With reservations, Cabinet and Rada approve Ukraine's entry into common economic space (09/21/03)

With reservations, Cabinet and Rada approve Ukraine's entry into common economic space

by Roman Woronowycz
Kyiv Press Bureau

KYIV - Ukraine's Cabinet of Ministers and Verkhovna Rada pushed through separate documents on September 17 in support of the country's entry into a common market with Russia, Kazakstan and Belarus.

The backing by the country's executive and legislative branches cleared away any vestige of internal opposition and paved the way for President Leonid Kuchma to sign an agreement on a common economic space with the three neighboring states, which was to take place on September 18, the second day of the Summit of the Commonwealth of Independent States in Yalta.

However, the new economic arrangement, if it comes to pass, would leave in serious doubt whether Ukraine could qualify for entry into the World Trade Organization and whether it could integrate into the European Union.

Making his first public remarks in Kyiv as the new United States ambassador to Ukraine, John Herbst suggested during a press conference on September 18 that the common economic space was not in Ukraine's best interest if the country was serious about entering the WTO and the Economic Union.

"Of course, it is the Ukrainian government's decision on what it wants to do with the united economic space, but I think there needs to be a careful look at how this agreement fits in with the country's aspirations to join the Euro-Atlantic community," explained Ambassador Herbst. "I believe it is in the interest of Ukraine not to take any step that will complicate that process."

However, the Verkhovna Rada and the Cabinet of Ministers underscored in their statements that the treaty on a common economic space could not expound any ideas or goals that would contravene either the Constitution of Ukraine or the country's legislative base, or counter its efforts at Euro-Atlantic integration.

The Verkhovna Rada voiced its support with 290 voting in favor of the resolution. The 102 members of the Our Ukraine faction and the 18 that belong to the Tymoshenko Bloc did not take part in the vote.

The Cabinet of Ministers, which had twice failed to find consensus on the matter, unexpectedly issued a short four-paragraph statement in support of the Yalta signing at the beginning of its weekly session, while bypassing any further discussion on the matter as originally had been planned.

In the days leading up to the CIS Summit in Yalta, the two branches of government engaged in heated and fractious internal discussions on the matter of the economic union, which was originally proposed by Moscow and Kyiv in February after earlier efforts by President Kuchma to give Ukraine some trading strength by arranging a free trade zone for the region had failed.

Since then, much of the debate within the corridors of power in Kyiv had concentrated on how deeply Ukraine should enter into an economic relationship with the three other countries. While President Kuchma and the Ukrainian government had stated repeatedly that they saw no need to go further than the initial stage of a free trade zone, Moscow had suggested that the end goal should be a customs union with a single currency, in effect, a common market.

Prime Minister Viktor Yanukovych's Cabinet could not find consensus on supporting the move into a common market during two previous sessions. Three ministers whose voices were key to which way the Cabinet would go on the matter - Minister of Economy and European Integration Valerii Khoroshkovskyi, Minister of Foreign Affairs Kostyantyn Gryshchenko and Minister of Justice Oleksander Lavrynovych - had twice voiced concerns as to how the document, if signed, would affect Ukraine's European integration and membership in the WTO.

Justice Minister Lavrynovych had also expressed doubt that it was constitutionally allowable to give a supranational body decision-making authority over Ukrainian economic policy, as foreseen in the economic union if it were taken to the stage desired by Moscow. The Ukrainian Constitution does not allow for the laws or polices of any supranational body to supersede Ukrainian law.

The three ministers were tasked on September 10 with preparing an analysis to determine what needed to be done to bring the treaty into line with Ukrainian policy and law to be presented at the September 17 session.

As the Cabinet of Ministers session began and as journalists waited for word on how the ministers would go on the matter of the economic agreement, several lawmakers present to observe the meeting abruptly entered the press room to inform that a statement announcing government approval for the economic zone had been issued without a roll call vote and even before the formal meeting had begun.

National Deputy Taras Stetskiv of the Our Ukraine faction said that Mr. Lavrynovych and Mr. Gryshchenko failed to show for the session, while Mr. Khoroshkovskyi walked out after the statement - ostensibly approved by a majority of the Cabinet - was read by the prime minister.

The resolution, read to journalists by Prime Minister Yanukovych's press secretary, Taras Avrakhov, stated: "Ukraine should and will realize the creation of a 'common economic space,' in a format and within limits that do not hamper Ukraine's course toward European and Euro-Atlantic integration and its accession to the World Trade Organization."

The four-paragraph statement was signed by Prime Minister Yanukovych.

Mr. Stetskiv said he was most taken aback by the fact that the government failed to address the analysis the three key ministers had developed as tasked.

"There are seven or eight points to which they expressed very proper and very specific reservations. The reservations very specifically pointed out which positions Ukraine could support and which it couldn't," explained Mr. Stetskiv.

The lawmaker said that in his opinion the prime minister had rammed the more general statement through the government outside the formal process, which "now opens the door to Ukraine's gradual entry into the Russian economic zone."

Minister of the Economy and European Integration Khoroshkovskyi had led the internal dissent within the government over Ukraine's participation in the common economic space, which largely took the form of a heated spat with First Vice Prime Minister Mykola Azarov, who had helped formulate the draft treaty.

The disagreement between the two government officials over how to proceed played out in the Verkhovna Rada during a special Government Day session on September 16 dedicated to the matter.

During his presentation to the parliamentary session Mr. Azarov extolled the benefits the treaty would give Ukraine, including the development of new markets for its products and, most importantly, a single price for energy sources, which he said would finally "raise the country's standard of living."

"Russia fully understands what this [treaty] means: the same price for energy sources," stated Mr. Azarov.

Mr. Azarov also said that during his recent participation in the WTO's Cancun conference he had been told of no roadblocks to membership in the trade organization should Ukraine join Russia, Kazakstan and Belarus in a common market.

He repeatedly emphasized that the treaty was simply a framework agreement and that each country would determine the level of its integration, which meant Ukraine could agree to become part of a free trade zone but avoid the deeper integration entailed by a customs union.

Mr. Khoroshkovskyi, who followed the first prime minister to the podium with his presentation, was quick to point out errors in Mr. Azarov's remarks. First he noted that Kyiv must keep in mind that the intentions and interests of the four countries who would become part of the common market are very different.

"For our Russian colleagues at the highest echelons, the customs union for them is the minimum level of cooperation, while for us the maximum level is a free trade zone," said Mr., Khoroshkovskyi.

The minister of the economy also corrected Mr. Azarov's observation that Ukraine would receive reduced oil and gas prices from Russia - a matter that has often been at the heart of the problems between the two countries and has led to massive Ukrainian debt owed to Moscow.

"Regarding the price of energy, let us understand clearly here that [the inability to get a single price] is the main reason all our earlier efforts to engage Russia in a free trade zone had failed," explained Mr. Khoroshkovskyi.

National Deputy Yulia Tymoshenko, a leader of the opposition and the former chairman of United Energy Systems, at one time the leading energy trading firm in Ukraine, was more direct regarding price benefits for energy sources when she addressed the legislative body a bit later.

"Mr. Azarov should know the difference between tariffs and prices and should know that in this agreement tariffs will be leveled, but that prices, which are not set by the Russian Federation because all the companies are now private, will be set by those firms," explained Mrs. Tymoshenko.

Other dissenting voices heard during the special parliamentary session noted that the agreement violates the Constitution of Ukraine, because it provides for a supranational body made up of representatives of the four countries to dictate trade policy and tariffs. The voting weight of the body would be divvied up according to the gross domestic product (GDP) of each member-state, which would effectively give Russia at least 70 percent of the total vote and Ukraine only about 10 percent.

"Within this body, all our rights are absolutely given away. In any vote, 9.9 percent of the voting weight would go to Ukraine and 83 percent to Russia," argued Ms. Tymoshenko. "We could say that we love Russia with all our hearts, but that arrangement would not meet the interests of Ukraine."

Mr. Kuchma's leading supporters in the Verkhovna Rada also expressed strong reservations with the economic treaty. National Deputy Stanislav Stashevskyi, a member of the For a United Ukraine faction, noted during his presentation as chairman of the parliamentary Committee on Foreign Relations that, not only did the agreement violate the Constitution because it would force Ukraine to execute the decisions of a supranational authority, but it would close the door on WTO entry and EU membership.

"A presidential decree clearly spelled out a free trade zone and a customs union as the goals of Euro-integration," stated Mr. Stashevskyi.

He added that "a customs union means that tariffs and taxes would be changed to a single norm, which meant that we could join the WTO only together [with Russia, Belarus and Kazakstan]" and concluded that "our involvement [in the common economic space] must be minimal and limited to a free trade zone."

After the treaty is signed by the four states it must receive parliamentary approval in all four national legislatures before its provisions could be implemented.

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