Land Market in Ukraine: Waiting for Legislative Miracle
At the beginning of 2011 the ghost of agricultural land market finally began shaping up. During nearly decade of moratorium on sale of farmland the legal model of land market has almost not been developed, and only moratorium, as lichen, was spreading to new types of land and new relations. And here, finally, heavyweights of Ukrainian policy-making openly started talking about inadmissibility of moratorium, about its anti-constitutional nature, about necessity to convert land into marketable good and introduction of land market with a view of supporting development of national agro-industrial complex and rural areas.
But it has not gone without a surprise. That land market which in most general and essential features was described in the Land Code of Ukraine of 2001, is remarkably different from the land market which is now being offered to the society.
It is rather interesting to look at the legislative process and campaign in support of the market. First of all, in March 2011 Parliamentary majority eliminated from the agenda three alternative drafts on land market which were submitted to the Parliament earlier. Thus ruling party completely assumed responsibility for the issue of land market, including legislation, its implementation and functioning of the market. We think that attempts of our Government to concentrate within bi-color team all competence and power may prove either failure to comprehend the level of responsibility associated with the monopoly to power, or absence of any inclination to bear such responsibility.
Secondly, the draft of "majoritarians" is still circulating in the society as semi-official publications, and neither Cabinet of Ministers nor President has presented to the society their vision of the market, most appropriate form of which would be a draft law registered in the Parliament. However, this is no wonder: only recently one of ministers promised corporation the right to buy up to 10 thousand ha, and the rest – in the name of their subsidiaries, and today only citizens and farmers are allowed to buy agricultural land. Previous versions of the draft also contained rules on creation of a super-latifundistas in the form of "state specialized establishment" which in fact was going to assume the powers allocated by the Constitution of Ukraine to bodies of public administration. Currently available version of the draft has been freed from odious and much criticized "establishment", but its very attractive functions in the field of administration of public land were redistributed to the State Agency of Land Resources. These, as well as other transformations of the draft show that the ruling team, despite its formal unity, has not yet developed a single vision of land market.
At the same time drafters has limited space for their creativity, as soon as the aim of the draft is not lifting of moratorium (as someone may think) but implementation of the Program of economic reform of the President of Ukraine. This Program explicitly provides that in the field of land relations its task is to prevent Ukrainian peasants from going landless. This is the very angle under which the draft law (or its versions circulating in the Internet) shall be studied and analyzed.
So, the aim of the draft may be understood and worded as follows: to make land ownership more attractive than sale of land. This is the reason why the draft limits the list of potential buyers. First of all, legal entities are excluded from this list. This means that doors are closed – the doors through which to landowners and national agro-industrial complex real money could come, money which Ukraine has never seen before, which may not be raised through IPO or other similar tools of stock market. This solution is justified by the fear that via legal entities Ukrainian soil may be seized by foreigners. Let us not be prejudiced towards drafters: such territorial instinct is common to all nations, and they are reluctantly giving it up only to neighbors in supra-national unions (like EU).
At the same time farmers - which are also legal entities – may well get the right to buy and to own agricultural land. What does it mean? - besides support to farmers movement, this also means that wealthy Ukrainians will also be able to accumulate land, because farmers, along with right to buy land, will get the right to buy other farmers, with their land. Respectively, limits on area of farmland in ownership of one person will remain something conditional and ghostly, as soon as limits include only land which is directly owned; ownership through third legal entities will not be counted. Thus land may be seized all the same, but only by our nationals, Ukrainians. Whether there are going to be checks on second citizenship is rather doubtful as soon as double (triple) citizenship is formally prohibited in Ukraine, and – formally – it may not exist. However, if there was no demand in Ukraine for the second (third), more favorable, nationality, there would be no market for the second (third) passport. But these are only speculations, of course...
The second tool for restricting market activity is introduction of multi-level system of pre-emption right. Of course, pre-emption right is not a Ukrainian invention; laws of many countries grant pre-emption right to national and local authorities, neighbors, tenants and other persons.
But the achievement of Ukrainian approach is that the state and local authorities are getting pre-emption right unconditionally, without any restrictions. In discharge of this right they are not restrained by zoning, spatial planning or infrastructural projects. They will have the right to acquire any parcel offered for sale. So, decision on realization (or waiver) of pre-emption right is entirely trusted to the discretion of public servants (or their patrons?)
What are drawbacks of such an approach? - Firstly, it is limiting market activity and transactions (and, as a result, land prices and economic effect of market opening). Secondly, it makes ground for corruption, and public servants will be able to trade waivers of pre-emption right (this is precisely what one may observe in Russia). Thirdly, on paid requests of interested persons officials will be accumulating land and leasing it out to the said persons. Fourthly, access to land is getting more complex and burdensome, especially for newcomers. Fifthly... - but that does it, does that not?
Another tool to support landowners in desire to keep land where it currently belongs is increase of earnings of landowners. It has already been announced that normative value of land, being the basis for calculation of ground rent, will be multiplied and may reach the average figure of UAH 20 thousan (as compared to current 12 thousand). Respectively, average minimum rent will make up UAH 600 per ha a year. Besides, it is planned to add a rule into the Civil Code providing for minimum payment for use of someone’s land for agricultural purposes (that being 5%). So, one may reasonably expect that landowners will be aiming at this minimum, and then minimum ground rent may jump up to UAH 1000 a year.
Of course, one may not refuse to hail glory to improvement of living standards of peasants, but we would note that at the 21st year of land reform the rate of ground rent should have already become a function of competition, and in Ukraine it is still a product of administrative influence. Respectively, leasehold relations as a whole are still under strong administrative influence which makes them open for abuse, risky and - no wonder - failing to show their full potential. Just like in other spheres, this sphere is still lacking freedom and transparency.
One may also not omit the fact that the draft is vesting remarkable competence into the State Agency of Ukraine on Land Resources. This regulator is getting purely market functions (sale, purchase and leasing of public land); besides, armed with pre-emption right, it may well turn into a real shadow dealer of land market (all grounds for that are listed above). It will also get extensive competence on the market of urban lands. In general, we would conclude that an omnipotent state authority at any market is destroying that market because cornerstones of market are freedom and equality of parties.
That does not mean that market may do without regulation. To the contrary, market requires regulation because without regulation it is also loosing effectiveness. However, the purpose of regulation should be support of freedom and equality of parties and securing of prevailing public interests. But the only fact that our regulator has unconditional pre-emption right is making evidence that our regulation may secure any interests, including state, public, corporate, private...
Besides general remarks to the content of the law, one may also question solvency of its formal side. It is remarkable that a document presented as a creation of governmental law-making thought - allegedly professional - is suffering from mistakes. We would list the following:
- regulation of land market through a separate law. All the issues may be perfectly adjusted by the Land Code. By multiplying norms and rules we are not adding effectiveness to the regulation; to the contrary, it is deteriorating. Licurgus, a legendary legislator of Sparta, whose laws stayed in force for several centuries and turned Sparta into the most powerful state of Ancient Greece, forbade writing laws down. He believed that just and proper laws did not need a written form, because they immediately became a custom;
- uniting in one law rules on agricultural land market and urban land market (the latter is functioning for a long time, by the way, in contrast with the former). These are two very different areas; no one has ever advanced plans on unification of agriculture and town-planning under the roof of a single ministry. But, all of a sudden, it seemed possible to do with lands necessary for the said purposes. This remark shall be added to our general thoughts about the level of understanding of responsibility demonstrated by our public administration;
- inclusion of rules on consolidation of land into the draft law on land market. They certainly do not belong here; they are clearly an integral part of the Law of Ukraine "On Land Management".
It would be nice to sum up this brief paper with something soothing and calming. But the only soothing thing is a thought that moratorium will be not lifted soon, right tomorrow. We think it will hold till January 1, 2013; at least, the draft which we got as "governmental" provides for this date. There are several reasons, among which unaccomplished works on state land cadastre and land registry and forthcoming Parliamentary elections of 2012. Therefore, we still have time. We would very like to believe that Ukraine will not waste this time as usual, hopefully waiting for a legislative miracle. Maybe, it is on time for Ukrainians to understand - there are no legislative miracles.
Max Fedorchenko, Alex Yanov, Center for Land Reform Policy in Ukraine
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