Three Steps Westward

Economic News

22 Jul 2010
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This week, the Ukrainian government progressed on the three major goals of its westward integration strategy: entry into the World Trade Organisation (WTO), accession to the North Atlantic Treaty Organisation (NATO), and economic integration with the European Union.

Speaking at the World Economic Forum in Davos, Switzerland President Viktor Yushchenko reiterated his country’s European ambitions after weathering months of domestic political turmoil. His appeal to the European community emphasised that democracy, open investment prospects, and newly energised political capital will help Ukraine meet its European integration targets.

“The Ukrainian authorities for the first time are in a situation where the president, the prime minister and the speaker of the parliament are all openly supporting a pro-West path and Euro-Atlantic co-ordination,” Yushchenko told media. “[…] I believe that today the government is united”.

On January 17, the EU agreed on the final terms for Ukraine to join the 151-member WTO, paving way for full membership on February 7. This development comes after 14 years of intense negotiations, stalled under a succession of governments reluctant to speeding up Ukraine’s economic integration with the world. The government must sign the accession treaty as a final stepping-stone, but Prime Minister Yulia Tymoshenko said this would take place in a matter of weeks.

WTO membership means Ukraine will cap export duties on steel and agricultural products. Analysts predict the benefits of WTO membership may boost GDP by 2.7% in the next seven years.

More importantly, entrance into the trade body signals that Ukraine will be ready to sign a far-reaching Free Trade Area (FTA) pact with the EU – a new enhanced agreement – within a matter of weeks after WTO entry is finalised. In the words of EU Trade Commissioner Peter Mandelson, clearing of the WTO hurdle serves as “the first step towards greater Ukrainian integration with the global and the European economies”.

At Davos, the Ukrainian president turned focus to his country’s NATO ambitions, hoping that Ukraine would receive a green light for increased dialogue at the NATO Bucharest summit in April. US Secretary of State Condoleezza Rice, who gave the keynote address at Davos, met Yushchenko and supported his government’s steps to join the organisation, reiterating that the view of the US is “that NATO should leave the door open to those European, democratic states who meet membership requirements”.

On January 11, Yushchenko along with Tymoshenko and Speaker of Parliament Arseniy Yatsenyuk sent a letter to the NATO Secretary General Jaap De Hoop Scheffer stating Ukraine was prepared to join the NATO Membership Action Plan – a precursor to full alliance membership – at the Alliance's summit in Bucharest in April.

Although Ukraine has been a member of NATO’s Partnership for Peace programme since 1994, accession to the transatlantic alliance has been a fiercely divisive issue in Ukrainian politics since Yushchenko came to office in 2005. The Party of Regions and Communist Party of Ukraine are currently blocking legislative sessions in parliament to protest NATO accession.

According to a December 2007 poll conducted by the Razumkov Centre, 58% of Ukrainians are against joining NATO, but quality information about the alliance is lacklustre and negative political propaganda runs high. Tymoshenko, who supports Ukraine’s entry into NATO, has stated that a national referendum would confirm Ukraine’s readiness.

While Yushchenko returned to Kyiv from Switzerland, Tymoshenko flew to Brussels on January 28 to convince EU leaders of her government’s commitment to economic integration, reform and open trade. On her two-day trip, she announced the Tymoshenko Transparency Initiative – a programme designed to improve the investment climate by introducing Western governance and transparency standards in the country.

The signing of an enhanced free trade agreement with Brussels would boost bilateral trade. The EU is Ukraine’s largest economic partner. According to European Commission Statistics, bilateral trade reached $39.2bn in 2006 and is growing 9% every year. Foreign direct investment from the EU stood at $8bn in 2006 – a massive twenty-five fold increase since 2003.

In Brussels, Tymoshenko also discussed energy issues and visa liberalisation matters with European Commission officials including European Commission President José Manuel Barroso. Ukraine finds itself somewhat isolated after its neighbours Poland, Lithuania and Slovakia became members of Schengen on December 21, 2007. EU officials encouraged Ukraine to remain politically stable, continue efforts to improve the rule of law, and solidify economic reform measures.

Many observers believe Ukraine will use its WTO membership as a tool of economic leverage over Russia by blocking bilateral trade. At Davos, Yushchenko confirmed that Ukraine would work with Russia to end certain bilateral Customs duties in agriculture, a process stalled since 1993 by the Russian Duma.

However, Tymoshenko attempted to assuage fears that Ukraine would not use its WTO membership as a weapon against Russia, but as a mechanism for reform and transparency. This includes moving ahead with her plan to remove the RosUkrEnergo gas intermediary from the Russian-Ukrainian gas trade, a company that has been accused of functioning opaquely.

WTO entry is a giant leap to achieving Ukraine’s European ambitions and is a pre-condition for the FTA with the EU. More European investment is needed for Ukraine to weather a global economic slowdown and Ukraine’s WTO membership comes not a moment too soon.

At Davos, Yushchenko said, “We have a desire to join the EU club, to join the EU collective.” This message embodies Yushchenko’s top priority for Ukraine – to one day become a full member of the EU. The dream to join a united Europe, however, remains a distant prospect. Inside EU member states, support for Ukraine’s prospective entry is mixed. This “Eurofatigue,” or the lack of enthusiasm from the EU to extend membership to its eastern neighbours, is coupled with Ukraine’s slow pace of reform over the past decade.

The present and future Ukrainian governments must initiate a series of painful and unpopular reforms to join the EU. After all, the union is more than simply a club of nations. Concrete measures must be taken immediately if Ukraine is to wake up to its European dreams.

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