In short term, move will likely improve image of embattled administration of president than offer tangible economic results
Following years of bilateral negotiations, the United States has finally recognised Ukraine as a market economy. In the short term, however, the move will likely go more towards improving the image of the embattled administration of President Viktor Yushchenko than offering any tangible economic results.
Deputy U.S. Commerce Secretary David Sampson broke the much anticipated news during a visit to Kyiv on Feb. 17, a visit which included a meeting with Ukrainian Foreign Minister Borys Tarasiuk.
“I want to say that the granting of market-economy status to Ukraine will make it easier for Ukrainian businessmen working in the American economy in terms of anti-dumping investigations,” Tarasiuk told journalists after the meeting.
Ukraine expects to get better credit ratings and more investment, said Tarasiuk, who quoted a figure of $300 million in total benefits for the country.
But for the time being, Ukraine is still subject to dumping duties of 80 percent in the U.S., said Oleg Riabokon, a co-founder and managing partner at Kyiv-based law firm Magister and Partners, which has played a big role in the talks.
“With dumping duties like that, you can’t work on that market,” Riabokon said.
Magister & Partners acted as legal advisors to the Ukrainian side thanks to funding from Ukrainian industries, which the law firm says proved essential in helping the cash-strapped government succeed in the negotiations.
What will change now that Ukraine has market-economy status is that it can challenge U.S. sanctions, using its own monitoring to review duties. If Kyiv can prove its case, the anti-dumping duties will be reversed retroactively. However, the whole process will take about 12 months. Thus in the short term not much will change.
“I don’t think that all of the sudden there will be a flood of exports to the U.S.,” he said.
Riabokon called predictions of more credit and investment “far fetched.” Instead, he said, investors eyeing opportunities of setting up export businesses in Ukraine would now be more inclined to do so.
Overall, the new status is positive, the trade lawyer emphasized, but it would be very difficult to put a money value on what has been lost, as you would have to go all the way back to Ukraine’s Independence, when the country first started moving away from the command economy of Soviet times.
There is even a negative side to getting market economy status; Riabokon said adding that Ukraine will now be subject to subsidy complaints from U.S. competitors. When the U.S. considered Ukraine a command economy, there was no sense in raising this issue. But now Ukraine’s heavily subsidized agriculture sector could become a target.
“But I don’t see an immediate threat,” Riabokon said adding that “the U.S. is also often accused by other countries of protecting its industries.”
WTO prospects
One thing that no one denies is that Ukraine has in recent years improved its chances of securing better trading relations with key markets for its goods. Membership in the World Trade Organization is a priority.
“I think that we can expect the signing of a bilateral protocol (on mutual access to markets of goods and services with the U.S.) in the near future,” Tarasiuk told journalists on Feb. 17.
“I am in constant contact with Washington. [Only] a few issues remain unresolved,” Economy Minister Arseniy Yatseniuk said in a Feb. 18 interview with Ukrainian weekly Zerkalo Tyzhnia.
Sampson, the number-two man at the US Commerce Department, appeared to willing to support such optimism during his Kyiv visit.
“We are committed to working together to achieve Ukraine’s accession to the World Trade Organization,” he said.
Late in 2005, Ukraine’s Foreign Ministry released figures indicating that the country was losing $8 billion annually in exports due to it not being recognized as a market economy status and not being a member of the WTO.
According to Ukraine’s Economy Ministry, the U.S. ranks among the country’s top five trading partners, and numbers second in terms of direct foreign investment – over $1.22 billion in 2005.
According to Ukraine’s State Statistics Committee, 2005 trade turnover between Ukraine and the U.S. totaled more than $2 billion. About 1,300 companies with American capital were working in Ukraine.
In addition to the U.S., Ukraine still has to sign bilateral protocols with Armenia, Kyrgyzstan, Egypt, Taiwan, Panama, China and Australia.
Negotiations with the last two countries are almost as important as talks with the U.S., which is still dithering with Ukraine over meat and metals.
For Australia, the export in question is sugar cane. If Ukraine expanded exports, its highly subsidized and protected sugar beet industry would take a painful blow.
Various political factions in the nation’s legislature have lobbied strong to keep status quo either for ideological reasons, or to protect the interests of well-connected tycoons. The protectionist Socialist and Communist factions have blocked WTO legislation as have the Party of the Regions, which represents influential business interest in Ukraine’s industrial Eastern regions and leads opinion polls in the run up to next month’s parliamentary elections.
Another opponent to Ukraine joining the WTO is Russia, which is keen on Kyiv joining a post-Soviet trade union called the Single Economic Space. Experts at home and abroad say this would hurt Ukraine’s WTO bid.
In November, Ukrainian Prime Minister Yuriy Yekhanurov said that it would be almost impossible for Ukraine to join the WTO if Russia does so first, because Russia would make tough demands before signing a bilateral protocol.
Careful not to offend Moscow unnecessarily, the U.S. has treaded gently on the issue.
“I hope Ukraine and Russia come into the WTO and they come in together,” US Trade Representative Rob Portman said during a news briefing at the sixth WTO ministerial conference in Hong Kong last December.
A boost for President Yushchenko
All the same, Washington has clearly placed its bets on an independent Ukraine, which means membership in the WTO, NATO, etc.
For his part, Viktor Yushchenko has vowed to integrate his country with the prosperous West, which in turn has helped support his reforms.
The European Union granted Ukraine market economy status last December and has already commissioned a feasibility study of a bilateral free-trade agreement.
In August 2005, the Office of the United State Trade Representative lifted sanctions on $75 million worth of Ukrainian exports, citing the Ukrainian parliament’s passage of legislation to prevent production and distribution of pirate audio and video products.
“The economy has graduated to another stage of development and the president can take a lot of the credit,” Riabokon said adding that a lot of work started before Yushchenko came to power.
Yushchenko praised his administration’s agreement with the U.S. on market economy status citing other past and future accomplishments of his administration.
“The domestic reforms and changes undertaken during the past year have been recognized by our partners,” Yushchenko said in a statement.
“Our reform measures are irreversible and we continue with liberalization to bolster the competitiveness of our products and their manufacturers.”
Svitlana Kononchuk, head of the political division at the Ukrainian Center for Independent Political Research, a think tank, said Washington’s timing in making the announcement “wasn’t accidental.”
According to her, the U.S. is showing its support for the current administration, adding that progress in bilateral talks over the years has largely depended on who was calling the shots in Kyiv.
The U.S. Embassy statement cited other criteria behind the Commerce Department’s decision: “the extent of currency convertibility, free bargaining for wage rates, foreign investment, government ownership or control of production, government control over the allocation of resources, and other factors.
The easy answer is that the decision is political, but proving that it was directed in favor of the Yushchenko administration is difficult to prove, according to Riabokon.
“From the legal point of view, I can say that it should have been granted in 2001,” he said adding that Ukraine has introduced several significant legislative and political reforms since then.
If things keep going the way they have, Kyiv expects more favors from Washington in negotiations on WTO membership and in talks on the annulment of the 1975 Jackson-Vanik amendment, which imposed trade restrictions on the then Soviet Union over its reluctance to allow the emigration of Jews.
In November 2005, the U.S. Senate took the first step toward the annulment, but the House of Representatives has yet to follow suit.
Riabokon sees the annulment as more symbolic than anything else. “It is completely political and doesn’t influence trade,” he said.
