Ukrainian busi­ness sees op­por­tu­ni­ties in oth­er­wise bleak Brexit con­di­tions

Kyiv Post - - Business - BY NATALIA DATSKEVYCH [email protected]

On June 23, 2016, the peo­ple of the United King­dom voted in a ref­er­en­dum to leave the Euro­pean Union. That de­ci­sion — now known sim­ply as “Brexit” — has led to nearly three years of pro­tracted po­lit­i­cal tur­moil in the coun­try.

The un­ex­pected de­ci­sion raised many con­cerns about how a U.K. exit from the Euro­pean Union com­mon mar­ket will af­fect in­ter­na­tional trade, cur­rently gov­erned by the bloc’s com­mon quo­tas and du­ties.

Bi­lat­eral trade be­tween Ukraine and the U.K. is far from enor­mous. As of 2018, it stands at only $2.53 bil­lion, with a neg­a­tive trade bal­ance of $247 mil­lion for Ukraine, ac­cord­ing to the State Statis­tics Ser­vice.

But even Kyiv is feel­ing Brexit’s shock­waves. Ukrainian busi­ness is ask­ing: How will trade now work? What will the tar­iffs be? How will du­ties and lo­gis­tics look once the U.K. gets a “di­vorce” deal?

But de­spite these con­cerns, some seg­ments of the Ukrainian busi­ness com­mu­nity see Brexit not as a risk, but as an op­por­tu­nity for growth.

“Trade be­tween Ukraine and the U.K. could in­crease very sharply,” says Bate Toms, a Kyiv-based lawyer and pres­i­dent of the Bri­tishUkrain­ian Cham­ber of Com­merce. “We should be­come the prin­ci­pal trad­ing part­ner of Ukraine in Europe, and maybe the prin­ci­pal trad­ing part­ner in the world.”

De­layed grat­i­fi­ca­tion

Brexit has al­ready been post­poned twice. The EU has set Oct. 31 as the new dead­line for an agree­ment in or­der to avoid the worst case sce­nario: the U.K. leav­ing the bloc with­out a deal.

“Ev­ery­one ex­pected that there would be an agree­ment be­fore the (2019) New Year, and af­ter that U.K. would have three months to set­tle trad­ing re­la­tions with other coun­tries,” said Alex Lis­sitsa, pres­i­dent of the Ukrainian Agribusi­ness Club. “But some­thing went wrong.”

Lis­sitsa said the U.K. has failed to sign free trade agree­ments with many dif­fer­ent coun­tries, in­clud­ing the most im­por­tant ones — China, Ja­pan and the United States.

“They signed trade agree­ments with Fiji, Panama and some other small coun­tries,” he says. “On the one hand, they’re los­ing the EU, and on the other hand they have (gained) noth­ing. They are dead­locked.”

There are other more tech­ni­cal con­cerns.

“The U. K. has been part of the EU for a very long time,” says Anzhela Makhi­nova, part­ner at the Sayenko Kharenko law firm. “The U. K.’s own cus­toms au­thor­i­ties, which will stand at the bor­der, the bor­der it­self, the cer­ti­fi­ca­tion bod­ies — they don’t ex­ist.

“It all needs to be cre­ated from scratch and, there­fore, it is dif­fi­cult to guess how it will be done in prac­tice and what prob­lems may arise.”

Agri-ad­van­tage

But with the U.K. leav­ing the EU, Ukraine may get a new mar­ket for its goods.

Be­tween 2013 and 2016, bi­lat­eral trade be­tween the coun­tries fell sharply — from $3.5 bil­lion to $2.05 bil­lion. How­ever, over the last two years, it has seen a 23-per­cent re­cov­ery.

How­ever, there has not been a sin­gle year in which Ukraine’s ex­ports to the U.K. have ex­ceeded its im­ports from the U.K.

But if Brexit goes ahead, experts be­lieve Ukraine’s pow­er­ful agri­cul­tural sec­tor could prove a big win­ner.

“The U. K. is a sig­nif­i­cant net im­porter of food. Re­mov­ing quo­tas and elim­i­nat­ing the re­main­ing food tar­iffs would be good for the British con­sumer and ben­e­fit Ukraine in terms of its op­por­tu­nity to sell more food and agri­cul­tural pro­duce to the U.K.,” says Martin Pot­ter, the founder of BlueBirch, a Lviv-based con­sul­tancy for U.K. busi­nesses that op­er­ates in Ukraine.

In 2018, 35 per­cent of all goods the U.K. im­ported from Ukraine were food and agri­cul­tural prod­ucts, worth a to­tal of $238.7 mil­lion, ac­cord­ing to the Ukrainian Exporters Club.

Ukraine's largest agri­cul­tural hold­ing, My­ronivsky Hli­bo­prod­uct, or MHP, ex­ported a mod­est 484 tons of poul­try to the U.K. last year. But that num­ber could be much higher if the com­pany is able to by­pass the EU, experts fore­cast.

“When I talk to peo­ple in Bri­tain, they all say they can’t trade with Ukraine un­der the EU’s rules. So, they’re sourc­ing (pro­duce from) Ro­ma­nia, France and Ger­many, but it’s much more ex­pen­sive and it lim­its food se­cu­rity,” says the Bri­tishUkrain­ian Cham­ber of Com­merce’s Toms.

Toms thinks that Ukraine will be among the U.K.’s safest op­tions to en­sure food se­cu­rity. Both Ger­many and France are con­sis­tently grow­ing in pop­u­la­tion, mean­ing the amount they can ex­port is lim­ited.

“Ukraine is the op­po­site — the pop­u­la­tion is de­clin­ing and pro­duc­ing more food,” he says.

Ukrainian agri­cul­ture isn’t the only sec­tor that could po­ten­tially ben­e­fit from Brexit. Met­al­lurgy faces four anti-dump­ing du­ties in the EU. Af­ter Brexit, there will only be one such duty — the one Lon­don im­posed as a World Trade Or­ga­ni­za­tion mem­ber.

Bri­tain is a ma­jor con­sumer of metal, but lacks a do­mes­tic man­u­fac­turer.

“Def­i­nitely, those Ukrainian pro­duc­ers will ben­e­fit,” says Sayenko Kharenko’s Makhi­nova.

Ac­cord­ing to Mark Pritchard, the U.K. prime min­is­ter's trade and in­vest­ment en­voy to Ge­or­gia and Ar­me­nia (Ukraine has no en­voy), there is also a huge op­por­tu­nity to in­creas­ing trade and in­vest­ment be­tween the U.K. and Ukraine.

“This is es­pe­cially true in fi­nan­cial ser­vices, ed­u­ca­tion, new and emerg­ing tech­nolo­gies, as well as U.K. com­pa­nies in­vest­ing in ma­jor in­fra­struc­ture projects in Ukraine,” says Pritchard.

How­ever, some experts are much more skep­ti­cal about Ukraine’s op­por­tu­ni­ties to in­crease ex­ports to the U.K. af­ter Brexit.

Ac­cord­ing to Iev­geniia Lytvynova, CEO and founder of the Ukrainian Exporters Club, Ukraine will face sig­nif­i­cant com­pe­ti­tion from pow­er­ful coun­tries that pri­or­i­tize trade with the U.K.

“Why should this be such a great op­por­tu­nity for Ukraine when ev­ery­one else will do ev­ery­thing pos­si­ble to main­tain their po­si­tions there?” she asks.

Lux­ury import

But while Brexit could ben­e­fit Ukrainian exporters, it might deal a blow to Ukrainian im­porters.

In 2018, Ukraine’s im­ports from the UK reached $1.4 bil­lion. Cur­rently, goods from the U.K. en­ter Ukraine at lower rates un­der the Kyiv’s Deep and Com­pre­hen­sive Free Trade agree­ment, or DCFTA, with the EU. If the UK leaves the EU, it will be­come like any other mem­ber of the World Trade Or­ga­ni­za­tion.

Un­til a new trade agree­ment is reached, Ukraine and the U.K. will not have any pref­er­en­tial rates, ac­cord­ing to Makhi­nova.

“For ex­am­ple, for fer­til­iz­ers there is a 6.5 per­cent duty for WTO mem­bers, but un­der the DCFTA there is a zero tax­a­tion. So, if the U.K. leaves the EU it will have to pay more,” she says.

As a fi­nal re­sult, Ukrainian im­ports from the U.K. could de­crease for a while.

But that is not guar­an­teed, says the Ukrainian Agribusi­ness Club’s Lis­sitsa. Ukraine largely im­ports cars and ex­pen­sive lux­ury goods from the U. K. In 2018, cars made up 44.8 per­cent of im­ports. As a re­sult, he be­lieves im­ports will re­main sta­ble.

“I do not think that it will be a prob­lem for those who pay $200,000 to buy a sin­gle Range Rover to (now) spend $215,000,” Lis­sitsa says. ■

A sig­nif­i­cant pro­por­tion, al­most 12 per­cent, of the all UK's import to Ukraine in 2018 were cars with a to­tal worth of $106 mil­lion, among which British car­maker Land Rover is one of the most pop­u­lar. (Volodymyr Petrov)

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