EU trade policy

Simon J Evenett has a nice piece on the EU trade policy. Here is the key paragraph for Ukrainian RTA:

EU RTA policy runs into two constraints. First, EU negotiating objectives are far too diffuse, ranging from traditional tariff considerations to new behind-the-border rules to "sustainable development" and a plethora of other non-economic goals. The latter are often wrapped up in patronising language about promoting European values. Second, some of the RTA partners are large enough that they too have demands, demands which the EU probably cannot deliver. (Indian demands for visas being a case in point.) Both factors have eroded, if not eliminated, the basis of the deal in many negotiations. In fact, the EU negotiating package seems best suited for other industrialised countries that have either defensive agricultural interests (Korea) or are willing to forgo their offensive agricultural interests (Canada). The problem is that there aren't many such countries left for the EU to negotiate RTAs with! As far as the large emerging markets are concerned, little should be expected.

Overall, unless there is a substantial streamlining of EU negotiating demands and occasionally a willingness to make serious concessions to negotiating partners, the EU's RTA and EPA negotiations will remain a sideshow. These negotiations may afford opportunities for experimentation but there aren't enough deals in the works to dramatically scale up any innovative provisions.

Ukraine is emerging country with an agenda to promote its agricultural products to EU. That is exactly a combination of factors, EU is not prepared to deal with.

Wishful thinking?

Kyiv Post. Independence. Community. Trust - Ukraine - Medvedev: Russia, Ukraine need annual trade volume of $100 billion: "Medvedev: Russia, Ukraine need annual trade volume of $100 billion"

Here is the figure of actual bilateral trade in 2001-2009, plus projection for 2010 of 40 bln US$ that both presidents expressed as realistical target, plus what Medvedev called as a long term goal of 100 bln US$ for the future (I defined the future as 2020 at my own discretion).

If one believes that both economies will come back to the trend they had before 2009, the 100 bln US$ in 2020 looks feasible. However, I do believe that Russia and Ukraine are on another long term equilibrium path now, and I bet that the level of bilateral trade of 2008 (35 bln US$ ) will not be reached neither this year nor in 2011. Speaking about the long run goal, 100 bln US$ is possible, but meaningless goal. If, as some economist warn us, we entering a phase with high inflation, value of 100 bln US$ can be reached pretty quickly but the volume of trade will not grow 5 times in foreseeable future. 

Who pays for growth of China?

Who pays for the weak renminbi?, Arvind Subramanian

...the real victims of this policy are other emerging market and developing countries – because they compete more closely with China than the US and Europe, whose source of comparative advantage is very different from China’s.

In fact, developing countries face two distinct costs from China’s exchange rate policy.

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  In the short run, with capital pouring into emerging market countries, their ability to respond to the threat of asset bubbles and overheating is undermined.

Emerging market countries such as Brazil, India and South Korea are loath to allow their currencies to appreciate – to damp overheating – when that of a major trade rival is pegged to the dollar.

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  But the more serious and long-term cost is the loss in trade and growth in poorer parts of the world.

As an illustration, consider production of steel. China continued to increase the production of steel even during the crisis while countries like Ukraine were forced to cut down production by 20-30%:

Dani Rodrik  suggests a policy that would be good for the World Economy, while allowing China to grow further:

So there is a simple solution. It is possible to let the renminbi appreciate, and hence

eliminate the trade surplus, as long as complementary policies are put in place to support modern

tradables more directly. Such policies, combined with macroeconomic policies targeted at the

current account, can achieve both external balance and structural change in favor of modern

tradables.

Ukraine is being lost in transition: should it stay, or should it go?

Ukraine is currently in a very awkward position of moving away from CIS (or rather Russia, Belarus, and Kazakhstan emerging trade bloc), but not getting closer to the EU. My new research paper shows that any integration strategy -- CIS oriented or EU oriented -- would be better than the current status of being lost in transition. Here is the graph that demonstrate actual vs predicted aggregate trade under the EU and CIS integration scenarios:

By distancing itself away from Moscow, Ukraine is losing its current trading partners in traditional goods that it exports. By not integrating with EU it is losing in two different ways: its old trading partners from new EU member-states (trade diversion effect) and is finding it more difficult to attract FDI, create competitive products in manufacturing sector, promote its production in the EU market (losing possibility for expansion of manufactured exports and probably agricultural products).
Here is the graph that shows the gains in exports of Ukraine in 4 large groups of products from chosing EU integration rather than CIS integration: