Free trade zone between Ukraine and EU: Is there any sense without reforms?

Author : Aleksandr Goncharov

Source : 112 Ukraine

What consequences this will lead to in economic and political system of Ukraine?
17:50, 1 December 2015

On January 1, 2016, Free Trade Zone between Ukraine and the European Union is going to be launched. On November 30, 2015 the President Petro Poroshenko in Paris is likely to be discussing that we want to be a part of the EU. So do I! However, all the problems of the EU associated to one thing: the existence of different economies in the euro zone is possible only if there is a constant flow of money. But in recent years the amount of money began to decline sharply. What to do? And the most important that there are no answers and no new rules of the game.

I shall note that the decision on application of the provisions of the Association Agreement with Ukraine on the establishment of the FTZ as of January 1, 2016 was adopted in September 2014 by the Council for General Affairs of the European Union. To be fair, the head of the EU Delegation to Ukraine Jan Tombiński frankly admitted that Ukraine will not receive benefits from the rapid introduction of free trade zone with Europe. Moreover, he said in a statement, we can expect the positive effect no earlier than two or four years after its launch. At the same time the EU can assist the process of new industrialization of Ukraine, providing us with the necessary infrastructure and modern production.

It is important to consider that, for example, in contrast to Ukraine, in the EU there is a country like the UK, which has two main sources of income - the financial center and real estate. There are problems with both sectors. What to do? Everyone understands that the financial system must be reformed. But how? And this despite the fact that the financial sector receives 5 times more than it should receive in theory. And this is not economics, this is politics. And in politics, some questions can’t be asked out loud, especially when it comes to migrants from Syria.

In fact, why are we today so persistent on trying to fit into the European Union system that unites countries with high-developed economies, while in our own country, as during the first year of independence, we just continue to talk about reforms and live on a building site? In this regard, I would like to recall that we have already entered the WTO that assembles more than 150 countries, accounting for over 95% of world trade. Who will benefit from this? Ukraine? Unfortunately, from membership in the WTO benefit only those countries that have a competitive political and economic models.

And what about Ukraine? Whether metal or wood will be stopped to be bought from us? After all, we supply to international markets everything that has a very low value of the commodity, without which these can’t countries live. On the other hand, our non-competitive industry simply dies away, such as the textile industry. What will happen to engineering, agriculture and other sectors? What will solve the problems that domestic businesses facing with? Who dare to forecast?

Unfortunately, so far the political leaders do not want to share their vision of the economic situation in Ukraine after joining the FTZ. Most likely, the Cabinet of Arseniy Yatsenyuk will stimulate economic growth through weak hryvnia at a relatively high inflation. However, in 2016, would be simply impossible to stimulate the real economy through the acceleration of inflation. We need structural reforms. Moreover, the hryvnia exchange rate will decline and inflation will most likely not be much to grow. And in 2015 - this is not the worst year that we are experiencing. All political and economic trends suggest that 2016 will be much harder for us.

Therefore, Ukrainian politicians have these days scratch their spears on the free trade zone between Ukraine and the European Union. What consequences will it lead to in economic and political system of Ukraine? It can be heard widely on concerns that WTO and not FTZ are one-way streets for Ukraine. After all, when our foreign partners say about the competition, they mean fair conditions of competition only on our Ukrainian market. Access to other markets won’t be improved for us, and this was likely not discussed during the negotiations in Brussels.

For example, if we look at the protection of European markets (particularly for meat and milk), there are enormous “fences”. These quotas and import duties, and various technical barriers. In short, it has become a tradition to discuss our policies with our politicians the conditions of competition only on the Ukrainian market, while ensuring theirs own. However, the time has come to reflect not only Brussels, but especially Kyiv. Those who name the price of the issue? Roughly speaking, how much we will lose and how much will gain from the FTZ? And most important, where are the markets in which Ukraine and our producers will sell their products. If not to do this and not move on other markets, there will be a disaster.

Well, especially in these days of the 2015, one has to look carefully at the Ukrainian politicians: they are capable of inflicting the greatest harm to the national economy (though, perhaps, a favor). Painful as it is to admit, but currently the biggest problem is that with the entry into force FTZ to make Cabinet and MPs to begin to change the rules of the game, which means that to review old commitment in accordance with the new rules. And if so, I am convinced that the representatives of the real economy will say quickly, guys, if the rules are changed, then let's see how much we pay to budget of Ukraine and how bankers pay. And hardly high bonuses will be enough for bankers. And it is right. This is not so much economic as social and political problem, i.e. the banking business is that good, as good the economy of the country.

Finally, no one has doubts that we are waiting for the next seven or eight, or even ten years is quite a significant decline, when, perhaps, will emerge new systems and schemes out of a major crisis. And we have to find answers to the main questions: What are our options and what will be our actions in the FTZ? As one of such promising actions, personally I, see the movement to expand the economic space. And this choice is the European Union.

Related: Commissioner Hahn: the next year Ukraine to enter free trade zone

Related: EU is ready for the free trade zone with Ukraine

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