Veronika Movchan: “The Ukraine–Turkey FTA prepares the ground for EU market integration”

The Free Trade Agreement (FTA) between Ukraine and Turkey should be viewed as a preparatory step toward much deeper market integration once Ukraine becomes a member of the European Union, according to Veronika Movchan, Research Director at the Institute for Economic Research and Policy Consulting (IER) and Head of its Center for Economic Research.

“This agreement can be seen as preparation for much deeper market integration within the framework of EU membership. By the time Ukraine joins the European Union, we will likely have reached the end of the transition periods set out under the agreement. Turkey will have to open its market to Ukraine much more extensively, while Ukraine will likewise liberalize sectors that are currently subject to transition periods or remain protected,” Movchan told Interfax-Ukraine.

At the same time, she noted that the risks for Ukraine’s agricultural sector are limited, as the agreement does not provide for full liberalization of agricultural trade.

“As far as agriculture is concerned, the level of protection for Ukraine’s agricultural sector is already relatively low compared with that of many of our trading partners, including Turkey. We have only a few tariff peaks, such as the 50% duty on sugar, while tariff rates are generally modest. In addition, the agreement includes tariff-rate quotas, product exclusions, and partial liberalization measures on both sides, such as 20% tariff reductions for a wide range of goods,” the expert explained.

According to her estimates, even if all remaining barriers to agricultural trade were removed, imports from Turkey would increase by only around 15%. The products most likely to see higher import volumes include fruit, vegetables, and sunflower seeds intended for planting.

Movchan also pointed out that Ukraine was unable to secure substantial additional access to the Turkish market for several key agricultural exports.

“For example, corn has been excluded from the FTA tariff schedule. In other words, there will be no tariff reductions for this product, and the current trade regime will remain in place, even though corn is currently Ukraine’s largest export to the Turkish market,” she said.

According to Movchan, the composition of Ukraine’s imports from Turkey also suggests that the agreement is unlikely to trigger a sharp increase in imports of finished goods.

“We import not only finished products from Turkey but also a significant volume of intermediate goods used by Ukrainian manufacturers, including energy products, metals, and, more recently, military and dual-use goods such as radio navigation equipment,” she said.

She stressed that trade liberalization would not represent a “game-changing” shift that would lead to a surge in imports. Instead, she expects the Free Trade Agreement to have its greatest impact on Ukraine’s light industry.

As reported, on July 14 the Verkhovna Rada ratified the Free Trade Agreement between Ukraine and Turkey, which was signed in February 2022. The agreement will enter into force once both countries complete their respective domestic procedures and exchange instruments of ratification.