Burge: free trade with the EU would change Ukrainian economy (video of the lecture)

Nicholas Burge, Head of trade and economic section of the EU Delegation to Ukraine, believes that implementation of the Association Agreement, including its provisions on deep and comprehensive free trade area (DCFTA), would change the Ukrainian economy.

This was his key message delivered in a lecture at EU Study Days, EU Delegation’s education initiative. Watch the video of this lecture below, or read about its key ideas.

AA signature is just a beginning. Signature of the association agreement is just a launch of a long process of the AA implementation. By signing the deal Ukraine and the EU, however, will commit themselves to fully implement the document. This may completely change the whole landscape of Ukrainian economy and would have significant impact on daily life of every Ukrainian citizen.

Elimination of border barriers in EU-Ukrainian trade. As any traditional FTA, EU-Ukraine DCFTA would lead to substantial elimination of tariffs and customs in bilateral trade. Hence, the association agreement would open up Ukrainian and European markets to each other. Complete DCFTA implementation would reduce 98% of current tariffs to zero, while the remaining 2% would be reduced significantly. Given the EU’s role in Ukraine’s foreign trade as well the Ukrainian part in EU’s trade, the deal is much more important for Kyiv. EU-Ukraine AA is also asymmetrical in terms of implementation, since Ukraine will reduce its custom tariffs gradually during transition period while the EU will open up its market straightforward after the documents enters into force.

What makes EU-Ukraine FTA deep and comprehensive? The association agreement proposes Ukraine not a classical FTA but deep and comprehensive FTA. It foresees elimination of so-called behind-the-border trade barriers such as divergence in standards, norms and regulations. By signing the association agreement Ukraine would be committed to align its regulations with the whole body of EU acquis. This would not only provide Ukrainian producers with unrestricted access to European market but also open up global markets that also recognize European standards. In addition, alignment with European technical regulations will save Ukrainian producers up to 15% of adaptation costs which they currently pay to enter EU market. The association agreement also does not have any provisions preventing Ukrainian firms to trade with Russia or any other CIS country. The Moscow-led customs union itself gradually aligns its standards with the European standards.

Converging costs. Ukrainian government argues that DCFTA implementation would cost Ukrainian economy up to EUR 500 billion. Although there is no study confirming this calculation, modernization should be considered as investments rather than costs. If Ukraine does not reform its economy and fails to increase competitiveness of its producers what would be the cost of stagnation? Following the AA signature, the EU and international funds would increase their financial support to Ukraine aimed at boosting reforms. Foreign investors would be also willing to enter Ukrainian market being confident in its modernization. Thus, the costs of comprehensive reforms would not be covered by Ukraine alone. The EU, however, is willing to assist Ukrainian reforms but not to pay the country’s debts.

Success story in CEES region. Proposed reforms have been already tested in Central-Eastern European states that went through similar revolutionary reforms. In 1990 Polish GDP per capita was only 8% higher than that of Ukraine. This, however, was dramatically changed only in 5 years when Polish GDP per capita was already 178% higher than that of Ukraine. By 2013 the difference only increased. The same tendency is true to the amount of foreign investments in CEES countries and Ukraine. The EU proposed Ukraine a tested prescription of reforms that has proved its efficiency. There is no reason why Ukraine cannot follow success of CEES countries.