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EU to offer Ukraine trade benefits to help prop economy

Source: Reuters - Tue, 11 Mar 2014 19:36 GMT
Author: Reuters
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* European Commission wants removal of many import duties

* Benefits worth 487 million euros to Ukraine

* Aims to sign free-trade deal with Ukraine by November

* EU also moving to apply sanctions pressure on Russia

By Luke Baker and Robin Emmott

BRUSSELS, March 11 (Reuters) - The European Commission agreed on Tuesday to give nearly 500 million euros ($685 million) worth of trade benefits to Ukraine, which had been teetering towards default even before pro-Western unrest in Kiev revived Cold War tensions.

The Commission plans to remove duties on a wide range of agricultural goods, textiles and other imports in an effort to support the Ukrainian economy, which is heavily dependent on Russian energy supplies and running critically short of foreign currency to meet debts or finance imports.

"The European Commission is committed and ready to support Ukraine to stabilise its economic and financial situation," Commission President Jose Manuel Barroso said. "This proposal is a concrete, tangible measure of EU support to Ukraine."

Ukraine's interim leaders established a new National Guard on Tuesday and appealed to the United States and Britain for assistance against what they called Russian aggression in Crimea.

European Trade Commissioner Karel De Gucht said the new trade benefits would be in force until at least Nov. 1 this year, by which time the European Union expects to have signed a full free-trade agreement with a new government in Ukraine.

While the bilateral trade relationship is relatively small at 38.3 billion euros in 2012, the European Union is Ukraine's top trading partner, representing about a third of the country's total trade, slightly more than with Russia.

The offer is not without risks for Brussels.

Russia could close its borders to Ukrainian imports to pressure Kiev, or take the European Union to the World Trade Organisation on the grounds that Brussels is being unfairly generous to a trading partner outside of a trade agreement.

Moscow wants to maintain influence in Ukraine and is also offering Kiev membership of its own customs union with Belarus and Kazakhstan, an area that Ukraine could not be a part of if it joined the EU's pact because Belarus and Kazakhstan are not members of the World Trade Organisation.

Once member states and the European Parliament have given their approval, Tuesday's EU decision will remove duties on agricultural products, processed foods, textiles and industrial goods, saving Ukrainian businesses 487 million euros a year.

In total, it will mean preferences being granted to more than 80 percent of Ukraine's exports, giving the country of 46 million people nearly full and open access to the European Union's market of 500 million consumers.

Ukraine will not have to provide extra access to EU exports in return until both sides sign a free-trade deal.

"VIOLATION OF SOVEREIGNTY"

Once presidential elections have been held in May and a new government formed, the EU will sign that deal with Ukraine, completing the "association agreement" that was rejected by former president Viktor Yanukovich last November, leading to months of protests and his overthrow.

As well as steps to prop up Ukraine's economy, the EU is trying to apply pressure on Russia to withdraw forces from Crimea and limit its influence in the east of Ukraine.

It has already cancelled negotiations with Moscow on visa cooperation and a trade and investment pact, and is now preparing sanctions including asset freezes and travel bans.

Those steps could be agreed by EU foreign ministers at a meeting on Monday, unless Moscow takes clear steps to reverse course and engage in direct talks with the interim Ukrainian government on ways to end the crisis.

Senior officials from the United States, Italy, France, Germany, Poland and several other countries were meeting in London on Tuesday to coordinate the targeted measures to be taken against Russia if it does not respond.

"You can expect the focus very much to be on (Russian) officials who have links to the action that's being taken with regard to the violation of Ukrainian sovereign territory," Prime Minister David Cameron's spokesman said.

Officials said, however, that any EU travel bans or asset freezes were unlikely to target Russian President Vladimir Putin or his foreign minister, Sergei Lavrov, at least not initially, so as to keep channels of communication open.

But as well as sanctioning Russia, the minds of EU officials are focused on supporting the Ukrainian economy, especially as the country is now being put on track to more fully integrate with the 28-nation union. While membership may not be on the cards, the EU wants to ensure Ukraine doesn't collapse.

"The idea is for the EU to open its doors to export from Ukraine, helping to give a real boost to Ukrainian businesses with a real impact on daily lives," said De Gucht.

"I would now encourage the European Parliament and the Council to fast track the approval process so the tariff reductions can be in place by June."

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