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Wednesday, October 26, 2016

The Association with the EU only hurt Ukrainian trade

Summing up semi-annual results of the free trade area between Ukraine and the EU, we may state that the agreement was brought to Kiev nothing but losses. Hopes that the opening of the market the EU will compensate Ukraine’s loss of the Russian market, has completely failed. And if not for some other countries, Ukrainian foreign trade would collapse completely.

For six months acting in full force on the Association of Ukraine with the EU and free trade zone. However, the results of its work for the Ukrainian economy are depressing.

“Ukraine has sold more goods to the EU before signing the Association agreement and creating free trade zone”

After the failure of the export of Ukrainian goods last year in the first half of 2016, he again fell overall by 10% compared to last year.

The export of Ukrainian goods to the EU countries grew by 7.5%, while exports to the CIS countries and Georgia has fallen by 30% (compared to the same period last year). It would seem that you can celebrate – the demand for Ukrainian goods in the EU increased. But if you look closely, you’re no no.

Russia has been, and remains the main trading partner of Ukraine, despite all the political squabbles, the war in the Donbass and trade restrictions. Russia accounts for 9% of total Ukrainian exports, it the first place among other countries of the world. Trade with Europe does not develop and falls, and a statistical increase in the first half of 2016 deceptive. In reality, if you compare recent data with the first half of 2013, in January – June 2016 Ukrainian exports to the EU countries shows a drop of more than 22%.

“It turns out that Ukraine sold more goods to the EU before signing the Association agreement and creating free trade zones. Do fact: by itself, an Association agreement, despite all the bravura conversations and calls, gave nothing to the economy of Ukraine. On the contrary, Ukrainian exporters even lost,” says Ukrainian economist Oleksandr Okhrimenko.

The five largest trading partners of Ukraine in the European Union are Poland and Italy. They bought Ukrainian goods on the 998 and 930 thousand dollars in six months. However, in the first half of 2013, Ukraine sold goods more 17% and 27%, respectively.

That is, Poland and Italy began to buy much less Ukrainian goods than in 2013. Iron ore, ferrous metals and round timber are the main exports of Ukraine to Poland, and it is unlikely that in the future Poland will buy Ukrainian cars or chocolates, it is simply not necessary, said Okhrimenko. That is Poland cannot replace Ukraine Russian market. Italy traditionally buys the Ukrainian semi-finished steel and ferro-alloys, but the metal demand worldwide is falling. So Italy in Ukraine buys less and less, and the fall has continued even this year.

Three key trading partner of Ukraine in the EU is Germany, Hungary and Spain. Germany has bought Ukrainian goods slightly more than 680 thousand dollars, the other paid for 535 thousand dollars for Ukrainian exports in the first half of 2016. However, before the independence of Germany bought by 12.2%, and Hungary – 35.1% of Ukrainian exports more than it is now.

Germany buys from Ukraine bearings, wires and cables, as well as light industry products and machinery, which is produced in Ukraine by tolling schemes of Germany, said Okhrimenko. This year the export of sort of growing, but only on the background of collapse last year. To reach even pre-crisis level of trade with Germany, Ukraine is not possible, not to mention the increase in exports relative to 2013.

The only thing that Ukrainian exports to Spain increased in comparison with 2013, though only slightly – by 3.3%. The increase is due to the fact that Spain started to buy Ukrainian corn, explains Okhrimenko. It is clear that the replacement of the Russian market for Ukrainians speech still is not.

The economist notes that last year, Ukrainian exports have fallen dramatically, but this year, even earned the full force of a free trade zone with the EU, it continues to fall. And the reason is clear – Europe needs Ukrainian planes and other manufactured products machinery, demand for which was provided by Russia. EU countries buy in Ukraine agricultural products and a little metallurgical raw materials. “If not for the export of grain and sunflower oil, our economy just collapsed,” – says Okhrimenko.

In the end launched this year a free trade area with the EU only cemented the trend that is observed for the last two years, as soon as Kiev decided because of political ambitions to abandon all Russian. Ukraine is more and more turning into an agrarian country which earns exclusively on corn and sunflower oil. Thus, in the first half of 2016 11% of the total Ukrainian export is sunflower oil, and about 10% corn and 7% – semi-finished products of steel. The export of grain in comparison with the first half of 2013 grew by almost 10%, but exports of ferrous metals fell by 54%.

“The proportion of the metal is falling and will fall, and the share of grain and sunflower oil will grow. And, most likely, in ten years, the share of food exports is about 75% of total exports of the country. It is now about 35%,” – said Okhrimenko.

The main buyer of Ukrainian agricultural products was not Europe, and the countries with which Ukraine has not signed similar agreements. “Most of the sunflower oil bought by China and India, maize in China and Egypt, wheat, Egypt and Indonesia. More pleased all Egypt. The share of Egypt in total exports of Ukraine is about 7%, is in second place after Russia,” – says Okhrimenko. Moreover, Egypt even Ukrainian metal actively buys. Rather, it is Egypt (not the EU) can compensate for at least part of the losses due to the rupture of trade relations with Russia.

The export of Ukrainian products to Russia in the first half of 2016 fell by 35% compared to the same period in 2015, as compared to 2013 by as much as 80%. The same situation with Ukraine’s exports to the CIS countries – a drop of 30% compared to 2015 and by 75% relative to 2013. “The European market can not, even in the future to replace the CIS market, the only hope for Egypt, China, India and Turkey. These countries are truly our saviors in this difficult time for the country” – sums up Alexander Okhrimenko.

Finally, the free trade area with the EU for Ukraine was free only in one direction – in the direction of Ukraine. For Ukrainian exports there are many obstacles to access the European market. Thus, the EU has established quotas for Ukrainian products duty-free for export, but they were minor. January – February, Kiev has exhausted the duty-free quotas on exports to the EU of corn, grape and Apple juice and honey, plus a quota on poultry meat. The results of the first half Ukraine quotas on nine groups of agricultural products: natural honey, sugar, cereals and flour, malt and wheat gluten, processed tomatoes grape and Apple juices, oats, wheat, wheat flour and pellets as well as corn, corn meal and pellets, said the Association “Ukrainian club of agrarian business”.

But part of the quota Ukraine, on the contrary, never used, although nominally they are. It is a quota on beef, pork, eggs, butter, milk, cream, condensed milk and yogurt, milk. Although, it would seem that this product in the country should be in surplus, especially after the closure of the Russian market. But as it turned out, the Ukrainian producers of meat and dairy products do not meet European quality standards. To begin the export to the EU, they must obtain the European certificate and the certification procedure is too expensive for Ukrainian producers.

According to the Association, only 12 dairy companies of Ukraine passed the certification and obtained the right to export dairy products to the EU. And only at the end of April this year, he was made the first trial the supply of Ukrainian milk to Bulgaria.

Ukrainian agrarians believe that Kiev needs to increase duty-free quotas for imports into the EU of poultry meat and semi-finished products, honey, sugar, processed tomatoes and Apple juice and cereal and their products (wheat, flour, granules, etc.). However, the chances of Ukraine to achieve this from the Brussels – zero. First, the allocation of these quotas by the EU and so went reluctantly, and more Ukrainian products they do not need. Second, their hands are tied and even legally. While the Netherlands has not ratified the agreement between Ukraine the EU, nobody has the right to change the text of the agreement. And the ratification of the Amsterdam we would have to wait.

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