Authors: Marta Semeriak, Oleksii Pivtorak, Centre of United Actions
For Ukrainian exporters, the upcoming year of 2021 is not about just exhausting all the quotas on export of goods to the EU during the first days of January but also about an opening of the new window of opportunities for Ukraine—European Union cooperation. The Association Agreement with the EU has been signed five years ago, and this year a new round of negotiations started to update the Agreement’s part on the Deep and Comprehensive Free Trade Area (DCFTA). In particular, on the trade pattern with the European Union: types and quantities of goods and services, exporting conditions.
Preparing to update the Agreement, the Government has changed its approach to developing its negotiation positions. For the first time, Ukrainian exporters and producers that plan to export their goods and services to the European Union were engaged in public consultations to prepare a comprehensive overview of problems and prospects of trade with the EU. The office of the Deputy Prime Minister for European and Euro-Atlantic Integration — in coordination with the Ministry of Economic Development, Trade and Agriculture of Ukraine and with analytical support from the Centre of United Actions — has initiated a broad-scale dialogue with business. The business received an opportunity to submit their proposals via the governmental online-platform on Updating the Association Agreement and, more importantly, state their positions on the matter during public consultations.
Despite the challenging situation with lockdown restrictions, consultations were held in six regional centers: Odesa, Kharkiv, Poltava, Kherson, Lutsk, and Dnipro.
Ukrainian exporters, as was apparent at each public event, hold a constructive and calculated view on updating the Agreement and expect that their Government will unequivocally defend their interests. However, more open to discussions were representatives of big companies and associations that have experience in developing their negotiation positions. Small and medium-sized businesses, apparently, voice their needs and expectations through their industry associations.
So what does the business want?
Ukrainian entrepreneurs are fully aware of the challenges of export to the EU and have specific proposals as to what changes have to be introduced in the Association Agreement with the EU. According to the exporters, the Agreement has not significantly influenced the production as such but has changed the export vector from Russia to the European Union and encouraged Ukrainian businesses to enter the markets of other countries worldwide.
As the consultations made clear, two aspects of the Agreement should be addressed. First, the interaction with the European Union: quotas, technical assessment, and quality control that will be the matter of further negotiations. Second, the problems Ukrainian businesses encounter while competing for the European market: they want to get some help from the state.
> Industrial visa-free regime
Irrespective of the region or industry, the most acute problem for business is the matter of technical regulations and quality control. Because the Agreement on recognizing the certification results does not provide an automatic recognition of Ukrainian certificates by the European counteragents, the producers have to undergo additional certification from the EU countries. This presents a problem because of the high cost and red tape that accompany certification. As a result, export products become significantly more expensive and less competitive in the European market.
Ukrainian entrepreneurs are convinced that the solution to this problem is for Ukraine to enter the Agreements on Conformity Assessment and Acceptance of Industrial Goods (АСАА), the industrial visa-free regime. The talks about entering the ACAA circulated for some years, and in October 2020 an assessment mission started its work in Ukraine to assess the compliance of national legislation and infrastructure to the requirements of the ACAA Agreement. Government representatives raised the issue of ratifying the ACAA Agreement during the meeting with the EU representatives.
> Increase in export quotas
The core proposal of Ukrainian business is to increase the customs-free import of Ukrainian commodities to the EU. Practically all the entrepreneurs that attended public consultations stressed this particular point.
“We ask to increase the quotas from 20 to 30 tons at least. It is just 3.5% of tomato paste consumed in the European Union. Since the beginning of the war only, our company bought equipment exclusively from the European Union for €55 mln worth, and there should be a balance between production and sales,” — says the representative of Agrofusion company from Kherson oblast.
Not only tomato producers have a need to increase quotas, but practically the whole agrarian sector: producers of juice, grain, oil-plants, wine, etc. Government representatives assure that they understand that some of the quotas are too low for the current export potential of Ukrainian producers and will definitely include a provision to increase quotas for customs-free export to the European market on the negotiation agenda.
For now, Ukraine has almost no success stories in increasing quotas for Ukrainian commodities for the EU market. The only progress of this year, perhaps, is an increase in quotas on some goods that has been agreed upon during the high-level visit of Ukrainian top officials to the United Kingdom, which is leaving the EU. An agreement was signed to increase quotas for Ukrainian goods exported to the United Kingdom by 13-20%.
> Simplification of freight regulations
There is another issue here. Let us imagine that quotas have been increased and export grows. The business then faces another problem: how to deliver exported goods to the EU? Ukrainian exporters face significant transport and logistic challenges. Freight licenses and permits expire rather quickly, so exporters have to use freight services and vehicles of their competitors — and lose money.
What solution do the entrepreneurs propose? They ask to abolish the current international freight system, in particular categories Euro-5 and Euro-6, and introduce an unambiguous algorithm for receiving the environmental Euro-1 certificates. Exporters from Volyn oblast strongly believe that it became much harder to receive such certificates after the authority to issue them has been transferred to the Customs Service.
> State support
Representatives from all industries stressed that current bank policies are not favorable for business, in particular for developing businesses. There are no state loan programs with preferential rates. A high bank factoring rate (over 27%), according to cooling equipment manufacturer Iceberg from Odesa, seriously undermines the opportunity for Ukrainian producers to win European tenders. Current bank policies de facto render Ukrainian businesses uncompetitive.
The business also asks for help from the state in search for business associates and advertising for Ukrainian companies. For example, entrepreneurs from Kharkiv and Dnipropetrovsk oblasts mentioned advertising Ukrainian goods by state diplomatic missions in the EU countries: there was a time when such cooperation existed but later it stopped. On the other hand, the business expects that the state will co-fund its participation in international exhibitions. Wine producers mentioned the examples of state assistance programs in Georgia and Moldova where the state provides a 50/50 co-funding for its wine-makers.
Another hot topic was the customs policy. Ukrainian manufacturers suffer from high tariff rates on raw materials and components for the textile industry, bearing manufacturing, glass. The business expects changes in customs legislation about the status of raw materials origins. For example, for cattle grown in Ukraine to be recognized as of national origin even if it had not been bred here.
Entrepreneurs from Volyn oblast lose money waiting in slow lines at the border. They stress that it is necessary to introduce electronic queue management systems at checkpoints on the border between Ukraine and the EU countries.
> Consultations for entering the European Union markets
Many entrepreneurs that are ready to expand their export claim that they are not ready to face Ukrainian and European bureaucracy. For now, they postpone the expansion to the European market until there will be clear algorithms and rules on how to safely start exporting.
Expectations: new regional offices for supporting exporters will be launched. These offices will understand the specifics of business in their regions and provide explanations on peculiarities of industry-specific technical regulations, export opportunities to particular EU countries, and search for business associates in the EU.
Reality: in 2020, regional eurointegration offices were opened in Kherson and Dnipropetrovsk oblasts. Whether the reality proposed by the Government will meet the expectations of business, time will tell.
Ukrainian entrepreneurs have stated what they need. We hope that the Government has heard their proposals and will develop new comprehensive and solid negotiation positions on updating the Association Agreement — and that consultation with business will continue during the later stages of negotiations.
At the same time, this is not the only task that has to be accomplished by the Ukrainian side. As of today, Ukraine still has not managed to fulfill more than half of its obligations that are to be fulfilled between 2014 and 2024 in accordance with the implementation of the Agreement. This “homework” can be done only by the Parliament and the Government, so the governmental team has to put a lot of effort if it hopes to meet the challenge of eurointegration by 2024 and defend the interests of Ukraine while updating the Association Agreement with the EU.
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