Trade disputes helped trigger the Ukrainian conflict. They must now be a big part of the solution.
A key reason for the outbreak of hostilities was that Moscow wanted Kiev to join the Russian-led Eurasian Customs Union, not the European Union Association Agreement. Ukraine should not have been forced to choose — or rather should be able to pursue both avenues. It is time to ensure that a country is able to take either path without negative repercussions, domestic or international.
This may be difficult for Ukraine, however. Roughly 25 percent of its exports go to the Eurasian Economic Union, while another 25 percent go to the European Union. Yet solutions can be found in trade rules and regulations.
Ukraine has already negotiated free-trade status with the members — Belarus, Kazakhstan and Russia — of the Eurasian Customs Union. Part of Moscow’s resistance to Ukraine entering into a comprehensive free-trade agreement with the European Union is a fear that this could allow EU goods to flood Russian markets. So a crucial part of any solution must be to design a trade regime that can build trust and transparency with both Russia and the European Union.
Experience proves this can be done. Many countries have successfully managed to be members of more than one free-trade agreement. It largely depends on critical border-control measures, clear transit procedures and well-established rules of origin.
The world has become a spaghetti bowl of interlinked free-trade agreements. If Ukraine manages to consolidate free-trade agreements with the Eurasian Customs Union and the European Union, it would gain substantial benefits. The entire region would also gain in the long term.
For any lasting solution, Kiev must build a trade regime that can create growth and jobs across all parts of war-devastated Ukraine. Without jobs and income growth, the risk of the country falling back into civil conflict will be far higher.
The main issue here is not official tariff rates. With an average tariff of about 6 percent, the levies are not the major impediment to development in Ukraine. The main issue instead is nontariff and regulatory barriers to trade.
The World Bank ranks Ukraine as one of the most difficult countries to do business with. Its 2014 Trading Across Borders indicator placed Ukraine No. 148 of the 189 countries covered in the bank’s Doing Business Report. This is one of the lowest rankings in the pan-European region, below most of its neighbors.
Import and export operations in Ukraine can take 22 to 29 days because of Kiev’s many required certificates and approvals, including customs clearance. Removing such bureaucratic and regulatory barriers is one of Kiev’s most urgent tasks.
It can be done, however. In Greece and Georgia, a consolidated effort to dismantle regulatory trade barriers has produced major improvements in the business environment and boosted trade performance.
A new study shows that improving trade performance and related transport services in Ukraine to a level of only half the global average could boost real income by at least 25 percent. And boost exports by more than 50 percent.
Kiev’s 2013 plan to establish a joint commission on trade ties among Ukraine, Russia and the European Union was an early, positive proposal. The Feb. 12 Minsk agreement builds on this by talking about “practical solutions to concerns that Russia has expressed with regard to the deep and comprehensive free-trade agreement between Ukraine and the EU” and “a vision of a common humanitarian and economic space from the Atlantic to the Pacific.”
Hopefully, all Ukraine’s main trading partners can cooperate to ensure that this vision can become a reality — and help create peace and progress in Ukraine.
The ceasefire on the battleground can only last if it is followed by cooperation in the marketplace.
Christian Friis Bach is under secretary general of the United Nations and executive secretary of the U.N. Economic Commission for Europe.