While we are all crossing our fingers, hoping that the agreed ceasefire in Ukraine will stop the deadly conflict, time has come for the next steps to maintain peace and create progress in Ukraine. As disputes over trade were a significant part of the problem, trade must also be a significant part of the solution, writes Christian Friis Bach.
Christian Friis Bach is Under Secretary General and Executive Secretary of the United Nations Economic Commission for Europe (UNECE).
An important origin of the conflict came from the question of whether Ukraine should join the European Union Association Agreement or whether it should join the Eurasian Customs Union. Time has come to design solutions for those countries that may not wish to choose, or rather for countries that wish to pursue both avenues for their future trade regime. And time has come to ensure that a country that does choose, can do so without negative repercussions for either its neighbours or its own companies and citizens. For Ukraine this will be especially difficult with about one fourth of its exports going to the Eurasian Economic Union and one fourth to the EU. However, there are solutions available and they are to be found in trade rules and regulations.
Ukraine has already negotiated free trade status with the members of the Eurasian Customs Union (ECU): Belarus, Kazakhstan, and Russia. Part of the resistance from Russia to Ukraine entering into a deep and comprehensive free trade agreement with the EU comes from the fear that this could therefore allow goods from the EU to flow freely into Russia. An important part of a post-conflict solution must be to design a trade regime that can build trust and transparency with both Russia and the EU. This depends critically on border control measures, clear transit procedures and on well-established rules of origin. Experience, from similar cases from all over the world, shows that this can be done. Many countries have managed, successfully, to become members of more than one free trade agreement. In fact, the world has become a spaghetti-bowl of interlinked free trade agreements, so there are solutions out there. If Ukraine manages to consolidate the free trade agreement with the Eurasian Customs Union and, at the same time, enters into a free trade agreement with the EU there will be substantial benefits. This could also bring benefits to the entire region in a longer term strategy for “integrating the integrations”.
Similarly, an important part of the post-conflict solution must be to build a trade regime that can promote trade, growth and jobs in all parts of this war-devastated country. Without jobs and income growth, the risk of falling back into conflict will be substantially higher. Here, the main issue is not the official tariff rates. With an overall average tariff of about six percent, the tariff regime is not the major impediment to Ukrainian development. The main issue to tackle is non-tariff and regulatory barriers to trade. The World Bank’s 2014 Trading across Boarders indicator ranks Ukraine at 148 out of the 189 countries covered in the Doing Business Report. This is way below any of its neighbours and one the lowest rankings in the entire Pan-European region. The overall time for receiving the complete package of certificates and approvals, including customs clearance, may take from 22 to 29 days for import and export operations. To facilitate trade and growth by removing bureaucratic and regulatory barriers is one of the most urgent tasks in Ukraine.
This can also be done. In both Greece (with the help of UNECE) and nearby Georgia a consolidated effort to dismantle regulatory barriers to trade has created substantial improvements in the business environment and boosted trade performance. New studies have shown that a concerted effort to improve trade facilitation performance and related transport and communications services in Ukraine to achieve only half the level of the global best practice could boost the country’s real income by 25% or more and exports by more than 50%.
Trade and trade facilitation must become an important part of the solution. The proposal by the Government of Ukraine in late 2013 to establish a joint commission to promote trade ties between Ukraine, Russia and the EU was a first and positive proposal. The political declaration from Minsk (12/2 2015) further talks of “practical solutions to concerns that Russia has expressed with regard to the deep and comprehensive free trade agreement between Ukraine and the EU” and about “a vision of a common humanitarian and economic space from the Atlantic to the Pacific”.
Hopefully, all the main trading partners of Ukraine will engage and cooperate to ensure that this vision will become an important part of creating peace and progress in Ukraine.
The ceasefire on the battleground must be followed by not only a ceasefire, but by increased cooperation on the market place.