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Archive 2003

  • 20.10.2003

    Which Priority for Ukraine’s Trade Policy? "Single Economic Space" (SES) vs. World Trade Organization (WTO)

    (Code:Ò14)

    Recently, Ukraine’s President signed an agreement on the formation of a Single Economic Space (SES) between Belarus, Kazakhstan, Russia and Ukraine. This agreement foresees implementation of a Free Trade Agreement (FTA) and eventually transformation towards a Customs Union (CU). We first discuss the corresponding legal aspects and stress the contradiction with Ukraine’s standstill commitment in the ongoing negotiations on World Trade Organization (WTO) accession. Therefore, forming the SES and completing negotiations on WTO accession at the same time is not possible. Moreover, if both objectives are to be implemented sequentially, it appears that WTO membership – regardless of whether it will be initiated before of after initiation of the SES – will impose strong disciplines on Ukraine’s foreign trade system. This will make it difficult for Ukraine to finally achieve the intended level of integration within the SES. Against this background, the strategy chosen by policy makers should be based on a thorough and careful assessment of economic costs and benefits.

    Expected benefits from WTO accession are improved market access for exports via the Most Favored Nation mechanism, access to the dispute settlement mechanism, further stimulus for domestic economic reforms through commitment to international standards and practices, and an increase in foreign direct investment.

    On the other hand, present trade relations between Ukraine and Russia are already fairly liberal, mainly due to an FTA among all CIS countries signed in 1992. Furthermore, we argue that expectations of significantly lower prices for oil and gas from Russia are rather unrealistic and not conducive to the sustainable development of Ukraine’s economy. Finally, Russia’s practice of VAT taxation on oil deliveries by ‘country of origin’ can also be tackled by direct negotiations. Thus, we conclude that insisting on the formation of the SES means either achieving only insignificant results if the SES does not go beyond the existing FTA, or to forgo benefits from WTO membership in case a CU is to be established (as is intended by the official agreement).

    With regard to the observed diversification of Ukraine’s trade flows and increased importance of trade partners other than Russia during Ukraine’s current period of strong growth, establishing reliable conditions for global trade is of crucial importance. WTO membership offers such perspectives. Therefore, we strongly recommend focusing on WTO accession without further delay.

    Outline:

    1. Introduction
    2. Types of Regional Trade Agreements (RTA)
    3. Compatibility with the WTO
    4. Economic impact of the SES
      4.1 Russia as a trade partner
      4.2 Energy prices
    5. Summary and conclusions
    Attached file  (215.2 kb)
    Authors:  Pavel Ferdinand, Burakovsky Igor, ªðüîìåíêî ²ãîð
    Research spheres:  International economics, Politics
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