A timely and indispensable treaty

British Prime Minister Winston Churchill used to say that Britain had no permanent enemies or permanent friends, only permanent interests. In reality, though, there may be no permanent interests, either, except perhaps one – developing economic relations on the broadest possible scale. It was, still is, and will always be so.

This continuity can be clearly traced against the backdrop of Ukraine’s relations with post-Soviet states in the past 20 years. Although we had different priorities at various stages, interest in free trade with post-Soviet neighbors has always remained unchanged – moreover, on the part of all the four presidents and fifteen prime ministers of Ukraine.

The idea of a “civilized divorce” with ex-Soviet republics did not consist in building a stone wall between one another. It consisted in cultivating a home-to-home friendship rather than sharing rooms in a communal apartment. So the idea of free trade with CIS countries has always run through the minds of Ukrainian politicians – those known as pro-Western and those who sought an optimal formula of Ukraine’s development without breaking relations with Russia.

The former regarded a free trade area as the extreme (but economically desirable) limit of relations with erstwhile neighbors. The latter looked on it as the most logical way of using the country’s economic potential. Since 1994, when free trade with CIS countries was announced (but never put in practice), this has remained an unfulfilled task for every government of Ukraine and an unachieved dream for many industrial managers.

As time went by and one president, cabinet and parliament replaced another, the agreement on free trade with CIS countries just remained on paper – first of all, because Moscow failed to ratify it. Many in Russia took a dim view of the very idea of trade exceptions and restrictions in the relations with neighbors because it meant dropping the principle of economic pressure on “the near abroad.”

It is on the one hand. On the other, the problem was that the new independent states regarded the CIS FTA as hiding under the Russian umbrella and playing to Russian rules. This continued until the WTO had come up with its own rules and umbrella that caused no categorical rejection.

The idea of establishing a FTA on the basis of WTO stripped the project of political coloring and, hence, political cautions. Now the question was not of the spread of a certain player’s influence but of the spread of civilized rules of the game in the economy in general and trade in particular.

This resulted in reaching a new high-profile agreement in Saint Petersburg after several years of active negotiations. Almost all the CIS countries attached special importance to drawing up a treaty on a free trade area. Ukraine also took an active part in the talks. One of our delegation’s demands was obeying the World Trade Organization rules. Armenia, Kyrgyzstan, and Moldova, also WTO members, took a similar stand.

Therefore, the document was being drawn up with due account of WTO standards and regulations, including articles of the 24th General Agreement on Tariffs and Trade signed in 1994. As is known, it allows member states to conclude, without restrictions, free trade agreements with countries or customs territories on the basis of generally-recognized international law and WTO provisions.

Another important – from the angle of Ukraine’s interests – point of this treaty is renunciation of the deterioration of the existing trade regimes between the CIS member states, i.e., of the imposition of new restrictions in mutual trade. The document confirms, in particular, the existing exceptions from the free trade regime and the decision not to enlarge their list and not to increase duty rates.

What concrete benefits is Ukraine going to derive from the St. Petersburg treaty? To answer this question, all one has to do is look at some easy-to-grasp figures. Experts estimate this country will see a 35-percent hike in the overall trade turnover with CIS countries. This will mean growth at the expense of canceling non-tariff restrictions by 4 percent in agriculture and by 3.5 and 3 percent in the food and light industries, respectively.

A gradual cancellation of export duties will promote growth by 3-4 percent in steelmaking, 4-7 percent in mecha-nical engineering, and 5 percent in the chemical and petrochemical industries. The new agreement will mean an overall 3-3.5-percent growth in our economy, and the gross domestic product may rise by 1.9-2.2 percent. Under these conditions, Ukraine’s state budget will receive additional annual revenues worth about 9.4 billion hryvnias.

The abovementioned figures are only an estimate which still rests on a concrete basis. The main thing is that, for our state, they mean the prospect of an essential economic growth and, for ordinary people, the prospect of creating new jobs and improving their material wellbeing. This prospect is achievable today as never before: to implement this idea, we should take some steps for the treaty to come into force and then to conduct a number of additional “technical” negotiations.

Some people opine that signing the CIS Free Trade Area treaty will hinder Ukraine’s European integration aspirations. These claims are totally groundless. On the contrary, the possibility of strengthening the national economy by way of participating in the CIS FTA is important for Ukraine to achieve its strategic goals of European integration. For the European Union is not exactly willing to see us as a poor relative: they will only welcome us as a country capable of being a vital factor in ensuring the common economic wellbeing.

Our European partners have already said, not without reason, that Ukraine’s signing of the aforesaid treaty will in no way hinder the conclusion of the EU association agreement, an integral part of which is the establishment of a Ukraine-EU free trade area. What is more, the CIS free trade area is not a customs union and does not call upon the signatories to imposing a joint customs duty rate.

A CIS FTA neither promotes nor hinders Ukraine’s integration with the EU. As they put it, it is “apples and oranges.” But this area will promote other things. Firstly, in the short term, it will make this region’s countries better prepared for a second wave of the world financial crisis (forecasts are gloomy so far). Secondly, in the long term, it is a step towards a single economic space between Eastern and Western Europe, which the headquarters of European and Russian corporations are already mulling over. And, as Ukraine is destined to be located between the East and the West, we will be playing a key role in this.

Economic barriers always mean weakness and the surrender of strategic thinking to short-term intentions. But, in today’s harsh reality, it is more than weakness.

The existing barrier between Europe’s energy resources in the East and its industrial potential in the West is an economic “handicap” which slims down the European continent’s chances for successful competition with other parts of the world. From this angle, removing economic barriers in the post-Soviet space is a step towards turning the European economy into an integrated mechanism, where, figuratively speaking, the fuel tank will be separated from the gear box.

To be strong in the competitive world of today, you must build bridges, not walls. And it is only natural and logical if, in the beginning, it is bridges with your close neighbors.