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Poland, Belarus & Ukraine Report: September 23, 2003

23 September 2003, Volume 5, Number 35
WARSAW POSITIONS ITSELF TO DEFEND NICE TREATY. Last week the Sejm held a heated debate on the government's stance on the European Union's draft constitution (see "RFE/RL Poland, Belarus, and Ukraine Report," 10 September 2003) that is expected to be finalized at a planned intergovernmental conference in Rome on 4 October. Warsaw seems to be firmly resolved to defend the system of counting votes in the EU Council that was worked out in the 2000 Nice Treaty. The Nice Treaty, which is to come into force in November 2004, gives Poland 27 votes -- the same number as Spain and only two less than France, Germany, Great Britain, or Italy. The draft constitution makes voting in the EU Council dependent on the population of member states.

The government's priorities concerning the future EU Constitution were presented to the Sejm on 18 September by Foreign Minister Wlodzimierz Cimoszewicz. Cimoszewicz said the draft constitution prepared by the European Convention chaired by Valery Giscard d'Estaing is a result of compromise that provokes controversies but can also serve as a foundation for further work. Poland, Cimoszewicz said, is in favor of retaining the Nice system of counting votes in the EU Council. Poland also supports the principle of "one country, one commissioner" on the European Commission. Two other priorities for Poland are the inclusion of an acknowledgement of Europe's Christian heritage in the constitution's preamble and a constitutional ban on any EU defense structure that could rival NATO. Cimoszewicz assured lawmakers that the government is using every diplomatic tool to promote the Polish view of the future EU Constitution. Cimoszewicz did not say, however, whether the Polish government will resort to a veto if the final text of the constitution fails to meet its expectations.

All Polish lawmakers agree that the future EU Constitution must guarantee equal rights and representation in EU bodies for all members regardless of size. "Nice or death! (Nicea o muerte!)" -- a slogan coined in Spain and used during the debate by Jan Maria Rokita from the centrist, liberal Civic Platform was the best characteristic of parliamentary moods during last week's debate.

Kazimierz Michal Ujazdowski from the Law and Justice party said his party opposed the draft constitution and demanded that Poland hold a referendum on it. "Poland won good political terms of EU membership [in the Nice Treaty] but these terms are negated by the draft constitution," Ujazdowski added.

Jozef Zych from the Polish Peasant Party (PSL) said the PSL also supports the distribution of votes prescribed in the Nice Treaty and insist on mentioning Christian tradition and the name of God in the preamble to the constitution. The PSL, Zych added, is also in favor a referendum on the EU Constitutional Treaty.

Jerzy Jaskiernia from the ruling Democratic Left Alliance admitted that the Nice Treaty system of counting votes is better for Poland than that proposed in the draft constitution but said it is a "myth" that the latter is detrimental to Poland. The question of what procedure will be applied to ratify the EU Constitutional Treaty -- a referendum or a two-thirds vote in the Sejm -- is still open, Jaskiernia asserted. However, the Sejm on 19 September voted down two draft resolutions, one by the Law and Justice party and the other by the National Catholic Movement, calling for a national referendum on the EU Constitutional Treaty.

Prime Minister Leszek Miller said on 21 September that maintaining Poland's position in the EU Council as foreseen in the Nice Treaty of 2000 remains Poland's key demand. "We do not see the smallest reason why we should resign from the system of counting votes that was worked out in Nice, the more so that we have not yet had an occasion to verify it in life," Miller said. "We see no possibility of concessions in this area."

Miller meet with German Chancellor Gerhard Schroeder on 22 September to discuss the decision-making system in the EU but both politicians reportedly failed to bridge the gap in their positions. "I want to say it very clearly: Germany has almost no leeway on this issue, but we should continue talking," PAP quoted Schroeder as saying after his meeting with Miller. Miller agreed that further talks were necessary and also declared that "we also have little leeway."

Both Schroeder and Miller denied press reports alleging that there is or can be linkage between the voting-system dispute and the EU budget for the years 2007-13. The Warsaw-based "Rzeczpospolita" reported on 22 September that Germany is ready to support the proposal that Poland obtain some 7 billion euros ($8 billion) in EU structural funds annually in 2007-13 (thus becoming the EU's largest recipient of structural funds), if Warsaw does not block the draft EU Constitution prepared by the European Convention, which is supported by Germany and other EU heavyweights. (Jan Maksymiuk)

WHAT ARE THE CONSEQUENCES OF RUSSIA'S 'GAS ATTACK' FOR BELARUS? The decision of the Russian government to stop supplying gas to Belarus at a discount price was confirmed at the meeting of Belarusian President Alyaksandr Lukashenka and his Russian counterpart Vladimir Putin in Sochi on 15 September (see "RFE/RL Poland, Belarus, and Ukraine Report," 16 September 2003). Both sides thus agreed to put an end to the ties based on mutual subsidies and privileges (and resulting in endless conflicts over who feeds whom) and to move on to more transparent "market-based" relations. In response to the price hikes, Belarus is expected to raise duties on the transit of Russian gas across Belarus. Ironically, ties of this kind have long been advocated by Lukashenka's archrivals from the opposition Belarusian Popular Front, while access to cheap energy resources has been the primary argument of the official propaganda in favor of the Russia-Belarus Union.

The ease with which Lukashenka made yet another turn in bilateral relations with Russia is meant to show his determination not to submit to any pressure from the Kremlin and his readiness to build his authority in the future without the life support from the Eastern neighbor. He keeps insisting to the public at home that the recent "gas attack" would have no consequences for the Belarusian economy, as transit fees would fully compensate for the price hikes. If this turns out to be true, the recent scandal between the Kremlin and Minsk would result only in the reduction of Moscow's leverage on Lukashenka, as he may no longer be blackmailed by cuts of cheap energy supplies. But is the marketization of one of the most important aspects of Belarus-Russia relations indeed so problem-free for the Belarusian economy, and, consequently, for Lukashenka's political stance?

The answer to this question is hidden in simple math. Belarus consumes approximately 18 billion cubic meters of Russian gas per year -- 10 billion cubic meters supplied by Gazprom at a price of $30 for 1,000 cubic meters, the remainder supplied by other traders at an average price of $43 for 1,000 cubic meters. Belarus thus spends around $580 million per year on gas purchases. Under the most optimistic scenario, when the average "market" price of gas does not exceed $50 for 1,000 cubic meters, Belarus's gas bill will rise to approximately $900 million per year, or by $320 million (some 2.5 percent of GDP). Under more pessimistic scenarios, however, Belarusian independent economists expect losses to reach $500 million per year. This, however, could be partly compensated by an increase in transit duties on the Russian gas exported via Belarus to Europe.

Belarus currently raises $150 million per year in transit revenues. The announced doubling of the fee would compensate only a half of the loss from the price hike under the most optimistic scenario, and only one-third under a more pessimistic one. A further increase in transit fees may bring forth an even more detrimental situation, as Belarus risks having its gas fare raised by Gazprom and other monopolies to the level paid by Ukraine (which is currently around $70-$80 per 1,000 cubic meters). Thus, some financial loss is unavoidable for Belarus. The whole situation creates a powerful stimulus for its government to finally start meaningful economic reforms, but there is no political will to embark on this course.

Under these circumstances, the energy price hikes will make growing budget deficit unavoidable. Belarusian authorities have already dropped their intention to balance the budget in 2004, and a deficit at 1.5 percent of GDP has already been planned. However, if the price hikes bring down the competitiveness of the Belarusian goods and increase the stock of unsold goods, indirect losses resulting from the "gas attack" for the Belarusian economy and central budget may double the direct ones. In such conditions, the actual figure of budget deficit may reach, or even exceed, 3 percent of GDP.

There are reasons to expect an increased pressure on the already overvalued Belarusian ruble as well. Belarus's trade deficit may exceed $1 billion in 2003. A crisis of balance of payments was easily avoided before through cheap energy supplies and stabilization loans received from the Russian Central Bank to prepare for a monetary union. The government put forward even more ambitious plan to raise the average monthly wage from the current $105 to $140 by the end of 2004. In fact, the fulfillment of this task now seems entirely unrealistic, and any attempts to fulfill this promise may bring forth a currency crisis indeed.

Both budget deficit and potential instability of the Belarusian ruble mean growing inflation. The official plans are that inflation in 2004 will not exceed 19 percent. If so, this would be by far the lowest level of inflation for Belarus in its independent history, but still unthinkably high as compared with other transition countries, and at least twice as high as inflation in Russia. The divergence of inflation rates makes it unlikely for Belarus to be prepared by the end of 2004 for the monetary union with Russia. On the other hand, if Lukashenka rejects the union under some pretext, Belarus will have to pay back hundreds of millions of U.S. dollars that it received in stabilization loans in previous years, which will make a currency collapse similar to that in Russia in 1998 unavoidable.

The immediate consequences for living standards will be somewhat mitigated by the fact that the population no longer has its utility bills subsidized. The government sells gas to households at the price roughly corresponding to what it will have to pay to Gazprom next year (i.e., $50 for 1,000 cubic meters). There are lots of theories about where the difference goes. Some analysts hint that it replenishes shadow presidential funds, but Lukashenka sharply denies these theories, pointing to certain branches of the industrial and agricultural sectors that are still able to restrain the rise of production costs owing to such redistribution. Moreover, the government still has some freedom of maneuver to redistribute its revenues to certain social groups of the population, thus preventing their living standards from falling. If these policies end this year, the production costs for a number of companies may grow by 30 percent-50 percent, thus making them bankrupt. Given the already dire condition of the corporate sector in Belarus (around half of companies operate at a loss), this may have serious social and even political consequences. At the end of the day, this may add up to a popularity crisis for Lukashenka (64 percent of Belarusians already want someone else to be the next president) and seriously undermine his chances to secure a third term in office for himself.

Thus, even though the "gas attack" may not have an immediate impact on the Belarusian economy and politics (price hikes will occur in the beginning of 2004), it may seriously shake the economic foundations of the Belarusian political regime by the time Lukashenka finally decides on how he is going to extend his presidential tenure. This puts pressure on Lukashenka to make quick decisions in both economy and politics. The Belarusian leader cannot afford another scandal with Russia in the nearest future, at least until the moment when the gas prices for 2004 are firmly set. This means that he is likely to proceed with preparations for the monetary union, although it is not guaranteed at all that these would not be reversed later on. He may also think about using the half-year election season in Russia (during which the Kremlin itself will not be interested in open confrontation with Minsk) to finally solve the problem of the third term. Last but not least, Lukashenka may have to seek a reduction of Russia's leverage on Belarus and shop for other creditors. Negotiations to get a $200 million stabilization loan from Libya were already begun earlier this year.

Ironically, while Lukashenka publicly insists that abandoning the Russia-Belarus Union is equal to his political suicide, he may need to distance himself from the Eastern neighbor to neutralize the political underpinning of a too close and cordial relationship.

(This report was written by Vital Silitski, a Minsk-based freelance researcher.)

KUCHMA SIGNS ACCORD ON CIS SINGLE ECONOMIC ZONE WITH 'RESERVATIONS.' The presidents of Russia, Ukraine, Belarus, and Kazakhstan -- Vladimir Putin, Leonid Kuchma, Alyaksandr Lukashenka, and Nursultan Nazarbaev, respectively -- signed in Yalta on 19 September an accord on the creation of a single economic zone of the four states. The accord, which seems to spearhead the declared creation of a free-trade zone on the entire Commonwealth of Independent States (CIS) territory, commits its signatories to synchronizing their legislation on tariffs, customs, and transport to make possible the free movement of commodities, labor, and capital.

"What is the purpose of the documents that we signed today? First of all, these documents cover exclusively the area of economic cooperation," Putin said on 19 September. "They are aimed at reducing the burden of the [current] infrastructure on the production, transportation, and sale of industrial and agricultural products. In the end, if we work consistently, this should and will help increase the competitiveness of our products on the world market."

"The signing of the agreement on a common economic space in no way destroys the CIS, as some believe," Nazarbaev commented. "On the contrary, having adopted all the necessary documents, these countries could show other [CIS] countries an example of integration."

Lukashenka made a little show of skepticism, if not distaste, while signing the above-mentioned accord and an accompanying concept of the creation of a single economic zone. After the documents were signed by Nazarbaev, Putin, and Kuchma, Lukashenka took them and began to leaf through them, as if unsure whether to sign them. Only after Kuchma asked him "Why do you criticize everybody, both at closed and open sessions?" Lukashenka put his signature under them. But he remained fairly skeptical about their implementation. "Belarus will make real steps only if all the states fulfill all the provisions of the agreement and the concept," Lukashenka said during a news conference. "If Russia, Ukraine, and Kazakhstan make real steps forward, then we will keep step with them."

"When I was signing this document today, I had absolutely no doubt -- not for a single moment -- that it served the national interests of Ukraine," Kuchma commented. "Under the present conditions, when the European markets are closed for's better to have a real bird in the hand than two in the bush."

But Kuchma reportedly signed the documents with reservations, saying Ukraine will commit itself only to those provisions that do not contradict its constitution. Earlier last week, the Verkhovna Rada voted 291-13 to adopt a resolution supporting the accord on the single economic zone provided that it does not contradict the Ukrainian Constitution, laws, or international commitments. A similar stance was taken by Prime Minister Viktor Yanukovych's cabinet.

Kyiv's apprehensions were caused by the accord's provision stipulating the creation of a supranational regulatory body in this union of four, to which the signatories are expected to transfer part of their sovereign decision-making powers. The accord also stipulates that all decisions in this regulatory body are to be made by "weighted vote" -- the number of votes assigned for each signatory is to be dependent on its economic potential. Even under the most optimistic estimates by Ukrainian analysts and commentators, Russia is entitled to no less than 60 percent of votes in this union, so in fact, all decisions in the single economic area will be dictated by the Kremlin.

The debate in Ukraine on the single economic zone of Russia, Ukraine, Belarus, and Kazakhstan before 19 September was heated and divisive. The Our Ukraine coalition and the Yuliya Tymoshenko Bloc firmly opposed the signing of the accord by Kuchma, saying it contradicts and hampers Ukraine's declared integration with Euro-Atlantic structures in general and the World Trade Organization in particular. On the other hand the Communist Party and the Socialist Party were basically in favor of Ukraine's closer integration with the CIS. The same can be largely said by the pro-presidential forces in the Verkhovna Rada.

However, it should be noted that three ministers -- Foreign Minister Kostyantyn Hryshchenko, Economy Minister Valeriy Khoroshkovskyy, and Justice Minister Oleksandr Lavrynovych -- advised Kuchma against signing the document on the single economic zone and spoke against it in parliament. It seemed to be the first case of such major "insubordination" of ministers during Kuchma's entire tenure. In a much bolder step of disobedience, Ukrainian Ambassador to Romania Anton Buteyko resigned to protest the signing of the accord on the single economic zone by Kuchma.

Will the Ukrainian parliament ratify the accord? It seems that pro-presidential lawmakers (even if not all) together with the Communist Party caucus in the Verkhovna Rada will be able to muster the 226 votes required for ratification. Will Ukraine lose part of its sovereignty due to such a development? Hardly so. First, there is Kuchma's "reservation" that Ukraine will follow only those provisions of the accord that do not contradict its constitution. It is a leeway that will allow Kyiv to maneuver in this union of four and seek primarily economic benefits of integration without surrendering political sovereignty.

Second, it is not quite clear whether Moscow -- which still has the most important say in the CIS area -- actually intends to pursue the integration according to the scenario laid out in the accord signed in Yalta on 19 September. Some commentators point out that the accord was prepared hastily, without necessary economic calculations and analyses, and is to serve primarily as a sign of Putin's success in reintegrating the post-Soviet area ahead of the two important campaigns in Russia: parliamentary elections in December and presidential elections in March. If so, then the accord may slowly sink into oblivion, as a multitude of others in the 12-year-old history of the CIS.

On the other hand, it is very likely that the problem of the CIS single economic zone will be added to Ukraine's hot political agenda, along with the planned constitutional-system reform and the question whether Kuchma wants to remain in power beyond 2004. Interfax reported that parties constituting the Our Ukraine bloc have begun collecting signatures under an open letter to Kuchma. "Your participation in the creation of a so-called single economic area under the conditions contradicting the current constitution, legislation, and international commitments of provoking the indignation of Ukrainian citizens," the letter reportedly reads. "Since you have signed this accord despite arguments to the contrary, we demand that the Verkhovna Rada launch the procedure of your impeachment for the betrayal of national interests of Ukraine." The Verkhovna Rada will hardly heed to this postulate. But legislators will have an exciting topic for practicing their eloquence. (Jan Maksymiuk)