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The difficulties of trade talks……why do they take so long?

November 27, 2010

Well dear readers, there has been some noticeable frustrations amongst some certain members of the press, the expatriate community, the international and Ukrainian business community over the speed of the Deep and Comprehensive Free Trade Agreement currently being worked upon by the EU and Ukrainian negotiating teams.

Here is a set of negotiations which is in its 10th year relating to the EU and Africa…..

http://euobserver.com/9/31366

After 10 years of negotiations, it seems the continent of Africa is about to walk away from the negotiating table with the EU as it seems despite political rhetoric and despite the interests and needs of both sides being clear in the reaching of an agreement, the positions from where both sides started the negotiations 10 years ago have barely moved.

The African continent faces many of the same issues as Ukraine, in that the customs tariffs, just as with Ukraine, are a major issue and as the African continent rightly points out, customs tariffs have been used by the EU nations historically to protect their own industries and grow them, therefore removing them has the very real chance of destorying developing domestic industrialisation.

That maybe less true of Ukraine, but then maybe not, considering the industrialisation in Ukraine still exists as the Soviet industrial units and therefore are in urgent need of investment for reasons of environmental, ecological, health and safety and economic output.  That does not take into account the soviet system of aircraft engines being built in Ukraine SSR but the bodies build in Russia SSR etc etc.  A system designed to insure one nation within the USSR depended on the other.  20 years on, the same situation still exists across many industries in Ukraine and Russia.

It is fair to say that the industrialisation of Ukraine still has some way to go to meet its potential.

This though is but one area where the removal of tariffs will hurt Ukraine when its producers come up against the modern, efficient, ecologically, enviromentally and economically advanced German industrial machine and all those protective tariffs are removed authomatically giving German goods a 20% market price reduction over current domestic pricing and obviously having an adverse effect on domestic producers.

How will Ukraine fair when the tariffs are removed in agriculture when it is faced with the Common Agricultural Policy (CAP) of the EU?  How will Ukraine cope with the agri SPS standards which even Poland, if not compensated by the EU, would never be able to apply fully due to the costs.

Is the answer in specific products being identified in the short term whilst over the long term the aim is towards a full and financed SPS standard?  Is that not just a simplified FTA that delays anything that could be called a comprehensive DFTA?

How will Ukrainian coal mines cope against the recently extended EU subsidies for coal?

Ukrainian metals, coal, ore?  The end of GOST and the implimentation of EU grading systems?  Some form of automatic bilateral recognition of accepted standards is required to end the delays with customs inspections.

What about the telecoms sector?  Ukraine taking up the EU 2002 regulatory model would be a disaster as it removes most national regulators.  This means Ukraine at best would have to adopt the previous 1998 regulatory EU system that left them in place, thus not exactly mirroring the EU.

What about the financial sector?  EU bank owned subsidiaries in Ukraine will work to Basle II regulation, do Ukrainian banks work to the Basle system at all?  If not then they will have to at least move to Basle I or there is no ability for transparent actions within the EU and Ukraine financially.

In the arena of energy, Ukraine has already applied to join and agreed to abide by the Energy Community in Europe, however there remains a lot of work to do to make nefarious entities like Naftogaz transparent before we even mention the area of the Kyoto Protocal and dodgy dealing in the carbon credits area Kyiv indulges in.

These are just a few points in an incredibly complex area that is free trade negotiations that could possibly have harsh reprocussions in Ukraine for the short and medium term if not negotiated carefully.

If the result is flawed, we are not talking about Ukraine going back to Russia to bilaterally renegotiate the price of gas, we are talking about Ukraine going back the the EU and trying to change something that will require the consesnus of all 27 member states.  That is likely to be an exceptionally slow and painful process if any agreement can be made to change any signed of DFTA at all.

The issue becomes extremely complex because the needs of both Africa and Ukraine in the negotiations with the EU will change over any transitional period in which the market place adjusts.  It is not like signing a deal with a mature and developed nation or continent.  Both the African continent and Ukraine are still emerging and thus need some form of flexibility from the EU, but flexibility is difficult to have in a comprehensive Deep Free Trade Agreement, even if sliding timescales are included to reach position X by a certain date.  The force majoure that was the financial crisis shows that such things can really screw up the diarised timetable of events……for a very, very long time.

All of this takes us back to the basics of any negotiation and that is the opening positions of either side, the shared interests of both sides and the needs of both sides.

It is certainly in the interest of both sides to agree a deal if a satisfactory one can be reached.  It is the position of both sides that a DFTA is in the long term benefit of both sides……particularly for Ukraine who should see a massive long term gain…..if the short term needs for transition can be mitigated and not devistate what is already here.

To take a holistic approach to this is of course necessary as it should all be negotiated at once for reasons of timeliness, however it is the specifics that will take a great deal of negotiation and agreement.  They should not be rushed to the detriment of Ukraine…..not that I would advocate a 10 year negotiation as in the EU/Africa case which is apparently going nowhere.

As we are already seeing in the RADA, an aweful lot of laws are being passed at record speed in efforts to reach some for of EU compatibility across many areas, but the quality of these laws are occasionally being sacrificed for speed.

More haste and less speed is the order of the day and a quality legislative legacy which allows for the DFTA needs to exist in equal quality to the on-going negotiations and any subsequent agreement.

Those chomping at the bit and bemoaning the speed of this process are quite likely to suffer severelyin the short and medium term if a rushed deal is negotiated by Ukraine.

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