Free trade and quotas: myths and reality

Envisaged by the Association Agreement export quotas for some Ukrainian products often become a subject of misinterpretation or speculations. Media lack awareness about the quota issue in the Association Agreement, and often interpret it as a limitation of Ukrainian export to the EU. The opponents of the Association Agreement with the EU, including Russian ones, used to speculate on this quite actively. Surprisingly similar sayings are now coming from some Ukrainian manufacturers. The EU Delegation to Ukraine made a detailed explanation what the quotas are really about.

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First, if it is indeed correct that the DCFTA foresees so called “tariff rate quotas” (TRQ) for a limited number of agricultural products, one should understand exactly what this entails exactly. It means that while before the entry into force of the agreement Ukrainian exporters to the EU had to pay duties from the first ton of good exported, now they can export duty free up to a certain quota. Therefore, even if this quota indeed represents a limit, it introduces an opening of the market for such goods, and not more restrictions. Moreover, TRQ entails no restrictions on the overall quantity of an exported products because above the quotas, export are still possible, but duties must then be paid. This is precisely the reason why in 2015 Ukraine exported some productions way above the quotas (such as honey, juice or processed tomatoes).

Second, for the vast majority of the 36 products categories for which quotas exist, these quotas are not filled today. Why? Simply because Ukraine does not comply yet with many EU sanitary and phytosanitary standards, and Ukrainian companies cannot export those products. Rather than blaming the EU and asking for additional quotas, many producers should rather lobby the Ukrainian government and urge it to focus on the implementation of the sanitary and phytosanitary chapter of the DCFTA.

Third, quotas apply ONLY to agricultural exports it would be a mistake to focus only on agriculture. The DCFTA is not just about quotas and import tariffs for agricultural products. It introduces a market opening for all potential exports from Ukraine to the EU, and this should be beneficial to hundreds of Ukrainian manufacturers, which already export to the EU or could do so in the near future. Of course, Ukraine is a great agricultural power, but it is actually much more than that. Already in 2014, agricultural exports to the EU represented only slightly more than a quarter of total Ukrainian exports there (28,7%). Putting too much emphasize on such products means missing the broader picture.

Fourth, claiming, as some do, that Ukraine opens its markets while the EU doesn’t, gives a wrong picture as this is exactly the opposite which is happening. In order to take into account the time needed to adapt to an increased competition from the EU, the DCFTA is asymmetric to the advantage of Ukrainian producers in the sense that the EU opens its markets much faster than Ukraine. Actually, most Ukrainian goods can be sold duty free on the EU market since April 2014, when the EU decided to anticipate the entry into force of the Association Agreement and opened its market unilaterally in line with the provisions of the DCFTA. On the other hand, the decrease in tariffs on the Ukrainian side is very progressive and gradual, as it can take up to ten years.

Fifth, not only the DCFTA is about more than trade in agriculture, but it is also about much more than just trade. It foresees reforms in a number of fields of the Ukrainian economy: competition rules, public procurement, intellectual property, services, financial sectors, etc. If implemented genuinely by the Ukrainian authorities, this will improve the competitiveness of Ukrainian businesses (big and small) and encourage foreign investments. This will take time and political will to implement, and changes will not happen overnight, but this is the real game changer for Ukraine.