Euro Manipulations. Top 5 Myths About The EU-Ukraine Association Agreement

Trade with the EU kills industry and agriculture, the EU wants us to open land market to steal our land, Ukrainians are too poor – they will not be accepted into the EU. These are the standard examples of how Ukrainian politicians and experts are scaring Ukrainians.

Even though the EU-Ukraine Association Agreement came into force in September 2017, the myths and manipulations were spreading long before that. But VoxCheck was not sitting idle – all this time we have been monitoring all the statements made about specific provisions of the Agreement and the EU in general. 

Learn about the TOP 5 myths concerning the relations between Ukraine and the EU from our new article.

Myth 1. It is impossible to join the EU without a referendum

Among the requirements for joining the EU there is nothing about having this type of a referendum. The Constitution of Ukraine also does not require for such a referendum to take place. And even though a significant share of countries held a referendum  before joining the EU, it is not obligatory. For instance, Cyprus, Romania, Bulgaria and Great Britain did not have it.

Myth 2. It is impossible to join the EU because of low income of our people

No legislative act which can potentially regulate the procedure of joining the EU for Ukraine establishes the required amount of GDP per capita. So formally, there is no such requirement, even though opponents of further EU expansion sometimes indeed mention lower income levels (and GDP per capita) as a factor that will require redistribution of EU expenses in favour of these countries.

For the record, in 2017 Ukrainian GDP per capita made up not $2,000 but $2,655. In 2018, GDP per capita reached $2,964 (according to current exchange rate). It is true that no country had a GDP per capita of $2,000 or lower when joining the EU. The lowest index at the time of joining belongs to Bulgaria – $5, 813 in 2007. But Ukraine is not joining the EU right now.

What are the actual hindrances on our way to the EU?

To join the EU, Ukraine, first of all, needs to meet the Copenhagen criteria  of membership. Even if Ukraine complies with all the requirements, completes necessary reforms and applies for membership, the EU should be ready and capable of accepting a new member. 

Right now, Britain is leaving the Union. New Heads of EU institutions have been recently appointed and will officially start their jobs in autumn. After the May elections, the new European Parliament has been formed. During such changes, the organization will hardly be ready to make important decisions,  in particular about expansion. 

Moreover, when Ukraine does apply for membership, respective negotiations will start only after all EU member-states have agreed to them. A complete inspection is conducted for all the 35 areas (Acquis Communautaire), which should comply with the EU requirements. In view of misunderstandings between Ukraine and Hungary (for instance, because of the law on language), it is likely that the latter will not give their consent. 

In 2016, the Netherlands, an EU member-state was against signing the EU-Ukraine Association Agreement. The reason for that was a referendum, in which 61.1% voters said no to the decision to sign an Association Agreement with Ukraine as they did not support expansion of the Union in view of the existing internal problems, like increase of the number of migrants.  That time, the EU managed to convince the Netherlands to support the Agreement. The condition for their support was the promise that the Agreement did not guarantee EU membership for Ukraine.

This case proves that the decision will not be made unless there is consent of all the EU member-states, even if it is only one country that for some reason is against.

Myth 3. EU association kills agriculture

According to the provisions of deep and comprehensive free trade area (DCFTA), instead of traditional quantitative quotas, the EU introduced tariff quotas for 36 groups of products, in particular agricultural and food. It means that zero customs duty is set for a certain scope of products, while trade outside this scope happens with the use of standard import tax rates. There are no quantitative limitations on export. Before the agreement, zero customs duty did not exist, which means that the agreement improved and not worsened the situation.

How do we understand if the effective tariff quotas limit exports to the EU? 

If it were not for tariff quotas, agricultural export would be bigger. For the EU, quotas are a mechanism for partial opening of the market. In its turn, Ukraine established tariff quotas only for three types of products (pork meat, poultry and ready-to-cook poultry products and sugar) and set additional tariff quotas.

Pursuant to DCFTA, 18 out of 36 products will have increased scopes of tariff quotas within 5 years from the date trade provisions of the Agreement came into force. On October 1, 2017 the EU introduced additional customs duty-free quotas for agricultural and food products that are most popular in the EU, such as honey, grape juice, processed tomatoes and corn. 

Even with current limitations, export of Ukrainian goods is increasing and in general exceeds the quotas. For instance, actual supplies of Ukrainian honey to the EU in 2017 exceeded the tariff quota 9 times and import tax outside the quota was 17%. Actual export of juices was 4 times higher than the tariff quota. As based on 2016 numbers, Ukraine was among top 3 suppliers of agricultural products to the EU. In 2017 agricultural products and food export increased by 8.5%, which is additional $477.7 million of income.

Before the introduction of FTA, export limitations were higher – import tax was in place, there were quantitative limitations. FTA provided Ukrainian exporters with customs duty-free access to one of the most powerful and largest markets in the world, so this is definitely a step in the right direction. In the future, the best option for Ukraine would be complete liberalization of trade within DCFTA and cancellation of tariff quotas. 

Pursuant to EU-Ukraine Association Agreement, review of FTA is possible after 5 years from the date the Agreement came into force and also at any time upon mutual agreement of the parties. Thus, until January 01, 2021 a profound review must be conducted on the results of Ukraine’s integration into the EU internal market as part of DCFTA implementation.

Myth 4. Trade with the EU worsened the state of Ukrainian economy

For Ukrainian business, the free trade areas is, first of all, an opportunity to access a rather protected (with import taxes including) market of the EU member-states and occupy their niche on the EU market not only by means of quality but also by means of price. Starting from April 2014, the EU has already cancelled import tax for Ukrainian exporters on almost 95% of products pursuant to first-year DCFTA obligations. For the remaining products, import taxes will be cancelled gradually within 3-7 years (for different products the transition periods are different). The starting point for transition periods was January 01, 2016. 

How exactly did the FTA affect businesses? 

Pursuant to research conducted by Centre for Economic and Policy Research on assessing the impact of DCFTA on business (almost 1,200 companies participated in the study), 28% of companies have already benefited from the DCFTA in 2018, 5% said they definitely have lost and 63% did not feel any impact of the Agreement on their company. 

Is Ukraine indeed the most corrupt and the poorest country in Europe as the politician claims? 

According to corruption perception index by Transparency International, in 2018 Ukraine occupied 120th position. It is indeed the worst result among the European countries. Among its neighbours Ukraine managed to top only Russia. But in the 2013 rating, before the rule of “Poroshenko-Yatsenyuk-Hroysman”, Ukraine was number 144. And even Russia was ahead back then.

To find out if Ukraine is the poorest country in Europe, we need to compare countries on the basis of their GDP per capita using purchase power parity. Pursuant to World Bank data, in 2018 the index was $9,233, which is higher than in Moldova ($7,300). Thus, the politician told a lie. 

In 2014-2015, actual GDP of Ukraine decreased by 15.8%. However, over the past 3 years (2016-2018) actual GDP has been growing. Gross increase over the period made up 8.4%. This means, that in reality our economy has not reached the pre-crisis level yet. Still, the claim that “economic growth has stalled” is not justified.

Myth 5. The EU demands that we open our land market to foreigners

On July 09, 2018 the decision of the European Union on allocation of 1 billion euros in macrofinancial support to Ukraine came to effect. And already in December 2018, the European Commission provided the first tranche to Ukraine as part of the fourth programme of macrofinancial assistance of the EU with nominal value of 500 million euros in the form of loan with an interest rate of 1.25% which is to be paid back in April 2033. 

That is why, the politician is correct when saying it is a loan that we need to return with interest, even though the interest rate is rather low if compared to attraction of private investors on the external market. 

In June 2019, Vice-President of the European Commission during his meeting with Volodymyr Zelenskyi in Brussels stressed that the European Union would finish its discussion regarding the second tranche to Ukraine in the amount of 500 million euros as soon as the Ukrainian party fulfilled respective requirements to get  assistance.

At the same time, the condition for getting both the first and the second tranches is for Ukraine to perform measures needed to reform specific spheres of state policy as specified in Memorandum of Understanding. Among the more specific requirements, Christian Danielsson, Director-General of Directorate-General of European Neighbourhood Policy and Enlargement Negotiations, in May named the following: adopting laws on fighting money laundering and authorized economic operators; adopting a mid-term plan for reformation of customs and tax administrations; a working and efficient system for checking electronic customs returns and progress in implementation of the law on electricity market. 

No official statement or decision of the EU officials mentions the land market.