External initiatives pushing reforms forward and promoting regional integration: Ukraine

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1 External initiatives pushing reforms forward and promoting regional integration: Ukraine Speaker: Veronika Movchan Institute for Economic Research and Policy Consulting

2 Outline 2 Motivation issues WTO membership and developmental goals DCFTA with the EU and developmental goals Summary

3 Motivation for WTO membership and RTA 3 Membership in the WTO and signature of RTAs are not goals per se. They are tools for achieving the ultimate goal of economic policy Key questions: What is the ultimate goal of Ukraine? What does Ukraine want to achieve in long-run? The answer should form economic policy decisions, including decisions on directions and deepness of regional integration and membership in the WTO Ukraine s ultimate economic goal could be formulated as: Socially inclusive and sustainable economic prosperity of the country Institute for Economic Research and Policy Consulting

4 Intermediate goals 4 of economic policy To achieve this ultimate goal, the following intermediate goals should be met: 1. Favourable domestic business and investment environment promoting competition 2. Improved access to external markets (access as free as possible to as many markets as possible) 3. Reduced energy vulnerability (through increased energy independence and efficiency) 4. Environment-friendly (i.e. sustainable) growth 5. Reduced multi-dimensional social exclusion Opportunities provided by deeper intergation with other countries should be assessed against the background of intermediate goals Institute for Economic Research and Policy Consulting

5 WTO membership and 5 intermediate goals 1. Favourable domestic business environment, competition Reforms in TBT/SPS sphere Higher protection of intellectual property rights Reduced economic distortions Liberal regulation of services sectors 2. Improved access to external markets Elimination of export quotas on steel in EU Opportunity to launch FTAs talks with EFTA and with the EU Access to Dispute Settlement Reduced export duties and cancelled export bans in exchange of better access to Ukraine s market 3. Reduced energy vulnerability 4. Environment-friendly (i.e. sustainable) growth 5. Reduced multi-dimensional social exclusion Institute for Economic Research and Policy Consulting

6 WTO: Technical regulation 6 The system of old standards (GOSTs) was partly replaced with the system of technical regulations based on international standards 43 valid technical regulations in Ukraine (April 2013) The reform of the certification system started the number of goods subject to obligatory certification was reduced greatly voluntary declarations of conformity were introduced instead The national market surveillance system was established

7 WTO: SPS measures 7 Ukraine also reformed sanitary and phytosanitary (SPS) control system The State Veterinary and Phytosanitary Service was established in 2011 as a single surveillance authority in the area of food safety Red tape was reduced: compulsory certification of food products (except for alcohol and tobacco) was revoked the regime of general product safety in case of absence of specific mandatory requirements was introduced

8 WTO: Intellectual property 8 Ukraine committed to fulfill the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) after joining the WTO the agreement ensures that the member countries protect equally intellectual property rights of both domestic and foreign copyright holders The country enhanced intellectual property rights protection during the negotiation period (2005) licensing of export and import of optical disks and equipment for their production was introduced criminal liability for intellectual property piracy related to optical discs was increased

9 WTO: Equal opportunities 9 Elimination of most subsidies in was partly influenced by the WTO Ukraine abolished subsidies for shipbuilding, aircraft manufacturing, automotive industry, space industry In agriculture, agreed aggregate measure of support (AMS) has been set at UAH 3 billion plus 5% de minimus Ukraine preserved subsidies for coal sector and some other potentially actionable subsidies

10 WTO: Trade in services 10 Most service sub-sectors were already open and Ukraine committed to preserve their status quo Ukraine made commitments in 148 out of 160 service subsectors (the record-holder at the time) Sub-sectors are open for the modes of supply I, II, and III (cross-border supply, consumption abroad, and commercial presence), not for the mode IV (presence of a natural person) Ukraine made several sub-sectors more open: Financial sector: branches of foreign banks (2008) and insurance companies (2013) were allowed to operate Telecommunication, TV and radio: limitations on foreign ownership was abolished (2000 and 2006, respectively) Rail transport: non-discriminatory freight rates were introduced (2005)

11 WTO: Trade in services 11 However, foreign access to some service subsectors remain limited Individuals may provide services only if they obtain permits to stay and to work (the IV mode of supply) Foreigners may not own agricultural land in Ukraine; acquisition of non-agricultural land is limited Access to internal transport services market is restricted (road, rail, and internal waterways transport) There are restrictions for providers of health and educational services Foreign ownership of news agencies is limited (<35%)

12 12 WTO: Access to external markets Export duties were decreased Oilseeds: from 17% to 10% Cattle: from 50% to 10% Skins: from 30% to 20% Ferrous scrap metal: from 30 EUR to 10 EUR per ton Most quantitative restrictions were cancelled The EU abolished quotas on imports of Ukrainian steel Ukraine got access to Dispute Settlement Mechanism Ukraine signed FTA with the EFTA and completed negotiations with the EU

13 13 WTO: Access to domestic market Import duties were significantly reduced the massive reduction started in mid-2000 s and completed in May 2013 (within 5 years after the accession to the WTO) The weighted average MFN import tariff Agricultural products Industrial products Before changes in % 6.7% The final bound MFN rate (2013) 10.1% 4.8%

14 Ukraine-EU trade regime 14 Partnership and Cooperation Agreement (1998): Most Favoured Nation (MFN) regime EU Generalised System of Preferences (GSP): High level of utilization by Ukraine (85%) DCFTA talks started in February 2008 and completed in 2011 Association Agreement between Ukraine and the EU including DCFTA was initialled in March 2012 Next steps: Signature (not to be expected before Ukraine s parliamentary elections) Ratification

15 DCFTA and intermediate 15 goals 1. Favourable domestic business environment, competition Further reforms in TBT/SPS sphere, ACAA Further strengthening of protection of intellectual property rights Streamlined state aid, public procurement, and competition policy 2. Improved access to external markets Elimination of industrial tariffs Liberalisation of agricultural trade Elimination of EU export subsidies in trade with Ukraine Elimination of export duties after transition in exchange of better access to Ukraine s market 3. Reduced energy vulnerability 4. Environment-friendly (i.e. sustainable) growth 5. Reduced multi-dimensional social exclusion Institute for Economic Research and Policy Consulting

16 DCFTA: regulatory changes 16 Key components of improved investment and business environment: TBT and SPS systems aligned with European and international practices Agreement on Conformity Assessment and Acceptance of industrial products embedded in DCFTA Streamlined state aid and public procurement policy Streamlined competition policy Improved protection of intellectual property rights Liberalization of foreign investment regime More than 400 EU directives are expected to be implemented into Ukraine s legislation within 12 years after the agreement becomes effective

17 DCFTA: Improved access to 17 EU market EU market: 500 m consumers, USD 14 trillion market Key components of improved access: Nullification of industrial tariffs Liberalisation of agricultural tariffs Elimination of EU export subsidies in trade with Ukraine Service trade liberalisation In exchange of access to Ukraine s market Nullification of industrial tariffs Liberalisation of agricultural tariffs Service trade liberalisation The EU will nullify import tariffs for majority of products immediately, Ukraine will have a transition period Ukraine will be able to use some special provisions

18 DCFTA: other issues 18 Key components of sustainable and socially inclusive development: Provisions regarding alignment with EU ecological standards Adherence to minimal social standards Reinforcement of Ukraine s commitments within the European Energy Community

19 Summary 19 The accession to the WTO influenced Ukraine s economic policy substantially though trade liberalization, elimination of subsidies, and regulatory changes. Thereby, the WTO membership has allowed progressing in some of the country s developmental goals (better business climate, more competitive economy, better access to other markets). The DCFTA with the EU is expected to further facilitate reform process supporting key economic goals of Ukraine. In the case of Ukraine, integration in the world economy through the WTO membership and RTAs has played role of driver of internal reforms and economic growth.

20 20 Thank you! Contact information: The Institute for Economic Research and Policy Consulting Reytarska 8/5-А, Kyiv 01034, Ukraine Тел Факс