Proposal for establishment of transborder development zones in Belarus and Ukraine
K. Woloh, www.bramaby.com
The current proposal represents a public initiative directed at all parties concerned, and which is laid out with an aim of establishment of special transborder development zones between Belarus and Ukraine on the one hand, and the European Union on the other, represented by its member states located in the region of Central and Eastern Europe (Poland, Hungary, and Romania).
Premises
* The Eastern politics of the European Union has proven to be of a little effect with Belarus and Ukraine continuously being driven by undemocratic tendencies, and often sliding further down the human rights ladder. Preoccupation with rhetoric and diplomatic gestures has not only undermined pursuit of needed leverage and results, but also aggravated the situation like a mistreatment aggravates a disease.
* Launch of Nord Stream and construction of South Stream marginalize both Ukraine, and Belarus even further. Being pressed into a corner both countries have little choice but to follow an anti-Western path dictated by the Kremlin, combined with increasing prospects of folding into a neo-USSR.
* Authoritarian systems of Belarus and Ukraine make their engagement by Europe along political criteria largely dysfunctional, not leading to anywhere. On the contrary, the language of economics is heard in Minsk and Kyiv pretty well.
* Attempts to financially outbid Russia with straight cash in a competition for Belarus and Ukraine make little sense since Russia will always be interested to pay significantly more. Any economic leverage the EU establishes vis-a-vis Belarus and Ukraine needs to have a long-term structural character, to be both renewable and self-sustainable. Where Russia suggests a state sponsored short-term relief, the EU needs to offer a market driven longevity and growth.
* Alienation of Belarus and Ukraine from development projectiles of other CEE countries is largely predetermined by weak horizontal ties between them — a post-Soviet legacy. There is by far not enough economic cooperation and interdependence happening across this part of the EU border. Fostering of business ties between Belarus, Ukraine and their neighbors in the region from the EU side will undoubtedly drive both countries closer into the European sphere of influence, not lastly through their increasing self-assessment vis-a-vis regional peers.
Mechanism
Creation of two transborder zones — one in Belarus, one in Ukraine — with free access of people and capital from all sides (the EU, Belarus, and Ukraine), and liberal movement of products and services to and from these markets. A meeting point of Western demand and Eastern resources and infrastructures. «Islands of freedom» for people of Belarus and Ukraine which exist under European guarantee and protection.
Contributions
— Belarus and Ukraine contribute their respective territories, and provide them exterritorial status, free of state interventions of the host countries.
— The EU provides political and economic guarantees of responsible governance to these zones, establishes rules of the economic game for an extended specified period.
Key goal
Attraction of private investors from all over the world who would come for affordable Eastern production resources combined with guarantees of the responsible European governance.
Locations
The zones will lie in transborder regions between several countries.
The Northern Hub (provided by Belarus) — on the crossroads between Belarus, Poland, and Ukraine, in the area of Tomashovka.
The Southern Hub (provided by Ukraine) — on the crossroads between Ukraine, Hungary, and Romania, in the area of Velyka Palad.
Representation
Evolution of the suggested zones will be the most effective with a deeper penetration effect across the region only when it is guided by local stakeholders who have “skin in the game” — not by remote centers like Brussels, Moscow, or Washington. It is up to the people of Central and Eastern Europe to rebuild horizontal ties, and overcome any hurdles in their communication.
Both suggested zones (hubs) will be presided by Supervisory Boards consisting of representatives of neighboring countries.
Supervisory Boards will be in charge of overseeing rules of the game within their respective zones, appointment of management companies, and running relationship with host countries (i.e. with Belarus for the Northern Hub, and with Ukraine for the Southern Hub).
Management
Management of transborder development zones will be conducted by private management companies which must originate from any of the EU member states, selected and appointed by a Supervisory Board in a spirit of a free open competition, with the EU having a blocking vote. Responsibilities of a management company will include, but not be limited to municipal governance and services, financial management, security, utilities, development plans, construction strategies, promotion and marketing of zones, attraction of global investors, etc. Effectiveness of work of management companies will be assessed based on both the level of attracted investments into the zones, as well as quality of internal developments within each zone.
Supervisory Boards will be appointing management companies for particular intervals of time conducting their reassessment before any prolongation of a contract. Supervisory Boards will have mechanisms to suspend contracts with management companies under particular conditions.
Rule of Law
By assuming exterritorial status the development zones will forfeit legal practices of their host countries. To avoid conflict of interests the ruling law should neither come from any of the countries that send their representatives to Supervisory Boards. An external sponsor of a ruling law needs to be found. A good candidate for this role may be the UK with a profound legal tradition which proved effective for doing business in similar urban development zones from Singapore to Hong Kong. For English speaking multinational hubs an English speaking law might be the most convenient to apply. Switzerland, Germany, or any other country with a well functioning legal environment could also be considered. In this case, both business and personal practices in suggested zones will not need building their own legal foundation from scratch, but will be based on a highly developed legal tradition.
Culture
The suggested zones are expected to be highly international in their culture, and become beacons of globalization in the region — a convenient English speaking place to live for any expat. This will also provide a natural balance to nationalistic tendencies within CEE by putting national and international into their own realms of dominance, thus reducing collisions.
Expected positive effects
1. Engines of economic growth
Similar to how Shanghai economic zone led to opening of China and its engagement with the West, pulling it away from the USSR, the suggested development zones will need to become flagships of economic growth in Belarus and Ukraine. Both direct and indirect economic effect from these zones should over time create a competition to diminishing benefits from Russian energy supplies, especially with further diversification of energy sources.
2.Evolution of a supporting business class
Similar to how some of current business elites in Belarus and Ukraine depend on Russia, a balancing business class needs to evolve that advocates the European direction. Current exporters alone are not enough, especially since most of those exports depend on imports from Russia. Transborder development zones will grow their own system of supply chains, personal incomes, career opportunities, etc. For them existence of the suggested hubs will be both strategic and irreplaceable.
3. Factors of regional stability
Promotion of horizontal transborder ties will not only contribute to sustainable development of Ukraine and Belarus, but will further foster relations between other countries of Intermarium: Slovakia, Hungary, Romania, etc. The region will become significantly more resilient to outside pressures, and less confrontational within if it obtains more examples of common achievements through united efforts.
4. Foundation for a common energy strategy
Common transborder development zones will create a lasting context for a multi party cross-regional business communication where all conversations are conducted through a prism of common economic interests, by-passing internal politics of national states. Until now numerous lines of political divisions in the region were eagerly played by the Kremlin and its energy companies. There is no doubt that one common interest of all CEE countries — from the Czech Republic to Moldova, from Romania to Belarus — is diversification of energy supplies.
By putting all regional energy projects on one table — Nabucco, LNG terminals in Poland and Croatia, Polish shale gas, South Stream, etc. — CEE countries could create a mini-OPEC of transit states where energy supplies can flow from each entry point to any place in the region, thus ensuring collective energy security. To achieve this multinational transborder hubs will become unbiased communication centers independent from national political limitations.
5. Local infrastructure
One of the most important aspects of transborder economic zones is the boost they will provide to development of local infrastructure. Airports in Satu Mare (Romania) and Uzhgorod (Ukraine) will receive a new life as supply centers to the Southern Hub. A similar effect will be on the Brest Airport (Belarus) and the Lublin Airport (Poland) as gateways to the Northern Hub. Roads, railways, bridges, and small businesses will be growing over time, providing jobs, revenues and pro-European sentiments to local elites. And the best part of it is that local governments and private companies will have all incentives to make those investments themselves instead of relying on funds from Brussels.
6. Transport connection
Disconnection of the transport systems across two sides of the Eastern EU border is one of historic legacies (of both the Russian Empire, and the Soviet Union). The most notable example is the difference in width of rail tracks which results in a clumsy transport connection across the border where trains need to loose hours for change of wheel gauges. Similar mismatches exist between allowed truck exhaust norms, technical requirements for private vehicles, etc. It makes all sense to create an international hub for businesses and productions not deep inside of national territories, but right on the border where two transport systems meet.
7. Universities and knowledge economy
One of key global specializations of Central Eastern Europe is software development and IT outsourcing. However, for many successful companies achieving effect of scale was very difficult due to limitations of their national labor markets. Creation of multinational hubs will open access to human resources of the whole region from few meeting points that could be a destination of choice for varieties of professionals regardless of their nationalities.
For this reason, allocation of universities and their branches in the suggested hubs will be a win-win scenario for both trasnborder zones, and educational institutions. Students will be attracted to highly international places which open access to colleges unavailable in their home countries. And at the same time, it will be much easier to retain future IT specialists in places where they have already lived for 4-5 years.
8. Opportunities for industrial production
Examples of the Skoda plant opened in the village of Solomonovo on the Ukrainian-Slovak-Hungarian border, or construction of a steel rolling plant by Vorskla Steel in the same region demonstrate that markets already point at a strategic importance of such transborder areas even in the absence of a proper legal framework. A possibility to supply tariff-free raw materials, use energy at lower prices, get access to labor markets, and yet stay close to your consumers, be an attractive living place for international managers — all these factors call for creation of exterritorial business zones which would have protection and guarantees of the international law in the form of a powerful body like the EU.
9. Competition
Creation of two zones instead of one will introduce an element of competition, resulting in higher efficiency, bigger flexibility, wider outreach, and better terms for investors and employees, as well as higher level of products and services produced in the hubs.
At the same time, the two zones will not be entirely alien to each other. Two countries will be present on Supervisory Boards of both zones — Ukraine and Slovakia. These countries are involved with both Northern, and Southern spheres of development in the CEE region, as well as have unique individual factors of importance: Ukraine, as the biggest supplier of labor into the hubs, and Slovakia, as a provider of a currency — the euro. Additionally, the zones will inevitably work in a tandem on many issues and tasks, as two hemispheres of one brain.
Relationship with Russia
Establishment of exterritorial transborder zones does not undermine participation of Belarus and Ukraine in the CIS, or the Customs Union (in case of Belarus). Thus, Russia will not be under pressure to act against them immediately. Undeniably, Moscow will look unfavorably at any initiative that pulls Belarus and Ukraine closer to the EU. However, a European commitment like this will need full political backing of Brussels on the highest level. In this situation, the efforts/results ratio may simply become not worthwhile for the Kremlin.
Additionally, creation of the suggested zones may affect the situation within Russia itself. Deteriorating political climate in Russia already leads to two outcomes: many professionals from the Russian middle class increasingly consider an option to emigrate, and the Kremlin increasingly spreads a perception of a dictatorial anti-Western political system as the best functioning societal organization for post-Soviet people. From this perspective, existence of an easily accessible West-integrated and sponsored (on a political level) hubs/cities with full access to Western values and businesses will become a powerful magnet for even bigger number of educated Russian professionals, as well as a shining example of the rule of law to human rights activists in all of the ex-USSR. It may well become that one of the biggest suppliers of qualified labor into the suggested hubs will eventually become Russia itself.
Conclusion
Transborder development zones located on the cross-roads of Belarus-Poland-Ukraine and Ukraine-Hungary-Romania, created as a meeting place of Eastern resources (land, human capital, access to raw materials) and Western systems (political oversight, management, rule of law) will have lasting, potentially game changing effect on the European neighborhood, as well as a factor of region’s political sustainability and economic growth. These zones could become a key factor in changing projectiles of political development of Belarus and Ukraine, affecting Russia as well, and a token of their eventual alignment with Europe.
Forum discussion is here
The current proposal represents a public initiative directed at all parties concerned, and which is laid out with an aim of establishment of special transborder development zones between Belarus and Ukraine on the one hand, and the European Union on the other, represented by its member states located in the region of Central and Eastern Europe (Poland, Hungary, and Romania).
Premises
* The Eastern politics of the European Union has proven to be of a little effect with Belarus and Ukraine continuously being driven by undemocratic tendencies, and often sliding further down the human rights ladder. Preoccupation with rhetoric and diplomatic gestures has not only undermined pursuit of needed leverage and results, but also aggravated the situation like a mistreatment aggravates a disease.
* Launch of Nord Stream and construction of South Stream marginalize both Ukraine, and Belarus even further. Being pressed into a corner both countries have little choice but to follow an anti-Western path dictated by the Kremlin, combined with increasing prospects of folding into a neo-USSR.
* Authoritarian systems of Belarus and Ukraine make their engagement by Europe along political criteria largely dysfunctional, not leading to anywhere. On the contrary, the language of economics is heard in Minsk and Kyiv pretty well.
* Attempts to financially outbid Russia with straight cash in a competition for Belarus and Ukraine make little sense since Russia will always be interested to pay significantly more. Any economic leverage the EU establishes vis-a-vis Belarus and Ukraine needs to have a long-term structural character, to be both renewable and self-sustainable. Where Russia suggests a state sponsored short-term relief, the EU needs to offer a market driven longevity and growth.
* Alienation of Belarus and Ukraine from development projectiles of other CEE countries is largely predetermined by weak horizontal ties between them — a post-Soviet legacy. There is by far not enough economic cooperation and interdependence happening across this part of the EU border. Fostering of business ties between Belarus, Ukraine and their neighbors in the region from the EU side will undoubtedly drive both countries closer into the European sphere of influence, not lastly through their increasing self-assessment vis-a-vis regional peers.
Mechanism
Creation of two transborder zones — one in Belarus, one in Ukraine — with free access of people and capital from all sides (the EU, Belarus, and Ukraine), and liberal movement of products and services to and from these markets. A meeting point of Western demand and Eastern resources and infrastructures. «Islands of freedom» for people of Belarus and Ukraine which exist under European guarantee and protection.
Contributions
— Belarus and Ukraine contribute their respective territories, and provide them exterritorial status, free of state interventions of the host countries.
— The EU provides political and economic guarantees of responsible governance to these zones, establishes rules of the economic game for an extended specified period.
Key goal
Attraction of private investors from all over the world who would come for affordable Eastern production resources combined with guarantees of the responsible European governance.
Locations
The zones will lie in transborder regions between several countries.
The Northern Hub (provided by Belarus) — on the crossroads between Belarus, Poland, and Ukraine, in the area of Tomashovka.
The Southern Hub (provided by Ukraine) — on the crossroads between Ukraine, Hungary, and Romania, in the area of Velyka Palad.
Representation
Evolution of the suggested zones will be the most effective with a deeper penetration effect across the region only when it is guided by local stakeholders who have “skin in the game” — not by remote centers like Brussels, Moscow, or Washington. It is up to the people of Central and Eastern Europe to rebuild horizontal ties, and overcome any hurdles in their communication.
Both suggested zones (hubs) will be presided by Supervisory Boards consisting of representatives of neighboring countries.
Supervisory Boards will be in charge of overseeing rules of the game within their respective zones, appointment of management companies, and running relationship with host countries (i.e. with Belarus for the Northern Hub, and with Ukraine for the Southern Hub).
Management
Management of transborder development zones will be conducted by private management companies which must originate from any of the EU member states, selected and appointed by a Supervisory Board in a spirit of a free open competition, with the EU having a blocking vote. Responsibilities of a management company will include, but not be limited to municipal governance and services, financial management, security, utilities, development plans, construction strategies, promotion and marketing of zones, attraction of global investors, etc. Effectiveness of work of management companies will be assessed based on both the level of attracted investments into the zones, as well as quality of internal developments within each zone.
Supervisory Boards will be appointing management companies for particular intervals of time conducting their reassessment before any prolongation of a contract. Supervisory Boards will have mechanisms to suspend contracts with management companies under particular conditions.
Rule of Law
By assuming exterritorial status the development zones will forfeit legal practices of their host countries. To avoid conflict of interests the ruling law should neither come from any of the countries that send their representatives to Supervisory Boards. An external sponsor of a ruling law needs to be found. A good candidate for this role may be the UK with a profound legal tradition which proved effective for doing business in similar urban development zones from Singapore to Hong Kong. For English speaking multinational hubs an English speaking law might be the most convenient to apply. Switzerland, Germany, or any other country with a well functioning legal environment could also be considered. In this case, both business and personal practices in suggested zones will not need building their own legal foundation from scratch, but will be based on a highly developed legal tradition.
Culture
The suggested zones are expected to be highly international in their culture, and become beacons of globalization in the region — a convenient English speaking place to live for any expat. This will also provide a natural balance to nationalistic tendencies within CEE by putting national and international into their own realms of dominance, thus reducing collisions.
Expected positive effects
1. Engines of economic growth
Similar to how Shanghai economic zone led to opening of China and its engagement with the West, pulling it away from the USSR, the suggested development zones will need to become flagships of economic growth in Belarus and Ukraine. Both direct and indirect economic effect from these zones should over time create a competition to diminishing benefits from Russian energy supplies, especially with further diversification of energy sources.
2.Evolution of a supporting business class
Similar to how some of current business elites in Belarus and Ukraine depend on Russia, a balancing business class needs to evolve that advocates the European direction. Current exporters alone are not enough, especially since most of those exports depend on imports from Russia. Transborder development zones will grow their own system of supply chains, personal incomes, career opportunities, etc. For them existence of the suggested hubs will be both strategic and irreplaceable.
3. Factors of regional stability
Promotion of horizontal transborder ties will not only contribute to sustainable development of Ukraine and Belarus, but will further foster relations between other countries of Intermarium: Slovakia, Hungary, Romania, etc. The region will become significantly more resilient to outside pressures, and less confrontational within if it obtains more examples of common achievements through united efforts.
4. Foundation for a common energy strategy
Common transborder development zones will create a lasting context for a multi party cross-regional business communication where all conversations are conducted through a prism of common economic interests, by-passing internal politics of national states. Until now numerous lines of political divisions in the region were eagerly played by the Kremlin and its energy companies. There is no doubt that one common interest of all CEE countries — from the Czech Republic to Moldova, from Romania to Belarus — is diversification of energy supplies.
By putting all regional energy projects on one table — Nabucco, LNG terminals in Poland and Croatia, Polish shale gas, South Stream, etc. — CEE countries could create a mini-OPEC of transit states where energy supplies can flow from each entry point to any place in the region, thus ensuring collective energy security. To achieve this multinational transborder hubs will become unbiased communication centers independent from national political limitations.
5. Local infrastructure
One of the most important aspects of transborder economic zones is the boost they will provide to development of local infrastructure. Airports in Satu Mare (Romania) and Uzhgorod (Ukraine) will receive a new life as supply centers to the Southern Hub. A similar effect will be on the Brest Airport (Belarus) and the Lublin Airport (Poland) as gateways to the Northern Hub. Roads, railways, bridges, and small businesses will be growing over time, providing jobs, revenues and pro-European sentiments to local elites. And the best part of it is that local governments and private companies will have all incentives to make those investments themselves instead of relying on funds from Brussels.
6. Transport connection
Disconnection of the transport systems across two sides of the Eastern EU border is one of historic legacies (of both the Russian Empire, and the Soviet Union). The most notable example is the difference in width of rail tracks which results in a clumsy transport connection across the border where trains need to loose hours for change of wheel gauges. Similar mismatches exist between allowed truck exhaust norms, technical requirements for private vehicles, etc. It makes all sense to create an international hub for businesses and productions not deep inside of national territories, but right on the border where two transport systems meet.
7. Universities and knowledge economy
One of key global specializations of Central Eastern Europe is software development and IT outsourcing. However, for many successful companies achieving effect of scale was very difficult due to limitations of their national labor markets. Creation of multinational hubs will open access to human resources of the whole region from few meeting points that could be a destination of choice for varieties of professionals regardless of their nationalities.
For this reason, allocation of universities and their branches in the suggested hubs will be a win-win scenario for both trasnborder zones, and educational institutions. Students will be attracted to highly international places which open access to colleges unavailable in their home countries. And at the same time, it will be much easier to retain future IT specialists in places where they have already lived for 4-5 years.
8. Opportunities for industrial production
Examples of the Skoda plant opened in the village of Solomonovo on the Ukrainian-Slovak-Hungarian border, or construction of a steel rolling plant by Vorskla Steel in the same region demonstrate that markets already point at a strategic importance of such transborder areas even in the absence of a proper legal framework. A possibility to supply tariff-free raw materials, use energy at lower prices, get access to labor markets, and yet stay close to your consumers, be an attractive living place for international managers — all these factors call for creation of exterritorial business zones which would have protection and guarantees of the international law in the form of a powerful body like the EU.
9. Competition
Creation of two zones instead of one will introduce an element of competition, resulting in higher efficiency, bigger flexibility, wider outreach, and better terms for investors and employees, as well as higher level of products and services produced in the hubs.
At the same time, the two zones will not be entirely alien to each other. Two countries will be present on Supervisory Boards of both zones — Ukraine and Slovakia. These countries are involved with both Northern, and Southern spheres of development in the CEE region, as well as have unique individual factors of importance: Ukraine, as the biggest supplier of labor into the hubs, and Slovakia, as a provider of a currency — the euro. Additionally, the zones will inevitably work in a tandem on many issues and tasks, as two hemispheres of one brain.
Relationship with Russia
Establishment of exterritorial transborder zones does not undermine participation of Belarus and Ukraine in the CIS, or the Customs Union (in case of Belarus). Thus, Russia will not be under pressure to act against them immediately. Undeniably, Moscow will look unfavorably at any initiative that pulls Belarus and Ukraine closer to the EU. However, a European commitment like this will need full political backing of Brussels on the highest level. In this situation, the efforts/results ratio may simply become not worthwhile for the Kremlin.
Additionally, creation of the suggested zones may affect the situation within Russia itself. Deteriorating political climate in Russia already leads to two outcomes: many professionals from the Russian middle class increasingly consider an option to emigrate, and the Kremlin increasingly spreads a perception of a dictatorial anti-Western political system as the best functioning societal organization for post-Soviet people. From this perspective, existence of an easily accessible West-integrated and sponsored (on a political level) hubs/cities with full access to Western values and businesses will become a powerful magnet for even bigger number of educated Russian professionals, as well as a shining example of the rule of law to human rights activists in all of the ex-USSR. It may well become that one of the biggest suppliers of qualified labor into the suggested hubs will eventually become Russia itself.
Conclusion
Transborder development zones located on the cross-roads of Belarus-Poland-Ukraine and Ukraine-Hungary-Romania, created as a meeting place of Eastern resources (land, human capital, access to raw materials) and Western systems (political oversight, management, rule of law) will have lasting, potentially game changing effect on the European neighborhood, as well as a factor of region’s political sustainability and economic growth. These zones could become a key factor in changing projectiles of political development of Belarus and Ukraine, affecting Russia as well, and a token of their eventual alignment with Europe.
Forum discussion is here
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