Blockade of Russia will cause $ 450 mln fall in exports

Author : Pravda Economichna

Respondent : Natalia Mykolska

Source : 112 Ukraine

European products began to replace Russian market, consumers do not buy Russian even if it is cheaper - expert
14:15, 4 February 2016

News of Ukrainian foreign trade were "headlining" the last days of 2015 and first days of 2016. Expected start of FTA with EU trade and restrictions from Russia... That is why Yevropeiska Pravda decided to start the new year with the publication of an interview with Ukraine’s sales representative Natalia Mykolska.

What has changed since 1st of January?

What really changed with the beginning of the FTA?

First of all, we began to live as we decided, and to go the way we have chosen. We began to live in the first year of the agreement, respectively, we began meeting all obligations set by the EU, including the further liberalization of trade conditions.

European goods can now enter the market of Ukraine at a zero rate of import duty; the certificate of origin for exports to the EU does not provide Ukrainian producers Chamber of Commerce, but the State Fiscal Service, and does it for free.

Ukrainian market is opened to European goods. Are there any estimates how much it will affect competition and prices?

There are two estimates, done by National Bank and by us. According to them, the opening of the EU market will slightly influence due to several factors.

The first is devaluation of hryvnia. Ukrainian products will still remain much more competitive.

And the second reason is that European products began to replace Russian market through the preferences of consumers. People choose European goods rather than Russia, even though Russian products are cheaper. And this year also the balance of Russian products disappear. Most of European goods imported were imported, like Russian ones, with zero duties (while Russian become more expensive because of new taxes).

Speaking about the impact on consumers, then, of course, it will be more choices. The interesting thing is that our manufacturers who buy raw materials for us, objectively also will be able to buy cheaper. After starting the FTA with the EU production cost would reduce in a number of sectors, which will make our products more competitive in the Ukraine and in export markets.

After launching FTA European business will start to invest in Ukraine. Are you aware of the following specific suggestions?

Of course, there is an interest from European business, and companies from third countries.

Related: Brussels to stop negotiations with Moscow on EU-Ukraine DCFTA, - Malmström

After launchingFTA businessmen and investors had some certainty regarding the trade regime with the EU, non it is possible to predict business processes are not per year, but for five or seven years. Now businessman can build his investment plan and understand the expectations.

Previously, European companies said that their rules are not clear: how we trade with the EU, and how we trade with Russia. Now the situation is clear.

Therefore, we still expect to increase investment in Ukraine with the European Union. Our market is great, but in any case for large-scale projects it is considered only in conjunction with export markets.

We expect additional investments in existing production in Ukraine, especially from investors who are present here. This is our first priority investor, the so-called "new old" investor.

For them, the situation with exports to the European Union market is clear. We expect not only to expand production of products that they have produced in Ukraine. Generally, large multinational companies have multiple profiles work. They can increase production on existing in Ukraine account or open a new account.

FTA with the EU is an additional factor for attracting investments in production, processing and logistics capacity.

Trade war with Russia

Are there any specific plans for investors already know to the government?

Ministry knows the investors who view the output on Ukraine, but no one to announce the conclusion of appropriate agreements. For example, last year, investors need to speak frankly, expect several things: macroeconomic stabilization, tax reform and clarity that we will be with FTA and trade with Russia. That is, they mostly or studied the situation in Ukraine, or have studied the possibilities of restarting the frozen projects.

But we will not have FTA with Russia. How will this affect?

It will not have a significant impact on new investments, but it will affect those projects in which Russia was seen as a priority or a significant market for exports.

Related: Ukrainian export: all hope goes for agriculture

However, over the last two years the Russian market is not premium and interesting. It ceased to be a premium, as purchasing power falls considerably in Russia in the context of the economic situation in the country (of course, because of falling oil prices).

And the second point: the Russian market is not predictable. Foreign investors realize that their exports to the Russian Federation might be terminated at any time by any politically motivated decisions. But, of course, many companies with foreign investments, especially multinationals, have to change or the supply chain of raw materials, or view as the geography of sales.

How would Russian embargo influence on our exports?

There is a potential loss of direct restrictions, but there are also indirect risk of loss and additional restrictions may introduce Russia. We can face complicated transit through Russia to Asia: Kazakhstan, Azerbaijan, potentially - to the northern regions of China.

It is definitely an additional impact on our exports, but we must remember that this loss is impossible to estimate. It is not clear whether all exports would be stopped.

Is there a direct reason to expect that exports will be limited? Has Russia said about it?

Russian Federation does not adhere to rules and regulations.

We have information from our Belarusian and Kazakh partners that Russia limits the number of crossing points for goods and considers the special regime of movement through their territory of road. On the railways, there is still no information even from our colleagues. So we really expect to have problems with transit.

What about the loss of their own restrictions on exports?

Preliminary assessment predict some $ 600 mln.

And given the dynamics of the fall in exports in 2015 (among other things, Russia imposed restrictions on certain goods), we are talking about approximately $ 450 mln. It should be understood that Ukrainian goods will still be present on the Russian market.

Even food?

Here the situation is different: goods that come under embargo disappear from the market. But not all food groups are prohibited. Another question is whether we are interested to deliver them.

But industrial production, exports to Russia are still performed. After all, there are manufacturing processes which are impossible without Ukrainian parts, and some of our other industrial products will be very competitive.

You said that Kazakhstan and Belarus do not support Russia's restrictions. However, high-level positions in these countries are very careful ...

Last position of Belarus was expressed by the Deputy Prime Minister Vladimir Semashko. They see no reason to go to the CIS free trade zone, and believe that restrictions should be imposed only in accordance with the rules of our agreement.

Let's look at our balance of trade with Belarus.Their approach is quite pragmatic. Belarus has trade surplus with us. If they freeze FTA with Ukraine to whom will they sell their products?

They prefer to explore the issue of imports from Ukraine and see if they will not sharp rise in imports after the entry into force of our FTA with the EU. However, we have agreed on regular consultations on increasing bilateral trade and implementation of our FTA (they are also looking for new opportunities to enter the EU market through industrial cooperation with Ukrainian companies).

Related: 10 Ukrainian milk companies allowed exporting products to EU

Second, for Kazakhstan, which is a member of the World Trade Organization. I think that Kazakhstan as a new member of the WTO is not interested in the fact that we have now raised the issue in the WTO regarding the illegality of its actions.

Another aspect is that Kazakhstan recently signed EU-depth cooperation agreement. In addition, we have a good dialogue with them. Again, Kazakhstan potentially considering Ukraine as a platform for investment in production capacity and exports both in Kazakhstan and, most importantly, to the territory of the EU.

The complaint to the WTO against Russia

When would be our request to the WTO dispute with Russia over the embargo and rejection of the free trade regime?

Let's talk about free trade zone: this is an agreement that is not part of the WTO.

Only WTO sets the rules and principles to be followed in such agreements. We will say that Russia ignores even the standard rules.

It is theoretically possible to have appeal to the Authority to resolve disputes CIS. Does it make sense?

First, we had no disputes with CIS before.

But it is possible!

In theory, yes, but we have no mechanism for remuneration of arbitrators. There is no real mechanism for passing the disputes. In addition, there are big issues and on the legal consequences of a decision to be taken there, and for compliance with the Russian Federation. And we're going to sue not only in order to sue.

Why don’t we comply to the core body?

The question is not that we do not contested. The question is whether we challenge under a mechanism that works and that can have practical consequences.

We can challenge in the forum, which provided our international agreements and is deemed to work. The procedure for dealing with disputes within the CIS FTA agreement is not a prerequisite for applying for the consideration of our disputes in other forums.

I would like to talk about our sanctions. Are they effective? After all, we do recognize that Russian products are not in demand in Ukraine. That is, of course, that Ukrainian economic impact of sanctions will still be less than the Russian.

Russia is using the word "sanctions". We say that these are two types of countermeasures. The first is to increase tariffs. We raised them to all products originating from Russia.

Related: Three Ukrainian companies banned to export honey to EU

The second type is limiting imports into Ukraine of certain goods. When selecting these products, we proceeded with the volume of imports from Ukraine, Russia banned. We do not just have products mirror the Russian and Ukrainian, not just food. If you take a Russian food imports, then forbidden volume of imports from Russia amounted to only about $ 17-18 million.

And we have restricted imports of a wider range of food and raised here and even industrial products, soaps, gels, shampoos and rail products. These products can be substituted goods Ukrainian production or imports from other countries.

The majority of products that fell under countermeasures, were not produced by Russian but by international companies that have factories in Russia.

This statement is fully consistent with reality. We also had many products produced by Russian companies. And all the big multinational companies that produce these products in Russia, calm can change the supply chain and send us products to the EU duty-free treatment without losing sales. So I do not see the problem for multinational companies.

Similarly, multinational companies were also affected by the restrictions imposed by Russia. For example, not only Ukrainian companies produce cheese in Ukraine. We have Lactalis, Danone, many other companies. Ukrainian confectionary - this is not only domestic companies but also, for example, Nestle.


Support of export

Let us go back to FTA with EU. Do you think we are ready for it?

Think only about the distribution of quotas, issuing certificate of origin EUR-1 technical regulations, public procurement system update. We believe that in 2015 we did everything that was required to launch the FTA. That situation is more than positive.

Although some may be small "nuances". After all, when you launch new mechanisms may have some shortcomings, but it is not systemic nuances. We are in constant contact with the EU and verifies our vision. If they see a problem, we do not see, they have already signaled to us about them.

 Starting a free trade zone enables us to start talks on renegotiation of the regime. What can we demand?

Let's look at the economic impact of any of our negotiations with the European Union. We do not just have a dialogue for dialogue. It is important to get the most effect on any concessions that could provide the EU.

For example, we get an increase in quotas for certain goods for a thousand tons. What will it give in terms of growth of our exports? Does it give us so much as, for example, liberalization of a fee by one percent? This is an issue that shapes our negotiations with the EU.

We will talk to the EU for their support Ukraine in various forms. The EU is hard enough extensive network of third countries, which we can use. Therefore we need a comprehensive talk with the EU about how they can help us to increase our exports, and not only on the European Union market, but also to the markets of third countries.

And how they can help us?

Let's start with the simple things. We focus only on quotas. But the supply of goods for which quotas are not the bulk of our trade with the EU. More important question - out of more Ukrainian goods to the EU market. Importantly out those companies that are already in one of the EU countries to the markets of the other 27 countries. Also important is to attract investment to Ukraine by European companies.

In the European Commission there are mechanisms that can facilitate this. Starting from the special projects of technical assistance - to connect Ukraine to draft export promotion, which is the European Commission or the Member States.

We have started a dialogue on all cooperation schemes.

Now we talk about our specific requests prematurely. But in January, we planned a few dialogues in different formats. Also now we are talking about what we need to do more targeted technical and macro-financial assistance to increase exports from Ukraine.

Let's look objectively on exports from Ukraine. We need to increase export of value-added. While we export raw materials and semi-finished products, we any change in the price situation clearly affect the volume of our exports. We must focus on attracting investment in the production of goods with high added value, to facilitate access to the EU average business.

And what about free trade agreement with Israel and Turkey? Do you plan to start negotiations with other countries?

We had a round of talks with Israel. The next round are planned for May. We conducted round of talks with Turkey at the expert level, it was not a full round. But negotiations were scheduled in the first quarter of 2015. Negotiations do last.

We carry out a review of how and with whom we would be interested to start negotiations on a free trade zone. I believe that the actual export strategy should give us answers to questions. But we must remember that parallel negotiations with ten countries are unrealistic, and this is the wrong approach.

Related: 6 Ukrainian dairy companies export products to China

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