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KyivPost: EU-Ukraine trade ties better than political
9 July 2012
While political relations between Ukraine and the European Union are frosty, business relations are rebounding.

Bilateral trade has gradually recovered to pre-2009 crisis levels.

Foreign direct investment from EU countries into Ukraine also continues to inch up. According to Ukrainian government figures, foreign direct investment from the EU into Ukraine increased 11 percent in 2011 from the previous year, reaching a cumulative $39.4 billion since independence.

That accounts for 80 percent of all FDI that has poured into Ukraine. Overall FDI inflows, however, are relatively small compared to that attracted by neighboring Poland and others.

Moreover, more than half of that investment into Ukraine last year appears to be from offshore tax haven Cyprus, popular with Ukraine’s billionaire oligarchs who transfer the money out of the nation and then repatriate part of those profits.

On a positive note, the volume of Ukrainian exports to EU nations from 2010-2011 jumped by 47 percent, to nearly $18 billion. Exports to Bulgaria, Estonia, Italy, Poland, Portugal, Romania and the Czech Republic roughly doubled. Exports to Greece and Malta tripled and quadrupled, respectively.

“Some recovery is apace, but it will be slow ahead due to the [tough] situation both in Ukraine and globally,” said Ildar Gazizullin, senior analyst at the Kyiv-based International Center for Policy Studies. “We are witnessing only a return to pre-crisis levels,” not a major increase in trade and investment, Gazizullin said. “If the free trade and association agreements with the EU took effect, we would have much higher interest from investors.” Ukraine’s trade deficit with the EU continues to widen as stagnant exports of raw materials are outpaced by rising imports of finished and high value-added goods from Europe.

Meanwhile, deeper trade ties are on hold because of EU discontent with what the West regards as persecution of President Viktor Yanukovych’s political opponents, chief among them the imprisoned former Prime Minister Yulia Tymoshenko.

In the long-term, the agreement could foster a boom in bilateral trade and larger investment inflows into Ukraine. But in the short-term, Ukrainian producers could struggle to compete with higher quality EU products.

Demand is expected to remain relatively high for Ukraine’s main exports, raw materials such as steel, ore and grain. These businesses, however, mostly benefit already rich domestic players and multinational companies.

A European Commission study published in 2011 shows that European exports to Ukraine have increased substantially over the last decade. According to the study, last year 40.9 percent of Ukrainian imports came from the EU, with half coming from small- and medium-sized enterprises. Ukraine’s economic future depends on supporting such businesses.

While the government does not breakdown import-export statistics to show how small, medium and large enterprises are faring, experts say small businesses are gradually exporting more to the EU. Levels are small, but offer hope for growth.

A helping hand

In order to improve EU market access for smaller enterprises in developing countries like Ukraine, the European Commission in 2005 launched an online service that offers all up-to-date information on tariffs and other information needed by exporters, as well as free consultations. Called Export Helpdesk and available at http://exporthelp.europa.eu, the service is available in six languages.

According to the Export Helpdesk figures, the service has proven to be increasingly popular among Ukrainian businesses in recent years. Past months saw averages of around two thousand information requests from businesses with questions regarding various export requirements.

“This service is primarily set up to help small- and medium-sized firms that do not have many resources to hire much export staff or outsource consultant companies to help them export their products into the EU,” said David Stulik, press attache at the EU delegation in Ukraine.

Yulia Papizhuk, export manager at Pomidora, a tomato product producer, says she visited the website and finds it valuable. She says that her company relies on Ukraine’s domestic market and exports are small, but Papizhuk hopes to boost sales to the Baltics and Poland.

Overall, however, Ukrainian companies are not expected to sharply boost EU exports until the Yanukovych administration ends it political clash with Brussels and signs a free trade deal. “I think the free trade agreement would make it easier [for Ukrainian firms to export to the EU]. There would be fewer barriers,” said Pomidora’s Papizhuk.

Source: Kyivpost

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