The state must support market forces

The unanimous approval by the General Council of World Trade Organization (WTO) of the protocol on Ukraine’s membership is a crucial step towards the logical conclusion of the process of the Ukrainian economy’s integration into the international economic space. Ukraine has been walking step by step down this road for 15 long years, since it officially announced this goal in 1993.

There is no use arguing which government did the most to attain this goal. Among the most important landmarks of this journey are the signing of bilateral protocols with the EU (2003) and the US (2006), and the adoption by the previous Verkhovna Rada of a series of legislative acts that finally paved the way to achieving this goal. It is interesting to note the stand taken by MP Serhii Teriokhin (BYuT), who admitted in a recent interview that “the previous governments of Viktor Yanukovych did the most to advance to the WTO.”

Any doubts about the strategic importance of this decision for the Ukrainian economy must be dispelled. A market economy forms its stimuli on the basis of competition mechanisms. Joining the WTO is a major additional incentive for strengthening the proper mechanisms, reinforcing the position of viable economic entities and “culling” inefficient ones that are littering the national economic space.

For a long time Ukraine had one of the lowest rankings on the world competitiveness list. Active innovative businesses account for a mere 4.8 percent of all existing industrial enterprises, according to the State Statistics Committee. In 2006 only 918 innovative products were issued (1,352 in 2000) and only 786 new varieties of equipment (631 in 2000) were put into operation. All this is convincing proof of the glaring lack of proper incentives.

In 2001 Ukraine introduced an investment-related model of economic growth. However, as available statistics now show, no Ukrainian governments (despite their efforts) managed to transform this model into one of innovative investment. This confirms the truism that such a transformation is possible only on the basis of a rational combination of market and state forces, in which genuine competition plays the main role.

At the same time, one should be aware that smooth sailing on the expanses of the economic ocean is many times more difficult than competition in a space limited by protectionism. This in turn requires not only a fundamentally new state economic policy but also new and much more competent personnel, as well as a new culture of economic thinking. This raises the question of whether the practically inefficient current government is able to rise to the subtleties of this policy. The fact is that for 15 years we have been focusing our attention on resolving mostly the procedural aspects of our accession to the WTO. At the same time, very little has been done to adjust the economic system to the required conditions.

Today everyone, including the media, is focusing on the need to offset the negative consequences of our membership in the WTO. Meanwhile, a different problem is coming to the forefront: identifying the principles and mechanisms of a governmental policy aimed at taking full advantage of the potential of the multifaceted WTO trading system in the interests of the national economy. A considerable number of these advantages are not manna from heaven but ones that should be adequately exploited. The WTO creates opportunities for the expansion of exports but does not guarantee them. It facilitates the successful settlement of disputes (including antidumping actions), but it does not guarantee their automatic removal unless our institutions, organizations, and staff are prepared for such things.

In Ukraine people are now talking about the excessive numbers of economic specialists that our universities are producing. Meanwhile, the lion’s share of those who work even in central economic institutions are so-called practical economists whose professional skills are limited to knowledge of barter deals, which they acquired in the 1990s. It is extremely important for Ukraine quickly to adopt a series of measures to bring the economy in line with WTO membership conditions. This is a natural procedure that all countries have to go through. The WTO has given Ukraine a five-year adaptation period. It should be effectively implemented.

At one time we raised the question of adopting a comprehensive governmental program to improve the competitiveness of Ukraine’s economy once our country joins the WTO. This kind of decision is indispensable today, like never before. Another fundamental position is that there should be no new wave of speculations about Ukraine’s “new attitude” to Russia’s likely accession to the WTO. Given that Russia accounts for 30 percent of our foreign trade turnover and that this share has been noticeably growing in the last while, it will only serve our interests if our northern neighbor joins the WTO as soon as possible. Moreover, we should help them do this as much as possible. Any actions to the contrary would be Philistine politicking, something that we still cannot get rid of.

Ukraine’s accession to the WTO is a major precondition for us to attain our strategic goal of forming an area of free trade with the EU. At the same time, it is a good signal for formulating a relevant policy for the eastern vector, i.e., the establishment of a free trade area in this economic space (in the event that Russia, Kazakhstan, and Belarus join the WTO as soon as possible). The international community, including the EU, is objectively interested in such a dual foreign economic course for the Ukrainian state. WTO rules do not cancel out this duality, but in fact encourage it.

Society will consider it an example of caveman thinking if certain parliamentary factions begin, by force of their political convictions, to hinder the Verkhovna Rada’s ratification of the WTO agreement signed on Feb. 5 in Geneva. Such a step would be especially dangerous for the Party of Regions, because it would show its final descent into the net of “communist guardianship.” One can only hope that the deluded declarations of some Regionals to this effect merely indicate the personal opinions of individual politicians.

COMMENTARIES

The Dayasked experts in various fields to share their views on Ukraine’s WTO membership.

Ihor BURAKOVSKY, director, Institute for Economic Studies and Political Consulting:

Of course, I am glad to know that Ukraine has completed difficult talks that required not only diplomatic skills, but also parallel changes to a considerable part of Ukrainian legislation. We can discuss how we will live as a member of the WTO, but the very fact is positive.

Today’s discussions are wrong because we concentrate on some general advantages and reduce our losses to separate sectors. The problem is that this country is joining the WTO not as separate sectors, agriculture, automobile construction, or coal industry, but with its entire economy. In this sense the overall result is positive. There is potential for GDP growth and a certain decrease in, or slowing down of, prices.

If we honor all our commitments, if there are no excesses on the world market, then we will be able to add to the current rate of economic growth three percent of GDP increment. However, it should be remembered that nothing is ever guaranteed in the market world. WTO means additional opportunities and if we can use them, we’ll get this result.

As for the risks, competition will traditionally increase in certain sectors that were better protected. This is only natural. We should regard these challenges as certain points where we must increase our competitiveness. We should remember this simple truth: competitiveness starts at home, not at the WTO.

Volodymyr SEMYNOZHENKO, head of the Ukrainian Forum:

I am glad, of course. There was nothing coincidental about this process stretching over 15 years, for it has no simple questions or simple solutions. Naturally, our potential will increase as a member of the WTO. On the other hand, a lot of things haven’t been done to adjust to the foreign markets. I mean the raw-material character of our economy and its his power intensity. It is actually starting to compete with world economies that are tangibly upgraded.

Our economic reforms will receive a fresh impetus. The easiest way is to adopt laws and sign protocols, but adjusting all this to Ukrainian realities is the biggest problem. It is like firing a starter pistol; we mustn’t forget that the race is only beginning. Therefore, I think that discussing a 1.5 percent GDP increase is premature. I have consulted leading economist, so I know that such calculations haven’t been made. Even the database in the protocol that was signed is still in a closed mode.

Tetiana YEFYMENKO, Deputy Minister of Finance of Ukraine:

This is our chance and a challenge at the same time. The main thing is how we will respond and support the domestic manufacturer. To a large degree everything depends on the effectiveness of state regulation and the government’s performance. My point is that Ukrainian goods should always be used in all directions of progress of the European economy. We have an opportunity to institute in Ukraine the rules by which the whole civilized world is living.

Oleksii HAVRYLOV, chairman of the supervisory board, Rambus Group:

We have very serious work ahead of us. We can discuss four five-year periods before most Ukrainian enterprises in the meat packing industry adjust to the WTO standards. In order to be competitive in conditions of free trade, Ukrainian suppliers of raw materials and manufacturers will have to actively re-equip their production facilities and introduce more effective technologies. This will require a great deal of investment. There are reasons to believe that the consequences for the meat packing industry will be very negative at the first stage because problems of the agrarian sector and mechanisms of protection of the Ukrainian producers have been negotiated far from adequately with the WTO membership task force. I am afraid that Ukraine may become a market for low quality products that appear to be duly certified and meet all requirements. All European markets are well protected by various phyto-sanitary and veterinarian barriers. In this case a lot depends on the Ukrainian government and parliament that must work out effective mechanisms of protection of the market and interests of domestic manufacturers and consumers; also, help promote Ukrainian goods on foreign markets.

The quality of products is another matter. Any kind of fresh frozen meat must be sold to consumers within three to five days, otherwise it will lose its consumer quality. Here we have no causes for concern. If people continue to buy our quality products (among them our turkeys, of course), we won’t fear Polish or Brazilian exports of frozen meat.

Yevhen NIKOLAIEV, economist:

I am surprised by two aspects of the discussion. First, despite the long period of preparation for WTO membership, we still often hear: “What will be the pluses and minuses for Ukraine? How will it benefit from this membership?” In other words, our people are still inadequately informed about this organization. This situation appears to be quite convenient in that it allows politicians to come out with myths about Ukraine’s WTO membership and present it as almost the death of the Ukrainian economy (according to the communists) or as the best remedy for our country as it will receive a great deal of foreign investments, with all foreign markets throwing their doors open for Ukrainian goods, and so on (such is the opinion of Viktor Yushchenko and his associates). Naturally, neither allegation is completely true, and so the WTO proves to be yet another reason for political speculations.

Also, there is a heated debate between the White-blue and Orange camps. Both are supporting Ukraine’s membership and each wants to have the laurels. And so the president takes part in a sitting of the WTO General Council and Viktor Yanukovych reminds that most laws required for admission to this trade club were enacted while he was prime minister. In actuality, all technical preparations, talks, working out bills have long been done by a group of people in Ukraine, led by Deputy Economy Minister Valerii Piatnytsky. Three years ago the situation became even ridiculous. When Tymoshenko’s cabinet started working in early 2005, all deputy ministers were replaced, among them Piatnytsky. Shortly afterward, however, it became clear that no one but he could hold talks with the WTO and the man was quietly reinstated. The worst thing is that no one could find another expert on WTO except Piatnytsky. Changing governments have also played a role in his work. This shows how poorly our people are informed and how overpoliticized the whole thing is. I think it should be the other way around: adequate information and a low degree of politicization. The question is whether our politicians want it this way.