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Saturday, August 18, 2007

Ukraine's WTO Bid Could Face More Delays

By John Marone, Kyiv Post Staff Writer

Ukrainian officials have been promising since early last year that their country's membership in the World Trade Organization is right around the corner, but as the deadline continues to be pushed back, the sincerity of the government's efforts looks increasingly suspect.

Joining the WTO would promote efficiency, foreign investment and greater integration with the European Union, but it could also pose a threat to some domestic industries, as well as Russian interests.

The latest meeting of the WTO-Ukraine working party, which consists of representatives from 43 of the WTO's 150 member countries and is tasked with examining Ukraine's progress toward membership, was held in Geneva on July 23.

Two days later, on July 25, the Economy Ministry released a statement suggesting that Ukraine's bid was moving along as planned.

"The member countries of the working party stated their support for Ukraine's prompt completion of talks on obtaining WTO membership, and they agreed to hold the next meeting in the beginning of October," reads a statement posted on the ministry's website.

The ministry statement went on to explain where Ukraine needs to go from here, including further work on a couple of bills.

The previous meeting of the working party was held on May 14, about two weeks before parliament approved what it said were final amendments to WTO-related legislation.

"Formally, Ukraine has fulfilled all its obligations to the working party on joining the WTO," First Deputy Prime Minister and Finance Minister Mykola Azarov announced on Ukrainian TV in late May.

As early as last December, just before a working party meeting was to be held, the government had made similar boasts.

It was in December that Ukraine's parliament proudly announced that it had passed the last of several bills needed for the country to join the WTO.

Since then, everyone from President Viktor Yushchenko, who has made WTO entry a top policy goal, to his political nemesis Prime Minister Viktor Yanukovych, who has been accused by his political opponents of derailing the bid, have bandied 2007 around as the likely year of accession. This summer, Yushchenko said Ukraine would join by the end of this year.

Ukraine has been negotiating WTO entry for 13 years. But the country's prospects only began to look realistic when Yushchenko became president in 2005.

By early 2006, the United States had recognized Ukraine as a market economy and cancelled the stigmatizing Jackson-Vanik amendment. Yushchenko began predicting WTO membership by the end of 2006, as part of a wider policy of European integration.

The European Union has made WTO membership a precondition to a bilateral free-trade agreement much coveted by Ukraine. At the same time, officials in Brussels continue to express support for Kyiv's WTO efforts.

Russia has suggested that Ukraine and Russia join the WTO simultaneously.

Serhiy Teryokhin, a lawmaker in the opposition Byut faction and a former economy minister, said the Kremlin is concerned that Kyiv would get the upper hand in outstanding trade issues if Ukraine achieves WTO membership first.

According to WTO rules, an applicant country must sign bilateral agreements with all relevant WTO member countries as a precondition to accession.

Teryokhin said one issue that Ukraine could hold over the Kremlin's head is Russia's oil export tariffs, which effectively tax importing countries like Ukraine instead of Russian producers.

The opposition deputy said he personally suspects the government-led majority in Ukraine's parliament of purposely crafting faulty WTO legislation to slow down Ukraine's bid.

The parliamentary majority, comprised of Communists, Socialists and Yanukovych's big-business-backed Regions party is widely considered to lean more toward Moscow than the West.

"What this is really about is synchronization of Ukraine's and Russia's WTO bids," Teryokhin told the Post. Teryokhin said he raised his concerns about faulty legislation passed in May but was ignored.

Another issue that is preventing Ukraine from joining the WTO, in addition to incomplete legislation, is a final bilateral agreement that it must sign with Kyrgyzstan, a WTO member.

According to Teryokhin, Kyrgyzstan's conditions for signing the agreement are "ridiculous" and demonstrate that the small Central Asian country is doing Moscow's bidding.

Russian continues to negotiate for WTO membership but observers say a lot of trade issues remain for Moscow to resolve. The West-allied country of Georgia, itself a WTO member, has pledged to block Moscow's bid in retaliation to trade restrictions and border disputes.

Ukrainian Foreign Minister Arseniy Yatsenyuk, a close ally of President Yushchenko, denied during his July Brussels visit that Ukraine was holding up its bid to please Russia. "Russia has its path and Ukraine has its. We are not going to synchronize these issues."

A source close to Ukraine's WTO negotiation process said at least one of the two obstacles to Ukraine's bid, the bilateral agreement with Kyrgyzstan, could easily be resolved by "a single high-level meeting."

The Kyrgyz government's main demand has been that Ukraine pay what it says is a $28 million debt going back to Soviet times.

There are two reasons why the Ukrainian government wouldn't want to resolve the issue, the source told the Post: Either in support of synchronized entry with Russia and/or lobbying by industries who fear large foreign competition that will enter the market when Ukraine joins the WTO.

According to Oleg Riabokon, the managing partner of Kyiv-based law firm Magister & Partners and a specialist on international trade issues, WTO membership will be tough for uncompetitive sectors of Ukraine's economy.

"Ukraine's entry into the world trade club would certainly create uneasiness for industries that have not been able to find their competitive edge since the privatization took place," he said. But the overall economy will gain, he added. "Ukraine's economic future depends on those who can fight."

In the mean time, however, the country's journey along the road to the WTO is anything but over. For Ukraine to get into the WTO by the end of this year, as the country's authorities have promised, the government will have to finish up all technical issues "flawlessly," the source close to the talks said.

Then parliament, which won't be operational until after the Sept. 30 snap elections, will have to enact necessary legislation. Finally the working party will have to meet again to approve Ukraine's draft report and pass it on to the WTO General Council for a final decision.

The Ukrainian Parliament must ratify the decision before the country actually becomes a member.