Many times has the Association Agreement and
DCFTA been written about at the blog – and over a period of many years.
The last entry was only a few weeks ago and it stated, “As such, any
confirmation of implementation on 1st January (for those who need reassuring),
or the highly unlikely announcement of a further suspension, will come when
European Commissioner for Trade Cecilia Malmstrom visits Ukraine on 12th and
13th November – two days after the meeting of trade experts.”
The anticipated (indeed expected) confirmation
came that with effect from 1st January 2016, the Association Agreement and
DCFTA with the EU would fully commence, with President Poroshenko joyfully
announcing “The EU has just declared the readiness to launch a free
trade area with Ukraine on January 1, 2016. We have received a note from the
European Union Council attesting to the completion of every procedure required
for starting up the DCFTA. There are no impediments now. We will get started
after the New Year!”
As also stated within that blog entry, “Every
man and his dog has long predicted that when the agreement with the EU enters
into full force on 1st January 2016, The Kremlin will introduce a more or less
complete trade embargo upon Ukrainian goods – a perverse, in some cases
self-harming form of reciprocity perhaps, the act of a spurned lover maybe, the
misguided notion of a nation that wants unconditional love and respect based
upon its own terms, rather than affording those same sensibilities and terms to
those around it.
A large scale trade embargo toward Ukraine is
all but assured by a Kremlin that perhaps still believes it can beat, threaten
and coerce the current Ukrainian direction out of it – when instead with every
such act, it simply beats that choice further in.
The question therefore, is how long will any
such Kremlin instigated embargo upon Ukrainian goods last? The answer will be
in years – but how many?”
Sure enough, The Kremlin announced trade tariffs
(de facto embargo as the tariffs will be severe) upon Ukrainian goods with
effect from 1st January 2016 – “We’re not talking about sanctions,
which our partners imposed against Russia. But such a trade environment, of
course, would have very serious economic consequences for Ukraine.” Prime Minister Medvedev.
The cost to the Ukrainian economy however is not
as great as many may think, depending upon which “expert” a reader may choose,
Russian or western, with estimates that the cost to the Ukrainian economy will
be somewhere between $167 – $239 million – just over a quarter of a $ billion
at most. (This is naturally due to (official) trade having already
substantially dropped over the past 2 years during the on-going war.)
An anticipated trade loss figure that costs
Ukraine far, far less than corruption costs the nation each year, and also far
less than the Ukrainian slip-shod approach to energy efficiency.
Good governance would save the nation far, far
more than is lost by the Kremlin “tariffs” Even average governance would
save the nation more. Corruption costs the country $ billions every year!
More efforts toward energy efficiency would also save a literal fortune.
The point being that everything trade related is
happening as expected from the east and west points of the compass. There
have been no surprises.
It seems therefore somewhat incredulous that the
EU Commissioner for the ENP, Johannes Hahn, has had to go on the record stating that the EU will not be
compensating Ukraine for the lost trade with Russia. Mr Hahn stating “Of
course, we have been and are still against any actions that impede trade, but
we have issued a lot of money to Ukrainian businesses so that they could
prepare for new export opportunities and new market conditions……Let’s frankly
say the time we agreed on a FTA it was not a secret that after its introduction
Russia could respond whether we like it or not, and there was enough time to
prepare for this.”
He is absolutely right on all points. It
has been abundantly clear since the signing and ratifying of the EU-Ukraine
agreement that The Kremlin would firstly seek to undo it – and it managed to
get its implementation delayed from October 2014 until 1st January 2016 – and
when it was clear that scuppering the agreement would not happen, in the binary
world of reciprocity, that The Kremlin would impose exceptionally high tariffs
(a de facto embargo) upon almost all things Ukrainian.
(If Visa-free with the EU ever materialises for
Ukraine, it is to be expected The Kremlin will cancel it for Ukraine.)
Let us be more blunt, Ukraine will have an
immense task implementing its obligations within the Association Agreement and
DCFTA over the next 10 years – but it voluntarily undertook and ratified those
obligations and was a party to the negotiated agreement. The agreement
was signed and ratified during the war with Russia. There were no surprise
circumstances at the time of signing nor latterly, ratifying.
In making its choice, Ukraine knew very well
what the Kremlin reaction would be – everybody knew – and trade losses to the
east would be almost as guaranteed as the trade opportunities (and gains) that
were opened in the west. There would be different winners and losers
amongst Ukrainian businessmen, at the very least temporarily, whilst
alternative markets were found or domestic consumption increased – or both.
Choices have consequences.
Nevertheless, that Commissioner Hahn has made
such a statement implies that the issue of compensating Ukraine for its own
choice has been raised by somebody – even after years having past since
negotiations were completed and agreements initialed, and more than a year
since signing of the agreements before they come into full effect.
Further, there are EU € billions (not to
mention US$ for numerous nations) entering Ukraine in the form of grants and
loans much of which will be directed at projects whereby many of the “domestic
business losers” can have their losses mitigated through funded project
implementation participation with a little thought within government and
donors.
Whoever asked the question of compensation that
forced this response from Commissioner Hahn needs a slap for asking a FSQ
(F**king Silly Question) – very few of us ever get compensated for making a
choice, and we all live with the consequences of the choices we make!
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