Will Lviv businesses benefit from the abolition of customs duties?
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The abolition of customs duties: a brief overview
According to Yulia Svyrydenko, the First Deputy Prime Minister and Minister of Economy of Ukraine, the decision to abolish customs duties on goods from Ukraine will significantly support our country, and also foster the development of logistics to the third countries. She noted that only the adjusting of exports can save millions of people in the world from starvation and in this way, Ukrainian businesses would begin to integrate into the EU internal market without waiting for a decision on membership.
At the same time, the business ombudsman of the Lviv City Council, Serhii Kiral, warns that the abolition of customs duties is not a «red carpet» that will lead our producers to the final consumer, but rather 10% of the success of exports.
«We need to understand that lifting restrictions is not some kind of carte blanche or «red carpet» that will lead our producers to the end consumer. I would even venture to say that this is about 10% of the success of exports. Nobody has abolished competition in this market, even if our product becomes more competitive, given the restrictions, it will be possible to offer a higher price, but competition in the local market will still remain, because there are certain traditions and requirements,» – he explains.
Serhii Kiral points out that, for example, the UK market is very demanding and difficult to break into, so the work of exporters themselves, their abilities, skills, ability to establish contacts and successfully sell their products is important, convincing buyers that these products are worth purchasing.
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In addition, according to the business ombudsman, the war is hampered: there are restrictions on travel and departure of individual Ukrainian citizens, including men.
«Successful export is, first of all, a successful first contact, an opportunity to meet, bring samples of your products and conclude an agreement. Unfortunately, these things are now very limited, the road takes twice as long, more money is spent, as well as huge queues at the border, because the west of Ukraine has become a humanitarian hub – all border crossings are overwhelmed with cargo. Also, finding partners and distributors in the local market take some time.»
How can Lviv’s businesses benefit?
Lviv business has a number of advantages, including a favourable geographical location near the EU border, said Serhii Kiral.
«Here we see even the «remnants» of the Venetian Republic, which was at that time the largest trading entity in Europe. This is probably what inspires us, it’s in our DNA: the focus on trade with external partners,» – he said.
The business ombudsman said that thanks to the program of support for exporters, which was developed and approved in Lviv a year and a half ago, Lviv exporters could already get acquainted with the possibilities of exporting to the market of a particular country. About ten such events have been held in the United States, Canada, the United Kingdom, Tunisia, Saudi Arabia, Poland and other countries.
«It’s important here that the countries that are currently lifting restrictions on imports from Ukraine are the ones with whom we have already had these meetings and acquainted our exporters with the possibilities of exporting to these countries. There was a very interesting meeting with Great Britain, for instance. They have a very strong team, a former Deputy Prime Minister and now Ambassador, Economic Adviser and former official of the Ministry of Economy, who together with Taras Kachka [Deputy Minister of Economic development, Trade and Agriculture of Ukraine – ed.] was directly responsible for drafting the Association Agreement on Free Trade with the EU. Now, our exporters are getting an additional incentive, an impetus to enter these markets,» – explains Serhii Kiral.
In particular, the feed company «Kormotech» in Lviv plans to increase exports, its owner Rostyslav Vovk says.
«Before the war, we sold up to 15% of products abroad, now we have reached 25-28% and will increase it. There is a suspicion that our market will fall as the amount of free money from people to buy ready-made animal feed will decrease. That is why we have switched our attention to exports, although, of course, we do not forget about the domestic market, we provide it as much as necessary,» – he said.
Iryna Petelytska, head of «VOLDI» and «Chocoboom TM», also believes that the abolition of duties will have a positive impact on the Lviv business. This will be reflected in lower prices, because the customs-importing countries added the value of customs duties to the price, that sometimes made the cost of the product much higher, which made it unprofitable.
What problems do Ukrainian exports face?
Serhii Kiral notes that the war took away all Black Sea ports and blocked all sea routes, which were used mainly for transporting raw materials.
«Russia has blocked the Black Sea, all Black Sea ports. There are about nine of them, three of them were responsible for more than 50% of trade in Ukraine. First of all, grain was transported through seaports. 100-120 million tons of it were grown in Ukraine every year, of which 80-100 million were exported. Ukraine consumes no more than 20-22 million. About 15 million tons of metal were transported by these routes annually, in particular through the port of Mariupol, which has already been partially destroyed,» – explains the business ombudsman.
The blockade of seaports has hit the agricultural sector of Ukraine, says Serhii Kiral, because only 10% of exports by sea were fuel, everything else was raw materials, components, finished products and grain.
«Grain traders now do not have the opportunity to export grain, so the elevators are overwhelmed by last year’s harvest, so there is no place to fill up new ones. This can lead to serious consequences not only for Ukraine but also for the world. Ukraine feeds about 400 million people on the planet, being in the top three largest exporters in the world.»
Iryna Petelytska, on the other hand, believes that it is wrong to transport raw materials during the war. Whether there is a customs duty or not, it’s not worth exporting oil, flour or grain from Ukraine, where the current situation is difficult itself. The issue of raw material exports arose before the war, and Ukrainian producers were against it.
«As candy producers, we have to buy raw materials for the manufacture of our products. And when, for example, we buy sugar, but it’s abscent in the country because of having been exported, the price for it begins to rise. And we also have to increase the cost of the product, which affects the final consumer,» – she said.
According to Iryna Petelytska, the abolition of customs duties will not affect logistics – it will still remain expensive. Her company currently exports to Estonia, Lithuania, Latvia and, more recently, Germany. Supplies to China have been suspended.
Lviv enterprises, Serhii Kiral continues, were mostly focused on exporting products across the border with Poland. For them, logistics has not changed, at least in the direction, but only complicated, because the west of Ukraine has become a humanitarian hub. Today, as already mentioned, all border crossings are overwhelmed with cargo, forming huge queues.
«Logistics for our companies have not changed, except for those that focused on Asian markets or North American markets, which exported their products or imported raw materials through the seaports of Ukraine. Therefore, they should restructure their logistics either to the port of Gdansk or to Constanta, Romania,» – he said.
How to find support abroad?
Serhii Kiral announced that in the coming weeks, the city plans to adopt a separate business support program, part of which will be so-called marketing vouchers, which allow exporters to reimburse travel expenses abroad to participate in exhibitions, negotiations and present their products.
«It simply came to our notice. Even during the war, there were two examples when small producers from Lviv were helped to present themselves at a fair in the Abruzzo region of Italy, in particular, representatives of the local Ukrainian diaspora. A minibus with product samples went there: from light industry to industrial goods. The second case – our large furniture manufacturer – the company «Favoris» went to the exhibition in Poznan with its models. There, they were given a 50% discount, and we facilitated the rapid crossing of the border. The company cannot find markets in Ukraine now because of the war, so we hope to find them abroad,» – said the business ombudsman.
Will the abolition of customs duties have a significant positive effect on Ukraine?
Serhii Kiral is not happy with the hope that the abolition of customs duties on goods from Ukraine will significantly affect the economic situation and the IMF’s projected decline in GDP by 35%. Increasing trade turnover after certain decisions is a rather inertial thing.
It should be remembered that enterprises in the east, south and north of Ukraine, where industrial potential was concentrated, were affected by the war: chemical, metallurgical, and mechanical engineering enterprises. Many businesses have either ceased operations or been destroyed. Thus, there is a shortage of certain goods and products on the Ukrainian market.
As an example, the business ombudsman mentions the biotech company «Enzym», founded by Rostislav Vovk’s father, Orest. Prior to the full-scale Russian invasion of Ukraine, there were three liquid yeast plants, two of which were located in eastern Ukraine, so they are now closed. There is one Enzym yeast enterprise left in Lviv, which today has to cover its supply needs. According to Rostislav Vovk, Enzyme sells 40% of its products abroad.
«We have significantly increased the volume of imports, which causes the need for currency. So we are becoming even more dependent on donor funds. Reducing these duties will not work quickly. It is not a fact that there will be goods that can be exported, because there is a shortage in the domestic market, and the state is gradually imposing restrictions on exports. In particular, there have recently been restrictions on buckwheat exports. It is also too early to say that this will have a significant impact, even if our exports increase in a few months,» – said the business ombudsman.
What’s next?
Experts predict that some consumers and distributors, given Ukraine’s price, solidarity and support, will still want to buy Ukrainian goods, but this will not be a critical number of potential partners. It can be up to 20%.
«Others will look at the contents of the wallet, habits, certain traditions, so it can be a long history, because you need to «tame» the market to your products,» – says Serhii Kiral.
It is also worth noting that Ukrainian entrepreneurs will need several months to develop a new market.
«We need to understand that retail chains and distributors are interested in long-term partners. If someone takes your product into their network, they want it to be there for a year, not two or three months. So I do not understand these 12 months [so long will be the abolition of customs duties – ed.], I would give Ukraine the status of a privileged partner. This status exists in many countries. The United States, for example, gives such status to Taiwan,» – the official added.
In this way, according to the business ombudsman, Ukraine could be supported, because after the war, we will also have a difficult economic situation, and we count on long-term support from partners, not just 12-month support.
Kateryna Bortniak, translated by Vitalii Holich
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