The government will initiate revision of certain paragraphs of Cooperation agreement with the World Trade Organization (WTO). “Now a moment came when we can start negotiations with the WTO and change some positions in favor of our economy,” said Ukraine’s Prime Minister Mykola Azarov at the forum in Yalta.
And although a popular adage warns against swapping horses while crossing a stream, the government will have to take this step, since so far there has been no impressive economic effect from a three-year membership in the WTO.
“Actually joining the WTO was a must. It was impossible to do otherwise.” This is how businessman Dmytro Firtash, head of the United Employers Movement of Ukraine, summarized entrepreneurs’ opinion. However, he thinks that as Ukraine joined the WTO three years ago, it overlooked the standpoint of the business. “We failed to fully protect the Ukrainian business,” said Firtash explaining the major reason for altering the rules of the WTO game.
Anatolii Kinakh, the president of the Ukrainian Union of Industrialists and Entrepreneurs told The Day that while ratifying the WTO agreement, Ukraine’s parliament passed a decision obliging the Cabinet to develop and approve adaptation programs for the branches of domestic industry. “Unfortunately, they were never approved,” states Kinakh. Thus, with the openness of Ukraine’s economy, this caused a considerable increase of import. And this process has not stopped since, according to Kinakh, the current negative balance of foreign trade has grown twofold, compared to that of one year ago. Under such conditions, he says, Ukraine should use its lawful right and improve the conditions of the agreement: raise rates of duty for certain groups of imported goods, implement the program for import replacement, etc. The agro-industrial complex and foods should be protected first of all.
What exactly should be changed, and how, is for the government to decide by the end of September, after which it should submit an application to the WTO committee.
Simultaneously, a governmental group of experts is working on another document, the perfectness of which defines the efficiency of Ukrainian manufacturers in the country and on European markets in the nearest future. We mean the Association agreement and the free trade zone (FTZ) between Ukraine and the European Union. Statements by top Ukrainian and European officials suggest that the draft document is ready, most paragraphs have been agreed, and only a few economic issues remain unsettled.
The Day’s sources in the Cabinet let on that the contentious issues include the agro-industrial complex and the trucking and services markets. But the prime minister is determined to solve them as soon as possible. Thus it appears that Ukraine’s government expects to sign the Association agreement with the European Union before the year is out (the most optimum time being December, during the EU-Ukraine summit in Kyiv).
How do entrepreneurs rate the immunity of their right on the domestic market after the opening of the borders with Europe? Does the draft agreement on FTZ with the EU include enough mechanisms enabling domestic manufacturers to feel at ease on European markets? The Day addressed these questions to representatives of domestic business.
Kinakh says that the free trade zone with the EU is important first of all not as a market for our products, but rather as a source of direct investment, involvement of state-of-the-art technologies and equipment, which is not manufactured in Ukraine, for the upgrading of Ukraine’s economy. “That is why the draft FTZ agreement must include tax relief for those goods via investment import regime,” explained Kinakh.
He went on to say that Ukraine and the EU differ considerably as to the volumes of governmental financial support to agriculture. In the EU this financial support immensely surpasses ours. Under such conditions, Ukraine must use all legal methods to protect its market from such produce and at the same time negotiate maximum volumes of supplies of its own agricultural produce to the European market.
By the way, the agro-industrial sector harbors perhaps the most questions for the negotiating parties. One of the contentious moments there is the export of grain. The European commission insists on applying quotas for Ukrainian grain, whereas Ukraine would profit from complete liberalization of foreign trade with the EU. However, despite all this, Ukraine is prepared to agree to a transition period, during which export quotas shall grow.
According to The Day’s sources close to the negotiations on the preparation of the EU-Ukraine FTZ draft agreement, another contentious issue is the export of poultry. There has been no official comments on this item, but the participants of the talks leak that the problem is postponed till the end of the negotiations. So The Day asked one of the largest poultry producers to comment on the situation.
Yurii Kosiuk, chairman of the board of Myronivsky Khliboprodukt, outlined the problem to The Day: there will be free export to the Ukrainian market, whereas Ukrainian export abroad will be limited. Today, according to Kosiuk, the draft agreement foresees poultry export at 20,000 tons. “For the European market this is virtually nothing,” he said. On the other hand, Europeans promise not to subsidize the export of meat to Ukraine. “If they don’t subsidize it, they stand no chance [on Ukraine’s domestic market. – Author].”
Serhii Sahal, president of Mebliderevprom association, also has some critical remarks about the draft agreement. He says the manufacturers of furniture has not yet seen the document, although they submitted proposals while it was being developed. Today export duty for all EU furniture entering the Ukrainian market is zero. However, when Ukrainian flake board is exported to Europe, a three percent duty is imposed. “We made a motion to cancel it. This would allow Ukraine to trade in the European market more freely (three percent being quite an obstacle to prices equalization) and to increase the growth of the furniture industry by 20-30 percent after the borders are opened,” said Sahal.
Ivan Plachkov, owner of company Veles (TM Kolonist), shared with The Day his opinion of the plan of economic rapprochement with Europe. He said that there were paragraphs in the draft agreement which will entail disadvantages for Ukrainian manufacturers. For a long time the EU and Ukraine argued about the use of geographic names in brand names of Ukrainian goods. Both allegedly agreed on a ten-year transition period, during which Ukrainian manufacturers were supposed to give up using certain geographic names. Plachkov believes that after the opening of the borders production will shrink at first, but later the situation will become more stable, industrial manufacture giants which are not represented in Europe will disappear, a great number of medium manufacturers will rise to existence, and Ukrainian production will start growing.
Light industry, too, has a barrage of questions concerning the text of the agreement. “Ukraine and the EU have unequal customs tariffs,” said Valentyna Izovit, COB of the Ukrainian Association of Light Industry Enterprises, voicing one of the industry’s key standpoints. According to Izovit, certain kinds of produce such as yarn or fabrics are exported from the EU to Ukraine at nearly zero tax rates, while the rates for similar Ukrainian goods exported to Europe are as high as 4-12 percent. Even clothing made in Ukraine on commission is taxed high on the border with Europe. Another important thing, says Izovit, is the import of second hand goods, the flow of which can also be curbed via the raising of customs tariffs.
As we can see, business has got plenty of questions and proposals. We can only hope that the officials responsible for the preparation of the EU-Ukraine free trade zone agreement will not turn a deaf ear. Otherwise, the government risks to repeat the current situation with amendments to WTO membership, when after a few years of life by the new rules the country will have to correct today’s shortcomings.
