Turn the Ukrainian army into a Swiss one?

By Roman Khimich (Ukraine)

 

Mid-August was marked by a series of statements by Ukraine’s Ministry of Defense. These statement signal a fundamental change in the system of manning the armed forces and, in a broader perspective, vision of the entire defense doctrine.

 

The system of basic military training is declared to be mandatory and should cover all reservists, that is, effectively a major part of the adult population, including both men and women. Citizens who have passed such training should form a people's militia, which, in turn, should serve as the basis for a national territorial defense system. Finally, the authorities voiced the aim to create guerrilla, sabotage and intelligence networks on the basis of volunteer corps in cases of external aggression.

All these steps, taken cumulatively, comprise the elements of a comprehensive reform, a model set by the organization of the Swiss Armed Forces.

 

This is not the first attempt undertaken by Ukrainian authorities to solve the problem of mobilizing population in the event of hostilities. In mid-March 2014, in the midst of a military confrontation on the Crimean peninsula, several working groups were created at the request of Andrii Parubiy, the former secretary of the NSDC (National Security and Defense Council). The experts were required to prepare a regulatory framework and trigger the establishment of the mass mobilization system. Specific forms of this system were to be clarified in the working process.

 

The author participated in one of these groups, which developed the project of Ukrainian Army Reserve. The working group proposed a framework governing territorial defense forces in different states and developed a holistic view on the matter. Based on this experience and knowledge, author offers his assessment of the ideas expressed by Ministry of Defense leadership.

 

Ukraine’s trade with Russia

By Yuriy Gorodnichenko (UC Berkeley)

After the Russian annexation of Ukraine’s Crimea, the relationship between Ukraine and Russia is a historical low. There is a significant chance of a full-scale war between countries if Russia invades other parts of Ukraine. However, a more likely scenario is a trade war between the countries. It is not likely that anybody is going to win this war since the economies of Ukraine and Russia are highly integrated but the sectoral exposure to trade varies considerably and thus the pinch will be distributed unevenly.

Figure 1 shows the distribution of Ukraine’s trade with Russia by sector. Each circle is a sector, and the size of the circle indicates the relative importance of a sector in imports from Russia (larger circles correspond to a larger volume of trade). In a nutshell, Figure 1 shows that Ukraine imports energy from Russia and exports food, chemical and machines to Russia. There is only a handful of industries with roughly equal flows of goods in both directions (that is, circles are close to the 45-degree line). This pattern of trade is consistent with the notion that the trade is dominated by comparative advantage rather than monopolistic competition or economies of scale. Thus, if Russia decides to cut energy supplies to Ukraine, it’s likely to end up paying more for food and other goods supplied from Ukraine to Russia and thus the welfare of Russia’s consumers will be reduced.

Figure 1. Composition of trade with Russia, 2012, source: Ukraine's Statistical Office.

The cost of a trade war with Russia depends on how easily Ukraine can redirect its trade to other destinations. One can reason that if a good is supplied almost exclusively to Russia, it has not established market in other countries and hence redirecting trade flows may be difficult. On the other hand, if a good is shipped to many countries and Russia has only a modest share in trade, shifting exports to other countries could be easier. To illustrate the concentration of Ukraine’s trade with Russia, Figure 2 plots the shares of exports to Russia and Europe by sector. Again, each circle corresponds to a sector and the size of the sector indicates the volume of trade. If a circle is close to the “100 percent” line, it means that Europe and Russia cover close to 100 percent of exports for a given sector. Several patterns are present in Figure 2. First, for most industries, exports go to many destinations other than Europe and Russia. For example, metals—the main export sector in Ukraine—sends only a half of its exports to Russia and Europe. Second, while there is some sectoral concentration of trade directed to Russia, many industries are fairly diversified. For example, sectors in the food segment have large exports to both Russia and Europe.

Figure 1. Shares of Ukraine's exports to Russia and Europe, 2012, source: Ukraine's Statistical Office.

In summary, trade between Russia and Ukraine is good for both countries. If Russia tries to exploit the “oil/gas” argument to pressure Ukraine in a trade war, the outcome is likely to be costly for Russia too: Ukrainian exports will end up charging higher prices to Russian consumers and redirecting their trade to other countries. When Ukraine and the EU sign a free trade agreement (the EU promises to do it after the presidential elections on May 25^th, 2014), the role of trade with Russia is going to diminish since the EU is a much larger market, and Ukraine’s comparative advantage is likely to be even stronger in the Ukraine-EU trade than it is in the Ukraine-Russia trade. By starting a trade war now, Russia will only speed up this process.