A stronger GUAM revives proposal for European energy market

New agreements on cooperation approved 23 May 2006 among the four members of GUAM are important for Ukraine not so much at the level of trade, but as strategic moves to strengthen the country’s role as a transit territory, says economist Kateryna Maliughina from the International Centre for Policy Studies.

Free trade regimes were set up with Azerbaijan, Georgia and Moldova on a bilateral basis back in 1996, a year before GUAM was organized. For Ukraine, an FTA in the context of GUAM simply duplicates already existing bilateral relations, which essentially means that there will be no change in the trade arrangements with these countries once this new agreement comes into effect.

At the moment, trade with GUAM partners is not very significant for Ukraine: annual turnover with all three countries was only US 1.3bn for 2005, only about 2% of the country’s overall trade volumes—equal to 5% of trade turnover with CIS countries. Moreover Ukrainian exports to these countries are eight times higher than imports. The relatively small size of the economies of Ukraine’s GUAM partners and the many developmental problems they are having makes it impossible for them to move into the ranks of Ukraine’s major trade partners.

The strategic importance now is the revival of GUAM as an active organization and its institutionalization as an international association rather than an informal club of nations. The Free Trade Area provides the structure for GUAM to function and for its cooperation with other partners, with whom the four countries will be able to present a united front in any negotiations.

The main sphere of strategic cooperation is the same one over which GUAM was formed in the first place a decade ago: transporting fuels from the Caspian Sea to the European Union. GUAM currently includes all the potential transit partners in such a project, as well as one of the most promising producers of petroleum and natural gas, Azerbaijan. According to the ICPS economist, against the background of the battle for various projects for moving resources from the Caspian, this revival of GUAM increases the chances that the association will grow into an energy link of continental stature.