Kyiv Post | 16 April 2020
Britain, Ukraine to sign new deal on free trade, strategic partnership
By Jack Laurenson.
A few months ago, the world was a different place. Politicians, diplomats and business leaders could meet without respirator masks. Important negotiations didn’t need to take place by video links. Deals were still being struck with ink on paper and with the shaking of hands.
Just on Feb. 14, Deputy Foreign Minister Vasyl Bodnar uploaded a photo to social media showing a packed roundtable negotiation in London. Ukrainian delegates and British officials were finalizing details on an historic new partnership deal between Kyiv and London that aimed to strengthen and redefine bilateral ties in politics, trade, security and more.
But something else happened that week too. The World Health Organization warned of a novel coronavirus that had originated in Wuhan, China. Normality was suspended as the virus spread like wildfire around the world. Quarantine measures were implemented, stock markets plummeted and the global economy was brought to its knees.
By April 16, at least 12,870 Britons and 116 Ukrainians had died from COVID-19. Around the world, there have been over two million cases and at least 134,500 confirmed deaths.
Beyond the immediate human cost, there will be an ongoing economic price to pay. Ukrainian gross domestic product is already expected to shrink by 5-9% while the entire global economy will take a 3% hit as it enters a period of recession. Unemployment levels have already passed those of the Great Recession, studies show.
Among this chaos, the signing of the new Political, Free Trade and Partnership Agreement between Ukraine and the U.K. has become more important than ever, as it can ensure the two countries get out of the crisis with smaller losses. Politicians from both countries seem to understand this.
“Despite the coronavirus crisis, work on the agreement document continues, and we expect it to be finished soon,” said Ukrainian Ambassador to the United Kingdom Natalia Galibarenko. “The talks are in their final stages. The Free Trade Agreement (FTA) part is nearly finished, while we’ve still got a number of issues to discuss on the political part of the agreement.”
Analysts hope that recovery will follow this crisis quickly. Most forecasts now predict that, with the right policy decisions, countries and economies – including Ukraine and the U.K. – could bounce back by the end of 2020, or by the first quarter of 2021.
Galibarenko, who’s Kyiv’s ambassador to London since 2015 and a deputy foreign minister before that, hopes that businesses will be stronger after the COVID-19 pandemic: “Our top priority now is to provide all possible assistance to exporters and investors, maintaining existing business ties and links.”
Svitlana Zalishchuk, former lawmaker and foreign policy advisor to ex-Prime Minister Oleksiy Honachruk, said that the plan was for British Prime Minister Boris Johnson and Ukrainian President Volodymyr Zelensky to meet and sign the new deal before the end of this year. That is still feasible, she said.
“Moreover, 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,” she said.
She and many others like her envisage a greatly improved relationship between the U.K. and Ukraine, one in which ties in business, politics, culture, and security are significantly improved once COVID-19 is beaten and the U.K. has left the European Union.
Booming UK-Ukraine trade
Before the coronavirus lockdown, business was good.
Galibarenko said that 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.
“If I were to name one particular area in British-Ukrainian trade, it would definitely be the information technology sector. 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,” the ambassador said.
British diplomats and officials in Kyiv also note significant growth and say that bilateral ties have seen half a decade of rapid improvement, even if the COVID-19 crash has caused some concern for the near future.
“We have to note that it is difficult to predict the trade dynamics now as we are entering a period of global recession. However, the ability of our bilateral trade to recover from crises is encouraging,” the U.K. embassy press service stated.
The best performing British exports to Ukraine are now 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, official data shows.
The extensive U.K. service sector – which includes banking, financial services, and insurance – is also seeing improvements in its Ukrainian business, the British embassy noted, with travel, business services, telecommunications, computing and information services all doing well.
“The U.K., in turn, has become a trusted market for the industries that are locomotives of Ukrainian exports – metallurgy and agriculture,” a U.K. embassy spokesperson said. “Rapidly growing volumes of Ukrainian exports reflect the strength of business connections between our countries… (Ukraine) is the largest emerging market in Europe and was designated one of our priority markets.”
Brexit offers opportunity
British officials hope that Brexit will allow London to take control of its trade policies, free of the red tape and quotas imposed by Brussels, allowing London to enter into more trade agreements with more countries.
Galibarenko said that while Brexit was initially seen as a challenge for Ukraine, Britain’s exit from the EU can now 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.
“We see Brexit as an opportunity to reinforce our trade and investment, give further impetus to cooperation in a number of sectors,” Galibarenko said.
Bate Toms, head of the 130-member British Ukrainian Chamber of Commerce, is also bullish about the future of trade between the two largest non-EU European countries – especially when it comes to the business of feeding people and ensuring food security.
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. They already produce huge harvests and have capacity to feed up to a billion people.
And while investment, land market reform and a liberal free trade deal are needed in order to send more trucks and trains laden with Ukrainian food to the U.K., Galibarenko sees 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.
New partnership, more trade
Ukrainian officials say that Kyiv wants to deepen its existing economic partnership, going well beyond the arrangements in its current Deep and Comprehensive Free Trade Agreement with the EU.
And while both sides are ready to sign a deal now, getting it right the first time may not be a guarantee, because at the moment the U.K. hasn’t even reached an agreement with the 27-nation EU bloc.
Toms said the British-Ukrainian FTA should be forward-thinking, non-restrictive and ambitious. “In 10 years, Ukraine could be supplying most of the food that the U.K. needs,” he said.
Meanwhile, British member of parliament Mark Pritchard, vice chair of the Parliamentary Group for Ukraine and former trade and investment envoy for the prime minister, said Ukraine must ensure that the EU does not get in the way of increased trade with the U.K.
“Ukraine can trade with the EU and the U.K. The EU and the U.K should complement, not compete, with each other over increased trade with Ukraine,” Pritchard said.
The financial impact of COVID-19 should act as a further incentive to get the FTA done as quickly as possible, Pritchard said, adding that negotiations had made swift progress last year.
“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, Pritchard said. He thinks Ukraine could help Britain to see that by further “legislative progress on tax reform, modern and transparent commercial dispute resolution mechanisms, land reform, and reform of corporate governance oversight.”
Other U.K. politicians and diplomats also say they want to see fairness, political stability, rule of law and a strong willingness to root out all forms of corruption, including oligarchs.
“Any economy run by an elite is like building a grand château on sand – eventually it crumbles,” the British lawmaker said. “I believe Ukraine is set on a much more inclusive, transparent and prosperous course.”