will he say a little more about whether he is still concerned about that? 

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Mr Lidington:  I am concerned about that. British companies are doing well—for example, the UK company Shell has secured an agreement to exploit shale gas reserves inside Ukraine—but when I have met representatives of UK companies that are active in Ukraine, their prime concern and the biggest obstacle that they see to growing trade and investment is the extent of selective justice and corruption in Ukraine. 

I have said clearly to Ukrainian Ministers, whenever I have met them, that it is in their economic interests to take through judicial, administrative and political reform, because if they want to attract the kind of inward investment that will deliver higher living standards for ordinary people inside Ukraine, those companies need the assurance that they are going into a country where disputes will be judged by the rule of law, not by arbitrary fiat; and where licences and permits are issued on the basis of a transparent system of clearly applied rules, not given or withheld as a matter of political favour. It is in Ukraine’s interest to take through those reforms and, yes, for the moment the absence of full-hearted reform is definitely a brake on further investment and economic development. 

Mr Thomas:  I completely get that it is in Ukraine’s interests to improve the business environment, but let me press the Minister again: if there are not more obvious signs that the business climate is improving, is that potentially a red flag for the UK, in terms of signature in Vilnius—Britain’s, as opposed to everyone else’s? 

Mr Lidington:  The improvement in the business climate is something that will flow from reform. The key judgment for us will be the taking into account of the broader geopolitical questions to which I alluded earlier and of the considered views of our 27 EU partners as to whether Ukraine has gone sufficiently far with reform to justify signature and provisional implementation. There have been some reforms: repeat parliamentary elections, now scheduled for December, in five problematic constituencies where the results were disputed; the creation of a new criminal procedure code, which has created fairer competition between prosecution and defence in criminal trials; some positive changes to the accounting chamber, which has responsibility for controlling state budget revenue and expenditure; a draft law on transparency in the use of public funds; and progress on reforms to the prosecutor’s office. They have been significant in taking Ukraine down the reform track. 

Our disappointment was that a lot of that has happened since the Rada, the Ukrainian Parliament, came back from its summer recess—the sense of energy was missing for much of 2013. That is why, even now in the weeks and days that remain, we are asking the Ukrainians to demonstrate to us that the reform is serious, that it is not only for Vilnius and that they are committed irreversibly to reform. 

Mr Thomas:  I am grateful to the Minister for that reply. Surely he accepts that it is one thing to prepare a criminal code or a new law on transparency, but it is another to see how such new laws and codes and operate in practice. If he were tempted to take a longer look to see whether the reform is substantial and serious in practice, when might there be another opportunity for the signature of the agreement, post-Vilnius? 

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Mr Lidington:  That would be up to the EU collectively at whatever time all 28 EU member states came to a unanimous agreement that Ukraine had done enough. In turn, that would obviously depend on the reasons why we had not been able to reach unanimous agreement at Vilnius and what else Ukraine needed to do. 

Mr Thomas:  Surely there has been some suggestion of a plan B. 

Mr Lidington:  It is not that straightforward. It is fair to say that some EU member states are quite open in stating that they would now, without any qualification, support signature and provisional implementation at Vilnius. Others, including ourselves, are still considering what their position ought to be. We will have to see. If there is no agreement at Vilnius, we must continue to make it clear to Ukraine that the prize is still available, but that it is tied to further progress on reform. I agree with the implication behind the hon. Gentleman’s question, which is that, if there is not signature at Vilnius, the EU collectively will have to say clearly what further steps Ukraine must take to bring about signature. 

Michael Connarty:  On that very theme, do the Minister and his colleagues in the European Council take any cognisance of Council of Europe reports? In a major debate during its last part-session, the Parliamentary Assembly said that Ukraine must remain within the monitoring process, because it has not satisfied the Monitoring Committee and the Assembly that it is making enough progress, as a Council of Europe country, in adhering to the European convention on human rights. Does such a consideration play a large enough part? There are clearly geopolitical reasons for advantaging Ukraine because of its proximity to Russia, rather than in relation to its proximity to good human rights statutes. 

Mr Lidington:  We certainly take account of reports from the Council of Europe, just as we play close attention to those from the Office for Democratic Institutions and Human Rights about the conduct of elections at both national and local levels in Ukraine. They form part of our analysis. 

Geopolitical considerations are real not, as I made clear in my opening comments, because signature would in any way be anti-Russian—quite the reverse: it would benefit Russia in the medium to long term—but because agreement about association and the DCFTA would be a powerful signal to Eastern Partnership countries that the EU is not trying to shut them out of closer relationships. Such a signal would be significant and welcome. 

Bringing the association agreement provisionally into force would help to accelerate and anchor—I do not know whether those things can be done at the same time, but the hon. Gentleman knows what I mean—or to make firmer than it has been the commitment of the Ukrainian authorities to reform further. It could therefore become a tool for taking reform further, although there is obviously a risk that a disappointment at Vilnius might lead to pressures in Ukraine to give up on the European alignment and look elsewhere. 

Mr Thomas:  That is precisely my concern. There has been so much focus on Vilnius and building momentum

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to getting everyone to sign up there, that were agreement not to be concluded at Vilnius, that would risk boosting those who are not enthusiastic about the look towards the EU and who are perhaps more attracted to the idea of a customs union with Russia. Is there not, either within the Minister’s thinking or in the Council, more consideration of a further date by which, for example, we might have seen the criminal code operating a little, or have seen how the parliamentary by-elections—the tricky ones the Minister described—had gone? A little additional time might be enough to give confidence to all EU member states that the agreement should be concluded. 

Mr Lidington:  The optimum outcome would still be to get an agreement at the Vilnius summit. If we do not, we will clearly need to have not only urgent consideration, but urgent decisions about the alternative path. We have had that in our minds, but a clear alternative path and certainly a timetable with precise dates would again require unanimous agreement from all 28 member states. It is therefore not something that is simply in the gift of the UK Government. 

Michael Connarty:  To try to put a fine point on the discussion about Ukraine and its attitude to human rights, it stands accused basically of putting the former Prime Minister in jail because of her political decisions, which is of great concern to the Council of Europe. I wonder whether that is as clear a concern to others— I read the document, and nowhere does it state anything that makes it clear that we do not approve of putting previous Governments in prison because of a dislike of their decisions. Some of my constituents might suggest that I do that with past Governments of a Conservative hue, but I do not agree with it and nor does the Council of Europe. Has that been given a high enough level of concern? The general concern of Council of Europe countries is that this is what they seem to have seen and that, despite many excuses, in reality, a previous elected Government leader has been put in prison, because the Government did not like the politics when they came to power 

Mr Lidington:  It is obviously not for me to defend the position taken by the Ukrainian authorities. I simply put on the record that, whenever I and other British Ministers have raised the treatment not only of Yuliya Tymoshenko, but of other high-profile detainees from former Governments, the answer from Ukrainian Ministers has been that those who previously held high office should not be immune from investigation and prosecution for crimes carried out in their time. Our response is that we are arguing not for anyone to have immunity, but for the prosecutorial and judicial systems in the Ukraine to be genuinely impartial and to be able and willing to investigate and prosecute anyone, of whatever political background, if there is real evidence of crimes having been committed. The Tymoshenko case is the highest-profile example of this underlying problem of selective justice. The challenge over judicial reform and selective justice is one of the key themes of the association agreement; it has certainly featured in Foreign Affairs Council conclusions on Ukraine and in bilateral conversations between not just British, but most other—if not all—EU Ministers and their Ukrainian counterparts. 

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Mr Thomas:  I am just trying to understand better what specific priorities the Minister needs further reassurance on before Britain could sign up at Vilnius. Is it just the Tymoshenko case, or is it just the attitude of our European Council partners? There seems to be so much riding on Vilnius and so much potential difficulty in plotting a further opportunity for Ukraine to sign up. Has the Minister contemplated Britain sending a strong signal to its European Council partners by making it clear that we intend to sign up? I am trying to understand a little more clearly where the Minister is on this. 

Mr Lidington:  We will have to take a qualitative judgment. There is not a simple formula, or a list of boxes that have to be ticked, for us to give agreement. The objective is the right one. We are looking to Ukraine to continue to persuade us and to demonstrate to us not only that it is continuing with reform work right the way up to Vilnius, but that that commitment is serious looking beyond the summit. I said earlier that I had been disappointed by the lack of progress for the first half of 2013. I have to put that in the scales, but I also have to put in the scales the fact that my conversations with two of the main Opposition leaders in Kiev—Mr Yatsenyuk and Mr Klitschko—left me in no doubt that they wanted the deal to go ahead. It was not just a matter of the Ukrainian Government—President Yanukovych—wanting this agreement signed; the Opposition, too, were keen to see that happen, because they felt it was in the interests of their country. It is a question of trying to weigh up in a qualitative judgment how far Ukraine has gone and where the balance of interest lies at Vilnius in terms of whether signature or withholding signature is the best way to make sure the process of reform continues. 

Mr Thomas:  I want to move on to ask about other implications of the documents. If Ukraine signs, it will have to implement a series of rules as a result of different directives. What practical support will Britain, as opposed to the Commission, give? 

Mr Lidington:  I would not want to discount what the EU does. This is not just about the Commission, although it keeps the purse strings of neighbourhood funding. Of course, pro rata, we contribute about 15% of the cost of any EU programme. However, to answer the hon. Gentleman’s question directly, I would be keen for us to continue to look out for opportunities—for example, through twinning projects—to provide specific bilateral UK assistance. Our strengths lie in technical assistance to achieve improvements in the judicial system—the way prosecution systems operate—and public administration reform. We have been able to provide effective help of that kind in other countries, and if the Ukrainians want it, we should be willing to explore that further. However, I think the big money will come through the neighbourhood funding. Some good projects have been funded that have helped to promote reform in Ukraine, and I would look to see that continue. 

Mr Thomas:  There has been media speculation that there might be a need for an International Monetary Fund loan or for further loan finance from different financial institutions related to the EU. One figure I have seen suggests that a $12 billion loan would be required. Will the Minister say whether he thinks that is realistic? 

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Mr Lidington:  I am sure the hon. Gentleman knows that Ukraine’s most recent IMF programme, which was a stand-by arrangement for $15 billion, expired in December last year. Since then, the IMF has been in discussion with the Ukrainian authorities on a replacement stand-by arrangement. There has been no agreement as yet. The monitoring mission that the IMF sent to Kiev last month included discussion of a potential new stand-by arrangement. My understanding of the latest position is that the Ukrainian side has submitted a consolidated list of proposals along with its responses to the conditions proposed by the IMF, which is now considering that Ukrainian counter-proposal. 

Mr Thomas:  Will the Minister give us more detail on whether he thinks anything more is holding up agreement between Ukraine and the IMF? Has the IMF raised more political concerns, of the sort that we were discussing earlier, or are its proposed conditions simply a list of projects that need agreeing? 

Mr Lidington:  In my experience of how the IMF operates, of all the international organisations, it is probably the strictest in trying to ensure that wider political considerations do not impinge upon what it considers to be the correct financial judgment. To the best of my knowledge, that is the situation as regards Ukraine. Indeed, there is probably a measure of frustration in Kiev at what the authorities there might see as a reluctance by the IMF to look at the geopolitical context, with its focus instead on whether any facilities that are offered are sustainable. 

Mr Thomas:  Of course the Minister is right when he says that the IMF is probably the one international organisation that more than any other tries to keep politics out of its financial decisions, but it would be naive of us to think that politics had no bearing on any of its decisions. It could be a hugely powerful alternative lever to the Vilnius signature, or a further attractive lever for the international community to use post-Vilnius to drive further reform or to lock that reform into the international agenda with the Ukrainian Government. 

Mr Lidington:  Yes, I accept that point. It was certainly a point made to me strongly by Ukrainian Ministers in September. We are not simply sitting by on the sidelines, as we are board members of the IMF. To give one example, clearly one element in an IMF package is going to be some reduction of the large subsidies that Naftogaz, the state gas company in Ukraine, currently enjoys; it is responsible for both the transport and storage of gas in Ukraine. We have argued that the fund could show some flexibility in how it approaches the question of reducing those subsidies by, for example, having a staged increase of gas tariffs over a period rather than a massive one-off hike, as that would make it easier for Ukrainians to adjust. 

Mr Thomas:  That is a fairly significant reform—I am not sure that that is necessarily the right word—if the price of reducing the subsidy is a big increase in energy bills in Ukraine. Can the Minister give us any further indications of measures that the IMF might want in response to its loan, and, perhaps more helpfully, whether there are alternative sources of finance that are not quite so exacting among the European Union’s different financial institutions, such as the European Bank for Reconstruction and Development or other alternatives? 

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Mr Lidington:  Ukraine already has access to partnership instruments that are available to countries in the eastern neighbourhood. Of course, those tend to be linked to the specific needs of the reform programme, both economic, and political, administrative and judicial. Our contention is that the best way for Ukraine to be able to deliver higher living standards for its citizens is to get agreement on the association agreement, and particularly on the deep and comprehensive free trade area that will start to make European Union customers more accessible to Ukrainian suppliers, and to take through those judicial and administrative reforms to give, as we debated earlier, businesses more confidence to bring investment into that country. 

If we look, for example, at agriculture, Ukraine has been renowned as one of the bread baskets of Europe. However, there is also no doubt that the agricultural sector in Ukraine would benefit from significant inward investment to modernise practices. I think that is unlikely to happen unless the companies concerned feel that their investment is going to be secure and governed by a fair and impartial rule of law. 

Mr Thomas:  I want to return to the issue of the IMF loan in my speech. Can I ask the Minister to what extent there has been an assessment with UK Trade and Investment of the potential benefits for British business from this association agreement? 

Mr Lidington:  I will take advice on the specific point about UKTI; I cannot give an instant answer. Ukraine is a relatively small trading partner for the UK, but we are keen to look for any opportunities to encourage trade and investment in both directions. The most immediate opportunities would probably lie with natural resource companies, particularly hydrocarbons. The recent agreement with Shell is an illustration of that. Other British oil and gas companies have sadly fallen foul of selective justice in Ukraine. There is no doubt that has been a dampener on further investment. 

Mr Thomas:  I look forward to the Minister’s further consideration of that point. Related to my previous question, I want to ask the Minister how he sees the dispute settlement mechanism of the free trade area working. Given what has happened to British business in the past, it will clearly be important for companies that are the victims of selective justice, or unfairness as they see it, to have the certainty of a robust mechanism to secure justice. Equally, the Minister will be aware that dispute settlement mechanisms, particularly in the context of the potential US-EU trade agreement, are beginning to attract significant concern. Can he set out how the particular example in this agreement will work? 

Mr Lidington:  It is set out in the detail of the agreement. I will happily write to the hon. Gentleman with a full account of that. 

The Chair:  If no further Members wish to ask questions, we will now proceed to the debate on the motion. 

Motion made, and Question proposed,  

That the Committee takes note of Unnumbered Explanatory Memorandum submitted by the Foreign and Commonwealth Office, dated 9 October 2013, on a draft Council Decision on the

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signing, on behalf of the European Union, and provisional application of the Association Agreement between the European Union and its Member States and Ukraine, with the exception of the provisions relating to the treatment of third-country nationals legally employed as workers in the territory of the other party, a draft Council Decision on the signing, on behalf of the European Union, of the Association Agreement between the European Union and its Member States and Ukraine as regards the provisions relating to the treatment of third-country nationals legally employed as workers in the territory of the other party, a draft Council Decision on the conclusion of the Association Agreement between the European Union and its Member States and Ukraine, with the exception of the provisions relating to the treatment of third-country nationals legally employed as workers in the territory of the other party, and a draft Council Decision on the conclusion, on behalf of the European Union, of the Association Agreement between the European Union and its Member States and Ukraine as regards the provisions relating to the treatment of third-country nationals legally employed as workers in the territory of the other party; and supports the Government’s aim of using the Association Agreement between the EU, its Member States and Ukraine to embed sustainable reform, security and prosperity in Ukraine and the eastern neighbourhood.—(Mr Lidington.)  

5.19 pm 

Mr Thomas:  I am grateful for the opportunity to comment more formally on the EU’s association agreement with Ukraine. I understand that this draft decision is a mixed competence one. It has been agreed by the Council but, as we have discussed, it has to be agreed by member states. EU-Ukraine relations are currently based, as the Minister alluded to, on a partnership and co-operation agreement, which first came into force in 1998. The agreement we are now discussing—the successor agreement to the PCA—is potentially the first of a new generation of association agreements with Eastern Partnership countries. 

My hon. Friend the Member for Linlithgow and East Falkirk alluded to the potential for similar association agreements with Moldova and Georgia—I believe he also mentioned Azerbaijan—to come into force. 

Mr Lidington:  Armenia. 

Mr Thomas:  The Minister says that Armenia is another. It would be helpful to hear from the Minister how negotiations with those countries about association agreements have gone, and whether the agreements differ significantly in form from the one with Ukraine. Given the state of geopolitical affairs in that part of the world, to what extent can we continue to have confidence that the Governments in question want to sign up to the association agreements? 

It has taken us some time to get to the current point in the negotiations. They were launched in March 2007, and negotiations on a deep and comprehensive free trade area, as a core element of the association agreement, began in February 2008. Given the way in which some EU trade agreements are concluded, and the length of time that they take, we can be reasonably pleased that after four or five years it is at least possible to contemplate the signing of the heads of agreement. 

I recognise that the agreement puts much importance on commitments from the Ukrainian side to democracy, the rule of law, respect for human rights and good governance, as well as to further co-operation on foreign and security policy, trade and energy. I welcome the fact that the Minister has continued to press the case of

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Yuliya Tymoshenko and others, and I gently suggest that he should continue to reiterate to his Ukrainian counterparts the importance—not least for those of us concerned about adherence to human rights in the UK—of a significant move on those examples of selective justice. 

In the Government’s assessment of the case for the agreement, they rightly acknowledge the worrying signs about the health of Ukrainian democracy since President Yanukovych came to power. The Minister said that there was clear enthusiasm from opposition leaders in Ukraine for the signing of the agreement. That is welcome, as, clearly, is the progress that has been made in drafting a law on transparency, and a criminal code. I think the Minister hinted at one or two other reforms as well, and I should mention the timetable of what have been difficult parliamentary elections. 

The Minister was cagey, and I recognise that there is a balance of judgments about whether the UK should sign the agreement at Vilnius. Perhaps I may press him further. If the Vilnius meeting were to be held tomorrow, what would his judgment be? What else must happen to convince the Minister that Britain should send such a powerful signal of friendship to Ukraine as the signing of that agreement? 

Perhaps I may press the Minister further on the IMF loan. It would be helpful to hear what discussions he has had with Treasury colleagues, who clearly have responsibility for our decisions on the IMF board. Although one would clearly want to separate decisions taken on the IMF board from the more hard-headed political and geopolitical ones that Foreign Office Ministers have to make, there are surely attractions in the potential leverage of the financial assistance that the IMF might offer over the coming period. It would be useful to know whether any talks are taking place with the EBRD or other European financial institutions that might offer further leverage on the Ukrainians to hold to the path of the reform agenda implicit in the association agreement. 

I welcome the continuing pressure on the issues of systemic flaws and selective justice in Ukraine’s judicial process. It would be helpful if the Minister told us which other countries are particularly concerned about the plight of Yuliya Tymoshenko. The reports that the two EU envoys to Ukraine have been pressing for a law to be passed by Wednesday to allow her to receive medical treatment in Germany suggest that Germany, which is clearly one of the other powerful players in the European Union, has ongoing concerns about human rights and selective justice in Ukraine. It would be good to get a sense of where others in the EU are. 

It would be useful if the Minister told us more about the British Government’s efforts to encourage their Russian counterparts to take a more relaxed view of the association agreement with Ukraine, and the other association agreements that I have mentioned. 

I want to come on to issues about language and the potential legal implications on the UK opt-out, or not, on justice and home affairs. Having had a reasonable education and having been a Minister, I like to think that, on good days, I am reasonably intelligent—I accept that many Government Members regularly may not

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think so, but that is the price of politics. However, trying to understand the legalese contained in the Minister’s letters to the European Scrutiny Committee—for understandable reasons, to be fair to him—has been a considerable challenge. I simply invite the Minister to explain in easy-to-understand English—let us think “Janet and John”—what he wrote in his letter of 30 October: 

“The Government took the view that Article 17 of the Agreement on the treatment of third-country nationals legally employed as workers in the territory of the other party contained binding JHA provisions, but it was the Member States and not the EU entering into these provisions. This approach was not successful.” 

Reading that and trying to work out what it means for our opt-out, and for the potential for Ukrainian nationals to work in the UK, was something of a challenge. Will he explain the phraseology? Will he tell us, as a result of the mode 4 commitments implicit in the agreement, how many Ukrainian nationals we might expect to work in the UK and how many British nationals we might expect to work in Ukraine? 

In general, I support the approach that the Minister and his colleagues in the Foreign Office have taken to the negotiations on the EU association agreement with Ukraine, and I certainly would not want to divide the Committee on the motion, but I hope that the Minister, in that spirit, will be willing to be even more helpful than he has been up to now. 

5.30 pm 

Mr Lidington:  I very much appreciate the approach that the hon. Gentleman has taken. I take what he says as being in the spirit of constructive, probing questioning by the Opposition. It is good that there is long-standing cross-party support for the European Union to develop further its relationships with the countries on the easternmost edge of our continent and to support the process of both political and economic reform in those countries. 

I should say straight away that I have nothing but sympathy for the hon. Gentleman in one of his first encounters with European Union legalese. Even after more than three and a half years doing this job, there are still occasions when I want to go away and wrap a wet towel around my head before I try to comprehend some arcane bit of law and how the treaties and their balance of competences apply to a particular measure. 

The hon. Gentleman asked me to speak in “Janet and John” language. I will probably have to use words of more than two syllables, but our overall approach to the proposal for provisional implementation of the agreement was that we were willing for that to happen provided that the competences laid down in the European treaties for member states were properly defended. As the Committee knows, the European treaties allocate some competences over areas of policy exclusively to the EU acting collectively. Other areas of policy remain exclusively the property of member states. Further categories of policy are shared competences, and often the decision about whether it is the EU or member states that are empowered to act depends on whether there has been any exercise of that collective EU competence. In a matter of shared competence, until that is exercised, it remains a matter for member states to decide; it is for them to decide their own course. 

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That was the approach that we sought to apply to the provisional implementation of the Ukraine association agreement. We wanted to ensure that language was not used that might, even inadvertently, suggest that competence, which in our view remained the property of member states, had been conferred on the European Union to act on behalf of all. That is particularly sensitive when it comes to matters of justice and home affairs, for all the reasons with which the hon. Gentleman and the other members of the Committee are familiar. 

As the European Scrutiny Committee commented in some detail on this matter, I hope that this Committee will bear with me if I respond by placing our approach on the record. The Committee asked why we did not follow the precedent of the EU-Indonesia agreement, when we did not opt into provisions on readmission but instead assumed them in our own right. In the EU-Indonesia agreement, the UK was able to assume readmission provisions in our own right as a member state, which is our preferred approach when we are able to take it. The difference in the case of the Ukraine association agreement is that the readmission provisions relate to implementation by the EU of what is already an existing EU obligation under the 2007 readmission agreement. The EU has therefore already exercised competence in this area, and for that reason the UK could not sign up to the readmission provisions in its own right. 

Mr Thomas:  I am grateful to the Minister for clarifying, or starting the process of clarifying, the discussions that took place with the Committee. For the avoidance of doubt, will he set out what “readmission” refers to, in his view? 

Mr Lidington:  It refers to the readmission by Ukraine of people who are being returned to Ukraine, having migrated unlawfully to EU member states. The 2007 readmission agreement was between the EU and Ukraine; the UK was not a party to it in its own right. 

It therefore follows that, under the new association agreement with Ukraine, the EU has exercised its competence on behalf of all, and it is therefore not something that we can sign up to in our own right. Therefore, as we are entitled to do under the Lisbon treaty, we asserted that our justice and home affairs opt-in applied and opted in to that European Union measure, in the same way that we decide whether to opt in to any EU JHA measure, on the basis of a judgment about our national interest. We judged in this case that our national interest was assisted by our opting in to the readmission agreement, but we wanted to ensure that we asserted clearly that we have a right to opt in to or out of any EU-wide JHA measure. We wanted to protect our legal position in respect of this particular measure. 

The hon. Gentleman asked about a slightly different justice and home affairs angle, namely, the so-called mode 4 provisions and the treatment of third-country nationals legally employed as workers in the territory of the other party. Our position on that is that we do not intend to opt in to article 17 of the association agreement. We took the view that the article contained binding JHA provisions and, further, that it was properly member states, not the EU, that were entering into the provisions. 

I said in my letter that that approach was unsuccessful, referring to the fact that we could not persuade the Commission to agree to change the text to meet our

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interpretation. We therefore supported the inclusion instead of appropriate title V legal bases, making it clear beyond any doubt and to the satisfaction of all parties, whatever view they take on what triggers an opt-in, that we had the right to opt in or out and we decided not to opt in to article 17. That is the position that we took. 

The hon. Gentleman also asked what impact signing and implementing the association agreement would have on mode 4 movements of employed people from Ukraine to the United Kingdom and elsewhere in the EU. There are no new rights for people to come to this country or anywhere else in the EU as a result of the agreement. Equally, there are no new rights for British people to travel visa-free to Ukraine. The existing visa regimes remain intact and in force until such time as a British Government decide that they want to vary them. No new right of migration is conferred by the association agreement. 

The hon. Gentleman asked about our approach to other countries in the neighbourhood. We consistently tell our Russian counterparts that they have nothing to fear from association agreements, that greater prosperity in Ukraine and other countries in the eastern neighbourhood will mean more prosperous countries able to buy Russian goods and services, and that Russia should see that as a win-win situation. 

Georgia, Moldova and Armenia have been negotiating similar association agreements to that with Ukraine. Georgia and Moldova have completed negotiations on an association agreement with a deep and comprehensive free trade area. That agreement was struck in the summer. We hope that at Vilnius we will be able, perhaps by initialling an agreement, to signal the progress that has been made. That depends a bit on the final technical work on the texts of the agreements, but as long as both countries continue to take through reforms, we are keen to maintain the pace in 2014 and look towards signature and perhaps provisional implementation in due course. 

Mr Thomas:  Do the issues of Moldova and Georgia not underline my earlier concern that there seems to be no plan B if agreement cannot be secured at Vilnius? Will the Minister at this juncture give the Committee a bit more flavour of his and the Foreign Office’s thinking more generally about what should happen if agreement cannot be achieved in Vilnius? 

Mr Lidington:  If agreement cannot be reached on Ukraine at Vilnius, we will have to establish an alternative route for working with Ukraine to carry forward the process of reform and to hold it to its promises, and look for alternative benchmarks into the future. Anything of that nature would require, as a matter of treaty, the unanimous agreement of every member state. 

I stress that we look at each of the different association agreement proposals on their own merits. If Moldova or Georgia were suddenly to reverse their reforms, not that the present Governments of those countries have any intention of so doing, that would obviously have an adverse impact. That brings me to Armenia, which had been negotiating an association agreement and made good progress on that score but then decided earlier this year that it would join the customs union with Russia, Belarus and Kazakhstan. 

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The EU has made it clear that that does not mark the end of EU-Armenia co-operation, but it does mean that we cannot take forward an association agreement, including a deep and comprehensive free trade area that would in some respects be incompatible with membership of the customs union. We hope to see a readmission agreement and a visa facilitation agreement signed at Vilnius between Armenia and the EU, although the UK will not opt in to such an agreement if it is reached at Vilnius. Armenia will continue to receive some financial assistance from the European neighbourhood programme. The Armenian Government took a clear decision to plump for the customs union, and that decision had consequences. 

Mr Thomas:  If the Minister will forgive me, he has not been quite as helpful as he could be, which I am sure is unusual. Surely there is a risk of a huge dip in momentum towards Europe in Ukraine if Vilnius does not produce the signed agreement. One assumes that he has at some point set someone in the Foreign Office the task of thinking through plan B or C. I think he could give the Committee just a bit more sense of what plan B or C looks like. I understand why instinctively he does not want to, but I think the Committee is entitled to some sense of the Foreign Office strategy post-Vilnius if agreement is not reached. 

Mr Lidington:  I am sorry to disappoint the hon. Gentleman, but I think I have given some sense—to use his phrase—of the approach we would take. Officials in my Department have of course been working on the basis of sensible planning for all kinds of contingencies. However, in the event of signature not being agreed at Vilnius, the alternative course would have to be agreed not just by us, but by everyone else. The precise nature and pace of such an alternative course would depend greatly on what the reasons are for the lack of a deal at the Vilnius summit, and whether the obstacles look likely to be overcome in the short term with a bit of additional effort, or arose because something more fundamental had gone awry. 

I obviously hope that that, particularly the latter, does not happen, but I am reluctant to be drawn into speculating in too great detail about hypothetical events. What we hope to achieve is a situation where everyone is happy at the Vilnius summit to agree to signature and provisional implementation. 

I shall move on to the other questions asked by the hon. Gentleman. On the IMF, I do not think there is much more that I can add to what I said in response to the questions. The Foreign Office and the Treasury, as always, worked seamlessly together on those matters. I will write to him about the EBRD; I am not able to give him the answer in this debate. 

The hon. Gentleman asked where the United Kingdom’s economic interests might lie. As I said, one of the major opportunities lies with the oil and gas sector, but there are others too. Our top exports to Ukraine include pharmaceutical products, cars, consumer goods, machinery and chemicals. 

With a population of 46 million people and easy access to both eastern Europe and Asia, Ukraine offers a growing market for UK business. We already have a UK Trade and Investment team in Kiev. We are also looking for investment opportunities in such areas as

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port and airport infrastructure; advanced engineering in airspace and energy; financial and professional services; and agriculture. There are opportunities, but I do not want to exaggerate their scale. However, the prize will certainly be worth having. 

We would be looking at the elimination of almost 100% of all tariffs between Ukraine and the EU. The deep and comprehensive free trade area agreement would cover all trade-related areas, including services, intellectual property rights, customs, public procurement, energy-related issues and competition. It would provide a framework for a significant deepening of that economic relationship and opportunities for British business. 

Mr Thomas:  Has the Minister had further inspiration about where disputes might be settled? If not, is he willing to write to the Committee? 

Mr Lidington:  From memory, I think I said that I was going to write to the hon. Gentleman about that. I undertake again to do that. 

On Yuliya Tymoshenko, it would be wrong for me to speak on behalf of other Governments, but it is no secret that her party is affiliated to the European People’s party, and it tends to be other member parties of the EPP that feel particularly strongly about her case. 

The Government’s position remains that we will weigh Ukraine’s progress against the December 2012 Foreign Affairs Council conclusions; parliamentary opinion, including that expressed in this debate; the views of our EU partners; and the geopolitical position, in reaching our final decision on whether we can support signature of the association agreement at the Vilnius summit. I hope that that approach will command support across the Committee, and I commend the motion to the Committee. 

Question put and agreed to.  


That the Committee takes note of Unnumbered Explanatory Memorandum submitted by the Foreign and Commonwealth Office, dated 9 October 2013, on a draft Council Decision on the signing, on behalf of the European Union, and provisional application of the Association Agreement between the European Union and its Member States and Ukraine, with the exception of the provisions relating to the treatment of third-country nationals legally employed as workers in the territory of the other party, a draft Council Decision on the signing, on behalf of the European Union, of the Association Agreement between the European Union and its Member States and Ukraine as regards the provisions relating to the treatment of third-country nationals legally employed as workers in the territory of the other party, a draft Council Decision on the conclusion of the Association Agreement between the European Union and its Member States and Ukraine, with the exception of the provisions relating to the treatment of third-country nationals legally employed as workers in the territory of the other party, and a draft Council Decision on the conclusion, on behalf of the European Union, of the Association Agreement between the European Union and its Member States and Ukraine as regards the provisions relating to the treatment of third-country nationals legally employed as workers in the territory of the other party; and supports the Government’s aim of using the Association Agreement between the EU, its Member States and Ukraine to embed sustainable reform, security and prosperity in Ukraine and the eastern neighbourhood. 

5.50 pm 

Committee rose.  

Prepared 12th November 2013