Main Ukraine's export problems after launch of free trade zone with the EU

Author : Oleksandr Okhrimenko

A big mistake of our government is that it is trying to increase sales of Ukrainian products to the EU by increasing quotas for duty-free trade. It will not solve the problem, and an increase of the quota will be a very little help to Ukrainian exporters
23:45, 11 January 2017

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On January 1, 2016 Ukraine has launched the process of creating a free trade zone with the EU countries. This process is long and would last for ten years, but on the basis of the past year results we can make a number of conclusions, about how properly Ukraine creates a free trade area with the EU. And we obtained interesting and informative results.

According to customs data for 2016, Ukraine has sold goods to the EU in the amount of $ 13.5 billion. (About 37% of Ukraine's export in the past year). Indeed, the EU is the main trading partner of Ukraine among groups of countries. If we compare countries separately, the situation is somewhat different. On the whole, in 2016 Ukraine's export to the EU countries increased by 4% compared to 2015. It is a very small amount, considering that in comparison with 2013, the export of Ukraine to the EU fell by 20%, or $ 3.4 billion. Ukraine has to make a lot more effort to compensate for this loss.

We can say that Ukraine is on the threshold of a long journey to conquer the EU market, which is not always friendly to Ukraine. Nobody likes competition, and we should not forget that the Association Agreement with the EU does not guarantee favorable conditions for Ukraine in the EU market. This agreement only gives us the opportunity to learn how to trade with the EU, and at the same time we should not forget that European companies are more interested in not buying Ukrainian products, but selling their products in Ukraine.

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During 2016, according to customs data, Ukraine has bought in the EU goods worth $ 15 billion. This is 10% more than in 2015. Ukraine’s foreign trade with the EU countries in the past has been scarce, and now the deficit is growing. And after the opening of Ukrainian market for European companies, this deficit will grow more and more. In this situation, it is important for Ukraine to have time to increase exports to the EU; otherwise there can be a situation when Ukraine is going to give more and more currency for European goods without receiving substantial exchange earnings for Ukrainian goods from the EU in return. It will be the trade in the EU's interests, not in Ukraine’s interests.

If you look at the structure of Ukrainian exports to the EU, it is evident that most of the Ukrainian goods purchases Poland - about 16% of Ukraine's exports to the EU. Second place occupies Italy with the index of 14%, and the third - Germany with the index of 11%. Ukrainian export to Poland in 2016 as compared to 2015 has increased by 11%. But here is also one alarming fact - the importation of goods from Poland to Ukraine has increased in 2016 by 18% compared to last year. About 16% of EU import to Ukraine comes from Poland. Ukraine becomes more and more integrated with the economy of Poland, but the trade remains deficit in favor of Poland.

And it is a fact. Ukraine sells to Poland a lot of iron ore, timber, semi-finished products made of metal, but is also buying a lot of finished products made of metal and polymers, as well as food and chemical products. But a more significant problem is the foreign trade of Ukraine with Germany, which is the main supplier of imported goods to our country in 2016. In many ways it is related to the fact that Ukraine buys a lot of imported cars, tractors and other machinery in Germany. At the same time, Ukraine supplies Germany with iron ore, wires and bearings. Therefore, the Ukraine’s deficit of foreign trade with Germany for 2016 amounted to about $ 2 billion.

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It is very important that both our business and our government understood that trade with EU countries is a good thing, but only in the way, as it is led by Turkey, which also has FTA and Association Agreement with the EU. Turkey sells a lot of food to the EU, as well as Ukraine does. But if Turkey sells a lot of fruits, Ukraine sells more of corn and sunflower oil. But apart from food Turkey supplies to the EU machinery, which is produced in the framework of industrial cooperation with European companies. It is unlikely, and we even can say it is futile for Ukrainian businessmen to try to enter the EU market with their trademarks and brands.

The EU market long ago has been divided between the major European transnational corporations, and no one is going to let Ukrainian businessmen in. But it is always possible to negotiate and to get an order for production of a particular product or some works for these European monsters. This makes it possible, if not to enter the EU market, but to supply products that can be sold in the EU market under the European brands. That's really the way that will compensate for the loss of Ukraine's exports to the EU after 2013 and even exceed this figure, thus benefiting from the Association Agreement with the EU.

A big mistake of our government is that it is trying to increase sales of Ukrainian products to the EU due to the increase of quotas for duty-free trade. It will not solve the problem, and an increase of the quota wouldn’t help Ukrainian exporters. EU leaders will never increase the quota for Ukraine and thus close the companies in the EU. We need to act in Turkey, be flexible and seek compromise. So this will be the driver which could increase the Ukrainian export in the EU and provide new jobs for Ukrainians who want to work in Ukraine, and not to leave their home country to work in the EU. The agreement on association and free trade zone with the EU is a powerful economic force, but we must know how to use it. No one promised it would be easy to create a free trade zone with the EU, but above all it is necessary to create it in such a way that in the first place it will be beneficial for Ukraine. And the ideas for that must be real, not mythical.

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Related: Ukraine is largest exporter of wheat to EU in 2015/16

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