Bellerbys Economics - Mr Stephenson

Wednesday, February 06, 2008

Ukraine in the WTO

Our Ukrainian students will be pleased to hear that the Ukraine joined the WTO today in a ceremony attended by President Viktor Yushenko.

This will mean that every other country in the WTO must treat the Ukraine now as an equal member - so if it imposes a 30% tax on Japanese cars, it must have a 30% tax on Ukrainian cars and so on.

Also, as a member of the WTO, the Ukraine will not be able to increase tariffs in future - only reduce them. The world is slowly moving towards a tariff-free trading system - although it will of course be many years, centuries perhaps before all trade barriers were removed - even assuming that this is desirable.

The Ukraine is hoping that membership of the WTO will increase GDP by an extra 3% a year for the next three years in addition to its normal growth rate of about 6%. This is a welcome bonus for a country that has a low per capita GDP (around $7,000 per head).

Generally, however, Ukraine's economy is in good shape - due to high world prices for steel and wheat, it's two key exports. Inequality is low in the country and educational standards remain high. The one big weakness at the moment is inflation which is running at 12% with little sign of it being brought under control.

The other problem that Ukraine has is population leakage - the population is falling by about 300,000 a year - largely due to Ukrainians leaving the country for better paid jobs elsewhere.

What's next for the Ukraine? Should it turn west towards the EU - or east towards the Federation? Only time will tell......

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