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Ukrainian agricultural industry has championed the art of recovery.
It recovered after collectivization, then after the collapse of the Soviet Union and the shock of free enterprise. More recoveries came after the world economic crisis, as well as the crises after the EuroMaidan Revolution, which drove ex-President Viktor Yanukovych from power but triggered Russia’s ongoing war against Ukraine today.
Now, however, trade restrictions set in faraway capitals pose the biggest challenges.
“Speaking of restrictions in agriculture, the general tendency is that several kinds of trade restrictions are applied. Normally phytosanitary restrictions are applied in respect of farm produce,” says Olena Omelchenko, a partner at Ilyashev & Partners law firm. “So, the World Trade Organization allows to apply certain limitations in trade, such as phytosanitary restrictions … as well as technical barriers.”
While trading in agricultural products with the world, Ukraine needs to navigate the intricacies of the global trade system. And this is where good legal advice comes into play.
Omelchenko lists other restrictions on trade, such as “anti-dumping, compensatory, or protective. The Ukrainian legislation applies them as ‘special measures.’ These kinds of restrictions can also be applied to farm produce.”
Ukraine and the WTO
Ukraine entered the WTO in 2008 and most of its trade with the world is regulated by the rules of this “global international organization dealing with the rules of trade between nations,” as the WTO defines itself. Speaking of agriculture, “a number of commitments was made upon (Ukraine’s) WTO accession,” says Victoriia Mykuliak, an associate at Sayenko Kharenko law firm.
The four major commitments for agriculture undertaken by the country in the WTO are: zero export subsidies to agricultural producers, waiver of the right to use special safeguards of the market, no minimum import prices approach, and the 3.04 billion hryvnias cap on the support of agriculture.
“This level of support was established at the moment when the exchange rate equaled five hryvnias per dollar. In 2014, when the national currency devalued drastically, the issue arose as to this level of support. The problem is that this level of support is fixed in hryvnias and Ukraine cannot go above it,” says Mykuliak. Now, when one dollar is worth about 26 hryvnias, this amount is very little.
Free trade agreements
Ukraine enjoys a number of free trade agreements with various countries and unions. The big one is the Deep and Comprehensive Free Trade agreement with the European Union. Under it, Ukraine has received certain tariff quotas for importing agricultural goods to the EU with no duties applied.
Oleksandr Tereshchenko, a senior associate with Aequo law firm, says that the quotas are small: “For some goods, such as fodder corn, big agricultural holdings use up this quota within a matter of hours. And other quotas fly away within days.”
When analyzing the DCFTA in general, however, this agreement stands out as an achievement for Ukraine’s agricultural producers.
Anzhela Makhinova, a partner at Sayenko Kharenko, says that “the EU concessions in the field of agriculture provide considerable advantages to the Ukrainian producers compared to the situation before the DCFTA.” According to Makhinova, “the EU fully liberalized 80.4 percent of its agricultural tariff.”
Ukraine also signed free trade agreements with a number of other countries, starting from the FTA with ex-Soviet republic and the general one with the Commonwealth of the Independent States up to the agreements with the European Free Trade Association, Canada, Israel, Macedonia and Montenegro.
Need for dialogue
Currently Ukraine is negotiating a free trade agreement with Turkey. Certain Ukrainian industries are worried that the agreement will harm their development. Producers of sunflower oil are among them. They are afraid that Turkey will convince Ukraine to drop export duties that increase the cost of selling sunflower seeds abroad. Currently Ukraine is the world champion in exporting sunflower oil.
Turkey, the Black Sea neighbor to the south, wants to develop its sunflower oil business. If the Ukrainian delegation does not see to it “most probably all our seeds will go to Turkey and we will lose all these capacities and jobs,” Makhinova predicts.
Makhinova said there is “no structured, regulated (system) for business circles to get involved in the process” of decision-making in respect of future free trade agreements.
Special case of Russia
Ukraine’s trade with Russia, a traditional trading partner for centuries, was disrupted as a result of the Kremlin’s war against the nation. Ukraine is not now exporting any agricultural products to Russia, but still imports, according to segodnya.ua news portal.
In 2018 Ukraine imported 51,000 tons of barley from Russia, as well as 5,600 tons of buckwheat, 4,500 thousand tons of rice, and 2,600 tons of sunflower seeds.
The sunflower seeds imported from Russia get processed and then exported from Ukraine in the form of oil. Ukrainian rice production is not sufficient to meet the demands of the local market, reported Agronews agency in 2018. And buckwheat, a traditional Ukrainian staple, is insufficiently cultivated in Ukraine nowadays. So, the Ukrainian agricultural ministry has decided to allow imports of Russian buckwheat. One of the reasons for that decision was the intention to keep the domestic prices low, deputy minister of agriculture Maksym Martynyuk told Ukrinform, the national news agency, in September 2018.
Preparedness of businesses for stress tests
In 2014, Russia closed its market for Ukrainian agricultural products by applying embargoes. This was a major stress for domestic producers and exporters, who had to instantly tap global markets. “Many businesses were not prepared to reorient (themselves) to other markets. And this is even not the question of the quality of products, but of the openness for change,” Mykulyak remembers. “Here it is also a question of financial stability of a business. It is understandable that the giants with financial safety cushion were the first to tap European markets of eggs, oil, chicken meat. There were also others, who did not do so, because they had no financial capacity (for such a costly step).”
