Page 24 - bne_newspaper_February_01_2019

Opinion
February 1, 2019 www.intellinews.com I Page 24
KYIV BLOG: Dropping export quotas on Ukrainian goods to Europe would fix its worst problems
Ben Aris in Berlin
It’s not even the end of January and Ukraine has already used up its entire year’s quota for duty free exports to Europe of corn, honey, grapes and apple juice. Quotas on other products are running out fast: starch (17% of the quota used), sugar (38%) and wheat fibre (44%).
Ukraine has a Deep and Comprehensive Free Trade Area (DCFTA) agreement with the EU. But thanks to restrictive quotas that are attached it’s more of a Shallow and Restrictive Not-so-free Trade Area.
Ukraine’s economy is flat on its back and it needs to expand its existing businesses and create new ones. After 20 years of almost no reforms the country has all of the post-Soviet catch-up growth ahead of it whereas most of the other countries in the region have already exhausted these easy gains, but transformed people’s lives in the process.
Starting from such a low base — as bne Intel- liNews recently reported in “HEATMAPS: Unem- ployment is mostly defeated but pay is not high enough” Ukraine has the lowest salaries and GDP per capital in Europe — Ukraine is the best invest- ment story in the Former Soviet Union (FSU) and will boom — eventually.
The problem is that its pivot to the west has come at a very high price. The benefits of this turn, while clear in the long run, are causing a great deal of pain in the short-term.
Ukraine has always run a big trade deficit with the EU.
The collapse of trade with Russia that followed
the clash over Crimea has not been compensated with new trade with the EU. Ukraine’s foreign trade grew by 12% last year, hitting $104bn, according to the State Fiscal Service. But exports were up 9% to $47.3bn, while imports were up 15% to $56.8bn, leaving Ukraine with a $9bn trade deficit.
Exports to Europe are growing fast and the EU is now Ukraine’s biggest trade partner accounting for about third of the total. But Ukraine’s exports to the EU are tightly regulated, while imports from Europe are not. Ukraine exported some $14bn
of goods to the EU, while it imported over $16bn, leaving a trade deficit of more than $2bn. Indeed, Ukraine has always run a sizeable trade deficit with the EU.
At their peak, Ukrainian exports to Russia reached $11bn in 2011, according to Trading Economics, but trade has all but collapsed since then. Last year, Russia exported to Ukraine $7.2bn worth of goods, up by a robust 20%, which almost double the amount of Ukrainian goods bought by Russia, down by 5% to $3.9bn, according to Ukrstat. That leaves a trade deficit with Russia, a country that Ukraine is at war with in all but name, of over $3bn. This year the deficit will only get worse after Russia expanded a ban on Ukrainian imports in January.
“The EU’s share of Ukrainian exports has reached a historic maximum of 42.5%,” President Petro Poroshenko said on January 5. “The structure of Ukrainian exports has shifted significantly to-