KYIV – Looking West, Ukraine’s next goal should be to join European Union Customs Union, trade experts say here.
A step closer to joining the EU, the Customs Union would oblige Ukraine to accept the EU’s common external tariff and to cede to Brussels power to negotiate trade treaties. All goods inside the Customs Union circulate duty free and quota free, a freer version of Ukraine’s new free trade pact, which maintains some quotas and tariffs on EU trade.
One of the world’s two largest trading blocs, the EU Customs Union has 600 million people and a $20 trillion economy. By contrast, NAFT has almost 500 million people and a $22 trillion economy.
“If we set the Customs Union as a long term goal -- 7 to 10 years from now – it would become a new driving force in the fight against corruption and inefficiency, to modernize industry and to attract foreign direct investment,” said Anders Fogh Rasmussen, former secretary general of NATO who is now an advisor to Ukraine’s President Petro Poroshenko.
“A customs union would seriously reduce barriers around trade,” Rasmussen, a Dane, said referring to the pragmatic impacts of setting a clear national goal. “This would send a radical message to Ukraine’s eastern neighbor, Russia, that the EU takes Ukraine seriously.”
Rasmussen and others spoke Saturday at the second day of Victor Pinchuk’s Yalta European Strategy summit.
Michael Emerson, co-author of a new 12-page report on the pluses and minuses of Ukraine joining the EU Customs Union, warned of the challenges.
“For a customs union to work, Ukraine needs to predominantly trade with the EU – 75 to 80 percent – not the current level of 37 percent,” said Emerson who is a research fellow at CEPS Brussels.
What happens to the other 63 percent?”
“Ukraine would lose free trade capacity with Belarus and Kazakhstan,” he said. “Ukraine would have to abide by all of the EU’s free trade agreements -- Korea, Mexico, Southest Asia, Japan, and all of Africa.”
Dmytro Shimkiv, an advisor to President Poroshenko, said that by setting the goal of joining the Customs Union, Ukraine would place itself even more firmly on the European path. It would also give Ukraine a series of reform markers. Since 2014, many reforms were carried out with an eye to winning free trade and travel to the EU.
“Ukraine is committed to continuing along its European and reformist paths, and a Customs Union is the next logical step forward for both,” said Shimkiv who is deputy head of the Presidential Administration for reforms.
But Taras Kachka, an advisor to the Foreign Ministry, cited the case of Turkey which joined the Customs Union in 1995. On Wednesday, Jean-Claude Juncker, president of the European Commission, said he did not see Turkey joining the EU in the “foreseeable future.”
“The Customs Union has been a dead end for Turkey,” said Kachka, who is also deputy executive director for the International Renaissance Foundation. “We need to avoid a lot of useless ideas that will take a lot of energy. We need to focus on EU membership.”
Rasmussen said that Turkey’s trade with the EU has quadrupled in its two decades as a member of the EU Customs Union.
Quantifying one impact of Ukraine’s free trade pact with the EU, Natalia Mykolska’s Ukraine trade representative that that, in the four year lead up to this year’s start of free trade with the EU, the number of Ukrainian companies certified to export to the EU has increased by 40 percent, to 14,000.
At the conference, organizers release a set of Kantar Public polls that indicate that support for Ukraine joining the EU has slid in seven EU countries. From 55 percent of respondents 12 years ago, only 48 percent support such an expansion today.
Separately, Finance Minister, Oleksandr Danylyuk told conference attendees that he returned Friday night from his one week Eurobond roadshow encouraged by support from investors.
“The message from foreign investors is: Ukraine has earned the trust of investors,” said Danyluk who was in London, New York and Boston. Looking to the future, he said: “We believe the EU will be different in five years -- and this is the EU we will be joining.”
Earlier in the day, Prime Minister Volodymyr Groysman told attendees that he believes Ukraine’s economy will grow by 3 percent next year.
He predicted that Ukraine will get an anti-corruption court within a few months, that privatizations will gather speed, and that the Rada will pass the government’s health and pension reforms plans this fall.
He said Ukraine will get a market for farm land – but not one that foreigners will like.
"We believe that the reform of land relations is extremely important, including for economic development,” the Prime Minister said. “But people should get clear assurances that no foreign citizens will be allowed to buy or get their hands on Ukrainian farm land.”
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