The EU-Ukraine Association Agreement regarding political cooperation, issues of security and tackling terrorism was inked on March 21, 2014. The signing of the economic section took place three months later – on June 27, coming into effect from January 1, 2016. It specified such issues as access to markets, energy trade, collaboration in agriculture, transport, metals industry, space, scientific studies, and others.
“Free trade zone Ukraine”-EU is the main mechanism for implementation of the economic part of the Agreement. The free trade zone framework is used for liberalization of trade both in goods and services, and for ensuring a gradual integration of the Ukrainian economy into the EU domestic market. For the sake of that free trade zone, Ukraine has opted out of participating in the CIS free trade zone. What are the results of the three-year integration?
Relying on Ukrainian media, everything is fine. The country’s foreign trade turnover has been rapidly refocusing towards cooperation with the European Union as in 11 months of 2018, exports to EU and NATO countries reached almost half of all export. Previously export-import transactions were primarily east-oriented, whereas now an increasingly large number of goods cross the western border. The trend should make nationalists happy, but it has not yet had a positive effect on the life of common citizens and businessmen. Though in percentage terms, Ukraine sells more goods to the EU than to Russia, there are numerous nuances, which, if becoming public knowledge in Ukraine, would rouse indignation even among its public-spirited population groups.
Probably, they induced the deputy of the Ukrainian Verkhovna Rada Viktor Bondar to blame the European Union for deceiving Ukraine when making trade contracts on the TV channel NewsOne on December 14, 2018. He claimed: “Europe has swindled us on economic agreements. It provided us with quotas on supplies of our goods to Europe, which Ukraine exhausts during first two-three months each year.” He added that Europe restricts the country’s ability to create a competitive industry, forcing it to buy its goods.
Statistics show that the main goods supplied from Ukraine to the EU in 2016-2018 were: non-precious metals: including ferrous metals (circa 23% of export), plant products (cir.18%), finished food products (cir.7%), animal/vegetable-based fats and oils (cir.10%). Even public-spirited Ukrainian media outlets believe that the percentage of low value-added raw and semi-processed materials (almost 60%) is too high in exports to the EU. Among Ukrainian imports from the EU are industrial vehicles, equipment and mechanisms (over 20%), transport vehicles, aircraft and ships (cir.12%), cars and other types of overland vehicles (8%), household appliances and mass-market goods.
Consequently, Ukraine exports cheap raw materials to the EU and imports expensive machines and equipment, mass-market goods, which is why no wonder it is running an increasingly negative trade balance with the EU. In 2017, it amounted to $5.2 bln, a two-fold increase compared with 2016. Meanwhile, the withdrawal from the treaty on a free trade area with the CIS resulted from the economic section of the Association Agreement entering force pushed annual export revenues down by around $30 bln per annum, while expanded supplies of raw materials to Europe have not been able to offset even part of losses related to withdrawal from the Russian market.
Moreover, in the first quarter of the year it exhausts almost all main and additional quotas provided by the EU in accordance with the Agreement. Thus, in almost two weeks in January 2018, Ukraine took up all main and extra quotas on export of wheat, corn, honey and a few types of juice.
The Agreement stipulated that European standards of product safety control will be introduced nation-wide. It was suggested that by adjusting the quality of products to the European level, the Ukrainian business will open up new markets for itself, while the cancellation of costly certification for products with confirmed European safety standards will make production more profitable. However, the EU drags its heels on confirmation of its compliance with European standards and, as Viktor Bondar assumes, deliberately curbs exports from Ukraine, which results in the fact that no competitive manufacturing is emerging on the country’s territory. That said, the deputy notes, Brussels compels Kiev’s authorities to purchase its high-tech goods.
As for preferences for businesses, indeed, there have been various tariff rates reductions for Ukrainian producers. However, as it turned out, non-tariff restrictions stemming from the consumer rights protection clause are essential for trade development. Let me throw that out. Ukraine produces 1.2 mln tonnes of chicken meat per year, while the tax-free quota of supplies to Europe only stands at 16,000 tonnes. On top of that, 20,000 tonnes of whole frozen chickens that do not meet a huge demand in Europe, can be imported duty free. Everything beyond the quota is liable to a duty of over 1,000 euro per tonne.
As a result, virtually the free trade zone only applies to one side – Europe as Ukraine has a lot of exceptions and restrictions for export of Ukrainian goods to the EU. Europe has firmly protected its own interests, while Ukraine has lost. The economic environment of the past three years has made it clear that Brussels will not challenge its producers for the sake of a foreign country, even if it is as politically complimentary as Ukraine, and Ukraine cannot offer the Europeans anything they have not yet obtained. That state of affairs is likely to persist in the future as well. To sum up, de-industrialization of Ukraine is underway, while the losses from reduced trade with Russia still seriously outweigh those benefits that Ukraine won as a result of expanding trade with Europe. All in all, nothing to boast about.
When signing the Agreement, Kiev pinned hopes not only on substantial economic and trade preferences, it also expected a multi-fold growth of investment from the EU. The leadership of the EU has repeatedly claimed that for doing that Kiev should get rid of a skyrocketing level of corruption in the country and tidy up legislation for enhancing its investment climate. But even today, three years after the economic part of the Agreement entered into force, the Ukrainian authorities are not ready for that, which means that the hopes of the Ukrainians in this area are also fated to fail so far.
Everything mentioned above are economic realias. Then what prompts deputies to make such bold statements? They virtually attest to the fact that after the Euromaidan nobody has wondered whether the Agreement’s signing is really profitable for Ukraine, nobody has examined in depth the Agreement itself with regard to trade and assessed the consequences, particularly among those who actively supported its signing. The opinions of many experts that its implementation will provide an open access for European goods to the Ukrainian market directly have been ignored. Kiev hoped to open European markets for locally made products, though Brussels and the European business had goals diametrically opposed – to sell maximum of European products in Ukraine. Even the EU loans provided to Ukraine in fact pay off handsomely for the European Union thanks to that Agreement.
The signing and ratification of the Agreement are set to bring Ukraine to the first level of European integration out of seven, laying a distant groundwork for accession to the EU. But estimating the Agreement from those positions, the editor of the British newspaper The Times Roger Boyes noted that the EU is cynically deceiving Ukraine and only pretending that it wants to see it among its members. In fact, it only offers Ukraine an agreement similar to that already signed with Turkey in 1964.