The Risks of Free Trade
BATTLEFIELD OF SECTOR LOBBIES
“Mr. Honcharuk, there are quite a few opponents to the idea of Ukraine’s membership in WTO. Are you not worried that business circles fail to clearly understand the necessity of this step?”
“It would be utterly surprising if all took a positive and enthusiastic view of this process. It is always far from simple to ratify any decisions on this country’s membership in an international organization. In this case, the question is of an epochal event for our economy. So there will be a heated debate. But I am prepared for this. For, after all, every coin has two sides.”
“You have already had consultations about the WTO with parliamentary economic committees. Has this boosted or lowered your optimism?”
“My personal grade, with due account of parliamentary standards, is between A and B. To look at it from outside, there is some really biting criticism. But I have more than once offered bills and international treaties for ratification in parliament, and so I say that the deputies’ critical arrows is just an invitation for a debate. I liked very much the questions asked by the deputies who had earlier headed the Nord Company and the Kramatorsk Mechanical Engineering Plant. They are worried but still ready to listen to arguments. What is more, these two export-oriented businesses are sure to gain from Ukraine’s membership in WTO.”
“It is the agrarian lobby that firmly opposes Ukraine’s admission to the WTO. What arguments are you going to use against them?”
“Of course, the agrarian bloc has taken a tough stand. But this stand was expressed by only one person, Kateryna Vashchuk who represents the Agrarian Party. I heard in her speech not only scathing criticism but also an invitation to a dialog. This is the main thing. I want to announce some truly genuine information. Agricultural import has dropped 21% over the past five years. While in 1999 domestically produced foodstuffs accounted for 93% of the market, now it is 95%. Let us face it: this is an abnormal situation! It should not be 95%! In other countries, this indicator is far lower, about 60-65%.”
“It is only in October that the government in fact began discussions with business through parliament members. The impression is that the Cabinet of Ministers is simply afraid of open talks with business circles over WTO membership. Or is this not so?”
“I think this is our mistake. Indeed, we have been keeping a low profile on many things that occurred on our way to the WTO. This also applies to the active stage of the past two or three years. On the one hand, there have been a lot of public functions in the past eighteen months, e.g., about ten international conferences. But there have been very few narrow-circle meetings of experts.
“We have already begun such meetings with the agrarians. A little earlier, there were contacts with New Formation, a small-business association. I want to note, incidentally, that it is they who gave us the most unflagging support. Ukrainian small business is not afraid of competition, it wants things to be more open and predictable and pins some hopes on WTO in this connection. As to steel makers, there is no great progress. But, on the other hand, we stay in close contact with the so-called metallurgical generals, the owners of enterprises. When we discuss other topics, they themselves begin to use, one way or another, the idea of WTO: ‘And what would there be if we were WTO members? And what about dumping? And what about restrictions on the US market?’ I told them, of course, that US market restrictions are not so severe for WTO countries.”
WHAT CAN UKRAINE EXPECT FROM WTO?
“What will happen to Ukraine’s trade balance if it joins WTO? Will this radically boost imports?”
“There will be a positive trade balance. Everything will be in a lull for the first one or two years. Then I can predict a heavy flow of investments, and investments mean the import — of equipment, machines, etc. Yes, there will be some disproportion here, and very much will depend on our export potential, on how we find new markets. This will bring into play the factor of world market unpredictability.”
“Can we expect more imported foodstuffs in our stores after we join the WTO?”
“Let us take the concrete example of the imported Italian salami and our common raw-smoked sausage. The price gap is 5, if not 10, times. So what will happen to the Italian salami? It lies on the shelves, I don’t know how they keep it edible, perhaps they have only a small quantity in stock — but shoppers don’t take it. So I line up for cheese or sausage (by the way, many are surprised that I do it myself or, to be more exact, with my wife) and I don’t see anybody buying this Italian salami. So I do not think something terrible will happen.”
“What sectors will remain most vulnerable after we join WTO?”
“Transport and infrastructure: the share of imports will be rather high there because our positions are traditionally weak in this field. On the other hand, these sectors will furnish cheaper services.”
“THE RUSSIAN QUESTION”
“Trade relations between Ukraine and Russia still remain tense. Yet, both countries strive to join WTO. In theory, if Ukraine joins first, it will be able to set its own conditions for Russia’s admission and thus lift many restrictions on the export of its goods. To what extent is this realistic?”
“I think we are moving faster than Russia. Incidentally, our Russian counterparts evince interest in this matter. I can assert as an expert that we are going at a higher speed, although, from the angle of a multisided process, the Russians are ahead of us de jure. It was decided in January to draft a protocol, but the June session, as the Russian negotiators claim, was not very successful. This applies to the prices of gas, automobiles and farm produce. The Russians have not yet achieved any concrete results on the bilateral front; as far as I know, they assumed a new tariff position a month ago — so this cannot help but slow things down.”
“The premiers of Ukraine and Russia have said earlier they are going to coordinate admission to WTO. Do you study the possibility of a simultaneous entry?”
“I will answer as frankly as I can: if we and the Russians were members of the same customs union, then we would, of course, have had to coordinate our actions. But I think the Russians find it difficult today to set up coordination even with the current members of the union. The more so that one of the customs union members — Kyrgyzstan — is a WTO member. What are they going to coordinate if Kyrgyzstan has rather low tariff rates and serious obligations in other sectors? I cannot imagine Kyrgyzstan renegotiating the terms — it would be an unprecedented event in the history of WTO. With all my respect for Kyrgyzstan, it does not hold a high enough place in world trade to count on such a precedent. As to the Belarusian experience, they are now very slow to negotiate. The Kazakhs have been more active lately. And, as far as I know, the Kazakhs take approaches different from those of Russia.”
“In other words, will everything come down to mutual consultations between Ukraine and Russia on the way to WTO?”
“Yes, consultations. We can and will consult and exchange information, but let us not forget that all information about the ongoing negotiations or the already-reached deals on WTO is confidential. So if we exposed the agreements we have reached, it would mean breaking the rules.”
“Does this mean Ukraine and Russia will be able to sign a free trade treaty only after they have joined WTO?”
“I think we take an absolutely clear stand. We want a normal treaty on free trade. Unfortunately, the Russian side still keeps inviting us to the Eurasian Economic Community. But many things about the EAEC are hard to grasp. It will take us time to assess all the pros and cons.”
“Incidentally, none of the ministers has yet produced any convincing arguments about why EAEC membership is to the detriment of Ukraine.”
“Nobody did or will ever present any anti-EAEC arguments because this involves intricate and multifaceted politics. As Russia is our comprehensive partner, not a single politician will ever say no. But, from the economic viewpoint, I say in no uncertain terms, ‘We need to develop our relations as much as possible within the free trade area without any restrictions and exemptions.’ Russia is saying today to WTO, ‘We want to have high duty rates on dairy and meat products,’ but Russia runs short of these items: they need to import them, they cannot possibly develop this industry in two or three years. So I don’t understand this. How on earth can one impose an over 50% duty? Maybe this is a negotiating tactic or a ploy? Well, then it is a different thing, and we take it much more calmly. For instance, we think a 10% duty on grain is quite sufficient.”
“In other words, in spite of a common ‘ancestor,’ it is very difficult to integrate the Russian and Ukrainian economies?”
“Although we emerged from the same economic complex, the structure of our economies is different. No matter what the Russians say, they export mostly raw materials. But we must orient ourselves in the current conditions toward exporting highly processed goods, including metallurgical items.”
