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Ukraine-EU Agreement: How Beneficial is Ukraine-EU Agreement?

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Ukraine-EU Agreement: The agreement on the association of Ukraine with the European Union (EU), generated heated debate around the world. Its ratification by 28 EU countries took more than three years. After the majority of the inhabitants of the Netherlands voted against association with Ukraine in the spring of 2016, it seemed that the agreement would not become a reality at all. Only a year later, in May of this year, the Hague finally gave the “go-ahead” to ratifying the document, but first forced Brussels to accept a statement that the association agreement is not at all a pledge of Kiev’s entry into the European Union, does not provide Ukraine with security guarantees, does not provide financial assistance and does not give Ukrainians the right to live and work in the EU. Nevertheless, in Kiev, the Ukraine-EU Agreement is called a victory on the road to Europe.

“On September 1, we will have a holiday not only because the children will go to school,” said the president of Ukraine Petro Poroshenko the other day. “On September 1, the key political document for our state – the Association Agreement with the European Union comes into force.”

Ukraine-EU Agreement: Expensive Deal?

For the pact on the Ukraine-EU Agreement, Ukraine paid a large price. Because of the refusal in 2013 of Viktor Yanukovych, who then held the post of president, to sign this document in Kiev, the opposition began to speak, known as “euromaydan”, which led eventually to a coup d’état in the country. The culmination was the events in February 2014, when more than 80 people were killed in the Ukrainian capital and hundreds were injured. Among the dead were both protesters and representatives of law enforcement bodies, in particular, fighters of the special unit “Berkut”. Another 20 wounded died later in hospitals.

Yanukovych and many members of the government were forced to leave the country. Inhabitants of Crimea on March, 16th at a referendum voted for reunification with Russia, and in Donbass, the civil armed conflict which lasts till now has begun.

Almost immediately after the coup, in March 2014, the then-Prime Minister Arseniy Yatsenyuk signed the political part of the association agreement with the EU. It proclaims human rights and fundamental freedoms, respect for the rule of law, respect for the principles of sovereignty and territorial integrity, inviolability of borders and independence. The economic block of the agreement with the heads of state and government of 28 EU countries was signed by the newly elected President Petro Poroshenko in June 2014.

On January 1, 2016, the Ukraine-EU Agreement on a Deep and Comprehensive Free Trade Area (FTA) entered into force. The document is part of the agreement on the association of the EU and Ukraine.

First Disappointment: Ukraine-EU Agreement

However, the hopes that Ukrainian producers had for the possibility of entering the European market, with the signing of the association agreement, clearly did not materialize. The free trade zone, which the authorities advertised, turned out to be not so free. Within the framework of the FTA, the European Union imposed restrictive quotas for Kiev on 36 types of products that Ukraine can sell without paying a fee. After the quota volume is selected, import duties are introduced.

In theory, the association agreement itself eliminated 97% of tariffs on Ukrainian goods. The average tariff for Ukrainian exports fell from 7.5 to 0.5%. Such preferences, in the opinion of Kyiv economists, could well compensate for the severing of ties with Russia, which is painful for the Ukrainian business.

But the bright prospects began to melt in the first months. The European Union has tried to protect its producers to the maximum. Literally for a month and a half since the start of the free trade zone, Ukraine has exhausted the limits of the supply of honey, juice and corn to the European Union. The quotas for sugar, barley and flour were over. The latest limits were closed in May, including the supply of wheat, Ukraine’s most important export commodity. In a year the country shipped more than 30 million tons of grain abroad. The European Union also allocated Kiev a quota of only 950 thousand tons.

Following the results of the first quarter of 2017, Ukraine, according to the government, again fully chose the annual quota for duty-free exports to the EU of six categories of goods: honey, sugar, cereals and flour, processed tomatoes, grape and apple juice and corn. As of the beginning of April, a half-year quota for duty-free export of butter and a quota for poultry meat for the second quarter was fully used. In addition, a quota of wheat exports was used for 86% and wheat malt and wheat gluten were 74%.

However, this year, because of trade sanctions against Russia, the Council of the European Union adopted a series of temporary autonomous trade measures in favour of Ukraine, which should enter into force in September and will be applied within three years. The provisions are aimed at improving the access of Ukrainian exporters to the EU market. According to the Ministry of Economic Development, the provision of additional quotas will allow in the short term to increase exports to the EU by $ 200 million, and this is an additional GDP growth of 0.2%.

Ukraine-EU Agreement – Compensation? 

Most experts today acknowledge that there has been no compensation for the disruption of trade ties with Russia. But there is a real and serious decline in the total volume of Ukrainian exports – by around 8%. At the same time, exports to Russia fell by 28.5%, while the EU accounts for only 37.3% of total Ukrainian exports. IIt is also noteworthy that the share of duty-free trade with the EU is currently only 10%, and with the CIS countries, this figure still reaches 20%, although it went down in 2016.

And although the volume of European exports to Ukraine as a whole also did not grow very much, Europe did not miss its own. This is evidenced by a significant negative balance of the balance of foreign trade of Ukraine with the European Union. According to the State Statistics Service, the volume of exports to 28 European countries reached $ 15.9 billion in 2016, but imports from there amounted to $ 18.1 billion.

“We noticed some revival in the export of Ukrainian goods in 2016. But it should be noted that this growth is noticeable only in comparison with 2015. Compared with, for example, the similar situation in 2013, the export of Ukrainian goods to the EU markets has significantly decreased,” says Executive Director of the European Business Association Anna Derevyanko.

Economists explain this by the fact that, first of all, the share of export of products with higher added value decreases. In the goods supplied by Ukraine to the European market, raw materials and semi-finished products take an increasing share. At the moment, more than 40% of Ukrainian exports are made by agrarian products.

“In world practice, no raw country has become rich.” To improve the situation, it is important for us to develop industry, including processing, “the expert stressed.

Ukrainian products not allowed to Europe

The Minister of Agrarian Policy and Food Taras Kutovoy believes that Ukrainian agricultural products are too competitive in the European Union market, so they do not allow it. “Our production costs are very low, therefore Europe really puts maximum barriers to prevent Ukrainian products from entering there,” he said.

He criticized the EU position on the allocation of export quotas to Ukraine and one of the richest people in the country, the owner of the agricultural holding Myronivsky Hliboproduct Yuri Kosyuk. “The free trade zone, which is very much promoted, is a deception of Ukraine.” There was no opening of the markets, “the businessman said.

He argues that with the accession of Ukraine to the free trade zone with the EU nothing has changed. “I think that we are deceived.” To export foodstuffs from Ukraine, catastrophically large restrictions or quotas are established, “says Kosyuk.

Viktor Medvedchuk, the leader of the public movement “The Ukrainian Choice – The Right of the People,” repeatedly stated that the association agreement benefits only the European side. In his opinion, the agreement does not even bring Ukraine closer to the “European family”, but it provides for a lot of obligations and restrictions.

“Having a small quota, the country exports agricultural raw materials to a large extent, while losing the markets of the EEA, Ukrainian exporters broke off cooperation ties in the high-tech sectors of engineering, shipbuilding, rocket and space, aircraft construction and instrumentation,” Medvedchuk said. The politician is convinced that only the restoration of trade and economic ties with the Russian Federation will lead to Ukraine’s economic success.

Ukraine-EU Agreement: Does Europe need Ukrainian Technology?

The well-known Ukrainian economist, ex-minister of economy Viktor Suslov acknowledges that the disruption of industrial and scientific ties with Russia led to the loss of prospects for many unique Ukrainian enterprises and technologies. As an example, he calls Zaporozhye “Motor Sich” – the largest enterprise that produced engines for all Russian helicopters, many types of aircraft and cruise missiles. When Ukraine imposed restrictions, Russia spent several years and multi-billion dollars but created its own engine production.

“At the same time last year the whole aircraft manufacturing industry in Ukraine produced as much as one plane,” Suslov said sadly.

The second example is the Nikolayev enterprise Zarya-Mashproekt, which supplied ship engines for the Russian Navy. After the breakup of relations in Russia, an entire branch of ship propulsion engineering was created, inviting many specialists from the same Nikolayev to join.

“And now they no longer need Ukrainian engines, so what did Ukraine gain by losing markets for high-tech products and not finding new ones? Having lost billions of dollars in export revenues, hundreds of thousands of jobs and thousands of unique, highly qualified specialists?”

According to him, these enterprises can not supply products to the EU, as their technological processes do not comply with European technical regulations and standards. “To convert them to European standards and modernize, we need huge investments, which Ukraine does not have, and the West will never invest them because it has similar manufacturers and does not need competition in high-tech areas,” Suslov believes.

Ukraine-EU Agreement: But Russia is Largest trading Partner

Paradoxically, according to the State Statistics Service, Russia remains the largest importer of Ukrainian goods among all countries (9.4% of total exports in the first half of 2017). It is followed by Turkey and Poland – by 6.1%, Italy – 5.7%, India – 5.5%, Egypt – 5.3%.

In the first half of this year, Ukraine increased exports of goods to Russia by 26.4%, to $ 1.93 billion, while imports grew by 41.5%, to $ 2.99 billion. As a result, the trade balance of Ukraine with the Russian The Federation in the first half of 2017 also turned negative and amounted to more than $ 1 billion. At the same time, the balance of trade in services in the first half of the year was positive: exports of services to the Russian Federation for the period increased by 11.7% to $ 1.645 billion, and imports – by 17.6%, to $ 208 million.

Ukraine-EU Agreement: What’s Next?

Thus, as experts say, Ukraine’s foreign trade in monetary terms in 2016 did not show a positive result. In 2017, there are no obvious prerequisites for changing the trend either. In these conditions, analysts believe, Ukraine’s economic success will largely depend not only on the business’s ability to quickly reorient itself to European standards but also on the capabilities of the country’s leadership and producers themselves to ensure the release of Ukrainian goods and services to other promising markets. Thus, the Deputy Minister of Economic Development and Trade, Ukraine’s Trade Representative Natalia Nikolskaya, believes that it is critically important for Ukraine to intensify the establishment of mutually beneficial relations with the countries of Asia, Africa and America.

 

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