BECOMING PART OF EUROPE

"THE ROAD AHEAD OF US IS CHALLENGING BUT FULL OF OPPORTUNITIES THAT NEITHER THE EUROPEAN UNION NOR UKRAINE SHOULD MISS," SAYS IAN BOAG, THE HEAD OF THE EUROPEAN COMMISSION'S DELEGATION TO UKRAINE IN AN EXCLUSIVE INTERVIEW WITH COMMERCE.

Relations between the European Union and Ukraine have greatly inten sified and developed over the past two years. Today, both the European Union and Ukraine are benefiting from unprecedented political and economic cooperation, and this cooperation is expected to deepen in the coming years. Through its commitment to democratic values and to the ongoing process of reforms, Ukraine has taken crucial steps to building closer ties with the European Union. The European Union, on its side, views Ukraine as a priority partner and it is looking forward to developing a new comprehensive framework for its relationship with the country. A crucial objective is the gradual integration of Ukraine in the European economic space.

Ukraine has achieved dramatic progress in its transition from a centrally planned economy to a market economy. However, the process of economic reform is far from being complete, and important challenges lie ahead of us. While Ukraine has benefited from considerable economic growth since the year 2000, there remain concerns about the sustainability of this trend in the face of external shocks (such as possible increases in energy prices) and internal factors (inflationary tensions, regional disparities, incomplete structural adjustment). For

Ukraine to become a prosperous market economy, it should continue the process of reforms. The European Union and Ukraine agreed in February 2005 on a comprehensive and ambitious agenda of reforms - the EU-Ukraine Action Plan - which set a number of tasks to achieve over a three year period. Success in the implementation of the Action Plan will determine Ukraine's ability to grasp the benefits of closer integration with the European Union.

One key area where quick progress is needed is the establishment of a secure and predictable environment for conducting business in Ukraine. At present, the interna tional business community is confronted with considerable uncertainties and risks resulting from the persisting high level of corruption, an incomplete and volatile leg islative environment, burdensome adminis trative requirements, shortcomings regard ing judicial independence, domestic stan dards that depart from international norms, and deficiencies as regards commercial and civil law enforcement (including the enforce ment of intellectual property rights). These are areas where concrete and determined action by the Ukrainian authorities could bring immediate benefits for the economy, in the form of increased flows of foreign direct investment as well as better business prospects for Ukrainian entrepreneurs.

In parallel to the internal reform process, for which Ukraine has primary responsibility, the European Union and Ukraine will have to redefine the framework of their bilateral rela tions in order to take account of their mutual interests and aspirations. The European Commission therefore proposed on 13 September to open negotiations with Ukraine on a new comprehensive agree ment that will replace and go significantly further than the Partnership and Coopera tion Agreement currently in force. A key ele ment in the new agreement should be the gradual integration of Ukraine into the European Union market through a deep and comprehensive free trade agreement. Such a free trade agreement should not only abol ish tariff duties and other border obstacles to international trade, but it should also involve a major exercise of regulatory convergence in order to ensure legal approximation and consistency between Ukrainian and European Union norms and standards for products and services. Indeed, our ultimate goal should be to ensure the free movement of goods and services in a market of 500 mil lion consumers from Lisbon to Luhansk.

The benefits of a future deep and com prehensive free trade area will be impor tant for both the European Union and Ukraine. Estimates suggest that the con clusion of an ambitious agreement with the European Union will provide a major boost to Ukraine's economy. There would of course be considerable direct benefits deriving from freer trade, but perhaps the most important and lasting benefit for Ukraine would result from the improved regulatory and business environment that the process of convergence towards EU standards would entail. But Ukraine should already now take further concrete steps to facilitate improvements to the business climate, as this is an important precondition for taking full advantage of the new opportunities that the new free trade agreement will bring.

Informal exploratory talks between Ukraine and the European Union on the possible structure and content of their future contractual relationship have already started. However, before starting formal negotiations on a Free Trade Agreement, Ukraine needs to finalise its accession to the World Trade Organisation. This is a fun damental step, as the future agreement should build on the liberalisation commit ments undertaken in the WTO context. We therefore hope that the government and the Verkhovna Rada will make every effort to ensure that Ukraine becomes a member of the WTO as soon as possible, and preferably before the end of 2006. It is clear that delays in Ukraine's WTO accession would affect the negotiations on the EUUkraine Enhanced Agreement, with the free trade area as a core element.

The road ahead of us is challenging but full of opportunities that neither the European Union nor Ukraine should miss. The Delegation of the European Com mission in Kyiv will continue working hard with the new Ukrainian government to bring the European Union and Ukraine increas ingly closer to each other.