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Economic security: The strategic argument for Ukraine’s EU membership

Economic Security / OP-ED
Svitlana Taran , Philipp Lausberg

Date: 02/02/2024
On 14 December 2023, the European Council formally opened accession negotiations with Ukraine. Virtually unthinkable only two years ago, this latest push towards enlargement was prompted by Russia’s full-scale invasion of Ukraine and has been justified mainly by a concern for European security and as support for a country defending European values.

But another important argument for accession has received much less attention: Ukraine’s great potential to contribute to the EU’s economic security. Indeed, the strategic geo-economic dimension of EU enlargement is becoming increasingly relevant in a new era of a more fragmented and confrontational global economy, with security concerns shaping national economic policies worldwide.

Supply chain disruptions and energy price hikes following the COVID-19 crisis and Russia’s full-scale invasion of Ukraine have demonstrated the vulnerability of the EU economy to external dependencies. Moreover, the liberal free trade order, on which much of the EU’s wealth has been built, is in decline. Instead, the homeshoring of supply chains, industrial policy and trade barriers are on the rise, with China and the US massively investing in strategic value chains.

In this new period in Europe’s economic history, enlargement could become a significant asset for the EU’s quest to reduce strategic dependencies. As outlined in its economic security strategy, the Commission plans to better protect and promote its industry and raw materials extraction through updating its trade defence tools and tabling industrial policy initiatives such as Critical Raw Materials Act, the Net Zero Industry Act or the Chips Act. However, as the EU’s deposits of raw materials is more limited and its strategic supply chains more dispersed than those of the US and China, it also has to rely on raw material and industrial partnerships in its economic security strategy.

Shared values certainly facilitate such partnerships and can make them more reliable. However, even longstanding allies can reshuffle their trade policy to the detriment of the EU as discriminatory local content requirements in the American IRA and the possibility of a second Trump presidency show. At the same time, long trade routes become increasingly costly and vulnerable, making proximity an important factor in trade relationships. Recent Houthi attacks on Red Sea shipping are only the latest example demonstrating this.

For these reasons, Ukraine, as a pro-European neighbour, is naturally well positioned to be an important partner for the EU to create more resilient supply chains. The EU-Ukraine Association Agreement and Deep and Comprehensive Free Trade Area have already increased bilateral trade volumes significantly. But EU membership would reduce barriers and transaction costs further and lift this relationship to a whole new level, making it much more mutually beneficial and reliable.

Compared to a free trade agreement, EU membership has proven to create much deeper and more resilient economic integration, underpinned by shared rules, norms, and values and a political anchoring in EU institutions which cannot easily be jeopardised by a change in leadership. In economic terms, enlargement therefore equals homeshoring. This would be particularly advantageous for the EU in the case of Ukraine.

The country’s highly educated population, strong industrial base and vast natural resources could facilitate reducing EU dependencies in strategic industries such as food, energy, metals, and raw materials, as well as in the defence and IT sectors.

The Ukrainian agricultural sector could contribute to EU food security and address rising prices. Ukraine has already become the third largest source of EU agri-food imports, supplying almost half of imported cereals, 80% of sunflower oil, and 25% of the poultry meat. EU member states also depend on imports of maize and other grains from Ukraine for their feed and livestock sectors. With Ukraine in the union, the EU would increase its arable land by about a third (32,9 million ha in 2021) and would significantly increase its weight as a geostrategic actor and a guarantor of global food security. The EU’s share in global wheat exports would grow to around 30%, even larger than that of Russia, the hitherto dominant world player with a share of about 23%.

Ukraine’s accession to the EU could also further open up the country’s energy potential to the EU. This could bolster the bloc’s energy security and reduce the elevated energy price, which is key for the competitiveness of European industry. Ukraine has already made significant progress in reforming its energy sector in line with EU legislation and its electricity grid was interconnected with the EU’s in 2022 enabling electricity exports to Europe, particularly from its large nuclear power plants. Ukrainian facilities allow to increase the EU’s gas storage capacities when they are getting full ahead of the winter. Ukraine can offer a third of its national storage capacity (up to 10 billion cubic metres) to EU customers - which is an extra 10% to the EU’s capacities.

Ukraine could also facilitate Europe’s transition to renewable energy sources. It produces some of the largest quantities of hydropower in Europe, possesses significant biomass resources, and its wind and solar capacities have been upscaled recently. The EU and member states like Germany are considering large-scale investments in Ukrainian green hydrogen production, which could conveniently be transported through the existing pipeline infrastructure.

Ukraine’s accession could also increase domestic sourcing of critical metals and raw materials necessary for Europe’s industrial resilience and green transition. European companies already source significant amounts of iron and steel from Ukraine, and with more investment, the country could modernise and upscale its production further.

Moreover, Ukraine is a major producer of a wide range of critical raw materials such as titanium and graphite and wants to start exploiting its rich copper and lithium deposits, which could be integrated into the EU battery value chains, for example. It also possesses significant reserves of nickel, cobalt and manganese, which if exploited in scale could make Ukraine a leader in the production of critical minerals.

In its ongoing war with Russia, Ukraine has developed significant expertise together with EU partners in areas such as demining, intelligence and satellite imagery sharing and countering cyber threats. It has also started the mass production of long-range drones and is ramping up ammunition production capabilities which could significantly contribute to the EU’s military industrial capabilities.

Surely, Ukraine’s industrial and agricultural potential is significantly compromised by the ongoing war with Russia, with total recovery needs estimated to reach $411 billion. But reconstruction in line with EU standards could also be an opportunity to modernise Ukraine’s strategic industries.

While Ukraine is still far from fulfilling all the criteria for membership, the conditionality of the EU accession process represents a proven motor for adjustment. It already helps to spur reforms to adopt EU rules and standards, fight corruption and strengthen the rule of law. But only a credible membership perspective, together with long-term security guarantees from Western partners would create the investment climate necessary for Ukraine to fully develop its agricultural and industrial potential – to the benefit of Ukraine and the EU’s economic security.

With the current debate focusing on the costs of enlargement, Ukraine’s accession negotiations are likely to face significant challenges. Of course, concerns such as those of farming lobbies in EU members like Poland about being outpriced by the more competitive Ukrainian agricultural sector would have to be addressed. But in an increasingly confrontational global economy, Kyiv’s prospective membership should be seen as a vital asset for the EU in the long-term, outweighing the price of integration.

A shorter version of this op-ed was first published by Euractiv.

Dr. Philipp Lausberg is a Policy Analyst in the European Political Economy Programme at the European Policy Centre.

Svitlana Taran is an EPC-KBF Research Fellow in the Europe in the World Programme at the European Policy Centre.

The support the European Policy Centre receives for its ongoing operations, or specifically for its publications, does not constitute an endorsement of their contents, which reflect the views of the authors only. Supporters and partners cannot be held responsible for any use that may be made of the information contained therein.

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