Ukraine's will to liberalise:Tested on many fronts

04-11-2015

Faced with a deteriorating economy, unstable internal security and the financial repercussions of military efforts in the east, Ukraine is striving to create a business-friendly climate. To this end, the country is preparing for the enforcement by 1 January 2016 of the Deep and Comprehensive Free Trade Area (DCFTA) created under the Association Agreement with the EU. The war and a decline in industrial output have led Ukraine's foreign trade to contract. Imports have been hit by the country's shrinking GDP, and exports are also declining. In the case of exports to Russia, several embargos and the unpredictability of the Russian market have compounded the toll. On the other hand, exports to the EU have demonstrated a surprising resilience, thanks largely to the positive performance of agriculture. While the EU has granted the country autonomous trade measures, these may not be responsible for the recent strength of Ukraine's agricultural exports; instead, traders’ new market orientation may be the cause. Russia's opposition to the implementation of the DCFTA has been muted since trilateral trade negotiations with the EU and Ukraine were launched. A mutually acceptable solution may be found – or not – by the end of 2015. Ultimately, any real improvement in Ukraine's economy will depend on the termination of military activities in the east, on not totally losing trade with traditional Eurasian partners, on the effective entry into force of the DCFTA, on debt restructuring and on a commitment to ambitious reforms. Ukraine's current trade barriers must be removed. For now, at least, Ukraine seems dedicated to doing just that.

Faced with a deteriorating economy, unstable internal security and the financial repercussions of military efforts in the east, Ukraine is striving to create a business-friendly climate. To this end, the country is preparing for the enforcement by 1 January 2016 of the Deep and Comprehensive Free Trade Area (DCFTA) created under the Association Agreement with the EU. The war and a decline in industrial output have led Ukraine's foreign trade to contract. Imports have been hit by the country's shrinking GDP, and exports are also declining. In the case of exports to Russia, several embargos and the unpredictability of the Russian market have compounded the toll. On the other hand, exports to the EU have demonstrated a surprising resilience, thanks largely to the positive performance of agriculture. While the EU has granted the country autonomous trade measures, these may not be responsible for the recent strength of Ukraine's agricultural exports; instead, traders’ new market orientation may be the cause. Russia's opposition to the implementation of the DCFTA has been muted since trilateral trade negotiations with the EU and Ukraine were launched. A mutually acceptable solution may be found – or not – by the end of 2015. Ultimately, any real improvement in Ukraine's economy will depend on the termination of military activities in the east, on not totally losing trade with traditional Eurasian partners, on the effective entry into force of the DCFTA, on debt restructuring and on a commitment to ambitious reforms. Ukraine's current trade barriers must be removed. For now, at least, Ukraine seems dedicated to doing just that.