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1. Main measures of the DCFTA
• Most trade tariffs & quotas on imports/ exports removed.
• Gradual elimination in some "sensitive" segments.
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. 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. Ukraine’s economy now
Economy ailing, vulnerable to
• GDP: fell for 4th qtr in Apr-Jun 2013.
• Industry & exports: still falling JulAug.
• Current-account gap widened in JulAug.
Sources: Haver Analytics, The State Committee of Statistics
Ukraine: Foreign Reserves: Foreign Exchange
• Borrowing costs rise sharply from May
• Reserves used to meet debt repayments
• Devaluation expectations rise
• NBU returns to intervention in currency
markets in Sep.
Source: National Bank of Ukraine /Haver Analytics
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. 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