December 21, 2020
Identified by the government as a priority area for sectoral integration into the EU, digitalisation of Ukraine’s economy (in accordance with European and international standards) demands not only the approximation of Ukrainian regulations with the rules of The EU Digital Single Market, but a number of serious technological steps, information campaigns with business and the public and fulfilment of the range of special requirements which will allow to catch up with EU member states in the level of digital development. Nevertheless, the reward for this kind of efforts is evident.
According to the experts*, an increase in the digitalisation of the Ukrainian economy and society by 1% may lead to an increase in Ukraine’s GDP by 0.42%. Accordingly, depending on the level of digitalisation, which Ukraine will gradually approach within The EU Digital Single Market, the positive cumulative impact on Ukraine’s GDP may be from 2.4 to 12.1% (3.1-15.8 billion US dollars) of additional growth throughout approximation period.
Additionally, Ukraine will assumingly benefit from reduced trade costs in bilateral trade with the EU due to the reduction of digital regulatory barriers, which will affect the well-being of citizens: approximate potential improvement about 3.6-7.8%.
Yet such an impact on the Ukrainian economy can be expected only in the case of accelerating digital transformation, including accelerating the development of digital infrastructure and improving access to it, the introduction of digital technologies in business in all sectors of economic activity, digital skills and e-government.
It is a win-win
With an obvious plus for Ukraine’s economy, it is highly important to calculate the possible benefits for the EU member states, as it will ease the dialogue, allow to make informed decisions in the field of digital transformations and provide more effective communication during Ukraine-EU negotiation.
Especially since the calculated figures are worth to think about. Bringing the regulatory environment and digital development of Ukraine closer to the EU level due to Ukraine’s integration into The EU Digital Single Market can increase exports of services from Ukraine to EU countries by 7.6-12.2% (US $ 302-485 million), and exports of goods – by 11, 8-17% (2.4-3.4 billion US dollars). At the same time, exports of services from the EU to Ukraine may increase by 5.7-9.1% (191-305 million US dollars), exports of goods from the EU to Ukraine – by 17.7-21.7% (4, 1-5 billion US dollars).
This is the potential for a cumulative increase in bilateral trade between Ukraine and the EU throughout the period of implementation of reforms to bring Ukraine’s regulatory and digital rapprochement closer to the EU.
However, the positive effect of reducing digital regulatory barriers is more noticeable for trade in goods between Ukraine and the EU, which can be explained by the fact that digital trade barriers in goods are more restrictive than in services. It is expected that the reduction of barriers to digital trade between Ukraine and the EU as a result of The EU Digital Single Market integration will help reduce the overall level of non-tariff barriers and trade costs in bilateral trade in goods and services between Ukraine and the EU (through digitalisation of trade transactions and related public services).
Although the impact on the well-being of EU citizens is much smaller than for Ukraine, for the most part, it is positive and can be as well calculated and potentially expand.
According to the prognostic assessment of experts the largest positive effect among the EU member states will be for Poland (0.038-0.042%), Greece (0.016-0.019%) and Latvia (0.015-0.017%). On the other hand, for 6 countries the effect will potentially be close to zero. These are Portugal, Finland, Lithuania, Slovakia, Sweden and Germany.
In addition, the other potential benefits for the EU include increasing the productivity of the EU economy, optimising business processes and reducing transaction costs for business deals between Ukraine and EU, developing innovative products, services and processes, and increasing the EU’s competitiveness. After all, removing barriers to digital cross-border trade increases the overall efficiency of the EU’s internal market for goods and services. As a result, the benefits of Ukraine joining Single Market include lower prices, greater choice of goods and services and improved convenience for consumers and businesses.
It is about partnership
In terms of bilateral cooperation integration into The EU Digital Single Market involves expanding mutual access to online markets and digital services, as well as accession to common EU rules, standards and procedures for electronic contracts, payments and settlements, distribution of digital content, copyright, cross-border digital services and consumer protection. Which ultimately makes Ukraine a much safer place for future investments and ensures secure guaranties on the digital level.
Originally created to unite the national markets of the Member States, apply common approaches and standards in the EU digital sphere, remove barriers to cross-border transactions that take place online, The EU Digital Single Market tends to hold on to this aim. It is based on the concept of the common market, which initially called for the removal of trade barriers between Member States and was later developed into the concept of the internal market, without internal borders, where the free movement of goods, people, services and capital is ensured.
Within the framework of The Association Agreement, this kind of integration allows Ukraine to become a part of European community on the economical level, as well as it gives a real chance to show the profits of Ukraine’s integration into the EU, and convince EU partners that Ukraine can be a prudent, promising partner of a decent level of development.
What is ahead to overcome
With the clear benefits from the “digital integration” such as an increase of the economic productivity, access to advanced digital technologies and EU innovations, paperless transactions, reduction of trade costs for cross-border digital trade, anti-corruption impact, improved efficiency in the provision of public digital services and e-government, comes great responsibility.
The essential barriers to overcome which require special and most urgent attention from the responsible state bodies are related to cross-border electronic payments and settlements, protection of intellectual property rights on the Internet, cross-border electronic transactions (which includes the difference between national requirements for foreign trade agreements, lack of practical mechanisms for application electronic digital signature in foreign trade contracts, lack of mutual recognition of electronic identification), requirements for the use of local software and cryptography.
No less important to reach the full support of the public sector and business stakeholders through the effective communication about the benefits of Ukraine’s integration into The EU Digital Single Market, as they include the development of new industries, innovative products and services, modern digital infrastructure and technologies in Ukraine, such as artificial intelligence, cloud platforms and services and finally expand access to digital innovative products and services and strengthening consumer protection for online services, which is a great deal for the whole society.
Currently, Ukraine is behind all EU member states and even neighbouring countries in terms of digital development (as evidenced by international ratings EGDI, NRI, WDCR). The digital leaders, according to the ratings, are Estonia, Slovakia and the Nordic countries, and the closest to Ukraine (however, still much higher in the rankings) – Romania, Bulgaria, Turkey. To reduce the gap (at least with neighbouring countries), it is necessary to accelerate the digital transformation, particularly in the weakest areas: the regulatory environment, the development of telecommunications infrastructure and the introduction of digital technologies by the state.
Such changes are necessary for the integration, or at least the approximation of Ukraine to The EU Digital Single Market. Given the priority status of digitalisation for Ukraine’s sectoral European integration, and its importance as a tool for deepening economic integration, approximating Ukraine’s digital legislation to EU standards is a first step to accelerate Ukraine’s digital development and a great move forward in the partnership with EU.
* “Ukraine’s integration into the EU Digital Single Market: potential economic benefits” – it is a study, created to quantify the economic benefits of Ukraine’s integration into the EU Digital Single Market, namely the impact on economic growth, trade and prosperity of Ukraine and the EU, which was conducted at the request of the Ministry of Digital Transformation of Ukraine by the Trade + team of the Center for International Trade Research at the Kyiv School of Economics in the partnership with the NGO “Ukrainian Centre for European Policy”.
Author: Kateryna Potapenko, NGO “Ukrainian Centre for European Policy” (Kyiv, Ukraine)Author : Ukrainian Liaison Office in Brussels