PILPG Ukraine Drafting Notes: Economic Relations Between Ukraine and Russia

Economic Relations Between Ukraine and Russia

Following Russia’s full-scale invasion in 2022, Ukraine lost billions of dollars in exports, and has taken significant steps since to reduce its reliance on the Russian export market and particularly on Russian energy.  Negotiations could address a framework for future economic relations between Ukraine and Russia, focusing on arrangements that prioritize stability and reconstruction while safeguarding Ukraine’s sovereignty and economic independence.  

Several aspects could be considered during negotiations:

• Defining the Scope of Economic Relations:  A peace agreement could consider specific sectors and industries in which economic cooperation may be possible, such as in critical sectors such as energy, agriculture, and precious metals.

• Frameworks for Safeguarding Economic Engagement:  To ensure that any resumption of economic relations serves as a confidence building measure rather than a tool for political coercion, a peace agreement could establish clear frameworks for economic engagement that include commitments to non-weaponization, third-party monitoring, and mechanisms for mediation and dispute resolution.

• Conditionalities on the Resumption of Trade:  Economic relations and trade agreements could complement ceasefire and peace agreement compliance mechanisms, making economic agreements contingent on the parties’ adherence to specific obligations. 

Defining the Scope of Economic Relations

Avoiding any reliance on Russian exports will be an important priority for Ukraine.  Ukraine may choose from several degrees of economic engagement with Russia and a peace agreement could determine the scope of such relations.  Several approaches could be considered:

• Strict Economic Blockade:  The continuation of full economic disengagement could be considered, with exceptions made only for key humanitarian exemptions.  This approach would minimize Russian influence over Ukraine’s economy and reinforce its pivot toward Western markets.  

• Limited Sectoral Trade:  Trade agreements only in specific non-strategic sectors could be considered, such as agriculture or rare earth materials, while restricting any sectors posing a high-risk for Ukraine, such as energy.  Such limited sectoral trade could be subject to specific regulatory conditions to avoid economic dependence.

Frameworks for Safeguarding Economic Engagement

Trade agreements could act as trust building mechanisms between Ukraine and Russia, but it will be important that discussions consider clear mechanisms for ensuring that economic engagement is conducted in good faith.  This could include:

• Commitments to Non-Weaponization of Trade:  Commitments within the peace agreement could include explicit bans on using trade disruptions (e.g., sanctions, embargoes, transit restrictions) as political leverage in any future trade relations.

• Penalties for Weaponization of Trade:  The peace agreement could include economic penalties for any future use of intentionally economically disruptive acts, such as supply cuts.  This could include financial compensation or the suspension of economic cooperation. 

• Joint Trade and Economic Commission:  A specific Joint Trade and Economic Commission could be established, tasked to oversee compliance with any trade agreements and serving as a multilateral body including international observers to regulate and mediate trade relations. 

• World Trade Organization Mechanisms:  Ukraine and Russia could commit to cooperation on trade within the World Trade Organization framework whereby any disputes would be settled through the WTO dispute settlement process. 

• EU-Backed Trade Risk-Mitigation Mechanisms:  To shield Ukraine from potential Russian economic coercion, Ukraine and its allies could establish trade insurance mechanisms or alternative supply routes through European and global markets.

Conditionalities on the Resumption of Trade

• Phased and Conditional Resumption of Economic Relations:  A step-by-step approach to trade and economic normalization could be established. A phased normalization plan within clearly defined parameters and sectors could outline a gradual resumption of cooperation made contingent on adherence to clearly defined milestones within the ceasefire or wider peace agreement.  The plan could include commitments to explore trade relations in increasingly high-value sectors linked to continued compliance.

• Trade Pilot Programs:  The phased resumption of economic relations could be precluded by trade pilot programs in non-sensitive sectors in order to build confidence in the parties’ willingness to engage in economic cooperation in good faith.Insert text