The free trade pact between Ukraine and Canada, expected to go into effect as early as Aug. 1, has the potential to open the vast North American market to Ukrainian producers.
However, not many of them are ready to dive into it.
Commercial ties between the two countries lag the emotional ones created by a large and influential Ukrainian-Canadian diaspora, numbering 1.3 million — or nearly 4 percent of Canada’s population.
In 2016, Canadian exports to Ukraine amounted to only $217 million, according to the State Statistics Service of Ukraine. Pharmaceuticals, machinery, oil, fish and seafood led the way.
By contrast, Ukraine’s exports to Canada in 2016 stood at a paltry $28 million. Ukraine sells soybean, machine products, metal, snow skis and sports equipment as well as food products such as apple juice and honey to Canadian consumers.
This adds up to bilateral trade of just $245 million, a miniscule part of Ukraine’s $36 billion trade volume and an even tinier part of Canada’s economy.
The free trade pact will help, if Ukrainian companies adapt.
Help for business
To prepare Ukrainian businesses to enter the Canadian market, the Conference Board of Canada in cooperation with the Canada- Ukraine Chamber of Commerce launched the Canada-Ukraine Trade and Investment Support Project — known as CUTIS — in February 2016.
CUTIS is a five-year initiative designed help Ukraine increase exports to Canada and investment from Canada to Ukraine. The Canadian government has invested $10.3 million into CUTIS.
It will help smaller enterprises across Ukraine by partnering with chambers of commerce and industry, business associations and government.
Ukrainian project director Ihor Sanzharovskyi says Ukraine will get immediate benefits, including better access to Canadian government contracts, increased Canadian investment and the reduction in prices because of lower tariffs.
The free trade pact will open up to 98 percent of the Canadian goods markets for Ukrainian exporters. Ukrainian producers of agricultural products will enjoy preferential trade from the first day. Industrial goods producers will also benefit from the agreement.
Ukraine will immediately eliminate tariffs on 86 percent of Canada’s exports. Custom duties will be removed for fish, chocolate, juices, beer, oil seeds and peanuts. Duties for beef, lamb meat, sauces will be lifted in three years. Pork, eggs, milk, honey, vegetables will be imported with zero tariffs in seven years.
Ukraine will immediately eliminate around 75 percent of tariffs on industrial products. Other Canadian imports to Ukraine will be subject to transitional periods, including construction materials, industrial equipment, aircraft parts, boats, motorbikes and trailers. There’s a seven-year transition period for passenger cars import.
Despite major liberalization, Ukrainian producers have to meet requirements, including standards on products’ quality and safety requirements, labeling and certification.
“Selling to Russia, which used to be the main trade partner, and selling to the Western world is different,” says Zenon Potoczny, Shelton Petroleum CEO and president of Canada- Ukraine Chamber of Commerce.
Sanzharovskyi agrees: “Given the fact, that Canada is de facto Ukraine’s competitor in terms of products — both are agricultural countries — Ukrainian businesses have to analyze the market to understand what might work there. They have to find their niche.”
CUTIS helps to educate Ukrainian companies, Sanzharovskyi explains, as many of them know little about Canadian business.
There are at least five industries that Canadian buyers are interested in — information technology, clothing, footwear, furniture and confectionary, CUTIS representatives say. They work to match Ukrainian companies with their Canadian counterparts.
In April, 14 representatives of the Ukrainian food industry took part in the Ukrainian-Canadian Trade Show in Toronto and held business-to-business meetings with representatives of Canadian supermarket networks. One participant was Loblaws, a Canadian supermarket chain with more than 2,000 stores.
The second mission that went to Canada was headed by Natalia Mykolska, deputy minister of Economic Development and Trade, in which 18 companies from IT sector met with 300 leading managers of Canadian technology companies.
Dmytro Kanevskiy of Provectus software development and management consulting company took part. Kanevsky says the Canadian market is a “new target.” He is certain Ukrainian companies have a lot to learn from their Canadian counterparts.
“I was surprised to see how even weaker Canadian companies — in terms of economic performance — showed their best while Ukrainians often don’t know how to sell their business, ” Kanevskiy says.
To showcase the best potential, Sanzharovskyi says, every company has to “do its homework.”
“If I’m to give advice, first I’d say that English-language skills should be improved, and every company has to prepare for the meetings and think about possible ‘next steps’,” he says. “Networking is also crucial. Also, they have to keep in mind that to get into Canadian market one has to be persistent and ready to take risks, of course.”
On the other side, the Canada-Ukraine Chamber of Commerce works to attract more investment in Ukraine. Investment from Canada into Ukraine is $42 million, less than 1 percent in the total inflow.
Potoczny hopes that the pact will boost investment. The chamber plans to organize promotional road shows across Canada starting in September. “Free trade agreements are mutual for both countries. There’s definitely interest in Canadian companies to invest in Ukraine,” Potoczny explains. The major problem, he says, is that Canadian companies often don’t know much about Ukraine.
Existing companies
There are several Canadian corporations operating in Ukraine, from fuel production to consulting services.
Black Iron is an iron ore exploration and development company that owns Shymanivske Project in Krivyi Rih in eastern Ukraine. In March, the Dnipro Ecology Department lifted suspensions on exploration imposed on the project in 2011.
Zhoda Investments runs oil production in Lelyaki field near Poltava. The company also partnered with Chornomornaftogaz, a Ukrainian state-owned oil and gas company, for the exploration of natural gas deposits in the Black Sea.
Another Canadian fuel producer,.Iskander Energy Corp., holds three licenses on exploration of three gas basins in Donetsk Oblast, but had to put its operations on hold.
Bombardier Transportation Ukraine is part of a Canadian multinational aerospace and transportation company. Based in Kharkiv, it offers rail control services including design, turnkey signaling, telecommunications projects and maintenance services.
Based in western Ukraine, Rosan-Agro Group consists of livestock breeding units for pigs, a meat processing factory and a network of retail shops in Ivano-Frankivsk, Lviv, Ternopil regions and in Kyiv. The company employs 600 people.
Canadian pharmaceutical corporations like Apotex Inc. and Pharmascience supply medications to Ukraine.
Ukrainian-Canadian Joint Company Toronto — Kyiv owns and operates a 36,000-square meter business center in Kyiv.
Logistics company Meest Group carries out postal items to Ukraine from North America, Europe and Australia. With head offices in Kyiv and Lviv, it employs over 2,000 people in branches nationwide.
Canada at a glance
Total area: 9,984,670 square kilometers
Population: 35,362,905 (2016 estimate)
Population of Ukrainian descent: 1.2 million (2011 estimate)
Head of State: Queen Elizabeth II (since 1952); represented by Governor General David Johnston (since 2010)
Head of government: Prime Minister Justin Pierre James Trudeau (Liberal Party) (since 2015)
GDP, PPP: $1.674 trillion (2016 estimate)
GDP per capita, PPP: $46,200 (2016 estimate)
Main sectors of economy: transportation equipment, chemicals, processed and unprocessed minerals, food products, wood and paper products, fish products, petroleum, natural gas
Ukrainian-Canadian relations
Trade: $245 million (2016)
Imports from Canada to Ukraine: $217 million (2016)
Top products: coal, medicine, fish, meat, machinery, oils and mineral fuels, donor blood and immune serum, soy beans, nickel
Exports from Ukraine to Canada: $28 million (2016)
Top products: sports equipment, copper wares, machinery, chemicals, honey, corn, yachts, wood, carpentry
Canadian investment in Ukraine: $42.2 million (as of April 2017)
Main Canadian companies: AG Growth International, Rosan-Agro Group, Semex Alliance (agriculture), Meest (logistics), Fairfax Financial Holdings (insurance, agriculture), Toronto-Kyiv (real estate), Black Iron (mining), Pharmascience, Apotex (pharmaceuticals), Bombardier (transportation)
Sources: Central Intelligence Agency, State Statistics Service of Ukraine, Canada-Ukraine Chamber of Commerce, Export Promotion Office of Ukraine
