Ukraine could lose up to €4 billion annually if the EU does not extend preferential trade

The Ukrainian economy may lose between 3.5 and 4 billion euros annually if the EU does not extend trade preferences for Ukraine, which expire on June 6, 2025. This was discussed at a joint hearing of the Verkhovna Rada Committee on Economic Development and the Committee on Agrarian and Land Policy on the strategy for deepening trade and economic relations between Ukraine and the EU.

At the hearings, the study “Strategic Guidelines for Deepening Trade and Economic Relations between Ukraine and the European Union”was presented , commissioned by the Federation of Employers of Ukraine and supported by the Ministry of Foreign Affairs of Denmark.

Since 2014, when Ukraine signed the Association Agreement with the European Union, the EU's share in Ukraine's foreign trade turnover has steadily increased from 30% in 2013 to 56% in 2023. And exports of goods to the EU in 2023 reached $23.4 billion, which is 64.6% of Ukraine's total exports of goods. These figures indicate the reorientation of the Ukrainian economy from the CIS to European markets.

The participants of the hearing emphasized the critical importance of extending the free-trade regime granted to Ukraine during the full-scale war. This regime has been extended every year, but this year it expires on June 6, and there is a serious risk that it will not be extended. In this case, Ukraine will return to the old configuration of trade relations with the EU - a regular free trade area with quotas and duties.

A return to the previous quotas would entail serious losses for the Ukrainian economy. Of particular concern is the situation with quotas for goods for which safeguard mechanisms were introduced in June 2024 under the autonomous trade measures (ATMs). These include poultry, eggs, sugar, oats, corn, cereals, and honey. These restrictions were imposed by the EU in response to growing tensions among farming communities in Central Europe.

Yuriy Melnyk, Deputy Executive Director of MHP, emphasized the importance of transparent cooperation with European partners.

“We, as a business, adhere to the principles of transparency and honesty,” said Yuriy Melnyk, ”We have recently established cooperation with the diplomatic corps - meetings with diplomats, visits to our production facilities with them to confirm the statement that Ukraine complies with technological requirements and uses technologies that meet European standards.

According to Oleksandr Haidu, Chairman of the Verkhovna Rada Committee on Agrarian and Land Policy, “agri-food products in 2024 accounted for 60% of total exports. Despite a slight decrease compared to 2023, when we had a record 62% of total exports.

“Ukraine will be able to increase the added value of agricultural products and compete in the European and global markets. Experts see three options for the development of events. The first option is the most favorable for us - the extension of the benefits. The second is to return to the conditions of 2021, but this does not fit into the principles and the framework of the business that is operating today. And it will also cause losses to our Ukrainian producers in the amount of $3 billion. And the new format of cooperation is actually a search for compromise solutions to ensure stable access of Ukrainian products to the EU,” emphasized Gaidu.

The issue of the European Union's introduction of a carbon emissions fee under the Carbon Based Import Adjustment Mechanism (CBAM) starting in 2026 is also particularly acute, the study emphasized. Products subject to CBAM play an important role in the Ukrainian economy, production, and exports. Their importance has especially increased since the full-scale invasion, when the EU became Ukraine's dominant trading partner.

In 2023, Ukraine's exports of CBAM products to the EU amounted to $3.6 billion, which was 15.4% of merchandise exports to the EU and 9.9% of all exports of goods from Ukraine to other countries. Ukraine accounts for 2.6% of the EU's imports of CBAM products.

The authors of the study emphasize that in order to avoid mutual negative consequences for the economies of Ukraine and the EU during the first five years, it is advisable to establish a regime that does not oblige EU importers to purchase CBAM certificates when importing the relevant products from Ukraine.

According to economic modeling, Ukraine's effective integration into the European economy can bring significant results, the authors of the study emphasize. In particular, it will make it possible to double Ukraine's GDP in 10 years and radically change the structure of production and foreign trade. Investments of $90 billion in the construction of 570 factories in Ukraine will ensure an increase in the output of goods and services by 152.8%, including manufacturing products by 168.9%. As a result, the share of the manufacturing industry in the country's GDP will increase from 7.6% to 20.4%. In total, about 815 thousand new jobs may be created.

The hearings emphasized that continued liberalized trade with Ukraine would bring significant strategic benefits to the EU. For Ukraine, it is a way to rebuild and modernize its economy, and for the EU, it is an opportunity to strengthen its position in the international arena through partnership with a country with strong raw materials, manufacturing, and human potential.

Ruslan Ilyichov, CEO of the Federation of Employers of Ukraine, emphasized that the option of deepening trade relations developed in the study takes into account the interests of European business and the EU as a whole. “We are eager to convey to our European partners that Ukrainian business is not a threat to the European market and its producers. Not only can we become reliable partners, but we can also be very profitable partners in terms of production integration, joint cooperation and mutually beneficial integrations,” he said.