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News about the fact that Ukraine had already chosen a quota for the supply of wheat to the EU has caused a real public hysteria. Many media reported this as a collapse of the Ukrainian economy. But, what does it really mean?
Ukraine and the EU began to create a free trade zone under the Association Agreement with the EU, from January 1, 2016. This process should be completed within ten years, during this time each year import and export duties between Ukraine and the EU are reduced. But from January 1, 2026, when goods are delivered from Ukraine to the EU, there will be no additional duties at the border, with the exception of the food products. This is due to the fact that the EU subsidizes food production, and therefore even when the US exports corn to the EU, it pays duties, with the exception of quotas.
The quota for the supply of agricultural products and the food is a privilege that the EU gives to other countries. Within the quota, Ukrainian exporters can supply products to the EU without paying a fee. But, if the quota is over, it does not mean that Ukrainian companies cannot supply products to the EU. They can do this, but they have to pay a duty. The same thing happens if European companies want to supply food to Ukraine. They will be forced to pay duties, with the exception of quotas, which Ukraine has provided to the EU countries.
Here is a clear example. Ukraine has a quota for supplying 16 thousand tons of poultry meat to the EU, while the EU has a quota for the supply of 8 thousand tons of poultry meat to Ukraine. Within the quota, duties are not withheld. If the products are delivered above the quota, then you need to pay a duty of 30 to 100 euros for a hundred kg of poultry meat. These are the conditions. During 2017, Ukraine has used the entire quota for the supply of poultry meat to the EU and has delivered to the EU even more than 50 thousand tons of poultry meat (over the quota). At the same time, about 11 thousand tons of poultry meat were delivered from the EU to Ukraine. During 2017, Ukraine has exported about 280 thousand tons of poultry meat. For Ukraine, the more attractive market for the supply of poultry meat is not the EU, but the Arab countries. Of course, having quotas is good, but they have little impact on exports. Because the quota is small, and the duties are high. In this case, the Asian market is much more interesting. People prefer eating poultry meat, they are ready to pay good money for it and set no quotas. Trade with the EU is important and necessary, but tying all the trade with the EU countries is ridiculous and frivolous. There are many other buyers of Ukrainian wheat and Ukrainian poultry in the world.
And now a few words about the wheat export. Actually, Ukraine has quotas for duty-free wheat supply to the EU in the amount of about 800 thousand tons. In 2017, Ukraine sold more than 17 million tons of wheat for export, and the main buyers were not the EU, but Egypt, Bangladesh, and Indonesia. Few people know that the EU is one of the world's largest wheat exporters. Therefore, it is impossible to sell much wheat to the EU. Moreover, Ukraine successfully sells wheat to Asia without and quotas, like in the EU.
I forgot about the quotas of honey. Ukraine has already used this quota, as well as the quota for juices. The quota for honey is now 10 thousand tons, and Ukraine sold about 57 thousand tons of honey for export.
At the same time, if you go to the Eurostat website, you can find out that most of the duty-free quotas were or were not used at all, or partially used. There is a quota for the supply of confectionery products (2 thousand tons). It was used by 4% only. And the quota for the supply of pork and cigarettes was not used at all.
The association agreement with the EU is good, and duty-free quotas are also good. But they do not play a significant role in Ukraine’s export. Moreover, Ukraine sells a lot of grain and chocolate in the EU, iron and iron ore, and there are no duties (or they are very low). In general, the EU abolished duties on the majority of Ukrainian goods except for food. But paying duty is one thing, and selling your goods in the EU countries is another thing. Let us not forget about the market competition. So now Ukraine can sell its corn to the EU and sell it, but it cannot sell ready-made corn flakes because Europeans simply do not know the Ukrainian brands of this product. Promotion of such a brand is expensive and difficult. It is, therefore, easier to supply corn to the EU and let them make cornflakes under the European brands. This is how the real economy works.
The EU does allow Ukraine to sell most of its goods, but this does not mean that buyers in the EU are obliged to buy Ukrainian furniture or clothes, especially if Ukrainian brands are not familiar to them.
The fact that Ukraine has partly used the EU quotas does not significantly change anything. For us, it is more important that the demand for Ukrainian grain and metal in Asian countries grow. That is where our main buyer is, or I would say, our savior. In many ways, Asian market helps us to compensate for the loss of the Russian market. The European market is good, but it is complicated. By the end of 2017, Ukraine's exports to the EU have grown by 5% compared to 2013, this is a half of the victory: for four years, Ukraine has been doing its best to return to the level of 2013. So in 2018, we expect a small increase in exports to the EU, while we are thinking more about the Asian markets and entering the markets of Africa.
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