To discuss the future trends in trade, the Author will present an estimation based on a gravity model prepared for all EaP States. Gylafson, Martinez--Zarzoso, Wijkman (2014) forecast trade effects using the gravity model to discover how EaP countries would be affected by various determining factors. They took into consideration the following issues:
1. Entering into the EU, full membership (EU) 2. A DCFTA with:
– EU (EUdeep)
– Russia (Eurasian Customs Union, RUSdeep) 3. A shallow FTA with:
– EU (EUshallow) – Russia (RUSshallow)
– Each of the EaP states (FTA-East).
Their research was based on the data obtained from 34 exporters and 150 importers. The scenario in which EaP countries become EU members will result in the increase of exports by 317%. However, it is crucial to underline that this scenario is unrealistic. The authors estimated that entering into DCFTA with the EU will result in an 86% increase in exports, whereas DCFTA with Russia under the Eurasian Customs Union will have no positive impact on trade. Interestingly, shallow cooperation with Russia will affect the export negatively, reducing the volume of trade. In conclusion, close and deep cooperation with the EU will stimulate EaP States’ trade
continued Table 3
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Part III: EU Trade & Investment Policy: Engine for Growth and Job Creation?…in volume, but, taking into consideration the analysis of trade between the EU and Ukraine, a quality shift in terms of production and technology advancement will be observed.
Harbuzyk and Stefan (2004) estimated that Ukraine will benefi t directly from a customs union with the EU, however the agricultural sector shall not be liberalised. The opening of this sector may result in adverse terms of trade. In 2007 Ecorys analysed the potential effects of DCFTA between Ukraine and the European Union. The report underlined that the welfare gain for Ukraine would be strengthened by reforms, which are a necessity for a country preparing for deeper integration with the EU. Maliszewska et al. (2009) estimated that the gains from a free trade agreement with Ukraine would result in the so-called welfare gain up to 0.09%, whereas for EU27 exports were predicted to increase by 0.26% and imports by 0.28%.
Conclusions
The theory of economic integration highlights the positive effects of deepening integration in the region. There is high probability of trade diversion and the emergence of new channels of trade between the partners.
Over the past few years Ukraine as a member of the Eastern Partnership has consequently strived to modify the direction of their activities and has been looking for allies in the West. The open confl ict with Russia is an obstacle on the Ukrainian path to stable economic growth. This was the reason for prolonged negotiations between the EU and Ukraine. At the same time, a rising interest of EU Member States in the Ukrainian market has been observed. As a matter of fact, even before the DCFTA took effect there was an obvious shift in trade between the European Union and Ukraine.
The increase of EU exports and imports with Ukraine and the rising share of EU trade in Ukrainian trade suggests that this trend is likely to continue over the coming years. Different estimation research underlines how crucial the economic, especially trade, effects are for Ukraine in terms of welfare.
The welfare gains will be the result of a spill-over effect from administrative, political and structural reforms required and necessary for Ukraine to meet the requirements of the European Union. The trade effects are only the beginning. Domestic (Ukrainian) companies will learn a lesson from trade effects and dynamic engagement with the EU market. EU exports to Ukraine will bring technology and quality to the market and companies will be given an opportunity to learn through knowledge spill-overs. As shown in
Aleksandra Borowicz, Ukraine and the European Union. Trade Benefi ts Offered…
151
the Akamatsu model, over the next few years Ukraine will bridge the gap in terms of capital, knowledge, technology and managerial skills. A vital issue from a strategic point of view will be the creation of a stable political, fi scal and administrative environment to encourage foreign investors to invest.
This is another interesting research area to explore in the case of EaP states.
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