Ukraine’s complex journey could lead to greater prosperity.
Easier access to the European Union’s market of some 500 million consumers has become critically important to helping ease Ukraine’s economic crisis, exacerbated by Russia’s 10-month-old war in the country’s east.
Ukrainian businesses exported $13.4 billion worth of goods to the EU, the country’s biggest trade partner, during nine months of this year, which is 12.3 percent more than during the same period in 2013. Overall, 32 percent of Ukrainian exports land in the EU, mostly in Poland, Germany and Italy.
Russia has been enjoying the status of Ukraine’s second biggest trade partner due to the Kremlin’s huge amount of natural gas supplies, while Ukraine provided gas transportation services categorized as exports to the Russian Federation. However, Ukrainian exports to Russia fell by 28 percent, or $3.05 billion, as President Vladimir Putin banned poultry, dairy products and confectionery coming from Ukraine this year.
Bringing hard-currency revenue into the country will stabilize the hryvnia, Ukraine’s weakening currency, and will help improve the current account balance, a key macroeconomic indicator for the International Monetary Fund, the nation’s key creditor.
On April 23, the EU cancelled duties for 83 percent of Ukrainian agriculture products and 95 percent of industrial goods, while in 2016 the full-scale free trade zone will come into effect – if Russia doesn’t force more delays. Ukraine will also gradually start decreasing duties on European goods, a process that will take up to 10 years to complete.
The terms of the agreement do not imply the absolute elimination of all tariffs. They will stay zero for most goods as long as the country’s export volume doesn’t reach a certain quota. Everything exceeding that will get fully taxed.
Quotas are set by the European Commission upon the request of EU-based importers. Therefore, Ukrainian exporters can’t sell anything to the EU unless they find a local partner who would apply for the quota. This should be done fast, before the competitors do the same and fill the whole quota for the country.
Prime Minister Arseniy Yatsenyuk said on Dec. 9 that this year Ukraine’s exporters “almost” used up all the quotas, and said his government will ask for extension of quotas for next year.
Exporting to the 28-nation bloc requires several documents, which are time-consuming to obtain. The paperwork is quite a challenge for Ukrainian businesses, most of whom lack experience and clear understanding of all the certification procedures.
There are specific requirements for particular products. For example, a wine bottle label should mention that the wine contains no sulfates and specify an exact percentage of alcohol, not “between 12 and 15 percent,” as is often the case in Ukraine.
Depending on the product type, ecological and health or safety controls, confirmed by a UkrSEPRO certificate and issued by State Committee for Technical Regulation and Consumer Policy, may also be needed.
The April 23 trade preferences require getting the EUR.1 certificate for exporting the goods to the EU. However, if a company wishes to trade using the old tariff system, it might just get a so called Form A. Both certificates are issued by the Chamber of Commerce in Kyiv.
Preparations for selling goods to the EU may take between two months and two years. It depends on the type of product and whether it meets the bloc’s requirements, said Hanna Shtepa, a lawyer with Baker & McKenzie.
Much “homework” needs to be done, agrees Nataliya Mykolska, head of international trade expertise at Sayenko Kharenko law firm.
The rules could be simplified as soon as Ukraine establishes a positive image of the reliable supplier of high quality goods on the global scene, the legal service of the Netherlands Business Club in Kyiv said in an emailed statement. Afterwards new agreements could be reached on documenting the bilateral trade.
Ukrainian companies might need professional advice to get prepared to trade with the Brussels-led bloc, which is why they turn to the various legal and business consultants as well as seek support from international business association and experts. It catalyzes the process quite substantially, the business club admits.
