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for European farm products). Plus, a powerful European agricultural lobby representing French, German and Italian agriproducers is closely watching this space, alarmed by the prospect of increasing competition coming from Ukrainian produce. Some Ukrainian observers go as far as pointing to recent scandals about Ukrainian sunflower oil and corn in the EU as an evidence of efforts to discredit the country’s agricultural industry made by the above lobby.

Back at the negotiation tables the sides have

agreed to cut tariffs for the majority of goods and the EU says it is ready to offer Ukraine immediate and full liberalisation for up to 95% of product lines. What remains is the group of so-called ‘sensitive’ products, not surprisingly - mostly agricultural, where each side is keen to protect its market or push into each others’ territory. There are up to 400 of these sensitive products and the EU says it won’t be able to give Ukraine full liberalisation, but would offer quotas (TRQs) instead. These will remain a subject of “other treatment” (OT”) or a transitional period of 10 to 15 years.

The Ukrainians claim that the quality of

their agricultural produce is much higher than that of many EU products. They say that the EU has already had excellent access to their market, enjoying a low 10 % duty on agriproducts.

Inside Ukraine, there are major concerns

raised by the country’s agricultural lobby regarding the prospects of domestic sunflower seed and corn production. Alex Lissitsa, President of the Ukrainian Agribusiness Club Association says that, should the proposed Agreement be signed on existing terms, with the abolition of export duties on a range of products which are strategically important for Ukraine, then the domestic price of sunflower seeds, for example, could go up by 70% to 80%. In the worst-case scenario, the Ukrainian domestic market could see price increases for fats and oils as a whole of some 350% to 400% warns the Ukrainian agricultural lobbyist. Lissitsa’s Association claims that the FTA Agreement with the EU does not take into consideration the interests of Ukrainian farmers and consumers – an opinion reportedly shared by some informed industrialists. The remaining majority is either too preoccupied with immediate needs to deal with the impact of the recent crisis or complain they are neither consulted nor informed about the FTA negotiation processes.

As a result, the government in Kyiv

acknowledges the danger of ill-informed opinions being created regarding the potential benefits or downsides of the new FTA Agreement, especially, among Ukrainian SMEs. In general Ukrainian businesses may well be excited by the prospects of concluding the FTA Agreement, but in reality it may be that only a few of them will benefit, especially from a short-term perspective, with one of the key issues remaining – the low quality of Ukrainian goods. This issue could be almost insurmountable for most Ukrainian SMEs. At the same time, most of them agree there is no alternative to joining the FTA with the EU - if Ukraine wants to become prosperous and competitive - but the questions remain - “On what terms, and what is the price to pay?”

“Ukrainians may find that they have to bid farewell to product names

that millions have been familiar with since the Soviet times

” In the light of the FTA talks Ukrainian

businesses insist that protection of the domestic economy, in particular, its car industry, should become a priority for the state. Kyiv points to the fact that banks in Germany and France are happy to extend lending to support their respective car industries, and, as a result, Kyiv is reported to believe that it is European car- manufacturers together with EU agricultural establishments who are in the most comfortable position. So far Ukrainian negotiators have managed to block all efforts to use the future FTA to push through EU car exports to the Ukrainian market, claiming tariffs on cars in Ukraine are already as low as possible.

Protecting GIs With the country set to join the FTA with the EU, Ukrainians may find that they have to bid farewell to product names that millions have been familiar with since the Soviet times. Shampanskoye (Champagne wine) and konyak (brandy) might be the first to go - the EU regulations protect its Geographic Indications (GIs) - products traditionally produced on specific regions for centuries following established methods and recipes.

With the FTA Agreement in place Ukraine

would undertake an obligation not only to stop production or rename its domestic namesakes, such as Champagne wine or Provencal mayonnaise, but would have to protect its market from the flow of such goods

24 UkraineBusiness insight October/November 2010

with “conflicting” names coming from its neighbours – in particular, Russia – where such provisions would not be in place.

Protecting GIs is a new topic for Kyiv,

especially in a situation where the number of names to be protected from each side is not comparable – Europe is not familiar with any Ukrainian proprietary product, except possibly, horilka (vodka produced with spices, including pepper, honey, etc. Whereas Ukraine might find it extremely difficult to compete with the flow of authentic European Parmaggano cheese, Madeira wine or Wiener sausages.

The issue is creating a big headache for Kyiv

and a million dollar question for the Ukrainian negotiators at the FTA table could lie in deciding what Ukrainian producers would be prepared to lose.

“Negotiations = Trade-Offs” Irrespective of the hopes expressed in the spring of 2010 by Ukraine’s President Victor Yanukovych and the President of the European Commission, José Manuel Barroso, to have the FTA negotiations completed within a year, the actual negotiators from both sides prefer not to comment on any dates. “We are after a quality agreement and protecting our interests is a priority for us”, says Valeriy Pyatnytsky, Ukraine’s deputy minister of Economy and the chief Ukrainian negotiator at the FTA talks with the EU. “When we talk negotiations, we mean trade-offs”, insists the Ukrainian deputy minister. It is these mutual trade-offs the Ukrainians put their faith in as each side approaches the final stages of the negotiations. Kyiv insists on ‘packaging’ the trade-offs and compensating concessions in one sector by reciprocity in another. In general, Ukraine believes it already has minimal quotas and claims it is ready for trade-offs in fish, dairy and meat – in exchange for immediate liberalisation and less tariff quotas (TRQs) from the EU.

During October both the Ukrainian

and the EU side are expected to bring “an improved” offer to the 13th round FTA negotiations’ table (to be held in Kyiv). One more round is due to follow in Brussels in December this year. The sides will undertake further discussions on volume quotas, and the talks are likely to become even more intense with more business (and political) interests at stake. Ultimately, the prize of the game for Ukraine lies in joining the world’s biggest free trade area with a 500 million strong market of potential customers. UBi

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