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Compensation for a choice? Ukraine and a FSQ!

November 20, 2015

Many times has the Association Agreement and DCFTA been written about at the blog – and over a period of many years.

The last entry was only a few weeks ago and it stated, “As such, any confirmation of implementation on 1st January (for those who need reassuring), or the highly unlikely announcement of a further suspension, will come when European Commissioner for Trade Cecilia Malmstrom visits Ukraine on 12th and 13th November – two days after the meeting of trade experts.

The anticipated (indeed expected) confirmation came that with effect from 1st January 2016, the Association Agreement and DCFTA with the EU would fully commence, with President Poroshenko joyfully announcing “The EU has just declared the readiness to launch a free trade area with Ukraine on January 1, 2016. We have received a note from the European Union Council attesting to the completion of every procedure required for starting up the DCFTA. There are no impediments now. We will get started after the New Year!”

As also stated within that blog entry, “Every man and his dog has long predicted that when the agreement with the EU enters into full force on 1st January 2016, The Kremlin will introduce a more or less complete trade embargo upon Ukrainian goods – a perverse, in some cases self-harming form of reciprocity perhaps, the act of a spurned lover maybe, the misguided notion of a nation that wants unconditional love and respect based upon its own terms, rather than affording those same sensibilities and terms to those around it.

A large scale trade embargo toward Ukraine is all but assured by a Kremlin that perhaps still believes it can beat, threaten and coerce the current Ukrainian direction out of it – when instead with every such act, it simply beats that choice further in.

The question therefore, is how long will any such Kremlin instigated embargo upon Ukrainian goods last? The answer will be in years – but how many?”

Sure enough, The Kremlin announced trade tariffs (de facto embargo as the tariffs will be severe) upon Ukrainian goods with effect from 1st January 2016 –  “We’re not talking about sanctions, which our partners imposed against Russia. But such a trade environment, of course, would have very serious economic consequences for Ukraine.” Prime Minister Medvedev.

The cost to the Ukrainian economy however is not as great as many may think, depending upon which “expert” a reader may choose, Russian or western, with estimates that the cost to the Ukrainian economy will be somewhere between $167 – $239 million – just over a quarter of a $ billion at most.  (This is naturally due to (official) trade having already substantially dropped over the past 2 years during the on-going war.)

An anticipated trade loss figure that costs Ukraine far, far less than corruption costs the nation each year, and also far less than the Ukrainian slip-shod approach to energy efficiency.

Good governance would save the nation far, far more than is lost by the Kremlin “tariffs”  Even average governance would save the nation more.  Corruption costs the country $ billions every year!  More efforts toward energy efficiency would also save a literal fortune.

The point being that everything trade related is happening as expected from the east and west points of the compass.  There have been no surprises.

It seems therefore somewhat incredulous that the EU Commissioner for the ENP, Johannes Hahn, has had to go on the record stating that the EU will not be compensating Ukraine for the lost trade with Russia.  Mr Hahn stating “Of course, we have been and are still against any actions that impede trade, but we have issued a lot of money to Ukrainian businesses so that they could prepare for new export opportunities and new market conditions……Let’s frankly say the time we agreed on a FTA it was not a secret that after its introduction Russia could respond whether we like it or not, and there was enough time to prepare for this.

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He is absolutely right on all points.  It has been abundantly clear since the signing and ratifying of the EU-Ukraine agreement that The Kremlin would firstly seek to undo it – and it managed to get its implementation delayed from October 2014 until 1st January 2016 – and when it was clear that scuppering the agreement would not happen, in the binary world of reciprocity, that The Kremlin would impose exceptionally high tariffs (a de facto embargo) upon almost all things Ukrainian.

(If Visa-free with the EU ever materialises for Ukraine, it is to be expected The Kremlin will cancel it for Ukraine.)

Let us be more blunt, Ukraine will have an immense task implementing its obligations within the Association Agreement and DCFTA over the next 10 years – but it voluntarily undertook and ratified those obligations and was a party to the negotiated agreement.  The agreement was signed and ratified during the war with Russia.  There were no surprise circumstances at the time of signing nor latterly, ratifying.

In making its choice, Ukraine knew very well what the Kremlin reaction would be – everybody knew – and trade losses to the east would be almost as guaranteed as the trade opportunities (and gains) that were opened in the west.  There would be different winners and losers amongst Ukrainian businessmen, at the very least temporarily, whilst alternative markets were found or domestic consumption increased – or both.  Choices have consequences.

Nevertheless, that Commissioner Hahn has made such a statement implies that the issue of compensating Ukraine for its own choice has been raised by somebody – even after years having past since negotiations were completed and agreements initialed, and more than a year since signing of the agreements before they come into full effect.

Further, there are EU € billions (not to mention US$ for numerous nations) entering Ukraine in the form of grants and loans much of which will be directed at projects whereby many of the “domestic business losers” can have their losses mitigated through funded project implementation participation with a little thought within government and donors.

Whoever asked the question of compensation that forced this response from Commissioner Hahn needs a slap for asking a FSQ (F**king Silly Question) –  very few of us ever get compensated for making a choice, and we all live with the consequences of the choices we make!

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