DON'T PUT ALL YOUR EGGS IN ONE BASKET

An agreement on a Free Trade Zone in the CIS was concluded at the CIS summit in St.Petersburg. The agreement was signed by all the countries of the Commonwealth, with the exception of Azerbaijan, Uzbekistan and Turkmenistan. The latter have agreed to review the possibility of signing up to this agreement before the end of the year.

Russian President Dmitriy Medvedev has described the agreement as "very useful, but flawed". What are the pluses and minuses of this process, what does cooperation in this form provide and might this integration in some way not affect the economic independence of the member-countries? To answer these questions we turned to Vladimir Sidenko, chief research associate of the Institute of Economics and Forecasting of the Ukrainian National Academy of Sciences.

- Against the background of disputes between Ukraine and Russia over gas prices, Kiev still signed the agreement on a Free Trade Zone in the CIS. What does this agreement give to the member-countries?

- The idea of a Free Trade Zone within the framework of the CIS is, of course, a step forward, but there is much to be done for this agreement to be effective. This agreement brings the norms of a settlement to the trade regime closer to the standards set by the World Trade Organization. All in all, the procedure for replacing a number of bilateral agreements with multilateral treaties is in itself a positive thing. On the other hand, the agreement is somewhat restricted in its use. For example, it has no services sector, and Baku, Tashkent and Ashkhabad do not take part in it. The document defines the current status-quo of trading operations covered by the bilateral agreements. In other words, it does not eliminate any of the restrictions which were there in practice. The withdrawal of restrictions has been set aside for the future. Trade within the CIS will not start to develop intensively just because an agreement has been signed. You cannot trade before you have enough goods. Unfortunately, one can very often hear people calling for a return to Soviet times but these are very ineffectual voices. Twenty years on, the economies of the countries of the former USSR have changed in many ways. Trade will develop when the production of new types of hi-tech, competitive goods is up and running. And this is not just a matter of exempting trade from customs duty and quantitative restrictions. It is a question of the development of innovation, cooperation, carrying out economic reforms within the country and improving the quality of the institutions of regulations by economic activity. Without all this it is scarcely possible to achieve a breakthrough in the sphere of mutual trade.

- Incidentally, a proposal to create Free Trade Zones also came from the EU. Won't the St.Petersburg Agreement close the path to Euro-integration?

- There are no contradictions here. The Free Trade Zone, unlike the Customs Union, does not conflict with Euro-integration. The Customs Union contains such an element as the transfer of part of one's powers to a third, supranational body. Then it becomes clear with whom to conclude an agreement because national competence disappears. This is not the case with a Free Trade Zone. Many countries have several free trade zones at the same time. It is important that these agreements are based on generally accepted norms defined by the World Trade Organization and existing trade customs.

Signing up to the St.Petersburg Agreement does not detract or revoke the priorities of European integration for Ukraine. The fact that Kiev has had new disagreements with the EU linked with political issues is another matter.

- But territorial conflicts and differences of a political nature exist within the CIS countries, too. For example, Azerbaijan and Armenia and Kyrgyzstan and Uzbekistan, and not everything between Ukraine and Russia is a bed of roses. Given these deep political differences, can economic relations in the CIS develop?

- Political differences have a negative effect on economic integration because they create an atmosphere of mistrust. Mistrust always has a negative effect on economic relations because businessmen have no confidence in their partners, they expect complications in trading, investing, and so on. Naturally, so long as there are differences this does little to help the fulfilment of agreements. That is why measures are needed to improve the climate of trust between countries. If key differences between countries are not resolved no purely economic agreements will be implemented.

- Russia is a big country with a huge economy. Won't the small countries in the CIS become economically dependent on Moscow? Won't the Russian economy smother the national economies?

- If a country becomes part of the advanced forms of integration, where there are joint regulating institutions, then, naturally, the more powerful countries play a major role in these institutions. This is always the case. For example, in the European Union Germany and France have particular weight compared with the other European states. But therein lies the factor of cultural tradition. There are countries which have a dominating influence, but the ethics of inter-state relations which have developed over centuries do not allow them to openly abuse their position. This has by no means always been the situation as far as our country is concerned. We have come up against a situation where a powerful country says: "Do it your way! If that's what you think, that's your business!" In other words, alternative concepts and approaches are not adopted. Unfortunately, this is a fact and the smaller states are forced to agree with this. When this happens, it helps to diversify economic relations, not to put all one's eggs in one basket, so to speak. This time-tested policy helps avoid such happenings.

- Isn't the idea of a Free Trade Zone in the CIS part of the Russian prime minister's initiative on creating a Eurasian Economic Union?

- I firmly believe that the Eurasian Union project only applies to the member-countries of the Eurasian Economic Space. They have a single customs union and a single economic space will soon be launched. The Eurasian Union project, which has nothing to do with other members of the CIS, who stick to milder forms of integration, applies precisely to them. It does not apply to Ukraine, Moldova and Azerbaijan and the CIS Free Trade Zone is not a part of the project mentioned by the Russian prime minister.