Saturday, June 11, 2005

Some WTO issues

Here's an interesting article on what the government needs to do for WTO entrance---Kyiv Weekly.

As Teryokhin pointed out, the following issues remain unregulated: changing the system of taxation for agricultural enterprises, abolition of mandatory export
from Ukraine of sugar produced from imported raw sugar, revision of import duties on scrap metal and ferrous metal waste, and curtailing the list of commodities subject to mandatory certification. In the event the parliament adopts the related laws, the Ukrainian enterprises in a number of industries will face serious competition from foreign companies on the domestic market.

The WTO considers such sectors in the Ukrainian economy as agriculture, machine engineering, the defense-industrial complex, pharmaceuticals and chemicals to be the most vulnerable. Enterprises in these industries still operate in the so-called “greenhouse” conditions. To be sure, the Ukrainian government sheltered them from foreign competitors by imposing duties and other protectionist measures, like “elements of economic force majeure”.

According to WTO membership requirements, these measures will have to be canceled. Therefore, the country will end up having to pay for the benefits for the economy on the whole from WTO accession through curtailing production volumes in several domestic industries.

Meanwhile, opening the Ukrainian market of sugar cane would undermine the operation of Ukrainian sugar mills. In fact, the rate of closure of sugar mills has been quite high in recent years. Indeed, according to a number of experts, UkraineÂ’s accession to the WTO will lead to the closure of at least 20 sugar mills. The same could be said about the agricultural machine engineering industry, which might seize to exist altogether without government support.

My take on this:

1. It is hard to know if the whole government is on board with all of this. The article cites Moros as saying that Ukraine is not ready for the WTO right yet so he isn't it looks like. But the major players are Yuschenko and Tymoshenko. I think I know where Yuschenko standa on WTO entry, but what about Tymoshenko? She has been a populist in what she has said and done. What if certain segments of the Ukraine economy are going to be threatened, which they will, what will her response be? Protect the industries? If she does, she will require a lot of power to do it especially in the face of close economies that are more market oriented. To be able to really make a go of it, she would be forced to look to Russia, something I think she could not do. The result would be more and more power in the hands of government, more centralized power, no decrease in corruption--power's dutiful little lackey, administrative measures to control the economy, and nowhere to look for support, neither north nor west. And there would be no oil to cover over the systemic problems as there is in Russia or Venezuela.

I frankly don't know what her position is.

2. This has been coming but business here hasn't prepared for it. I had a series of training courses outlined for businesses to help get them get up to speed on Western business practices. I took these to one company before the Orange Revolution, a major training company here, to see if we couldn't come together, pool our resources (they had the client list and facilities--I had the expertise) and train businesses the way shouldl be trained.

I was met with, "What company is going to pay for this?" "Well, any company that is going to need to do business in the West," I responded, "which will end up being every company here in the near future." "But they wont' pay for this now, "was the reply. "They may not pay for it now, but if Yuschenko gets elected,"--a little bit of discomfort was detected at this point; they had Yanukovych material all over their office, I think for safety's sake (tax police)--"these companies are going to have to know how to deal in the West. They need to get prepared for it." "Well, they are aren't going to pay for it now," they insisted. I then made the argument that they should consider this to be an R&D program for a time in the not-so-distant future when it will be needed. They were unconvinced and nothing ever came of it.

The problem is that a lot of companies here are not prepared for the competition. They have spent their time cultivating status which has been the way business has been done and money made. But competition is a whole different universe from this.

3. Government needs to prepare people for the eventuality of both competition and the inevitable economic dislocation that will come from it. They should be making the case out in public to help get people prepared for it. There is only silence on the subject. The big problem will come when the people see what it is they end up having to do, and they see the foreign companies coming in and making money with what they consider to be the country's assets. (Poland saw a lot of this and it may not be sitting well right now.) And when they see people losing their jobs because of it all that will make for a lot of disillusionment for many people. They may end up thinking they were sold a bill of goods. It won't make them think fondly of democracy. But telling them what they will be faced with, allowing them to understand what will happen in the future but making the case why it is necessary will go a long way toward preventing that. If they have to maintain a stage downtown at the Square and have someone come down there every week to make the case, that ought to be done.

The problem is that things right now are being imposed from the top much as they have always been. That will not serve them very well at all.

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