The Verkhovna Rada, Ukraine’s parliamentary body, has recently approved the Free Trade Agreement (FTA) with Turkey, signaling a significant step in bilateral trade relations. This move aims to bolster economic cooperation between the two nations, having been signed in Kyiv on February 3, 2022.
Details of the Free Trade Agreement
On July 14, the parliament officially ratified the FTA, with 236 members voting in favor. Under this agreement, Turkey will eliminate import tariffs on around 93.4% of industrial goods and 7.6% of agricultural products sourced from Ukraine. Following transitional periods ranging from three to seven years, Turkey will also eliminate tariffs on an additional 1.5% of industrial products and 28.5% of agricultural items.
Ukraine, in return, has committed to removing tariffs on approximately 56% of industrial goods and 11.5% of agricultural products imported from Turkey. After transitional durations of two to five years for industrial goods and two to ten years for agriculture, Kyiv expects to remove duties on a further 43.2% of industrial goods and 53.7% of agricultural products. This reciprocal approach is aimed at fostering enhanced trade flow between the nations.
Economic Implications for Ukraine
Despite the potential benefits of the agreement, some experts are concerned about its long-term economic implications for Ukraine. Dmytro Kysylevskyi, the deputy chairman of the Verkhovna Rada Committee on Economic Development, has raised alarms about the risks posed by the agreement, suggesting that it might be more advantageous for Turkey than for Ukraine.
Kysylevskyi highlighted that vulnerable sectors in Ukraine include light industry, automotive manufacturing, and the production of construction materials, among others. He warned that the FTA could lead to a 1.5% reduction in Ukraine’s GDP over the medium term if appropriate measures are not adopted. Such assessments underscore the need for further scrutiny of how free trade impacts local industries and economic stability.
Mitigating Economic Impact
Given these concerns, Kysylevskyi has stressed the importance of implementing a comprehensive package of compensatory measures to address the potential fallout from the agreement. These measures may include initiatives aimed at reimbursing costs for Ukrainian-made machinery, introducing tax incentives for capital investments, and enhancing support mechanisms for affected industries.
Such actions will be crucial for ensuring that Ukraine can derive meaningful benefits from the FTA while protecting its domestic economy. As the agreement takes shape, it’s vital for Ukrainian authorities to closely monitor its implementation and adapt policies to mitigate any adverse impacts on local businesses.
Turkey’s Approval of the Agreement
It is noteworthy that Turkey has already ratified the FTA with Ukraine. The agreement received approval from Turkish President Recep Tayyip Erdogan and his government on August 1, further solidifying commercial ties between the two countries. As the FTA comes into effect, both nations will be closely watching the economic outcomes and trade dynamics that emerge from this landmark agreement.
In summary, while the Free Trade Agreement between Ukraine and Turkey holds promise for improved economic collaboration, it is essential for Ukraine to prepare for potential risks to its local industries. With proper strategies and compensatory measures in place, the country can navigate the complexities of this agreement and ensure its economic sustainability.