We Must Admit That the EU Is Indeed Our Best Market, Offering the Greatest Opportunities and Prospects

Global trade is increasingly defined by geopolitics rather than economics. Global supply chains no longer operate on the principle of cost minimization; instead, security and control take priority. Ukraine is already following this path by deepening trade with the EU, although, under wartime conditions, it is difficult to secure resources for large-scale structural changes. Olena Omelchenko, Partner and Head of International Trade Practice at Ilyashev & Partners Law Firm, spoke to Yurydychna Praktyka about global trends and Ukrainian challenges in international trade.

— What are the main factors currently determining the state and trends in international trade?

— We live in a time when international trade has ceased to be a purely economic category and has become a de facto political tool. International trade is shifting from globalization to regionalization, and businesses must understand that entering a new market today without political alignment is very difficult.

Previously, a pragmatic approach prevailed — where it is cheaper to produce, where it is cheaper and more profitable to sell, and how to optimize logistics. Today, these issues remain, but they are no longer decisive. Security, cargo and supply chain control, and predictability (both of the partner and the country you work with) have come to the forefront.

This is clearly visible in practice: for example, large European manufacturers who have worked in China for years are now starting to move their production closer to the EU: to Poland, Romania, and partially even to Ukraine. They are doing this not because it is cheaper than producing in China or Southeast Asia. On the contrary, it is more expensive, but it gives large companies control over production and supply chains, as well as predictability and a clearer understanding of future development.

We see that situational factors, such as the war, fuel crises, environmental crises, and energy crises, are triggering long-term changes in international trade. Countries are reacting to these factors, developing new policies, and changing supply chains. For Ukrainian businesses, the main takeaway is that today the winner is not the one who is cheapest, but the most stable and predictable partner. Therefore, it is necessary to seek partners with whom we can work not only tomorrow or the day after, but at least in the medium term — we are not even talking about the long term yet.

— In which sectors of the Ukrainian economy is the impact of these trends most noticeable?

— We must state that Ukraine has been unable to defend its own interests in a way that would secure improved market access or transition periods for our producers, despite the circumstances caused by the war.

In my opinion, the Ukrainian steel industry has suffered the most so far. However, we can also speak about the agricultural sector. We have seen problems in foreign markets, including issues at the Polish border.

Ukrainian producers, despite the war, are competitive with European ones, but no one wants strong competition in their own market. And even understanding that a neighboring country needs support today, neither European business nor businesses in the US or any other country are willing to give up their market share. They naturally pressure their governments to improve their own trade terms.

— Through what means are such “improvements” achieved? What tools do foreign jurisdictions use to protect their markets?

— There is no general rule; foreign countries can use all tools provided under the WTO frameworks, primarily anti-dumping, countervailing, and anti-subsidy measures. However, I would not say that these measures are currently being applied to Ukrainian goods by the EU or other countries very actively.

Today, the EU is not pursuing a systematic policy of anti-dumping, countervailing, or subsidy investigations against Ukrainian goods. This is not accidental, because in 2022, the EU made a political decision to open its market to Ukraine as much as possible, to support Ukrainian exports, and not to create additional barriers.

However, it is crucial to understand that this situation is not guaranteed forever. It exists temporarily as long as there is political will. Therefore, the risk of anti-dumping cases against Ukraine is not a question of “if,” but “when” and in which sectors.

This concerns anti-dumping measures in the EU territory. But we face significant risks of other types of restrictions from the EU. For instance, we already see quotas being used instead of tariffs, market regulations instead of trade barriers like anti-dumping, and political decisions replacing formal procedures.

At the same time, we must admit that the EU is indeed our best market, offering the greatest opportunities and prospects.

— What will change in the event of Ukraine’s rapid accession to the EU?

— Our trade policy will change completely. Ukraine will delegate its authority in trade policy formation to the European Commission. From the moment we become members of the European Union, we will not be the ones determining which markets are promising for us; the European Commission will decide that. In other words, we will play by the rules already established within the European Union.

International trade agreements held by Ukraine will be denounced. However, we will gain the opportunity to trade our products under the agreements already concluded by the European Union.

Therefore, for example, concluding new free trade agreements with other countries is perhaps not entirely expedient today. Even if we assess the prospects of EU accession at a level of 5-7 years, rather than the government’s two-year timeline, it is worth remembering that negotiations for any agreement take more than a year or two… Thus, starting new negotiations now does not seem very realistic. We must focus on the European Union, align our legislation with the acquis communautaire, and adapt our entire practice to the European Union.

When we become members of the European Union, we will have much better access to all global markets, and we will have a much larger domestic market, as we will be part of the single European market. This is our future; this is what we should be talking about.

— What will change in the context of protecting the domestic Ukrainian market in the event of rapid EU accession?

— The measures currently in place will cease to exist. All powers currently held by the Ministry of Economy regarding the application of trade restrictions will transfer to the European Commission. Therefore, all measures we currently have to protect national producers will be abolished. Perhaps after a certain transition period, but they will all be lost over time.

Instead, measures already applied by the European Union will operate on the territory of Ukraine. That is, we will join the existing restrictions within the EU, but we will have to abandon our own. And if Ukrainian businesses need to protect their interests from dumped imports, they will have the opportunity to join forces with other European producers, aggregate 50% of production in the European Union, and file a complaint with the European Commission regarding the application of anti-dumping measures against a specific product from a specific country.

— By the way, what is the current practice of protecting our national market? What are the trends?

— Ukraine, in fulfilling its obligations under the World Trade Organization, can use relatively few tools to protect national producers. In practice, anti-dumping measures are used most often because it is very difficult to apply countervailing measures; it is hard to prove the existence of a prohibited subsidy in a given country.

Also, one of the political agreements with the EU in 2022 was the non-application of special (safeguard) measures that could potentially limit the access of European goods to the Ukrainian market (against the backdrop of the EU providing preferences to Ukraine). Of course, you will not see this in news feeds on the European Commission’s website, but it is part of the “gentlemen’s agreement” package, and we all understand that no decision on the introduction of special measures by Ukraine will be adopted. Naturally, we do not want to waste our clients’ time and money, so we warn them immediately that this is not realistic at the moment.

Thus, the most effective scenario currently is the application of anti-dumping measures, in compliance with all standards and conditions defined by WTO norms and Ukrainian legislation: the existence of a national producer, dumped imports, injury, a causal link between the injury and the dumping, and the existence of national interests of Ukraine in applying these measures.

— Can you provide examples of such cases from recent practice?

— Yes, we have had several interesting cases in the recent period. These include anti-dumping measures regarding fittings, radiators, and galvanized steel. By the way, all these measures have led to the opening of new production facilities in Ukraine and the emergence of new manufacturers. So, it works, and such manufacturers are initiating the extension of measures for subsequent periods.

Regarding new trends, we had interesting cases in which we achieved for the first time the application of measures in connection with the circumvention of customs duties. In fact, there was an evasion of anti-dumping measures — we had measures applied to galvanized steel regarding China. As soon as they were introduced, we saw that all imports shifted to Malaysia. Before this, not a single ton had been supplied from Malaysia.

It turned out that forged certificates were indeed used. Essentially, these were Chinese goods that changed their country of origin and entered Ukraine as if they were Malaysian. And, accordingly, such a practice should be punished in accordance with WTO norms and Ukrainian legislation, but, unfortunately, this provision has never been applied before. It was very difficult for us to initiate such a practice, but we are very grateful that the Commission and the Ministry of Economy heard us.

— What recommendations can you give to businesses in light of current geoeconomic realities?

— Perhaps I would be very direct here: exporters need to be ready for any audits. If we are talking about the European Union market, they must be prepared to verify their own production for compliance with WTO and EU standards.

As for importers, they should not build their business on a single source of supply, because international trade and the world are changing rapidly, protectionism is gaining momentum, and constant cheap supplies can be viewed as dumping. At the same time, we see that all countries are now increasing the number of anti-dumping processes. Therefore, importers should not rely on one source of supply, because one source can be quickly cut off.

Local producers should be active and not wait until they are displaced.

Today, those who react quickly and act proactively will win.

— And what will be the recommendations for the Ukrainian government regarding trade?

— First of all, we are focusing on the European Union. We must continue the dialogue with the European Union regarding CBAM. We should discuss this at least sectorally. This is very important for us.

We must maintain good relations not only with the European Union but also with the USA, as a great deal depends on this.

Of course, we must protect the domestic market from imports, primarily from China, Vietnam, Malaysia, and Turkey. These are the highest-risk countries, which, in essence, are currently killing Ukrainian manufacturers.

I would also advise the Ukrainian government to prioritize domestic production and establish mechanisms to support it. Not only support within the country, but also support in foreign markets and the proper lobbying of their interests. It is very difficult for Ukrainian producers today in many respects, and without this support from the Government, it will be even more difficult for them in the future, since trade rules will change with Ukraine’s accession to the EU. They must be prepared for this.

We need more dialogue between Ukrainian business and the Government.

(The interview was conducted by Oleksiy Nasadyuk, Yurydychna Praktyka)