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Can Ukraine replace Russia with Poland in foreign trade?

Author : Oleksandr Okhrimenko

The latest data on Ukraine's exports for the first quarter of 2018 showed that the volume of Ukraine's exports to Russia is about 860 million dollars, and to Poland - about 820 million dollars. The difference is small. Is it really the time to replace the Russian market with the Polish one? Economists often like to talk about this, and not only economists. But let's see how real it is
19:31, 17 April 2018

Read original article at 112.ua

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Indeed, the volume of Ukraine's exports to Poland is growing, and is growing at an accelerated pace. The volume of Ukraine's exports to Poland exceeded the level of 2013, and continues to grow. An example of Ukraine's foreign trade with Poland clearly shows how it was necessary to use the Association Agreement with the EU so that it would have a positive effect, and not just talk about it as a "miracle." But the question immediately arises: how different is the structure of exports to Poland and Russia. Because simply replacing the volume of exports - it does not mean to give our company the opportunity to successfully compensate for the loss of the Russian market. Because we can see the situation when Ukraine cannot sell some goods to Poland without the Russian market.

First, let’s found out the structure of Ukraine's exports to Russia. About 19% of Ukraine's exports to Russia are ferrous metals, more precisely semi-finished products made of steel, rolled ferrous metals. Another 6% are products made of ferrous metals, these are, as a rule, products that are needed for construction. And what about Poland? About 16% of Ukraine's exports to Poland are ferrous metals, and about 5% of ferrous metal products. Most of all, Ukraine sells ferrous metals to Poland. So in this direction there are no problems. Indeed, for Poland it is profitable to buy Ukrainian products of ferrous metallurgy, especially as it is exempt from import and export duties within the free trade zone, and since Poland works in production cooperation with Germany and the Scandinavian countries, it needs and will be needed metal.

About 17% of Ukraine's exports to Russia is uranium ore. Therefore, Ukraine buys the fuel elements in Russia. By the way Ukraine is the largest buyer of such elements in Russia. Ukraine will not be able to supply this to Poland. This can only be supplied to Russia. Perhaps in the future it will be possible to agree and supply uranium ore for processing to France and the USA. It would be a good idea.

About 23% of Ukraine's exports to Russia are products of the chemical industry and petrochemicals. This is the production cooperation of Ukraine with Russia. Ukrainian companies receive raw materials from Russia for processing, and then after processing, most of them are exported to Russia, and some of the products to the EU, including Poland. Although the share of exports of chemical products from Ukraine to Poland is small. But in order for Ukraine to supply chemical products for export, it needs raw materials and, above all, from Russia. It will not be possible to replace this with the Polish market. And although it is not a trend to talk about this production cooperation in Ukraine, but in many respects this production cooperation is under the greatest risk, when certain radicals are calling to break off trade ties with Russia.

About 30% of Ukraine's exports to Russia are products of transport engineering and electrical equipment. In general, Russia was and remains the main buyer of our machine-building products, which is produced by Ukrainian plants. These are spare parts for locomotives, and engines, and transformers. In total, about 40% of Ukraine's exports to Russia are products of machine-building plants in Ukraine.

About 12% of Ukraine's exports to Poland are electric cars, and the share of this export is growing. Now the production cooperation of Ukraine and Poland is developing. Ukraine besides the notorious wires and cables supplies household appliances to Poland, from washing machines to irons. This is all the products of European companies, which Ukraine collects at its enterprises and delivers to the EU countries and to Poland. For the 1st quarter of 2018, the export of electric cars from Ukraine to Poland grew by 34% compared to the same period last year. Ukraine really can and should increase output in this direction. Maybe not so quickly, but Ukraine can compensate for the loss of the market for the sale of machine-building products in Russia. For the year 2017, Ukraine sold machine-building products to Poland for about $ 350 million, while Russia sold for much more than $ 600 million. There is a reserve, and you can really replace Russia with Poland if you increase sales of products to Poland. At the same time, we should not forget that Russia has recently been buying less and less Ukrainian machinery products. Therefore, one must be prepared that eventually Russia can in general prohibit the export of machinery products from Ukraine, as it did with food. In addition, it is desirable to focus not only on Poland, but more to supply engineering products to Germany, Hungary and other EU countries. By the way, the export of machine-building products from Russia to Germany is growing, although it is mainly wires and, again, household appliances.

About 11% of Ukraine's exports to Poland are iron ore. Russia does not buy ore from us; it produces a lot of it. Although it is raw materials, but for Ukraine it is a profitable supply, since in this case Ukraine has a large iron ore reserves and it is possible to increase its sales abroad. About 8% of Ukraine's exports to Poland are timber and about 8% is furniture exports. Poland needs our timber products, and it buys not only timber itself, but also furniture. Ideally, you need to increase furniture exports by reducing the exports of conventional boards. Russia practically does not buy furniture in Ukraine, let alone timber, since it is the world's largest exporter of timber.

It is difficult to replace the Russian market by the Polish market, but it is quite feasible if we increase the export of machine-building products and increase the supply of ferrous metals. It really will allow Ukraine to receive from Poland export income amount bigger than from Russia. This does not mean that it is necessary to turn off trade with Russia. Ideally, you need to trade with Poland and with Russia. But we need to take into account the fact that Russia conducts not only military, but also a trade campaign against Ukraine, so it is necessary to be prepared for all kinds of prohibitions and restrictions on Ukrainian products. And for this it is always good to have an alternative. But it is worth saying that it is unlikely to sell transformers or engines, which Ukraine now sells to Russia, to Poland. The market for  this product can be found in Asia, in part this is obtained, but so far it is very weak and difficult process. Machine building products are always difficult to sell, it's much easier to sell a ship with grain or a train of sunflower oil, or ship with iron. This is the reality of the world economy.

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