What could Ukraine offer for economic deoccupation of Donbas?

Author : Oleksiy Kushch

Source : 112 Ukraine

International potential of new law on deoccupation tends to zero. With the same success it was possible to pass a law calling Putin an idiot. This will not change anything in the current international coordinate system
21:37, 29 January 2018

112 Agency

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After long battles, which we have not earlier seen during any discussion of economic laws, the Ukrainian parliament on January 18 adopted a law that in the circles of experts and political scientists who had never read it was named the law on de-occupation (or reintegration) of Donbas. In fact, its name is as vague as the content: "On the peculiarities of state policy to ensure the state sovereignty of Ukraine over temporarily occupied territories in Donetsk and Luhansk regions." The heart of the law was the recognition of Russia as an aggressor country, not only in the context of the occupation of Crimea but also in the functioning of the so-called "republics" DNR and LNR. From now on, at the official level, they are no longer terrorist entities, but occupation administrations, which are directly subordinate to the Kremlin.

This law should be considered only as an internal product, which due to the next election should give an answer to the electorate, why it was not possible to end the Donbas conflict in ten days. After all, one thing is the fight against terrorism, and if the state cannot cope with the terrorist threat, then the powerful superstructure of society does not fulfill its basic function: ensuring the security of ordinary citizens and protecting their fundamental rights. And in the case of occupation, the authorities with a clear conscience can "wash their hands of it," and no one will throw a stone into them, because they are no longer confronted by terrorists, but invaders, behind whom there is not just a huge country, but a country that possesses nuclear weapons.

From the point of view of international law, Ukraine, having adopted the above-mentioned law, now presents a unique example of a deep systemic contradiction. On the one hand, the fact of occupation was officially recognized, and aggression had a "parent" - the invader was named by name, and not by dissonant language like "Russian-terrorist troops" and "mercenaries". On the other hand, there is a direct norm of the Constitution, which requires introducing martial law in case of military aggression. In addition, there is still an agreement on friendship, cooperation, and partnership between Ukraine and the Russian Federation, although there is neither the first, nor the second, nor the third anymore. Diplomatic relations have not been terminated either. Plans are being made to purchase Russian natural gas. In January-November 2017, imports of goods from Russia to Ukraine amounted to $ 6.3 billion, growth rates exceeded 38%, with only oil and oil products reaching $ 2.9 billion. It turns out that if the conflicting parties used to try to deprive each other of access to oil and gas fields and thereby undermine the enemy's economic and military potential, then in the event of a conflict between Russia and Ukraine, the briskest trade goes exactly in the sphere of energy carriers.

This cognitive dissonance does not calm down the Western partners of our country, particularly the businessmen of Germany and France, who are increasingly asking their politicians why they should not trade with Russians, while Ukrainian financial and industrial groups and politicians, who in this case should be holier than Macron and Merkel, to put it mildly, they continue to make money on trade with the occupier, and there is not small money.

Some experts who roam across various TV channels like to remember in vain such term as "hybrid", which in fact has already become "viral" - so often it is applied in our reality. They say hybrid forms of war require the use of the same hybrid forms of counteraction, including also the not full-fledged legislative acts. Nowadays aggressor attack from around the corner, and does not admit that it was him. In fact, the term "hybrid" is very easy for hiding total stupidity and unprofessionalism. Now we have a hybrid head of the National Bank, a hybrid hryvnia exchange rate, a hybrid coalition, a hybrid health minister and so on.

The Ukrainian-Russian conflict model is not unique in modern history. Similarly, in "hybrid" way, Turkey attacked Cyprus and created on its territory a self-proclaimed republic of "northern" Cyprus. In a similar scenario, the conflict between Armenia and Azerbaijan developed for Nagorno-Karabakh. Meanwhile, it is difficult to imagine the trade relations between Cyprus and Turkey at the present stage, although 43 years have passed since the beginning of the military conflict.

Related: Average salary in Ukraine increased by 35,5%

That is why the law adopted by the parliament is an instrument of domestic policy and is designed for the domestic consumer - its international potential tends to zero. With the same success, it was possible to pass a law calling Putin an idiot. This will not change anything in the current international coordinate system.

Russia has plan B

At the same time, the law practically lacks tools for economic de-occupation of the region, although, as the classic said: "politics is the quintessence of the economy," and with the help of economic instruments, much more can be done than by direct military methods.

An objective analysis of the economy of the occupied Donetsk and Luhansk regions is significantly hampered by the lack of reliable information. Nevertheless, such an analysis is extremely necessary, because modern forms of war presuppose not so many military methods for solving the conflict but just information and economic confrontation. In fact, we are dealing with a confrontation of minds (information-ideological field) and the potentials of economic systems.

It is extremely dangerous to perceive uncontrolled territories as an "empty nut" or a zone from the film "Stalker". Most likely, Russia already has its own multifactor plan for using these new lands in the long-term invasion of our economic and political system. And the economic block is not in the last positions there.

Unfortunately, over the past few years, Ukraine has made almost no attempts to formulate a clear economic policy with regard to the occupied territories. The only solutions in this direction are several stages of the blockade. The first phase of the blockade occurred in 2014 when operations of budget organizations, banking institutions and the payment of pensions and social benefits were suspended. The blockade of the land transportation started. And, finally, in 2017 - a complete industrial blockade, when the enterprises that carried out legal and tax re-registration in places of Ukrainian jurisdiction were finally cut off from the nationwide transport, payment, and fiscal systems. As a result of these actions, Ukraine lost 30-35 billion UAH of tax revenue per year, including 800 million UAH of military duty, as well as more than 2 billion dollars of export revenue. Losses mainly affected the supply of energy and coking coals, which inevitably affected the whole technological chain of the domestic mining and metallurgical complex. More than 40 enterprises, which were thus cut off from Ukraine, went through the procedure of "nationalization", with the introduction of so-called "temporary administrations".

As for the future macroeconomic model of the economies of self-proclaimed republics, in the case of their partial integration into the real sector of the Russian Federation (in the full vacuum of an adequate policy on the part of our country), the following should be noted. Taking as a basis the data of the "DNR statistics office" on the population size of 2.3 million people, we obtain an approximate volume of the highest possible regional GDP in the future of the economy of 1.8 thousand dollars per capita, and taking into account agriculture, trade and the budgetary sector, this amount can increase to 2-2.5 thousand dollars. For comparison: in the controlled territories of Ukraine with a population of 42 million people, GDP in 2017 will be about $ 100 billion, that is 2,38 thousand dollars per capita. Thus, if we consider the most negative scenario when structural reforms are not carried out in Ukraine and the raw-material model of the national economy continues to stagnate, and the DNR realizes a quasi-industrial regional model of the economy, looped on the domestic market of the Russian Federation, GDP per capita in the territories of Ukraine and on uncontrolled territories can enter into parity.

Important note: these indicators should not be taken as the current indicators of economic activity. This is the bar that can be reached if the economies of the uncontrolled territories are integrated into the economic space of the Russian Federation, to which it is not yet ready. It is unlikely to be able to jump higher than this line, as there can be no question of any investments, external and internal, in the unrecognized status, and therefore, structural reorganization and modernization of industries should be completely excluded even in the form of a hypothetical forecast. In any case, until the return of these territories under the jurisdiction of the state of Ukraine.

Related: Volker on meeting with Surkov: US didn’t propose plan on UN peacekeepers in Donbas

Thus, unlike us, the Russian Federation always has not only plan "A", but also plan "B", which consists in a very rapid resumption of the remaining industrial capacities of the region and their inclusion in the structure of the domestic Russian market on subsidized terms. The Russian Federation will resort to this option in the event of the final dismantling of the Minsk negotiating process and the abandonment of the active military phase. In this case, the purpose of this new project will be to build in Donbas a paternalistic ersatz of the state economic model reminiscent of the times of the late USSR. In simple words, it will be a question of creating an industrial Donetsk showcase for residents of the southeast of Ukraine. In this context, the formation of the Ukrainian industrial policy for the full development of the Donetsk-Prydniprovsky economic region, especially cities such as the Dnipro, Zaporizhya, Kamenske, Mariupol, Kramatorsk, Toretsk, Severodonetsk, Lysychansk and others becomes vitally important.

And what could Ukraine offer?

What could Ukraine offer as economic instruments of deoccupation?

For example, the use of an effective model in the uncontrolled territories of Donetsk and Luhansk regions, such as demilitarized free economic territories (DFET).

Principles of their creation:

- DFET is created in the rear areas of the uncontrolled part of Donetsk and Luhansk regions;

- Complete demilitarization is carried out on the territory of DFET: withdrawal of illegal armed formations, heavy military equipment;

- The activities of local authorities, legitimate as of December 2013, are resumed on the territory of DFET;

- to strengthen the rule of law, strengthened OSCE monitoring missions are being introduced in the territory of the DFET and local police units under the leadership of OSCE representatives are being formed;

- in the territory of DFET, the activities of enterprises registered in accordance with Ukrainian legislation are resumed, as well as the activities of the Ukrainian banking system;

- cargo transportation is resumed with DFET territories;

- posts of the state fiscal service, which issue Ukrainian certificates of origin for manufactured goods, start their work in the territory of DFET.

The creation of the DFET can become a new innovative form of de-occupation of uncontrolled territories, a transitional stage for their full integration into the economic and political space of Ukraine.

To some extent, the international analogue of the DFET model can be the Kaeson Industrial Park, created jointly by the DPRK and South Korea. Industrial Park is located on the territory of the DPRK 10 km to the north of the demilitarized zone. On the territory of the park, there were 120 South Korean small and medium-sized companies and 15 large corporations. The trade turnover of the zone averaged $ 2 billion a year, more than 50,000 people were employed in production (mainly from North Korea).

Otherwise, if the state continues the policy of mechanically cutting off uncontrolled territories and will not be able to stop industrial stagnation in the territories controlled, it will not be possible to avoid infiltration of Russian influence to the southeast of Ukraine.

Related: Volker: UN mission in Donbas may be deployed from demarcation line

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