Gorshenin Institute: “After setting up a free trade area with EU, the borders between Ukraine and Russia will be very tough” – experts

06 June 2011

The Gorshenin Institute has interviewed experts about the prospects of cooperation between Ukraine and Russia after a free trade area (FTA) between Ukraine and the EU is set up.

A prominent Russian economist, the head of the expert consulting company Neokon, Mikhail Khazin, is certain that if Ukraine establishes an FTA with the EU, its agriculture will be ruined. «One needs to understand that the EU has an FTA with Turkey. In other words, if Ukraine sets up an FTA with Europe, it will actually shut down its agriculture as an industry. That is why, as soon as Ukraine establishes an FTA with the EU, two events will take place. First, Ukraine’s agriculture will perish the same way as it did in Bulgaria. Second, Russia will close its borders. Russia does not need duty-free Turkish products on its territory. I do not understand what Ukraine will sell then because those required quotas that Europe has offered to it are pitiful. Offering several thousands tonnes of steel, while Ukraine smelts millions of tonnes, is not serious. I believe that this is a catastrophe for the Ukrainian economy,» he said. According to Khazin, the Ukrainian-Russia borders will be «really tough» after an FTA with the EU is set up. «Similar processes have already commenced. While there has never been a border between Kazakstan and Kyrgystan, they started making one because the latter is not in the Customs Union [CU of Russia, Belarus and Kazakhstan]. Accordingly, Kyrgystan immediately asked if it could join the CU,» the Russian expert said. «Roughly speaking, for the majority of citizens residing in Russia, Ukraine is not a stranger. However, if Ukraine becomes part of the EU by setting up an FTA, nolens volens, we start approching it as part of the EU. One can no longer talk about preferences based on some historical personal relations,» he concluded.

At the same time, the director of the CIS Institute in Ukraine, Vladimir Kornilov, said that Russia would be forced to defend its economic area if discriminatory conditions remain in place after Ukraine sets up an FTA with the EU. Additionally, according to him, an FTA between Ukraine and the EU will not have an impact on the Ukrainian-Russian gas relations. «Russia is not opposed to Ukraine setting up any FTA. Russia is also holding many talks on joining free trade areas with many states, including with the EU,» Kornilov stressed. «However, this does not affect gas because Russia and Ukraine have gas contracts and Russia does not intend to revise them,» he added. Hence, Russia’s position will not be affected by any FTA that Ukraine might set up, the expert added. «Russia has already suggested that Ukraine can decrease the gas price by joining the CU. Russia is ready to discuss reciprocal conditions offered by Ukraine. However, I have heard nothing about any proposals advanced by Kiev,» Kornilov opined. «It seems like Ukraine has not yet figured out a way to convince Russia to refuse from or to revise the agreement, which is beneficial to it,» the expert concluded.

At the same time, a leader of the pro-Russian party Just Russia, Aleksey Mitrofanov, stated that Ukraine made a strategically correct move by choosing an FTA with the EU instead of joining the CU of Russia, Belarus and Kazakhstan. «Russia also needs to choose the EU and not to set up some illusory customs unions,» he said during the expert poll conducted by the Gorshenin Institute. «Furthermore, Belarus has set up [an FTA with Russia] but [Belarusian President Alyaksandr] Lukashenka is still unhappy. His problems are not solved. Instead of export duties, they introduce some tricky payments. It means that some game is going on within the CU. Hence, I believe that Ukraine is making the correct strategic choice. As a consequence, Russia will also move in that direction,» Mitrofanov opined. According to him, Russia might impose certain restrictions if Ukraine sets up an FTA with the CU. «Economic relations with Ukraine will deteriorate. Paradoxically, despite ideological disagrrements, [Russia's] economic interests were in line with the interests of the [Ukrainian] government headed by [former Ukrainian President Viktor] Yushchenko and [former Ukrainian Prime Minister Yuliya] Tymoshenko, because Tymoshenko was not by any means interested in cheap gas. She did not care,» he said. «The current Ukrainian leadership needs cheap gas”.

The Head of the Institute of the Economic Research and Political Consultations Igor Burakovskiy (Ukraine): “In our opinion, a lot will be determined by politics. We have heard opinions from Russia that Ukraine starting free trade with the EU could force Russia to impose certain if not penalties, then some restrictions on trade with Ukraine – that is what happening now concerning CU – the demonstration of Russia’s intentions. On the other hand, we need to understand that Ukraine can and has to defend its economic interests, and the declared penalties should be considered as the possibility for talks, not as some kind of doom, compelling Ukraine to give up the interests of some Ukrainian enterprises. As for the further development of the situation, it is obvious that Ukraine has to be ready to effectively promote the idea of signing agreement on free trade between Ukraine and CU. On all occasions, Ukraine has to prepare such a document, because the CU is a single customs territory; currently we have bilateral agreements on free trade with separate members of CU, but clearly there is a threat that CU can start relations from point zero. And last but not least – Ukraine has to boost different types of reforms and country modernisation, as obvious as it is, because issues of trade restrictions – only a part of problems that Ukrainian enterprises face on external markets. Next come the issues of price and quality of goods. As practice shows, it is price, quality of goods and manufacturing technologies that are the tools of competitiveness allowing the neutralizing of negative consequences of trade restrictions in the modern world”.

A YTB MP, Sergij Teryokhin, thinks that Customs Union imposing penalties on Ukraine “leads to the dominance of economic decisions by the Kremlin”. Moreover, in his opinion, Russia’s decisions are not beneficial for other members of the Customs Union – Belarus and Kazakhstan. “Though, as the smaller shareholders of this Closed Joint Stock Company, named the Customs Union, they (Belarus and Kazakhstan) had no choice but to abide”, Teryokhin said.


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