Free Trade Agreement between U.K. and Ukraine: a chance for Odessa

Brexit could open the rich British market to Ukrainian exports, creating a big opportunity for the maritime capital of Ukraine

Odessa is the maritime capital of Ukraine and, consequently, the Ukrainian main gate of export and import. Therefore, any deal bringing more markets for Ukrainian products is an advantage for Odessa’s ports, its logistics companies, and for its region’s farmers and exporters of agriculture.

From this point of view, a Free Trade agreement (FTA) between U.K. and Ukraine is a big deal. Britain needs to import food, its internal agriculture is insufficient to feed its population, and Brexit gives the Island the liberty to choose where to buy food supplies. No ties to EU productions anymore, free access to Ukrainian (cheaper) offer.

LONDON TABLE OF NEGOTIATIONS

On February 14th, Ukrainian delegates and British officials joined a crowded negotiating table (still without masks) in London, to finalize details on an historic new partnership deal between Kyiv and London, aimed to strengthen and redefine bilateral ties in politics, trade, security and more.

Since than, many things have changed. Britain is suffering a high number of victims by coronavirus and Ukraine will pay a high price for the shutdown policies with its GDP expected to shrink by 5-9%. The entire global economy will enter a period of recession. However, the signing of the new Political, Free Trade and Partnership Agreement between the two Countries has become more important than ever, as it can help both of them to get out of the crisis with smaller losses.

Melinda Simmons, United Kingdom's Ambassador in Kyiv, said the two nations agree on most issues and are “85 percent of the way there.” The deal, she said, will resemble Ukraine’s free-trade agreement with the EU. The idea is to nurture what is now a $2.5 billion annual relationship. Simmons said agriculture, information technology and green energy are among the most promising areas.

Svitlana Zalishchuk, former lawmaker and foreign policy advisor to ex-Prime Minister Oleksiy Goncharuk, said that the plan for British Prime Minister Boris Johnson and Ukrainian President Volodymyr Zelensky was to meet and sign the new deal before the end of 2020. She said also: “I think that the drastic economic impact of COVID-19 needs to accelerate our government’s efforts to launch the new agreement. It should be part of the economic recovery plan for both countries.”

UK-UKRAINE TRADE

Before the coronavirus lockdown, UK-Ukraine trade was good. Annual bilateral trade between Britain and Ukraine passed $2.56 billion last year and had increased for three years running. The U.K. is Ukraine’s top service sector provider and Ukraine’s fifth largest destination for exported services, especially IT. Last year saw Ukraine earn a whopping $222 million from providing IT services to the United Kingdom – a 120% growth in the last three years.

On the side of British exports to Ukraine, the best performing were production machinery, engines, turbines, and precision equipment. In the past year, the U.K. has also seen export growth for aircraft and parts, medical products and cars. The extensive U.K. service sector, which includes banking, financial services, and insurance, is also seeing improvements in its Ukrainian business, with travel, business services, telecommunications, computing and information services all doing well.

IMPACT OF BREXIT

British officials expect that Brexit will allow London to take control of its trade policies, free of the red tape and quotas imposed by Brussels. Natalia Galibarenko, Kyiv’s ambassador to London since 2015, said that Britain’s exit from the EU can open some exciting new doors for Ukrainian businesses, which currently benefit from a trade agreement with the EU, but are still outsiders to the bloc. By the end of this year, the U.K. will also be an EU outsider.

Bate Toms, head of the 130-member British Ukrainian Chamber of Commerce, is also optimistic about the future of trade between the two largest non-EU European countries. He said there is a significant opportunity for Ukraine to seriously boost its agricultural exports because the U.K. is one of the largest, wealthiest and hungriest markets on the continent. The U.K. already imports half of the food it needs and Ukraine has plenty to sell. Ukrainian farmers can boast of a third of the planet’s most fertile and desirable black soil farms.

Ambassador Galibarenko envisages a bright future for Ukrainian agricultural exports to Britain. “As an immediate result of a new trade agreement in a post-Brexit trade regime we expect growth in exports of wheat, maize, barley, poultry, honey, juices, processed tomatoes, cereals, flour and eggs,” she said. And a large portion of these food commodities transit through the Ports of Odessa.

NEW PARTNERSHIP, MORE INVESTMENTS

But, FTA it not only an opportunity for more export of Ukrainian products to Britain. Ukraine can also attract more British investments and import technological products. “There is no limit to the number of bilateral opportunities” if U.K. companies begin to see that investment in Ukraine has become less risky, said Mark Pritchard, British MP, deputy chairman of the Parliamentary Group for Ukraine.

But UK investors want to see rule of law take root before they are willing to risk big investments in Ukraine. They expect Ukraine to continue the legislative progress on tax reform, modern and transparent commercial dispute resolution mechanisms, land reform, and reform of corporate governance.

For example the privatisation of farmlands, that will end the moratorium on land property, is a big step and will represent a big opportunity for foreign investments and sale of agricultural machinery.

Another important topic is the next restructuring of railway transport, further to a Government agreement with the German railway operator. Ukraine’s railways system is old, inefficient and lacks of connections and locomotives. An opportunity of business for international players.

This is a strategic issue for Odessa, that needs better railways for the supply of goods from Ukrainian regions to its port silos and container terminals. But also because Odessa is a link station to the big project of the "Chinese Silk Road". Odessa has a train connection to the Baltic port of Klaipeda, which makes the city also the ideal gate for goods on ships coming from Georgia or the Mediterranean to reach North and Central Europe.

This could be, by the way, the favourite rout chosen by the British market.