Why the suspension of EU trade preferences should not significantly hit Ukraine’s exports
On 5 June, the Autonomous Trade Measures (ATMs) introduced by the European Union in 2022 to support Ukraine and its export potential will come to an end.
In the coming months, everything will revert to the framework of the Deep and Comprehensive Free Trade Area (DCFTA), whose terms were established back in the early 2010s.
At the same time, negotiations will continue on revising trade conditions under Article 29 of the Association Agreement to minimise losses. The Ukrainian government hopes to secure improved trade terms as soon as possible, ideally before the harvest season begins.
Read more to understand what the return to the "old" trade regime really means for Ukraine’s exports and economy in the article by Veronika Movchan of the Institute for Economic Research and Policy Consulting: Exports without preferences: what will the change in trade terms with the EU mean for Ukraine?
Ukraine’s expected losses from the return to the "old" trade regime under the free trade area are estimated at about 0.2% of GDP annually.
In reality, this is not much.
First, it’s important to understand that the preferences ending on 5 June apply only to a smaller share of Ukrainian exports.
The vast majority of goods of Ukrainian origin are not subject to EU tariffs.
Second, since tariff quotas are complex tariffs rather than quantitative restrictions, exports to the EU will continue even after the tariffs return. However, products will become less price-competitive on the EU market, which will lead to a reduction in supply.
According to estimates by the Institute for Economic Research and Berlin Economics, the return to DCFTA tariff quotas will lead to a $1.5 billion drop in Ukraine’s exports to the EU.
The main goods affected by the end of the ATMs are wheat, sugar and poultry.
But if we consider the overall impact on the economy, the key question is whether exports can be redirected to other markets if the EU market remains closed for more than a few months, as currently suggested by the European Commission.
Wheat exports, which amounted to $0.9 billion to the EU, can be redirected with only a minor loss in value.
If the end of the preferences results in a total export decline to the EU of $1.5 billion, that leaves a remaining loss of $0.6 billion.
Let’s assume that redirecting sugar and poultry exports results in a 50% loss in value (a very strong assumption, as actual losses are likely lower).
Under this scenario, Ukraine’s total exports would fall by $0.3 billion.
Moreover, it’s important to note that these losses would be even smaller if a new preferential regime (now under Article 29) comes into effect quickly, as the government hopes.