The year 2019 witnessed new developments in the geography of Ukraine’s trade in goods. Although the official annual statistics has not been released yet, trends have been very clear already, and they are not fully in line with prior expectations.
There are three major changes. First, Russia lost its leading position among individual countries – trade partners of Ukraine. Second, China has become the leading partner instead. Third, the trade in goods with the EU slowed considerably. Below we consider these developments in more detail.
The reduction of Russia’s role in Ukraine’s foreign trade in goods has been the long-standing trend that was marked once again in 2019 amid the introduction of new trade restrictions. In December 2018, Russia imposed the ban on imports of over 200 products from Ukraine and another ban for about 140 products followed in April 2019. Also, exports of selected Russian products, primarily energy-related, to Ukraine have been banned or subject to non-automatic permit system. Ukraine responded with the expansion of the list of products, for which imports from Russia has been prohibited. These measures pushed Ukraine’s exports to Russia down by 10% and imports by 13% so that the value of trade in goods with Russia shrunk to USD 10 bn, comparable to the trade levels of the early 2000s.
As a result, in 2019, Russia, for the first time ever, lost the position of the largest trade partner of Ukraine among individual countries. It happened for both exports and imports. And in both cases, China became the leading partner, outpacing Poland in exports and Germany in imports. While the growing role of China in imports has been evident over the last several years, the fact that China surpassed Poland as Ukraine’s major individual export partner comes as a surprise. The year started with Poland as the leading partner, but the situation changed quickly as exports to China grew strongly driven by high supplies of agro-food products and ores, while exports to Poland started to slow down.
This brings us to the third change, namely the slowdown of Ukraine’s trade with the EU. Ukraine’s trade with the EU resumed growth in 2016 and for the three years, it had been expanding faster than trade with other trade partners. The EU trade expansion was driven by exports amid the progressive implementation of the DCFTA.
In 2019, the trends are quite different. According to Ukrstat, Ukraine’s exports of goods to the EU grew by very moderate 4% (January-November) gradually decelerating over the year, while exports to China boomed by 70% and overall exports increased by 6%. Exports to Poland, the largest export destination for Ukraine within the EU, slowed to a mere 2% compared to two-digit growth rates over the previous three years. Exports to Germany has also slowed considerably.
While the overall slowdown in Ukraine’s exports could be attributed to hryvnia appreciation, there are several EU-specific factors undermining export growth. First, the EU imposed definitive safeguard measures on steel products halting the expansion of Ukraine’s steel exports. Second, Ukraine exporters faced significant problems with the availability of Polish road transport permits needed for both shipments to Poland and transit to Western European countries.
The growth of imports from the EU was also quite moderate at 8% in 2019 decelerating compared to the previous years, despite the hryvnia appreciation. Imports from Germany, the large part of which is shipped by road through Poland, dropped by 1%, at least partly due to the issue with transit permits.
It seems that the push in trade with the EU generated by tariff liberalisation within the DCFTA has been gradually vanishing amid the increasing influence of non-tariff barriers to trade. To reverse the trend, Ukraine and the EU have to act jointly and more decisively. It concerns the long-lasting resolution of road transportation permits issue, technical barriers to trade and the progress in the ACAA, SPS measures and the recognition of equivalence, the common transit system, the authorised economic operators and other steps needed to reduce trade costs and resume high growth rates of EU-Ukraine trade.
The geography of Ukraine’s trade in goods thus featured several distinctive changes in 2019. But it remains to be seen how stable they are.
Author: Veronika Movchan, Academic Director at the Institute for Economic Research and Policy Consulting
This publication is prepared within the framework of the CEPS-led ‘3DCFTAs’ project, enabled by financial support from Sweden. Views expressed in this publication are attributable only to the authors, and may not be attributed to either the institutions to which they may be attached or the Government of Sweden.Ukrainian Liaison Office in Brussels