Is Russia’s conflict with Ukraine really about trade? If so, this might help.

March 6, 2015
Ukraine's President Poroshenko is seen on a tv monitors as he addresses both European and Ukrainian parliaments during a live videoconference between Kiev and Strasbourg

Ukrainian President Petro Poroshenko is on TV monitors as he addresses both European and Ukrainian parliaments during a live video conference between Kiev and Strasbourg, before a vote on the EU-Ukraine Association agreement at the European Parliament in Strasbourg, September 16, 2014. REUTERS/Vincent Kessler

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.

Russian President Putin attends a meeting with members of the government in Moscow

Russian President Vladimir Putin meets with government officials at the Kremlin in Moscow, March 4, 2015. REUTERS/Alexei Druzhinin/RIA Novosti/Kremlin

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.

Ukraine's Finance Minister Natalia Yaresko reacts at a news conference in Kiev

Ukraine’s Finance Minister Natalia Yaresko at a news conference in Kiev, February 25, 2015. REUTERS/Valentyn Ogirenko

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.

15 comments

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A peaceful trade agreement is favourable to war.

Posted by karenpottruff | Report as abusive

Now Ukraine can have trade with EU while Novorossiya and Crimea with EAU.

Posted by Macedonian | Report as abusive

Very naive article which overlooks the simple and obvious fact that Putin had been planning to take Ukraine, or at the very least Crimea, for about 10 years and was just waiting for an excuse. The EU Association Agreement and the Maidan gave him the excuse he was waiting for. If Putin really valued trade as a way of boosting Russia he would behave in a way which showed that.

Posted by SandyW7 | Report as abusive

The author tries to persuade readers “to be calm and believe in economic prosperity”. It is typical fallacy of “economic person” mentality to say that the reason of the current war between Russia and Ukraine are some trade issues. But such an idea (to understand the interests of “other side” – in our case this side is Putin and Co) you can easily find in many newspaper articles in 1938. The unknown to us but clever columnist explained that the main reason of Hitler’s claims was only a compensation for the unfair Treaty of Versailles.Next year the II WW started. The same is now. When someone cries how unfair Russia is treated by the West and EU enlargement, they do not want to explain the reasons of Russian aggression in Georgia in 2008 or its support of Miloshevich regimes and its military crimes. “Si vis pacem para bellum,” – as Latin proverb said.

Posted by Professor77 | Report as abusive

Agree 100% this could help solve the Ukrainian problem
It is a win-win solution

Posted by Roberto901 | Report as abusive

Clearly you do not understand the mind set of the old Soviets that inhabit all of these little offices that wield their little official blue stamps and have their grubby little hands our for a few extra pennies. Changing this system means putting the Old Soviets out of work…and that is the root of many of the problems here. LOOK carefully at all the videos of the Eastern Ukraine population…who is waving the old Russian Flag, the new Russian flag and the DNR/LNR flags….mostly old people. All they care about is THEIR pensions and no one else.

Posted by Volchesta | Report as abusive

The main reason of the war is Putin wants to wants to hide economic problems which began BEFORE the war. So war is the best way he can boost his rating.

Shame for Obama. Did America have more coward president? As sources say, Putin scared Obama that Russia will fully invade Ukraine if Obama gives weapons to Ukraine (the US even withdrew military instructors!). Cheap Putin’s bluff always work with the West. In reality Putin is not interested in full invasion of Ukraine.

Posted by one_some | Report as abusive

The main problem with “participating” in both free trade agreements with the EU and with Russia is quite simple. It is in fact a wrestling match between the EU and Russia as to who will define the “rules of trade” – that is, which body will be issuing industrial, manufacturing, and trade standards. In the Ukraine-EU association agreement this went to the EU.

Posted by BraveNewWrld | Report as abusive

Russia would like to issue its own regulations – similarly to how the US or the EU do. Ukraine gave up this authority to the EU super-national regulators, which BTW is hardly beneficial for its national economy. A reasonable compromise would be to have an EU-Russia/Ukraine agreement on mutual recognition of standards and regulations, such that Russia/Ukraine keep economic/manufacturing/trade sovereignty. EU would have to concede significant economic benefit…

Posted by BraveNewWrld | Report as abusive

Please don’t tell me a trade solution would work by citing the example of Greece, the basket case of the EU. D’oh.

Posted by zoniedude | Report as abusive

Free trade marke per se is hard to achieve among left parties.

Posted by Alfill | Report as abusive

Dealing with socialist countries is hard to think about free trade agreement.-

Posted by Alfill | Report as abusive

“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.”

Choosing between the Russian-led Eurasian Customs Union or the European Union Association Agreement was always only a first step towards more integration with Russia or the EU. And because Putin could not obtain more Russian integration of Ukraine through Yanukovich, he has shifted to military integration. First Crimea and now the Donbass.

But Putin wanting to control Ukraine has nothing to do with serving the Russian people: remember he was NOMINATED president in 1999 and not elected. He owes allegiance to those who nominated him and are at the head of the current system of corruption and nepotism. Any free participation of the people in the government of Russia, as is happening in Ukraine, would necessarily remove him from power.

So destabilizing OR controlling Ukraine allows him to maintain the myth that power-to-the-people does not work in the ex-USSR.

Posted by KVM342 | Report as abusive

It is amazing that someone writes an article and people comment based upon recent events. Russia had poured billions of Rubles into Ukraine and in 2013 at Yalta in a meeting between Ukraine the EU and Russia an agreement could have been reached on a trade deal that would have suited all parties. It was the interference of the US that caused the deal to collapse. I take on board the anti Russian opinions on here, and the fact that Russia is not a total democracy but lets not allow that to blind to us to the truth.

Posted by Moties001 | Report as abusive

12 years in office and Putin has accomplished nothing. Unless you think fighting Chernobyl…. to a draw…. is an accomplishment.

Russian economy in decline. Investors are pulling money out. They don’t trust Putin. And the only people who still do trust Putin are the drunks who voted for him. That’s not enough to advance productively in world affairs.

Posted by AlkalineState | Report as abusive