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Transit war: Ukraine's key challenges

Author : Viktor Dovhan

22:30, 12 January 2017
Transit war: Ukraine's key challenges

Author : Viktor Dovhan

Russia imposed restrictions against Ukrainian transit by the end of 2017, but it is likely that they might be prolonged

22:30, 12 January 2017

Read the original text at eurointegration.com.ua.

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For year, Ukrainian export and transit suffers restrictions, imposed by Russia. The goal of Moscow is blocking our exports to Central Asia.

It is worth recalling that Russia is gradually strengthens these limitations, particularly since July 2016 the ban was extended concerning transit to the Kyrgyz Republic. Also there was introduced ban of the transit of goods that came under the embargo.

Related: "Naftogaz" considers statement of "Gazprom" on the risks of gas transit to Europe as preparation of new gas crisis by Russia

Russia imposed restrictions against Ukrainian transit by the end of 2017, but it is likely that they might be prolonged. Ukraine subjected Russian actions to the World Trade Organization. WTO expert panel to be created, which has the final decision in the transit case.

However, the exporter needs a more urgent response than appealing to the WTO. Such a response can be used for promoting alternative transport corridor "Silk Road."

Its key components are:

- Black Sea Ferry - Poti and Batumi (Black Sea);

- Railway to Georgia and Azerbaijan;

- Alyat Ferry - Aktau (Caspian Sea);

- Railway to Kazakhstan.

Related: Ukraine increases Russian gas transit by 22.3% in 2016

However, the project has some significant risks. The main disadvantage of this corridor is that time and cost of the transportation are twice higher than rail transportation through the territory of Russia.

This significantly increases the cost of Ukrainian products. And if the markets of the South Caucasus can hold the increased cost of exportation, the situation with the markets of Central Asia is much worse. Solving this problem is not easy, but some steps in this direction have been already made. In 2016, the Ministry of Infrastructure has prepared an international legal framework to solve this issue:

- Odesa declaration of GUAM member states on measures to increase freight transport corridor in the members countries (Ukraine, Moldova, Georgia, and Azerbaijan).

Related: Ukraine calls on Russia to lift transit sanctions

- Including JSC "Ukrzaliznytsia" to the Coordinating Committee of the Trans-Caspian international transport route (TITR). Trans International Transport Consortium (TITC) was created with the participation of railways of Ukraine, Azerbaijan, Georgia, Kazakhstan, Turkey, and marine operators.

- Agreement between Ukraine and Georgia on the organization of direct international railway-ferry communication between the ports of these two countries.

- Agreement on combined transport between Ukraine and Turkey for the implementation of multimodal transportation.

Related: Ukraine to raise an issue of Russia banning transit of Ukrainian goods

- Law of Ukraine "On ratification of Protocol on amendments to the Basic Multilateral Agreement on International Transport for Development of the Europe-Caucasus-Asia corridor."

These steps have created a legal framework for the development of Europe - Caucasus – Asia corridor. Now we need to fill these agreements with the specific content.

What is planned for 2017?

Matching single competitive tariff policy within TITR. This means a significant proportional reduction of tariffs by all parties of the Trans-Caspian route, including marine ferry carriers in the Black and Caspian Seas.

Related: Russia blocked the transit of Ukrainian confectionery products

This requires a significant reduction of port charges at the Ukrainian and Georgian ports and launch of the renovated ferries, transferred to the balance of JSC "Ukrzaliznytsia."

Attracting traffic with the help of Chinese companies. The first step is investments of Hatchison Ports (a global operator) into Container Terminal of international trade port Black Sea.

 A pilot project of the railway-ferry complex concession should be quickly implemented in the port of the Black Sea, attracting private investments. Transition of the shipping company "Ukrferry" to the private Black Sea fishing port shows that business can effectively coordinate the schedule of departures and eliminate the queue for the ferry.

Related: Russia restricts transit of Ukrainian goods to Kazakhstan and Kyrgyzstan

Expanding the route through the cooperation with the container train "Viking" and "Zubr" (Baltic Sea ports), Polish operator PKP LHS (broad gauge), and Turkmenbashi ferry (Turkmenistan).

This route would give some competitive advantages. The possibility of unhindered entry of Ukrainian and European products to Central Asia, northern and central parts of China, in case Russia sets some limitations on the Ukrainian and European transit of goods.

Simplification of customs clearance procedures. Amendments to the Customs Code help to realize this task and bring transit procedures in line with European standards, in particular the Convention on the only mode of transit and the Convention on the simplification of trade formalities.

Related: Russia suspends all transit of Ukrainian trucks

In particular, Ukraine plans to use some types of customs declarations similar to those used in the EU for the common transit procedure in trade between the contracting parties to the conventions. Also Ukraine would provide some customs formalities using information and telecommunication systems, which are based on European technology and operate internationally.

2016 was a year for seeking alternatives to Russian transit.

The joint actions of the state and business in 2017 influence our future opportunity to create a "Silk Road," a competitive route. Or maybe our perspectives would remain dependable on the erratic policies of the aggressor.

 

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