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Questions to nation: What FTZ for Donbas was Zelensky talking about?

Author : Anna Peshkova

Source : 112 Ukraine

The topic is really extremely important. Localities on both sides of the demarcation line, plunged into economic depression, have long been waiting for a concrete impetus to economic development
23:33, 19 October 2020

President of Ukraine Volodymyr Zelensky
RIA Novosti

The second question for the ‘nationwide poll’ (the first was the life sentence for corruption) was the question of Donbas economy.

The topic is really extremely important. Localities on both sides of the demarcation line, plunged into an economic depression, have long been waiting for a concrete impetus to economic development. But how often do you personally discuss the creation of special economic zones in Ukraine? Now the president promised to think about this.

If you are poorly oriented in economic special zones issue, you should not be upset. Even economic experts with many years of experience do not have an understanding of what the president is specifically talking about. And there are doubts that the Guarantor himself clearly understands what is at stake.

What territories are we talking about?

In fact, Zelensky's team wrapped the old idea in a new wrapper. The first president, Leonid Kravchuk, recalled special zones immediately after being appointed head of the Ukrainian delegation to the Trilateral Contact Group.

"We can propose to consider the issue of free economic zones in these regions. By the way, in 1993, when I was president, I signed a decree establishing a free economic zone in these regions, but then it somehow got lost. But this does not mean that it is impossible to return to this issue and discuss it", said Kravchuk.

A free economic zone is a limited territory with a special legal status. It usually manifests itself in preferential tax or customs conditions for entrepreneurs. There are more than 50 such zones in the USA, 170 in South Korea, and 6 in Belarus. They are created, in particular, so that investors with risk capital enter a particular region. In theory, investors should be intrigued by new opportunities, including the use of cheap labor and lower administrative barriers. Economists respond positively to FEZs, provided they are implemented well.

But before answering the president's question, you need to understand what exactly Zelensky means when he talks about Donbas. Are these territories controlled by Ukraine and occupied Donbas is not taken into account or is it about the entire region?

If we are talking about the occupied territories as well, then it is strange that the president did not even bother to name the period of the introduction of such zones. What timeframe for the introduction of the new rules are we talking about: before the restoration of Ukrainian jurisdiction or after? Accordingly, it is not entirely clear whether this initiative fits into the Minsk agreements or not.

One has to guess what the president means by scraps of statements from his team members. Oleksiy Reznikov, an adviser to the minister for reintegration, said that it was only about the contact line and the controlled territory of Donetsk and Luhansk regions.

According to Reznikov himself, Donetsk and Kherson regions are in the "development priority". After the President's question was voiced, the vector suddenly changed. Zelensky's adviser, economic expert Oleg Ustenko, in a commentary on Radio Liberty provided completely different information.

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"When territories that are temporarily not controlled by us return to Ukraine, then this plan begins to work actively," he stressed.

That is, the members of Zelensky's team have not even decided yet what specific territories they are going to make economically free. Apparently, Ukrainians should respond to Zelensky's idea, which can be implemented in a very, very vague perspective.

Let’s think we have decided on the territory, and tomorrow the occupied territories, as if by magic, will return to Ukraine. What exactly will this mean for the region?

What is offered for entrepreneurs in Donbas?

"It would be great if the whole of Ukraine was a free economic zone. But then we will have a completely incomprehensible situation with the budget. In addition, someone has to say what exactly the promised" freedom "will be”, emphasizes economic expert Oleg Pendzin.

For each specific economic zone, which at one time was created on the territory of Ukraine, a separate law was adopted and tax breaks were clearly spelled out. Does the president's team propose to cancel the rent fee, which significantly fills the Ukrainian budget? Or to minimize value-added tax? Will the budget be deprived of profit from the Mariupol port and metallurgical plant, Avdiivka coke-chemical plant? Does a free economic zone mean the lifting of the trade blockade from Donbas, provided the territories are not under control?

How the government sees the zone as a whole is unclear. The officials did not present any specific concept. It is not clear whether it is proposed to introduce a technopark or an industrial park. How do officials propose to attract funds to regions that may find themselves in a war zone in the short term? How will investors be motivated to invest, given that there are people below the working age left in the territory? Will Ukraine provide a mechanism for ensuring enterprises against risks, payments from a special guarantee fund in a bank?

There are no answers to all these questions. But on the other hand, the Ukrainians need to tell the president whether they agree to the things they do not understand.

Prime Minister Shmygal specified that he was working on the issues raised. But for their regulation, a legislative basis is needed. Where is it?

From surveys to concrete actions

First, Zelensky asks if a life sentence is needed for corrupt officials, whom he never sent to jail for even the slightest term. Now he asks the question of whether the economic development of the territory is necessary, which he has not been involved in for a year and a half.

For a long time ago, nothing prevented Ukraine from re-industrializing these territories. For some reason, not a single bill with clearly defined preferences and taxation was submitted from the presidential party.

But such an initiative was presented by the "Opposition Platform - For Life" within the framework of the peace plan concept. The MPs voiced a clear vision of what this zone should be like. For legal entities, it was proposed to introduce a zero profit tax rate for 10 years, and after this period - to reduce tax rates. VAT on goods of own production that are sold in Ukraine was proposed to be reduced by half. Rent payments, payments for privatization, and rent of movable and immovable property and land - to be credited to local budgets.

The document was, as expected, ignored. The government says that the Ministries of Economy, Finance, and Reintegration are working on developing their own idea.

Let's say the government bill is almost ready and will soon be submitted to the Rada. Then another question arises: why was it necessary to ask the opinion of the Ukrainians about what is being solved without their participation? For the PR of politicians before the local elections or in case of failure to shift the responsibility to the voters? The negative consequences of the introduction of the special zone are quite possible, given that in the past years the FEZs have already been repeatedly discredited.

Zelensky's slogans that now every Ukrainian is a president work well as a political technology ahead of the elections. But citizens don't have to understand complicated economic terms. 73% of Ukrainians did not choose the president for that he would later shift the making of political and economic decisions onto their shoulders.

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