If Ukraine and the European Union reach an agreement to sign a free-trade pact – called a Deep and Comprehensive Free Trade Agreement – the nation will get a tremendous impetus for economic growth, experts say. But that will happen only if the nation seizes the chance to make fundamental changes in an under-performing economy that still has too many Soviet features.
These are some of the findings of a recent study by the Institute of Economic Research and Political Consultations, a think tank, released in Kyiv on Sept. 30. The institute analyzed the text of the deal, which is part of an Association Agreement – a 2,000-page document in English that includes seven chapters, 486 articles and 43 attachments.
Karel de Gucht, the EU commissioner for trade, who visited Ukraine on Oct. 2, said that most of the clauses of the trade pact will provisionally go into effect immediately after the document is signed and ratified by the Ukrainian and the European parliaments.
He said less than 1 percent of the trade deal will take effect later, involving issues still decided by individual countries. These include criminal liability for breach of intellectual property and issues relating to road transport. The deal could be signed at the Nov. 28-29 summit in Vilnius, Lithuania.
“It’s very important to demonstrate to Ukrainian citizens that (the trade deal) is giving them something,” he said. “But it’s up to the Ukrainian authorities to apply it.”
The effects of the agreement will vary and affect many groups of population and industries. Igor Burakovskiy, director of the Institute of Economic Research and Political Consultations, and co-author of the study, said that in the long term, the personal income of Ukrainians may improve 4.3 to 11.8 percent as a result of the trade deal.
“If the structure of the economy changes, the effect will be more significant,” he said.
The study found, for example, that for consumers, the prices for many goods and services are almost certain to go down, while their variety will increase through competition and reduction of trade barriers. Domestic businesses, however, will face greater competition from EU countries. Those companies that fail to improve standards may be forced out of business.
Deregulation combined with more transparency in the application of rules and governance are expected to create greater opportunities for starting business. Access to sources of financing, procurement tenders within the EU, as well as an alignment of standards and removal of tariff and non-tariff barriers are expected to be beneficial eventually.
Business owners, however, have yet to learn about the new opportunities, according to a separate poll of 313 businesses across Ukraine conducted in July and August by the same institute.
“Business is poorly informed about the technical details of the trade agreements and does not know about all the possibilities that open before the Ukrainian entrepreneurs in case of implementation of the Association Agreement,” the author of the study, Oksana Kuziakiv and Inna Chenash, conclude.
They also discovered that 45.7 percent of the polled businesses think that Ukraine’s legislation should be aligned with that of the EU, while 43.1 percent think that trade legislation should be aligned with the Customs Union of Russia, Kazakhstan and Belarus. They prefer European legislation in case of conflict.
By signing the agreement, Ukraine will commit to changing 350 legal acts and regulations over time, a costly and time-consuming process the EU will assist with financially.
Apart from business, the agreement should have a positive impact on ecology, education, health care and social standards – but again, at a risk of increased costs.
“Implementation of the regulatory changes envisaged by the Agreement, will stimulate economic growth, which will be positive for budgetary income, while increase of efficiency of governance should optimize its expenses and improve its effectiveness,” the authors of the study conclude.
Kyiv Post deputy chief editor Katya Gorchinskaya can be reached at katya.gorchinskaya@gmail.com.
