www.debaty.org

April 24, 2012 Kiev National Lesya Ukrainka Drama Theatre

WOULD A FREE MARKET WITH THE EU BRING MORE BENEFITS TO UKRAINE THAN A CUSTOMS UNION WITH RUSSIA?

PUBLIC DEBATE BRIEF

Speakers FOR the motion Speakers AGAINST the motion

Roman Shpek Senior Adviser to Alfa Bank (Ukraine),

Ambassador Extraordinary and Plenipotentiary

Valery Muntiyan Authorized Ukrainian government official for cooperation with Russia, the CIS and the Eurasian Economic Community

Viktor Suslov Minister of Economy of Ukraine in 1997-1998

Volodymyr Ogryzko Minister of Foreign Affairs of Ukraine

in 2007-2009

At the end of March Ukraine and the European Union initialed part of the Association Agreement. A Deep and Comprehensive Free Trade Agreement is part of this deal which raises hope for modernization of Ukraine’s economy. Europe does not however provide any guarantees but imposes strict conditions upon signing the agreement. Alternatively Ukraine has been invited to join a trade union of Russia, Belarus and Kazakhstan. This customs union has already yielded benefits for its member countries. What are the actual economic advantages and costs of Ukraine’s two options?

This alternative was discussed during the public debate “Would a free market with the EU bring more benefits to Ukraine than a Customs Union with Russia?” The debate was held by the Foundation for Effective Governance in partnership with Britain-based Intelligence Squared. Borys Krasnyansky, managing partner of PricewaterhouseCoopers in Ukraine, moderated the event.

Panelists for the motion emphasized that EU integration will prompt the inflow of investments and technologies and improve the business climate. It will also facilitate further changes toward democracy in our country. Speakers against the motion argued that nobody is eager to see Ukraine in the EU. In their opinion, Ukrainian goods and services are uncompetitive in the European market. Moreover, EU integration threatens the existence of Ukraine’s high-tech industries. These experts claim that it would be more advantageous for Ukraine to establish a free trade zone with the EU whilst being a member of the customs union. By joining the Customs Union, Ukraine will benefit from lower gas prices (as low as in the Russian domestic market), guarantees of a running gas transportation system at full capacity, and cooperation in high-tech fields.

Polling showed that the panel against the motion was more persuasive, and they succeeded in winning an extra 8% of audience votes during the debate. This was however not enough to secure the victory.

Public debates provide an opportunity to discuss the most topical issues of Ukraine’s economy. The project’s goals are to help the public develop an informed view on the country’s economic situation and to facilitate a culture of constructive communication about its most important problems.

Volodymyr Ogryzko: “The Customs Union is a formless creature which is difficult to perceive. The European Union is a market which has already worked for several decades, proving to be a locomotive of social and economic development. What will be our benefits from the Association Agreement and the Free Trade Zone? – The increase of investments, the arrival of the newest technologies and a better business climate”.

Valery Muntiyan: “So far, we have agreed on 48 billion dollars worth of projects with the Customs Union – in aviation, shipbuilding, and other highly competitive fields. On the contrary, the European Union is in a stagnation phase, which may last for minimum 5-7 years. Neither option is however beneficial for Ukraine. We should move to the EU through the Customs Union and become one of the EU states”.

Viktor Suslov: “Today 39% of Ukrainian exports are to the CIS countries and only 26% to the EU. By the end of 2011 the share of CIS imports in Ukraine’s economy was 43% where EU imports constituted 26%. Both export and import growth is faster with the CIS countries. Moreover, the volume of Ukraine’s import and export relations with Russia alone is bigger than with all of European countries put together”.

Key Statements

Q&A Session with the Audience

Voting Results

Q: “You say that when we become part of a free trade zone, the competitiveness of Ukrainian companies will improve in the long run. However, aren’t we going to lose entire industries: engineering, space exploration and others?” A: Volodymyr Ogryzko: “Obviously there will be threats of this kind in the initial stage. If we recall the experience of Poland which at one time was much less competitive than Hungary or Slovakia, we see that this country dealt with numerous difficulties, but eventually managed to turn them into advantages. Why wouldn’t we do the same?” Q: “When we speak about the advantages of EU integration, we certainly mean foreign direct investment. In your opinion, what industries may be interesting to a European investor?” A: Roman Shpek: “We must fight with capital outflow. When we stop the money from pouring out, we will have them spent in. We can expect investment in IT, logistics, transport and engineering infrastructure, agriculture, etc. We have problems selling our AN planes. Right now although they can be operated in the Russian market they can not operate in Indonesia, Philippines or African countries. Until this changes, the Russians will not be interested in these planes either. We have to learn how to think beyond our borders and the limits of the CU or the EU”. Q: “Have there been any estimates of gas prices for Ukraine when we become a CU member?” A: Roman Shpek: “Gradually gas prices in Russia and other Customs Union members will level with international export rates”. A: Viktor Suslov: “Ukraine has a chance of negotiating a reduction in gas prices. This is not however what we have to concentrate on. The Cabinet of Ministers issued a decree on import substitution. It stipulates that in the energy field Ukraine has enough local gas resources to meet all of its domestic demands. We must therefore prioritize gas drilling”. Q: “How can Ukrainian companies secure extra resources to meet technical requirements and other EU standards?” A: Volodymyr Ogryzko: “If we create favorable conditions for business, money will flow into this country. Moreover there is usually a transition period that spans two, three, five, seven or even ten years”. A: Valery Muntiyan: “Will the European Union give us money? Yes, if our commercial viability is bigger than the amount of our loans. A percent on credit resources has to be at least as low as a deposit rate, and a deposit rate has to be higher than inflation. This formula was however broken: our industrial profitability is 5.6%, but our credit resources are three times as high. The West has already helped us by making everyone bankrupt”.

Roman Shpek: “Cooperation with the European Union paves Ukraine’s way toward structural reform, new investment, and speedy and sustainable economic growth. Opting for European standards will also give Ukraine the perspective of democracy and higher values of civil society”.

Further information and the video version of the debates are available on:

www.debaty.org and www.feg.org.ua

FEG, 8 Illinska Str., 8th Entrance, 5th Floor Kyiv, 04070, Ukraine

tel: +380 44 501 41 00 feg@feg.org.ua

Would a free market with the EU bring more benefits to Ukraine than a Customs Union with Russia?