An exclusive interview of Head of the Support Group for Ukraine Peter Wagner with the Interfax-Ukraine News Agency.
The Support Group for Ukraine was established by decision of the President of the European Commission in April 2014. Its role is to support Ukraine in the implementation of the Association Agreement with the EU (including the Deep and Comprehensive Free Trade Area), and of the Association Agenda which stems from it.
Question: Recently, in negotiations with Ukraine the IMF again recalled the four main priorities of reforms: land, pension, privatization and anti-corruption courts. How does this correspond to the priorities which are present in Ukraine’s cooperation with the EU?
The IMF and EU priorities often intersect, as it is the case with the pension and the health reform, the management and privatisation of state-owned companies, the land reform and notably the fight against corruption. These priorities can also be complementary, with the IMF usually putting the emphasis on macroeconomic issues and leading, together with the World Bank, leading on questions like land and pension reform. It is worth mentioning that progress on these reforms is also part of IMF or EU financial assistance conditionality.
For the EU, a scaled-up fight against corruption is a top priority because of its horizontal nature. Less corruption means reliable state-citizen relations, better business climate and more investments into the Ukrainian economy, more savings for tax payers due, among others, to more competitive public procurement, and overall more justice and societal trust.
Also, there are often additional issues which Ukraine has to work on: certain sector-specific commitments stemming from the Association Agreement or other conditions under the EU's macro-financial assistance or budget support programmes.
Question: Which of the branches of the Ukrainian government [power] in your opinion restrain these reforms the most today? Is it the legislative, executive or judicial branche?
We witness a daily fight between vested interests and reformers in the country. For a reform to walk its way –from the agreement on its principles via the adoption of a legal act to its implementation and interpretation by courts – reaching consensus and close work between all three branches of government is necessary. Media and civic activists definitely can help, but it is the responsibility of all three branches of government to deliver the reforms. They are here to do this work and they are accountable to all Ukrainians for it. Unfortunately, very often a fact-based policy debate in Ukraine is hijacked in populist discussions.
I think most of the reform areas are impacted by vested interests trying to slow progress down. Vested interests, by their nature, appear throughout different branches of power. It would be difficult to single out one entity or one institution particularly prone to it.
Question: My point is that the pace of adoption of the draft bills necessary to implement the Association Agreement has recently slowed down significantly in the Verkhovna Rada.
From our point of view, the challenges lie very much in the interaction between the different actors. The way the Association Agreement is implemented also depends on the Ukrainian Constitution and the role it assigns to different actors. Occasionally, there is a certain competition: in different institutions, different people work on laws intended for the same issue, and then they're blocking each other, intentionally or unintentionally. So we would very much encourage the government and the Verkhovna Rada to agree on a common work programme advance the Association Agreement including the DCFTA. To take the commitments and priorities already established under this agreement and to say: – here are the areas and laws now most important for us, here is the timetable – and then to work together on them instead of working in parallel or even in competition. This is also a priority for Commissioner Hahn who recently met Prime Minister Groysman in Ukraine. The Commissioner and the Prime Minister agreed that the Ukrainian government would now come up with a roadmap for the pending legislation. The EU rules which need to be transposed into Ukrainian laws are already listed in the annexes of the Association Agreement, but the government will now draft an operational plan and hopefully agree with the Rada on how to implement it.
Question: One gets the impression that discontent is ripening with the fact that Ukraine is starting to seriously lag behind the agreed plan. And the euphoria in relations begins to disappear. Even more so, given that after the adoption of the decision on a visa-free regime, the authorities of Ukraine no longer have an additional incentive to move forward under this Agreement.
The Ukrainian government faces many challenges –the people of Ukraine know these better than I do. There is the external aggression, the conflict in the east; and at the same time there are many domestic reforms to be implemented, the life of the country to be organized. Of course, this is not an easy combination of tasks. Personally – and I'm here very regularly – I don't have the impression that within the government there is less commitment to reform, or less commitment to the Association Agreement. I think the proposals which are currently discussed and have been presented around the preparation of the health reform, the pension reform, the land reform – all of which are being intensively discussed – show that the government is very seriously working on its part. At the same time, we have expressed our concern about some negative developments notably in the fight against corruption.
I don't think that there are frustration or negative feelings on the European side. It is a fact that the ambitions are high; Ukraine has one of the most positive and open agreements the EU has ever concluded, and now we of course also expect that both sides use it in the optimum way.
Question: I will mention a few examples of not only not advancing, but of attempts at revenge. The story of the appointment of the auditor of the NABU, the protraction in creating an anti-corruption court, the declaration of NGOs – how is this perceived in the EU?
The European Union is very carefully looking at how work in these important reform areas is continuing. The EU in the last few weeks made it very clear that it, for example, doesn't deem the extension of the e-declaration to NGOs appropriate and that this should be corrected. We have also never hidden the fact that we attach great importance to a nomination process for the NABU auditor which is conducted in a transparent and open way.
It is a matter of urgency that Ukraine puts in place a judicial body responsible for the fight against corruption. Guarantees must be put in place that this body will be independent in both a budgetary and a functional sense. It is necessary that this body enjoys the necessary authority and resources to fight corruption and that the selection of specialised anti-corruption judges happens in an open and transparent way. The EU – and, I am sure, our international partners – stands ready to contribute to a process as transparent as possible and to ensure that the selection will be based on merit and integrity.
People want to see justice happening in court, and corruption cases being brought to an end, through transparent judicial processes. We keep stressing this: the intensive work on the anti-corruption front must not slow down. There is still a lot to do.
Question: On the economy. Another example is the extension of duties for the export of scrap. To what extent does this correspond to both the spirit and the letter of the Agreement? All the more that, we have an unsettled issue with the export of untreated timber.
We are very intensively discussing these issues with the Ukrainian side. Trade is very important for economic growth and both sides have to deliver on these issues and make sure that there are no new trade irritants. We also spoke about the vote in the Verkhovna Rada; the EU does not find the extension of the metals additional export duties appropriate. It is a fundamental, general issue, as is the case of the wood ban. We think there should be no measures taken that are in contradiction with the principles of the WTO and DCFTA commitments. This is why we have so strongly expressed our concern about the latest developments.
Question: A small clarification. You mentioned the pension, the land, the medical reform. Is the fact of adopting the corresponding laws as such important for you? How deeply is the EU willing to enter into the very essence of these reforms, of reform models, advise, object to these models? Or is it a question of other international partners of Ukraine – the World Bank, the IMF?
The EU is one of Ukraine's many international partners in the reform process. Not every partner is active in every area. For example, the EU has so far not been very active in the wider health reforms, only indirectly, concerning some parts which stem from the [EU-Ukraine] Association Agreement. In other reform areas, such as the public administration, there are European experts working with the Ukrainian government from the very beginning. Notably in areas covered by the Association Agreement and the DCFTA, the EU and its experts are – where requested by the government – heavily assisting from the very beginning. This already starts with the preparation of new legislation by the ministries. It is however at the end of the day the government's decision to propose a draft law, and then the Rada's task to follow its decision-making process. But we are ready to support and also to help afterwards with the implementation, if needed and requested. In other areas we are supporting more indirectly, e.g. through the financing of certain World Bank activities for the land reform or the EBRD work of setting up business support throughout the country.
I think the most recent and quite impressive success of the EU's and other international partners’ coordinated cooperation with Ukraine is energy efficiency. The Rada has now passed three laws, one on the creation of an energy efficiency fund, one on energy efficiency in buildings and one on metering of heat and energy. There has been a lot of progress during the last months. Some of these laws took two and a half years of government and Rada work, in cooperation with many of my colleagues at the Commission. Some of the elements have been developed together with the EBRD, others have been prepared with the help of USAID. In all of this joint work, Ukraine's ownership is key, while we are there to support where necessary and requested. We are very actively involved in energy issues, and will continue supporting the Energy Efficiency Reform with a planned programme of up to EUR 100 million over two years. The Public Administration Reform, as I mentioned, is another area where we have very actively supported Ukraine through legal advice on the preparation of a civil service law, then on the preparation of the reform strategy. Now advisors financed by the EU are involved via a number of technical assistance projects.
Other areas where the EU is strongly involved include the reform of the judiciary and law enforcement services, Public Finance Management, decentralization.
Question: Now a few more questions about Ukraine's expectations from the European Union. On the expansion of export quotas. The recent refusal of the EU to expand quotas for a number of positions was perceived quite sharply in Ukraine. Can we expect a revision of Brussels' position on this issue?
The DCFTA means the opening of the EU and the Ukrainian markets for each other. The EU has not many partners with whom, once the Association Agreement including the DCFTA is fully operational, we will be as open as we are with Ukraine. The recently decided quotas for agricultural produce are an important additional sign of continuing EU support. They should however not distract attention from the fact that we should now put as much energy as possible in making the DCFTA work as efficiently as possible. We have to systematically integrate the markets, as only this will in the end boost the Ukrainian economy as a whole.
Once the Association Agreement is implemented, there are chapters which say explicitly that in certain areas there is full internal market treatment of Ukraine. This means that such sectors will then be regarded as if they were part of the EU internal market. And in all other areas the current existing limits on exports will disappear over time. It requires a bit of time and it requires hard work. It is necessary to first prepare and adopt the corresponding laws. That includes technical regulations for many products as well as the big package of the phytosanitary legislation in the food sector that was passed recently.
That's the first part – creating the regulatory environment with the necessary laws in place. The second part starts when the laws have to be implemented. If we look at food legislation, the food production hygiene controlling framework will be regularly assessed: Is there a law? And is there a Ukrainian agency that is able to monitor and enforce the proper functioning of that law? If yes, then the products can move. This is the kind of principles trade in the EU is based on.
Question: The statement of the European ministers (of Austria and Germany) was taken rather negatively in Ukraine, in which they criticized the US sanctions against the "Nord Stream 2". Ukraine does not feel the unity of the EU in opposing this project. Can we expect the development of a unified position of the EU on this issue?
The EU over the past two decades has increasingly developed a common energy policy based on the EU internal energy market for gas and electricity and aimed to reduce the impact on our environment and climate. Member States however keep the right to decide on their energy mix. In the case of Nord Stream 2, there are a number of legal, economic and political concerns which have to be discussed and which will require a specific legal framework. To this end, the EU seeks negotiating directives from the Member States for an agreement with the Russian Federation. The Commission has adopted its proposal for such mandate, which is now discussed with Member States.
Question: Ukraine [finally] got a visa-free regime, but is still waiting for the "Open Sky". From the Ukrainian point of view, the dispute over Gibraltar is not as serious that in more than three years it could not be solved to enable the signing of this agreement.
As you know, this does not only concern Ukraine or the European Union institutions, but it is first of all a question involving national governments of Member States. Spain and the UK have issues relating to Gibraltar airport which have nothing to do with Ukraine. This sometimes happens in the EU: we are 28 after all and not everybody can always immediately agree on everything. But we are continuing to look for solutions and hope signing this agreement as soon as possible. In the meantime, Ukraine can already increase its connections with EU Member States and continue to adopt EU aviation legislation.
Question: The year 2019 is approaching, when the EFF program of the International Monetary Fund will be ending as well as the entire international financial support of Ukraine associated with it. Is there already a new program for such financial support being developed now? What can Ukraine count on?
I think it is speculative and much too early to discuss this. Instead, it is important to see what Ukraine has already done to make itself independent from such support and how much still can be done. We still have to see what the situation will be like in 2019. I think that if you look at where Ukraine was three years ago and where the country is now, yes, one has to recognize that there are not many countries in the world which have within such a short period of time succeeded in stabilizing and improving their situation so much. Of course much remains to be done. But I would say, at the moment, it looks rather good on the macroeconomic side. One should look at what can be achieved over the next couple of years to further stabilize the country macro-economically with, among others, the help of the ongoing IMF program. And make best use of the reforms to boost the economic development of the country. Ukraine has an enormous economic potential, inter alia due to a highly educated population, industrial tradition, technological dynamism and untapped possibilities in the agriculture sector. Increasingly using this potential would make the country much more independent from external support.
Question: Pretty often statements can be heard in Ukraine, which can maybe also be called speculations, about the need for a new Marshall Plan for Ukraine. Where should it be written: in Kiev, in Washington, in Brussels? Is it even possible to repeat such an experience as the Marshall Plan for Ukraine?
The "Marshall Plan" was a specific instrument, given that name retrospectively. It consisted of support by the United States to a number of European countries following the Second World War. I understand that discussions are going on about a similar approach by some of the international partners to Ukraine. But if you look at the purpose of the "Marshall Plan" at that time – to coordinate and deliver support for reforms and for the stimulation of economy – and if you look at what is happening in the international cooperation with Ukraine, you will notice that a lot is already available. In addition to political support, the EU has pledged a EUR 12.8 billion package for the next few years to help advance the reform process. A big part of this has already been delivered. In this framework, the EU has about EUR 200 million in grants every year dedicated to reforms and the development of the country, including in the area of investments. EUR 600 million from the 3rd tranche of Macro-Financial Assistance is ready to be paid once the conditions linked to it have been met. Furthermore, EU Member States like Germany, Denmark, Sweden, and many other partners, have bilateral programs. When it comes to investments, we have on the European side the European Investment Bank, which is committed and present in the country. The EBRD has a large portfolio of loans to businesses and the World Bank is deeply involved in supporting modernisation of the economy and the infrastructure.
It is however correct that we need to rally around Ukraine, make sure support is sustained and well-targeted – and bring in the private sector to generate growth and prosperity to head off those who would like to pull Ukraine backwards. The EU will for sure use its business support programmes alongside EIB and EBRD. We are at the moment also preparing new instruments that should open flows of bank lending in local currency. Furthermore, Ukraine is eligible for the EU's External Investment Plan, which could help facilitating investments.
In addition Ukraine has to continue the strongest possible investment attraction programme: its reforms. Legal security, safe investments, no corruption – given the country's general strengths, these reforms will unlock enormous foreign and domestic investments.
Question: A small clarification: can I conclude that after 2019 such an international plan for Ukraine will be not a new programme with the IMF, but EU-Ukraine Association Agreement?
I don't think that these two are competing or exclusive of each other. The Association Agreement is already now the road map for the government in many areas, and it will still be for a while, because its ratification is just another milestone, not yet the finish line. The same goes for the IMF programme. If you look at the principles of the Association Agreement, it has many technical sectoral regulations to stimulate and coordinate the economic exchange of products and services. There is also a lot on common standards in the healthcare and social areas, for example, whereas the IMF programme is very much targeted at the macroeconomic sectors. The two have common objectives and we are always aligned on certain principles, like the fight against corruption, the need to have an independent judiciary, the need to have a certain number of international rules applied. And on certain rules, the two are completely complementary roadmaps.