2. 1. Main measures of the DCFTA
• Most trade tariffs & quotas on imports/ exports removed.
• Gradual elimination in some "sensitive" segments.
Also:
Cut non-tariff barriers.
Improve food safety, animal welfare.
Simplify trade administration.
Develop mechanisms for solving trade disputes.
Why deep and comprehensive?
•
•
•
Harmonisation of commercial rules.
Liberal trade regime will apply to new kinds of business.
Gradual incorporation of public procurement.
2
3. 2. Impact of the DCFTA: different views
Different takes reflect political agendas.
For the EU: a bright future
• Modernisation of trade & economy.
• Boost real GDP.
• Raise buying power.
• Net gain of €100m/ year from elimination of trade duties.
For Russia: dire warnings
• Poor-quality products > exports fall > external deficit expands
• Currency crisis, macroeconomic destabilisation.
• Russia might disrupt trade as in August.
• Russia might reconsider border treaties.
• Political/ social costs: separatism? Collapse of Ukrainian state?
• Sergei Glazyev calls step "suicidal"—more like assisted suicide?
3
4. 3. Ukraine’s economy now
yryr%<N926NGPC>
yryr%<N926IMD>
yryr%<N926IXD>
15.0
80
7.5
40
0.0
0
- 7.5
- 40
- 15.0
- 22.5
Economy ailing, vulnerable to
shocks.
• GDP: fell for 4th qtr in Apr-Jun 2013.
• Industry & exports: still falling JulAug.
• Current-account gap widened in JulAug.
- 80
03
04
05
06
07
08
09
10
Sources: Haver Analytics, The State Committee of Statistics
11
12
13
Ukraine: Foreign Reserves: Foreign Exchange
EOP, Mil.USD
Some signs
• Borrowing costs rise sharply from May
• Reserves used to meet debt repayments
• Devaluation expectations rise
• NBU returns to intervention in currency
markets in Sep.
40000
40000
36000
36000
32000
32000
28000
28000
24000
24000
20000
20000
16000
16000
11
12
Source: National Bank of Ukraine /Haver Analytics
4
13
5. 4. The long and the short of it
EU and Russian versions emphasise different time frames.
EU version: Over the longer term
• Specialisation brings trade gains.
• Trade gains maximised as EU is large market.
• Wider range, better-quality products.
• Lower prices and higher living standards.
• Ukrainian products more competitive outside EU.
• Harmonisation of business rules attracts investment.
Russian version: In the short run
• More economic adjustment as competition diverts
resources to stronger sectors: business closures, job
losses in weaker sectors.
• Poland & Croatia: shipyards; Latvia: engineering.
• Those who lose out may not be ones to benefit.
• Costs: EU trade admin, food and labour safety.
5
6. 5. What’s missing?
Important considerations that temper both scenarios.
Against Russia's catastrophism:
Ukraine's external gap is large, BUT
In large part because of high gas prices.
Devaluation should narrow trade gap.
Financing could come from IMF, EU.
Against EU's idealised trade liberalisation:
Ukraine's political economy
• Weak state overcome by business-political groups
• Profits sustained by blocking market entry
• DCFTA provisions of competition,
procurement, working conditions may face
resistance
6
