Evidence-based policymaking – impact assessments of potential Free Trade Agreements of Ukraine

On November 18, 2021, the USAID Competitive Economy Program (CEP) and the Institute for Economic Research and Policy Consulting (IER) under the supervision of the Ministry’s of Economy of Ukraine top officials and Susan Kutor, Deputy Mission Director of the USAID in Ukraine and Belorussia, held the public discussion “Evidence-based policymaking – impact assessments of potential Free Trade Agreements of Ukraine”.

During the event, the experts presented and discussed the modelling results of the socio-economic consequences of potential free trade agreements (FTAs) with Egypt, Jordan, and Tunisia. The IER team within the support of the USAID Competitive Economy Program in Ukraine (CEP) conducted the assessment by using the computable general equilibrium model for analysing numerous datasets in one model. This model was developed in 2020 with the support of CEP and has already been used to assess the impact of a potential future Free Trade Agreement with Turkey for the Ministry of Economy of Ukraine.

Yulia Svyrydenko, First Deputy Prime Minister of Ukraine – Minister of Economy of Ukraine, pointed out that “conducting a study on the economic impact of a potential free trade agreement for the Ministry is a mandatory stage of negotiations. I am grateful to our international and Ukrainian partners for the research confirming that the conclusion of agreements with these countries will give a boost to Ukrainian exports”.

According to Taras Kachka, Deputy Minister of the Ministry of Economy of Ukraine – Trade Representative of Ukraine, conducting researches on a mutually acceptable methodology regarding trade perspectives is an important starting element of direct negotiations between governments of countries.

“These studies are practical steps in negotiations for us as for the government. For the society, such researches allow to understand potential agreements settings, which can be a competitive advantage for the Ukrainian business specifically and for the economic development as a whole”, informed Taras Kachka.

As the research that is devoted to the potential free trade agreements with Egypt, Jordan, and Tunisia has shown, Ukraine will benefit from trade liberalisation with the above-mentioned countries. The study that is based on an applied model of general equilibrium has testified that three FTAs will have a positive, though not very high, impact on the population’s well-being and on the GDP, and will contribute to the trade as well.

According to Veronica Movchan, the Research Director of the Institute for Economic Research and Policy Consulting, “cumulatively, these three free trade areas – with Egypt, Jordan, and Tunisia – will increase Ukraine’s real GDP by more than 0.4% annually”.

The key for obtaining expected gains is the access liberalisation to partner-countries markets through the import duties removing, including agricultural and food products, and the reduction of the non-tariff barriers on trade in goods. These are two out of nine different scenarios of reducing trade barriers between Ukraine and partner countries, which will give the largest economic gains.

At the same time, modelling results have shown that a sufficiently liberal trade regime of Ukraine’s economy allows the country to agree to a deep trade regime liberalisation without creating threats to the real GDP dynamics. Moreover, the creation of FTAs will stimulate the increasing efficiency of the economy by pushing the shift of the movement of the factors of production into industries that are more competitive.

In addition, the study showed that the exports growth would exceed the imports growth due to the higher level of protection of partner countries in comparison with Ukraine and due to the current trade structure. Accordingly, within the proposed scenarios, increased additional trade balance with these countries can be expected.

Source: IER