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A preliminary analysis of the impact of a Ukraine-EU free trade agreement on agriculture

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Author Info

  • von Cramon-Taubadel, Stephan
  • Hess, Sebastian
  • Brummer, Bernhard

Abstract

Agriculture including food products is of particular interest for Ukraine. However, in free trade agreements involving the European Union, agriculture is always given special treatment and subject to less and slower liberalization than other sectors. This paper employs the standard Global Trade Analysis Project model in order to assess how World Trade Organization accession affects agriculture in Ukraine, and how potential bilateral tariff cuts may interact with potential productivity gains within Ukrainian agriculture. The results indicate that, due to trade liberalization, Ukraine can expect gains from a more efficient allocation of its resources in line with comparative advantage, leading to an increase of production and exports of wheat, other grains, and oilseeds, but also of several processed food products that benefit from less expensive intermediate inputs. However, Ukraine's exports are concentrated on a small number of destinations, especially Russia and some other Former Soviet Union countries because they fail to meet quality standards elsewhere. When Ukrainian production of these products increases due to increased allocative efficiency, exports to Russia increase further and prices there fall, generating negative terms of trade effects that largely offset the allocative gains. Ukrainian imports of agricultural products increase as well, partly because Ukrainian consumers switch to higher quality imported goods even though domestic production increases. Regarding free trade agreement negotiations with the European Union, these results highlight for Ukraine the fact that improved agricultural productivity will help to get most out of improved market access. However, the results also highlight for Ukraine the great importance of adopting internationally accepted quality standards in order to diversify its export structure.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5264.

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Date of creation: 01 Apr 2010
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Handle: RePEc:wbk:wbrwps:5264

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Related research

Keywords: Free Trade; Economic Theory&Research; Trade Policy; Trade Law; Emerging Markets;

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Cited by:
  1. Anders Aslund, 2013. "Ukraine's Choice: European Association Agreement or Eurasian Union?," Policy Briefs PB13-22, Peterson Institute for International Economics.
  2. Nekhay, Olexandr & Gay, Stephan Hubertus & Fellmann, Thomas, 2011. "A Free Trade between Ukraine and the European Union: Challenges and Opportunities for Agricultural Markets," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland, European Association of Agricultural Economists 114616, European Association of Agricultural Economists.
  3. Miriam Frey & Zoryana Olekseyuk, 2014. "A general equilibrium evaluation of the fiscal costs of trade liberalization in Ukraine," Empirica, Springer, Springer, vol. 41(3), pages 505-540, August.
  4. Miriam Frey & Zoryana Olekseyuk, 2011. "The EU-Ukraine trade liberalization: How much do the costs of tariff elimination matter?," Working Papers, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies) 308, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies), revised Feb 2013.

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