At a January 16 meeting in London EU Trade Commissioner Peter Mandelson, together with Ukraine’s Vice Prime Minister for Euro Integration Hryhoriy Nemirya reached a deal on the capping of export duties on a number of products including metals, animal hides, live cattle.
“Today’s agreement clears the way for Ukraine to fully join the world trading system. It is the first step toward greater integration with the global and the European economy,” said Mandelson. ”This is a very historical day, a very important breakthrough, and I want to congratulate the Ukrainian participants of the talks on the results, and all of us – on the compromise”, he added.
Final hurdle removed
The EU was the last major trade partner to have expressed doubts about Ukraine’s WTO membership. It had previously complained that export duties on metals levied by the Ukrainian government formed a hidden subsidy to Ukraine’s own metal-processing industry by making it too expensive to export raw material to metallurgical factories abroad. Under existing WTO legislation any member of the organisation can move to block new members from joining unless they implement trade reforms to remove existing the objections of members.
The landmark deal signed in London last week paved the way for official approval by WTO members of the terms of Ukraine’s accession, but Kyiv may have to wait until early February for final confirmation that they have become the latest members of the 151-nation body.
Membership and EU free trade
In 2006 the European Commission proposed a new Enhanced Agreement partnership deal which would act as the template for Ukraine’s integration into the EU. The agreement included clauses on the creation of a free trade area to strengthen economic integration between the two economies. WTO membership was the major condition to be met before talks could progress, and they are now expected to start soon, Mandelson confirmed. The EU is the Ukraine’s largest trading partner and its largest market. In 2006 the EU absorbed 25% of Ukraine’s exports, worth a total of EUR 8.7 billion, while providing 42% of its imports, thought to value EUR 17.8 billion.
Benefits of joining the club
Membership in the WTO should help secure for Ukraine better access to world markets and should bring increased stability and openness to the Ukrainian market. “WTO membership gives Ukraine the chance to apply new models and mechanisms to its domestic economy. Now it’s up to Ukraine to use this chance or to lose it,” says Kostyantyn Kuznetsov, an analyst with the Razumkov think tank in Kyiv.
“Thanks to the mobility of capital, manpower and services, Ukrainian customers will benefit from more quality goods from Europe at lower prices. Since both European and Ukrainian traders will be competing on equal terms local manufacturers won’t be able to raise their prices, which could help restrain inflation,” claims Kuznetsov.
Local small and medium-sized businesses will have to adapt to increased and tougher competition, but, at the same time, they will gain the advantage of better management mechanisms. They will soon realise that it’s easier to cooperate with European partners than to bribe local officials to receive endless official documents, which could have a major impact on the level of corruption which Ukraine still suffers from, the expert claims.
Kuznetsov believes that some businesses will suffer as a result of WTO membership and will inevitably find themselves having to surrender ground. This will prove particularly true for those involved in the car retail business. Prices for new cars tend to be far higher in today’s Ukraine than anywhere else in the global market, but from now on Kuznetsov expects local customers will be able to save money when purchasing cars at average European prices.
WTO membership could also usher in a new period of reform and modernisation in the often antiquated agricultural sector. The current system of preferential tax treatment in Ukraine’s farming industry will have to be replaced by policies designed to encourage the introduction of new technologies to arm the farmers with the tools to stay competitive, Kuznetsov concludes.
