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Analysis: Prospects for a free trade area EU-Ukraine

Friday 21 April 2006

Analysis: Prospects for a free trade area EU-Ukraine

A study coordinated by Michael Emerson (CEPS) favours a deep free trade agreement (FTA+) between EU and Ukraine. Only profound reforms accompanied by good governance practice will accelerate Ukraine’s economic growth and strengthen economic relations with the EU.

The study reports on feasibility and implications of a free trade area between the European Union and Ukraine, which will be discussed following the country’s accession to WTO. An FTA agreement is foreseen by the current Partnership and Cooperation Agreement with Ukraine and will become part of the European Neighbourhood Policy framework.

The report analyses current economic and political situation in Ukraine and lists two options, a simple and a deep free trade scenarios. The study points that a simple free trade agreement, merely extending the WTO accession preconditions, will not require substantial efforts from Ukrainian economy and its political elites. However, it would neither allow Ukraine to sustain and deepen its economic progress nor would it lead to income growth for the population.

On the other hand, a deep free trade agreement would pose a challenge of undertaking profound reforms by Ukraine but it would bring substantial economic and strategically important benefits to the country. However, a precondition for the progress is that Ukraine switches "to a transparent, consistent and largely de-corrupted regime of economic governance".

The study urges Ukraine to create a favourable business climate, strengthen the fiscal discipline, curb corruption and improve domestic governance. If undertaken, the reforms could raise the economic growth rate, possibly measured even in double digits.

Whereas the above efforts would be beneficial to Ukraine in the first place, the report foresees also indirect advantages for the European Union. While presuming a limited impact of Ukraine’s economy on the European Union itself, it could possibly help the EU face the growing economic competition from Asia.

Feasibility of a FTA+ agreement will depend on enhanced administrative and educational capacities as well as competitive capabilities of Ukraine. Yet, the report highlights the political will of Ukrainian elites and civil society as a key to success. The recent parliamentary elections in Ukraine will determine sustainability of the "European choice".

Centre for European Policy Studies (CEPS): The Prospect of Deep Free Trade between the European Union and Ukraine

 source: EurActiv