Ukraine: Kyiv, Moscow Vie For WTO Entry

Prime Minister Yekhanurov With U.S. Secretary Of State Condoleezza Rice (AFP) Speaking at the Carnegie Endowment for International Peace in Washington on 1 November, Ukrainian Prime Minister Yuriy Yekhanurov reiterated Kyiv's official hope that Ukraine will become a member of the World Trade Organization (WTO) by the end of this year. Ukraine's potential access to the WTO could be approved by the Sixth WTO Ministerial Conference in Hong Kong on 13-18 December. However, it does not seem very likely that prior to this forum Kyiv will manage to receive endorsement for its bid from all interested WTO members.

One of these interested members is the United States, which has so far not signed a protocol with Ukraine on mutual access to commodity and service markets in both countries. The signing of the protocol is tantamount to Washington's approval of Ukraine's WTO entry. Ukraine has already signed similar bilateral protocols with 38 countries represented in the WTO Working Party that deals with its membership application. Australia is another important country that has so far been reluctant to sign such a document with Ukraine.

Both bilateral and multilateral negotiations regarding WTO accession are confidential and all documents involved in the negotiation process are restricted until its completion. What prevents Washington from giving a go-ahead to Ukraine's WTO membership can be inferred from what Yekhanurov said in Washington. In general, Yekhanurov said that Ukraine "has considerably advanced" in WTO talks with the United States. But he signaled some substantial problems as well.

First, Yekhanurov admitted on 1 November that Ukraine has not yet brought all of its customs duties in line with WTO standards and requirements. According to him, this task has been fulfilled up to 80 percent by now. Speaking the same day in Kyiv, Ukrainian President Viktor Yushchenko estimated that Ukraine's legislation is just 65 percent in line with WTO requirements.

The same day, in an apparent effort to strengthen Yekhanurov's position during the Washington talks, the Verkhovna Rada passed two bills required for WTO entry pertaining to imports and protection of domestic producers. However, the process of adjusting Ukraine's legislation to WTO standards is not easy, and it is not clear when it is likely to be completed. In July, Communist Party deputies blared sirens and provoked scuffles in the Verkhovna Rada in order to prevent the adoption of a package of WTO-oriented bills. The Communist Party and other Ukrainian leftist groups see Ukraine's WTO membership as a catastrophe for the Ukrainian economy, which in their opinion cannot compete with more developed production capacities in the West.

Second, Yekhanurov said in Washington that Ukraine hopes "to find mutual understanding" with the United States on Ukraine's tariffs on exports of scrap steel and ban on exports of nonferrous metals. Earlier this year U.S. steel manufacturers called for trade sanctions against Ukraine (as well as Russia) in response to the barrier taxes and tariffs imposed by these two countries on export of scraps. According to U.S. steel mills, these moves by Ukraine and Russia, which reportedly resulted in doubling the composite-steel price in 2003-2004, were trade-distorting practices. Scrap metal is the raw material for nearly two-thirds of the U.S. steel industry. It seems that Washington has made its backing for Ukraine's WTO bid conditional on resolving this scrap-metal controversy.

Race For First Place

Yekhanurov made a very grim prediction as to what would happen if Ukraine failed to join the WTO ahead of Russia, which is slated to do so in 2006. "If Russia joins [the WTO] earlier than we do, it will be practically impossible for Ukraine to become a WTO member," Yekhanurov told journalists in Washington on 2 November. He did not elaborate. But it is telling that Russian media have already signaled similar apprehensions from the Russian side. Russian political commentators and analysts fear that if Kyiv joins the WTO ahead of Moscow, Ukraine will surely enter bilateral negotiations with Russia on the latter's WTO-accession conditions and will try to make these conditions very hard for the Russians.

There are both economic and political reasons for expecting a potential Russian-Ukrainian dispute over WTO membership. Russia and Ukraine currently have serious disagreements over trade -- Kyiv, for example, is very displeased with Russian restrictions imposed on Ukrainian exports of steel pipes and sugar. Therefore, Moscow fears that Kyiv could make these restrictions a bargaining chip in bilateral WTO talks. Moreover, Moscow is concerned that Kyiv's accession to the WTO this year could complicate bilateral trade regarding those commodities on which both countries do not impose any customs duties. Some politicians in Moscow have suggested that Ukraine could start reexporting some of the Western commodities that are taxed by Russia in its trade with the West but not with Ukraine.

On the other hand, Kyiv is apparently afraid that if Russia joins the WTO first, the Kremlin will try to tie Ukraine more closely to Russia not only economically but also politically. Russia has not abandoned its plan for creating a Single Economic Space along with Belarus, Kazakhstan, and Ukraine. Ukraine has subscribed to the idea of establishing a free economic zone within such a space, but spoken resolutely against forming a customs union of the four countries or supranational executive bodies. It is possible that Russia could use its WTO membership as leverage to make Ukraine more compliant in accepting the Single Economic Space as a more rigid political and economic formation.