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Free Trade Area for Ukraine: Between hopes and reality of foreign policy

Author : Tymur Chmeruk

23:21, 13 June 2017
Free Trade Area for Ukraine: Between hopes and reality of foreign policy

Author : Tymur Chmeruk

Ukrainian business and government need to learn, on the one hand, how to function and earn in conditions of strong competition and, on the other hand, how to provide optimal conditions for the inflow of domestic and foreign investments.

23:21, 13 June 2017

Read original article at 112.ua

112 Agency

The end of the spring season in Ukraine was classical - in the context of economic and political turbulence, a mixture of victories and the birth of new expectations in connection with the emergence of a new political figure in France, President Macron, and the continuation of the sanctions rhetoric against the Russian Federation.

It is obvious that along with the popular in the media environment critics of power institutions, including governments, rationalism and pragmatism also take place in the activities of the Ukrainian government and its foreign policy. The purpose of the latter, taking into account the Russian factor and the caution of the EU economics towards Ukraine, is to seek and negotiate with the world about mutual economic and legal partnership contacts. In particular, most recently the Ministry of Foreign Affairs focused on signing an economic agreement on partnership and legal support with the Kingdom of Thailand, the commodity volume with which in the last 2016 amounted to approximately $ 600 million, of which Ukrainian part accounts for $ 250 million. Do not forget also about the signing of a promising for our economy agreement on FTZ between Canada and Ukraine.

The price of the Canadian-Ukrainian friendship after FTA agreement

Since March, the Ukrainian-Canadian partnership is gaining momentum not only in political, but also in economic way, which is mutually beneficial for both states. Let me remind you that according to the Ministry of Economic Development and Trade of Ukraine, the Agreement on a free trade zone between Ukraine and Canada will start working already this summer. However, this official statement was preceded by the ratification of this agreement by the Senate of Canada in early March, and then in a few days a similar step was taken by the Ukrainian parliament. From our side, our state undertook to implement full liberalization for 72% of goods from Canada, and further abolish (with the use of transitional periods of 3.5 and 7 years) tariffs for 27% of goods from Canada, to carry out partial liberalization for agricultural products from that country. Partners from Canada, however, guarantee to Ukrainian exporters such conditions as the opening of 99% of the goods market, asymmetric tariff obligations, technical assistance.

At the same time, the main reciprocal provisions of the agreement are preferential access to participation in public procurement, protection of intellectual property, simplification of trade procedures using non-tariff measures. Undoubtedly, these priorities in the agreement are favorable accents for our state in the light of the possibility of corruption abuses at the highest level. As a result, we can state that only because of the political and economic responsibility of the Ukrainian authorities it is possible that the FTA with Canada for our state will be more a victory than betrayal to the world and its reputation.

What did Ukraine achieve after signing an association agreement with the EU?

Beginning from January 1, 2016, economic relations between the EU and Ukraine continue according to the "rules of the game" known to everyone as the deep and comprehensive free trade zone, which was introduced in the context of the signed EU-Ukraine Association Agreement.

Ukraine already has agreements on a free trade zone with the countries of the Commonwealth of Independent States and is negotiating a deal with Israel. Successful, as mentioned above, was the negotiation process with Canada, and with Turkey partial progress in this sense already exists, since the summer of 2017, Ukrainians can travel to this country with Ukrainian ID-cards. Promising, but vague, given the reaction of the Ukrainian authorities for today, is the process of negotiations on the FTA between Ukraine and the China. It seems, higher echelons of power perhaps not fully estimate the potential of the Chinese market, but at the same time, perhaps, are not ready to offer mechanisms that will restrain the flow of bad-quality goods and services from China.

There is no sense in retelling, like the mantra, of myths and prejudices about the non-Ukrainianness of this agreement, that the deep and comprehensive free trade zone with the EU is a delusion for the Ukrainian business. At the same time, the latter is quite realistic if we do not adhere to the market rules of the game while doing business, do not care about the civilized dialogue between business and government, and ignore European norms and standards when carrying out the operation of import or export of goods and services. In particular, the condition for establishing a free trade zone (between the EU and Ukraine) is that the custom tariffs that are paid for the sale of goods between Ukraine and the EU will in most cases gradually decrease to zero. However, if we return to reality, we have very interesting indicators that preserve ambiguous conclusions for the theme of Ukraine's economic development. For example, for the first time since 2013, Ukrainian exports to the EU began to grow. The growth rate is still not very high - 3.7%. However, the EU region was the only one location where Ukrainian exports show positive dynamics. In addition, in 2016, the EU share in the structure of Ukrainian exports has increased again.

If we say the words, more based on real indicators, then, accordingly, there is a complete statistics for 9 months and yet not detailed statistics - in relation to goods for 11 months. However, even for 11 months (March 2016 - January 2017), exports of goods to the EU countries increased by 3.1% (or by 372.3 million dollars) and in general is 12.201 billion dollars, and the turnover increased by 6,3%.

According to preliminary data, for 9 months of 2016 the EU is being Ukraine's main trading partner. In figures this can be seen as follows: 1) 39.8% - the EU’s share in trade of goods and services; 2) 84% of light industry products are supplied to the EU; 3) more than 50% of the wood products are supplied to the EU; 4) almost 50% of engineering products are supplied to the EU.

As a result, we can say that the state policy in the sphere of trade should still be more fair, not only promote the entry of Ukrainian companies from the East and South into the EU markets, but also support private business from the western, northern and central regions of the country. Further, perhaps, it is worth starting with an exit from the "Polish economic comfort zone". Of course, we need to expand the geography of sales and analyze the opportunities of other markets. This should be started, as they say, "yesterday." After all, for most companies from Ukraine, access to Western European markets for the sale of goods and services is a problem. Where is the way out? At first - in the activation of an adequate foreign policy of Ukraine. Political critics point out that for all of 25 years oа independence Ukrainian governments have been engaged in trading vectors and foreign policy dynamics. However, I agree with the theses that today it is time to engage in strategic planning for a holistic, rather than fragmentary, vision of the world, and the place of Ukraine in it.

Quite realistic are the proposals for a partnership with NATO and also cautious diplomacy and non-capitulation trade with Russia. Accordingly, it is necessary preparing to react to any economic pressure of Russia on Ukraine. And all the discussion issues should be processed into the framework of the WTO and the Stockholm Arbitration. And, finally, our country must decide on its priority vectors of foreign policy and conditions under which it will not make concessions, through liquidity for its own national interest.

A concise epilogue on our foreign policy and "dreaminess" about big incomes from the FTZ with the world

For the domestic economic system, FTZ doesn’t mean a full-fledged "lifebuoy". It will be saved from a complete collapse firstly, by a systemic state anti-corruption policy; secondly, by the rejection of the authorities to sympathize oligarchs and the possibility of enriching their businesses; thirdly, a comprehensive guarantee of foreign investment in the state, on condition of a bureaucratic factor for doing business, but at the same time, with a rather demanding legislative framework for foreign business that receives temporary access to state resources, including the human resources.

Ukraine, in my opinion, should become an authoritative example in Eastern Europe, as a country that has a well-balanced economic policy and a stable political course. At the same time, the Ukrainian authorities already need to learn how to communicate with small and medium-sized businesses, not only in the context of electoral companies and protest outrages, but also after elections. At the same time, if we allow Soviet rhetoric and the illegal practice of "expropriating property of rich", such an algorithm will have consequences of transferring the capacities of not only domestic but also foreign corporations outside Ukraine and increasing the number of unemployed highly qualified citizens.

Accordingly, I hope that common sense and priority of national interest will prevail in the foreign policy of the state, especially in its economic segment and the activities of the government and the authorities as a whole. However, the Ukrainian business and the authorities need to learn, on the one hand, how to function and earn in conditions of strong competition and, on the other hand, how to provide optimal conditions for the inflow of domestic and foreign investments.

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