UKRAINE: WTO Membership Opens Door to West

By Zoltán Dujisin Reprint | | Print |

Zoltán Dujisin

PRAGUE, Feb 7 2008 (IPS) - It took 15 years for the World Trade Organisation (WTO) to finally approve Ukraine’s membership, the first step in what Ukrainian officials hope is the country’s inevitable journey towards the European Union (EU).

On Feb. 5 the WTO General Council endorsed a protocol on Ukraine’s accession after a series of conditions were agreed with the EU.

Formal talks for joining a free trade zone with the EU, a pre-requisite being membership of the WTO, could start as early as Feb. 17, Ukrainian President Viktor Yushchenko said shortly after Ukraine joined the WTO.

The country’s officials have made no secret of their desire to reach a new ‘enhanced agreement’ with the EU, which besides the free trade area would step up energy cooperation between Brussels and Kiev.

Ukrainian pro-European but also many of the so-called pro-Russian elites see the establishment of a free trade zone as helping Ukraine’s integration into the EU with the ultimate goal of joining the supranational organisation.

Most domestic analysts have welcomed Ukraine’s entry into the WTO as an opportunity to boost economic growth and foreign investment in the country, though some sectors fear they could be hit hard.

“In principle the balance of gains is rather positive for the country and the economy as such,” Igor Burakovsky, director of the Kiev-based Institute for Economic Studies and Political Consulting told IPS. “But at the same time WTO membership means the liberalisation of the Ukrainian trade regime, the suspension of import duties, and an increase in foreign competition for a number of sectors.”

Supporters of Ukraine’s membership into the WTO believe free competition will lower prices and help improve the quality and variety of both domestic and foreign goods.

The country’s powerful steel industry could particularly benefit from the EU abolishing its previously existing steel export quotas, but other sectors may not welcome the lowering of import tariffs.

This is especially the case for the food sector, which has until now benefited from state support and could be affected by the possible duplication of food imports.

Besides the food sector, Burakovsky points out that the car building industry will lose a number of privileges, and that competition is bound to increase in Ukraine’s banking sector, on which foreign banks have already set their eyes.

No expert dares predict whether many Ukrainians’ fears of growing prices and unemployment will become true. Many say it will be up to the government to create adequate adaptation measures to lessen the harmful effects of trade liberalisation.

“It is very difficult to say what will be the price dynamics, but WTO membership could at least lead to a deceleration of inflation. Independently of this membership we should approve anti-inflationary measures or the country will go back to struggling for macroeconomic stability,” Burakovsky told IPS.

Prime Minister Yuliya Timoshenko recently admitted that inflation had reached the unprecedented level of 17 percent in 2007, and has promised to curb it using methods in line with WTO requirements.

She also promised to cooperate with all enterprises and industries to boost the competitiveness of Ukrainian products around the world.

The protocol on Ukraine’s accession to the WTO is due to be submitted to the Ukrainian parliament within two to three weeks.

Ratification by parliament is considered a formality, but the pro-government forces have a slim majority in parliament, and in the opposition some deputies are protecting industrial lobbies or social groups wary of WTO membership.

Russia is also concerned that Ukraine’s accession could pose additional challenges to Moscow’s WTO ambitions, as Kiev could use its membership to solve issues regarding the two countries’ strained economic relations in its favour. Any individual country of the 152-member organisation can block a new member from joining unless it carries out trade reforms. The WTO accounts for 95 percent of world trade.

Russia, which hopes to join the WTO family in 2008, is the EU’s third biggest trade partner and the world’s biggest exporter of gas, but it needs to improve implementation of laws on intellectual property rights and to sign a bilateral agreement with its southern neighbour and political nemesis Georgia.

Ukraine could also enter bilateral negotiations and harden accession conditions for the big neighbour, especially regarding the gas sector, which could become one of Kiev’s main levers of influence.

Timoshenko is intent on ending what she calls “dodgy schemes” in gas trade with Russia, and has complained of high prices for gas and low transit revenues.

While Ukraine might be able to set its own conditions for Russia’s membership, publicly Kiev only admits to welcoming a possible Russian membership of WTO as bringing transparency to relations between the states.

EU officials have noted the 2006 gas dispute between Russia and Ukraine, which disrupted gas supplies from the only major economy left outside the WTO, could have been solved swiftly within the WTO trade dispute settlement system had both countries been members.

This was seemingly understood by Yushchenko. “We fully support the Russian Federation on the way to the WTO. Ukraine will do all it can for the entry process to complete as soon as possible,” the President told the WTO General Council in Geneva.