Ukraine's president signs pact on common economic space (09/28/03)

Ukraine's president signs pact on common economic space

by Roman Woronowycz
Kyiv Press Bureau

KYIV - Despite widespread domestic political criticism, President Leonid Kuchma signed a controversial framework agreement on September 19 in Yalta that could lead Ukraine into a customs union with Russia and forestall or even prevent the country's move into European structures.

After the signing ceremony, which was held during the annual summit of the Commonwealth of Independent States, Russian President Vladimir Putin responded harshly during a press conference to suggestions by some that the agreement was the first step in a process that could lead to a renewed Soviet Union.

"That is nonsense. They do not understand what they are talking about," President Putin said. "That was a very complicated page in our history. The page is turned. The train is gone."

While the agreement - which would lead to what has been referred to as a common economic space (CES), or common market, between Ukraine, Russia, Kazakstan and Belarus - currently is merely a broad-based outline on general conditions and goals, it would allow each country to sign accords with the others that could enter them into closer economic relations. Russia has proposed that the four countries should strive for a customs union at a minimum and has stated that it would like to eventually, perhaps in a decade, see a single currency.

President Kuchma, whose government supported the signing of the agreement despite serious concerns expressed by key ministers just days before the summit, has said that Ukraine would agree only to a free trade zone, which would be the first step in the process as it is described in the agreement.

"I did not doubt for a minute while signing the document that it meets Ukraine's national interests," explained Mr. Kuchma at press conference following the signing, which was also attended by President Nursultan Nazarbaev of Kazakstan, President Alyaksandr Lukashenka of Belarus and President Putin.

President Kuchma has insisted for years that Ukraine needs a free trade zone with Russia in order to finally achieve tariff-free access to the Russian market for its goods, chief among them Ukrainian sugar and distilled spirits. The country would also like access to Russia's plentiful oil and gas at the same price it is sold within the Russian Federation.

Ukrainian Prime Minister Viktor Yanukovych noted while at the summit that the four presidents also signed a joint statement issued by the state leaders of the CIS, which specified that the creation of a free trade zone "was an indisputable priority," along with the creation of instruments for more effective use of energy and water resources based on free-market mechanisms.

Reacting to the widespread criticism of his decision to sign the document despite clear uncertainty over the ramifications for Ukraine's membership in the European Union and its accession to the World Trade Organization, President Kuchma also announced during the press conference that he was ready to hold a national referendum to allow Ukrainian citizens to decide whether they would like their country to remain part of the CES.

Most national democratic leaders in Ukraine - and even some politicians within Mr. Kuchma's political camp, including three government ministers - had voiced serious reservations and concerns that the CES framework treaty could lead to insurmountable difficulties for Kyiv in finally achieving access to the WTO and EU membership. There had also been considerable speculation that the treaty violates the Constitution of Ukraine because it authorizes the creation of an intra-governmental body to monitor tariffs and trade.

The Cabinet of Ministers ignored an analysis drawn up by the three ministers - Minister of Economic and European Integration Vitalii Khoroshkovskyi, Minister of Justice Oleksander Lavrynovych and Minister of Foreign Affairs Kostyantyn Gryshchenko - whom it had specifically ordered to determine the ways in which the agreement might be unconstitutional and not in Ukraine's interest. Instead the Cabinet suggested that a general clause be inserted into the document to state that no agreement could be enforced that was not constitutionally acceptable or that did not support Ukraine's European course.

As The Weekly was going to print, the final CES document had not been made public, and it was still unclear whether that clause had been included.

Immediately after the signing, Our Ukraine, one of four political organizations in opposition to the president and his policies, announced it had begun a petition-signing campaign seeking Mr. Kuchma's impeachment.

In Bucharest, Ukraine's Ambassador to Romania Anton Buteiko, a former first vice minister of foreign affairs and once the ambassador to the United States, resigned the same day the document was signed, citing his resolute disagreement with "the preparation and the process of the negotiations, as well as the signing of the document on the creation of the CES."

Borys Tarasyuk, the head of the National Rukh of Ukraine, which is the largest political party in the Our Ukraine bloc, said during a press conference in Kyiv that the agreement was a political document despite the best efforts of Presidents Kuchma and Putin to label it more narrowly as an economic treaty.

Mr. Tarasyuk echoed the thinking of several political experts who have said that Mr. Putin had pressed hard for the document in advance of Russia's presidential elections next spring. "He needs the agreement to show that Russia is reuniting its lands," said Mr. Tarasyuk.

Many political experts agree that the presidential elections are the only reason that the framework CES agreement has been brought to life and that the treaty could well die before it is fully born as have previous agreements, such as the failed attempt to create a CIS free trade zone and a Eurasian economic zone. Mr. Putin seemed to have raised doubts about whether even a free trade zone is possible when he signaled a day after the summit ended that he may not be ready to give Ukraine what it most wants: unfettered access to Russia's markets.

"We are ready for a free trade zone, but we cannot guarantee that we will not demand exclusions and limits [on some goods an services]," explained the Russian president once back in Moscow, according to Interfax-Ukraine.

The main criticism used by opponents of the CES agreement in Ukraine involves the way in which it will affect the country's bid to achieve World Trade Organization status. Those in the pro-CES camp have said that Ukraine would still go the path, but together with its new economic partners, while CES opponents have maintained that the process would become so complicated as to be practically impossible.

Anne Krueger, first managing director of the International Monetary Fund, threw her considerable economic authority behind the opponents when she said on September 23 during a meeting in Kyiv with Minister of the Economy and European Integration Khoroshkovskyi that CES membership may cause difficulties in the process of Ukraine's accession to the WTO and the implementation of its course toward integration with Europe.

Her comment echoed remarks made earlier by newly arrived U.S. Ambassador to Ukraine John Herbst. The ambassador's statement - made during his first press conference in Kyiv held on September 18 - that "it is in the interest of Ukraine not to take any step that will complicate that process," was not received warmly by Moscow.

Russia's Ambassador to Ukraine Viktor Chernomyrdin reacted with disdain when questioned about the comment during a public appearance in Kyiv the following day. He observed that the coment was made as if Washington was still in a state of Cold War with Moscow.

Some economic analysts believe that no substantial additional agreements within the CES framework will be made until the second half of 2004, by which time Ukraine could be a member of the WTO. That would then require that the CES agreements fall into line with WTO requirements.

Before the CES framework agreement moves towards the next phase of its development, it must be approved by the Verkhovna Rada and the other Parliaments of the four signatories. The ratification battle in the Ukrainian Parliament is expected to be particularly fierce. The official documents are not expected to be presented to the Rada for two to three months at the earliest, and perhaps not before the end of 2004.

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