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Black Sea Economic Forum

Impact of EU-Ukraine
free-trade agreement

Venezuela: 5 Year USD Credit Default Swap Par Bid Rat...
1. Main measures of the DCFTA
• Most trade tariffs & quotas on imports/ exports removed.
• Gradual elimination in some "se...
2. Impact of the DCFTA: different views
Different takes reflect political agendas.
For the EU: a bright future
• Modernisa...
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

E...
4. The long and the short of it
EU and Russian versions emphasise different time frames.
EU version: Over the longer term
...
5. What’s missing?
Important considerations that temper both scenarios.
Against Russia's catastrophism:
Ukraine's external...
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BSEF 2013 macroeconomy David Dalton

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BSEF 2013 macroeconomy David Dalton

  1. 1. Black Sea Economic Forum Impact of EU-Ukraine free-trade agreement Venezuela: 5 Year USD Credit Default Swap Par Bid Rate (bps) Egypt: 5 Year USD Credit Default Swap Par Bid Rate (bps) Ukraine: 5 Year USD Credit Default Swap Par Bid Rate (bps) 1200 1000 800 600 David Dalton © Economist Intelligence Unit 1000 800 October 24th-25th 2013 1200 600 400 400 200 200 JUL AUG SEP OCT NOV DEC JAN FEBMAR APR MAY JUN JUL AUG SEP OCT 13 Sources: CMA Datavision /Haver Analytics 1
  2. 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. 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. 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. 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. 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

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