Free Trade Deal With EU Turns Into 'Drag' on Ukraine’s Economy

Ukraine’s free trade agreement with the EU which caused Kiev’s break with Russia looks like it is benefiting Brussels more than it is helping Ukraine, a Bloomberg columnist wrote.

The deal brings Ukrainian laws and regulations in line with EU framework as well as lowers and eliminates most tariff barriers between the two sides. The trade part of the deal came into effect in January 2016 and has already had a negative impact on the Ukrainian economy.

"Taken at face value, as a deal on tariffs and quotas, the Ukraine-EU agreement is skewed in favor of European companies," columnist and author Leonid Bershidsky wrote for Bloomberg View.

Under the deal, the European Union has imposed strict quotas for some of the most important Ukraine’s export goods, including agricultural products like honey, sugar, corn, grape and some cereals. Some of the quotas had already been filled by the beginning of May, and Kiev would not be able to balance its trade.

In April, the German newspaper Wirtschaftswoche reported that Ukrainian agricultural companies are suffering significant losses, although the Kiev government promised them huge profits from the trade with the European countries.

The EU has allowed Kiev to trade goods which are almost not produced in Ukraine. On the other side, products like milk and cereals which could bring significant revenue to Ukraine face significant restrictions and can be exported to the EU only in small amounts, the article read.

"Apart from angering Russia, which has raised trade barriers with Ukraine in response to the EU deal and caused both exports and imports to plummet, the agreement is making a negative net contribution to Ukraine's trade balance — not particularly welcome news for a country whose international reserves, at $13.2 billion, cover less than three months of imports," Bershidsky pointed out.

What is more, European officials have told Kiev not to expect benefits from the deal in the near future because European businessmen need time to assess advantages of running business in Ukraine.

"Ukraine, however, is far from ready to receive them. […] The biggest obstacles are massive corruption and a business climate that makes it hard to make a profit while following all the rules," the author noted.

In order to benefit from the free trade deal Ukraine should enforce transparent and reasonable rules for European investors, the author suggested. If they are not imposed the deal will be a "drag on the trade balance, preventing business with Russia and favoring European exporters over Ukrainian ones."