How Europeans try to restrain the expansion of Ukrainian exporters and what can be done about this

By Marta Semeriak, for Ekonomichna Pravda (Economic Truth)

Although the export of Ukrainian goods to the European Union grows, import from the EU countries to Ukraine is still larger by $5 bln. So what is Ukraine doing to protect and promote the interests of its producers and how (in)effective are its actions?

In 2020, the European Union established its position as the main trading partner of Ukraine. According to the State Statistics Service, the share of the 28 EU member states in 2020 was 40.7% of the total trade balance of the country.

Ukrainian producers are actively exporting their goods and services to the EU countries. According to the Ministry of Economy, in 2018 Ukrainian export to the EU grew by 8.6%, in 2019 — by 4.6%. The dynamics somewhat changed in 2020 when export decreased by 9.4%, in part because of the pandemic.

While domestic producers are ready to export more goods and services to the EU market, the European Union is cautious with Ukrainian products and entrepreneurs on its market and aggressively defends its own producers.

To make things even harder, Ukrainian businesses have to rely on themselves and defend their interests by themselves in dealing with European and Ukrainian bureaucracy.

In their public appeals and direct communication with the government, Ukrainian businesses indicate the following problems: there are no clear regulations on how to obtain the EUR.1 certificate, procedures for getting documents from Ukrainian ministries are overcomplicated, Ukrainian legislation does not cover all issues they have to deal with, etc. The full list of their problems is much longer.

Been the locomotive that pulls Ukraine towards Eurointegration, businesses expect adequate assistance from the state.

Window of opportunities

The economic part of the Association Agreement between Ukraine and the EU (the AA) came into force five years ago.

Many industrial and agricultural products found their customs-free way to the EU market in accordance with the Deep and Comprehensive Free Trade Area (the DCFTA). Thanks to the DCFTA, Ukraine started to introduce regulations on safety standards and control on its domestic market, reforms necessary for successful trade were sped up.

However, there are also problems. For example, customs-free quotas on many agricultural products are each year exhausted within days. Poland and Hungary have introduced restrictive measures against goods of Ukrainian origins in violation of the Association Agreement and the DCFTA.

Today Ukrainian entrepreneurs rub their hands expecting better exporting terms. Starting from January 1, 2021, the parties of the Agreement are allowed to start negotiations on updating the terms of the Free Trade Zone between Ukraine and the European Union.

According to the AA provisions, five years after it comes into force the parties can start “a comprehensive review of the achievement of objectives under the Agreement”. For the majority of its provisions, such opportunity became available in November of 2019, for the DCFTA — only in 2021 since the FTA came into force only in January of 2016.

The Ukrainian Government prepares for the negotiations with diligence and moderation. To develop a clear and convincing negotiation position, it started consultations with businesses back in the summer of 2020.

During the second part of 2020, the Government Office for Coordination on European and Euro-Atlantic Integration directly communicated with industry associations and announced a call for proposals from businesses via public consultations and the online survey.

Proposals from businesses will be used in the negotiations with the European Union. The work on the introduction of “the industrial visa-free regime”, digital market, environmental protection, fight against climate change (the Green Deal part), and financial cooperation has already begun.

These issues were defined as priorities for the update in the course of the 22^nd bilateral EU-Ukraine Summit in October of 2020. Businesses voiced their needs not only in connection to the update of the Association Agreement but also outlined what domestic policies they expect from the Government.

Ukrainian entrepreneurs also urged the Government to adopt a number of draft laws, regulations, and declarations that will allow the exporters to enter the market of the European Union.

In particular, they expect the implementation of Directive EU/2011/92 that requires evaluation of the impact of particular state and private projects on the environment. Another thing that is expected is the harmonization of Ukrainian legislation with Regulation 1308/2013 of the European Parliament and European Council of December 17, 2013 on the establishment of a joint organization of agricultural markets. Ukrainian producers also wait for the updated version of the Law on Child Nutrition.

The list of necessary changes is much longer and includes many branches of agriculture, industry, and transportation.

Representatives of all economic sectors expect that the Government and the Parliament will fulfill their obligations under the AA and introduce regulations compatible with the EU requirements. We can only wait and see whether the Government will listen to businesses.

Parties are equal, but the EU is a bit “more equal”

There is a significant disproportion in the balance of trade between Ukraine and the European Union. To put it into perspective: during the first year of the FTA Ukrainian export to the EU was $15.82 bln, import from the EU — $17.1 bln, i.e. Ukrainian balance of trade was -1.3 USD billion.

By the fifth year of the FTA, the disproportion became even larger: export from Ukraine was $18.66 bln, import from the EU — $23.74 bln.

Conscious of the apparent prevalence of European import over Ukrainian export to the European Union, Ukrainian producers expect state policies to change, in particular, that the state will help them by establishing better export opportunities and protecting the Ukrainian domestic market.

Expectations of the winemaking industry are quite illustrative in this respect. Ukrainian winegrowers are convinced that in the process of the implementation of the Association Agreement domestic producers will be left alone to face the challenges brought by the Eurointegration. In particular, after the recent legislative changes.

The thing is that in September of 2019 on the way to Eurointegration the Verkhovna Rada amended the Law on Legal Protection of Geographical Indications. According to the amended version, Ukraine is obliged to refrain from using geographical indications already used by the EU.

Protected geographical indications may include wines, cheeses, manufactured meat, olive oils, seafood, beers, bakery wares, fruits, and vegetables. For example, Ukrainian producers will have no right to use labels like cognac, Porto, champagne, parmesan, feta, and camembert. By 2023, Ukraine is obliged to stop using the label feta, but 2026 — cognac.

However, the Ukrvynprom corporation insists that according to the provisions of the TRIPS agreement on grandfather law countries that were producing products under such labels before 1994 have the right to continue to produce them for their territories.

Ukraine has no right to export such products but can still use Cyrillic labels “Cognac of Ukraine”, “Champagne of Ukraine” on the domestic market — in accordance with the Law on Grapes and Grape Wine.

Prohibition on a number of geographical indications will bring significant losses for producers, according to Ukrvynprom. Thus, they want compensation and privileges for the loss of these labels at least for the duration of the transitional 10-year period that was granted as provisioned by the Agreement.

Ukrainian winemakers have not received their promised compensation and assistance from the European institutions provisioned by the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and the Association Agreement does not address this issue at all.

At the same time, Ukraine continues to fulfill its obligations under the Agreement and from January 1, 2021 lifted the import fee on wine products from EU importers. Before, it amounted to 0.3-0.4 euro per liter.

The head of the wine producing company Ahro Yuh and the president of the Association of Winegrowers and Winemakers of Odesa oblast Vladyslav Blumberg points out that the European Union has not opened its market for the Ukrainian wine.

“For a variety of reasons, the EU market is almost inaccessible for Ukrainian wines, especially for base wines. We occasionally manage to export something to the EU, but it is always spontaneous and hard both because of paperwork and the restrictions”, — he points out.

Ukrainian winemakers understand and support the Eurointegration, including the integration in the EU market of wine, but expect that the state will take decisive steps to support its domestic producers. They are not alone in these expectations.

Homework

Integration of Ukrainian and European markets is not just about wide export opportunities but also a demand for such state policies that will help businesses to grow and become worthy competitors for producers from the European countries.

Businesses clearly articulated their expectations. They want state programs supporting Ukrainian producers (as far as such programs do not violate the AA), in particular, a co-financing from the state for participation in international exhibitions.

Ukrainian producers also expect compensations (for giving up geographical indications), an adequate loans system, and repurposing of some taxes and fees to fund the development of specific economic sectors.

Such are the requests from the producers of refrigerating equipment and agricultural products, representatives of machine building and textile industries.

The only question is whether the government is ready to listen to domestic businesses. The production and export capacities of Ukraine are significant in the agriculture and industry sectors. The business strives to grow, to increase export to the EU and other countries, and it needs understanding and assistance from the state.

To prevent the outflow of businesses to countries with better business climates, it is necessary for the government to define priorities that will ensure economic growth.

It is important for the Cabinet to remember that the process of Eurointegration via the Deep and Comprehensive Free Trade Area with the EU is not a goal in itself. The goal is to increase the capacities of Ukrainian businesses to build the domestic economy as a part of the European economy.