Crimea – a special economic zone for Ukraine

Crimea – a special economic zone for Ukraine

Ukraine has declared Crimea, a peninsula off the Ukrainian and Russian coast in the Black Sea, a special economic zone (SEZ) of Ukraine. This became effective from September 2014 – something which has not been widely reported, writes Prince Michael of Liechtenstein.

Special economic zones are areas of a country where different economic laws are applied to business. They are normally tax free. The exchange of goods and services between SEZs can be considered as imports/ exports but they are not necessarily subject to tariffs.

The Crimea situation since Russia's very ‘unfriendly’ takeover in February 2014 is that Crimean separatist authorities and Russia consider the peninsula as part of Russia. Ukraine, rightfully based on law, considers Crimea part of Ukraine. But Russian occupation is a fact and a border now exists between Ukraine and Crimea.

Eastern and central Ukraine and Crimea have been part of the same empire since at least the 18th century. Crimea became part of Ukraine in 1954 and the ties between Crimea and Ukraine are very close.

A good part of Crimea’s infrastructure including water, electricity and gas, was provided by mainland Ukraine. The peninsula depends on this infrastructure as there is no direct land access from Russia to Crimea, only via the Ukraine mainland.

Now, trade in Crimea is suffering. An embargo - a natural and legitimate reaction to this illegal border - would have punished not only innocent people and businesses in Crimea, but also, to a lesser extent, those in mainland Ukraine. But it would have been no threat to Russia.

The declaration of a SEZ is a pragmatic way to allow economic relations which also avoids recognising the illegal status quo.

Businesses in Crimea are now exempt from Ukraine taxes and regulations.  Trade is possible again.

We can see the logic and necessity for this and it is probably the best of all the bad choices.

The downside could be that it encourages Russia’s ambitions to create a ‘new Russia’ in other parts of Ukraine and then claim a similar status to Crimea in Luhansk, Donetsk, Dnipropetrovsk and Odessa. This could create a politically and economically disruptive area, prey to dangerous foreign influences and an Eldorado for illegal business and corruption.

A successful Ukraine should be an independent, free country, able to trade freely with Russia and the European Union. That should be the objective.

Related reports

Nato ‘at a loss’ as Putin works on New Russia strategy

Crimea may be stepping stone to Russia’s grand plan

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