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EU-Ukraine free trade zone as nonequivalent trade exchange

Author : Oleksandr Okhrymenko

13:04, 29 September 2017
EU-Ukraine free trade zone as nonequivalent trade exchange

Author : Oleksandr Okhrymenko

Before launching FTA, Ukraine was selling more goods to the EU than now. Ukraine does not want the EU to perceive it only as a supplier of cheap raw materials

13:04, 29 September 2017

Read the original text at 112.ua.

EU Ukraine
112 Agency

In 2014, Ukraine has signed the Association Agreement with the EU. The free trade zone between Ukraine and the EU was launched on January 1, 2016. So who has received more benefits from the creation of a free trade zone, Ukraine or the EU?

In January-July of 2017, Ukraine has exported its goods to the EU at the amount of $ 7.6 billion, which is 27.6% more than in the same period in 2016. Although, compared with January-July 2013, the export of goods from Ukraine to the EU fell by 7%. It turns out that before launching the free trade zone Ukraine was selling more goods to the EU than now. Why?

Related: First year of EU-Ukraine FTA: key results

Most of all, Ukraine sells its goods to Poland, Germany, Holland, Italy, Spain. Poland is a leader in terms of purchasing Ukrainian goods. The export of goods from Ukraine to Poland grew by 25.7% in January-July of 2017 compared to the same period last year. Even in comparison with January-July 2013, Ukraine's exports to Poland grew by 4%. About 6.1% of the total export of goods of Ukraine falls on Poland. Russia is in the first place - 9%. Creation of a free trade zone between Ukraine and the EU really ensured the growth of trade between Ukraine and Poland. Poland's import to Ukraine increased by 30.4% in January-July of 2017 compared to the same period last year, and by 12% compared with the period January-July 2013. The share of Poland in the total import of Ukraine is 6.8%, and this is the second indicator after Russia.

Related: Ukraine-Canada FTA is window of colossal opportunities for Ukrainian business, - Poroshenko

Indeed, creation of a free trade zone between Ukraine and the EU has become mutually beneficial for Poland and Ukraine. In addition to Poland, Ukraine's trade with Spain, Holland, and Germany is developing successfully. But Ukraine's trade with France declined after the creation of a free trade zone. A similar situation is observed in the countries of Scandinavia. Some EU countries do not try to take advantage of the free trade zone with Ukraine. We can say that two groups of countries have formed in the EU: countries, which are interested in trade with Ukraine, and countries that are not interested in trade with Ukraine. This significantly complicates the functioning of the free trade zone between Ukraine and the EU.

Related: Ukraine lost 1 billion of dollars of export in 2016 due to Russian trade aggression

Ukraine is EU’s biggest maize, pig iron, semi-finished ferrous metals, and sunflower oil supplier. The share of ready-made food products, machinery products is very little in Ukraine’s export to the EU. In fact, Ukraine mainly exports raw materials to the EU, while the main imports from the EU to Ukraine are engineering products. This is not always a fair trade. Ukraine does not want the EU to perceive it only as a supplier of cheap raw materials. The economy of Ukraine can do more for the EU economy, but for this, the EU needs to do more for Ukraine.

Since 2010, Ukraine has been supplying household appliances to the EU, assembled from components of European companies. The Ukrainian light industry is 80% loaded with orders for clothing for European brands. Ukrainian companies supply furniture, machine parts and electrical wires to Poland, Germany and other EU countries. This already worked before the creation of a free trade zone. Ukrainian business expected that the creation of a free trade zone will stimulate the development of production cooperation between Ukraine and the EU, and Ukraine will be able to supply more manufactured goods to the EU, and not just raw materials. Ukraine successfully sold to pig iron and corn and without a free trade zone.

Related: 37% of Ukrainian economy in shadow, - Ministry of Economic Development

It is clear that European business has its own interests in Ukraine, but these interests do not always coincide with the interests of Ukrainian business. And this creates problems for the development of a free trade zone between Ukraine and the EU. Ukrainian Deputy Economy Minister, who is responsible for Ukraine's integration with the EU, recently stated that he considers it necessary to rewrite the Association Agreement between Ukraine and the EU. This is very difficult. It is unlikely that EU countries will again want to revise the terms of the free trade zone. But Ukraine cannot develop trade relations with EU countries without fair trading conditions. The times of euphoria from the creation of a free trade zone have passed, now more and more Ukrainian business is critically looking at the association with the EU. It is necessary that the EU take the right steps towards Ukraine. If these steps are not taken, the first successes of the free trade zone will be the last.

Related: Growth or illusion: How to assess Ukraine's economic policy?

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