The case for an EU-Ukraine customs union

Opinion Saturday 15/July/2017 15:59 PM
By: Times News Service
The case for an EU-Ukraine customs union

There will be an upbeat mood at this week’s European Union-Ukraine summit. Reforms and international support are beginning to bear fruit for Ukraine’s economy. An EU free-trade agreement is in place. And Ukrainians can now travel to the EU on just a biometric passport – a prospect most thought unrealistic just a few years ago, when more than 140 preconditions for visa-free travel still had to be met.
Ukraine’s recent successes mirror a more optimistic mood in the EU. Yet, despite its achievements, Ukraine is not out of the woods, and its reform process is far from over. The EU must not allow a sense of complacency to set in now that we are making progress. And the best way to guard against that is to establish an EU-Ukraine customs union.
Ukrainian President Petro Poroshenko is personally committed to the country’s modernisation and fighting corruption. But European leaders need to recognise that he faces an uphill battle to implement major reforms, with populist forces in the Verkhovna Rada (parliament) turning up the heat on the government in anticipation of elections less than two years away.
In Kyiv, the EU will stress the need to continue reforms and implement the EU’s technical standards. But if we want to keep Ukraine moving forward, we cannot just engage in mutual celebration of the road already traveled. Europe’s most powerful lever in promoting stable, viable, and successful democracies has always been its use of conditionality, linking reforms to clear and tangible benefits. We must continue to place new milestones along the road to show that we are committed to Ukraine’s success and serious about rewarding reforms.
The prospect of a customs union is the strongest incentive to implement the agreed free-trade deal and continue Ukraine’s long-term economic integration with Europe. This is not a short-term project; it will take over a decade before Ukraine is ready. However, once fulfilled, Ukrainian businesses would be able to join European manufacturing supply chains, and the government would be able to pursue a much-needed diversified industrial strategy to capitalize on its geographical proximity to the world’s biggest market. Rather than being an addendum to Europe’s economy, Ukraine would become intertwined with it.
Why does this matter? For the EU, there are significant opportunities for trade and commerce in an economy of 46 million people. Since Turkey forged a customs union with the EU in 1996, bilateral trade in goods has increased more than fourfold. Moreover, Ukraine, which had previously straddled the EU-Russia divide, has chosen a clear European future. What kind of signal would we send to other states in our neighborhood, or to Russian President Vladimir Putin for that matter, if we turned Ukraine away?
I do not view an EU-Ukraine customs union through rose-tinted glasses; there are some downsides. (The arguments for and against it are being rehearsed daily in the United Kingdom’s Brexit debate.) Joining the customs union would limit Ukraine’s ability to negotiate its own trade agreements. Even if the EU is by far Ukraine’s largest trade partner, more than half of its trade is with the rest of the world. Ukraine would not be able to negotiate with the Eurasian Customs Union, which will become Brussels’ responsibility.
Protectionist tendencies are already apparent in certain Eastern European states, where governments are – perhaps unsurprisingly – concerned about the potential impact of trade liberalisation on agriculture. Even so, Ukraine’s trade and investment patterns are increasingly converging with the EU. On balance, the economic case is strong, and the political case is compelling, with potential gains far outweighing any pitfalls.
The EU and Ukraine have much to celebrate this week; both have turned an important corner. But a celebration alone would be a missed opportunity. The EU needs to consider the next steps forward for Ukraine, to keep it on the path of reform and toward a better future. And the EU needs to show that it remains a transformative force in its own neighbourhood. - Project Syndicate