“Making the most of EU free trade”

  • “Making the most of EU free trade”
Issue 81, July 2015.

With the EU-Ukraine Association Agreement set to come into force on 1 January, 2016, companies across Ukraine are looking for ways to make the most of the opportunities presented by the free trade component of this landmark agreement. The ongoing conflict with Russia, which for decades had been a primary market for Ukrainian goods and services, has added a sense of urgency to the process of expanding into EU markets, creating a situation where thousands of Ukrainian companies are increasingly viewing trade with the European Union as the central component of their long-term business plans. Trade between Ukraine and the EU has already been steadily increasing for some years, allowing EU nations to collectively surpass Russia as Ukraine’s number one trade partner. However, the advent of an extensive free trade zone between Ukraine and the EU will take this relationship to an entirely new level, bringing with it enormous opportunities while creating considerable challenges for Ukrainian companies looking to adapt to EU regulations and appeal to potential new European partners. As Ukraine prepares for the full implementation of the EU Association Agreement, Lviv Today spoke to EU integration expert Olivier Vedrine about the opportunities and potential pitfalls which lie ahead. French academic Vedrine has been involved in activism and educational efforts to promote EU integration since his student days in the early 1990s, and currently serves as a member of the Academic Council of the Assembly of European Regions. A vocal advocate of Ukraine’s EU integration, Vedrine believes that the Association Agreement could serve as a watershed moment in Ukraine’s postSoviet development. However, he cautions that Ukrainian companies must first learn to navigate the Brussels bureaucracy and promote their interests at the EU institutional level, while also battling corruption and improving quality controls on the home front. Many Ukrainian companies are currently looking to expand into EU markets.

Which areas of EU regulatory policy offer the biggest challenges to Ukrainian exporters?

While external economic and financial assistance are essential, trade and investment are also key instruments in helping secure long-term sustainability for Ukraine. All Ukrainian companies stand to benefit enormously from the ambitious DCFTA trade deal with the EU which is part of the Association Agreement. For example, Ukrainian exporters will save almost half a billion euros annually due to reduced EU import duties. Ukrainian agriculture will benefit from cuts in duties on agricultural and processed agricultural products of almost EUR 400 million. The different levels of economic development of the EU and Ukraine are reflected by the asymmetrical nature of the Association Agreement. It is designed to provide Ukraine with favourable treatment, for example, through the faster and broader opening of EU markets, combined with a longer period for the implementation of similar measures on the Ukrainian side. The European Commission stands ready to react quickly to ensure the rapid provisional application of the AA/DCFTA.

Which sectors of the Ukrainian economy are best positioned to take advantage of the opportunities presented by the free trade dimension of the EU-Ukraine Association Agreement?

Ukrainian agriculture will be a key beneficiary, enjoying cuts in duties on agricultural and processed agricultural products of almost EUR 400 million. Energy and energy security, as well as affordable prices, are essential for the stability and security of Ukraine. The EU will work with the government in Ukraine, including through budget support, to ensure the long-term diversification of supplies and to make sure that the Ukrainian gas transit system continues to be an essential transit route for gas supplies to Europe. As such, the European Commission will continue to work with the government in Ukraine to modernize its gas transit system in cooperation with the EIB, EBRD and World Bank, as gas sector reforms in line with European Energy Community commitments are carried out. Provided that certain conditions are fulfilled, an initial loan could be possible in the near future.

Few Ukrainian companies have significant experience of lobbying EU institutions to protect their interests. What key tips could you offer for Ukrainian companies looking to make themselves heard in the Brussels corridors of power?

Various different interest groups are able to successfully influence policy-making within the EU. The question of lobbying in the EU is central to the study of modern European politics and economics. Ukrainian companies need to know how to deploy instruments of influence to make themselves heard in EU institutions. The Treaty of Lisbon introduced a new dimension of lobbying at the European level that is different from most national lobbying. Lobbying in the EU is not to be confused with lobbying in Ukraine! At the national level, lobbying is more a matter of personal and informal relations between officials and the national authorities, whereas lobbying at the European Union level is increasingly a part of the political decision-making process, and thus part of the legislative process. ‘European interest representation’ is a key part of the new participatory democracy emerging within the European Union. I think Ukraine as a whole, and individual Ukrainian companies, need to be more vocally represented in the European Union, and need to establish permanent representation in order to promote their own European interests.

Adhering to EU regulations represents a significant investment for many Ukrainian companies. What advice would you give to companies to allow them to avoid unnecessary expenses while adapting to meet EU standards?

Ukrainian companies have to organize themselves and should seek to share the burden of investments by engaging competent law firms and experienced officials to represent their interests among EU institutions. I think also that Ukrainian law firms should be looking to provide some training about EU lobbying to Ukrainian companies in order to better explain how EU policy works.

What are the most important first steps for any newcomer Ukrainian companies seeking to establish a presence in EU markets?

The first step for any Ukrainian companies looking to break into EU markets is to find the right place, at the right time, and with the right contacts! Engaging experienced professionals with large EU networks of contacts is the first step.

What steps do you think the Ukrainian authorities should consider in order to support Ukrainian companies looking to develop their business interests inside the EU?

The Ukrainian authorities need to organize economic diplomacy and develop a broad strategy to support Ukrainian companies in their quest to expand their business interests inside the EU. The support of the Ministry of Economic Development or the Ministry of Foreign Affairs can be very useful for Ukrainian companies seeking to expand inside the EU. This approach has long been central to US strategy in its dealings with the EU.

By adopting EU standards, Ukrainian exporters will theoretically also gain increased access to global markets. How can Ukrainian companies take advantage of these global opportunities?

There is no question that Ukrainian companies will gain global advantages by adopting EU standards. However, the top priority for Ukrainian producers is to improve quality norms. They cannot product products to the kind of quality standards common in the previous Soviet era if they are serious about international expansion. The biggest advantage Ukraine enjoys is the country’s strategic position. Combined with the adoption of EU standards, this should prove a winning combination. Ukraine is located at the geographical centre of continental Europe and occupies a prime gepolitical position as a gateway nation between the EU, Russia, and Central Asia. It also enjoys excellent access to the Middle East through growing business ties with Turkey.

The Ukraine-EU Association Agreement is expected to attract investment into Ukraine. Which Ukrainian industries are bestplaced to attract EU investment?

Economic support from the EU currently takes the form of both macro financial and development assistance. The European Commission is ready to mobilize some EUR 3 billion from the EU budget in the coming years, with the understanding that a substantial part of this money can be made rapidly available to help Ukraine address its more urgent needs, including stabilizing the financial situation and supporting the functioning of the country’s administration. Ukraine needs stabilization in order to attract international investments. In this context, the economic support of the EU is very important. First and foremost, international investors who are theoretically interested in Ukraine seek stability. They are also waiting to see some positive results of the fight against corruption and the reform process which the Ukrainian administration is currently committed to. To answer the question directly, I think the five Ukrainian sectors best placed to attract international investment are the agricultural sector, energy sector, raw materials sector, chemical industries sector, and metalurgy sector.

About the author: Olivier Vedrine (olivier.vedrine@gmail.com) is an EU integration expert at Ukrainian law firm Proxen. He is also President of the Continental University business school in Kyiv and member of the Academic Council at the Assembly of European Regions in Strasbourg.