European Union poses obstacle in Ukraine's way to enter World Trade Organization

Ukraine came across another obstacle in the path to enter the World Trade Organization, but the former Soviet republic was still expected to join before neighboring Russia.

Photo: European Union poses obstacle in Ukraine's way to enter World Trade Organization

Ukraine appeared to have succeeded in introducing the reforms necessary for it to become the group's 152nd member, according to a WTO draft report obtained by The Associated Press - but the EU has held firm on a demand that the nation scrap export taxes designed to make Ukrainian-made goods cheaper if they stay inside the country.

"We are in very regular contact with Ukraine to resolve the remaining bilateral issue of export duties," said Peter Power, a spokesman for EU Trade Commissioner Peter Mandelson. "This is a very important issue for us and must be resolved before the process can be concluded."

The Ukrainian economy, once the Soviet Union's breadbasket, shrank significantly after the fall of the Iron Curtain but has rebounded strongly since 2000. WTO membership could mean valuable new market opportunities for industrial exporters from the country of 47 million people, the third most-populous nation still outside the organization behind Russia and Iran.

Ukraine, whose pro-Western leader has made joining the WTO and bringing in greater foreign investment top priorities, is expected to see its economy grow by 7.6 percent this year. President Viktor Yushchenko is also hoping to steer the nation into NATO and the European Union as part of a platform that has caused friction with Russia.

A working party of diplomats involved in Kiev's negotiations with the WTO has "reviewed the economic policies and the foreign trade regime of Ukraine" and decided that the "Republic of Ukraine may accede to the WTO agreement," it said in a 290-page draft report.

Dated Oct. 11, it included just a couple of unresolved points, including the EU's complaint over export fees. Other issues relate to certain sanitary and technical standards, but are not believed to be difficult to resolve.

Power said the EU had recently made a proposal to Ukraine and was awaiting its response. Brussels has made WTO membership a condition for opening talks with Ukraine on free trade - a step seen as essential to Ukraine's hopes of drawing closer to the 27-nation bloc.

The working group was expected to conclude its final meeting next month. But trade officials now believe it might have to wait until next year before recommending that the WTO's 151-member general council formally invite Ukraine to join.

The Ukrainian parliament would then have to ratify the agreement, which would initiate a 30-day waiting period before the country would wrap up its 14-year accession process.

Ukraine's joining the trade body would effectively give it a veto over Russian membership as all WTO decisions are made by consensus. Georgia - another West-leaning former Soviet republic that has battled Russia over gas surcharges and alleged meddling in internal affairs - has used its power as a WTO member to block meetings aimed at easing Russia's entrance into the organization.

Ukraine and Russia had been locked in a race to join the Geneva-based organization setting the rules for global trade, with both wary about having the other join first. Yushchenko rejected a suggestion from Russia last year that Kiev "synchronize" its WTO accession process with Moscow's, which remains years from completion.

The neighbors have had chilly relations since 2004, when Moscow gave strong support to Yushchenko's rival Viktor Yanukovych in his fraud-riddled run for the presidency, which set off the massive "Orange Revolution" demonstrations. Many observers also suspected Moscow in the massive dioxin poisoning of Yushchenko that left his face pockmarked and discolored.

Yushchenko has since clashed with Russian President Vladimir Putin over gas prices and other issues. Moscow temporarily cut off gas supplies to Ukraine two winters ago - a shutdown also felt in Western Europe - in a move widely seen as punishment for Ukraine's pro-Western policies.

Russia, the only major economy outside the WTO, has been claiming for over a decade that it is close to entering but has been frustrated by the slow pace of its negotiation, which like Ukraine's began in 1993. Putin has criticized the body as "archaic," but many negotiators say the fault is Russia's for failing to bring its trade rules in line with global standards.

As a WTO member Ukraine would be able to challenge other countries through the organization's dispute settlement system. That could help the nation's steel sector, which is charged fees by other countries that would not be allowed once it becomes a member. But Ukrainian industries receiving subsidies and tax breaks would come under greater scrutiny, pressuring them to raise their standards without government protection.

Ukraine's two pro-Western parties - central in the peaceful Orange Revolution that helped Yushchenko to power - won a majority of parliament seats in elections two months ago and appear set to forge a coalition government. Yushchenko's Orange Revolution partner, Yulia Tymoshenko, has a good chance of returning to the prime minister's post and has pledged quick entry into the WTO.

Communists, part of Yanukovych's previous government, have opposed WTO-harmonized laws and fear that Ukraine's impoverished work force would suffer from an aggressive opening of the country to foreign trade and international standards.