dcfta implementation in ukraine: what happened …...exports to the eu down by 10% in 2014-2016, yet...
TRANSCRIPT
1Wiener Institut für
Internationale
Wirtschaftsvergleiche
The Vienna Institute for
International Economic
Studies
www.wiiw.ac.at
International Workshop on Ukraine‘s Economic Development and
the EU Association Agreement
Vienna, 22 October, 2018
Peter Havlik [email protected] Institute for International Economic Studies (wiiw)
DCFTA Implementation in Ukraine:
What Happened to Trade and FDI ?
2
DCFTA in a nutshell
• Deep and Comprehensive Free Trade Area (DCFTA) is a part of the
Association Agreement with the EU
• AA/DCFTAs with GE, MD and UA were negotiated since 2008/2010/2012
and signed during 2014, provisionally in force since 2016.
• DCFTA covers:
Trade-related aspects: conventional FTA aspects focusing on reduction of tariff duties and rules of origin;
‘Deep’ aspects: relate to non-tariff barriers (NTBs), including food safety and SPS measures, technical standards, national treatment, public procurement, services liberalization and customs administration;
‘Comprehensive’ aspects: wide scope of approximation to EU ‘acquis’ regarding national treatment, customs and trade facilitation, trade in services, intellectual property, e-commerce, energy market, public procurement, anti-trust and competition, etc.
3
Additionally, DCFTAs contain
Approximation to the EU acquis communautaire (both current and
future)
Transitory arrangements (e.g. special regime for worn clothing and
passenger cars for UKR; gradual elimination of duties in MDA and
UKR), etc.
Temporary (during 2014-2015) autonomous concession of the
preferential access to the EU market
Barriers to trade: tariff rate quotas (TRQs), TBTs and SPS regulations.
4
Source: National statistics.
Recent foreign trade developments: Georgia
Exports to the EU down by 10% in 2014-2016, yet up by 16% in 2017
Imports from the EU down by 7% in 2014-2016, and flat in 2017
Persisting trade deficits: EUR 4.5 billion in 2017 (of which EUR 1.5 with the EU)
2014 2015 2016 2017
Other 1476,79 1257,95 1206,76 1498,48
Russia 206,80 146,72 186,59 353,1
EU-28 469,81 581,16 517,31 583,1
0
1000
2000
3000
4000
5000
6000
7000
8000
EU
R m
illi
on
Georgia - exports
2014 2015 2016 2017
Other 4255,76 4138,27 3981,53 4398,63
Russia 433,21 563,02 610,89 709,0
EU-28 1785,30 1874,31 2002,85 1958,2
0
1000
2000
3000
4000
5000
6000
7000
8000
EU
R m
illi
on
Georgia - imports
5
Recent foreign trade developments: Moldova
Exports to the EU up by 28% in 2014-2016, up by another 22% in 2017
Imports from the EU down by 8% in 2014-2016, up by 18% in 2017
Widening trade deficits: EUR 1.9 billion in 2017 (of which EUR 0.6 with the EU)
2014 2015 2016 2017
Other 504,7 457,9 433,2 500,0
Russia 319,3 216,7 210,6 312,0
EU-28 938,8 1096,3 1203,2 1462,0
0
500
1000
1500
2000
2500
3000
3500
4000
4500
EU
R m
illi
on
Moldova - exports
2014 2015 2016 2017
Other 1531,1 1347,8 1365,4 1603,0
Russia 540,4 482,3 483,5 438,0
EU-28 1934,7 1759,6 1783,0 2108,0
0
500
1000
1500
2000
2500
3000
3500
4000
4500
EU
R m
illi
on
Moldova - imports
6
Recent foreign trade developments: Ukraine
Exports to the EU down by 5% in 2014-2016, yet up by 27% in 2017
Imports from the EU down by 3% in 2014-2016, yet up by 19% in 2017
Widening trade deficits: EUR 5.6 billion in 2017 (of which EUR 2.9 bn with the EU)
7
Recent foreign trade developments: Ukraine
Exports to the EU down by 8% in 2013-2015, yet up by 32% in 2015-2017
Imports from the EU down by 33% in 2013-2015, yet up by 33% in 2015-2017
Widening trade deficits: EUR 5.6 billion in 2017 (of which EUR 2.9 bn with the EU)
8
Ukraine: Main export destinations, 2013 (USD 44.1 bn)
Source: https://resourcetrade.earth
9
Source: https://resourcetrade.earth
Ukraine: Main export destinations, 2016 (USD 25.4 bn)
10
wiiw calculations based on Eurostat.
Georgia top 5 exports to the EU, 2017 (23% of the total),
growth 2013-2017 (Y: 0.1%) and shares in total (X)
275
55
5247
45
-100
-50
0
50
100
150
0 10 20 30 40 50
Non-ferrous metal ores
Refined petroleum
Crops, horticulture
Basic chemicals
Beverages
Textiles/wearing apparel exports expand very fast !(from a very low level)
11
wiiw calculations based on Eurostat.
Moldova top 5 exports to the EU, 2017 (64% of the total),
growth 2013-2017 (Y: 68%) and shares in total (X)
403
206184
115
107
-50
0
50
100
150
200
250
300
0 5 10 15 20 25 30
Crops, horticulture
Basic iron
Electrical equipment
Wearing apparel
Furniture
Insulated wire and cable most dynamic !
12
wiiw calculations based on Eurostat.
Ukraine top exports to the EU, 2016 (37% of the total),
annual growth 2013-2016 (Y: -5.7%) and shares in total (X)
27602080
1960
908
677
653411
-60
-40
-20
0
20
40
60
80
100
120
0 5 10 15 20 25
Basic metalsAgriculture
Food
Metal ores
Motor vehicles
Electr. equipment
Wood and products
13
wiiw calculations based on UKRSTAT.
Ukraine top exports, 2017 (40% of the total go to EU)
annual growth 2016-2017 (Y: +19%) and shares in total (X)
7682
5763
4083
2425
2259
1826
15321068932
795
700
692
481471
438
413
400
374
370
336
70
90
110
130
150
170
190
0 5 10 15 20 25
Animal/plant fats
Electric machines
Ferrous metals
Cereals
Ores, slags
Mineral fuels
Oil seeds
14
wiiw calculations based on Eurostat.
Ukraine top 5 exports to the EU, 2017 (40% of the total),
growth 2013-2017 (Y: 20.6%) and shares in total (X)
2.913
2.858
1.904
1.320
825
-100
-50
0
50
100
150
200
0 5 10 15 20 25
Crops, horticulture
Animal, vegetable oils, fats
Electrical equipment
Basic iron and steel
Iron ores
Exports of crude petroleum and natural gas most dynamic !
15
Summary of restrictions applied by the EU to imports from the DCFTA countries
Georgia Moldova Ukraine
Tariff rate quotas garlic tomatoes, garlic, grapes,
applies, plums, grape juice
beef, pork, sheep, poultry, milk
and dairy products, eggs, honey,
garlic, sugars and syrups, wheat,
barley, oats, maize, malt,
starches, bran, mushrooms,
tomatoes, grape and apple juice,
corn, cereal products, ethanol,
food preps, cigarettes
Anti-circumvention
mechanism
meat, dairy products, eggs,
cereals, malt, starches, sugars,
bran, sweet corn, sugar,
cigarettes
meat, dairy products, eggs,
cereals, sugars, sweet corn,
sugar, cigarettes
No anti-circumvention
mechanism
Entry price
regulation
tomatoes, cucumbers,
artichokes, courgettes, citric fruit,
grapes, apples, pears, apricots,
cherries, peaches, plums,
nectarines, grape juice and must
cucumbers, artichokes,
courgettes, citric fruit, pears,
apricots, cherries, peaches,
nectarines, grape juice
citric fruit, grapes, apples, pears,
apricots, cherries, peaches,
plums, nectarines, grape juice
and must
Source: Own elaboration.
Note: Many TRQ remain unused (except in Ukraine for honey, juice, sugar and grain)
16
FDI inward stocks per capita, in EUR
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
BY KZ RU MD GE*
UA HU PL SK RO
17
Ukraine’s FDI inward stock: EUR 39.9 billion (end-2017)
Top 10 investors in % of total
Netherlands; 14,5United Kingdom; 4,9
Germany; 4,8
Austria; 3,9
France; 3,1
Luxembourg; 2,4
EU-15 other; 3,4Cyprus; 29,7
Russia; 10,0
Virgin Islands, British; 3,6
Switzerland; 4,8
other; 14,9
18
FDI and restructuring (II)
Georgia’s inward FDI stock by main investors, EUR 16.3 billion, end-2017
United Kingdom14,2%
Azerbaijan18,2%
Netherlands14,2%
USA10,6%
Turkey11,3%
Emirates6,0%
Cyprus2,3%
France3.1%
Czechia5,2%
Luxembourg4,2%
China4,2%
Austria2,3%
Germany2,4%
19
FDI and restructuring (II)
Moldova’s inward FDI stock by main investors, EUR 2.5 billion, end-2016
Russia27,4%
Netherlands13,6%
Cyprus8,6%
France8,4%
Spain9,1%
Germany3,9%
Romania5,3%
Italy3.1%
United Kingdom2,2%
USA1,6%
Austria1,6%
Ukraine1,5%
RoW11,3%
20
Facit:
Uneven trade performance: Moldova is doing better than others
Exports highly concentrated, early signs of restructuring (MD, UA)
Widening trade deficits, also with the EU
FDI stocks still low, especially compared to CEE peers
Sources of FDI questionable (round-tripping, capital flight, etc.)
DCFTA should facilitate FDI inflows (from the EU, beyond Cyprus)
More pro-active FDI policies needed: lessons from CEEs
21
BTI 2018 Georgia Country Report
Source: Bertelsmann Transformation Index 2018
22
BTI 2018 Moldova Country Report
Source: Bertelsmann Transformation Index 2018
23
Source: Bertelsmann Transformation Index 2018
BTI 2018 Ukraine Country Report
24
Source: National statistics
Labour market challenges: Ukraine
0
10
20
30
40
50
60
70
80
90
100
Employment GVA
Agriculture Industry Construction Trade Transport
Tourism Public adm Education Health Other
Shares of the main sectors in employment and GVA, 2016 (in %)
25
Challenges of the 'frozen conflicts'
All three DCFTA countries suffer:
- Georgia: South Ossetiya and Abkhasia (600 th people directly
affected)
- Moldova: Transnistriya (500 th people directly affected)
- Ukraine: Crimea (2 mn) and parts of Donbass (nearly 3 mn people
directly affected)
- This is about 15% of the population in each country.
Formally, DCFTA applies to the whole country
Yet, de facto, „frozen“ conflict territory is not covered and DCFTA
implementation is hindered even beyond the „freeze“.
Will DCFTA foster a „de-frosting“ or a „climate change“?
26
Policy recommendations
Pillar 1:Background conditions and public awareness
•Establish supportive macroeconomic and political background conditions.
•Institutional reforms directly relevant for the business environment should be prioritised and accelerated.
•More effort should be put to increase specific rather than generic awareness of AA/DCFTA by stakeholders.
•Cross-border dialogues between the business communities of the EU and the DCFTA countries should be enhanced to facilitate incorporation of the DCFTA industries in the European and global value chains
Pillar 2:Strategic sequencing of reforms and gradualism
•Careful sequencing of reforms to target competitiveness and market access challenges.
•Better accounting of adjustment costs and pragmatic gradualism of implementation is needed to balance costs and benefits over time.
•Long-run economic strategy should be developed or adjusted with the medium-run and long-run impacts of AA/DCFTA in mind.
•Diversify export markets and attempt to normalise relations with Russia.
Pillar 3:Increased financial and technical support from the EU with strict conditionality
•More financial and technical assistance should be provided to the private and the public sector in the DCFTA countries.
•Strict conditionality of financial assistance should be enforced.
•Effective monitoring should be enforced and a functional scoreboard system developed to systematically track progress of reforms along multiple dimensions.
•A competition element for the EU funding needs to be introduced and a mix of merit-based and need-based financial aid opportunities should be further developed.
27
Key policy recommendations for DCFTA countries
Pillar 1: Background conditions
• Supportive macroeconomic, institutional and political background is crucial.
• More efforts to raise specific awareness of AA/DCFTA by all stakeholders.
• External pressure necessary, yet domestic ownership of reforms still crucial !
• Support cross-border linkages between the businesses and other stakeholders, including SMEs, to facilitate incorporation in global value chains.
• „Frozen conflicts“ resolution; normalization of relations with neighbours.
28
Pillar 2: Strategic sequencing of reforms
• Priority of reforms targeting exports, competitiveness and market access via FDI.
• Pragmatic gradualism in implementation, balancing costs and benefits over time.
• Long-term economic development strategy coordinated with the medium- and long-term impacts of AA/DCFTA.
• Diversify export markets and attempt to normalise trade relations with neighbours.
29
Pillar 3: Increased financial and technical support with strict conditionality
• More financial and technical assistance to both the private and the public sector.
• Address issues related to the lack of domestic technical and other expertise.
• Strict conditionality of financial assistance should be enforced.
• Effective monitoring and a functional scoreboard system developed to systematically track progress of reforms.
• A competition for the EU funding with a mix of merit-based and need-based financial aid opportunities.
30
Thank you for your attention!
See the full report Adarov A. and P. Havlik (2016): “Benefits and Costs of DCFTA: Evaluation of the
Impact on Georgia, Moldova and Ukraine” and the Policy Brief (2017): “Challenges of DCFTAs: How can
Georgia, Moldova and Ukraine succeed?”
Both available at:
Bertelsmann Stiftung http://www.bertelsmann-stiftung.de/
Vienna Institute for International Economic Studies http://wiiw.ac.at/
Amat Adarov [email protected] Havlik [email protected] Institute for International Economic Studies (WIIW)