Ukraine's leaders move closer to Russia with adoption of free trade agreement and the language law to boost Russian.
Russian language and economic partnership are the order of the day for Ukraine’s regime. With the tax office scaring away Western capital, a grassroots movement springs into action to address issues that affect every region of the country.
Ukraine drifts towards Russia's economic projects
On July 30, the Verkhovna Rada of Ukraine adopted a new law effectively ratifying the Free Trade Zone Agreement with the Commonwealth of Independent States, an agreement which already covers most of the former Soviet Union.
The law was preliminarily signed by Prime Minister Mykola Azarov back in October 2011. In the government's opinion, the free trade zone with the CIS will secure a 2.5 percent growth of gross domestic product and a 35 percent increase in sales volume between Ukraine and other member-countries. The government also expects an additional annual budget revenue of Hr 9.4 billion ($1.2 billion).
At the same time, the Agreement provides for certain limitations on the sale of goods from 60 different categories, including natural gas and electricity, as well as the suspension of export fees on Russian, Byelorussian and Kazakhstani (members of the Customs Union) raw oil. The question remains: what hidden risks does the free trade zone with CIS hold in light on Ukraine’s intentions for European integration of Ukraine?
Potentially there might be certain risks due to the fact that the agreement provides sanctions if any member-country concludes any other trade agreement which might result in losses for its partner member-countries. Besides, Ukraine will no longer be able to forward-export goods from Europe to Russia and it will also slow any reforms necessary to bring the national economy in line with European standards.
Russia will deliberately keep an export window open for Ukraine, in order to tie Ukrainian business with the Russian market and make the transformation of Ukrainian economics and politics to meet European standards impossible. Currently the free trade zone agreement with the CIS is only in force between Ukraine and Russia, as so far the document has yet to be ratified by anyone other than Ukraine, Russia and Belarus.
European Union representatives in Ukraine have reported that the ratification of the free trade zone with CIS does not prevent Ukraine from signing a similar document with the European Union. At the same time Leonid Slutsky, chairman of the State Duma's Committee on International Affairs with CIS, mentioned that the ratification of the CIS free trade zone by Ukraine might also be a step towards joining the Customs Union.
People First Comment: If there is one thing Ukrainian society and the international community dislikes more than anything else it is unpredictable flip-flop politicians. Will they won’t they… are they good for their word… what is their strategy…? Nothing undermines trust more quickly than indecision. Rather than refraining from making promises or being loyal to their word this government prevaricates, postulates and tries to be clever with half a move this way and half a move back. It is childish chess and hardly worthy of a national government.
In our opinion, the problem is that this government does not have a strategy, every decision is made on the basis of now and what is in their best commercial interests. They do not consider the long-term interests of the nation or the will of the people. As a result of their economic policy coupled with their intransigence over the jailed leaders of the opposition they actually have very few options left apart from sliding into the arms of a rapacious Russia. For its part all Russia has to do is to buy up sufficient Ukrainian industry to be able to call the shots. It’s called economic imperialism. Certainly there may be short-term benefits in building economic ties with the CIS but any trade agreement that limits the sale of 60 key areas is not a free trade area, it is a trading block where you are not allowed to tread on Russia’s toes, something Ukraine can do with ease.
Despite the current difficulties, the EU is by far the stronger trading partner. However the EU is not just interested in raw materials and energy. Ukraine has a massive and totally under-utilised technology sector that could be harnessed if those at the top were to take a more long-term view, however, the likelihood of that happening is virtually nil as this administration and the opposition seem only interested in is their personal profit now.
Language law to divide and conquer
Facing the parliamentary elections in Ukraine the authorities have decided to use language issue (granting Russian official status as a second state language) in order to gain popular support. Early in July the Ukrainian Parliament approved the Law 'On the fundamentals of the national language policy' allowing local and regional governments to grant official status to Russian and other regional languages. Despite massive protest against the law, involving a two- week hunger strike in Kyiv, the law has been passed to Yanukovych for signature. Based on recent sociological research, 34 percent of Ukrainians support the law while 42 percent are against; also whilst 37 percent of respondents believe that Ukrainian needs more protection only 18 percent speak for the protection of Russian.
Other research demonstrates that the number if people who are against Russian as a second official language has exceeded the number of supporters of the law; 41 percent of Ukrainians support the idea of granting Russian official status compared to 51 percent which are against - previously the numbers were almost even. Another interesting fact is that the language issue is not even in the first ten priority issues for the people of Ukraine which almost exclusively centre on the economic ones. At the same time the people of Ukraine can see that the government wields the language issue to manipulate their opinion – 74 percent strongly believe that by doing so the government hopes to win their votes).
Experts also reveal a significant financial issue in conjunction with the new language legislation. Should the President sign the Law the country will have to spend annually an additional amount of between Hr 17 billion ($2.1 billion) and Hr 50 billion ($6.2 billion) on translation, training and administration services(6).
People First Comment: For 70y years, the communist party sought to eradicate the Ukrainian language and the Ukrainian culture… they failed. This government is once again displaying a callous disregard for the nation in raising what should be a non-issue. In case the government hadn’t noticed, we live in Ukraine where the national language is Ukrainian. Of course, there needs to be due respect to the other languages that make up the Ukrainian culture and those include Russian, Romanian, Hungarian, Polish, Tatar and, to a certain extent, English but to have two national languages is simply a recipe for chaos.
Setting the emotion to one side and looking at the impact for one moment it means that investors may now have to produce every legal document in both Ukrainian and Russian, doubling the cost, time and bureaucracy. Imagine the chaos… Documents written in Donetsk, where they could adopt Russian as their official language would need to be authorised in Kyiv where Ukrainian is the official language… Can Kyiv refuse them and which language takes precedent in law as you cannot have two?
That said we should really look at what is behind this hasty decision. Gaining political favour in the East? It will not happen as this law will not change anything for the better. The law was deliberately passed immediately after the closing of Euro 2012 thereby silencing any debate over the success or failure of the event, the cost of hosting it and the real value to the nation. On the first day of protest against this law the opposition joined with the people in street demonstrations whilst in their absence Party of Regions, with less than 70 members in the Rada (the required minimum being a majority of 226 members), passed 36 bills worth billions into law without any discussion using their classic ‘piano voting’. Democracy? Not even close.
The opposition again failed to intervene on the language issue as they fear the loss of support of those who speak Russian on one side and those who speak Ukrainian on the other hence they did nothing.. On the plus side the people of Ukraine now understand the real value of those in the government and opposition.
Ukrainian Tax Service blocks foreign investment
The ambassadors of the USA, France and Hungary have openly reported that they regularly receive angry letters from companies in their countries, complaining about significant problems in communication with the Ukrainian Tax Service. The ambassadors have said on multiple occasions that the Tax Service of Ukraine is scaring investors away. The most frequent complaints of foreign investors are: illegal cancellation of VAT refunds, a general practice of granting VAT refunds to ‘favoured’ companies only, threats of criminal responsibility with the purpose of collecting more funds, tax services being involved in corporate raids and excessive numbers of inspections.
Russian business has also been complaining about the Ukrainian Tax Service. According to Oleksy Urin, Head of the economic policy group at the Russian embassy in Ukraine, Russian companies have invested a lot in Ukrainian economy and their investments must be protected. Some Russian enterprises complain about VAT refunds, advance payments of income tax, overvaluation of imported goods by the Customs Service of Ukraine and the lack of objectivity in the courts' decisions due to corruption.
Foreign experts have advised that the governing authorities of Ukraine bring their domestic and foreign policies in line. It means primarily that they should combat corruption and restore the rule of law as these areas affect domestic policy most directly. In terms of foreign policy, the governing authorities of Ukraine have been advised to sign the Association Agreement with the IMF and develop pragmatic relations with Russia(9).
People First Comment: Everybody and every company in any country is required to pay taxes. Similarly every government is required to use those taxes to deliver to the people a society that is the best the nation can afford. The money belongs to the people; the state is purely the administrator whose job is to ensure that all pay their share in accordance with the law and that the money is used in a way determined by the people through the election of their representatives… but not in Ukraine.
Here the State Tax administration is considered to be one of the most oppressive organisations in the country, hell bent on squeezing every last drop of revenue from society by legal means or other. International experience, however, shows very clearly that if tax payers consider the taxes to be too high or unjust or if they can see no societal benefit from paying taxes then they will do almost anything to avoid paying. It is, in mathematical terms, a classic example of the law of diminishing returns and in Ukraine the people have every right to withhold taxes as the very fabric of society is now in severe decline.
In Ukraine the average book keeper will spend up 75% of their time simply dealing with the tax office and the ridiculous multiple filing requirements whilst finance directors spend upwards of 30% of their time dealing with STA interpretations of the law which invariably contradict each other depending upon the officer concerned. Is it any wonder, therefore, that international investors which are the lifeblood of every modern economy are abandoning Ukraine simply because it is just too much hassle? This government has singularly failed to understand that international investors don’t really mind the level of taxation as this is just a cost of doing business, but if the system is uncertain resulting in wasted executive time then they will simply move to more enlightened environments.
Ukraine unites over pothole issue
Activists in Ukraine have united to monitor the quality of roads signalling a positive step for civil society development. Members of the Road Repair Control group have created an official web-site (http://4road.net/) for posting photos of potholes all over Ukraine. By this record the capital of Ukraine has become a leader in the number of holey roads. New evidence of the negligent attitude of the authorities appear on the web-site every day. The movement has united car enthusiasts, civil organisations and regular people who refuse to silently accept potholed roads and corruption in the field of road repair and construction as well as shady parking practices.
The key message of the movement has been - "we will not remain indifferent to robbery!". This suggests that the people of Ukraine are starting to wake up and walk away from passive surveillance, towards active protection of their rights.
Members of the movement stress that the problem of corruption can be solved only though the establishment of such an environment in which the people expose the government's illegal activities. The movement also teaches people to refer all road problems to the local authorities - by following a laid-out complaints procedure for filing an official suit.
From time to time the movement’s activists organise protests in front of governmental buildings to draw attention to specific road problems. Activists even draw circles and signs around potholes in white paint. This has become a people's address to the authorities.
They give away white paint to everyone willing to support this initiative so that potholes are painted all over Ukraine. So it seems that with the help of white paint, a web-site and civil activity, Ukrainians not only save road users from danger and promote control of governmental activities but also help each other understand that by doing so they are building better Ukraine.
People First Comment: The M06 is one of Ukraine’s major arterial highways. It is part of the pan-European transport corridor that links Kyiv to Hungary and the whole of Southern Europe thus it is one of the most significant highways in the country. The road had little importance in the Soviet era thus it was not well maintained and this, coupled with the vast increase in heavy transport traffic following independence, meant that by late 1990s this highway was almost undrivable.
The Yushchenko government, in a bid to revitalise the Carpathian region, turned to the EBRD to finance the refurbishment. For their part EBRD wanted to finance the complete reconstruction of the highway to create a European-style motorway that would link Kyiv to Budapest and Zagreb. Kyiv opted for a less expensive refurbishment. The work began in 2007 on the worst sections across the mountains and was completed in 2009. At the same time the Hungarians extended their motorway network to within 50km of the Ukrainian border.
Today the Hungarian motorway is a real pleasure to drive in that it is smooth, even and very well-maintained whilst the Ukrainian sections are back as they were in the late 1990s with tram line ruts, huge potholes, pealing surfaces, pools of melting tar and areas so bad that the average speed is down to 30 km per hour. The comparison could not be starker. The Hungarian roads were built properly to withstand the pressures of modern transportation. In Ukraine it was an expensive, poor quality, patch-up that will now have to be done again costing the nation millions and the same is true for most of the road refurbishments in Ukraine as once the black top is laid, it is very difficult to see what is underneath. But then this is what happens when you combine false economy with endemic corruption. Good luck to the Road Repair Control, you are doing a great job.
Viktor Tkachuk is chief executive officer of the People First
Foundation, which seeks to strengthen Ukrainian democracy. The
organization’s website is: www.peoplefirst.org.ua and the e-mail address is: email@example.com