A meeting of the International Trade Club arranged by the Ukrainian Chamber of Industry and Commerce on Jan. 27 was full of Ukrainian businesspeople lining up to talk with trade attachés of different countries.
Bohdan Belskiy, commercial director of Brovary Plastics Plant, waited to talk with a Polish envoy. Like many others, he was looking for ways to export to European Union markets now that a free-trade agreement has eliminated many tariffs.
Belskiy’s plant found itself in limbo after the government canceled the Soviet-style standards that the plant has been using to produce plastics for the past 40 years. Instead, the authorities introduced the EU’s technical requirements in December.
But these measures have brought more questions than answers.
“What if our technical conditions at the plant used to be better than the new requirements, should we produce worse quality goods then?” Belskiy said. “Now we can certify our goods, but where should we get the certificates, in Poland or in Ukraine? In Ukraine no one knows how to do this, no one has the necessary documents.”
Another visitor, Sandor Simon, an Austrian national who has lived in Ukraine for 15 years, wants to sell women’s tights to EU countries. He said that businesses have not felt the benefits of the preferential trade regime with the 28-nation bloc over the last 18 months, especially amid economic crisis.
“Though the workforce in Ukraine is cheaper than in Europe, the Ukrainian textiles are less competitive than the same goods produced in Poland because we pay a 12 percent tariff on customs clearance,” Simon said. “Unfortunately, currently, I do not see that the free-trade zone is helping Ukraine a lot.”
Some producers complained about the volume of goods they can sell to the EU duty-free.
“We had a quota of 5,000 tons and it was exhausted two days after the New Year,” said Vadym Pankovskiy, commercial director of honey producer Bartnik. “We work like we used to.”
Six out of seven Ukrainian exporters contacted by the Kyiv Post said they have experienced few changes in doing business with Europe some 18 months after Kyiv signed a free-trade deal as part of a broader political association agreement with the EU in June 2014. The deal fully came into force on Jan. 1 and obliged Ukraine to make its economy EU-compliant. It provides for either a reduction or elimination of customs duties. But the full impact of the simplified trade rules won’t be felt immediately.
Over the next 2-10 years, bilateral trade will ease as custom duties decline on both sides. Western markets open up for Ukraine, but requires compliance with quality, safety, and other standards. Once this is complete, Ukraine should see exports to the EU increase and be able to bid for EU procurement contracts. European producers, in turn, progressively get duty-free access to the Ukrainian market.
Ukrainian and European producers will save annually around €487 million and €391 million, respectively, on customs duties.
The first positive sign came from Moldova, not an EU member. Some 35 Ukrainian producers as of Jan. 10 had permission to export milk, meat, fish and eggs, said Agriculture Minister Oleksiy Pavlenko.
“Ukraine is not starting from scratch,” said Jocelyn Guitton of the European Union’s trade affairs section, adding that today the EU is the largest market for Ukrainian exporters, with about a third of domestic goods going there.
But more changes will take time as Ukraine meets standards, norms and competition rules. “The faster the Ukrainian government will reform the Ukrainian economy, will adopt EU standards, the faster Ukrainian companies will be able to compete on the European market,” Guitton said.
Ukrainian customs duties have decreased this year only for some items, namely clothing, confectioneries and beer. But the products have to be made in the EU. For example, household appliances and fruit will fall in price gradually until 2018, and cheese and wine until 2020. Duties on cars will be canceled by 2026.
Oleg Protsenko, a project manager of agricultural reforms at the National Reforms Council, expects Western meat products to be the first product to decline in price on the shelves of Ukrainian supermarkets.
Competition between domestic and Western manufacturers will also force producers to improve quality. “We will have a choice – if the store offers Western and domestic sausages at one price, but the quality is different, we consequently would buy a European one,” Protsenko said.
To make farmers aware of the opportunities and requirement, the Agricultural Ministry holds informational meetings, but the state doesn’t provide financing. It’s enough. “They say ‘do not disturb us and everything will be fine’,” Protsenko said.
