CIS Free Trade Agreement ratification likely soon

Well with all the noise amongst the chattering classes and political commentators regarding the EU and Ukraine and the stuttering progress towards the DCFTA and AA, very little attention has been given to the signing of the CIS FTA by Ukraine which I mentioned a long time ago (October 2011) in a post relating to the BSEC becoming an organisation with much more regional political and economic gravity than it has had in previous years.

Now the first thing that must be said is that the EU DCFTA and CIS FTA are not an either/or situation for Ukraine. Russian ascension to the WTO now provides Ukraine with a framework for more confidence that there is a neutral external entity with rules that both nations are now bound to regarding trade. Unless there are matters within the CIS FTA that are completely contradictory to WTO rules then Ukraine and the EU will have little to complain about should Ukraine ratify the CIS FTA.

It seems Ukrainian ratification of the CIS FTA is imminent. It is hardly surprising that the CIS FTA took far less time to negotiate, sign and probably ratify that the EU DCFTA as the CIS are not attaching the political AA agreement to it that the EU has. Thus as predicted in previous posts, there was little chance that my assertion the CIS FTA being ratified long before any EU agreement was ever likely to be proven wrong. The only way it was ever likely to be proven wrong was if the EU split the DCFTA from the AA agreement and that was never likely to happen.

So which is more important to Ukraine?

Well to be honest, both are equally as important as you would expect for an export nation that sits between the EU and the CIS nations.

Trade between Ukraine and the CIS nations is about $70 billion of which $54.9 billion is with Russia. That is approximately 42.3% of Ukrainian trade, with Russia accounting for about 33%.

Trade with the EU nations is approximately 28.6%.

If as is anticipated, trade with the CIS increases by another 35% upon ratification of the CIS FTA in the next few years leading up to the formal formation of a Eurasian Union around 2015, then there will be a significant pull East with little doubt a similar EU styled AA agreement forthcoming to Ukraine.

You would anticipate a far easier path to full membership than that of the EU as well, quite simply due to far less nations needing to agree on Ukrainian membership than is necessary within the EU and with a far less sensitive outlook towards certain internal Ukrainian issues.

We are therefore likely to see the CIS FTA ratified in January, the EU DCFTA and AA agreements initialed to close negotiations in February.

Does that mean Ukraine will head East? Probably not. The EU numbers will change dramatically once the DCFTA enters into effect. The question is when or if the DCFTA will take effect. If all depends in Tymoshenko’s release then it is unlikely to happen until she has served her full term.

What happens between February and the end of the year very much then depends on 3 issues. The first is the Russian presidential elections in March and what way Mr Putin will deal with the internal political issues within Russian society.

The second will be on how well the Ukrainian parliamentary elections go in October relating to them being free and fair. Undoubtedly there will be electoral violations as elections and election laws are normally quite complex and it is very rare any nation holds an election that is not subject to a technical violation of electoral law. Technical violations and fraud are not necessarily the same thing at all.

Having monitored elections and polling stations in the UK it is not until you need to know the complexities of election laws that you realise just how easy it is for technical violations to occur.

The third issue is how the EU will react to the parliamentary elections in Ukraine. It seems likely that Ms Tymoshenko will not take part personally and that she will remain incarcerated. However, these are parliamentary elections and not the personality contest of presidential elections. Her party will take part and will do quite well. Voters still have the opportunity to vote in a parliamentary majority from her party (assisted by the new electoral laws supported by her party in the RADA vote on the new election laws). Democracy is far from dead in Ukraine despite the hyperbole to the contrary.

If it is declared free and fair by the international observers and thus democracy is still officially recongised as alive in Ukraine, the question then arises as to whether the EU nations will start the official signing and ratification process of the DCFTA and AA which will be initialed in February, or whether Ms Tymoshenko’s situation will be enough to derail that happening despite her current position being the EU should not shy away from sealing these agreements regardless of her predicament.

As I wrote at the beginning of the year, the question of Ukrainian direction is very unlikely to be settled this year and the difficult task of walking the tightrope between differing geopolitical forces will remain a priority for the current government and administration.

Anyway, the ratification of the CIS FTA when it happens later this month should not be seen as an either/or decision for Ukraine or necessarily an indication of its eventual final geopolitical direction. It is my rather forlorn hope that Ukraine will join fully neither EU or Eurasian Union at an integrated political and policy level but set its own independent course in those regards. Association agreements are one thing, full membership quite another.

When it comes to FTAs then Ukraine should sign as many as it possibly can with whomever has an interest to do so under the caveat that one will not be counterproductive towards another. The major difference between the EU DCFTA and any other that Ukraine may enter into, one suspects, is that Ukraine must change legislation to meet EU norms and compliment those of the single market it enters. Other bilateral agreements based solely on WTO frameworks such as the CIS FTA will require little or no legislative changes by Ukraine being an existing WTO member.