[Senate Hearing 113-154]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 113-154

  A PIVOTAL MOMENT FOR THE EASTERN PARTNERSHIP: OUTLOOK FOR UKRAINE, 
           MOLDOVA, GEORGIA, BELARUS, ARMENIA, AND AZERBAIJAN
=======================================================================

                                HEARING

                               BEFORE THE

                    SUBCOMMITTEE ON EUROPEAN AFFAIRS

                                 OF THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           NOVEMBER 14, 2013

                               __________

       Printed for the use of the Committee on Foreign Relations


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                COMMITTEE ON FOREIGN RELATIONS         

             ROBERT MENENDEZ, New Jersey, Chairman        
BARBARA BOXER, California            BOB CORKER, Tennessee
BENJAMIN L. CARDIN, Maryland         JAMES E. RISCH, Idaho
JEANNE SHAHEEN, New Hampshire        MARCO RUBIO, Florida
CHRISTOPHER A. COONS, Delaware       RON JOHNSON, Wisconsin
RICHARD J. DURBIN, Illinois          JEFF FLAKE, Arizona
TOM UDALL, New Mexico                JOHN McCAIN, Arizona
CHRISTOPHER MURPHY, Connecticut      JOHN BARRASSO, Wyoming
TIM KAINE, Virginia                  RAND PAUL, Kentucky
EDWARD J. MARKEY, Massachusetts
               Daniel E. O'Brien, Staff Director        
        Lester E. Munson III, Republican Staff Director        

                         ------------          

                SUBCOMMITTEE ON EUROPEAN AFFAIRS        

           CHRISTOPHER MURPHY, Connecticut, Chairman        

JEANNE SHAHEEN, New Hampshire        RON JOHNSON, Wisconsin
EDWARD J. MARKEY, Massachusetts      JAMES E. RISCH, Idaho
BENJAMIN L. CARDIN, Maryland         JEFF FLAKE, Arizona
RICHARD J. DURBIN, Illinois          JOHN BARRASSO, Wyoming

                              (ii)        

  


                            C O N T E N T S

                              ----------                              
                                                                   Page

Aslund, Anders, senior fellow, Peterson Institute for 
  International Economics, Washington, DC........................    16
    Prepared statement...........................................    18
Cohen, Dr. Ariel, senior research fellow, Heritage Foundation, 
  Washington, DC.................................................    22
    Prepared statement...........................................    24
Johnson, Hon. Ron, U.S. Senator from Wisconsin, opening statement     2
Murphy, Hon. Christopher, U.S. Senator from Connecticut, opening 
  statement......................................................     1
Nuland, Hon. Victoria, Assistant Secretary for European and 
  Eurasian Affairs, U.S. Department of State, Washington, DC.....     2
    Prepared statement...........................................     5
    Responses to questions submitted for the record by Senator 
      Edward J. Markey...........................................    44
Wilson, Damon, executive vice president, Atlantic Council, 
  Washington, DC.................................................    30
    Prepared statement...........................................    32

              Additional Material Submitted for the Record

Ardouny, Bryan, Executive Director, Armenian Assembly of America, 
  submitted statement............................................    48
Gegeshidze, His Excellency Archil, Ambassador of Georgia to the 
  United States, submitted statement.............................    50
Munteanu, Igor, Ambassador of Moldova to the United States, 
  submitted statement............................................    51
Suleymanov, H.E. Elin, Ambassador of the Republic of Azerbaijan 
  to the United States, submitted statement......................    46

                                 (iii)


 
  A PIVOTAL MOMENT FOR THE EASTERN PARTNERSHIP: OUTLOOK FOR UKRAINE, 
           MOLDOVA, GEORGIA, BELARUS, ARMENIA, AND AZERBAIJAN

                              ----------                              


                      THURSDAY, NOVEMBER 14, 2013

                               U.S. Senate,
                  Subcommittee on European Affairs,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 3:08 p.m., in 
room SD-419, Dirksen Senate Office Building, Hon. Christopher 
Murphy (chairman of the subcommittee) presiding.
    Present: Senators Murphy, Shaheen, Johnson, and Risch.

         OPENING STATEMENT OF HON. CHRISTOPHER MURPHY, 
                 U.S. SENATOR FROM CONNECTICUT

    Senator Murphy. This hearing of the Subcommittee on 
European Affairs will now come to order.
    Pleased to be joined today on our first panel by Assistant 
Secretary Victoria Nuland. We will hear from her shortly. 
First, we will have some brief opening remarks from myself and 
Senator Johnson.
    Today's hearing is entitled ``A Pivotal Moment for the 
Eastern Partnership: The Outlook for Ukraine, Moldova, Georgia, 
Belarus, Armenia, and Azerbaijan. I am very thankful that Ms. 
Nuland has made the time to be here. We are also looking 
forward to our second panel, in which we will have Damon 
Wilson, Dr. Ariel Cohen, and Dr. Anders Aslund present.
    On November 28 to the 29th, which is about 2 weeks from 
today, European leaders are going to gather in Vilnius, 
Lithuania, for an important summit on the Eastern Partnership. 
Since its inception in 2009, the Partnership has provided an 
important framework for countries that seek a closer 
partnership with the European Union. Nearly 5 years later, the 
concept of ``more for more'' will be tested, and several 
partner states who have made significant progress on the reform 
agendas will have the opportunity to sign or initial an 
Association Agreement and Deep and Comprehensive Free Trade 
Agreement. The sentiment I hope we will convey today is that 
the United States strongly supports the institution of the 
Eastern Partnership, and we will remain deeply involved, as 
appropriate, to support the vision of Europe ``whole, free, and 
at peace.''
    Now, while these agreements are exclusively between the EU 
and the Eastern Partnership countries, the United States does 
have an interest in furthering democracy and stability 
throughout Europe and Eurasia. We believe, just like the EU, 
that integration of these nations only can happen when key 
conditions are met by applicant nations, particularly around 
issues related to the rule of law, government transparency, and 
open economic policies.
    And, as we begin negotiations around a new free trade 
agreement with the EU, both America and these Eurasian nations 
have a lot to gain through the expansion of the EU. Americans 
will gain access to new markets and businesses, and places like 
Ukraine, Georgia, and Moldova will enter an economic community 
of nations representing the most robust consumer economies in 
the world.
    It is important to note, though, as we talk about this 
today, that the Eastern Partnership does not preclude a 
relationship with Russia. Indeed, by dint of geography, it 
makes sense for each of these countries to maintain a healthy 
relationship with the Russian Federation, as well as with the 
European Union. Unfortunately, it seems as though Russia sees 
this whole contest as a zero-sum game and has put considerable 
pressure on each of the partnership countries to discourage 
them from strengthening relations with the EU. We have seen a 
ban on wine imports from Moldova, chocolate from the Ukraine, 
fertilizer from Belarus, and the list just goes on and on and 
on. This is both unnecessary and counterproductive for Russia, 
because, just as the EU is interested in stable, prosperous 
governments on their border, so, too, should Russia. Ukraine, 
Moldova, Armenia, Azerbaijan, Georgia, and Belarus should be 
free to chart their own future. Our message should be that the 
door to Euro-Atlantic institutions is open, and if you are 
prepared to meet reasonable conditions, we will support you.
    So, we look forward to this discussion on the outlook, on 
the eve of the Vilnius summit. We look forward to talking about 
the pressures that these countries are facing, our current 
United States strategy toward the eastern states, and what 
more, if anything, we can be doing to help them make progress 
on their reform agenda.
    With that, let me turn it over to Senator Johnson for 
opening remarks.

            OPENING STATEMENT OF HON. RON JOHNSON, 
                  U.S. SENATOR FROM WISCONSIN

    Senator Johnson. Well, thank you, Mr. Chairman.
    I have little to add, other than to welcome Secretary 
Nuland. We look forward to your testimony.
    Senator Murphy. Great.
    Let me welcome Secretary Nuland, who is the Assistant 
Secretary of State for European and Eurasian Affairs. Assistant 
Secretary Nuland has been on the job since September. I know 
that she has been working very hard and doing a fantastic job 
in this brief amount of time representing the United States.
    I now invite you, Assistant Secretary, to give your 
testimony.

  STATEMENT OF HON. VICTORIA NULAND, ASSISTANT SECRETARY FOR 
   EUROPEAN AND EURASIAN AFFAIRS, U.S. DEPARTMENT OF STATE, 
                         WASHINGTON, DC

    Ms. Nuland. Well, thank you, Chairman Murphy, Ranking 
Member Johnson, and distinguished members of the Senate Foreign 
Relations Committee. It is my honor to appear before you today 
to discuss the EU's upcoming Eastern Partnership summit and to 
highlight the opportunities and the challenges we face in this 
part of Europe.
    While the six Eastern Partnership countries have responded 
in different ways to the EU's offer to integrate into Europe's 
common structures, the United States strongly supports the 
process as a key ingredient in our effort to cement a Europe 
``whole, free, and at peace,'' a shared policy goal of the 
United States and EU member states since the Berlin Wall fell, 
almost 25 years ago.
    At the November 28-29 summit in Vilnius, as you said, 
Chairman, EU members will make decisions whether to sign an 
Association Agreement and a Deep and Comprehensive Free Trade 
Agreement with Ukraine and whether to initial these same 
agreements with Moldova and Georgia. This is a historic moment 
for all three of these countries and a key step toward their 
dream of one day being fully integrated into Europe. All three 
have worked very hard to bring their judicial and law 
enforcement structures closer to the EU standard and to prepare 
their political systems and their economic and energy markets 
for greater integration with Europe.
    Ukraine has passed over 18 pieces of implementing 
legislation harmonizing with EU standards to prepare for 
Vilnius. Georgia and Moldova have met the requirements for 
initialing their AAs and completed their respective DCFTA 
negotiations and embarked on key judicial sector reforms. In 
each case, these reforms have required a national political 
consensus that these countries' futures lie with Europe.
    The United States supports the sovereign right of these 
countries to choose their own future, and we welcome their 
closer relationship with the EU. We have been working in 
lockstep with our European allies and partners to help Ukraine, 
Moldova, and Georgia meet the tough conditions for a ``yes'' 
vote at Vilnius. We have also been aligning future U.S. 
assistance with that of the EU to ensure that these countries 
can continue on the politically difficult but necessary path of 
reform and economic adjustment, including after Vilnius, where 
there will still be plenty of work to do.
    At the same time, we have been working with the EU and each 
candidate country to anticipate, and to prepare them for, any 
negative reaction to their choice, whether it comes from inside 
or outside their countries. I would note, in this regard, that 
any form of pressure to prevent sovereign states from pursuing 
greater integration with the EU or any organization of their 
choosing would contravene obligations under the OSCE Helsinki 
principles and the Charter of Paris. The message we are sending 
in the neighborhood is that all countries benefit when their 
neighbors open their markets and become more stable and 
prosperous, as you said, Mr. Chairman.
    The breadth and depth of U.S. assistance to the Eastern 
Partnership countries over the past 25 years is well known to 
this committee and to the Senate as a whole. You have been our 
indispensable partners in shaping our policies and our programs 
in support of a more democratic and prosperous Europe and 
Eurasia. We ask for that support to continue.
    In recent months, as Vilnius approaches, we have kicked our 
political, economic, and technical assistance into higher gear. 
The President gave vital political support to the Eastern 
Partnership Project during the Baltic summit in Washington last 
August and again when he met with his Nordic colleagues in 
Stockholm in September.
    The Vice President has discussed Eastern Partnership in all 
of his bilateral meetings with European leaders over the last 
months.
    Secretary Kerry underscored the strategic importance of the 
Eastern Partnership when he met with all of the EU Foreign 
Ministers in Vilnius in August and again at the transatlantic 
dinner that he hosted in New York in September.
    And in the months since then, our Interagency Team on 
Europe has worked with all the parties to build consensus for 
the most forward-leaning outcome in Vilnius. We have met with 
decisionmakers in all of the candidate countries to drive home 
the need to make the tough choices and lock in the reforms 
before Vilnius and to show that they are serious about their 
commitments. We have also been in and out of Brussels and key 
EU capitals, on a weekly basis, to fine tune our assistance 
programs to ensure that they are effectively coordinated with 
those of the EU and that they are supportive of the needs of 
the countries.
    I would like to briefly outline where we stand on Ukraine, 
Moldova, and Georgia. I have submitted a longer statement, for 
the record, which covers all six countries, and those three in 
more depth.
    As you know, Ukraine still needs to take three important 
reform steps in order to meet the EU's conditions for signature 
at Vilnius. It needs to pass justice reform legislation, it 
needs to pass electoral reform legislation, and it needs to 
take action to release jailed former Prime Minister Yulia 
Tymoshenko for medical treatment.
    In the past few months, Ukraine has come under pressure 
from Russia, including bans on chocolate, stoppage of 
refrigerated goods at the border, and reductions in other key 
imports. We are working with the EU on options to help Ukraine 
make difficult trade adjustments and weather the EU 
implementation period if Ukraine makes the political decisions 
necessary to sign its Association Agreement at Vilnius. We are 
also discussing ways to broaden and deepen the United States-
Ukrainian bilateral relationship after Ukraine meets the 
Vilnius conditions.
    Moldova's initialing of an Association Agreement at Vilnius 
has already been approved by the EU, and it is poised to attain 
visa liberalization from the EU as early as this spring and to 
sign its AA by September 2014, in advance of their next 
elections. We and the EU are working together to try to 
mitigate the impact of recent Russian decisions to block the 
import of Moldovan wine and other agricultural exports. We are 
also looking at steps to increase Moldova's energy security and 
to expand its exports to the EU and to the United States.
    In 2012 and 2013, Georgia took important steps forward with 
truly competitive national elections resulting in the first 
peaceful democratic transfers of power since it regained 
independence. But, considerable political and economic 
challenges remain, such as the unresolved conflicts in the two 
Russian-occupied regions of Georgia, protracted displacement of 
people, fragile democratic institutions, and the need for 
further strengthening of the rule of law. With U.S. assistance, 
Georgia has reoriented its trade toward Western markets and 
increased its energy efficiency and diversity, and we are 
working with the EU to strengthen Georgia's ability to resist 
external pressure.
    Finally, as you mentioned, Chairman, in our discussions 
with Russia about the Eastern Partnership, we are encouraging 
Moscow to abide by its commitments in the OSCE and elsewhere 
regarding the rights of its neighbors to pursue any political 
and economic arrangements that they choose. We have also 
encouraged Moscow to see the benefits of deeper integration 
between its neighbors' economies and the EU's 500 million 
customers, including the likelihood that more prosperous 
neighbors will buy more Russian exports. Both the EU and the 
United States are also interested in increasing trade with 
Russia, and we're open to further consultations on what might 
be possible.
    The Eastern Partnership is ultimately about far more than 
closer relations between the EU and several countries in 
Eastern Europe and the Caucasus. It is also a step toward the 
longstanding vision of a more integrated economic and political 
space stretching from Lisbon to Donetsk, animated by market-
oriented reforms, growing prosperity, and deepening democracy. 
We strongly support it, and I look forward to your questions.
    [The prepared statement of Ms. Nuland follows:]

       Prepared Statement of Assistant Secretary Victoria Nuland

    Thank you, Chairman Murphy, Ranking Member Johnson, and the 
distinguished members of the Senate Foreign Relations Committee. It is 
my honor to appear before you today to discuss the EU's upcoming 
Eastern Partnership Summit and highlight the opportunities and 
challenges we face in this part of Europe. While the six Eastern 
Partnership countries have responded in various ways to the EU's offer 
to integrate into Europe's common structures, the United States 
strongly supports the process as a key ingredient in our effort to 
cement a ``Europe whole and free and at peace''--a shared policy goal 
of the United States and EU member states since the Berlin Wall fell 
almost 25 years ago.
    At the November 28-29 summit in Vilnius, EU Members will make 
decisions whether to sign an Association Agreement (AA) and a Deep and 
Comprehensive Free Trade Area Agreement (DCFTA) with Ukraine, and 
whether to initial these agreements with Moldova and Georgia. This is a 
historic moment for all three of these countries, and a key step toward 
their dream of one day being fully integrated into Europe. All three 
have worked hard to bring their judicial and law enforcement structures 
closer to EU standards and to prepare their political systems and 
economic and energy markets for greater integration with Europe. 
Ukraine has passed over 18 pieces of implementing legislation 
harmonizing with EU standards to prepare for Vilnius. Georgia and 
Moldova have met the requirements for initialing their Association 
Agreements, completed their respective DCFTA negotiations and embarked 
on key judicial sector reforms. In each case, these reforms have 
required a national political consensus that these countries' futures 
lie with Europe.
    The United States supports the sovereign right of these countries 
to choose their own future, and we welcome their closer relationship 
with the EU. We have been working in lock-step with our European allies 
and partners to help Ukraine, Moldova, and Georgia meet the tough 
conditions for a ``yes'' vote at Vilnius. We've also been aligning 
future U.S. assistance with that of the EU to ensure that these 
countries can continue on the politically difficult, but necessary, 
path of reform and economic adjustment, including after Vilnius. At the 
same time, we have been working with the EU and each candidate country 
to anticipate and prepare them for any negative reaction to their 
choice, whether it comes from inside or outside their countries. I 
would note in this regard that any form of pressure to prevent 
sovereign states from pursuing greater integration with the EU, or any 
organization of their choosing, would contravene obligations under the 
OSCE Helsinki Principles and the Charter of Paris. The message we are 
sending in the neighborhood is that all countries benefit when their 
neighbors open their markets and become more stable and prosperous.
    The breadth and depth of U.S. assistance to the Eastern Partnership 
countries over the past 25 years is well known to the Senate and to 
this committee. You have been indispensible partners in shaping our 
policies and programs in support of a more democratic and prosperous 
Europe and Eurasia. From the Freedom Support Act to the Partnership for 
Peace, the members of this committee have been critical players in 
providing the support these nations have enjoyed from the United 
States. This committee has also participated in our dialogue with our 
EU partners on the importance of keeping the door open to the European 
and transatlantic aspirations and identities of these emerging and 
sometimes vulnerable states. We ask for your continued strong support.
    In recent months, as Vilnius approaches, we have kicked our 
political, economic, and technical assistance into high gear. The 
President gave vital political support to the Eastern Partnership 
project during the Baltic summit in Washington in late August, and 
again when he met with his Nordic colleagues in Stockholm in September. 
The Vice President has discussed developments in Eastern Partnership 
countries repeatedly in his bilateral meetings with European leaders. 
Secretary Kerry underscored the strategic importance of the Eastern 
Partnership when he met with all the EU Foreign Ministers in Vilnius in 
August. At the annual Transatlantic Dinner in New York in September, 
Secretary Kerry again focused his comments on the Eastern Partnership, 
and urged his European counterparts to make bold decisions at Vilnius.
    In the months since, our interagency team on Europe has worked with 
all parties to build consensus for the most forward leaning outcome in 
Vilnius. We've met with decisionmakers in all the candidate countries 
to drive home the need to make tough choices and lock in real reforms 
before Vilnius and to show they are serious about their commitments. 
We've also been in and out of Brussels and key EU capitals on a weekly 
basis to coordinate our efforts, and fine-tune our assistance programs 
to ensure they are effectively coordinated with EU programs and 
supportive of the countries involved.
    Now, let me turn to the prospects for each of the EaP countries, 
their challenges and our support.
    Ukraine still needs to take three important reform steps to meet 
the EU's conditions for signature at Vilnius including: passage of 
legislation reforming its Prosecutor General's Office; passage of 
legislation reforming its parliamentary election code; and the release 
of jailed former Prime Minister Yuliya Tymoshenko for medical 
treatment. Since its independence in 1991, the American people have 
supported Ukraine's transition to democracy and a free market economy 
with over $5 billion in assistance. In FY 2013, our assistance topped 
$100 million, and much of it went to help Ukraine meet European 
standards in law enforcement, electoral reform, business climate and 
the judicial sector, including key support for Ukraine's newly adopted 
Criminal Procedure Code. If Ukraine meets the EU's conditions and signs 
in Vilnius, it will be able to export its goods to the largest single 
market in the world, tariff-free, by early 2014. This should provide a 
great stimulus to an economy which has been in a difficult recession 
for over a year. In the past few months, Ukraine has come under 
pressure from Russia, including bans on chocolate, stoppage of 
refrigerated goods at the border, and reductions in other key imports. 
We are working with the EU on options to help Ukraine make difficult 
trade adjustments and weather the EU implementation period if Ukraine 
makes the political decisions necessary to sign its AA at Vilnius.
    Moldova's initialing of an Association Agreement at the Vilnius 
summit has already been approved by the EU, and it is poised to attain 
visa liberalization from the EU this spring and sign by September 2014. 
The United States has provided over $1.1 billion in assistance since 
Moldova's independence in 1991, with approximately $22 million in FY 
2013 dedicated toward improving governance, combating corruption, 
increasing transparency and accountability, strengthening the rule of 
law and the NGO sector, reducing bureaucratic barriers to trade, and 
improving the business environment. The 5-year, $262 million Millennium 
Challenge Compact with Moldova, launched in 2010, supports Moldova's 
economy by rehabilitating roads and irrigation systems, and providing 
technical assistance and access to finance to Moldovan farmers and 
agribusinesses. Many of these programs are directly aligned with the 
reforms needed for Moldova to initial the Association Agreement in 
November. Recent Russian actions against the import of Moldova's wine 
and other agricultural exports have a disproportionate impact on its 
small economy, and could potentially expand into other sectors as the 
country deepens its EU integration. We are exploring ways we can help 
mitigate vulnerabilities including by increasing Moldova's energy 
independence and promoting trade with the EU and the United States.
    In 2012 and 2013, Georgia took important steps forward with truly 
competitive national elections, resulting in the first peaceful, 
democratic transfers of power since it regained independence; but 
considerable political and economic challenges remain, such as the 
unresolved conflicts in the two Russian-occupied regions of Georgia; 
protracted displacement of people; fragile democratic institutions, the 
need for further strengthening of the rule of law, and an economy that 
requires additional focus. In recent years, Georgia has received $1 
billion in post-conflict funds, a second Millennium Challenge 
Corporation (MCC) compact, and it is one of the largest annual U.S. 
bilateral assistance budgets in the region. The United States is 
concentrating efforts on democratic institution-building, and the use 
of innovation, both economic and technological, as a way to build 
institutional and human capacity that further strengthens Georgia's 
push toward Euro-Atlantic integration. We have also joined the EU and 
NATO in protesting new fences and physical barriers that Russian 
security forces have built along the Administrative Boundary Lines of 
the occupied territories in Georgia; this is inconsistent with Russia's 
international commitments and Georgia's sovereignty and territorial 
integrity within its internationally recognized borders. With U.S. 
assistance, Georgia has reoriented its trade toward Western markets and 
increased its energy efficiency and diversity, and we are working with 
the EU to strengthen Georgia's ability to resist external pressure.
    On September 3, Armenian President Serzh Sargsian announced that 
Armenia would join the Eurasian Customs Union of Russia, Kazakhstan, 
and Belarus, which is incompatible with signing an Association 
Agreement and a DCFTA. However, both the EU and Armenia remain 
committed to pursuing a deeper relationship, and they are examining 
ways to continue this partnership. The United States will also continue 
broad engagement with Armenia on Euro-Atlantic integration, including 
in the economic sphere.
    Azerbaijan is currently negotiating the contours of its own 
partnership track with the EU, and the United States continues to 
encourage Azerbaijan to build the democratic and economic institutions 
and conduct the reforms necessary for a deeper relationship with the 
Euro-Atlantic community. We recognize that a democratic, prosperous, 
and secure Azerbaijan will benefit not only the Azerbaijani people but 
also its neighbors.
    Belarus has not pursued any agreements within the Eastern 
Partnership and is a founding member of the Eurasian Customs Union with 
Russia and Kazakhstan. Nonetheless, we have worked closely with the EU 
to promote the emergence of a democratic and prosperous society in 
Belarus that shares common values, norms and standards with the United 
States and Europe. The United States will continue to provide 
assistance that promotes the open expression of political views, 
supports civil society, and promotes media freedom.
    Finally, in our discussions with Russia about the Eastern 
Partnership, we are encouraging Moscow to abide by its commitments in 
the OSCE and elsewhere regarding sovereign neighbors' rights to pursue 
any political and economic arrangements they choose. We have also 
encouraged Moscow to see the benefits of deeper integration between its 
neighbors' economies and the EU's 500 million consumers, as well as the 
significant prospects for economic reform and sustainable growth that 
integration will bring to these countries. For one thing, more 
prosperous neighbors will buy more Russian exports. Both the EU and the 
United States are interested in increasing trade with Russia, and we 
are open to further consultations on what might be possible.
    The Eastern Partnership is, ultimately, about far more than a 
closer relationship between the EU and several countries in Eastern 
Europe and the Caucasus. It is also a step toward the longstanding 
vision of a more integrated economic space, stretching from Lisbon to 
Donetsk animated by market-oriented reforms, growing prosperity and 
deepening democracy. To this end, the EU and the United States are 
negotiating the Transatlantic Trade and Investment Partnership--which 
promises to support growth, investment, and jobs on both sides of the 
Atlantic as well as establish a high-standards, rules-based global 
trading regime. That broader vision of Europe's integrated economic 
space is becoming increasingly real and attractive and could ultimately 
encompass not only Europe, but the entire Transatlantic space. We and 
the EU believe that investing in the Eastern Partnership is thus in 
everyone's long-term interest.

    Senator Murphy. Thank you very much.
    We will now begin a round of 7-minute questions.
    As you know, a number of members of this subcommittee have 
sponsored a resolution on the issue of Tymoshenko's release as 
a condition of entering the Eastern Partnership. And you 
certainly touched upon what has been the position of the EU 
nations, as well as the United States. But, this is obviously 
not just about Tymoshenko, this is about a broader commitment 
on behalf of the Ukrainians to end a practice of selective 
political prosecutions. And what maybe has been most worrying 
in the last week is not necessarily just the lack of progress 
on the release of Tymoshenko, but new news reports about the 
detainment of one of Tymoshenko's lawyers for questioning that 
suggests that this trend is not necessarily abating, 
notwithstanding the earlier release, this year, of several 
other prisoners that we believe were detained on political 
grounds.
    So, can you talk a little bit--and I would love to have a 
little bit deeper update on where you believe the negotiations 
stand with respect to Tymoshenko's release, but to talk a 
little bit about whether--even if she is released, are we 
confident that the Ukrainians have made the commitment to 
changing the way in which they prosecute within their judicial 
system?
    Ms. Nuland. Well, thank you for that question, Senator.
    First, I would say that a number of the steps that the 
Ukrainians have taken in the past 6 months--I mentioned 18 
pieces of legislation--are designed to improve the justice 
system, improve the quality of democracy in Ukraine. This last 
piece that is still pending in the Rada and which the major 
parties are committed to passing is the final piece, in terms 
of judicial reform, which needs to be passed, and it is 
designed to ensure that the circumstances that led to the 
judgment that there had been politics in the judicial process 
cannot happen again in the Ukrainian system.
    So, this is one of the great strengths of the EU 
Association Agreement offer, that it allows Western democracies 
to get in and mentor partnership countries in how to strengthen 
the legal and judicial basis in the country to prevent these 
kinds of things from happening in the future.
    But, you are right, we have to stay vigilant in watching 
what happens, including the recent calling in for questioning 
of Mrs. Tymoshenko's lawyer.
    Senator Murphy. President Yanukovych has made it pretty 
clear for a long time that he sees his legacy as making Ukraine 
permanently independent, of orienting it toward much bigger, 
broader, and more prosperous markets to its west. And we hope 
that 
they will initial, or begin the process of initialing, an 
Association Agreement.
    And you mentioned that, at that moment, there will still be 
a lot of work to do. No matter what happens at the Eastern 
Partnership, Ukraine's economy is still in rough shape. And, of 
course, the worry is that it could be made rougher by increased 
sanctions from Russia, at the top of the list. Their worry 
always is the cutting off of access to gas.
    So, you mentioned that there are things that we can do, in 
concert with the Europeans, to perhaps abate or address 
existing sanctions or future sanctions. I wonder if you might 
talk a little bit more about what those steps could be and what 
steps are being taken today.
    But, then the second piece is going to be our communal 
effort to try to have real IMF outreach to the Ukrainians, and 
that involves a whole different set of economic reforms that 
are tough and painful related to the price of gas and the size 
of their budget deficit.
    So, what can we do to try to push back on potential Russian 
sanctions and existing Russian sanctions? And then, what can we 
do to try to help Ukraine--what is our proper role in trying to 
help the Ukraine get in a position so that it can qualify for 
the international support that they ultimately are going to 
need in order to support their weakening economy?
    Ms. Nuland. Well, thank you, Senator. You are right that 
the number one thing that Ukraine needs to do to strengthen its 
economic position is to work with the IMF on a standby 
agreement. The IMF wants to see a number of significant and 
difficult reforms inside the Ukrainian economy.
    As you probably know, they began discussions in March. 
Those discussions were broken off. They have now resumed 
discussions. We have been encouraging the Ukrainians to improve 
their offer to the IMF, in terms of some of the things that the 
IMF is looking for, which are, frankly, in the long-term and 
medium-term economic interest of Ukraine--as you said, cutting 
energy subsidies, reducing tariffs, dealing with some of their 
budget issues. We have also been in close consultations with 
the IMF about the importance of this moment and working on a 
plan that could conceivably match action for action.
    If, in fact, there is a successful negotiation between 
Ukraine and the IMF, it will unlock considerable amount of 
funding from the EU and from the EBRD. It will also strengthen 
our position to continue loaning, through Ex-Im and OPIC, which 
has been challenging because of the current economic rating of 
Ukraine.
    And, more broadly, one of our messages to the Ukrainian 
Government has been that, when they sign their Association 
Agreement, when they take these hard last steps, including 
releasing the former Prime Minister for medical treatment, we 
believe--and they sign their AA--we believe that the commercial 
markets will react positively to Ukraine.
    As you know, we have a number of U.S. businesses who want 
to do more. They are looking for a signal of confidence. That 
said, we also have a number of major U.S. energy companies who 
are quite close on shale gas deals in Ukraine and a number of 
other investments. So, that would be the direction we would 
hope to support them on the commercial side.
    We also, as you may know, have not had the strongest of 
political relationships in the last couple of years because of 
the problems, and we have made clear that if Ukraine can get 
over these hurdles, we can really broaden and deepen and get 
back to good business with Ukraine, bilaterally.
    Senator Murphy. Just--actually, at this point, let me end 
my questioning. I will ask, maybe, a couple more in a second 
round and turn it over to Senator Johnson.
    Senator Johnson. Thank you, Mr. Chairman.
    Secretary Nuland, you mentioned the benefits to, not only 
those countries--to the EU, to America--but also to Russia. Can 
you expand a little bit more, in terms of the win-win-win-type 
situation that you are thinking of there?
    Ms. Nuland. Well, as you know, Senator, we are--even as we 
talk about the Eastern Partnership today, we are also in 
discussions--the United States is--with the 28 members of the 
EU on the Transatlantic Trade and Investment Partnership, which 
is designed to reduce tariff and nontariff barriers to trade, 
to increase trade between our countries, to grow our economies. 
If we are successful in the TTIP context, and if the Eastern 
Partnership countries are able to begin to gain the benefits of 
the free-trade offering that the EU has, then you could see 
this greater free-trade space, as I said--perhaps all the way 
from Los Angeles to Donetsk. The EU has offered the same kinds 
of trade benefits to Russia if Russia will take the internal 
reform steps and open its market reciprocally to the EU. So, 
there is an offer on the table to Russia to have the same kind 
of relationship as Ukraine and Georgia and Moldova hope to have 
with the EU.
    We, on the United States side, are also very interested in 
increasing bilateral trade with Russia and reducing barriers. I 
do not have the numbers in front of me, but, given the size of 
our respective economies, the trade two ways is pretty 
pathetic, and we can do a lot better, but there are a lot of 
built-in barriers to trade. One of the things we have proposed 
to the Russian Government is a bilateral investment treaty, and 
we are waiting for a response on that.
    So, you could see a scenario, if everybody began moving in 
a more free-trade direction, where our market really sets a 
global example for low tariffs, low barriers, and jobs grow 
everywhere.
    Senator Johnson. So, how receptive have the Russians been 
to those, you know, really, words of wisdom?
    Ms. Nuland. It is a work in progress.
    Senator Johnson. Are you prepared really to talk about the 
state of the economies of Ukraine, Georgia, and Moldova? Have 
they been pretty flat? Have they been declining?--what the 
potentials would be?
    Ms. Nuland. Senator, I do not have statistics in front of 
me. We can get those to your staff.
    Ms. Nuland. The Georgian economy has done better than 
expected. As you know, after the difficulties of 2008 and the 
Russia-Georgia war and the cutoff of most of Georgia's exports 
to Russia, Georgia has worked very hard to diversify its 
economy, to diversify its markets, and now it does most of its 
trading to the West. So, that not only helped it weather that 
difficult period, it also helped it significantly during the 
larger economic recession that we have all been going through.
    That said, the Georgian economy is now not growing at the 
rate that it was, and the next, sort of, tranche of reform, et 
cetera, and market opening, is necessary.
    On the Moldovan side, it is a tiny, tiny market. It is not 
well known, even to Europeans, let alone to Americans. So, I 
think some of you had a chance to meet Foreign Minister 
Gehrmann when she was here trying to put her country on the 
map, in terms of American political leaders and American 
business supporting Moldova. We believe that there is quite a 
bit more that can be done, in terms of spurring trade and 
investment from the EU, but also from the United States, in 
Moldova, and not just in the traditional wine sector, but in 
other aspects of agriculture and high technology. They have got 
a very educated population. So, we are working with the EU on 
that. But, they definitely need, now, growth West, and they 
need to link their market more tightly to the EU.
    On the Ukrainian side, I do not have the numbers in front 
of me, but it is a pretty perilous situation right now, in 
terms of their ability to borrow on investment markets, in 
terms of the expenses primarily in the energy sector. When I 
was there, about 10 days ago, they were speaking in terms of 
very, very ambitious projects to have energy efficiency 
programs in their major cities. It was already, you know, 20 
degrees, but yet you could see government buildings with the 
windows open because the heating and cooling does not work 
properly and they lose a huge amount of money every year out 
the windows. So, a culmination of that, anticorruption, and 
more markets West so that they are not as dependent on one 
market, will help the Ukrainian economy, plus the IMF deal.
    Senator Johnson. You mentioned corruption in Ukraine. When 
I was there a couple of years ago, I certainly saw the 
potential, in terms of agriculture, in terms of wheat 
production, but something really holding them back really was 
the cronyism, the----
    Ms. Nuland. Yes.
    Senator Johnson [continuing]. The corruption within those--
you know, those markets, if you want to call them that. Has any 
progress been made, or has it been backsliding?
    Ms. Nuland. Well, again, some of the legislative changes 
and market changes that they have had to make to be ready for 
the EU Association Agreement go to greater transparency in 
government, those kinds of things, but there is more work to be 
done, and we would like to do more with Ukraine on countering 
corruption.
    The Georgians, I would say, have taken a great leap in 
countering corruption, largely through efforts to do things 
like put all government contracting on the Internet, those 
kinds of things that could be done in other Eastern Partnership 
countries.
    Senator Johnson. There continues to be a big problem--this 
is just true of fledgling democracies--is a smooth transition 
of power from one government to the other--you know, where you 
are not witnessing political prosecutions. We talked a little 
bit about Ukraine. What about in Georgia?
    Ms. Nuland. Well, Senator, as I said in my opening, I think 
one of the great news stories of the last couple of months is 
that we have had a smooth and democratic transition of power in 
Georgia, for the first time since independence, through the 
ballot box, and the elections were good. So, that is a step in 
the right direction.
    Senator Johnson. OK.
    Thank you, Mr. Chairman.
    Senator Murphy. Senator Risch.
    Senator Risch. Ms. Nuland, as you probably know, Senator 
Shaheen and I had the honor of going to the--overseeing the 
first elections, just a year and a month ago, I think, in 
Georgia, and we were impressed with the way the elections went 
and what happened.
    Since then, I have to say that--at least I--and I think 
Senator Shaheen would agree with this; we compare notes 
relatively frequently--that we are getting mixed reports on 
exactly how smooth this transition is. There is a lot of at 
least internal dissension, it seems to me, in Georgia, and 
there is still some angst as they move forward. And some of 
that has to do, of course, with the political prosecutions, 
which we have underscored as being not the appropriate way to 
do business. What are your thoughts on that? What are your 
observations on that?
    Ms. Nuland. Well, first of all, thanks to both of you for 
your commitment to Georgia's democracy. It was very much 
appreciated by the Georgians, as you know, that you made the 
effort, in a bipartisan way, to go and observe, and it, I 
think, made a significant difference.
    We share your concern about the way former leaders are 
dealt with. We have stressed to the Georgian Government the 
importance of conducting investigations and prosecutions with 
full respect for due process, in a transparent manner, avoiding 
any political influence on prosecutorial actions.
    I would say that, in the context of this period that we are 
in now, where Georgia wants to have its Association Agreement 
and its DCFTA initialed, it has been a powerful lever in that 
conversation to remind them that it is not only the EU that is 
watching, but the United States is also watching the way 
political opponents are dealt with.
    Senator Risch. Thank you.
    Thank you, Mr. Chairman.
    Senator Murphy. Senator Shaheen.
    Senator Shaheen. Thank you.
    Thank you very much for being here.
    And let me pick up on what Senator Risch raised about 
Georgia. As you talk about the ability of us to use the trade 
agreements to help encourage Georgia's positive forward 
movement, what kind of ongoing efforts can we also look at that 
would help encourage emphasis on rule of law, addressing some 
of the issues around imprisonment of opposition figures that 
you mentioned, and concerns that have been raised about 
continued--let me rephrase that--as the structure of government 
and the role of the President and Prime Minister transition, to 
continue to encourage that to transition in a positive way? Are 
there other things that we should be doing in the United States 
to--and with the EU--to help support continued positive 
movement in Georgia?
    Ms. Nuland. Well, thank you, Senator.
    In fiscal year 2013, we have, as you know, allocated about 
$70 million in assistance to Georgia. About a third of that 
goes to programs that strengthen good governance, the justice 
sector, et cetera, rule of law. We have worked with them on 
some of these pieces of legislation that they have had to also 
implement to be ready for the Association Agreement. So, we 
will stay with them as they implement those things.
    They have also got--particularly in order to be eligible 
for visa-free travel, they have got more work to do on 
transparency on their judicial system. So, we will stay with 
them in that regard.
    I think, you know, the fact that we have been in this 
intensive conversation with them, the fact that they know that 
you are watching how they deal with political opponents, that 
we are and that the EU is, I think has had a profound effect. 
And we have seen some of these concerns begin to abate in 
recent months.
    Senator Shaheen. And is there any progress at all on 
Russia's continued occupation of Abkhazia and South Ossetia? 
And any ability to help move the continued challenge that 
Georgia is facing with respect to the Russian occupation of 
those territories?
    Ms. Nuland. Senator, I think, on the contrary, we have now 
seen, as you know, in recent months, an effort to erect fences 
around the administrative border line, in contravention of 
international obligations and Russia's own commitments after 
the Georgia war in 2008.
    The one bright light, I would say, here is that, when 
Georgia has completed all of the work for its Association 
Agreement, it will be eligible for visa-free travel for 
Georgians to Europe, it will be eligible for these trade 
benefits and incentives from Europe. As I think about the 
choice that young people in Abkhazia, young people in South 
Ossetia, have to make individually about their future, it is 
going to look a whole lot more attractive to be carrying a 
Georgian passport, whether you are trying to travel to Paris or 
whether you are trying to attract investment to your 
neighborhood. So, I think the EU is playing a potent role in 
the strengthening of Georgian sovereignty with this agreement.
    Senator Shaheen. That certainly makes sense, and I would 
agree with that. I think one of the concerns that I have is, 
How do we keep this from becoming another one of those frozen 
conflicts that exists in perpetuity without any movement, and 
that those regions never continue in this sort of in-between 
status and never really rejoin Georgia?
    Ms. Nuland. Again, I think--you know that we have the 
Geneva process, where we sit down with the Georgian Government, 
we sit down with representatives from Abkhazia, and we talk 
about a way forward. Again, I think the most potent force for 
changing the status quo is going to be the people of those 
territories themselves and the choices that they are going to 
make. And our hope and expectation is that this association 
with the EU is going to change the prospects for them, it is 
going to change the outlook for them, they are going to see 
real benefits as citizens of Georgia, and they are going to be 
pushing for change, themselves. But, we will obviously stay 
with this and work as hard as we can to protect the sovereignty 
and territorial integrity of Georgia.
    Senator Shaheen. Thank you.
    You may have already addressed this, but obviously--or at 
least the reports are that Russia is dead-set against the 
European partnership. And as we think about how this 
partnership agreement moves forward, are there ways in which we 
can help the countries that are looking at their association 
with the EU and the West so that they can resist the pressure 
that they are going to get from Russia?
    Ms. Nuland. Senator, we have a number of measures we are 
taking, depending upon the country. In Moldova, we are working 
with them on expanding export markets into the EU and into the 
United States. We are also working with them on energy 
independence--in the short term, more support from their 
neighbors; in the longer term, interconnecter with Romania.
    In the Georgian context, as we talked about, it is about 
strengthening rule of law, it is about strengthening the 
economy so we can get more direct foreign investment into 
Georgia, and continuing to make it clear that we support their 
sovereignty and territorial integrity.
    In Ukraine, we actually have quite a vibrant U.S. business 
community that would like to do more. We have got some U.S. 
majors in the energy sector working on shale gas. If that plays 
out, Ukraine will be a very rich country in the not-too-distant 
future. So, we are working on all of those things, as well as 
encouraging the EU to buy some of these Ukrainian exports that 
have also been blocked now at the border.
    Senator Shaheen. I know that--or, at least I think you have 

already addressed the imprisonment of Yulia Tymoshenko, and 
that we are sending a very strong message about the importance 
of releasing her from prison so that they can send a message 
that they are changing the way they are looking at their 
opposition as they move toward democracy.
    Ms. Nuland. We are, absolutely. As you know, Senator, it is 
a condition for their signing of the association agreement, 
that former Prime Minister Tymoshenko be released for medical 
treatment outside of Ukraine.
    The EU has made clear, and we have reinforced in our 
bilateral conversations, that they will not have consensus to 
sign with Ukraine if Mrs. Tymoshenko is not released for 
medical treatment.
    Senator Shaheen. And do we have any sense of how they 
expect to respond to that? I understand that Parliament is 
about to go out of session and that they have not passed 
legislation to address that. So, what other options are there, 
and what do we expect to happen?
    Ms. Nuland. There are two routes currently before the 
Ukrainian leadership to address this issue. One would be 
Executive action by the President. It is in his hands to have 
that option. I think the preference of the Ukrainian Government 
would be to have broad national consensus for it via a bill 
passed in the Parliament, in the Rada. There are currently four 
or five drafts floating around. As you know, the EU's 
negotiators, former Presidents Cox and Kwasniewski, really went 
and rolled up their sleeves last week or earlier this week with 
parliamentary factions to try to draft a common bill. Those 
negotiations, our understanding is, will resume now, on Monday. 
The Parliament will come back into session on Monday, and they 
are going to endeavor to have a clean bill by Tuesday. Then we 
will see whether it gains the support that it will need.
    Senator Shaheen. Thank you very much.
    Thank you, Mr. Chairman, for letting me go over my time.
    Senator Murphy. Thank you, Senator Shaheen.
    It strikes me that, you know, Yanukovych may think that he 
can have it all, here, that he can keep Tymoshenko in jail, 
that he can open up a relationship with the EU and that he can 
also keep a deep political and economic relationship with 
Russia. And two of those three are true, that there is no 
reason that he cannot orient himself toward a relationship with 
the EU and maintain a relationship with Russia. He cannot keep 
Tymoshenko in jail. And I know you have made that perfectly 
clear, as we have; we and the Europeans. But, it brings me to 
just one additional question from me, and I know we have a 
second panel, and I will ask others if they have a second 
round. Is an Association Agreement, initialing or signing with 
the EU, mutually exclusive from joining the Customs Union? For 
instance, we, you know, obviously were surprised by Armenia's 
decision to do an about-face and join the Customs Union. Does 
that mean that we give up on Armenia as a potential partner 
down the road with the EU?
    Ms. Nuland. There is nothing in the Association Agreement 
that precludes any of the Eastern Partnership states from 
continuing to have strong trade relations with Russia or any of 
the Customs Union countries. There are provisions in the 
Customs Union that preclude Customs Union members from 
associating with anybody else.
    So, you know, the Armenians had a difficult choice to make. 
They have made it. It does not change the fact that both the EU 
and the United States will continue to try to build our 
economic and trade relationship with Armenia. We think that 
there is more that we can do together. But, they are not going 
to be able to have the benefits of an Association Agreement, 
under Customs Union rules.
    Senator Murphy. I just think that is important to point 
out, is that a decision to join yourselves with the European 
Union not only opens yourself up to the benefit of that 
association, but does not foreclose your ability to continue to 
negotiate trade agreements with a multitude of other nations. 
Once you are in the Customs Union, you are locked in, and you 
have essentially sealed your fate as to essentially tie your 
economy to one country, and one country only.
    Let me just ask one additional question with respect to 
Armenia. Given the fact that this was, to some people, a 
surprise, that they chose to abandon efforts to join the EU, 
what lessons are there to potentially be learned from Armenia's 
decision to reorient itself toward the Customs Union with 
respect to the tools that Russia used that worked, with respect 
to the offers that the EU made--that worked or, in this case, 
did not work? What lessons are there from the Armenian 
experience, if any?
    Ms. Nuland. You know, I think we are still going to be 
learning the lessons over time. But, for reasons of geography, 
political choice, economics, history, Armenia has, for quite a 
long time, been significantly more dependent, in economic 
terms, in security terms, on its big neighbor, and, frankly, 
did not--well, I will not speak for the Government of Armenia, 
but, as we have spoken to them, they found it a very difficult 
choice, given how knitted together they are with Russia.
    We, as you know, for 25 years since the fall of the Berlin 
Wall, have been seeking to provide all of the countries of 
Central Europe, Eastern Europe, the former Soviet space, with a 
broad cross-section of economic and partner options, and to 
diversify the way they think about their economies, the way 
they think about their energy future, and to provide them the 
security, if they want it, to make independent choices.
    So, I think that is the most important trajectory as we 
continue to work with these countries in the future.
    Senator Murphy. Senator Johnson? Senator Risch? Senator 
Shaheen?
    Thank you, Secretary Nuland. We appreciate your time. We 
know you are busy, a lot on your plate. Thank you for being 
here. We will excuse you and now have our second panel join us.
    Ms. Nuland. Thanks, to all of you.
    Senator Murphy. Thank you.
    As our second panel is seated, let me just welcome to the 
committee and the audience--I know we have--the Ambassadors 
from Georgia, Moldova, and the Ukraine are with us in the 
audience today--welcome them. If there are any other 
ambassadors that are here, let the staff know and we will 
recognize you, as well. But, we appreciate you being here.
    All right, let me welcome our second panel of witnesses. I 
am not going to do long introductions, because we want to get 
to your testimony and questions, as well.
    We have with us, from my left to right, Dr. Anders Aslund, 
senior fellow at the Peterson Institute for International 
Economics; Dr. Ariel Cohen, no stranger to the subcommittee 
this year, a senior research fellow for Russian and Eurasian 
Studies in International Energy Policy at the Heritage 
Foundation; and then another good friend, Damon Wilson, who is 
the executive vice president of the Atlantic Council.
    Why don't we start with you, Mr. Aslund, and go down the 
table. Welcome.

 STATEMENT OF ANDERS ASLUND, SENIOR FELLOW, PETERSON INSTITUTE 
          FOR INTERNATIONAL ECONOMICS, WASHINGTON, DC

    Mr. Aslund. Thank you very much, Mr. Chairman, Ranking 
Member Johnson, and members of the subcommittee. I would like 
to thank you for this opportunity to speak on what I consider 
the most important political event in Europe this year, the 
European Union Eastern Partnership Vilnius--in Vilnius.
    And, as you know, the EU has planned to sign the long-
concluded Association Agreement with Ukraine and initial Deep 
and Comprehensive Free Trade Agreement with Moldova and 
Georgia. It would indicate a substantial European integration 
of Ukraine, Moldova, and Georgia.
    The key question, of course, is whether Ukraine will 
fulfill the European demands for political freedom and rule of 
law. It is doubtful. Ukraine's President Viktor Yanukovych is 
reluctant, especially, to pardon former Prime Minister Yulia 
Tymoshenko. He defeated her narrowly in the Presidential 
elections in February 2010 and had her sentenced to 7 years in 
prison for no legal reason. If the EU does not accept to sign 
in Vilnius, the Association Agreement remains, and it could be 
signed after renewed Ukrainian Presidential elections in March 
2015.
    My specialty here is economics and Ukraine and Moldova, and 
I will focus on this.
    Russia has reacted strongly against Ukraine's intention to 
sign the Association Agreement, and, instead, demands that 
Ukraine joins its Customs Union with Belarus and Kazakhstan. 
Moscow has already launched, or threatened with, three forms of 
sanctions. First, trade sanctions, and is threatening with 
more. It is likely to block most imports from Ukraine, to break 
both financial finances and specific pro-European businessmen 
in Ukraine. The EU has responded by offering to give Ukraine 
increased market access, but that remedy will take some time to 
be effective.
    Because of poor economic policies, the Ukrainian economy is 
currently vulnerable. The Kremlin has publicly threatened to 
drive Ukraine in default. I was in Yalta in September, and 
there heard how President Putin's advisor, Sergei Glazyev, 
publicly threatened to drive Ukraine into default.
    And Ukraine's public finances are so shaky that the 
country, as you have already heard, might need a new agreement 
with the International Monetary Fund. But, so far, the 
government refuses to comply with sensible IMF demands, which 
are essentially more flexible exchange rate, prior gas prices 
which are now highly subsidized, and a cut in a large budget 
deficit. And, once again, as in January 2006 and January 2009, 
the Russian state-dominated gas company, Gazprom, has 
threatened to cut its supplies to Ukraine. The Government of 
Ukraine has already responded by stopping its gas purchases 
from Russia. And the country has sufficient gas reserves to 
manage through the winter.
    The United States is well-liked and highly influential in 
Ukraine. It can do a great deal to influence that country's 
choice simply by speaking out. And I am very happy to see that 
you are doing that here today.
    The main objectives for United States policy on Ukraine 
should be to support democracy. If democracy is secured, 
Ukraine is likely to choose a Western geopolitical orientation. 
If the United States wants to be important, it is important.
    For the European Union, the Moldovan case is much simpler. 
Moldova is more democratic and less corrupt than Ukraine. The 
current Moldovan Government is pro-Western and supports 
European integration wholeheartedly. The country is poor, but 
pursues a sound economic policy leading to, actually, a high 
economic growth, even today, and no longer requires any IMF 
support. Yet, Moldova is more vulnerable to Russian threats 
than Ukraine, because it is much smaller, poorer, and a part of 
Moldova as territory Transnistria is controlled by Russian so-
called peacekeepers.
    The role of the United States is even more important here 
than in Ukraine. An obvious danger is that Russia would 
recognize Transnistria as an independent state, as it did with 
the Georgian territories, Abkhazia and South Ossetia in 2008. 
Moreover, Moldova is completely dependent on Gazprom for its 
supply of natural gas, and it could once again face a cut in 
the Russian gas supply, which would hit Moldova much worse than 
Ukraine.
    Finally, Moscow can also cause major financial trouble, but 
the IMF could arrange new financing for Moldova since it has 
been a successful client before.
    Thank you.
    [The prepared statement of Mr. Aslund follows:]

                  Prepared Statement of Anders Aslund

                           executive summary
    On November 28-29, the European Union has planned to sign the long-
concluded Association Agreement with Ukraine and initial deep and 
comprehensive free trade agreements with Moldova and Georgia at its 
Eastern Partnership summit in Vilnius. No political event in Europe 
this year is more important than this summit. It would indicate a 
substantial European integration of Ukraine, Moldova, and Georgia.
    Yet, it is doubtful whether the EU will agree to sign the 
Association Agreement with Ukraine. Its President Viktor Yanukovych is 
reluctant to fulfill the European demands for political freedom and 
rule of law. In particular, he does not want to pardon former Prime 
Minister Yulia Tymoshenko, whom he narrowly defeated in the 
Presidential elections in February 2010. He had her sentenced to 7 
years in prison without any serious legal grounds. If the EU does not 
accept to sign in Vilnius, the Association Agreement could be signed 
after renewed Ukrainian Presidential elections in March 2015.
    Russia has reacted sharply against Ukraine's intention to sign the 
Association Agreement with the EU and demands that Ukraine instead 
joins its Customs Union with Belarus and Kazakhstan. Moscow has already 
launched some trade sanctions and is threatening with more. It is 
likely to block most imports from Ukraine to break both the national 
finances and specific pro-European businessmen. The Kremlin has 
publicly threatened to drive Ukraine into default. Once again, as in 
January 2006 and January 2009, the notoriously unreliable Russian 
state-dominated gas company Gazprom may cut its supplies to Ukraine. It 
has already made loud complaints about Ukrainian arrears.
    Because of poor economic policies, Ukraine is economically highly 
vulnerable. The EU has offered to give Ukraine more early market 
access, but that remedy will take some time. In the short term, Ukraine 
has sufficient gas reserves to manage through the winter. Ukraine's 
public finances are so shaky that the country might need a new IMF 
agreement.
    For the EU, the Moldovan case is much simpler. Moldova is more 
democratic, freer, and less corrupt than Ukraine. The current Moldovan 
Government is pro-European and supports European integration whole-
heartedly. The country is poor but pursues a sound economic policy 
leading to a high growth rate and no longer requires any IMF support.
    Yet, Moldova is more vulnerable to Russian threats than Ukraine 
because it is much smaller, poorer and a part of Moldova's territory, 
Transnistria, is controlled by Russian ``peacekeepers.'' An obvious 
danger is that Russia recognize Transnistria as an independent state as 
it did with the Georgian territories Abkhazia and South Ossetia in 
2008. Moreoever, Moldova is completely dependent on Gazprom for its 
supply of natural gas, and it could once again face a cut in the 
Russian gas supply. Finally, Gazprom has large claims on Moldova for 
unpaid gas that has been delivered to Transnistria beyond the control 
of the Moldovan Government. Moscow could utilize this large debt to put 
Moldova into default. If this would happen, the IMF could arrange new 
financing for Moldova, since it has been a successful client.
                                 ______
                                 
    Mr. Chairman and Ranking Member Johnson, I would like to thank you 
for this opportunity to speak on an important topic. No political event 
in Europe this year is more important than the European Union Eastern 
Partnership summit in Vilnius November 28-29. The key question is 
whether Ukraine and the European Union will sign the long-concluded 
Association Agreement. The Ukrainian Government is reluctant to fulfill 
all conditions, leaving the signing in doubt. The Ukrainian economy is 
in poor shape and most vulnerable, and the Russian Government is 
threatening Ukraine with draconian sanctions if the country does sign 
the EU agreement.
    The United States is well liked and highly influential in Ukraine 
and can do a great deal to influence that country's choice simply by 
speaking up. The main objectives for U.S. policy on Ukraine should be 
to support democracy. If democracy is secured, Ukraine is likely to 
choose a Western geopolitical orientation. If the United States wants 
to be important, it is important, and in few places is the Unites 
States more appreciated that in Eastern Europe.
    I first visited Ukraine in 1985 and have kept in close touch with 
the country ever since. I worked as an economic advisor to the 
Ukrainian Government from 1994 to 1997. I have continued to follow its 
economic and political development. I have written extensively on 
Ukraine, including one book of my own and two edited volumes.
          the importance of the european association agreement
    After Ukraine had become a member of the World Trade Organization 
in 2008 under the government of Prime Minister Yulia Tymosehnko, the 
European Union started negotiating a very substantial Association 
Agreement, which includes a deep and comprehensive free trade 
agreement. President Viktor Yanukovych has maintained a pro-European 
line and his administration completed the negotiations in November 
2011, but its signature has been delayed because of European concerns 
about the Ukrainian Government's poor observation of rule of law, human 
rights, and political freedom.
    This free trade agreement would abolish nearly all customs tariffs 
between the European Union and Ukraine as well as lead to regulatory 
convergence in technical standards, food standards, competition policy, 
state aid and energy policy. It would have a considerable positive 
impact on the Ukrainian economy. The economists Veronika Movchan and 
Ricardo Giucci have concluded that it would add 12 percent to Ukraine's 
GDP in the long term, and Oleksandr Shepotylo has assisted that it 
would expand Ukraine's exports by 46 percent in the long term.
    It is not only a trade agreement but also a far-reaching reform 
plan for the Ukrainian state. The EU has committed itself to 
considerable technical assistance. Sixty state agencies in various EU 
countries have committed themselves to reform their Ukrainian 
counterparts. This could amount a cleansing of Ukraine's pervasive 
corruption and the state-building that Ukraine itself so far has failed 
to accomplish. The EU state agencies have already a successful record 
from the previous enlargements of the Union.
    The European Union and Ukraine are supposed to sign the Association 
Agreement at the EU summit in Lithuania's capital Vilnius on November 
28-29. The problem, however, is that the first declared aim of this 
agreement is ``to promote gradual rapprochement between the Parties 
based on common values . . .'' and 
European values is not Yanukovych's comparative strength. He exercises 
full control over courts and law enforcement, utilizing them at will, 
not least for jailing opposition leaders. In August 2011, Yulia 
Tymoshenko was arrested and later sentenced to 7 years in prison for 
abuse of power in a blatantly flawed court proceeding.
    Yanukovych has all reasons to sign the Association Agreement. A 
pro-European policy enjoys solid majority support in Ukraine, so he 
cannot be reelected in March 2015, if he fails to sign this month. All 
the leading businessmen are eyeing the European market for their future 
expansion. Russia's President Vladimir Putin seems to keep Yanukovych 
in such low regard that Yanukovych has concluded that they cannot work 
together.
    For long the EU representatives had in unison demanded that 
Yanukovych carry out several major legal and political reforms, but the 
President just stonewalled them. But evidently Putin really scared 
Yanukovych's, and at the end of August Yanukovych did not only 
reconfirm his long-lasting pro-European stance but he completely 
changed his tune on EU conditions. Suddenly, he promised to adopt all 
the legislation that the EU demanded. This involved constitutional 
amendments on the judicial system and the constitutional court, laws on 
all arms of law enforcement, a new electoral law, and renewed elections 
where parliamentarians had wrongly been deprived of their seats. A slew 
of laws have been going through the Parliament.
    The main stumbling block has been the treatment of Tymoshenko. The 
EU and Yanukovych agreed that she needed medical treatment abroad. The 
EU has demanded that Yanukovych pardons her, which he does not want to 
do. Yanukovych desires to keep her out of the country or in prison 
without political rights. The Ukrainian Parliament, where Yanukovych 
has complete control over the majority, is currently adopting a law 
that will not be acceptable to the EU. Will Yanukovych pardon 
Tymoshenko or gamble? The EU is not likely to give in. Ukraine is a 
pervasively corrupt country, and the EU experience is that its main 
failures have been caused by excessive softness.
              poor economic policy and great vulnerability
    For years, the Ukrainian Government has pursued a miserable 
economic policy, rendering a serious financial crisis possible or even 
likely. As most former Soviet states, Ukraine is subject to predatory 
rule. Its masters have one clear objective: To enrich themselves.
    In February 2010, Viktor Yanukovych won free and reasonably fair 
Presidential elections with a narrow margin over then-Prime Minister 
Yulia Tymoshenko. He represented the Russian-speaking electorate in 
eastern and southern Ukraine, while Tymoshenko found most of her 
support in the Ukrainian-speaking west and center of the country. This 
balance between west and east has kept Ukraine more open and pluralist 
than Russia.
    Most of all Yanukovych represented the interests of a limited 
number of big businessmen in Donetsk, his eastern home region and its 
metallurgical industry. President Yanukovych started off with full 
control of parliament, government, and courts. His first government 
represented nine big business groups, but he quickly reduced their 
number to three. Instead, friends of his son, Oleksandr, have come to, 
dominate the government since December 2012. These young businessmen 
from Donetsk hold all key economic posts in the government.
    Yanukovych started his Presidency by adopting an ambitious 
structural reform program and on that basis he concluded a stand-by 
agreement with the IMF of $15 billion for 2\1/2\ years. Yet, by 
November 2010 reform came to an end, and Ukraine received only the 
first two tranches of this loan of a total of $3 billion.
    Yanukovych's economic policies have stayed off track. An IMF 
mission visited Ukraine in February 2011, and it set three key 
conditions that the government has not fulfilled. The IMF continues to 
insist upon them. An additional demand is that some sense into the tax 
system.
    The most important IMF condition is to hike the domestically gas 
prices. Incredibly, Ukraine imports natural gas from Russia for over 
$400 per 1,000 cubic meters, but the Ukrainian Government insists on 
purchasing natural gas produced in Ukraine at the ridiculously low 
price of $53 per 1,000 cubic meters and it sells gas to consumers and 
utilities at such low prices. The purchased and sold quantities at 
these low prices do not add up. Apparently, somebody is buying gas at 
the low regulated price and sells it at the higher, making fortunes on 
this arbitrage. We do not know who benefits, but Yanukovych has 
adamantly opposed raising these prices. To sell gas at lower than the 
purchasing prices causes the state oil and gas company Naftogaz losses 
amounting to 2 percent of GDP each year, which eventually are financed 
by the state budget, that is, the taxpayers.
    The second IMF condition is to reduce the budget deficit. Instead, 
Yanukovych has let it expand because of a variety of populist social 
expenditures. Competitive public procurement has basically ended. Large 
public contracts are distributed among cronies, and the kickbacks or 
overpricing reported by the independent media that still exist is often 
50 percent of the contract. Yet, no legal measures are undertaken 
against the senior officials, who have been singled out for large-scale 
embezzlement.
    This year, the budget deficit is likely to reach almost 6 percent 
of GDP, and the public debt is set to exceed 40 percent of GDP, which 
might be more than Ukraine can bear. The Ukrainian Government could 
ignore IMF demands for the last 2 years because it could borrow on the 
international Eurobond market at 10-year yields of 7.5-9.5 percent, but 
now these yields have risen to 12-13 percent, depriving the Ukrainian 
Government of access to the international capital market.
    The third IMF condition is that Ukraine introduces a more flexible 
exchange rate, which is a code word for depreciation. The exchange rate 
of the Ukrainian hryvnia is pegged at too high a level. As a 
consequence, last year Ukraine's current account deficit was 8.2 
percent of GDP, though this year it might decline toward 6 percent of 
GDP because of a contraction of imports. As a consequence of the 
overvalued exchange rate, Ukraine's international reserves have shrunk 
steadily since September 2011, when they peaked at $38 billion. In 
October, they fell to $20.6 billion, corresponding to only 2.6 months 
of imports, and they are set to contract further. The general market 
expectation is a depreciation of the hryvnia, which is reflected in the 
low and falling ratings of outstanding Ukrainian credits.
    Rather than following the IMF suggestions, the Ukrainian Government 
has imposed strict currency regulations, to make it exceedingly 
difficult to take money out of the country. It has also pursued very 
high interest rates. Last year, posters with the picture of Gerard 
Depardieu promised 19.5 percent interest on 1-year time deposits in a 
Ukrainian savings bank. The high interest rates have kept inflation at 
zero, but they have also killed investment and thus liquidated economic 
growth. Output has fallen for the last five quarters. The expected 
contraction for 2013 is now 1 percent, but it might become 1.5 percent.
    This is a truly poor economic policy. The IMF mission just 
inspected the situation October 17-29 and issued a press release that 
is more scathing than the IMF ever is. The only positive observation 
was some improvements in the still awful business environment. Yet, all 
relevant top officials from the Prime Minister down met with the IMF 
mission, showing that the Ukrainian Government is anxious to keep the 
doors to the IMF open, so that they call for IMF support on short 
notice.
    Ukraine is quite likely to end up with a financial crisis at the 
end of this year. The most likely process would be a run on Ukrainian 
bank deposits and on currency exchanges, leading to such a decline in 
reserves that the country becomes forced to a disorderly devaluation, 
which would be accompanied with plenty of bank and company defaults.
                      russian threats of sanctions
    Since 2009, President Vladimir Putin's policy toward Ukraine has 
had one aim: to compel Ukraine to join his Customs Union with Belarus 
and Kazakhstan, which is supposed to evolve into a more political 
Eurasian Union from 2015. Ukraine, however, has persistently opposed 
such Russian proposals because it would preclude its European 
ambitions.
    For long, the Kremlin did not pay much attention to Ukraine's 
dealings with Europe, possibly thinking that the EU could not accept 
Yanukovych's behavior. But in the middle of the summer Moscow started 
with a trade war with Ukraine. To begin with, it blocked exports to the 
Russian market from a couple of big pro-European Ukrainian businessmen 
producing steel pipes and chocolate. In August, Russia blocked most 
Ukrainian exports for 2 weeks through redtape at the border. Russia has 
hardly eased up but imposed new trade barriers on for example rail 
cars, to drive Ukraine into default, and to cut gas deliveries once 
again. Yanukovych and his government have pleaded by all means, but 
President Putin has offered no concessions, only persistent threats.
    Russia is already sanctioning Ukraine and it is threatening with 
more sanctions. They are essentially of three kinds. First, Russia is 
likely to block all kinds of imports from Ukraine with the clear intent 
on breaking both the national finances and specific pro-European 
businessmen. In 2012, Russia accounted for 26 percent of Ukraine's 
exports, about as much as the EU. Some of these sanctions are already 
in place.
    Second, President Putin's Advisor Sergey Glaziev has threatened 
that Russia will drive Ukraine into default. Russia accounts for only 
6.5 percent of Ukraine's external debt, but Russian banks in Ukraine 
account for 12 percent of Ukrainian banking assets.
    Third, once again as in January 2006 and January 2009, the 
notoriously unreliable Russian state-dominated gas company Gazprom may 
cut its supplies to Ukraine. It has already made lout complaints about 
Ukrainian arrears.
    Both Russia and Ukraine are members of the World Trade 
Organization, Ukraine since 2008 and Russia since August 2012, but 
neither country complies with its WTO commitments. For Ukraine, WTO 
complaints against Russia would take too long time to be useful, since 
the country is in a rampant crisis. The EU can offer immediate 
additional market access as compensation for Russian trade sanctions, 
but Russia and the EU are equally large importers of Ukrainian goods 
and services, each taking one quarter of Ukraine's exports.
    Rather than complying with the clear and transparent EU conditions, 
Yanukovych went to see Putin at his summer residence in Sochi on 
October 27. The two men reportedly met for 4-5 hours, but came out 
without agreement.
                         no happy end is likely
    Yanukovych is walking on eggshells as a bull in a china shop. The 
economic situation is precarious. The risk for a run by ordinary 
Ukrainians both on banks and the Ukrainian currency is apparent. The 
rating agencies mercilessly downgrade Ukraine ever lower, and corporate 
defaults are all too common.
    In order to survive this winter without major economic disruption, 
Yanukovych needs to pardon Tymoshenko, sign the Association Agreement, 
and then quickly conclude an IMF stand-by agreement. Russia is all too 
likely to block Ukrainian exports to Russia, cut various forms of bank 
financing, and probably also gas supplies. Yet, there is no sign of him 
doing what it takes with regard to the EU, the IMF, or Russia.
    On November 8, Yanukovych signed a law amending the Tax Code that 
would make it possible to deny Vitaly Klichko, the opposition leader, 
the right to run as a Presidential candidate. Meanwhile, the Parliament 
is about to adopt a law on Tymoshenko that will not be satisfactory to 
the EU. Just in case, Yanukovych also stated that he would not allow 
any increase in the gas price for consumers.
    As long as Ukraine does not join the Russian-sponsored Customs 
Union, Russia is likely to deliver a triple-whammy to Ukraine, blocking 
its exports to Russia through trade sanctions, cutting gas exports, and 
imposing various financial sanctions. The United States can and should 
protest against such actions. Trade sanctions, as those already 
deployed, appear to violate Russia's commitment to the WTO. The EU can 
offer expedited market access. Cuts in exports would mainly harm 
Russia's gas company Gazprom. Ukraine has sufficient volumes of gas 
stored for the winter, and Europe can manage by other means. Financial 
sanctions are best countered through a renewed IMF agreement with 
Ukraine, which presupposes that Ukraine carries out necessary financial 
reforms.
                      moldova deserves all support
    In Vilnius, the Republic of Moldova is supposed to initial the deep 
and comprehensive free trade agreement it has concluded with the 
European Union. This agreement is of great economic importance for 
Moldova. It also opens novel perspectives of European integration and 
government reform. The current Moldovan Government is pro-European and 
supports the agreement whole-heartedly, so that the complications that 
prevail in Ukraine are not at hand in Moldova. The country has 
currently quite a good economic policy with an expected growth rate 
this year of 5.5 percent and it no longer requires any IMF support.
    Yet, Moldova is subject to a greater threat from Russia than 
Ukraine because it is much smaller, poorer, and a part of Moldova's 
territory, Transnistria, is effectively controlled by Russian 
``peacekeepers.'' President Putin has appointed Deputy Prime Minister 
Dmitri Rogozin his envoy for Moldova.
    First, Rogozin has demanded that Russia is allowed to open a 
consulate in Transnistria, which the Government of Moldova has refuted. 
There is a clear danger that Russia will recognize Transnistria as an 
independent state as it did with the Georgian territories Abkhazia and 
South Ossetia in 2008. The United States can and should tell the 
Russian authorities that such a step would be impermissible.
    Second, Moldova is completely dependent on Gazprom for its supply 
of natural gas, and it could once again face a cut in the Russian gas 
supply. Moldova has agreed with Romania to build an alternative gas 
pipeline, but it will be completed only next year.
    Third, Gazprom has large claims on Moldova for unpaid gas that has 
been delivered to Transnistria beyond the control of the Moldovan 
Government. Moscow could utilize this large debt to put Moldova into 
default. If this would happen, the IMF could arrange new financing for 
Moldova, since it has been a successful client.

    Senator Murphy. Dr. Cohen.

STATEMENT OF DR. ARIEL COHEN, SENIOR RESEARCH FELLOW, HERITAGE 
                   FOUNDATION, WASHINGTON, DC

    Dr. Cohen. Thank you, Mr. Chairman, Senator Johnson. It is 
a great pleasure to testify.
    For centuries, the territory between Germany and Poland 
between the Baltic Sea and the Black Sea were the scene of 
competition, and at times confrontation, between Western 
European and Russian interests and influences. The South 
Caucasus was a battlefield between the Ottoman Empire, the 
Persian Empire, and the Russian Empire. But, the West and the 
United States recognized our interests in those parts of the 
world since World War I, and definitely during the cold war and 
after the end of the cold war in support of forces of democracy 
and independence in Eastern Europe and South Caucasus. Ukraine, 
of course, is the key. This is a historic opportunity to turn 
Ukraine from Russian domination that lasted over 300 years to 
equal interaction between Russia and Western Europe. And, in 
the long term, Ukraine integrated in Europe will be a good 
model for Russia to pursue more European integration, more 
markets, and more democracy.
    Unfortunately for us, we, the United States, has somewhat 
been low key in pursuing the strategic goal of Ukraine's 
integration with Western Europe--with the European Union. The 
Russians, on the other hand, went full bore and pulled 
President Yanukovych to two meetings with President Putin at 
the end of October and on November 9, both meetings lasting 
many hours.
    Putin's advisor, Sergei Glazyev, and the former Chief of 
Staff of Ukrainian President, Mr. Medvedchuk, have designed a 
program to force Ukraine to join the Eurasian Union led by 
Russia. That program was leaked. We, at the Heritage 
Foundation, published a backgrounder analyzing it, and this was 
a multitool effort to force Ukraine, through economic 
blackmail, through soft power, and through, if you wish, 
blackmail, to abandon the Western path. In the last several 
days, there are more and more indications that Ukraine will not 
sign the Association Agreement with EU and the Free Trade Area.
    The Russians are also threatening to impose trade 
sanctions. They had a dry run, or had a run, in the summer, 
when they blocked imports from Ukraine. Russia is the largest 
export market for the Ukrainians. And this implacable position 
gives Mr. Yanukovych, the President, second thoughts, as well 
as his fear of release of Yulia Tymoshenko from jail, which, of 
course, both the Europeans and the United States justly demand.
    We do have a national interest that Ukraine anchors its 
future in Europe, develops the rule of law and appropriate 
rights and becomes a fully democratic country and leads the way 
for Eastern Partnership countries in integration with Europe.
    Moldova has come, also, to severe threats from Russia, 
including Vice Premier Dmitri Rogozin, who threatened that the 
Moldovans will freeze in winter if Russia stops gas supplies. 
And he said, ``Moldova's train en route to Europe would lose 
its railcars in Transnistria,'' the enclave that Russia 
supports its claim to independence. Rogozin, in Moldova, said, 
``'I hope you won't freeze.'' Chilling language. Pun intended.
    Georgia has achieved many successes in the last 8 years on 
the road to economic reform and democracy. The current 
leadership of Georgia is trying to balance the country's 
position between Moscow and the West, but the Georgian public, 
the Georgian elites, are committed to NATO membership and to EU 
integration. So, we hope that Georgia, as Moldova sign, initial 
the Association Agreement in Vilnius. We also hope that Ukraine 
signs, but, as I said, the chances are not as high.
    To wrap it up, I do believe that Eastern and Central Europe 
have been a national interest priority area for the United 
States for a long time. Since the end of the cold war, we 
helped the Baltic States--Poland, Czech Republic, and others--
to accomplish institutional development in the democratic way, 
and transition to markets quite successfully. And Eastern 
Europe and South Caucasus should not be an exception.
    U.S. overarching interest is expanding participatory 
government, the rule of law, free-market economies. And a 
weakened leadership in the past 5 years, and Russia's expanding 
meddling in economic and foreign affairs of Western European 
states, with these post-Soviet countries are facing an 
increased foreign policy conundrum.
    It is wise for the Europeans to take a lead. After all, 
these countries are their ``near abroad.'' But, we, too, should 
support efforts to expand economic stability, freedom, and 
sovereignty of our Eastern European and South Eastern European 
friends and allies, continuing the bipartisan policy that Bush 
1, Clinton, and Bush 2 administrations continued for a long 
time. And this administration, in our view, should not be an 
exception. And I hope that we will achieve these goals.
    Thank you very much.
    [The prepared statement of Dr. Cohen follows:]

                Prepared Statement of Ariel Cohen, Ph.D.

    My name is Ariel Cohen. I am the Senior Research Fellow in Russian 
and Eurasian Studies and International Energy Policy at The Heritage 
Foundation. The views I express in this testimony are my own, and 
should not be construed as representing any official position of The 
Heritage Foundation.
    Thank you for inviting me to testify before you today on the 
Association Agreement and the Deep and Comprehensive Free Trade Area 
(DCFTA) between the Eastern Partnership (EaP) members (Ukraine, 
Moldova, Georgia, Belarus, Armenia, and Azerbaijan).
    For centuries, the territory between Germany and Poland and between 
the Baltic Sea and the Black Sea was a scene of competition, and at 
times, confrontation, between Western European and Russian influences 
and interests. The South Caucasus was a battlefield between the Ottoman 
Empire, the Persian Empire, and the Russian Empire. Western powers also 
viewed South Caucasus as a crucial geopolitical nexus between Central 
Asia, Europe, Russia, Turkey, and Iran. In Eastern Europe and in the 
Caucasus, indeed geography was the destiny. Today, there may be a 
chance to break this ancient dynamic by signing the Association 
Agreement (AA) and DCFTA between the Eastern Partnership members and 
the EU. The U.S. has national interests in the region, as it supports 
integration of the EuP members into the greater Euro-Atlantic area. 
Washington has not provided sufficient support to the Vilnius process 
and needs to do so in the remaining 2 weeks. Ukraine is the key country 
in this process.
Ukraine
    Since the implementation of the Partnership and Cooperation 
Agreement (PCA), the EU has continued to reach out to Ukraine, 
requesting Ukrainian political and legal reforms in exchange for trade 
expansion and economic integration with the EU, which would bring 
distinct benefits for Ukraine. However, mounting Russian pressure 
threatens to derail the EU's decade-long integration efforts.
    At the end of October and on November 9, President Yanukovich met 
with Russian President Vladimir Putin. Both sides published minimal 
information about these meetings, but a number of signs suggest that 
Russia's vehement opposition to Ukraine's AA and DCFTA membership is 
the key dynamic in the relationships between Kyiv and Moscow, and 
European capitals and Russia.
    The future of the jailed former Prime Minister Yulia Tymoshenko and 
President Yanukovich's resistance to European pressure to pardon and 
release her seem to be playing a key role in the drama. First, the 
Ukrainian authorities launched new proceedings against Tymoshenko, 
which may lead to a jail term of up to 10 years. Second, a senior 
representative of the ruling Party of Regions announced in Kyiv that 
Ukraine may forgo the Association Agreement with the EU. The ruling 
Party of Regions refused to consider the new legislation allowing 
prisoners to leave abroad for medical treatment. It also pushed through 
legislation aimed at blocking world heavyweight champion Vitaly Klichko 
from running for presidency in 2014. Finally, Tymoshenko's attorney has 
been detained on criminal charges. All this suggests that Russia's 
pressure may have worked, and there will be no deal with the EU. 
Economic factors play a key role.
    Currently, Russia is Ukraine's largest market for exports ranging 
from foodstuffs to metal pipes. Millions of Ukrainian migrant workers 
are employed in Russia, with families dependent on their revenue. In 
addition, Ukraine is in debt to its northern neighbor for $880 million, 
mostly to the state-owned natural gas supplier Gazprom, which would 
like to gain control over the Ukrainian gas distribution gas network 
Naftohaz Ukrainy. Russia's soft power is dominating Ukraine through 
pro-Moscow politicians; popular TV channels and other media; and 
Russian speakers in the east and south of the country, especially in 
the Crimea.
    This situation offers Russia significant leverage.\1\ The creation 
of the Russia-dominated Customs Union, and formation of the Eurasian 
Union, allow Russia to place intense pressure on Ukraine. This is 
happening not just since the beginnings of the trade war we witnessed 
this summer,\2\ but also with the earlier promises of economic and 
political gains.
    Moscow does not demand reforms, including the rule of law and 
anticorruption measures, which the EU does. These demands may annoy 
some Ukrainian elites and high-ranking officials, making domination by 
Moscow more palatable than European integration in the eyes of a myopic 
few.\3\
    However, Ukraine's hesitancy to enter the Customs Union with Russia 
is warranted, as in the long term Moscow envisages subjugation, not 
cooperation. Its ultimate goals are geopolitical, not just economic. 
Recent events have made this clear. When negotiating over observer 
status as part of the Eurasian Economic Commission, Ukraine made 
several requests, including the right to attend all commission 
meetings, to have the texts translated into Ukrainian, and other 
reasonable safeguards of Ukrainian interests. All of Ukraine's requests 
were summarily rejected.\4\
    The implacability of the Russian position and the potential loss of 
economic and eventually state sovereignty defeated Ukrainian elite's 
desire, if any existed, to join the Customs Union and the Eurasian 
Union. Yet, Kyiv is understandably apprehensive: if Moscow imposes high 
import tariffs (up to 10 percent allowed by WTO) and nontariff 
barriers, economic sanctions, as it were, could come into damaging 
effect immediately; while EU and potentially World Trade Organization 
(WTO) response would be painfully--and prohibitively--slow.
    Additionally, many EU members are hesitant to reach out to Ukraine 
until actual, measurable reforms are enacted. This, too, is 
understandable. The EU places political and legal conditions that are 
key to the signing of the Association Agreement, including the release 
of imprisoned former Prime Minister Tymoshenko.
    Expert recommendations vary greatly in regards to the EU's 
response. Some argue that ``the sooner the EU signs the agreements with 
Ukraine, Moldova, and Georgia, the stronger the insurance will be 
against the vagaries of the East European political weather.'' \5\
    Ukraine's signature on an Association Agreement is crucial to EaP 
goals, as Ukraine is expected to demonstrate the benefits of the EU's 
association agreements to other EaP countries. However, the signature 
on an agreement would not immediately resolve the longstanding problems 
in Ukraine. Whether or not Ukraine signs the Association Agreement in 
Vilnius, ``Ukraine is likely to find itself in uncharted waters after 
November 2013.'' \6\ One possible outcome may be that Kyiv remains 
sitting between the two chairs: neither signing the DCFTA, nor joining 
the Customs Union. Such an outcome makes the quickly deteriorating 
economic situation of Ukraine particularly bitter.
    Russia has already threatened to respond. Russian Presidential 
adviser Sergei Glazyev publicly stated that numerous articles of the 
EU-Ukrainian Association Agreement would violate several clauses of the 
Ukrainian-Russian treaty of friendship and cooperation and ``will do 
serious, irreversible, and long-term harm to us.'' \7\
    Russia's economic and political pressure through high tariffs and 
import delays, the possible implementation of a visa regime, and 
increased energy costs in the middle of a cold winter are the threats 
Moscow has held out in trying to prevent Kyiv from signing the 
agreement with the EU. Moscow experts reiterate that if Ukraine signs 
the EU Association Agreement, Ukraine would become a truly ``foreign'' 
country to Russia, estranged economically and politically. As I warned 
in a recent Heritage Foundation Backgrounder, Russia is threatening to 
retaliate, making the EU-driven process as painful as possible.\8\
    It is in the U.S. national interest that Ukraine anchors its future 
in Europe; develops the rule of law and property rights; and becomes a 
fully democratic country. Unfortunately, the administration did not 
view the future of Ukraine with due seriousness. It eschewed senior-
level state visits; economic deal-making; and high-impact public 
diplomacy. Once again, in Eastern Europe and Eurasia, the U.S. punched 
below its weight.
    Instead of benign neglect, the administration should have 
encouraged the Ukrainian leadership to sign the Association Agreement 
and DCFTA at the Vilnius summit in November. The White House should 
reaffirm the guarantees of Ukrainian sovereignty and independence 
pledged by the U.S. in 1994, at the highest level, including protection 
from economic pressure. After all, while Presidents Putin and 
Yanukovich met many times, American officials made their trips to 
Ukraine scarce, and the level of U.S visitors in the country lower than 
necessary. Nor was the U.S. willing to coordinate its policies toward 
Ukraine with the EU in order to link the IMF economic relief package 
with European integration.
    The Obama administration should have publicly denounced Moscow's 
illegal economic pressure on Ukraine to force it to join the Customs 
Union. The U.S. can and should provide technical advice on measures 
Kyiv can take to oppose such pressure in the WTO and other 
international frameworks. The U.S. should also promote the release of 
former Prime Minister Tymoshenko from prison--a step that would further 
encourage the Europeans to sign the Association Agreement.
    Provided Ukraine signs the Association Agreement and DCFTA, 
Congress and the Obama administration should expand U.S. and 
international technical assistance to Ukraine, if requested, including 
steps Kyiv may take in the WTO to defend its trade from discriminatory 
Russian trade practices. The U.S. should offer advice to: facilitate 
Ukraine's economic reforms, combat corruption, increase transparency of 
government decisionmaking, make the civil service smaller and more 
efficient, privatize government services where possible, improve law 
enforcement practices, enhance the work of the courts, assist with the 
training of judges and prosecutors, deepen legal reform, and improve 
banking practices. The U.S. may lower tariffs on imports from Ukraine 
to compensate partially for the imposition of Russian tariffs on 
Ukrainian goods.
    Finally, the administration should boost public and diplomatic 
support of Ukraine's Association Agreement and DCFTA with European 
capitals, signaling high-level U.S. attention to this matter, and 
dispatch senior American officials to Kyiv to articulate support 
through talks with the Ukrainian leadership and public appearances.
    Other countries are also under pressure not to join the AA and 
DCFTA. Moldova, too, has been a target of Russian threats.
Moldova
    Moldova was effectively dismembered by Russia, which supported 
Transnistria, the secessionist Russian-speaking enclave since 1992. 
Europe's poorest country, Moldova has become the latest victim of 
Russia's bullying.\9\ Nevertheless, it is planning to initial the 
Association Agreement in Vilnius and sign it in 2014.
    In September 2013, Dmitri Rogozin, Russia's Deputy Prime Minister 
in charge of the military-industrial complex and special envoy to the 
breakaway region of Transnistria, visited the country. A senior 
Moldovan diplomat who requested anonymity disclosed that Rogozin has 
applied pressure and threats during his talks with Moldovan officials. 
``He said it would be a serious and costly mistake if we concluded an 
agreement with the EU,'' the diplomat stated.\10\
    Rogozin threatened to cut Moldova's trade with Russia, while 
Moldova's migrant workers could face restrictions on entering Russia. 
He also said that by moving closer to Europe, Moldova would have to 
give up the secessionist Transnistria, which is backed by Russia.
    ``Moldova's train en route to Europe would lose its rail cars in 
Transnistria,'' Rogozin said during a press conference in the capital, 
Chisnau, effectively threatening to dismember the country. As a parting 
shot, Rogozin, a former ambassador to NATO, told a closed meeting that 
European Union integration was linked to integration with NATO, which 
is entirely untrue. Then he reminded his audience about how Moldova is 
completely dependent on Russia for its energy. ``Energy supplies are 
important during the runup to winter,'' Rogozin said. ``I hope you 
won't freeze.'' \11\
    Most recently, in September 2013, Russia implemented a ban on 
Moldovan fruits, vegetables, wines, and spirits, blaming Chisnau, for a 
``lack of quality control at its wineries.'' \12\ This pattern is 
similar to the earlier economic sanctions against Ukraine. As Moldovan 
produce, wines, and spirits are very popular in Russia, accounting for 
over 10 percent of the Russian market, and comprising over 50 percent 
of Moldovan exports, the Russian import ban has a significant impact on 
Moldova's economy.\13\ The EU promised to lift quotas on Moldovan wine 
before the end of 2013.
    However, Moldova continues to move ahead with EU integration, 
although Russia's efforts may still dissuade Chisnau.\14\ The dispute 
with the secessionist Russian-speaking exclave of Transnistria remains 
unresolved and can be used a foil against the country's sovereignty, 
while the EU demands that more needs to be accomplished in terms of the 
rule of law and improvement of the business climate.
                        south caucasus countries
Georgia
    Of all the Eastern Partnership countries, Georgia is historically 
the most firmly set on engaging and integrating with the West. Like 
Moldova, it is planning to initial the Association Agreement with 
Europe in Vilnius.
    Russia never fully accepted Georgian independence in 
internationally recognized borders. In 1992, Russia provoked a civil 
war in Georgia that led to the secession of Abkhazia and South Ossetia. 
The Five Day War in 2008 completed the breakup, leaving over 25 percent 
of Georgian territory (Abkhazia and South Ossetia) occupied.
    The process of subjugating Georgia may have been further advanced 
in the election cycle of 2012-2013, when Bidzina Ivanishvili, a former 
Russian billionaire businessman, captured the majority in the 
Parliament. On October 27, 2013, Georgians elected Giorgi 
Margvelashvili, Ivanishvili's handpicked Presidential candidate, as 
mostly ceremonial President,\15\ and on November 4, 2013, the 
Parliament elected a close Ivanishvili ally, 31-year-old Irakli 
Garibashvili, as a powerful Prime Minister.\16\
    Moscow seeks to undermine Georgia's role as an energy transit hub 
that links neighboring Azerbaijan to Turkey and Europe, thereby 
bypassing Russia and its energy monopoly in Eurasia. Almost 5 years 
after the Russian invasion of Georgia in August 2008, Russia has 
recognized the independence of the Georgian provinces of Abkhazia and 
South Ossetia while approximately 10,000 Russian troops continue to 
occupy them.\17\ The future of Georgian independence, territorial 
integrity, and sovereignty is severely challenged.
    Just as Joseph Stalin, himself a Georgian, drew Georgian borders in 
order to exploit and exacerbate ethnic differences, Russia's current 
occupation of South Ossetia and Abkhazia reflects Moscow's desire to 
divide and conquer Georgia, as it supports Abkhazia's and South 
Ossetia's resistance to Tbilisi's offer to join Georgia as full 
autonomies.
    Former President Mikheil Saakashvili during his two terms 
intensified the efforts of his predecessor and former U.S.S.R. Foreign 
Minister Eduard Shevardnadze, seeking to counter Russian influence by 
cooperating militarily with NATO and economically with the U.S. and the 
EU.
    Marene Laruelle notes that ``in Georgia, Moscow has soft power 
instruments that it could activate,'' \18\ including pro-Russian 
politicians, economic ties, and the popular Russian TV channels. The 
Georgian Dream Party of Bidzina Ivanishvili, the Conservative Party of 
Zviad Dzidzigouri, the Worker's Party of Shalva Natelachvili, the New 
Right, the Democratic Movement--United Georgia of Nino Burjanadze, and 
the Georgian Party of Irakli Okruashvili all call for a rapprochement 
with Russia in one way or another.
    Moscow has been deeply uneasy with Georgia's market reforms, 
democratic elections, and Western orientation. That being the case, 
Georgia's strategy has been to move toward the EU and NATO, which will 
inevitably bring Russian ire on Tbilisi. Georgia's strategic dilemma is 
that while the relations with Moscow improved only marginally, the 
relations with Washington chilled down a lot since 2009. The EU was 
cautious not to anger Russia, its principal gas supplier.
    Georgia's dogged campaign for NATO integration also played a key 
role in developing and affirming the country's desire to join in 
Western alliance. Apart from its ties with the West, Georgia stands 
alone, shadowed by Russia's looming threat to its national security and 
sovereignty.\19\ If allied with and protected by the West, Georgia 
stands a much improved chance of maintaining territorial integrity in 
the long term.
    Trade with Russia represents a significant portion of Georgia's 
small economy and raises concerns of Georgia potentially falling 
squarely again under the aegis of Russia. The return to the Russian 
sphere of influence and economic frameworks would be a step backward 
for Georgian independence.\20\
Azerbaijan
    Azerbaijan has been caught between Russia and the West for almost 
100 years, since its short-lived independence in 1918-1920. 
Strengthening ties between Azerbaijan and Russia has become a top 
priority for Putin, who visited Baku in August 2013.\21\ Azerbaijan and 
Russia signed a protocol in July 2013 for the reconstruction of the 
existing bridge at their border and to construct a new bridge across 
the Samur River.\22\ In June 2013 Azerbaijan agreed to a $1 billion 
weapons purchase from Russia, equipping Azerbaijani military with 
updated tanks and armored vehicles.\23\
    In addition, SOCAR and Rosneft--Azerbaijan's and Russia's 
respective leading oil-producing companies--have begun negotiations on 
increasing energy cooperation. The two companies are considering 
resuming and expanding oil supplies to Europe via the Baku--
Novorossiysk pipeline.\24\
    Yet, Russia's primary interests in the South Caucasus focus on 
Armenia, its historic ally as discussed above. Moscow wants to dominate 
the region militarily and strategically and to prevent or control the 
export of hydrocarbons to the West from the Caspian region through the 
Transcaucasian energy corridor,\25\ which rests outside of Russian 
control. Moscow is particularly concerned by the 2012 agreement between 
Turkey and Azerbaijan to build the Trans-Anatolian Natural Gas Pipeline 
(TANAP)--and its extensions, the Trans Adriatic Pipeline (TAP), which 
would connect Turkey, Greece, Albania, and Italy, and Nabucco West, 
connecting Turkey, Bulgaria, Romania, Hungary, and Austria 
respectively. This pipeline system would ease Europe's dependence on 
Russian gas.\26\
    Under the two Azerbaijani Presidents, Heydar Aliyev, who died in 
2003, and his son, Ilham, Azerbaijan has pursued a mostly pro-Western 
policy to date. The country was instrumental in the transit of U.S. 
military materiel and personnel through the Northern Distribution 
Network--a vital railroad and sea-lane link from the Caucasus across 
the Caspian Sea and Turkmenistan into Afghanistan. Azerbaijan is also a 
unique example of a secular regime in a state with a majority Shia 
Moslem population, which treats its Russian Orthodox, Jewish, and Sunni 
Moslem minorities quite well.
    With U.S. support, Azerbaijan fiercely protected its sovereignty. 
In 2012, Aydin Aliyev--head of the Azerbaijani State Customs 
Committee--joined the Georgian Government in declining to enter the 
Eurasian Customs Union. Aliyev announced that Azerbaijan is in the 
process of implementing its own customs code and refused to sign the 
Treaty on the Free Trade Area, signed in October 2011 by the Presidents 
of eight CIS countries.\27\
    Since President Aliyev has not shown interest in EAU membership, 
Putin has attempted to create a counterweight to Aliyev's internal 
political and economic dominance in Azerbaijan. So far, he has failed.
    The Union of Azerbaijani Organizations of Russia (UAOR)--also known 
as the Billionaires' Union--has been cited as a new tool that allows 
Putin to meddle in Azerbaijan's internal affairs. Georgian ex-president 
Saakashvili believes the UAOR was created for the purpose of 
overthrowing the Aliyev government, while Vafa Guluzade, a former 
senior foreign policy aide to the late President Heydar Aliyev, claims 
to ``see it as one of the forms of pressure against, and intimidation 
of, the Azerbaijani Government, which could be used when Putin needs 
it.'' \28\ However, the Billionaires' Union failed to launch a viable 
political alternative to Aliyev, and Putin paid a friendly visit to 
Baku in August 2013. Yet, there is a strong lobby in Baku, including in 
the corridors of power, which advocates abandonment of the Western 
orientation and cozying up to Moscow. Baku is concerned about the 
refusal of the EU to include language about territorial integrity and 
occupation in the Associate Membership Agreement. Some in Baku may be 
also upset over European critique of the levels of democracy, human 
rights violations, and high levels of corruption. Over the past years, 
Azerbaijan has expressed interest in the EaP because of its desire to 
expand energy exports, including strategic TANAP and TAP gas pipelines 
to Turkey and Europe respectively, as well as a desire to ally with the 
West, but on its own terms.
    As Azerbaijan is not a World Trade Organization member, it does not 
meet DCFTA requirements, but an Association Agreement can still be 
initialed. This would be a positive development that would speak 
volumes to neighbors north and south. With Azerbaijan's energy 
resources exported to the European markets, some of Eastern Europe's 
reliance on Russian energy--and consequent susceptibility to Russian 
pressure--would be diminished. Thus, Europe has a direct interest in 
negotiating such an agreement with Baku.
Armenia
    Armenia's recent capitulation to Russia's demands \29\ illustrates 
Russia's willingness to threaten severe retaliation against any former 
Soviet nation's attempted reorientation toward the West. Armenia needed 
but a limited push to abandon its European path and join the Custom 
Union. Eventually, Russia would like to see Georgia follow suit. If 
that occurs, Azerbaijan would be isolated by Armenia and Iran in the 
south, and its egress to the Black Sea corked by Georgia.
    Erevan recently entered the Russian-led Customs Union, believing 
that its alliance with the Kremlin best guarantees its security. 
However, trading sovereignty for security came at a price. In September 
2013, European Commissioner for Enlargement and European Neighborhood 
Policy Stefan Fule stated that it was ``difficult to imagine'' the 
initialing by Armenia of the Association Agreement at Vilnius in 
November . ``Based on the information we presently have, the 
compatibility of obligations to the Customs Union with those under an 
Association Agreement/DCFTA with the EU looks problematic.'' \30\ EU 
President and Lithuanian Foreign Minister Linas Linkevicius echoed 
similar concern: ``We respect any choice of countries but they cannot 
enter both organizations at the same time because of different tariff 
requirements.'' \31\
    Many analysts see Armenia's reversal after 3 years of negotiations 
and a successful completion of talks with the EU a prime example of 
Russia's powerful sway over the other four members of the Eastern 
Partnership.
    Armenia was scheduled to sign the formal Association Agreement in 
November 2013 at the Vilnius conference. However, due to intense 
Russian pressures, Armenia was forced to abandon EU negotiations and 
seek entrance in the Russian-led Customs Union, which is likely to lead 
to membership in the newly formed Eurasian Union.\32\ Russia's threats 
to curb security cooperation and arms supply, in addition to 
``interfering with gas supplies, pressuring Armenian migrants in Russia 
. . . or reducing Russian support in Armenia's conflict with Azerbaijan 
over Nagorno-Karabakh,'' have led Armenia to shift its position.'' \33\
    Though the prospect of Armenia's integration with the EU suffered a 
large setback, the EU invitations to Armenia and Azerbaijan to 
participate in the Vilnius summit suggest that Armenia-EU negotiations 
are by no means closed. Instead, Moscow may force the EU to develop a 
``two-tier'' Eastern Partnership, wherein the countries that are fully 
integrated receive full benefits, while those that only partially 
comply receive benefits that are more modest.\34\
    Regardless, such a radical and sudden volte-face in Armenia's 
position on EU involvement demonstrates the dangers that lie ahead in 
the EU negotiations with the other member states of the Neighborhood.
          u.s. interests in the eastern european neighborhood
    Eastern and Central Europe have been a national interest priority 
area for the United States since World War I. After all, some of 
Europe's most pro-American countries are located there. The U.S. fought 
and won the cold war on their behalf. The region was also a major 
battleground in both world wars and before.
    Since the end of the cold war the U.S. has actively assisted 
democratic forces in that part of the world. Democracy triumphed in the 
Baltic States, Poland, Czech Republic, Slovakia, and elsewhere in the 
region. There is no reason it will not succeed in the European 
Neighborhood countries. The U.S. is also interested in developing the 
East-West (``The New Silk Road'') corridor for trade, transportation, 
energy pipelines, and communications from China to Europe, in keeping 
the region free from outside domination, and for penetration of the 
ideas of freedom to a part of the world which had little experience 
with it.
    The U.S.'s overarching interest in expanding participatory 
government, the rule of law, and free-market economies in Eastern 
Europe is well demonstrated. However, due to weakened American 
leadership in the past 5 years, and because of Russia's expanding 
meddling into the economic and foreign affairs of the Eastern European 
states, these post-Soviet countries represent an increasing foreign 
policy conundrum.
    It is wise for the Europeans to take a lead in addressing these 
challenges. After all, it is their neighborhood, their ``near abroad.'' 
The U.S. should support efforts to expand the economic stability, 
freedom, and sovereignty of our Eastern and South East European friends 
and allies, continuing the bipartisan policy of the both Bush and 
Clinton administrations since 1992.

----------------
End Notes

    \1\ ``West or East?'' The Economist, October 5, 2013, http://
www.economist.com/news/leaders/21587228-european-union-should-sign-
deal-ukrainebut-only-if-yulia-tymoshenko-freed-west-or (accessed 
November 4, 2013).
    \2\ Nicu Popescu, ``The Russia-Ukraine Trade Spat,'' European Union 
Institute for Security Studies, http://www.iss.europa.eu/uploads/media/
Alert_Ukraine_trade.pdf (accessed November 4, 2013).
    \3\ ``West or East?'' The Economist.
    \4\ James Sherr, ``Ukraine and Europe: Final Decision?'' Chatham 
House, http://www.chathamhouse.org/sites/default/files/public/Research/
Russia%20and%20Eurasia/0713pp_sherr.pdf (accessed October 4, 2013).
    \5\ ``Keeping the Eastern Partnership on Track,'' European Union 
Institute for Security Studies, http://www.iss.europa.eu/uploads/media/
Alert_Armenia-Russia.pdf (accessed October 4, 2013).
    \6\ Sherr, ``Ukraine and Europe: Final Decision?''
    \7\ ``Glazyev: Ukraine will fail to harmonize regulations with 
Customs Union if it signs association agreement with EU,'' Interfax 
Ukraine, November 4, 2013, http://www.kyivpost.com/content/politics/
russian-presidential-adviser-sergei-glazyev-ukraine-will-fail-to-
harmonize-regulations-with-customs-union-if-it-signs-association-
agreement-with-eu-331387.html (accessed November 4, 2013).
    \8\ Ariel Cohen, ``Why the U.S. Should Support Ukraine's 
Association and Free Trade Agreements with Europe,'' Heritage 
Foundation Backgrounder 2849, October 21, 2013, http://
www.heritage.org/research/reports/2013/10/why-the-us-should-support-
ukraines-association-and-free-trade-agreements-with-europe.
    \9\ Vladimir Socor, ``Russia and the Moldovan Communists' Red 
October,'' Eurasia Daily Monitor, Vol. 10, Issues 176 and 177, (October 
3 and 4, 2013).
    \10\ Judy Dempsey, ``How Russia Bullies the EU's Eastern 
Neighbors,'' Strategic Europe, September 9, 2013, http://
carnegieeurope.eu/strategiceurope/?fa=52903 (accessed November 4, 
2013).
    \11\ ``Moldova Says Will Stick to Pro-Europe Course Despite Russian 
Pressure,'' Moscow Times, September 6, 2013, http://
www.themoscowtimes.com/business/article/moldova-says-will-stick-to-pro-
europe-course-despite-russian-pressure/485589.html (accessed November 
4, 2013).
    \12\ ``Russia Vague on Lifting Moldovan Wine Ban,'' RIA Novosti, 
September 20, 2013. http://en.ria.ru/russia/20130920/183619894/Russia-
Vague-on-Lifting-Moldovan-Wine-Ban.html (accessed November 4, 2013).
    \13\ Reuters, ``Russia, unhappy with Moldova's EU drive, bans its 
wine and spirits,'' September 10, 2013, http://www.reuters.com/article/
2013/09/10/us-moldova-russia-wine-idUSBRE98916M201 
30910 (accessed November 4, 2013).
    \14\ Socor, ``Russia and the Moldovan Communists' Red October.''
    \15\ David M. Herszenhorn, ``Georgia Elects New President, but Real 
Power Will Rest With Next Premier,'', The New York Times, October 27, 
2013, http://www.nytimes.com/2013/10/28/world/europe/georgia-elects-
new-president-but-real-power-will-rest-with-next-premier.html?_r=0 
(accessed November 8, 2013).
    \16\ Max Delany and Irakli Metreveli, ``Georgia PM names loyalist 
minister, 31, as successor,'' Agence France-Presse, November 2, 2013, 
http://news.yahoo.com/georgia-pm-names-interior-minister-successor-
113951447.html (accessed November 8, 2013).
    \17\ Luke Coffey, ``Georgia and Russia: The Occupation Too Many 
Have Forgotten,'' The Heritage Foundation, The Foundry, May 31, 2012, 
http://blog.heritage.org/2012/05/31/georgia-and-russia-the-occupation-
too-many-have-forgotten.
    \18\ Marlene Laruelle, ``When the `Near Abroad' Looks at Russia: 
The Eurasian Union Project as Seen from the Southern Republics,'' 
Russian Analytical Digest, No. 112 (April 20, 2012), http://
www.css.ethz.ch/publications/pdfs/RAD-112-8-11.pdf (accessed October 
28, 2013).
    \19\ Eastern Partnership Community, ``Georgia,'' http://
www.easternpartnership.org/partner-states/georgia (accessed November 4, 
2013).
    \20\ Ariel Cohen, ``Russia's Eurasian Union Could Endanger the 
Neighborhood and U.S. Interests,'' Heritage Foundation Backgrounder No. 
2804, June 24, 2013, http://www.heritage.org/research/reports/2013/06/
russias-eurasian-union-could-endanger-the-neighborhood-and-us-
interests.
    \21\ Donald N. Jensen, ``Putin Brings Disappointment Back from 
Baku,'' Institute of Modern Russia, August 22, 2013, http://
imrussia.org/en/politics/538-putin-brings-disappointment-back-from-baku 
(accessed October 28, 2013).
    \22\ Nazrin Gadimova, ``Azerbaijan, Russia Ink Protocol on 
Construction of Bridge Across Samur River,'' AzerNews, July 24, 2013, 
http://www.azernews.az/azerbaijan/57293.html (accessed October 28, 
2013).
    \23\ ``Defense Minister's Press Secretary on Russian Supply of 
Weapons to Azerbaijan,'' Lragir.am, http://www.lragir.am/index/eng/0/
politics/21691/30226 (accessed July 28, 2013).
    \24\ Gulgiz Dadashova, ``Rosneft, SOCAR Eye Prospects for Co-op 
under Future Projects,'' AzerNews, July 5, 2013, http://
www.azernews.az/oil_and_gas/56419.html (accessed October 28, 2013).
    \25\ ``Connecting Caucasus with the World: Railways and 
Pipelines,'' video, The Wilson Center, April 2, 2013, http://
www.wilsoncenter.org/event/connecting-the-caucasus-the-world-railways-
pipelines (accessed October 28, 2013).
    \26\ Trans Adriatic Pipeline, http://www.trans-adriatic-
pipeline.com/ (accessed September 9, 2013).
    \27\ A. Akhundov, ``Azerbaijan Not to Join Eurasian Customs 
Union,'' TREND News Agency, July 16, 2012, http://en.trend.az/capital/
business/2046965.html (accessed October 28, 2013), and Sultan 
Akimbekov, ``The Eurasian Response,'' http://magazine.asiakz.com/rus/
article/1022 (accessed October 28, 2013).
    \28\ Shahin Abassov, ``Azerbaijan: Is the Kremlin up to Old 
Tricks?'' Eurasianet.org, March 12, 2013, http://www.eurasianet.org/
node/66677 (accessed October 28, 2013).
    \29\ ``Armenia's Dependency on Russia Continues to Deepen,'' 
Caspian Research Institute, http://caspianresearch.com/2013/10/02/
armenias-dependency-on-russia-continues-to-deepen/ (accessed October 4, 
2013).
    \30\ ``Stefan Fule: Difficult to imagine initialling Association 
Agreement with Armenia in Vilnius as it had been negotiated,'' News.am, 
September 6, 2013, http://news.am/eng/news/170092.html (accessed 
November 4, 2013).
    \31\ ``Armenia-EU free trade deal blocked,'' Global Post, September 
3, 2013, http://www.globalpost.com/dispatch/news/afp/130903/armenia-eu-
free-trade-deal-blocked (accessed November 4, 2013).
    \32\ Cohen, ``Russia's Eurasian Union Could Endanger the 
Neighborhood and U.S. Interests.''
    \33\ Caspian Research Institute, ``Armenia's Dependency.''
    \34\ Nicu Popescu, ``Behind--and beyond--Armenia's choice,'' 
European Union Institute for Security Studies, October 2013, http://
www.iss.europa.eu/uploads/media/Alert_35_Armenia_U-turn.pdf (accessed 
November 4, 2013).

    Senator Murphy. Thank you.
    Mr. Wilson.

 STATEMENT OF DAMON WILSON, EXECUTIVE VICE PRESIDENT, ATLANTIC 
                    COUNCIL, WASHINGTON, DC

    Mr. Wilson. Thank you, Chairman Murphy, Ranking Member 
Johnson.
    In 2 weeks, European leaders will meet in Vilnius to chart 
what is effectively the next wave of European immigration. The 
United States will not have a seat at the summit, of course; 
however, its results will have strategic consequences for U.S. 
interests. The outcome of the Vilnius summit will help 
determine whether the nations of the Eastern Partnership will 
have the option of ultimately joining a Europe ``whole, free, 
prosperous, and at peace.'' Therefore, I am here to urge Senate 
backing for a clear U.S. strategy toward Europe's East and to 
thank you for your leadership on this issue.
    The Eastern Partnership began as a modest means to 
strengthen the ties of Europe's East to the European Union 
without offering membership. It has now become the leading 
instrument to foster the transformation of post-Soviet nations 
from Eurasian authoritarian kleptocracy to European democratic 
prosperity. The Eastern Partnership offers political 
affiliation with the European Union, economic integration, and 
the elimination of barriers to travel. These are the 
ingredients necessary to accelerate the adoption 
of European norms and values in post-Soviet nations. Its 
powerful unspoken premise is that true sovereignty requires 
greater democracy.
    So, at issue in Vilnius is whether Ukraine itself will join 
Moldova and Georgia in making major advances in their 
integration with Europe, but the Eastern Partnership's future 
itself is also in play. The issue is whether European leaders 
will evolve the partnership to become a pathway for successful 
reformers to pursue membership in the union while keeping open 
the long-term European option for the others.
    And this is where the United States becomes relevant. U.S. 
leadership has driven each wave of European integration, using 
NATO as the lead and often paving the way for European Union 
enlargement. The United States has stepped back from this 
leadership role driving this historic process. If the United 
States sits on the sidelines, this next wave of European 
integration, and ultimately enlargement, will fail. Building a 
Europe ``whole, free, prosperous, and at peace'' remains in the 
American national interest as much as previous phases of this 
process have. Indeed, the United States remains a European 
power with enormous influence over this process.
    The task today is to develop U.S. strategy to complement 
and indeed support the European Union efforts to integrate its 
neighbors in Europe's East. The United States should be an 
enabler of European integration and a driver of future NATO 
enlargement.
    The EU's Eastern Partnership Initiative and future NATO 
enlargement do not necessarily overlap, but they can be 
mutually reinforcing. The Eastern Partnership is the latest 
instrument of a common transatlantic strategy. We nearly 
achieved our post-war goals of a Europe ``whole, free, and at 
peace'' with the post-cold-war enlargement of NATO and the 
European Unions, the twin instruments of the strategy. But, 
even as we celebrate that success, we must recognize that our 
work is not yet done. Our renewed U.S. strategy for Europe's 
East should, therefore, consist of consolidating our gains, 
preventing rollback of freedoms, and setting the stage for this 
next advance of integration. In this context, the U.S. strategy 
toward Europe's East could include five elements.
    First, Washington can be clear, help articulate a clear 
goal to complete Europe. Such a vision gives strategic impetus 
to individual decisions that can at times seem small in impact 
when considered in isolation.
    Second, U.S. policy can back the EU's Eastern Partnership 
Initiative unequivocally in order to mitigate ambivalence with 
inside the European Union while strengthen the hands of its 
advocates. A divided EU will fail in integrating Europe's East.
    Third, the United States should assume a leading role in 
addressing the security concerns afflicting the eastern 
partners, because security is left unaddressed by the Eastern 
Partnership process. This means, in Moldova, for example, the 
United States should create a Strategic Partnership Council to 
parallel the structures we have with Ukraine and Georgia, and 
we should move from being observers in the negotiations over 
Transnistria to being full participants.
    Regarding Georgia, Washington should take the lead in 
restoring a strategy for Georgia to join NATO, as long as that 
country's leaderships pursue reforms and as long as they do not 
pursue witch hunts, including, particularly, against President 
Saakashvili.
    Fourth, the United States should be working with the EU now 
to support those nations to take decisive steps toward Europe 
in Vilnius. This means, for example, making clear that the 
Transatlantic Trade and Investment Partnership would be open to 
the countries of the Eastern Partnership that successfully 
reach agreements with the European Union, and, at the same 
time, the United States and the EU should be anticipating and 
countering Russian moves to derail these nations' move toward 
Europe.
    Finally, the United States should restore a sense of 
momentum to the broader integration process by leading the 
effort to welcome Macedonia and Montenegro into NATO, and 
Bosnia, Herzegovina, and Georgia into NATO's Membership Action 
Plan.
    Ukraine presents a particular challenge. President 
Yanukovych is not acting decisively to end selective justice 
and to release former Prime Minister Yulia Tymoshenko from 
prison. If he fails to do so, he should face consequences. 
Therefore, the challenge in Vilnius is to lock in Ukraine's 
European choice while gaining leverage to more effectively 
check antidemocratic behavior and to ensure the Ukrainians have 
a genuinely free choice in their 2015 presidential elections.
    The Eastern Partnership is not meant to create a new 
dividing line in Europe. It can help anchor a vulnerable and 
insecured zone and the certainty of a stable and prosperous 
Europe. Over the long term, the vision of a Europe ``whole, 
free, and at peace'' also includes a democratic Russia, but the 
pathway to reform in Russia might begin with choices in Kyiv, 
Chisinau, and Tbilisi, in favor of a European future.
    Thank you.
    [The prepared statement of Mr. Wilson follows:]

                 Prepared Statement of Damon M. Wilson

    Chairman Murphy, Ranking Member Johnson, members of the 
subcommittee, in exactly 2 weeks, European Union (EU) leaders will meet 
in Vilnius, Lithuania, with their counterparts from Europe's East to 
chart the next wave of European integration. While most EU summits do 
not merit the attention of the U.S. Senate, this Eastern Partnership 
summit is different. The sovereignty of the nations between the 
European Union and Russia is at stake. The outcome of the Vilnius 
summit will help determine whether the nations of Ukraine, Moldova, 
Georgia, Armenia, Azerbaijan, and Belarus will have the option of 
ultimately joining a Europe whole, free, prosperous, and at peace.
    The United States will not have a seat at the table at this summit. 
However, its results will have enormous strategic consequences for U.S. 
interests. Therefore, I am here to urge your backing for a clear U.S. 
strategy in support of the EU's Eastern Partnership. In short, we need 
a U.S. strategy for Europe's East.
    Launched in 2008 as a Polish-Swedish initiative prior to the 
Russian invasion of Georgia, European leaders envisioned the Eastern 
Partnership as a modest means to begin to strengthen the ties of the 
peoples of Europe's East to the EU, but without offering the goal of 
membership. At its inception, the Eastern Partnership was very much 
underestimated by the Eastern Partners themselves, as well as many 
inside the EU and indeed in both Washington and Moscow. Within 5 years, 
the Eastern Partnership has become the leading instrument to help 
foster the transformation of post-Soviet nations away from a future of 
Eurasian authoritarian kleptocracy to one of European democratic 
prosperity.
    The Eastern Partnership holds the potential to be a driver of 
reform as it offers six post-Soviet nations three enticing elements: 
political affiliation with the EU through Association Agreements, 
economic integration through deep and comprehensive free trade 
agreements, and elimination of barriers to travel through 
liberalization of visa policies. In essence, these are the ingredients 
to accelerate the adoption of European norms and values in post-Soviet 
nations, creating facts on the ground in which individual choices shape 
a country's strategic orientation. The enduring strength of the Eastern 
Partnership is that its success is driven by attraction, not coercion. 
Its powerful unspoken premise is that true sovereignty requires greater 
democracy.
    There are two key issues facing the Eastern Partnership. First, 
will the Vilnius summit mark a major advance in the integration of 
Ukraine, Moldova, and Georgia, the three Eastern Partnership nations 
that aspire to closer integration with the EU and have made the most 
progress in their negotiations? Second, will European leaders evolve 
the Eastern Partnership to become a pathway for successful reformers to 
pursue membership in the Union, while keeping open the long-term 
European option for the others.
    This is where the United States becomes relevant.
    U.S. leadership has driven each wave of European integration, using 
NATO as a lead instrument and often paving the way for EU enlargement. 
With the failure of NATO allies to reach consensus on the path forward 
for Georgia and Ukraine at the 2008 Bucharest summit, and in the 
context of the Russo-Georgian War shortly afterward, the United States 
in essence stepped back from its traditional leadership role of driving 
this historic process.
    While European leaders are not considering offering Eastern 
Partners a membership option, make no mistake that ultimately the 
process underway at Vilnius is about integration. If the United States 
sits on the sidelines, this next wave of European integration and 
ultimately enlargement will fail. It could fail because Europe remains 
divided on its objectives, the Russians have chosen to challenge this 
process, and the most significant obstacles to integration of Europe's 
East remain security issues that are beyond the purview of the Eastern 
Partnership.
    There is no doubt that this next chapter of integration will be 
more difficult than in the past. The bar is higher for today's aspiring 
nations as the EU has become more integrated and intrusive into the 
once-domestic affairs of its members. The base is also lower as the 
nations of the Eastern Partnership start further behind in reforms than 
their neighbors in Central Europe. Furthermore, as membership is not on 
offer as of now, the cost of reforms at home can be high in the short-
term while the long-term reward remains abstract. Furthermore, the 
Eastern Partnership nations are an extraordinarily diverse group of 
nations, united only by their post-Soviet heritage and their European 
geography. Some indeed do not aspire to greater integration with 
Europe. Finally, there is great reluctance within the EU even to broach 
the topic of future enlargement as the Union struggles with its own 
economic crisis and vacuum in political leadership.
    This is why the so-called ``European project'--building a Europe 
whole, free, prosperous, and at peace--remains in the American national 
interest, as much as previous phases of this process have. Indeed, the 
United States remains a European power with enormous influence over 
this process.
    In recent years, there has been a perception among many in Europe's 
East that the United States was leading on Russia policy while 
deferring to the EU on policy toward the neighbors. This is overly 
simplistic of course, but the United States has invested more energy 
and creativity in forging a relationship with Russia than its 
neighbors. This is a recipe for failure. We must do both. Thankfully, 
the United States Government is beginning to do just that.
    The task today is to develop U.S. strategy to complement and indeed 
support EU efforts to integrate its neighbors in Europe's East. Yes, 
the United States wants to avoid its efforts in Europe's East sliding 
into a U.S.-Russia conflict. But we also do not want that fear to lead 
to U.S. ambivalence or absence in Europe's East.
    The objective of U.S. policy should be to serve as an enabler of 
European integration and a driver of future NATO enlargement. The EU's 
Eastern Partnership initiative and future NATO enlargement do not 
necessarily overlap, but they can be mutually reinforcing just as NATO 
and EU enlargements have been in the post-cold-war period.
    Indeed, the Eastern Partnership is the latest instrument of a 
common transatlantic grand strategy. The United States fought in World 
War II not only to defeat the Nazi menace, but to help Europe emerge 
from war in a way that would never force the United States to fight 
again in Europe. After 45 years of cold war, we forged a bipartisan 
U.S. policy to fulfill our original national aims of 1945. We nearly 
achieved our goal, with NATO and EU enlargement, the twin instruments 
of this strategy to secure a Europe whole, free, and at peace.
    Even as we celebrate that success, we must also recognize that our 
work is not done. With NATO enlargement having reached a temporary 
pause, at least looking East, and EU enlargement in a slower phase, the 
Eastern Partnership represents the best instrument to keep this vision 
viable. A renewed U.S. strategy for Europe's East, therefore, should 
consist of consolidating our gains, preventing rollback of freedoms, 
and setting the stage for the next advance of integration. The Eastern 
Partnership is the key instrument for this strategy.
    In this context, effective U.S. strategy toward Europe's East in 
the short-term could include five elements.
    First, Washington can help articulate a clear vision and goal: to 
continue to forge a Europe, whole, free, prosperous, and at peace. That 
is, to complete Europe. The power of this simple message can be to 
restore the prospect of integration and ultimate membership in either 
NATO or the EU as an engine of reform in aspiring nations. Such a 
vision gives strategic impetus to individual decisions that can seem 
small in impact when considered in isolation.
    Second, U.S. policy can back the EU's Eastern Partnership 
initiative unequivocally in order to mitigate ambivalence among many EU 
member states while strengthening the hands of its advocates. 
Enthusiasm for a coherent EU strategy toward Europe's East varies 
greatly depending whether you are in Paris and Madrid, or Warsaw and 
Stockholm. The Bucharest summit experience suggests that a divided EU, 
much like a divided NATO, will ultimately fail in integrating Europe's 
East.
    Third, the United States should assume a leading role in addressing 
the security concerns afflicting the Eastern Partners and which are 
left unaddressed by the Eastern Partnership process.
    In Ukraine, this means intensifying mil-to-mil cooperation, 
deepening intelligence ties, and laying the groundwork for long-term 
influence with security structures which could either advance or 
undermine Ukraine's European future. It also means supporting Ukraine's 
efforts to ensure its energy security and buttress its sovereignty and 
territorial integrity, including in Crimea.
    In Moldova, the United States should build a security relationship 
where very little currently exists. While officially neutral, Moldova 
is keen to forge closer ties with the United States and NATO. The 
United States should target some of its limited assistance on security 
sector reform, as this sector remains an Achilles' heel for the 
nation's long-term security. Specifically, the United States could 
create a Strategic Partnership Council with Moldova to parallel the 
structures the United States has with Ukraine and Georgia. Such a move 
would demonstrate consistent support for the three leading nations of 
the Eastern Partnership. Furthermore, the United States with the EU 
should engage more seriously and creatively in the ``5+2 talks'' on 
Transnistria, a breakaway region, which Moscow seeks to maintain as a 
lever to complicate Moldova's aspirations. This would entail the United 
States (and the EU) changing from observer status to full participant 
in these negotiations and supporting a demilitarization of the 
conflict.
    Regarding Georgia, Washington will need to support the new 
leadership if and as it pursues democratic and economic reforms, as it 
asserts it seeks to do. At the same time, we must hold the country's 
new leadership accountable not to pursue witch hunts or politically 
motivated justice. The new government must understand that if it seeks 
to imprison former President Mikheil Saakashvili, it is freezing its 
path toward the EU and NATO. If Tbilisi focuses on advancing a European 
future without litigating its past, Washington should take the lead in 
restoring a strategy for Georgia to integrate with and eventually join 
NATO, giving credibility to the Bucharest summit decision that Georgia 
will become a member of the alliance.
    Fourth, the United States should be working with the EU now to 
support those nations that take a decisive step toward Europe in 
Vilnius. For example, the United States should be explicit that as it 
negotiates a comprehensive Transatlantic Trade and Investment 
Partnership with the EU, Washington aims to extend this landmark 
agreement to any Eastern Partnership nation that concludes a deep and 
comprehensive free trade agreement with the EU. Similarly, as leaders 
in Moldova, Ukraine, and Georgia take the right reform decisions and 
create level electoral playing fields, they should expect to be 
welcomed in Washington and to receive high-level visits in their 
capitals.
    At the same time, the United States and the EU should anticipate 
and counter possible Russian efforts to derail these nations' move 
toward Europe. Moscow has been vocal and specific in threatening these 
nations with retaliation ranging from bans on imports and mass 
deportation of labor migrants to energy cutoffs this winter. We know 
the pressures the Eastern Partners already face and we should be 
preparing now to assist or counteract such measures where we can. The 
United States and Europe should work hand in hand with governments and 
societies in the region to prevent Russian rollback of freedom's gains.
    Finally, the United States should restore a sense of momentum to 
the broader integration process by leading the effort to welcome 
Macedonia and Montenegro into NATO and Bosnia and Herzegovina and 
Georgia into NATO's Membership Action Plan (MAP). These steps can help 
reinforce the EU's resolve to continue extending its hand to the East.
    Many argue that the United States does not need a strategy toward 
Europe's East--or rather that the best U.S. strategy is to leave the EU 
in the lead and remain silent. There is a cost to having no strategy. 
Some leaders in Moscow will conclude that they can maximize their 
efforts to disrupt Eastern Partners' moves toward Europe without 
consequences. Therefore, inaction increases the chance of greater 
instability in Europe's East leading to even greater challenges in the 
future for U.S. policy. A clear U.S. strategy in support of Europe now 
will help advance our interests in advancing a free, democratic East 
and mitigate opportunities for mischief-making in the short-term while 
laying the groundwork for long-term security, stability, and 
prosperity.
    While Ukrainian President Yanukovych is all but guaranteeing last-
minute drama at the Vilnius summit, what happens beyond Vilnius is as, 
if not more, important. The Vilnius agreements will begin a process of 
transforming economies and societies in Europe's East; they do not 
offer the prospect of EU membership.
    By their next Eastern Partnership summit in Riga, Latvia, in 2015, 
EU members states should aim to offer two tracks to their partners: the 
prospect of beginning the long path to membership for those who make 
the most progress on reforms, while keeping long-term options open for 
those partners who either do not aspirate to membership or fail to 
deliver on reforms necessary to start to the process.
    Moscow's reaction to the Eastern Partnership provides clarity on 
the broader strategic perspective of what will play out in Vilnius. 
While the EU has been clear that the Eastern Partnership is not aimed 
against Russia, President Putin has decided to treat it as a challenge. 
Putin is clear that his objective is in essence the restoration of a 
sphere of domination through the creation of a Eurasian Union and an 
accompanying Customs Union (which is incompatible with a deep and 
comprehensive free trade agreement with the EU). These instruments are 
not premised on equality and respect for sovereignty; rather they would 
enable Moscow to dominate the post-Soviet space. Russia's strategy, as 
so clearly illustrated in Armenia's decision to drop its bid for an 
agreement with the EU in Vilnius, is based on coercion and disruption. 
Such a strategy may result in tactical wins, but ultimately it is not 
sustainable, as it will not engender the support of individuals in 
these nations who recognize the opportunities lost. Nor is it a formula 
for long-term stability, as it rests on intimidation in the short run 
and deprivation of the sovereign rights of other nations to choose 
their own future in the long run.
    Ukraine presents a particular challenge in Vilnius. Strategically, 
Ukraine is by far the most important of the Eastern Partners. However, 
the Yanukovych administration's perception of Ukraine's importance is 
leading it to do the bare minimum, if that, to meet EU conditions. 
Specifically, President Yanukovych is not acting decisively to end 
selective justice and to release former Prime Minister Yulia Tymoshenko 
from prison. President Yanukovych has the unique ability to unify 
Ukraine around its European choice--that is to deliver the eastern 
Ukraine electorate in a way a politician from western Ukraine could 
not. But in the end, Yanukovych is a transitional figure; he is not 
committed to the values of a democratic Europe. Even as he negotiates 
in favor of Ukraine's European future, he is manipulating Ukrainian 
legislation and institutions to help ensure he secures a second term. 
Therefore, the challenge in Vilnius is to lock in Ukraine's European 
choice while gaining leverage to more effectively check antidemocratic 
behavior and ensure that Ukrainians have a genuinely free choice in 
their 2015 Presidential elections.
    The Eastern Partnership is not meant to create a new dividing line 
in Europe. It can help anchor a vulnerable and insecure zone in the 
certainty of a stable and prosperous Europe. Over the long-term, the 
vision of a Europe whole, free, prosperous, and at peace also includes 
a democratic Russia.
    But the pathway to reform in Moscow might begin with choices in 
Kyiv, Chisinau, and Tbilisi in favor of their European future.

    Senator Murphy. Thank you.
    Senator Johnson.
    Senator Johnson. Thank you, Mr. Chairman.
    Dr. Cohen, I believe what you said was, the United States 
has been way too low key in our support for the Eastern 
Partnership. Mr. Wilson laid out, kind of, a five-point plan. I 
was going to ask you, similarly, What can and should the United 
States do to be not quite so low key so we can be more 
forthright in our support?
    Dr. Cohen. Thank you, Senator.
    First of all, the visibility matters. Diplomacy is 
perception and symbols as well as actual action. We were 
lagging behind in visibility. I challenged an administration 
official to name one senior official--Vice Presidential level, 
Secretary of State level, Deputy Secretary of State level--to 
visit any of these countries to actively promote Vilnius 
process. And I was left lacking. We did not put boots on the 
ground, in terms of high levels of diplomacy. We did not link 
economic assistance with membership. And, in case of Ukraine, 
as we heard from our learned colleague, Dr. Aslund, the IMF 
bailout, the economic help, is absolute vital for the 
Yanukovych administration not to collapse, not to have popular 
discontent overflowing if they mismanage the economy even 
further beyond the way they mismanage it already. So, I think, 
linkage of economic measures and economic assistance, including 
the IMF pipeline, as well as visibility. Talking to the 
Russians to dial it down, and explaining to the Russians what 
kind of consequences they may have if they do not--not to 
threaten the neighbors, in the worst traditions of the 20th-
century European politics--all of these avenues were either not 
explored or explored insufficiently by the current 
administration.
    Senator Johnson. So, leadership strategy, more visibility. 
Is there a danger, if we get too aggressive with our support, 
that it might stiffen Russian spine to resist even further or 
more aggressively?
    Mr. Wilson.
    Mr. Wilson. You know, I think that there are many that the 
argument, ``We can't let this slip into a U.S.-Russian 
confrontation, and so, we should take a backseat, let the EU 
lead.'' I understand that, to some degree, on tactics, but it 
cannot be an excuse for absence.
    Russia is trying to prevent this from happening, regardless 
of U.S. policy. So, I think it is incumbent upon us--this is 
the game in town, we are at the center of it, and our interests 
are at stake here. So, if you look at the record of Russian 
behavior in trying to undermine these nations, it is actually 
pretty outrageous, the steps that they have taken--explicit 
blackmail and coercion. And I think we should call a spade a 
spade, and speak clearly about that. At the same time, we need 
to make the point--we did not choose--this is not about trying 
to confront Russia. Unfortunately, President Putin has taken 
that decision.
    When you talk to educated folks in Moscow today, many of 
them realize that this is an extremely counterproductive policy 
on the part of Russia. President Putin has done more to stiffen 
the spine of the European Union, and probably has done more to 
stiffen the spine of some of those that were uncertain in the 
Eastern Partnership, because who wants to be dominated by a 
neighbor, a ruler that treats them in thuggish tactics.
    So, there is a role to be savvy about our diplomacy, I 
understand that. But, at the same time, we cannot use that to 
be quiet or absence.
    Senator Johnson. For whoever really wants to answer this, 
What does Yanukovych fear in releasing Tymoshenko? Or, why is 
he so reluctant?
    Mr. Aslund. Well, you can say that President Yanukovych is 
driven by two fears. One is Mr. Putin and one is Tymoshenko. 
Why? Clearly, there is an enormous personal animosity between 
them. According to the opinion polls, Vitali Klitschko is now 
the most popular position leader in Ukraine, and President 
Yanukovych has now lost stride, signed into law an amendment to 
the Ukrainian tax code that means that Klitschko perhaps may 
not fulfill the residence requirement to stand in the next 
Presidential election.
    Yulia Tymoshenko lost by 3\1/2\ percent in the Presidential 
elections, to Yanukovych in February 2010. Elections were 
deemed free and fair. But, of course, President Yanukovych had 
far larger financial resources in that election, and much more 
media support than Prime Minister Tymoshenko. So, he is afraid 
of her as somebody who could win free elections against him. 
And President Yanukovych popularity rating is likely over 20 
percent.
    Senator Johnson. OK.
    Mr. Wilson, you want to chime in?
    Mr. Wilson. If I could just add to that. I agree with much 
of what Dr. Aslund just said. I had an opportunity to be the 
first American to visit Yulia Tymoshenko in prison when she was 
in Kharkiv. President Yanukovych let us visit as part of a 
Freedom House delegation. It was clear, her determination from 
her prison bed, to manage the opposition to President 
Yanukovych. It was clear in conversations with him, this is 
extraordinarily personal. And Dr. Aslund is right--he does fear 
her more than he values what he is planning for Ukraine's 
future. It is a very personal element of this. He is behind in 
the polls. He is vulnerable headed into the elections.
    The point that I wanted to make is, even as we focus on the 
release of Tymoshenko from prison today, what we really need to 
be focused on is also how he is setting the stage for the 2015 
Presidential election, whether it is Tymoshenko in prison 
trying to disqualify Klitschko because of foreign residency--
resident--the way he defines ``residency requirements,'' or 
pursuing--open a new corruption case against the former speaker 
of the Rada to disqualify him, or to consider other 
constitutional means. The choice to join Europe is not a 
technical process that they negotiate in a document. The 
Ukrainians have done that well.
    It is, at the end of the day, a fundamental choice about 
values and principles. President Yanukovych has not 
demonstrated that he has made that strategic choice yet. And I 
think we want to lock Ukraine in this path, but we have to 
continue to hold the leadership accountable, not just what 
happens at Vilnius, but certainly the pathway to the 2015 
election.
    Senator Johnson. Dr. Cohen.
    Dr. Cohen. Briefly, I am appalled that there is no 
recognition of the historic value and historic significance of 
this choice. In 1654, a quasi-democratic meeting of then-
Ukrainian Cossacks and such voted to join the Russian Empire. 
It was called the Council of Peryaslav, 1654. And Ukraine lost 
its independence as a result, and we did not see Ukrainian 
independence then until 1918, for over 300 years. This should 
not be another Council of Peryaslav, Mr. Senator.
    Senator Johnson. Thank you all for your testimony.
    And thank you, Mr. Chairman, for letting me go out of 
order.
    Senator Murphy. Thank you, Senator Johnson.
    So, I mean, let me push back a bit on the contention that 
the United States has been absent. We have been very clear with 
respect to what Yanukovych needs to do with respect to 
Tymoshenko. Our Assistant Secretary, who just testified, was 
just recently in the region. And so, I certainly understand 
your desire for more U.S. action. I would draw a little bit of 
issue with the contention that we have been absent.
    But, what do we do when we have a fundamentally uneven 
playing field with respect to tactics? Dr. Cohen, you talked 
about the outright blackmail that is happening right now with 
respect to the conversations between the Ukraine and Russia. We 
talked a little bit about the borderization that is occurring 
right now in South Ossetia and Abkhazia. And part of my worry 
about tactics, such as telling the Georgians, for instance, we 
are going to withdraw our aid if they do not join, that we are 
not going to provide IMF support to the Ukraine if they do not 
sign an agreement, is that then, at some level, our tactics 
start to look somewhat similar to the tactics that the Russians 
are using.
    And so, how do we counter tactics, that are clearly way 
below the belt with respect to the Russians, with ones that are 
true to our values and the norms that conventionally underlie 
the carrot-and-stick approach that we give to countries when 
our national interests are at stake?
    I will ask the panel, and start with you, Mr. Wilson.
    Mr. Wilson. Senator Murphy, thank you very much.
    Just to be clear, I would not make the case that the United 
States has been absent at all. If you look at the diplomacy 
that is played out in Kyiv, the United States has been at the 
heart of that. This was one of the first trips that Assistant 
Secretary Nuland made; indeed, expressly for this purpose. In 
part, getting her in office was a key issue at a key time 
during the summer. But, I think she has very clearly laid out 
an important strategy for the U.S. Government, and, more 
importantly, led that strategy by providing the overall vision, 
reestablishing the sense of what we are trying to accomplish 
here. And the messaging matters, the presence matters in this.
    You are absolutely right, there is a fundamental difference 
between the option looking to a Customs Union or to the Eastern 
Partnership, because it is based on their choice. And we have 
to respect that. Our tactics, our strategies are fundamentally 
different, because it is based on the sovereignty of the 
country, the decision of the people. And I think what is of 
concern in a country like Georgia or Ukraine is--it is quite 
clear, at times, where the population, where the elites are 
going, in terms of wanting to see their countries join Europe. 
And it is the influence, because of the still lack of maturity 
of the democratic institutions, but that does not always 
translate to the decision that is playing out today.
    Our strategy has to lead with the offer of what we are--the 
prospect of what we are offering these countries by moving 
closer to Europe, integrating through long-term economic growth 
and prosperity. The reality is, a short-term framework, there 
will be some pain for these economies to adjust to European 
competition. This is about long-term benefits, long-term 
anchoring their countries in a society of common values and 
interests.
    We actually cannot compete with the short-term approach 
that the Russians would pay, whether it is a carrot of putting 
money on the table today or a stick of bribing them. So, I 
think our tactics and methodology are fundamentally different. 
It has to be premised on the choice these countries make, and 
that is why you see some of them--they are not moving in this 
direction. And we, in the end, have to accept that. We just 
need to make the choice clear that, I think, faces them.
    Senator Murphy. Dr. Cohen, you--maybe I got you wrong, but 
I thought I heard you suggesting that we should threaten to 
withdraw supports if they do not sign the agreement.
    Dr. Cohen. No, I would put it differently. I would say that 
we would be more positively inclined to provide support if they 
sign the agreement. And I think, Mr. Chairman, in this town, 
the art of realpolitik and the recognition of the realities how 
this world operates, including Eastern Europe, including the 
Middle East and other parts of the world, is sometimes lacking. 
And I do believe that wrapping our inaction in the rhetoric of 
values or in the rhetoric of defense of abstract ideas which 
result, eventually, in loss of significant geopolitical assets 
to this country and to our European allies, is misguided and 
came to bear in this administration more than before.
    Senator Murphy. Mr. Aslund.
    Mr. Aslund. Yes. There are several legal instruments that 
the United States can use. Russia has now joined the World 
Trade Organization, August last year, and the United States has 
granted PNTR, but Russia is not obeying the rules at all. The 
United States can help various countries bring out these issues 
in the WTO. It will not get fast results. The WTO works very 
slowly. But, it is an important instrument to use.
    Secretary Nuland, previously today, mentioned TTIP, which 
is a very attractive development. And if Ukraine would get the 
Association Agreement, the assessment is that this would 
increase Ukrainian GDP in the long term by 12 percent, increase 
exports in total by almost 50 percent, while, if it joined the 
Customs Union, GDP will decline. And Russia does not have a 
viable trade alternative. The Customs Union is a small and 
protectionist trade association, and the Russian economy is 
only one-tenth of the EU economy. So, the point is that Russia 
is taking two large costs upon itself, and if Ukraine does not 
join the Customs Union, it does not look viable or even 
sustainable.
    So, I think that Russia is in a corner, where it has put 
itself. And therefore, the United States have a lot of leverage 
through the various international initiatives and organization.
    Thank you.
    Senator Murphy. Thank you.
    The Partnership summit in Vilnius represents a very 
important and convenient decision point for these three 
nations. And, Dr. Cohen, at least you expressed some growing 
skepticism that Ukraine may sign there. Do we risk overhyping 
the summit itself, in the sense that, if there is a decision 
perhaps by Yanukovych to continue negotiations, that this 
process is a little bit more linear than we may point out? What 
happens if we do not get everything we want and the Europeans 
want at the Vilnius summit? How dire should we read a failure 
for all three countries to initial or sign?
    Dr. Cohen. The evaluations I reviewed yesterday are talking 
of a quick decline of probability of signature in Vilnius, from 
about 50 percent to 20 percent in a couple of days.
    Senator Murphy. With respect to Ukraine.
    Dr. Cohen. With respect to Ukraine.
    Senator Murphy. Right.
    Dr. Cohen. It is a worrisome process. I do not think it is 
the end of the world. But, as I said before, (a) Mr. Yanukovych 
is going to shoot himself and his country and his people in the 
foot if he does not sign; (b) we will need to continue to 
engage our European allies, and the Europeans will have to take 
a leadership position on that, as they have been until now, and 
bridge their own differences, let us say, between the Polish 
position that they should sign the Association Agreement, no 
matter what, with Ukraine, and the German position that human 
rights are important. They have to work it out. We have to work 
with them on that issue.
    And yes, of course we should continue working past Vilnius 
if there is no signature with Ukraine. However, the chances of 
that process not coming to fruition will continue to decrease 
if Vilnius brings no resolution, because the Russians will feel 
strong and will continue doing what they are doing with the 
results that they are gaining.
    And I agree with Dr. Aslund, that, without Ukraine, the 
Customs Union loses its viability; but, even without Ukraine, 
if you will look at the Russian plans right now to bring in 
Kyrgyzstan, Tajikistan--small countries, granted--but continue 
to expend--Armenia--continue to expend that, and then move to 
the Eurasian Union in 2015 as a fully operational bloc--I think 
the Russians are playing that game.
    And, if I may, sir, I would like my full testimony----
    Senator Murphy. Certainly.
    Dr. Cohen [continuing]. To be included for the record.
    Senator Murphy. Yes. And I should have said that. We will 
have all of your full testimony included into the record.
    Building on that point, Mr. Wilson, when Secretary Nuland 
was in Kyiv, she likely saw the proliferation of little 
European flags all around that city, representative of a 
longstanding belief that Yanukovych, as his legacy, was going 
to deliver on a promise of a fully independent Ukraine with an 
orientation toward the much broader, more open market of 
Europe. If Yanukovych walks away from this summit without an 
agreement, how does he explain this to the people of the 
Ukraine, who, for the most part, have been of the belief that 
this was Yanukovych's mission, to bring an Association 
Agreement to fruition with the European Union?
    Mr. Wilson. I think you have hit one of the most important 
points. Ukraine is not a dictatorship. President Yanukovych 
will face retribution from his own electorate and from his own 
supporters, whether they be oligarchs and the economic 
structure or they be an average voter on the street in a 
village. First and foremost, would be a missed opportunity for 
Ukraine, a failure for Ukraine--not as much a failure for the 
United States or the European Union, which have handled this 
right, have put the right offer on the table. But, it does 
speak to--we have been there before with Ukraine. We have 
experienced missed opportunities, unfortunately, on a cycle of 
repetition that is a little bit too frequent. We saw that in 
the wake of the Orange Revolution. We have seen it on numerous 
times in Ukraine's recent history.
    We have to be in this for the long term. President 
Yanukovych is ``a'' President of Ukraine. He will be a 
transitional figure. Whether he is a transitional figure that 
demonstrably leads Ukraine to Europe or not, I think, is at 
issue in Vilnius. If not, I think that he will have a political 
challenge on his hands to explain that to his own population. 
And that is, frankly, a good sign of the health of the emerging 
civil society, the emerging, sort of, taste of democracy that 
the Ukrainians are beginning to expect.
    Senator Murphy. Dr. Cohen.
    Dr. Cohen. Having studied the Russian sources on this 
subject for the last 3 months, I would suggest that Mr. 
Wilson's scenario holds, provided there is no massive Russian 
intervention and there is no strong pro-Russian leader. If, 
however, what the Russians want is launched and successfully 
funded and accomplished, they may get, either in the person of 
Yanukovych or in the person of somebody else, a strong pro-
Russian faction that then starts to put the squeeze on the same 
civil society that both Damon and myself admire in Ukraine, and 
leading to a different Ukraine, a Ukraine that would look more 
like Belarus, for example, the neighboring country, with a 
strong, basically, pro-Russian leader and with declining 
democratic institutions and practices.
    Senator Murphy. Thank you.
    Go ahead. Mr. Aslund.
    Mr. Aslund. Yes. Let me pull up on the same line as my 
colleagues, here. Something that is very important is that 
there is a solid and steady pro-European majority in Ukraine. 
And, of course, the Ukraine now is less free than it was 3 
years ago, but it is still quite a free country. So, President 
Yanukovych needs some other pro-European votes in order to win 
the elections in March 2015. So, the main victim, if the 
Ukraine fails to sign in Vilnius, might probably be President 
Yanukovych himself, because he has deprived himself of the 
possibility of winning a reasonably free and fair election in 
2015 and perhaps even a not very free election.
    Senator Murphy. The title of this hearing includes Belarus, 
which you referenced, Dr. Cohen, and Azerbaijan. We have not 
spent much time on either, so let me just finish with a rather 
open question on U.S. policy toward those two nations. 
Obviously, Belarus is in a very different position, a member of 
the Customs Union. What are the changes for any increased 
orientation toward Europe in the future, a pro-Russian leader, 
yet some rocky times currently with respect to the fertilizer 
issue and others?
    And then, in Azerbaijan, maybe I will frame the question 
this way. What does Armenia's decision to join the Customs 
Union mean for the prospect, in 2015 or sometime thereafter, 
for Azerbaijan to initial an agreement with the EU? Clearly, 
they have a long way to go, especially with recent reports on 
the quality of these last elections, but a country, especially 
with their energy resources, that would be an important--very 
important partner, in a lot of ways, more important than some 
of the nations that may be at Vilnius, for the European Union.
    So, let me open that up for final comments on the future of 
United States relations and European relations with Belarus and 
Azerbaijan.
    Go ahead. We will go down the line. Mr. Aslund----
    Mr. Aslund. Yes.
    Senator Murphy [continuing]. First.
    Mr. Aslund. Let me start with Belarus. Belarus is, today, 
in an awful financial crisis. Belarus gets about $10 billion of 
subsidies from Russia each year, and, even so, as you have 
mentioned, Mr. Chairman, it has a trade war with Russia. Russia 
prohibits its dairy exports. They are fighting over the 
ownership and all the Belaruskali, the, by far, biggest and 
most valuable company in Belarus. And they are also fighting 
over all the export duties.
    So, President Alexander Lukashenko is very skillful on 
fighting the Russians and get money out of them and staying in 
power at home. But, if Russia would say that, ``You can't get 
more than $10 billion a year from us,'' it is not clear how 
Belarus will be sustainable. The reserves are now down to 2 
months of imports, which is far too little for any country. And 
President Lukashenko pursues a quite capricious economic 
policy; in particular, increasing salaries far too much. So, 
Belarus should not be considered stable, and the problem there 
is likely to come from the economy rather than from the 
outside.
    Senator Murphy. OK.
    Mr. Aslund. Thank you.
    Senator Murphy. Dr. Cohen.
    Dr. Cohen. I agree with what my colleague said about 
Belarus. I would just add that Russia put that albatross on its 
own neck, and it is stuck with it. And in order to accomplish 
the number one geopolitical goal for Mr. Putin, which is to 
have the Eurasian Union up and running by 2015, they need 
Belarus, and they need Belarus in good enough shape to be there 
and not fall apart.
    On Azerbaijan, it is complicated, because Azerbaijan is 
pro-Western, it is culturally Shia, but it is a secular state, 
and it has a lot of oil and gas, and it is supplying Europe, 
through an alternative path, not the path that is controlled by 
Russia. Both the so-called Contract of the Century, which is 
oil, and the new TANAP Pipeline that will be built by 2017 
through Turkey, which is gas, with two spurs, one called TAP 
and one called Nabucco West, all going to Europe, a gas source 
outside of Russia.
    What the underwater reef--the problem with the initialing 
of the Association Agreement between Azerbaijan and the EU-AZ 
was, I was told, the reluctance of Europe to recognize the 
problems of territorial integrity of Azerbaijan and occupation, 
and concerns about the Presidential elections. If Azerbaijan 
and the Europeans are willing to work these differences out, if 
there is a progress, in terms of the rule of law, in terms of 
democracy, and the two sides can resolve that, I think it will 
be in the interest of Europe, in the interest of Azerbaijan, 
and in the interest of the United States that the Association 
Agreement will be moving forward. And, as a nonmember of the 
WTO, the Free Trade Area is not on the agenda right now.
    Senator Murphy. OK.
    Mr. Wilson.
    Mr. Wilson. Senator, I would just add that--I would go back 
to first principles--that what we are talking about here, of a 
Europe ``whole and free,'' has, frankly, been our strategy 
since the end of World War II. We are in this for the long 
term. In Vilnius, we are talking about the next chapter of 
European integration. That is not going to include Belarus and 
Azerbaijan, in this particular chapter.
    So, it goes back to your question about tactics. We do not 
force countries into Euro-Atlantic institutions. That is not, 
obviously, the approach of our--it does not reflect our 
principles. Those decisions reflect the societies, they reflect 
the countries, they reflect the leaders. And it is clear, in 
Belarus today, while we are interested in an independent and 
sovereign Belarus, this is not--Lukashenko is not a leader that 
will take his country to Europe. And I think we need to be just 
very up front and aware of that, and do what we can to help 
support democratic opposition in a very difficult circumstance.
    And Azerbaijan, as Dr. Cohen said, is quite a different 
case, in that there is quite a strong interest in a 
relationship with the West, and I think it is important that we 
figure out how to be able to engage the right way without doing 
so--without sacrificing or muzzling our own values and concerns 
about the development of democracy there.
    But, we are in this for the long term, and I think we need 
to think about Belarus and Azerbaijan, not as being left out, 
in Vilnius, but as a longer term strategy of forging 
relationships with, frankly, the peoples of those countries. I 
spend a lot of time with students from Belarus at the European 
Humanities University in Vilnius, with students from 
Azerbaijan. They think about their country in a way that is not 
very different from Ukrainians today. And I think we have to 
keep that perspective.
    Senator Murphy. I will just note that, in the wake of a lot 
of questions with respect to the elections in Azerbaijan, one 
very positive step that the Azerbaijan Government could make is 
the release of a list of prisoners, both held by the State 
Department and human rights groups, that are being detained 
currently.
    Thank you, to our panel.
    Let me just finish by including into the record statements 
that we have from the Ambassadors of Moldova and Azerbaijan on 
their countries' participation in the Eastern Partnership.
    Senator Murphy. We will keep the record open until 5 p.m. 
tomorrow, and, if we get any additional questions, hopefully 
you will respond as quickly as possible.
    With that, this hearing is concluded.
    [Whereupon, at 4:40 p.m., the hearing was adjourned.]
                              ----------                              


              Additional Material Submitted for the Record


     Responses of Assistant Secretary Victoria Nuland to Questions 
                 Submitted by Senator Edward J. Markey

    Question. After Armenia and the EU concluded negotiations for an 
Association Agreement (AA) in July, it was widely expected that the 
deal would be initialed at the Vilnius summit. However, President 
Sargsyan announced in September that Armenia planned to join the 
Russian-led Customs Union--a step the EU warned would be incompatible 
with an AA. What factors led to Armenia's change of course? What 
economic or other forms of pressure is Russia exerting on Armenia or 
other nations in the region to pull them away from establishing closer 
ties to the EU?

    Answer. While the United States cannot speak for Armenia or the 
rationale behind its decision to join the Eurasian Customs Union, we do 
know that Armenia depends upon Russia for a significant amount of 
security and economic assistance. We have regularly reminded Russia 
that any form of pressure to prevent sovereign states from pursuing 
greater integration with the EU, or other organizations of their 
choosing, contravenes Russia's obligations under the Helsinki 
Principles of the OSCE and the Charter of Paris, as well as its 
obligations under the WTO, which includes a commitment to a 
nondiscriminatory trading system. We will continue to work with Armenia 
on its Euro-Atlantic integration to preserve the progress made in the 
Eastern Partnership over the past 3\1/2\ years. The United States 
continues to support Armenia's democratic, economic, and social reforms 
designed to promote regional stability and a peaceful resolution to the 
long-running Nagorno-Karabakh conflict. These efforts will also help 
foster rapprochement with Turkey and Azerbaijan.

    Question. In announcing Armenia's decision to join the Customs 
Union, President Sargsyan stated on September 3 that the move would not 
necessarily ``preclude our dialogue with the European structures.'' \1\ 
EU Enlargement Commissioner Stefan Fuele also suggested that although 
Armenia would not be able to sign an AA with the EU if it joined the 
Customs Union, Brussels would be prepared to engage with Armenia under 
a different framework.\2\ What are the prospects for further 
cooperation or followup agreements between the Armenian Government and 
the EU, and what forms could such cooperation or agreements take?

    Answer. Although Armenia is no longer a candidate for an 
Association Agreement, both the EU and Armenia have stated their desire 
to preserve the progress and reforms made over the past 3\1/2\ years. 
The EU and Armenia are examining ways to demonstrate continued 
cooperation short of an Association Agreement, in areas such as visa 
facilitation, readmission, education, and transport. EU officials have 
publicly stated they are seeking to sign a document to highlight areas 
of continued cooperation, but it is not clear whether such a document 
locking in this future partnership will be ready in time for the 
Vilnius summit. The United States will continue to promote Armenia's 
Euro-Atlantic integration by supporting its democratic, economic, and 
social reform efforts.

    Question. Russia has reportedly increased its arms trade with 
Azerbaijan to a total of around $4 billion.\3\ This past summer, Russia 
delivered a package of tanks, artillery, and rocket launchers to 
Azerbaijan worth around $1 billion.\4\ What are the implications of 
enhanced Russia-Azerbaijan defense relations for Armenia's security? 
What are the implications for the conflict over the Nagorno-Karabakh 
region?

    Answer. As a cochair of the OSCE Minsk Group, we remain committed 
to helping the sides find a peaceful resolution to the Nagorno-Karabakh 
conflict. The United States has continued to make clear to Azerbaijan 
and Armenia, both bilaterally and through the Minsk Group, that there 
is no military solution to the conflict.
    The arms race between these countries decreases trust and leads to 
increased instability on the ground. Russia has a close military 
relationship with Armenia as a fellow Collective Security Treaty 
Organization (CSTO) member, but sells weapons to Azerbaijan as well. In 
selling arms to both sides Russia has not fundamentally changed the 
military balance, but the arms race it is fueling underscores why a 
peaceful settlement is urgently needed.

    Question. There is reason for concern that Russia could take 
retaliatory measures against the countries that plan to complete 
Association Agreements with the EU--including the Ukraine, Moldova, and 
Georgia. Do you expect Russia to impose economic sanctions, cut off 
natural gas supplies, or take other retaliatory actions against any of 
these countries? What steps can the United States and European Union 
take to assist these states in withstanding Russian pressure?

    Answer. The Department of State fully shares your concerns about 
Russian pressure on several Eastern Partnership countries, including 
Ukraine, Moldova, and Georgia. We have been working with the EU and 
each candidate country to help them in their efforts to anticipate and 
prepare for any negative reaction to their choice, whether it comes 
from inside or outside their countries. We cannot speculate on what 
steps the Government of Russia might, or might not, take if certain 
countries completed Association Agreements with the EU.
    The United States strongly believes every country has a sovereign 
right to choose its international relations. We have made this publicly 
clear, as well as in our private discussions with EaP and EU countries 
at the highest level. Through our assistance and actions, we have 
supported EaP countries in exercising their choice to move closer to 
Europe and assist them as they implement the reforms they need to sign 
and initial Association Agreements. We will continue to work with the 
EU to strengthen these countries' ability to resist external pressure.
    Any form of pressure to prevent sovereign states from pursuing 
greater integration with the EU, or any organization of their choosing, 
contravenes obligations under the OSCE Helsinki Principles and the 
Charter of Paris.
    The U.S. Government provided over $260 million in assistance to the 
Eastern Partnership region in FY 2013, the majority of which is used to 
promote democratic, economic, rule of law, and other reforms that are 
consistent with the Eastern Partnership's objectives.
    We are continuing to consider ways to target our assistance to EaP 
countries to strengthen their ability to resist external pressure aimed 
at discouraging their European trajectory. For example, we are 
exploring ways to help Moldova become more energy independent, and we 
are coordinating with the Georgian Government as it identifies how the 
international community can best assist those affected by Russia's 
``borderization'' of the Administrative Boundary Lines of the occupied 
territories in Georgia. Also, with the support of U.S. assistance, 
Georgia has reoriented its trade toward Western markets and increased 
its energy efficiency and diversity.
    Our assistance to the region will also be targeted to help speed up 
the implementation of the EU's Association Agreement and the Visa 
Liberalization Action Plan, so that the EaP countries, and most 
importantly their citizens, will sooner see tangible outcomes and enjoy 
the benefits of living in a democracy.

    Question. In the State Department's latest human rights report, I 
was concerned by the judgment that Ukraine has seen a ``marked increase 
in discrimination, social stigma, and violence against LGBT 
individuals.'' \5\ The Ukrainian Parliament seems torn on this issue: 
one bill under consideration would amend the Labor Code to ban 
workplace discrimination based on sexual orientation \6\; yet another 
would prohibit ``dissemination of any positive information about same-
sex sexual relations.'' \7\ The EU has demanded progress on LGBT rights 
before allowing Ukrainians visa-free travel around Europe.

   What are the prospects for legal reform measures to improve 
        conditions for Ukraine's LGBT community? How can the United 
        States and European Union support such reform efforts?

    Answer. Lesbian, gay, bisexual, and transgender (LGBT) individuals 
are stigmatized in Ukrainian society. Although in May 2013 Ukraine 
allowed its first LGBT ``Equality March'' (Pride), LGBT individuals 
continue to face discrimination in education, the workplace, and in 
medical treatment, including impeded access to information on the 
prevention of HIV/AIDS. LGBT individuals have been the targets of 
violence and abuse by police and members of the public.
    During the last year, the Ukrainian Parliament continued 
deliberations on four conflicting draft laws relating to LGBT rights: 
Two bills propose to criminalize the publication, broadcast, or 
distribution of so-called ``homosexual propaganda.'' A third bill would 
ban international adoptions of Ukrainian children by couples in same-
sex marriages. The fourth, which is required to fulfill a visa 
liberalization agreement with the European Union, proposes to prohibit 
employment discrimination based on sexual orientation. Since May 2013, 
none of the draft bills has passed the first reading in the Parliament; 
i.e., they have only been introduced, and not yet voted out of 
committee.
    In 2013, Embassy Kyiv used a multifaceted approach to promote the 
human rights of LGBT people, including providing organizational support 
to civil society activists, engaging the Ukrainian public with cultural 
programming, and the targeted use of grants and exchange programs to 
build LGBT NGO capacity in Ukraine. In advance of the first successful 
national Pride March in Kyiv in May 2013, then-Ambassador Tefft 
released a statement of support for those choosing to march.
    We continue to work publicly and behind the scenes to encourage the 
Ukrainian Government to protect the civil and human rights of all its 
citizens, including LGBT persons. The EU, for its part, will continue 
to engage Ukraine through the European Parliament's Intergroup on LGBT 
rights. Ukraine's proposed legislation is both incompatible with the 
European Convention on Human Rights and an obstacle for Ukraine 
achieving visa-free travel to the EU.

----------------
End Notes

    \1\ http://www.eurasianet.org/node/67482.
    \2\ http://www.rferl.org/content/eu-armenia-fuele-russia-/
25105412.html.
    \3\ http://www.bloomberg.com/news/2013-08-13/azeri-russian-arms-
trade-4-billion-amid-tension-with-armenia.html.
    \4\ http://www.reuters.com/article/2013/06/18/us-russia-azerbaijan-
arms-idUSBRE95H0KM201 
30618.
    \5\ http://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/
index.htm?year=2012&dlid=204349# 
wrapper.
    \6\ http://www.hrw.org/news/2013/11/04/dispatches-be-or-not-be-
anti-discrimination-and-lgbt-rights-ukraine.
    \7\ http://www.hrw.org/news/2013/04/16/ukraine-reject-
discriminatory-lgbt-laws.
                                 ______
                                 

     Prepared Statement by H.E. Elin Suleymanov, Ambassador of the 
              Republic of Azerbaijan to the United States

    Thank you for this opportunity to present the perspective of 
Azerbaijan on this pivotal moment for many of the nations of Eastern 
Europe and the South Caucasus.
    Relations between the European Union (EU) and Azerbaijan, which 
were established shortly after our independence, have been steadily 
progressing toward closer partnership during the last two decades. The 
Partnership and Cooperation Agreement between our nation and the EU, 
which entered into force in 1999, established a firm legal ground for 
these relations and identified a wide range of areas for mutually 
beneficial cooperation.
    These relations deepened with Azerbaijan's participation, first, at 
the EU's European Neighborhood Policy (ENP), which has been ongoing 
since 2004, and then, through the Eastern Partnership initiative (EaP), 
launched in 2009. Meanwhile, in 2006, Azerbaijan and the EU signed a 
Memorandum of Understanding on a Strategic Partnership in the field of 
energy. This agreement paved the way for, among other developments, the 
adoption of a Joint Declaration on the Southern Gas Corridor during the 
visit of the President of the European Commission Jose Manuel Barroso 
to Baku in January, 2011.
    The development and strengthening of a long-term partnership with 
the EU in political and economic fields, as well as in people-to-people 
contacts, bears particular importance for Azerbaijan. We see these 
relations as close cooperation, coordination and interaction between 
equal partners, based on the principles of mutual recognition and 
respect. Azerbaijan's approach to European integration stems mainly 
from our aspiration to raise the level of development in all spheres of 
our country and society in accordance with European standards, rules 
and legislations.
    Anticipating the next Eastern Partnership Summit in Vilnius, 
Azerbaijan assesses its relations with the EU quite positively. This 
view was highlighted during the visit of President Ilham Aliyev to 
Brussels on June 21, 2013, where he met with the European Council 
President Herman van Rompuy and the European Commission President Jose 
Manuel Barroso.
    Speaking more specifically on our cooperation agenda during the 
runup to the Vilnius Summit, let me briefly stress the following 
points:

--The negotiations on the Association Agreement between Azerbaijan and 
    the EU are continuing, and progress is being made gradually. We 
    view these negotiations as a very serious and continuous learning 
    curve in our dialogue with the EU. We believe that the document on 
    the table should be as comprehensive and viable for our bilateral 
    relations as possible. There is no lack of desire on our part to 
    conclude the agreement with the EU. However, the Azerbaijani 
    government and Azerbaijani society have reasonably ambitious 
    expectations. More definite and clear language from the EU and its 
    member states on a few crucial issues may result in a substantial 
    breakthrough in negotiations of this legally binding document. From 
    this perspective the EU's commitment to the principles of 
    Azerbaijan's sovereignty, territorial integrity and inviolability 
    of borders is of key significance for the future of our relations.
--Azerbaijan is pleased to have completed negotiations on the Visa 
    facilitation and Readmission Agreements with the EU, which have 
    been already initialed on July 30. We hope very much that 
    everything will be done in order to sign at least the Visa 
    facilitation agreement at the Vilnius Summit. These agreements, 
    especially the understanding on visa facilitation, will have a 
    tangible impact on the life of Azerbaijani citizens, allowing them 
    to travel to EU countries with fewer difficulties. Once entered 
    into force, these arrangements will provide valuable contributions 
    to the development of people-to-people contacts and, ultimately, 
    will prompt a faster integration of Azerbaijan into the European 
    family of nations. It should also be noted that the Readmission 
    agreement with the EU will be the first-ever legal document of this 
    kind signed by Azerbaijan. This testifies to the trust that my 
    country puts in its relations with the EU.
--We have three additional documents that have been discussed with the 
    EU. The first is the Mobility Partnership between Azerbaijan and 
    the EU, which will foster bilateral cooperation in the field of 
    migration and migration-related issues through several projects. We 
    expect that these activities, combined with the implementation of 
    the visa facilitation and readmission agreements, will pave the way 
    for complete visa liberalization between the EU and Azerbaijan. 
    Hopefully, this document will also be signed during the Vilnius 
    Summit. If not, then we would expect its signature during the first 
    quarter of the next year.

    The second document is the Strategic Partnership Program for 
Modernization, which intends, among other things, to extend the 
existing strategic partnership in the energy field to other spheres 
that are important for ensuring a holistic approach to the development 
of the country. This matrix document is not legally binding, but rather 
encompasses a set of guidelines for programs for meeting some of 
Azerbaijan's immediate needs and addressing our priorities.
    The third document is the Framework Protocol on Azerbaijan's 
participation in EU programs and agencies. Azerbaijan has already 
joined FRONTEX (European Agency for the Management of Operational 
Cooperation at the External Borders), and the necessary work is being 
undertaken to facilitate our participation in EMCDDA (European 
Monitoring Centre for Drugs and Drug Addiction) within the coming 
months. Based on this protocol, we expect that Azerbaijan will join the 
activities of more EU programs and agencies, with education programs 
among the very first objectives.
    Meanwhile, our strategic partnership on energy is developing quite 
well. Azerbaijan continues to demonstrate our interest in contributing 
to European energy security by offering diversified sources of supply.
    The birth of the TANAP (Trans Anatolian Pipeline) project 
demonstrated Azerbaijan's dedication to the development of the Southern 
Gas Corridor, providing a vital link between the EU countries and the 
Caspian basin. This means that Azerbaijani natural gas will have a 
direct export route toward Europe and that Azerbaijan will remain 
politically committed to further explore opportunities to increase its 
role in European energy security.
    Finally, the decision of the Shah Deniz Consortium to select the 
Trans Adriatic Pipeline (TAP) in late June was also of particular 
importance for the opening-up of the Corridor, through which Azerbaijan 
will gradually and substantially increase its presence in the European 
energy market. The decision was based on the previously announced 
selection criteria: commerciality, project deliverability, financial 
deliverability, engineering design, alignment and transparency, safe 
and efficient operability, scalability and public policy 
considerations. Azerbaijan is grateful to the EU Commission for its 
support during the entire selection process. Azerbaijan and its 
partners are investing in a 50 billion Euro mega-project.
    We do so not only with our share of capital, but also with 
politically sensitive responsibilities. Hence, our cooperation embraces 
all areas of common interest. In this regard, the EU should take into 
account Azerbaijan's priorities and needs in areas such as agriculture, 
tourism, information and communications technology (ICT) and others. 
Azerbaijan is also very interested in working more closely with the EU 
in the field of human capacity-building, including education, research 
and youth development, as a foundation for our future development.
    Azerbaijan considers the comprehensive and viable resolution and 
settlement of the conflicts within the EaP geography as an essential 
part of the political association with the EU. When protracted 
conflicts in the EaP area are discussed in various international fora, 
we expect the EU to demonstrate firm support for the territorial 
integrity and inviolability of the internationally recognized borders 
of all partner countries. In the same vein, the EU should vigorously 
reject any occupation and ethnic cleansing, and actively work for the 
peaceful solution of conflicts where they exist.
    In the case of the Armenia-Azerbaijan conflict, it is important 
that the EU goes beyond simply supporting the activities of the OSCE 
Minsk Group, and expresses a clear position based on the norms and 
principles of international law and relevant international documents 
adopted in this regard.
    In conclusion, I wish to stress our belief that the 3rd EaP Summit 
in Vilnius (28-29 November 2013) should accomplish several important 
deliverables, paving the way for further progressive development of the 
EU's engagement in the region of Eastern Europe and South Caucasus. 
Among others, it should provide adequate, fair and just mechanisms of 
response to the existing stability, security and development challenges 
in the European neighborhood and reiterate the credibility of the EaP 
agenda of the EU.
    These goals are important to the United States, as well as 
Azerbaijan and the EU, and I appreciate the opportunity to present this 
perspective to the Senate Foreign Relations Committee.
                                 ______
                                 

       Prepared Statement of Bryan Ardouny, Executive Director, 
                      Armenian Assembly of America

    Chairman Murphy, Ranking Member Johnson, and distinguished members 
of the subcommittee, the Armenian Assembly of America welcomes the 
opportunity to express its views regarding this important and timely 
hearing.
    Established in 1972, the Armenian Assembly is the largest 
Washington-based organization promoting public understanding and 
awareness of Armenian issues. Working closely with key government 
agencies, officials, and charitable organizations, the Assembly 
appreciates the opportunity to share its perspective on how to advance, 
not only EU goals, but also U.S. policy objectives in the South 
Caucasus.
    We believe that it is now more critical than ever to deepen the 
ties between Armenia and the United States, as there is no Russian-U.S. 
competition in Armenia, and the ties between America and Armenia are 
historic and permanent. In fact, I would like to express our 
appreciation for the ongoing assistance the United States provides to 
Armenia and Nagorno Karabakh. Armenian-Americans remember well the 
response of the United States and its relief effort to help Armenia 
after the devastating 1988 earthquake that struck its second-largest 
city leaving 25,000 dead. America's humanitarianism and core values are 
also reflected in our support for Nagorno Karabakh's fledging 
democracy, the passage of Section 907 of the FREEDOM Support Act, which 
requires Azerbaijan to cease its aggressive actions against Armenia, as 
well as America's proud record and ground-breaking intervention during 
the Armenian Genocide of 1915.
    The enduring and natural bonds that exist between the U.S. and 
Armenia are readily apparent in Armenia's ongoing support for America. 
Armenians in Armenia and Nagorno Karabakh consider the United States a 
close friend and ally. Today, this relationship is underscored by 
Armenia's continued strategic partnership with the United States in 
extending its full support for U.S.-led peace-keeping deployments in 
Afghanistan, Iraq, and Kosovo. In addition, Armenia has tripled its 
deployment of troops to the NATO International Security Assistance 
Force in Afghanistan.
    Given its central location, Christian heritage, entrepreneurial 
spirit and western value system, Armenia can play a pivotal role in 
helping the United States achieve its stated policy objectives in the 
region, including a ``Europe whole and free and at peace.'' Thus, the 
Assembly remains concerned that the shared objectives of the U.S. and 
EU in terms of regional cooperation and economic integration in the 
South Caucasus continues to be undermined by Azerbaijani and Turkish 
policies against Armenia. For example, the ongoing blockade of Armenia 
(the last closed border of Europe), Azerbaijan's interference with the 
2009 protocols between Armenia and Turkey, Azerbaijan's ongoing war 
rhetoric and repeated cease-fire violations in the Nagorno Karabakh 
conflict, and Azerbaijan's pardon of an Azeri soldier, Ramil Safarov, 
who was convicted of brutally murdering an Armenian officer, Gurgen 
Margaryan, with an axe while the latter was sleeping during a NATO 
Partnership for Peace training program in Hungary in 2004 represent 
counterproductive actions taken by Turkey and Azerbaijan in particular 
against Armenia. In the case of Safarov, he was not only pardoned, but 
was promoted, received back pay for time spent in jail, given a new 
condo residence in Baku and heralded as a national hero for his crime.
    The Assembly remains deeply troubled by Azerbaijan's egregious 
violation of international norms with respect to the Safarov pardon, 
its continued move away from democracy and growing authoritarianism, 
its excessive military buildup, including a recently concluded $1 
billion weapons purchase from Russia with arms trade between the two 
countries for 2013 totaling $4 billion, and the resulting impact on the 
region, particularly on America's ally Armenia. Striving for stability 
in the region, Armenia's President Serzh Sargsian in September of this 
year announced that Armenia would join the Eurasian Customs Union led 
by Russia.
    With the ongoing developments in the Caucasus, the Armenian 
Assembly believes that now more than ever the United States and the 
European Union should continue to pursue--and moreover--redouble their 
engagement and deepen their relationships with Armenia on a broad range 
of issues, especially in the economic sphere.
    As a leader on the world stage, the United States can and must do 
more to ensure Armenia's Euro-Atlantic integration and that the last 
closed border of Europe is finally open. We, therefore, urge the United 
States to work with its European counterparts to: secure an end to 
Turkey's and Azerbaijan's blockade of Armenia; increase trade 
opportunities, including through the Transatlantic Trade and Investment 
Partnership; as well as press for stronger democratic reforms, respect 
for human rights and protection for minorities within the framework of 
the Europe's Eastern Partnership initiative.
    In conclusion, we commend you for holding this hearing and look 
forward to working with you and members of the subcommittee on these 
important objectives, as well as the challenges that confront us in the 
runup to the Vilnius Summit, including its continued implementation in 
the months that follow. As Armenia expands its relations with Europe, 
it is incumbent upon the United States to further strengthen and expand 
its relationship with Armenia. We stand ready to assist you in any way.
                                 ______
                                 
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