Spotlight: EU-Ukraine trade deal triggers new round of economic clashes

The European Union (EU) and Ukraine have started applying the Deep and Comprehensive Free Trade Area (DCFTA) from Friday which formed part of the Association Agreement signed in June 2014.

As a retaliation, Moscow is toughening economic restrictions against Ukraine by suspending its free trade deal with Ukraine and banning food imports from the same day.

The EU and Ukraine signed the Association Agreement with its Deep and Comprehensive Free Trade Area on 27 June 2014.

With a ten-year transition period, the DCFTA covers a range of economic sectors such as agriculture, heavy industry, machine building and light industry, and would gradually remove custom tariffs on over 90 percent of goods traded between Ukraine and the EU.

EU exports to Ukraine amount to 17 billion euros and Ukraine imports from the EU equaled 14 billion euros (data for 2014). Main EU exports to Ukraine consist of machinery and appliances, transport equipment, chemicals and manufactured goods. Ukraine's main exports to the EU are base metals, vegetable products, mineral products, machinery and appliances.

EU's Commissioner in charge of trade Cecilia Malmstrom expressed confidence in the prospects for Ukraine.

"The entry into force of this trade area on 1 January 2016 creates unique opportunities for Ukraine to stabilise, diversify and develop its economy to the benefit of all its citizens. Assistance from the EU will be made available to help Ukrainian SMEs seize these new opportunities, to grow, and thereby create jobs. EU businesses will benefit as well by gaining improved access to a market of 45 million people. The change will not occur over night, it will require work and investment. Gradually, the DCFTA will contribute to a prosperous Ukraine and to stronger economic integration with the EU," she said.

The deal was applauded by the Ukrainian government, which upholds a goal of approaching to the 28-member bloc EU.

"The free trade agreement with EU launched! My greetings on the start of Ukraine's economic integration into the European Union," Ukrainian President Petro Poroshenko said on his Facebook page.

According to the Ukrainian government, the free trade area with the EU would boost Ukraine's annual economic growth by at least 0.6 percent, promote exports by 2-3 percent each year, and create up to 190,000 new jobs.

Ukrainian authorities said that such results would be achieved through modernization of the country's economy, implementing new technologies designed to improve the quality and competitiveness of Ukrainian-made goods and easier access to the market of 500 million consumers.

Another big aim of the deal is to align licensing of the Ukrainian products with international standards, which would allow the East European country to boost trade not only with the EU, but also with other foreign partners.

However, Moscow, which has a separate preferential trade agreement with Kiev, has long warned that it would curtail access of Ukrainian products to its market once the deal takes effect to protect Russia from European goods flooding in via Ukraine without import duties.

In mid-December, Russian President Vladimir Putin signed a decree suspending Russia's free trade deal with Ukraine beginning on Jan. 1, 2016.

Ukraine's exports to Russia stood at 10.7 billion U.S. dollars in 2014, according to Russia's official customs data.

Under the decree, Ukraine will no longer enjoy the most favored nation treatment under the framework of the Commonwealth of Independent States (CIS) free trade deal, as well as a host of preferential policies in areas of migration, customs, quarantine inspection, and investment.

Meanwhile, Moscow is toughening economic restrictions against Ukraine by banning food imports from the neighbor starting from the same day when EU-Ukraine trade deal becomes effective.

The European Union (EU) has prolonged the economic sanctions against Russia until July 31, 2016, which Russia's Foreign Ministry slammed as a move to sabotage the implementation of the peace-seeking Minsk agreement clinched in spring 2015.

"Retaliatory economic measures will be applied to Ukraine on Jan. 1, 2016, due to its accession to the anti-Russian sanctions applied by the EU and the United States," Prime Minister Dmitry Medvedev announced in mid-December.

Medvedev has signed a government decision to impose a total ban on imports of agricultural products from Ukraine, which includes raw materials and foodstuffs.

Ukraine's exports to Russia stood at 10.7 billion U.S. dollars in 2014, according to Russia's official customs data.

"We have repeatedly told the Ukrainian authorities that the implementation of the trade and economic agreement with the EU affects our interests and creates a risk of our economic security. There have been several rounds of negotiations, which produced no results," said Medvedev.

On Wednesday, the Ukrainian government said it had passed trade restrictions on Russia in response to Moscow suspending a free trade agreement.

The trade restrictions will be introduced only if Moscow imposes a trade embargo against Kiev, Ukraine's Deputy Economic Development and Trade Minister Nataliya Mykolska said.

The protective measures, proposed by the country's Economic Development and Trade Ministry, envisage cancellation of preferential import duties on Russian goods starting from Jan. 2, 2016.

In addition, they stipulate imposition of an embargo on a range of Russian-made products, from food, cigarettes, alcohol beverages, chemicals to equipment, starting from Jan. 10.

Controversy surrounding the EU-Ukraine trade deal was the initial trigger for unrest in Kieve, and analysts said the negative impact of the crisis may be enlarged again in the coming year as the three parties are conflicting fiercely on the trade deals. Endit