Oleksandr V. Kubatko Sumy State University Chisinau, Moldova December 2015 DCFTA implementation in Ukraine: main opportunities and challenges

DCFTA implementation  The EU and Ukraine signed the Deep and Comprehensive Free Trade Area (DCFTA) on 27 June 2014 as part of their broader Association Agreement.  In April 2014, in response to the security, political and economic challenges faced by Ukraine the EU unilaterally granted Ukraine preferential access to the EU market until 31 December

DCFTA implementation  To avoid further destabilisation of the country and in particular to guarantee Ukraine's access to the CIS market under the Ukraine-Russia bilateral preferential regime, in September 2014 the EU postponed implementing the DCFTA until January  According to DCFTA Ukraine and the EU will eliminate respectively 99.1% and 98.1% of duties in trade value. 3

DCFTA implementation The EU is Ukraine's largest trading partner in 2015, accounting for more than a third of its trade. Main Ukraine exports to the EU: raw materials (iron, steel, mining products, agricultural products), chemical products and machinery Main EU exports to Ukraine: machinery and transport equipment, chemicals, and manufactured goods. 4

Trade opportunities Given Ukraine's industrial potential, the DCFTA provides an opportunity to make the country more competitive and diversify exports. In the DCFTA Ukraine has committed itself to harmonising a large number of rules, norms and standards in a number of trade-related areas with those of the EU. These areas are competition, public procurement, trade facilitation, protection of intellectual property rights and trade-related energy aspects, including on investment, transit and transport. 5

Trade opportunities. Agriculture It was estimated before signing DCFTA that Ukrainian agriculture will benefit most from cuts in duties: €330m for agricultural products, and €53m for processed agricultural products. New market opportunities in the EU and higher production standards will spur investment, stimulate the modernization of agriculture and improve labor conditions. 6

Trade opportunities. Industrial Both sides will fully liberalise trade in industrial products, with Ukraine reducing duties on machinery and appliances by €75.2m. There are some exceptions for cars, but Ukraine will still cut duties on vehicles by €117.3m. The textiles sector will be fully liberalised from day one with Ukraine and the EU cutting duties worth €8.7m and €24.4m respectively. Special conditions will apply for five years to second-hand clothing. Reduced EU tariffs on chemicals will cut duties paid by Ukrainian exporters by €26.8m, while Ukraine will cut duties by €64.3m. 7

Main Macroeconomic Indicators in Ukraine

Total goods: EU Trade flows and balance, annual data

European Union, Trade with Ukraine* IndicatorUnitPeriod Import s Export Total trade Last year (2014) Mio euros ,70617,00730,713 Rank as EU partner Share in EU trade % Annual growth rate % Annual average growth rate % *

UKRAINE – ANALYSIS OF 2015 Q1 TRADE* 11 m$ X Q share of total X Q share of total export growth Total EU4.935%3.335%-33% Russia2.719%1.011%-61% Rest World 6.546%5.154%-21% Total %9.4100%-33% m$ IM Q12014 IM Q import growth Balance 2014 Balance 2015 Total EU % Russia % Rest World % Total % *

Ukraine export structure in Q *

Ukraine export structure in Q *

Exports to the EU – product analysis 14 Product category Exports in 2013 (m€) Exports 2014 (m€) Increas e (%) Increase (value, m€) Tanning or dyeing extracts %-20 Mineral fuels, mineral oils %-216 Organic chemicals %-21 Cereals %-420 Oil seeds and oleaginous fruits %-81 Ores, slag and ash %-220 Iron and steel %-422 Railway or tramway locomotives, rolling-stock %-5 Fertilisers %5 Glass and glassware 71386%6 Sugars and confectionery 48108%4 *

Exports to Russia – product analysis The same is true for Salt; sulphur; earths and stone; plastering materials, lime and cement, Optical, photographic, cinematographic, measuring, checking, Essential oils and resinoids; perfumery, cosmetic or toilet preparations, Ceramic products, Paper and paperboard; articles of paper pulp, of paper or of paperboard, Inorganic chemicals; organic or inorganic compounds 15 Product category Exports in 2013 (m€) Exports in 2014 (m€) Increase (%) Increase (value, m€) Mineral fuels, mineral oils %-47.1 Railway or tramway locomotives, rolling-stock % Iron and steel % Articles of iron or steel %-110 Nuclear reactors, boilers, machinery % Electrical machinery and equipment % *

Main opportunities and challenges Ukraine should now gradually align to EU regulations and procedures so that certified products would be assumed to comply with EU requirements with no further checks. Most importantly, a selected number of Ukrainian industrial product standards need to be changed. This would reduce the cost of compliance and certification to these two different sets of rules. 16

Thank you for your attention!!! Questions are welcome! 17 Oleksandr V. Kubatko Sumy State University