ABSTRACT
How do the politics of economic integration pursued by the European Union (EU) and Russia in their shared neighborhood affect domestic change in these countries? Do the two external powers further economic integration with one or the other, and how do their strategies shape the survival of rent-seeking domestic elites? Examining the case of Ukraine’s car industry, the paper reveals a considerable degree of disengagement by both the EU and Russia. Both external actors offer domestic elites surprisingly few opportunities for economic integration but rather pursue a “policy” of de facto exclusiveness that caters to the domestic interests of the EU and Russia. So far, the EU has strongly promoted trade liberalization to facilitate market access for European car producers but has not created opportunities for foreign-led restructuring of Ukraine’s car industry, thereby leaving the sector without a chance to benefit from liberalization. Russia, in turn, compromised existing trade linkages with Ukraine to protect its own domestic car industry. What is more, the strategies of both the EU and Russia even provided opportunities for Ukrainian oligarchs with stakes in the domestic car industry, who were not interested in transparent forms of economic interaction in the first place, to pursue rent-seeking strategies that undermined any chance for sustainable development of the industry. While Russia’s disengagement has caused trade disintegration that may have contributed to Ukraine’s reluctance to join Russia-led integration regimes, the EU is well advised to create opportunities for sustainable integration if it does not want to become a factor of further destabilization in Ukraine.
