CFC Big Ideas in Kyiv,
Member of Board,
Ukrainian-British City Club,
Тhe jury is still out on the economic impact of Brexit, but Ukraine emerged late last year as an unlikely early beneficiary of Britain’s EU exit.
The UK and Ukraine signed an historic Political, Free Trade and Strategic Partnership Agreement on October 8, 2020 as London looked ahead towards the country’s post-Brexit future in 2021. UK Prime Minister Boris Johnson hailed the agreement as proof that Britain was Ukraine’s “most fervent supporter.” It marks a new chapter in bilateral UK-Ukraine relations and includes an ambitious free trade component that could see economic ties strengthen considerably.
The trade element of the new UK-Ukraine Agreement envisages preferential treatment on a range of goods and services. It is based on the 2014 EU-Ukraine Association Agreement. Around 98% of Ukrainian goods will now receive greater access to the UK market, with tariff quotas maintained in most cases. This agreement will allow Ukrainian exporters to boost exports significantly this year as Britain left the EU. For instance, the current quota for Ukrainian tomato paste exports to the EU is 10,000 tons. This will remain intact, while the new British agreement will open the way for an extra 2,000 tons of Ukrainian exports to the UK. There are also plans to expand current UK quotas in the coming years as Ukraine negotiates improved terms with the EU.
Freer trade with Ukraine will make a significant contribution to the UK’s food security. Britain is a major food importer and the new agreement means British consumers will benefit from a wider variety of affordable, high-quality Ukrainian products. Ukraine produces a great number of relatively inexpensive food products that are bound to appeal to British shoppers, including everything from honey to walnuts and a wide variety of fruit and veg.
There is clearly room for growth. According to Gov.UK, trade between the UK and Ukraine was worth a modest GBP 1.5 billion in 2019, or around USD 2 billion. Top UK goods exports to Ukraine were aircraft, medicinal and pharmaceutical products, and cars. Meanwhile, key Ukrainian exports in the opposite direction included cereals, iron and steel.
The signed trade agreement is a win-win for both nations. British Prime Minister Boris Johnson has demonstrated his commitment to expanding Britain’s global footprint after Brexit, while Ukrainian President Volodymyr Zelenskyy has scored arguably his first major foreign policy victory since he assumed office in May of 2019.
This success comes against a backdrop of grim international economic forecasts. According to an IMF report released in June, global output is set to contract by 8% this year, representing the biggest drop since World War II. Meanwhile, global trade volumes will fall by 10% as a result of coronavirus-related disruption, according to the World Trade Organization.
Politicians in many countries have responded to these challenging conditions by advocating protectionist policies. Some have also sought ways to reduce reliance on imports from China. This creates considerable opportunities for Ukraine, which is advantageously located on the eastern border of the European Union with convenient trade connections to EU member states, the UK, and countries throughout the Middle East and North Africa.
The coronavirus crisis has amplified existing pressures on global trade. Since 2017, the Trump presidency has marked a shift in US policy away from trade liberalization, leading to the rise of economic nationalism elsewhere. This has been bad news for developing economies like Ukraine, which are traditionally particularly vulnerable to restrictions on exports. The deteriorating international picture makes the recent breakthrough in UK-Ukraine trade ties even more welcome.
Looking ahead, the Ukrainian leadership should look to integrate the country’s economy into global supply chains and producing value added products for export. Much of Ukraine’s export economy remains concentrated in raw materials, but value-added products offer the promise of far higher revenues.
Significant efforts are also required in order to educate the Ukrainian business community about the opportunities created by trade deals such as the new agreement with the UK. There has already some progress in this direction following Ukraine’s Association Agreement with the EU, but much more can be done. Likewise, Ukraine must look to do a better job of selling itself internationally and needs to invest in a far more prominent presence at international trade-related events.
The UK-Ukraine Strategic Partnership Agreement is a great stepping stone in this direction. Kyiv must now pursue similar mutually beneficial deals with other countries. Ukrainian exporters have made considerable progress since 2014 in expanding their horizons, but there is still huge untapped potential. A bigger role in the global economy will help fuel Ukraine’s economic growth and attract investment, while also significantly strengthening Ukraine’s geopolitical position.
The article was partially published in UkraineAlert blog of the Atlantic Council.
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