10 Apr 2006

The Prospect of Deep Free Trade between the European Union and Ukraine

T. Huw Edwards / Michael Emerson / Olexandr Shevtsov / Rainer Schweickert / Andreas Schneider / Valeriy Pyatnytskiy / Vira Nanivska / Daniel Müller-Jentsch / Matthias Lücke / Ildar Gazizullin / Olga Shumylo

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This study examines the feasibility, content and likely economic impact of a free trade agreement between the EU and Ukraine. A simple and shallow free trade agreement, adding only the elimination of tariffs on trade in goods to the conditions for WTO accession, is the most easily feasible option, but would yield only modest benefits for Ukraine and less still for the EU. By contrast, a deep free trade agreement (or ‘FTA+’) with the EU, while posing more difficult issues of feasibility, could be a centrepiece of an economic strategy leading Ukraine into rapid growth. An FTA+ with the EU would entail an extensive, yet still selective, alignment of Ukraine’s external and internal market laws and standards with those of the EU. Politically, this step would be consistent with Ukraine’s ‘European choice’.
The country has little or no chance of becoming a prosperous economy and society without openness and integration into the European and global economy, alongside compliance with normal standards of advanced economic governance at home. Not being a natural resource-based economy, Ukraine has no choice but to develop a competitive and diversified economy centred primarily on industrial and service sectors. This point is underlined by the increase in the price of imported energy since the start of 2006.
Nevertheless, there is evidence suggesting that the combination of economic openness, convergence on modern European and international standards of economic regulation and corporate governance and proximity to EU markets could lead to a sustainable high growth path for Ukraine. The country’s economic paradigm could change drastically, with a re-branding of its reputation and with its industry entering into the European and global supply chain. Such a strategy would also be of value to the EU economy in meeting the challenges of globalisation and Asian competition.