Free trade agreement with Turkey. “The former USSR is Ukrainian raw material,” said Deputy Economy Minister Taras Kachka

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On February 3, Ukraine and Turkey signed a free trade agreement after 10 years of negotiations. Why did they agree for so long? What is the difference between Turkish and Ukrainian business? And what benefits will Ukraine gain from the agreement?

Deputy Minister of Economy and Trade Representative of Ukraine Taras Kachka talks about all this in an interview with the director of the Center for Middle East Studies Igor Semivolos.

 

years of negotiations

Turkey is one of the most inconvenient countries when it comes to the government’s trade policy. While Ukraine has one of the lowest tariffs, Turkey, on the other hand, has very high tariffs. This country protects its market as much as possible and does not want to open it to foreign producers.

 

Our strategic and trade confrontation lasted for 10 years. Politically, we wanted to accept the agreement, but these blocs remained in the trade plan. We tried to restart the negotiations, but Turkey continued to take a conservative position.

 

In the end, it became clear to both us and our partners that in the current circumstances, the agreement must be approved. After all, all Black Sea countries, except Russia, are already united by trade agreements with Ukraine.

 

A new type of negotiations began in July 2021, and we managed to reach an understanding. We found approaches to sensitive goods in Turkey and understood each other. And this agreement allowed Ukraine to enter the domestic market of Turkey, and Turkey – to maintain the reputation of a country that protects its producers as much as possible.

 

We have reached mutual understanding both at the trade level and at the political level at the presidential level. So, for more than 10 years, the agreement has been waiting for this good moment to be signed.

 

Cultural differences

Ukraine and Turkey understand each other very poorly culturally. Ukrainian producers are afraid of cheap Turkish fruits and vegetables or textiles. And in Turkey they are afraid of the invasion of Ukrainian products. There are mutual fears about metallurgy.

 

At the last moment, we reached an agreement with the most skeptical Ukrainian associations of entrepreneurs. We understand that the concerns of Ukrainian business are not about agreements or duties, but about how Turkey supports its industry.

 

Our industry wants the same support that Turkey provides to its business. And the government is ready to develop such industrial policy properly. This is a certain maturation, because now we better understand the needs of Ukrainian business.

 

Turkey is a country of joint ventures. There is a very high share of partnerships with foreign companies. There are few such industrial alliances in Ukraine: we either have a business with entirely foreign investment, or all-Ukrainian companies.

 

Turkish business is looking for partners with whom it is possible to run businesses together. And ours is looking for an investor, a full-fledged client, not a partner for interaction.

 

But over time, this agreement and attention to free trade will be able to help Ukrainian and Turkish businesses better understand each other. Turkish entrepreneurs are very interested in additional guarantees for starting and running a business. Therefore, the agreement will be important not only for trade, but also increase the number of business partnerships between Ukrainian and Turkish companies.

 

Market diversification

Ukraine has exaggerated large exports of metallurgy and grain to Turkey, which overshadows other goods. Against the background of 3 million tons of metal, which we sold to Turkey last year, several hundred tons of honey seem insignificant. But it’s still 500 tons. This was a lot for the market, which is closed to us, because the country levied 38% duty on this product. And duties on confectionery products generally reach 50%. These are actually prohibitive duties, because you can’t sell anything with them.

 

In contrast, Ukrainian duties reach 5-12% of Turkish goods, and with the devaluation of the lira and the possibility of lowering the customs value at Ukrainian customs, these percentages are generally leveled.

 

Therefore, Turkey imports more diversified products to Ukraine. It exports about 3,000 goods to us, and we export a little over a thousand. The reason for this is cultural distance and prohibitive duties. Therefore, in concluding the agreement, we did not so much try to protect the domestic market as to destroy the Turkish trade barrier.

 

We wanted to create a situation in which Ukrainian goods could reach Turkey. If in two or three years after the entry into force of the agreement the number of goods we export (not in tons, but in the list of goods) will increase, then the agreement will have a positive effect.

 

Benefit for medium business

When the free trade market with the EU opened in 2014, we saw a phenomenal increase in exports to these countries. Usually after the creation of a free trade agreement, the latter in the first year increases by 1-2%. But we rose by 10%. The same with the agreement with Britain.

 

The Turkish market is close to Ukraine, large, and we have strong commercial and logistical ties with this country. Therefore, the growth rate will be significant. After all, we see that even without an agreement, trade is growing.

 

A free trade agreement is not just about reducing tariffs. This is an extremely powerful advertisement for Ukrainian export products. This is what we saw in the EU: they started buying something there that they didn’t buy before, not because of customs duties, but because they didn’t pay attention to Ukraine. There was also a phenomenon with Ukrainian honey. The EU found that our honey was high quality and cheap, and the demand for this product was three times higher than the tariff quota.

 

The phenomenon of market advertising that has opened up is much more important than the figures written in the agreement. I think $ 10 billion in turnover is a very achievable goal.

 

Trade is growing, and our ties with Turkey will grow stronger in both the grain and metal markets. After all, Russia is behaving very unpredictably in these two markets: it collects export duties, creates restrictions on exports.

 

We behave differently, more correctly in relation to trading partners, so our share in the Turkish market will grow. But the most interesting thing will happen in the segment where the increase is not billions, but hundreds of thousands and millions of dollars. After all, this will mean that medium-sized businesses benefit from this agreement.

 

The agreement with Turkey shifts the center of gravity of our trade towards the Black Sea and the Mediterranean basins. Greater Europe – from Norway to Greece and from Ukraine to Portugal – is already united by joint free trade agreements. Turkey has built a bridge for us in the Middle East and North Africa. The task now is to speed up the conclusion of agreements with the countries of this region: Lebanon, Jordan, Egypt, Tunisia, Morocco, etc.

 

With this new center of gravity, the former Soviet Union is becoming a raw material appendage for Ukraine. We have a negative balance of foreign trade with these countries, we export coal, oil and some fertilizers – these are raw materials. And the real production cooperation is moving to the Mediterranean region.