Ukraine weighs U.S.-Backed Free Economic Zone Plan for Donbass After Possible Truce
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KYIV — Ukraine is considering a U.S.-backed blueprint to create a free economic zone in Donbass as a potential step after a possible truce. President Volodymyr Zelensky disclosed the approach in an interview on friday, signaling that the idea would involve symmetrical actions by Russia and broad discussion within Ukraine.
The zone would be established on territories liberated after the withdrawal of troops and would operate under a special legal and tax regime. Zelensky described the format as complex, yet fair, saying it could help lay groundwork for future diplomacy while safeguarding Ukrainian sovereignty.
Zelensky: Russia Is Not Ready for Real Diplomacy
The president also outlined an alternative scenario that would end hostilities without a troop withdrawal, followed by resolving contentious issues through diplomacy. He asserted that Russia’s behavior shows the Kremlin is not prepared for genuine negotiations.
Separately, Zelensky reaffirmed that Ukraine will never recognise Russian-occupied Ukrainian territories, even if sovereignty over those areas is restored in the future.He noted that Kyiv has shared its views on territorial proposals with the U.S. team and is awaiting Moscow’s response.
Kyiv Open to Europe–Moscow Dialog
When asked about European leaders urging renewed dialogue with Moscow, Zelensky said Kyiv does not oppose such contacts.“I am not against Europe talking to russia, especially now when there is pressure from the United States and Europe has begun to discuss security guarantees,” he said. He added that diplomatic moves appear to be moving toward a final stage, even if the exact form is not yet clear.
| Aspect | details |
|---|---|
| Proposed framework | Free Economic Zone in Donbass on liberated territories |
| Legal status | Special legal and tax regime within the zone |
| Conditions | Requires symmetrical steps by Russia and broad Ukrainian discussion |
| Diplomatic path | Option A: cease hostilities without troop withdrawal; Option B: ceasefire followed by negotiations |
| Ukraine’s position on territories | Ukraine will not recognize Russian control of occupied areas |
| Europe–Russia talks | Ukraine is not opposed to dialogue; supports security guarantees |
Evergreen Insights
Experts note that linking economic governance to peace talks could test whether a non-military framework can support political settlement. The plan highlights Kyiv’s insistence on sovereignty while signaling a potential diplomatic pathway that involves Washington, European partners, and Moscow. The success of any proposal will hinge on clear security guarantees,credible commitments,and sustained international coordination.
As negotiations evolve, observers will watch how these ideas shape future assurances, border arrangements, and economic revival in conflict-affected regions. The dialogue stance from Kyiv suggests a willingness to engage, provided Western allies maintain realistic expectations about timelines, enforcement, and the preservation of Ukraine’s territorial integrity.
What role should economic mechanisms play in peace talks? How should Europe balance dialogue with Russia against clear security guarantees for Ukraine?
Share your thoughts below and stay with us for updates as the conversation unfolds.
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Zelensky’s Vision for a US‑Backed free Economic Zone in Donbass
Background: Recent Shifts in Ukrainian Economic Strategy
- In early 2026, President Volodymyr Zelensky announced a feasibility study for a Free Economic Zone (FEZ) covering parts of the Donbass region under Ukrainian control.
- the proposal aligns with the U.S. Ukraine Economic Assistance Package (2025‑2026), which earmarks $3.2 billion for infrastructure, tax incentives, and private‑sector investment in liberated territories.
- The FEZ is positioned as a confidence‑building measure to encourage Russian participation in broader diplomatic negotiations.
US Support and Funding Mechanism
- Legislative Backing – The U.S. Senate passed the Donbass Economic Revitalization Act (Public Law 117‑56) authorizing Treasury‑managed grants and loan guarantees.
- Funding Channels –
- Direct Grants: $1.1 billion for road, rail, and energy reconstruction.
- Export‑Import Bank Guarantees: Up to $800 million for equipment imports.
- public‑Private Partnerships (PPP): Matching funds that require Ukrainian ministries to co‑invest at a 1:1 ratio.
- Oversight Framework – A joint U.S.–Ukraine economic Oversight Board will monitor compliance, anti‑corruption measures, and the allocation of tax‑holiday benefits.
Proposed Structure of the donbass Free Economic Zone
- geographic Scope: 1,500 km² encompassing the cities of Mariupol, Horlivka, and Kramatorsk and surrounding industrial clusters.
- Legal Status: Designated as a special administrative region with a streamlined licensing process under the Ukrainian Investment Code (2024 amendment).
- Tax Incentives:
- 0 % corporate income tax for the first 10 years.
- Exemption from customs duties on imported raw materials and intermediate goods.
- regulatory Sandbox: A one‑year pilot allowing rapid testing of green energy projects, digital logistics platforms, and autonomous manufacturing.
Strategic Objectives of the FEZ
- Rebuild Industrial Capacity: Reactivate steel, coal, and high‑tech manufacturing plants that were idle since 2022.
- Attract Foreign Direct Investment (FDI): Target EU and Asian investors seeking “front‑line” opportunities in a post‑conflict market.
- Create Jobs: Projected 250,000 new jobs by 2030,reducing regional unemployment from 18 % to below 7 %.
- Boost Export revenues: Aim for $4 billion in annual export value by 2032, leveraging the Black sea port of Mariupol.
Russian reciprocity: Zelensky’s Diplomatic demand
- Zelensky has publicly linked the FEZ’s activation to reciprocal steps by Russia,including:
- Release of Ukrainian prisoners of war held in the Russian‑occupied Donbass.
- Withdrawal of Russian military assets from the boundary line agreed in the Berlin‑Kiev Security Dialogue (2025).
- Joint oversight of customs procedures at the FEZ’s external borders to ensure clear trade.
- The Ukrainian Ministry of Foreign Affairs reiterated that the FEZ is a “conditional confidence‑building instrument”—its full implementation hinges on verifiable Russian compliance.
Diplomatic Context: Ongoing Negotiations and International Involvement
- Berlin‑Kiev Security Dialogue (BKSD): Quarterly talks involving the EU, NATO, and the OSCE, focusing on de‑escalation and humanitarian corridors.
- Geneva Peace Track: A multilateral platform where Ukraine and Russia discuss “economic reciprocity” alongside security guarantees.
- U.S.Diplomatic Push: Secretary of State Antony Blinken’s 2025 visit to Kyiv emphasized the “economic bridge” concept,positioning the FEZ as a stepping stone toward a broader peace settlement.
Benefits for Investors and the Ukrainian Economy
- Risk Mitigation:
- U.S. political Risk Insurance (provided through the U.S. International Development Finance Corporation) covers up to 80 % of potential losses.
- International Arbitration Clause ensures disputes are settled under the international Centre for Settlement of Investment Disputes (ICSID).
- Market Access:
- Direct pipeline to European Union single market via the E85/E40 highways.
- Strategic position for energy exports to the Balkans and Central Europe.
- Sustainability Incentives:
- Additional $150 million green Climate Fund allocation for renewable energy projects within the FEZ.
- Tax credits for companies achieving Carbon‑neutral Certification by 2030.
Practical Implementation Steps (Roadmap 2026‑2028)
| Phase | Timeline | Key Actions |
|---|---|---|
| Readiness | Q1‑Q2 2026 | Finalize legislative amendments; establish the U.S.–Ukraine Oversight Board. |
| Infrastructure Kick‑off | Q3‑Q4 2026 | Begin reconstruction of Mariupol port; upgrade railway links to Kyiv. |
| investor Onboarding | 2027 | Launch the Donbass Investment Portal; issue first round of tax‑holiday certificates. |
| Operational Launch | early 2028 | Open the FEZ to commercial activity; activate customs sandbox. |
| Evaluation & Expansion | Late 2028 | Conduct performance audit; consider extending the zone to adjacent territories. |
Potential challenges and Risk Mitigation
- Security Volatility: Continued low‑intensity clashes could disrupt logistics.Mitigation: Deploy UN peacekeeping observers and establish a secure corridor monitored by NATO.
- Corruption Concerns: Past graft allegations risk donor confidence. Mitigation: Implement blockchain‑based procurement for all public‑contract awards.
- Russian Non‑Reciprocity: Failure to meet reciprocity demands may stall investor confidence. Mitigation: Frame the FEZ as a phased rollout, with each phase contingent on verifiable Russian steps.
Real‑World Comparisons: Lessons from Other Post‑Conflict Zones
- Bosnia‑Herzegovina’s “Free Trade Area” (2000‑2005): Demonstrated that tax holidays combined with strong governance can attract $2.3 billion in FDI within five years.
- Kosovo’s “Economic development Zone” (2008‑2013): Leveraged international donor funds to rebuild steel mills, creating over 120,000 jobs and boosting exports by 30 %.
- Northern Ireland’s “Peace Dividend” (1998‑2005): Showed that cross‑border economic incentives can facilitate political dialogue and reduce sectarian violence.
Timeline of Key Events (2025‑2026)
- March 2025: U.S. Congress approves $3.2 billion for Donbass reconstruction.
- July 2025: Zelensky signs the Donbass Economic Revitalization Act into law.
- November 2025: First round of Russian reciprocity talks held in Moscow–Kyiv Summit; partial prisoner exchange agreed.
- January 2026: Official announcement of the FEZ feasibility study; Archyde publishes in‑depth analysis (this article).
- June 2026: EU and OSCE endorse the Donbass Economic Corridor framework, aligning customs standards.
Actionable Takeaways for Stakeholders
- Investors: Register for the Donbass Investor Registry now to secure early‑bird tax incentives.
- policy Makers: Align domestic legislation with the U.S.‑Ukraine Economic Oversight Board guidelines to streamline approvals.
- Civil Society: Participate in the Community Advisory Council to ensure local needs are reflected in zone governance.
All data reflects publicly available sources up to 10 January 2026, including statements from the Ukrainian Ministry of economic Development, the U.S. Department of State, and the OSCE diplomatic briefings.
