EU tariff quotas as an incentive for reforms in Ukraine

On June 1, the European Parliament supported the proposal of the European Commission on the temporary increase in tariff quotas for several types of Ukrainian agrarian products. As noted in the adopted document, new quotas are introduced in addition to the already defined ones by the Association Agreement for a period of three years. They are aimed to promote economic and political reforms in Ukraine and accelerate the development of closer economic relations between Ukraine and the EU. As a result of the decision, Ukraine receives an additional quota for the import of 650,000 tonnes of corn into the EU (an increase by 2.6 times), 350,000 tonnes of barley (by 2.4 times), 4,000 tonnes of oats (by two times), 3,000 tonnes of honey by 1.6 times). Also, duty-free import and processed products are allowed: 7,800 tonnes of cereals and processed grain and 500 tonnes of grape juice.

The expediency of raising quotas became evident almost immediately after their introduction: Ukraine exhausted most of them during the first months, and even days, of the year (in particular, the quota for honey exports was exhausted on January 11 of this year). However, as a rule, this did not stop exporters. Thus, according to the Ukrainian Agribusiness Club, honey exports to the EU are eight times higher than the duty-free quota (EU import duty is 17 %). However, traditional for the European agricultural market quite high import duties are still burdensome for Ukrainian producers and arise numerous political speculations about the alleged "levelling" of the effect of the Association Agreement.

Taking the decision to expand duty-free quotas, the EU, in fact, provides the Ukrainian agricultural sector with financial assistance, the amount of which (that is, the means that will be available to the agrarians) will reach about $200 million. The limited nature of the expansion of quotas evidences the expectation of the purposeful use of this resource for increasing the productivity of Ukrainian agroproduction, diversifying it, and increasing the adaptability to the requirements of the world agricultural market.

It is significant that Ukraine practically does not use the quotas for the export of meat to the EU (except for poultry) and dairy products. First of all, this is due to the difficulties of competition in the European market because of the inadequacy of the Ukrainian production technologies with the strict requirements of the EU. Perhaps, it is in this direction that the use of additional income of producers of crop production should be considered.

The fact that the quota easing is by no means a charity is evidenced by the hard pragmatism of the decision taken.

First, the European Parliament rejected proposals to increase quotas for imports of wheat and its products, processed tomatoes and raw materials for fertilisers (urea), arguing this with a risk for European producers of similar products. So, farmers of Eastern Poland have repeatedly complained about excessive competitive pressure from Ukrainian feed grain. It was also not about increasing the quota for sugar imports, which Ukraine also exhausted in the first quarter of this year. Also, the text is further strengthened by provisions regarding the possibility of abolishing preferences in the case of appeals from European producers regarding excessive risks to their business. Probably, we should expect increased attention of Europeans to the search for signs of hidden dumping from Ukrainian agricultural producers (WTO agreements describe various forms of dumping, including in the form of excessive savings on environmental measures, wages, etc.) and the legitimacy of providing them with state support.

Secondly, the decision of the European Parliament especially focuses on the connection of additional preferences with reforms and democratic processes in Ukraine. It is noted that in the case of insufficient progress in countering corruption, deformation of competition, the introduction of additional fees and other restrictions on imports by Ukraine, disrespect for democratic principles, human rights and fundamental freedoms, preferences can be suspended or cancelled. The European parliamentarians also added the provision that the effect of tariff preferences should concern primarily small and medium-sized agribusiness, which should be controlled by the European Commission.

It inspires optimism that even after the end of the "epopee" with the visa-free regime, the EU continues to seek "carrots", which will stimulate the Ukrainian government to continue and deepen reforms. Involving agrarians in "allies" is an important step, although, as Ukrainian realities testify, it is not enough to achieve irreversibility of reforms. In the case of the passivity of the government in other areas, such a "carrot" will lead to the consolidation of the specialisation of Ukraine as a supplier of agricultural raw materials to the EU countries, which is evidenced by the data of trade statistics of recent years. Therefore, a very important "homework" for the Ukrainian government is the formation of a strategic agenda for the development of the country, space for which so far provides the tactical steps that the international community is doing to Ukraine.

(The article was published on on June 16, 2017)