I’ve kept saying that the agreement
would be a win-win solution and would launch a new era of economic reform for
Ukraine.
It would help to improve the business
climate, increase investment and to address the serious macroeconomic
challenges facing the country. I’ve sincerely hoped that the EU and Ukraine
would complete preparations for the deal to be signed at the Vilnius Summit on
Nov. 28-29.
And indeed, a lot of work has
been done and we all acknowledge the determination of the Ukrainian government
and political forces to pave the way for the association agreement. On Sept.
18, the Ukrainian government unanimously supported the agreement with the EU,
signalling its readiness to close the deal in Vilnius. Indeed, opinion polls
show that a majority of Ukrainians are already convinced of the benefits of the
deal for Ukraine.
On Nov. 21 – “black Thursday”
as some have called it – the Ukrainian government announced an indefinite pause
pursuing an association deal, while stressing the irreversibility of the
pro-European vector of the Ukrainian policy. The reason stated by the
government is that the economic problems that the country would face following
signature would be too severe. In particular, it’s worried about the loss of
trade with Russia and other ex-Soviet republics.
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Editor’s Note: Join top government officials, leading industry CEOs, business owners and other experts to discuss Ukraine’s future after the Vilnius Summit at this year’s Kyiv Post Tiger Conference, which will be held on Dec 3 in Premier Palace Hotel. The guests and speakers will assess the effects on Ukrainian political and economic life of not signing an association agreement with the European Union at the Eastern Partnership Summit in Vilnius, Lithuania, on Nov. 28-29. Register now
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Of course, I notice with
sadness that Russia has been putting Ukraine under intense pressure over the
past few months, through disruptions to trade, cancellation of contracts,
illegal use of food safety measures and other means. And the EU has condemned
such actions in the strongest possible language. We deplore Russian
interference in Ukraine’s sovereign right to decide for itself its own future
economic and foreign policy.
Even in this context I would
not consider this as a reason for a pause and I know that Brussels and European
capitals share this view. And it is clear from the events of the last few days
that many hundreds of thousands of Ukrainians contest the imposed timeout.
Let me be clear: none of the
problems being caused by Russia have got anything to do with the impact of the association
agreement and the free trade pact. There is nothing in the association agreement
which changes any aspect of the trade and economic relationship between Ukraine
and Russia, or between Ukraine and any other trading partner. It is Russia
which has chosen to apply this economic pressure, not the EU.
Compensation?
This brings me to the
question of compensation. The other reason given by the Ukrainian government
for its change in policy – repeated many times in the last few days – is that
Ukraine is disappointed that the EU has not offered a sufficiently high level
of compensation for the loss of the Russian market.
I find this line of argument
quite incredible. Ukraine is asking the EU to pay compensation for damage
caused to its economy by Russia. Why should the EU pay for damage caused by
others? And in any case, what form should such compensation take? The EU is
happy to contribute to economic reforms but we are not going to pay Ukraine’s
debts. And loans or grants to the government are not in themselves going to
assist companies in eastern Ukraine that are threatened by Russia with a loss
of those markets.
A far better form of
compensation for those companies would be the opportunity for them to get
access to new markets – both in the EU, and worldwide – which can be
facilitated by the free trade agreement and by the adoption of EU standards. A
far better form of compensation would be for those companies to get help to
modernise, to get investment and know-how from international partners who would
be encouraged to invest by the better business climate that would result from
the implementation of the trade pact. The agreement could have a strong impact
in building predictability and trust also for non-EU investors and may even
help sell Ukrainian products in markets outside Europe, like in China, the U.S.
or Turkey. And even if the new EU norms and standards will stipulate the domestic
and EU-directed production, it would be still possible for Ukrainian companies
to manufacture goodsfor their exports to Russia according to Russian norms and
standards.
Experience of the EU10
The association and free
trade deals are the solution, not the problem. The package of economic reforms they
contain have been tried and tested before. Every country that has signed free
trade agreements with the EU in the past has seen economic benefits, even those
which much less ambitious and far-reaching agreements than what is being
offered to Ukraine.
Let me give you a few
examples, examining the performance of the so-called EU10 – the former
Soviet-bloc – countries in the period 1990-1996.This period is important as it
relates to the situation that Ukraine could be in if it signed the proposed agreements.
All of the EU10 signed similar agreements with the EU in the early 1990s, but
accession to the EU became a credible prospect only after 1997.
In only six years, gross
domestic product per capita in the EU10 increased overall by 37 percent, investments
per capita by 40 percent and exports per capita by 44 percent.
The point is that as a result
of the countries of Central and Eastern Europe signing free trade accords with
the EU in the early 1990s, those countries began to transform their economies.
There is no reason why Ukraine cannot follow their example and reap the same
benefits.
Costs versus investments
I have also heard a lot of
complaints in the past few weeks about the costs of the association agreement to
Ukrainian business. There have been some big figures quoted – $165 billion or
even $500 billion. Quite honestly, I am puzzled. I have not seen the studies
that have produced these figures so I do not know how they were compiled.
But what I find frustrating
is that the money that is needed by Ukrainian businesses to modernize is seen
as a cost rather than an investment. In order for the Ukrainian economy to
grow, to create more jobs, more wealth, it desperately needs investment. The
under-investment in the Ukrainian economy over the last 10 years is
astonishing. All the successful economies in the world have invested a high
proportion of their GDP back into their economies. Since 2002, the EU has
invested $29.7 trillion compared to only $250 billion invested by Ukraine. If
you look at the investment figures per capita, it shows that Ukraine has
invested 11 times less than the EU, 2.5 times less than China and even 3 times
less than Russia.
It is no wonder that huge
investments are needed today. But these are not costs; they represent future
revenues. The free trade agreement is a tool by which new investments can be
attracted to Ukraine. The cost of inaction, the cost of allowing further stagnation
of Ukrainian industry and agriculture is a far greater risk to the future
economic health of this country than spending money now to invest for the
future.
No plan B
So where does this leave us?
As far as the EU is concerned, our position has not changed. We always said
there was no “plan B.” This remains true today.
While we respect Ukraine’s
sovereign right to decide for itself to choose what kind of engagement it
wishes to have with the EU, we remain convinced that the association agreement and
free trade pact offers Ukraine the best possible package of economic reforms
and the best possible blueprint for modernizing this country.
There is no place in this
discussion for a third party. The offer on the table is a bilateral agreement
that has been negotiated over several years by the EU and Ukraine with the best
interests of both parties in mind. We are quite prepared to explain the impact
of the agreement to Russia, via our bilateral contacts, but we do not agree to
give Russia a veto or any special rights. As I have already explained, the agreement
does not harm any of our neighbors: on the contrary we believe it will
ultimately have a positive effect on the whole region.
The offer is still on the
table. The association agreement is ready to sign as soon as Ukraine is ready.
We very much hope this will be sooner rather than later, as the work needed to
transform Ukraine’s economy is urgently needed right now.
Jan Tombinski is the European Union ambassador to Ukraine.
