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The EU-Ukraine Trade Liberalization: How much do the costs of tariff elimination matter?

Author

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  • Frey, Miriam
  • Olekseyuk, Zoryana

Abstract

The establishment of the currently negotiated Free Trade Agreement (FTA) between the EU and Ukraine is the next significant step towards Ukraine’s deeper integration into the world economy, widely expected to result in additional welfare gains. As developing countries face some costs associated with trade liberalization, this paper contributes to the literature by analyzing the effects of the EU-Ukraine FTA taking into account the loss of tariff revenues as well as the changed economic conditions after Ukraine’s accession to the WTO in 2008. In particular, we calculate the effects of a unilateral tariff elimination in a Computable General Equilibrium (CGE) model for Ukraine simulating three scenarios reflecting different means to compensate for the loss in tariff revenues. It turns out to be important to take these costs into consideration while modeling trade liberalization, as the results vary significantly across the scenarios. In general, we find that tariff elimination has only a small impact on the country’s welfare because of the already strongly reduced tariff rates after Ukraine’s WTO accession. The effects can even be negative if the country tries to refinance the trade liberalization costs by means of tax policy. According to our simulations the most welfare enhancing option would be the provision of financial support by the EU, which is in fact suggested in the latest European Parliament resolution.

Suggested Citation

  • Frey, Miriam & Olekseyuk, Zoryana, 2011. "The EU-Ukraine Trade Liberalization: How much do the costs of tariff elimination matter?," Conference papers 332067, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:332067
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    References listed on IDEAS

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    1. Thurlow, James & van Seventer, Dirk, 2002. "A standard computable general equilibrium model for South Africa," TMD discussion papers 100, International Food Policy Research Institute (IFPRI).
    2. El-Said, Moataz & Lofgren, Hans & Robinson, Sherman, 1999. "Trade liberalization and complementary domestic policies: a rural-urban general equilibrium analysis of Morocco," TMD discussion papers 41, International Food Policy Research Institute (IFPRI).
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