Ukraine’s new foreign minister Poroshenko “will not oversee” EU free trade negotiations

Graham Stack, Berlin / Kyiv

According to Ukraine’s ambassador to Germany, Natalia Zarudna, new foreign minister Petro Poroshenko will not oversee trade negotiations with the EU, despite being tasked by President Viktor Yushchenko with achieving an associate membership agreement with the EU as soon as possible.

“Petro Poroshenko will not oversee negotiations on the free trade part of the Ukraine-EU associate membership agreement,” Zarudna told this correspondent in an interview. “This will be done separately by ministry trade experts, with Poroshenko overseeing only the political component of the agreement.”

Zarudna says this rules out any conflict of interest with Poroshenko’s business dealings: Poroshenko is not only a close associate of President Viktor Yushchenko and political high-flyer. He is also a top businessman, and his assets are held to include Ukraine’s second largest car producer Bohdan Corporation, although he does not officially acknowledge ownership of the car maker.

“Poroshenko may be a shareholder in Bohdan, but he is not involved in operational control of the company, since this would contradict Ukrainian legislation,” explains Zarudna.

The issue is pertinent, because Bohdan Corporation is one of the principle victims of Ukraine’s economic crisis, with its revenues down 87.4% in the first half of 2009, and losses totaling $27.1m.  Analysts are questioning whether the company can continue servicing its debt, after having come close to default in August.

In an interview with this correspondent earlier in the year, Bohdan Corporation CEO Oleg Svinarchuk demanded a government U-turn on trade policy, with a shift from free trade to protectionist tariffs to save Ukraine’s car industry. Svinarchuk also bitterly criticized the terms of Ukraine’s accession to the World Trade Organisation.

This indicates Poroshenko’s ties to Bohdan Corporation could clash with his duties as foreign minister – in particular concerning trade negotiations, where higher import tariffs on cars would directly benefit Bohdan Corporation.

There are already signs Poroshenko’s appointment will benefit the company. Immediately following his appointment, the government announced a raft of measures to help Poroshenko’s automotive holdings. Prime Minister Yulia Tymoshenko called Bohdan “a strategic partner in bus production,” and announced a government order for 750 school buses worth UAH 150m, and orders for Euro 2012. There is also talk of a government credit line to modernize bus production facilities, according to sources at Bohdan.

Tymoshenko’s generosity contrasts with previous animosity between herself and Poroshenko, whom she openly accused of corruption in 2005, days before Yushchenko ended her first spell as prime minister. However, considering that votes from Tymoshenko’s party Bloc Yulia Tymoshenko were crucial for Poroshenko’s confirmation by Ukraine’s parliament, the Rada, it is likely that some wider deal is in place, believes Yelena Biberman, Ukraine foreign policy expert at Brown University.

“It could involve Poroshenko buying into Tymoshenko’s more pro-Russian foreign policy line,” says Biberman. Biberman points out that among Poroshenko’s first actions as foreign minister was to reject US radars in Ukraine as part of the US anti-missile defence system. Poroshenko said such plans, aired by U.S. Deputy Defense Secretary Alexander Vershbow, would “contradict the constitution.”

According to Zarudna, however, Poroshenko’s appointment does not signify any shift in Ukraine’s foreign pro-NATO policy. “But because of the crisis, foreign policy may be temporarily more oriented to trade and aid,” she concedes.

Meanwhile, the foreign ministry itself is pinning its hopes on Poroshenko to secure more budget funds. “The foreign ministry suffered disproportionately from budget cuts in 2008, compared to ministries more loyal to the prime minister,” complains Zarudna. “We think that Poroshenko will use his ‘special diplomatic skills’ to get more funds for the ministry.”

According to Zarudna, Ukraine’s foreign representations have had funding cut to 40% of 2008, with budget funding down 20% and hryvnia devaluation doing the rest. “We are being inventive and attracting sponsors to help with our functions,” Zarudna says.