Date of publication: 25 April 2023
Andrii Tereshchuk, Counsel
Source: Focus
With the difficult current situation at the front, unwelcome news has recently appeared in the economic sphere: Poland announced a restriction on the import of agricultural products from Ukraine. Hungary and Slovakia made similar decisions, followed by Romania and Bulgaria subsequently. At the same time, Russia has already taken advantage of this situation and blocked ships with Ukrainian grain in the Black Sea.
Ukraine has exported agricultural products through its Black Sea ports for many years. After the full-scale Russian invasion, Ukrainian ports were blocked by Russian warships. The EU quickly helped and lifted all import restrictions on Ukrainian products (Regulation (EU) 2022/870 of the European Parliament and of the Council of 30 May 2022), established alternative land routes that allowed Ukrainian agricultural products to reach other countries, passing through Eastern Europe. At the same time, it is obvious that the main destinations of Ukrainian exports were, of course, not the markets of Eastern Europe, but the markets of other countries, primarily African countries, which are heavily dependent on the imports of Ukrainian grain. And it is also obvious that if African countries are cut off from food supplies, they will face shortages or even starvation.
At the same time, as practice has shown, the infrastructure of Eastern European countries was ill-prepared to handle the massive influx of Ukrainian grain, resulting in adverse effects on local farmers and prices. However, instead of addressing infrastructure challenges, certain political factions opted to exploit the sentiments of farmers, who represent a significant electoral base in these countries, to gain political leverage ahead of elections.
In general, the decisions of Poland, Slovakia and Hungary regarding the ban on the import of Ukrainian agricultural products contradict, first of all, the Treaty on the European Union, as decisions on trade policy matters should be made collectively by supranational bodies representing EU member states.
In addition, the specified restrictions contradict the Association Agreement between the European Union and Ukraine in terms of trade liberalization, in particular, they contradict the provisions of the already mentioned Regulation (EU) 2022/870 of the European Parliament and of the Council of 30 May 2022, which abolished duties and quantitative restrictions (quotas) regarding Ukrainian imports – a kind of demo version of Ukraine’s EU membership. Importantly, this Regulation stipulates that the EU lifted restrictions on Ukrainian product supply provided that Ukraine adheres to the rules of origin, refrains from imposing restrictions on EU products and upholds democratic principles.
The Regulation provides for the right of the EU to resume the application of import duties on the import of a certain Ukrainian product if the import of this product is carried out on such conditions that cause or threaten to entail serious difficulties for EU producers of similar goods. At the same time, the specified decision of the EU on the resumption of the application of import duties is adopted by the European Commission at the request of the EU member state and only on the basis of the results of an appropriate study (investigation) that confirms the facts that the import of the relevant Ukrainian goods is carried out under conditions creating serious difficulties for manufacturers of similar goods in the EU.
However, now the situation at hand involves several EU member states unilaterally enforcing not just import duties, but a complete ban (embargo) on Ukrainian agricultural products. At the same time, this ban is applied not just to a particular product, but to a wide range of agricultural products. These decisions also carry more global risks – risks for the EU itself. If similar bans were to occur in other states, it could establish a dangerous precedent, enabling EU member states to independently make decisions based on their national needs. Today it is grain and agriculture are the current targets, but this trend could extend to more complex issues in the future.
The European Commission has already condemned these decisions, noting that any unilateral bans on Ukrainian exports are “unacceptable” and that trade policy is the sole responsibility of the EU. Currently, the EC is working to end the ban on these countries and return the situation to the legal field, taking into account the EU obligations. EUR 100 million in aid to compensate farmers has already been announced, and the issue of applying extraordinary “preventive measures” that would deter the import of Ukrainian grain unless it is exported to another location is being considered.
Poland has softened its position for now, agreeing to end its ban as long as Ukrainian grain in transit is fully controlled, tracked and transported in sealed convoys. Most likely, this quick decision to soften shows that Poland has realized that such actions not only harm relations with Ukraine, but also negatively affect relations with the European Commission.
Considering the above, it is important that the Ukrainian government actively participate in bilateral negotiations with the governments of the EU member states, but it is particularly important to negotiate with representatives of the European Commission, who are trying to find a mutually acceptable solution, taking into account the integration of Ukraine into the EU. In this context, it is important to note that once Ukraine becomes a full member of the EU, then significant amounts of foreign investment will be directed to the agricultural sector of Ukraine, as well as billions of euros will go to improve shipping and railway connection to fully exploit the agricultural potential of Ukraine, which, even now, can fully cover the needs of the EU with some commodity items of the agricultural sector (poultry meat, oil, grain, honey). And with Ukraine as its full member, the EU will be able to solve one of the main challenges of national security — self-sufficiency in food production, by refusing to subsidize the agricultural sector.
The economic principle of comparative advantage indicates that the EU should abandon its attempts to feed itself with ecologically harmful intensive farming methods, on which the EU spends a lot of money every year, and simply outsource much of its food production to Ukraine. But, of course, this is opposed by European farmers who receive significant subsidies from the EU budget. Thus, the main question is whether “common economic sense” or “populism of politicians” will win. The current situation shows that there is no clear answer to this question yet, although the future integration prospects of Ukraine depend on it.
