Thursday, 4 August 2011

Free trade talks with Kyiv are testing EU’s credibility

ulia Lyovochkina writes: Agreement of free trade could be nixed if Brussels fails to be flexible.

While events in the Middle East and the Greek financial meltdown continue to monopolize the European Union’s agenda, important developments are also taking place along the 27-member bloc’s eastern neighborhood, as Brussels enters the latter stages of negotiating a comprehensive free-trade agreement with Ukraine.

Conclusion and implementation of the agreement will not only offer Ukraine a stake in the EU’s single market and significantly strengthen Kyiv’s ties with the bloc. It will also send a clear-cut message that Ukraine’s course towards European integration is irreversible.

Historically, the road to EU membership goes via trade and economic approximation with a free-trade area being the first and core element of integration into the EU for the nations of Central and Eastern Europe.

Furthermore, the related reforms will help reduce corruption and improve the rule of law thereby creating a more attractive investment climate.

Being the first of its kind to be negotiated between the EU and a country covered by the Eastern Partnership, the planned free trade deal with Ukraine is groundbreaking.

It would set a positive precedent, becoming a benchmark for similar agreements with countries such as Moldova.

The agreement covers a wide range of issues in trade in goods and services, as well as tackling obstacles to trade through regulatory approximation.

Due to the importance of ties with the EU, both in terms of trade and investment and the extent of regulatory reforms, the agreement is likely to have a significant impact on the Ukrainian economy.

Over time, a deep and comprehensive free trade agreement will lead to a substantial inflow of capital and expansion of domestic investment in Ukraine.

Furthermore, the reduction of tariff and nontariff barriers is likely to lead to substantial expansion of trade in goods and services as well as increase trade turnover, employment and strengthen European competitiveness.

The agreement would also represent the biggest step yet to eradicating the wall that was created after the fall of the Soviet Union. While countries such as Poland and Hungary were quickly offered a path to the EU,
Ukraine was left out in the cold.
hat left the impression that a new Iron Curtain had been constructed just a few hundred kilometers east of the old one.

Therefore the political, as well as economic, consequences of a meaningful trade agreement cannot be overestimated.

After four years of tough talks, the two parties have managed to make many compromises. However, as the negotiations enter the crucial final stages, the EU (or rather, some of its member states), is starting to move the goalposts by increasing efforts to protect certain sectors in their own markets
Knowing the sensitivity and importance of this agreement for Ukraine, which is already under increased pressure, the EU’s negotiators are showing little mercy towards Kyiv and continue to push for greater concessions.

While a free trade agreement has had until now broad support in Ukraine, including from opposition parties and business, cracks are beginning to appear.

For example, Ukrainian sunflower oil producers are up in arms, protesting that free-trade conditions will kill their industry and leave thousands of people unemployed. The same dissatisfaction is expressed by agriculture producers or local car makers.
The confectionary industry is also saying that the deal is a one-way road that is not really opening up the EU market for competitively priced Ukrainian sweets.

Nevertheless, Ukraine has now fulfilled almost all of the EU demands and President Viktor Yanukovych has set a deadline for his country’s delegation to finish the talks this year, meaning the agreement could be initialed during the EU-Ukraine summit in December in Kyiv.

Ukraine has taken on obligations similar to those requested of EU candidates, without demanding the same assistance or favorable conditions.

However, it is becoming increasingly clear that unless the EU shows greater flexibility in talks, the agreement may be jeopardized as it will become increasingly difficult to have it ratified and implemented in Ukraine.

Moreover, if the association agreement, of which a trade deal is an integral part, does not include a reference to an accession perspective in the preamble, the credibility of the agreement and its attractiveness to Ukraine will be weakened.

With elections in both Russia and Ukraine in 2012, there in an urgent need to maintain momentum in the talks. While the Polish EU Presidency has underlined its commitment to completing the talks with Ukraine, the EU as a whole needs to demonstrate far greater political wisdom and vision and not allow the negotiations to crash in tariff quotas.

Therefore 2011, the 20th anniversary of Ukraine’s independence, will either mark the beginning of real integration between the two partners, or will be remembered as the year the EU failed to fulfill its mission to unite Europe on the East of the continent.

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