EU to open its markets, extend aid to Ukraine next week

Макроэкономика 12.03.2014 The European Commission decided to lift EU import tariffs on certain goods supplied by Ukraine until Nov. 1, EU Trade Commissioner Karel De Gucht announced at a March 11 press conference. The EU’s unilaterally lifted tariffs are part of the Deep and Comprehensive Free Trade Area (DCFTA), a part of the prepared Association Agreement between the EU and Ukraine. The trade minister estimated an annualized gain for the Ukrainian economy at EUR 483 mln. The new regulations can be implemented in June once they’re adopted by the European Council and European Parliament, European Commission President Jose Manuel Barroso informed journalists at the same press conference. The EU will also be ready to propose a financial aid tranche of EUR 1 bln for Ukraine next week, which is of the “highest priority,” Barroso said. The tranche is part of a greater aid package of at least EUR 11 bln that EU officials announced last week. Alexander Paraschiy: The EU’s urgent macro support should significantly decrease Ukraine’s solvency risks, thus lowering the short end of Ukraine’s sovereign yield curve. Meanwhile, lifting import tariffs is a positive signal for Ukraine, but based on EU officials’ estimates, it won’t likely bring more than EUR 200 mln in economic benefits for the five months during which they will be applied. That’s not enough to offset the negative effects from the unavoidable Russian trade barriers to be established. Ukrainian exporters have enormous work ahead since tariffs are only part of the story on the EU market. They will also need to adjust actively to non-tariff regulations to take advantage of the lifted tariffs. Nonetheless, the EU has granted Ukrainian producers a unique chance to strengthen their presence in one of the largest markets in the world, without even having to open their own market. Among the publicly listed companies, the key potential beneficiaries of the EU’s unilateral implementation of DCFTA rules will be Milkiland (MLK PW) which will receive an opportunity to sell its cheese to EU tax-free compared to the current import duty of EUR 1.4-1.7 per kg. Other winners will be private sellers of wheat and barley, which will receive a 1 mmt p.a. and 250 kt p.a. tax-free quota, respectively, vs. the current import duty of EUR 95/t and EUR 93/t, respectively.