Ukraine and Europe – A short guide. CEPS Special Report, 23 August 2016

The new relationship between Ukraine and the European Union is the focus of this accessible, non-technical short guide. This relationship is based on a complex treaty: an Association Agreement with extensive political, economic and legal content, signed and entering into force provisionally in 2014 (in 2016 for a trade part). The Agreement includes a Deep and Comprehensive Free Trade Area (DCFTA). This booklet is a summary of a longer Handbook entitled Deepening Ukraine-EU Relations – What, why and how?, which explains the contents of the treaty in much greater depth. The Handbook, like the present booklet, is freely available at www.3dcftas.eu in both English and Ukrainian. Both publications follow the same chapter structure, which allows readers who wish to dig deeper into the subject to readily find their way in the longer Handbook

Eastern Partnership policy beyond 2020: advances and omissions in a vast agenda. CEPS Commentary 14 April 2020

The Joint Communication on the Eastern Partnership (EaP)1 published in March offers a broad array of policy orientations but relatively little operational specificity. This drafting is presumably intended to be acceptable to all six EaP states. The lack of reference to the joint request of the three states with Association Agreements (AAs) – Georgia, Moldova and Ukraine – to open a ‘quadrilogue’ with the EU to treat matters of common concern to them, and which are not relevant or plausible in relation to the other EaP states, is a glaring omission that could still be corrected at the EaP summit on 18 June. This summit should also agree on EaP policy beyond 2020, with the partner states, and include the many transnational issues worthy of quadrilateral consultations, such as how revisions of major EU policies (for instance, on energy, climate and competition) may affect the associated states

Die Ukraine und die Zollunion von Russland, Belarus und Kasachstan: würde sich eine engere Integration auszahlen?

Die Ukraine genießt auf Grund verschiedener Freihandelsabkommen bereits bei vielen Gütern zollfreien Zugang zum Markt der Zollunion von Russland, Belarus und Kasachstan. Eine Vollmitgliedschaft in der Zollunion würde keinen verbesserten Marktzugang mit sich bringen. Auch andere vorgebrachte Vorteile, wie z. B. garantierte und langfristig niedrige Gasimportpreise, sind fraglich. Der Gaspreis wird nicht durch die Verträge zur Zollunion festgelegt. Die Kosten, die mit einer Vollmitgliedschaft verbunden sind, sind jedoch beträchtlich und beinhalten eine Verschiebung der Handelsströme, eine erhöhte Energieabhängigkeit, den Verlust einer unabhängigen Handelspolitik und die Lasten, die durch WTO-Nachverhandlung und Kompensationen entstehen. Die beste Option für die Ukraine wäre es, die Beziehungen zur Zollunion von Russland, Belarus und Kasachstan auf bereits bestehende und zukünftige Freihandelsabkommen zu gründen

Fiscal loosening during the 2004 Presidential election campaign : three steps towards instability

The 2004 Presidential election campaign has left a deep effect on the budget process 2004-2005, which came about in three steps: (1) In the course of amending the 2004 budget, privatization receipts were misused to finance higher minimum pension payments, raising net public liabilities in the future. (2) The draft budget 2005 envisages further increases in transfers to the population and in sectorspecific state aid. If all liabilities are taken into account, the resulting deficit of the central budget will reach 3% of GDP in 2005, provided there is no correction on the expenditure or revenue side. This is extremely inappropriate in a high growth environment as Ukraine’s. (3) Fulfilling all social promises made by presidential candidates during the campaign will create an additional fiscal gap of some 1.9% of GDP in 2005. Besides, there are high risks on the revenue side that might result in an additional fiscal gap up to 3% of GDP, and doubtful privatization receipts that may increase the need for external borrowing, raising serious fiscal sustainability concerns. The ensuing fiscal instability would negatively affect the so far excellent overall macroeconomic situation. Rapid increases of transfers to the population will contribute to price pressure on the final goods market. There is thus an urgent need to implement corrective measures, which, however, are subject to various, mostly political constraints. As we consider the political costs of renegotiating the 2004 budget amendments to be too high to be taken on, we rather propose: not to incorporate additional social promises into the draft budget 2005, such as those made by the presidential candidates during the 2004 campaign; to restrict state aid to coal mining and agriculture; to continue to broaden the tax base by cutting tax privileges. While all this will help to decrease the fiscal imbalances outlined above, it will not be sufficient to prevent price pressure from the budget. Solving the fiscal and macroeconomic imbalances brought about during the election campaign thus calls for a joint fiscal and monetary policy response.

Ukraine: Wachstumsprobleme und wirtschaftspolitische Herausforderungen

Im Jahr 2006 wird das Bruttoinlandsprodukt in der Ukraine nach Prognose des DIW Berlin mit 3 % und damit vergleichsweise gering wachsen. Nach einer fünfjährigen wirtschaftlichen Erholungsphase in den Jahren 2000 bis 2004 mit durchschnittlichen jährlichen Wachstumsraten von 7,4 % erlebt das Land seit der "Orangenen Revolution" Ende 2004 eine starke Abschwächung des Wirtschaftswachstums. Ursache hierfür sind vor allem ausgebliebene Wirtschaftsreformen und zu geringe Investitionen. Bei den Parlamentswahlen im März dieses Jahres und bei den anschließenden Koalitionsverhandlungen standen diese wirtschaftspolitischen Themen allerdings eher im Hintergrund. Nach der Regierungsbildung im August sind bisher keine klaren Linien der zukünftigen Wirtschaftspolitik zu erkennen.

Now so near, and yet still so far: economic relations between Ukraine and the European Union

Kiev is not so far away from Brussels as one might expect. Ukraine already performs quite well when compared to the other countries in the queue for entry into the EU. Especially the fiscal and external debt figures are better than in other countries. On the negative side, there is a considerable backlog with respect to the development of administrative and judicial institutional capacities, and a potential for macroeconomic instability due to monetary expansion, rising inflation rates, and real exchange rate instability. From a macro perspective, the most pressing issue is to end inflationary pressures resulting from targeting the exchange rate to a weakening dollar. Among the alternative frameworks available to Ukraine, the current exchange rate anchor can be made more flexible by targeting a basket made of the US dollar and the euro. Such an exchange rate anchor framework provides a clear indication to the public about monetary policy, disciplines fiscal policy, and is relatively easy to manage. Additionally, a clearer link to the euro may be useful for a greater integration into the EU. From a micro perspective, the most pressing issues which can be targeted in the short run are taxation and competition policy. The tax system is unstable, complex, and inconsistent. A reduction of tax exemptions could broaden the tax base and allow for lower nominal tax rates. Privatization has been rather limited in the non-traded goods sectors. Additionally, the completion of privatization needs to be coupled with a more robust and consistent regulatory framework in order to attract more FDI, as was the case in the new member states of the EU. Sandwiched between the EU and Russia, Ukraine is likely to derive substantial gains from EU integration. Excluding the energy sector reveals that Ukrainian trade with the EU already outperforms its trade with Russia. In addition, EU integration is likely to attract more inflows of foreign capital if the new government is able to provide a more attractive macroeconomic and institutional environment. Ukraine should press for fast reforms and use the ?honeymoon? period of the new government to open negotiations for EU membership by submitting a formal application. This will, among other things, help to prevent vested interest groups from blocking the reform process. A pragmatic approach for an integration strategy would include four elements: identifying reform priorities; harmonizing Ukraine?s legislation with EU law; undertaking steps to get a market economy status from the EU; and, finally, signing a free trade agreement with the EU. The EU, on its side, should actively support the continuation of the reform process in the country, especially with respect to institution building. Finally, one must stress that the EU itself will gain from this enlargement, as it has gained from all the previous ones. In our view both sides are now facing a historic opportunity that should not be missed, neither by Kiev nor by Brussels. --

Russia’s Punitive Trade Policy Measures towards Ukraine, Moldova and Georgia. CEPS Working Document No. 400, September 2014

While EU and US sanctions against Russia over its aggression in Ukraine, and Russia’s counter-sanctions, are much discussed due to their evident political significance, less attention has been given to Russia’s punitive sanctions against the three Eastern European states – Ukraine, Moldova and Georgia – that have signed with the EU Association Agreements (AA), which include Deep and Comprehensive Free Trade Area (DCFTA) provisions. This paper therefore documents these trade policy restrictions and embargoes imposed by Russia, and provides some first indications of their impact. The immediate impact on trade flows, especially for agri-food products, has been substantial, albeit with some leakage through Belarus. The main instrument for the Russian measures has been allegations of non-conformity with Russian technical standards, although the correlation of these allegations with movements in Russia’s geopolitical postures makes it obvious that the Russian technical agencies are following political guidelines dressed up as scientific evidence. These measures also push the three states into diversifying their trade marketing efforts in favour of the EU and other world markets, with Georgia already having taken significant steps in this direction, since in its case the Russian sanctions date back to 2006. In the case of Ukraine, Russia’s threat to cancel CIS free trade preferences infiltrated trilateral talks between the EU, Ukraine and Russia, leading on 12 September to their proposed postponement until the end of 2015 of the ‘provisional’ implementation of a large part of the AA/DCFTA. This was immediately followed on 16 September by ratification of the AA/DCFTA by both the Rada in Kyiv and the European Parliament, which will lead to its full and definitive entry into force when the 28 EU member states have also ratified it. However Putin followed the day after with a letter to Poroshenko making an abusive interpretation of the 12 September understanding

Deepening EU-Ukrainian Relations: What, why and how? CEPS Special Report, 23 August 2016

The signing of the Association Agreement and DCFTA between Ukraine and the European Union in 2014 was an act of strategic, geopolitical significance in the history of Ukraine. Emblematic of a struggle to replace the Yanukovich regime at home and to resist attempts by Russia to deny Ukraine its ‘European choice’, the Association Agreement is a defiant statement of the country’s choice to become a democratic, independent state. The purpose of this Handbook is to make the legal content of the Association Agreement clearly comprehensible. It covers all the significant political and economic chapters of the Agreement, and in each case explains the meaning of the commitments made by Ukraine and the challenges posed by their implementation. A unique reference source for this historic act, this Handbook is intended for professional readers, namely officials, parliamentarians, diplomats, business leaders, lawyers, consultants, think tanks, civil society organisations, university teachers, trainers, students and journalists

Stand der DCFTA-Implementierung nach einem Jahr

Im Januar 2016 trat die vertiefte und umfassende Freihandelszone (DCFTA) zwischen der EU und der Ukraine vorläufig in Kraft. Wir wollen die Umsetzung des Abkommens nach dem ersten Jahr einschätzen. Dabei konzentrieren wir uns auf die sieben Bereiche Marktzugang, Produktsicherheit, Lebensmittelsicherheit, Zoll, öffentliche Ausschreibungen, Schutz des geistigen Eigentums und Wettbewerbspolitik