Thursday, September 20, 2012

Ukrainian Dependence: Survival without the EU

 Although Manfred Stinnes is not an Ukrainian area specialist, in a recent lecture about the current status of the EU he firmly stated that the internal struggles taking place in Ukraine prove that they are not ready to negotiate.  Meanwhile, the economic dilemmas facing the EU impede any talk of integration with a country that has failed to comply with European standards.  In recent visa facilitation arrangements, representatives of the EU did not support agreements between Ukraine and the EU.  “EU policy towards Ukraine should be firm and consistent and continue to insist on clear commitments from the Ukrainian authorities towards democratic values and the rule of law.” Ukraine has been unable to show that they would be compatible joining the 27 other western states.

Unmistakably, Ukraine has not been stagnate and has been promising and reporting repeatedly on progress.  Unfortunately the important infrastructure improvements made in preparation for the Euro soccer tournament in Ukraine this summer did not fulfill the anticipated aspirations.  Expecting to receive acceptance, Ukraine did not get closer to negotiations.  However, the ruling party, the Party of Regions, acknowledged the impact of the physical changes with a slogan “Championships pass – Achievements remain.”  Despite these improvements to roads, airports, and new stadiums, the ratings for democracy have digressed.  The shadow of corruption, accusations of unfair elections, and an increase of human rights’ violations have been ever present.  Repeatedly Ukraine is criticized for the lack of transparency, inaccuracy of reports, and control of public funds.  Even with elections looming it is clear that the priorities for “European” progress are not succeeding.

Ukraine has fallen guilty of talking the talk but not walking the walk.

Almost three months ago Yanukovich addressed the need for a new social policy in Ukraine while speaking to the members of Ukrainian parliament, the Verkhovna Rada.  Remarking that this development would be “impossible without the introduction of European standards in legislation on the social sphere”, he promised to move forward and resolve conflicts within society.  But this and other ambiguous speeches have become a classic formula for many articles that simply extol European values and the aspiration of many Ukrainians to embrace a more democratic method.  Within the same month as Yanukovish’s plea to parliament, a human rights monitoring group, Freedom-house, published in its report that Ukraine has had a “persistent decline in democratic principles and human rights” and downgraded the status of Ukraine from ‘Free’ to ‘Partly Free’ as of this year.

The EU has made it clear that Ukraine will not be accepted until it moves closer to democracy, not farther.  Therefore, if there is really “no chance”, as Mr. Stinnes remarked recently, for Ukrainian integration into the European Union why is there an almost daily discussion among the media about the potential progress and negotiations to move westward?

In Ukraine, unfortunately, the real issues are ignored and change is avoided; instead hollow and insincere articles are constantly published to distract from the impasse of maturation.  There is a dearth of movement or plans to assimilate.  If European Union integration is consistently mentioned it is assumed that it is a priority.  But little is done to convince people to get on board and be willing to make sacrifices to enable Ukrainian integration.  A more democratic, transparent, and humane Ukraine could be achieved without attachments and dependence to the EU if society and government sincerely desired to end corruption and inequality.  This desire should start internally and be a unifying movement in society.


Stinnes, Manfred.  “The European Union: Fourth Year of a Crisis, or Birth Pangs of a New Historical Period?”  University of Kansas, Public Lecture.  Lawrence, KS. 13 Sep. 2012.

Державні витрати в Україні закриті для зовнішнього контролюСвітовий банк
(Government spending in Ukraine closed to external control – World bank) 

Президент виключив євроінтеграцію України за рахунок обмеження суверенітету
(President ruled out Euro-integration of Ukraine on grounds of  limitations of sovereignty)

 “Komorowski: Euro is Ukraine's step closer to EU”

“German MEP opposes visa liberalisation with Ukraine”

“German MEP opposes visa liberalisation with Ukraine”

“Yanukovych: Political speculation on language, culture, history, religion hamper national consolidation”

“New Report: Democratic Decline Persists in Ukraine”

Protectionism in Russia: The good the bad and the ugly

                Russia’s accession to the WTO will effectively be the final step to its introduction into the world markets. The reduction of tariffs and elimination of government subsidies will result in the extinction of certain sectors of Russia’s economy but the country will see an overall growth in its economy. In this post, I will use Ricardo’s law of comparative advantage to demonstrate why free trade is beneficial. Next, I will explain why many Russians are reasonably weary of the accession as well as the safeguards set in place to prove a smooth transition into free trade. I will conclude with an explanation of why protectionism and nationalization of economies is detrimental.
                It is fundamentally more efficient for a country to focus on its most productive industries. For example, it takes Russia the equivalent of 10 hours of labor to produce a steel beam and 15 hours to produce a car. Conversely, it takes Germany 15 hours to produce a steel beam and 10 hours to produce a vehicle. In this hypothetical Russia has a comparative advantage in steel production and Germany has the advantage in automotive manufacturing. Free trade and specialization will result in a net increase in the welfare of both nations. The gain occurs because free trade allows both nations to specialize a good and this will increase opportunities for consumption. Free trade allows a nation to consume and produce more than they would under autarky. The World Bank predicts that because of WTO accession Russia’s economy will grow at a rate of 11% annually in the long term and 3% in the medium term. This projected growth results from the improved quality and lower prices of services, which will lead to greater productivity and an increase in the competitiveness of Russian firms. The tariff reduction will also result in lower prices of goods for consumers. Another important factor for growth is improved market access for Russian exporters. Particularly for Russian firms producing steel, non-precious metals and chemical products.
                The principle argument against Russia’s WTO accession is that sectors such as machine building, light industries and agriculture will not be able to compete with foreign producers and will not have the protection of tariffs to uphold such industries. This will result in massive lay-offs in the manufacturing industries. Of particular concern is the automotive industry. Russia’s current tariffs on automobiles are at a staggering rate of 50%. Once these protections are removed manufactures such as AutoVAZ, GAZ and KAMAZ will not be able to compete. These are historically important industries in both America and Russia. Furthermore, it may become a defense risk since the infrastructure necessary to construct machines will deteriorate. These are valid concerns but a gradual reduction of tariffs provides a transition period. This will allow Russia time to specialize in certain vehicles and use foreign expertise to revitalize the industry. Renault and Daimler have already pledged to bring it’s know how to Russia. This will potentially transform the automotive sector into a world player by utilizing advanced technologies.
                The main reason that protectionism does not work is that government interference in economic matters is never the most efficient solution and often results in stagnation and corruption. There are two reasons for protecting an industry. First, to revitalize ailing domestic industries by giving it time to compete efficiently and adopt more efficient production processes.  This is also good for the gradual contraction of the ailing industry. Yet these industries do not need revitalization but rather need orderly termination. The consequence of such protection is complacency and inefficiency. Politicians are not good at picking winners; rather the market should determine the faith of such industries. Another reason for protection is to give an infant sector time to speed up in order to be competitive. Similar problems stem from such policies. Again, politicians are not in a position to pick which industries will succeed and because of political entanglements, such protections have a habit of becoming permanent. They being to depend on such protection and consequently corruption and interest groups will make it difficult to dispose of governmental support.  
                Russia’s accession to the WTO will create a more efficient and profitable economy. While some industries and individuals will suffer it is necessary that they adapt to the present situation. Those industries that can adapt and specialize will become profitable and thrive, while uncompetitive sectors will die out.  Russians should adopt an entrepreneurial outlook and realize the clear benefits of free trade. History and economics make it evident that government interference in the economy leads to inefficient results.  
International Trade Law: Interdisciplinary Theory and Practice, 3rd edition. Raj Bahala

Thursday, September 6, 2012

Russia’s WTO Accession, What does it mean?

           Tomorrow, leaders throughout Asia and the Pacific Rim, including the United States, will congregate in Vladivostok to take part the Asia-Pacific Economic Cooperation summit. In an article President Putin wrote for The Wall Street Journal Asian Edition he states, “Membership in the WTO gives us the ability to participate more broadly in setting the global trade rules—an issue that has been a focus of attention for APEC in the past. I am confident that Russia's fresh outlook on the objective difficulties and internal contradictions of the WTO will be useful.” Induction to the WTO is certainly a major milestone for free trade globally but questions remain as to what it means for the world’s ninth largest economy and the global community. I will begin to examine this issue by laying out a brief history, structure and legal framework of the organization.
            The World Trade Organization stems from economic multilateral agreements set forth in the General Agreement on Trade and Tariffs (GATT). The agreement drafted in Geneva in 1947 to provide rules for world trade and to create a third institution from the “Bretton Woods” institution. Its role was to handle trade aspects of international economic cooperation. The agreement is designed to provide, as much as possible, a systemic flow of international commerce. By the 1980’s the world economy had outgrown the agreement and the Uruguay rounds begin the formulation of what is now the WTO. The organization launched in 1995.
            The preamble of the WTO states that its purpose is to raise the world standard of living and expand the production of trade in goods and services. Simultaneously the agreement recognizes the need to use the world’s resources in an optimal manner with the objective of sustainable development as well as protection of the environment. Article II of the agreement writes that the WTO will provide an institutional framework for conducting trade between its members in subjects related to agreements. Upon ratification or accession, each government will be bound to the 18 agreements and legal instruments entitled the Multilateral Trade Agreements (MTA). Of these agreements, the one that perhaps most exciting to prospective foreign investors to Russia is the Trade Policy Review Mechanism (TPRM). This provides enhanced transparency involving the trade practices of member governments.   
            The process of accession, which took Russia 18years, involves a two-step process. First, a perspective member must negotiate bilaterally and make concessions with each WTO member that seeks to do so. The bilateral agreements do not have to be identical as different nations have various interests. Second, the prospective member must negotiate with all the WTO members in their joint capacity. This process evaluates the applicants’ current trade regime and the current minimum requirements of the WTO and GATT. At this point, the nation may want to request a developing or least developed economy status, as China did.
            The WTO performs various functions, among them is overseeing, implementing as well as the operation of the agreement. It also provides a forum for dispute resolution. One crucial element that is currently stalling the potential benefits of US-Russia trade is the Most Favored Nation (MNF) rule. This requires WTO members to treat one another equally. Currently, US. legislation entitled the Jackson-Vanik amendment places restrictions on Russia due to cold war human rights violations. This means that the Russian government is free to discriminate against American suppliers. This puts US companies at a disadvantage to its European and Asian counterparts. Repeal of the amendment is required for Russia’s WTO membership to be of any benefit to US businesses and its economy.
            Russia WTO membership will undoubtedly reap prosperity for itself and the global economy but its potential externalities are yet to be determined. This weekend’s summit in Vladivostok will provide Putin and other member a forum to discuss and consider the realities of this major and complex international development. Only time will tell how this will shift the world’s political and economic landscape.    

Sources referred to in this post:
International Trade Law: Interdisciplinary Theory and Practice, 3rd edition. Raj Bahala
International Law, 6th edition. Mark Weston Janis.
Vladimir Putin: “An Asia-Pacific Growth Agenda”
“Understanding the WTO”
Dina Gusovsky: “Russia joins the WTO: Now what for U.S.-Russia trade relations?”

Wednesday, September 5, 2012

З ДНЕМ НЕЗАЛЕЖНОСТІ!  Happy Independence Day!

How do you celebrate 21 years of independence?  Throw a protest!  At least, that is how opposition movements in Ukraine observed the national holiday on August 24th of this year.  Members of Ukrainian opposition movements dressed in vishivanki, the hand-stiched linen national shirt, and carried flags and banners throughout Michalevsky square in the city center.  The ruling party, the Party of Regions, also funded a rally marked with alleged incidents of bribing particpants to take part in the activities.  Ralliers here described the success of the current regime and the progress of Ukrainian indepenence.  Thus, Ukraine honored their history of independence as two distinct factions, divided in their appreciation of the past and the prospects of the future. 

Another incident that marked the variance between both sides was the commemoration speech by President Yanukovich.  In this speech, he condemns the opposition for exploiting the country and creating challenges to Ukrainian progress.  Corrupt bureaucracy is blamed for destroying the government while Yanukovich confidently endorses his government as capable of ending corruption.  He acknowledges the progress achieved under his authority by removing obstacles for business, increasing income, and infrastructurual improvements.  The goal to attract foreign investment and involvement is emphasized.  He then provides a long list of accomplishments underway or of promises of new goals for Ukraine which would enable a mature economy resembling advanced countries of Europe.

The President made it clear in his speech that Ukraine was an “integral part” of the European sphere.  He said:
“We are confidently moving along the path of building a modern European state. ... We are looking for a way to the community of developed nations.
But we will never accept the integration at any cost - through loss of independence, economic or territorial concessions, and intervention in the internal affairs.”
(It was interesting to see how different sources translated this passage into English.  I felt this was the most clear.)

Opposition forces were quite shocked at the bold almost threatening denunciation of intervention or meddling by outside countries and immediately attributed this remark to the highly controversial case involving jailed ex-prime minister and opposition leader Yulia Tymoshenko.  Many European countries have denounced the political influence apparent in this case.  Yanukovich portrays the outside commentary and political actions as trying to influence Ukrainian independence.

Other articles published during this holiday were written in a critical manner exposing the regression of Ukrainian economy and the decline of the middle class.  Using this national holiday as a time to analyze progress, many reports contemplated the dissatisfaction of most Ukrainians.  Yet there was never an answer as to what they were seeking or changes they wanted. 

The polarization in Ukraine has continued to increase and has created a stagnation of real progress.  With each side challenging every gain made by the opposition, opportunities for neccesary growth are impossible.  While each party blames the other for impeding development, they hinder their own ability to move forward and enable a continous positive change.  Significantly the most important national holiday, the day of independence for Ukrainian is a time to celebrate their cultural identity.  Reflecting on Ukrainian independence turned out to be a day of disappointment by the media.

Articles referred to in this post:
“День незалежності: по обидва боки святкувань” (Independence Day: on both sides of the celebration)

“Україна святкує День Незалежності” (Ukraine celebrates Independence Day)

 “Виступ Президента під час урочистостей з нагоди Дня Незалежності в Палаці «Україна»” (President’s speech during celebrations of Independence Day at the Palace “Ukraine”)
“Ukraine's Yanukovich hits back at EU over Tymoshenko”

“Yanukovych Warns Against Meddling”

“21 рік незалежності: витрати на харчі - понад 50% доходів середньої родини”