WTO In Ukraine ~ Government Optimistic, Experts Less So

KIEV, Ukraine -- World Trade Organization regulations on reduced tariffs and increased competition went into effect in Ukraine on Friday, extending a ray of hope to hapless Ukrainian consumers up against rocketing inflation, and their leaders facing retribution at the polls.

Ukrainian President Viktor Yushchenko (L) with WTO Director General Pascal Lamy in February, 2008.

President Viktor Yushchenko was unequivocal shortly before flying to Geneva in February to sign the final agreement on Ukraine entrance into the WTO, predicting as a 1.7 per cent bump to GDP, and a dramatic downturn in consumer prices, from Kiev's accession to the WTO.

'These are (economic) results that no one can oppose,' Yushchenko said.

Ominously, prices paid by Ukrainian voters for most consumer goods rose some 10 - 15 per cent in the three months between the time Yushchenko signed the WTO treaty, and its coming into effect on Friday.

Annually, Ukrainian price inflation is close to 50 per cent, by some standards the world's third worst.

Economics Minister Bohdan Danilishin was adamant on Thursday that WTO membership would provide relief.

'Consumers will receive a double benefit,' argued Minister Bohdan Danilishin according to Interfax. 'Lower income consumers will be able to buy cheaper food, while non-poor consumers will benefit from greater access to telecoms and financial services.'

But independent Ukrainian media and economists have questioned the government's rosy hopes, predicting substantial benefits for a lucky few tycoons, but only marginal gains for average Ukrainians.

Ukrainian steel magnates are by most accounts positioned to ring up record profits, as WTO rules going into effect midnight Friday halved overnight steel import duties levied by he US and the EU.

Even better for Ukraine's frequently litigous steel barons, now that Ukraine is a WTO member Ukrainian steel cannot be excluded from a market on claims of dumping - the accusation must now be proved in a court.

'We can be sure our metals oligarchs and their lawyers will not sit quietly in the future, when it comes to protecting their profits,' editorialised Sehodnia newspaper.

Other commodities likely to pour out of Ukraine in increasing export quantities, and so increase the wealth of the lucky few businessmen controlling the stream, include fertilisers, wheat, chemicals, and sunflower seeds, Fakty newspaper reported.

Ukrainian agricultural barons, in contrast, are likely to take a hit once WTO rules cancel government-imposed quotas on foreign product, and force Ukrainian farms to pay VAT, Silski Novyny newspaper reported.

But Ukrainian farmers, facing WTO changes making their product 20 to 40 per cent more expensive overnight, already have retaliated by spiking retail food prices as much as 50 per cent since the beginning of the year, Korrespondent newspaper reported.

'Imported foods of course might be able to take advantage of the price hikes, but that assumes we have a free and open foods market here,' pointed out Bogoslav Pilishinsky, a Kiev-based food industry trader.

'Our foods market is overregulated, expensive to enter, and has a few major players,' he said. 'Foreign food will probably replace Ukrainian food on supermarket shelves, but I don't see any incentives for supermarket chains to cut their prices.'

Retail goods, particularly those not produced in quantity in Ukraine anyway, will post-WTO fall in price at least somewhat, observers said. Items accounted likely to become cheaper included household appliances, apparel, medical supplies, and automobiles.

'But it's hard to say how much good that is going to do across the board,' said Vadym Kozachenko, a Kiev-based economist. 'The poor ones just buy food, and the rich ones are going to buy in any case.'

'The risk factor here is that WTO membership typically benefits middle class consumers,' Kozachenko said. 'There aren't that many mid-range consumers like that in our economy - we have a few very rich, and a great many poor

Source: M&C