Ukraine-EU free trade postponed until 2016, CIS free trade remains

The implementation of the Deep and Comprehensive Free Trade Area of the Ukraine-EU Association Agreement will be postponed until Dec. 31, 2015 “in order to be capable of fully supporting the stabilization of Ukraine,” according to a common statement issued on Sept. 12 by EU Trade Commissioner Karel de Gucht, Russian Economic Development Minister Aleksei Uliukaev and Ukrainian Foreign Minister Pavlo Klimkin. The Association Agreement will be ratified on Sept. 16 but won’t take effect in order to allow for “additional flexibility,” the agreement said. The EU will extended its current unilateral trade preferences for Ukraine until Dec. 31, 2015, said de Gucht following the Sept. 12 trilateral meeting in Brussels, as reported by Yevropeyska Pravda. In reaching the decision, he cited the “very difficult condition of the Ukrainian economy.” Many Ukrainian goods will continue to enjoy customs-free access to the EU market, while the same duties will remain in place for EU goods exported to Ukraine, according to the agreement.

 

The sides agreed that time is needed to address the problems raised by the Russian government, which truly exist and aren’t invented, Uliukaev said afterwards, as reported by the ITAR-TASS news agency. Consultations will be held to address Russia’s concerns, while trilateral ministerial meetings will be held to evaluate progress. Though additions can be made as a result, the agreement’s text won’t be amended, Klimkin said, insisting that’s a red line and adding that a gradual process of liberalizing tariffs will occur. Ukraine’s free trade regime with the Commonwealth of Independent States (CIS) will remain in place, according to the agreement. “A lengthy process should be a part of the all-encompassing peace process in Ukraine, with respect for Ukraine’s right to determine its fate, as well as its territorial integrity,” the agreement said.

 

The Russian government gains exceptional advantages from the Association Agreement, despite its claims that it poses a danger to its economy, Klimkin told a Ukrainian television program on Sept. 13. “There’s no economics to that (claim), it’s pseudo-political,” he said. “From the Russian side, it’s true blackmail, and not even against Ukraine, but the EU.”

 

With the postponement, Ukraine’s producers have gained additional time to adapt to conditions of intensified competition within the Ukraine-EU free trade area, said a statement released on Sept. 12 by Ukraine’s Foreign Ministry. Ukraine also has preserved the balance between implementing the conditions of the EU Free Trade Area while extending the CIS free trade regime. “The agreement removes even the hypothetical concerns of the Russian side related to implementing the agreement,” the statement said. Meanwhile, the EU extending trade preferences for Ukraine’s exporters “is an unprecedented gesture of support and solidarity with Ukraine,” the statement said.

 

Deputy Foreign Minister Danylo Lubkivskiy declared his resignation on his Facebook page, citing the agreement to postpone the Association Agreement’s implementation. “Rational and practical explanations will surely be voiced. Weighty arguments were once offered against our independence. The approved statement sends the wrong signal to everyone: the aggressor, our allies and most importantly, Ukrainian citizens. A choice isn’t postponed, otherwise it’s not a choice.”

 

Zenon Zawada: Ukraine’s government has agreed to a pragmatic approach to a very complex problem. When strictly examining the agreement’s “bottom line,” it essentially amounts to a EUR 483 mln grant to the Ukrainian economy annually, which is the figure offered earlier this yearby de Gucht when estimating the gain for Ukraine’s unilateral trade preferences with the EU. The Ukrainian economy essentially gets another 14 months of customs-free exports to Europe while collecting duties from EU imports, all the while maintaining the current free trade regime with the CIS.

 

Diplomats were not consulted on this postponement, which came as a surprise, and neither was the public. Yet it’s the agreement’s political portion that concerned Ukraine’s pro-EU electorate more and Prime Minister Arseniy Yatsenyuk has assured that the government will pursue the required political reforms. At the same time, the Ukrainian economy has benefitted.

 

A big risk is that the Ukrainian government may have further emboldened the Russian government, which is spinning the postponement as a diplomatic victory and proof that the free trade area was full of faults when it was drafted. It has the potential of sending the dangerous message that invading and occupying Ukraine provides geopolitical dividends. And it also has the potential to lead to future diplomatic rows on amended tariffs or additions planned, despite Klimkin’s attempts to downplay these further possible changes.

 

Yet the biggest risk is that the Ukrainian government fails to implement the Agreement’s political requirements that improve rule of law, reduce corruption and strengthen democratic institutions in Ukraine. If the next parliament and Cabinet fail to adopt the needed reforms, not only do all the efforts to achieve the Association Agreement go to waste, but Ukraine’s future as a free market democracy will be under direct threat, not only from Russia but also within the country.