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European Commissioner for Enlargement and Neighbourhood Policy
Association agreements with Eastern Partners: Opening new doors to investment and trade
2nd Eastern Partnership Business Forum /Vilnius, Lithuania
28 November 2013
Prime Minister, Ministers, Excellencies, distinguished guests, ladies and gentlemen,
It is an honour for me to have the opportunity to open the 2nd Eastern Partnership Business Forum. The timing, on the eve of the 3rdEastern Partnership Summit, is just right. And the theme of the forum: "Business Without Borders" goes straight to the core of the political association and economic integration that we have been working to achieve together since the adoption of the Prague Declaration in May 2009.
Tomorrow's summit will be an important step forward in the development of the Eastern Partnership and will witness agreement on a significant number of deliverables ranging from initialling of Association Agreements (AA), including Deep and Comprehensive Free Trade Areas (DCFTA), with Georgia and Moldova to transport agreements, be they on aviation services or on transport networks and projects.
This is where the International Financial Institutions, and particularly the European Investment Bank, have a key role to play in helping countries to implement Association Agreements/ DCFTAs. A lot has been achieved already: After the inception of the Eastern Partnership, the Commission has made EUR 2.5 billion available in grants for bilateral and regional programmes for the period 2010-2013. This funding comes from the European Neighbourhood and Partnership Instrument – the main financial and cooperation instrument for the Eastern Partnership countries. A further EUR 4.1 billion has been leveraged from European Financial Institutions through the Neighbourhood Investment Facility.
The Commission is working, together with the EIB, EBRD and other European Financial Institutions, to further exploit this potential through risk-sharing instruments, working in partnerships with institutions that have a track record in attracting private financing.
This underscores the importance of close coordination between IFIs and the Neighbourhood Investment Facility to support important infrastructure investment projects. This will not only improve the business environment, but also the lives of citizens.
Let me also mention the importance of small and medium enterprises (SME). They play a key role in the European Union's economy and their capacity should be increased to match it in the partner countries too.
The new generation of Association Agreements will bring enormous transformative benefits. The reforms they contain have been tried and tested and they have worked, bringing economic benefits to every country that has signed a free trade agreement (FTA) with the European Union in the past. And here we talk of even more ambitious Deep and Comprehensive FTAs.
Let me give you a few examples. All the so-called EU10 countries signed Association agreements with the European Union in the early nineties but accession only became a credible prospect after 1997:
The figures speak for themselves. The European Union's GDP measured in purchasing power parity reached EUR 11.34trillion in 2011 so it is no surprise that independent studies indicate that a DCFTA could lead to a doubling of exports from Eastern Partnership countries to the European Union from the current figure of approximately EUR 35 billion to over EUR 70 billion.
Turning to the issue of costs sometimes associated with implementation of the AA/ DCFTAs, the figure of EUR 160 billion quoted by some as an estimate of the adjustment costs that would be incurred by Ukraine is neither proportionate nor credible.
The figure, even if spread over a period of 10 years, would correspond to 10% of Ukraine's GDP per year in terms of adjustment costs. This deeply contradicts the experience of accession countries that have adopted the entire European Union acquis and where the overall costs were a few percentage points of the GDP per year at most.
I am disappointed that the funding needed by Ukrainian businesses to modernise is spoken about as a cost rather than an investment. The Ukrainian economy needs huge investments but these are not costs. They represent:
and the same is true wherever businesses are located.
The only costs that I can see are the costs of inaction allowing more stagnation of the economy and risking the economic future and health of the country.
Let me also underline that the DCFTA does not require a company to make a choice as to which market it produces goods for or sells goods to. There is simply no choice to make between Russia or the European Union, nor is anybody asking Ukraine to renounce its traditional free trade agreement with Russia. It is entirely normal practice for companies to produce goods for different markets. Take the automobile industry for example where standards differ between US, European Union and Japan and where producers sell variants on all 3 markets.
That brings me to the decision of the Government of Ukraine to suspend the process of preparation for signature of the Association Agreement and Deep and Comprehensive Free Trade Area between the European Union and Ukraine.
I have three remarks:
First, it is a disappointment not just for the European Union, but we believe, also for the people of Ukraine. Signing of the most ambitious agreement the European Union has ever offered to a partner country would have sent a clear signal to investors worldwide as well as to international financial institutions that Ukraine is serious about its modernisation pledge. It would have provided a unique opportunity to reverse recent discouraging trend of decreasing foreign investment and given momentum to negotiations on a new standby arrangement with the IMF.
Second, our commitment to bring European Union-Ukraine relations to a new level, opening up new opportunities through enhanced freedoms and prosperity for the Ukrainian people, remains firm.
Third, the offer is still on the table. The Association Agreement is ready for signature as soon as Ukraine is ready.
Turning now to the needs of business, in every meeting with business representatives, I hear the same message: good governance, transparency, rule of law and fundamental freedoms. These are not luxury commodities; they are the basic pre-conditions for the business environment where much remains to be done.
Nevertheless, the World Bank's 'Doing Business indicators' tell us that the Eastern neighbours are making improvements in key areas for business such as:
Tomorrow's summit should build on that progress by opening new doors to investment and trade, via the important Agreements. Let me stress however the accompanying reforms cannot be sustainable if there is no consultation with civil society in general and business in particular.
The other important axis is increased mobility, allowing people to travel, communicate, exchange and share their cultures, and allowing students and researchers to study abroad. Just yesterday, the Commission proposed to allow visa-free travel to the Schengen area for Moldovan citizens. This proposal will now be discussed by the European Parliament and the Council. Moldova has shown the way on mobility – Ukraine and Georgia should not be far behind.
The European Union's open internal market is also about increasing the chances to match a modern education with better opportunities for quality employment. Good governance, economic integration and mobility, these are the components of Europe without borders. This is our business.
Allow me to conclude by:
This is your Forum. Make it work for you to create additional business opportunities and jobs for the next generation of Europeans.