Ukraine Market Report — Q2 2008
WTO accession completed, tariff schedules bound, and a permanent improvement in the country's trading position — achieved in the same quarter the conditions underlying its growth were quietly reversing.
Overview
Ukraine completed accession to the World Trade Organization in May, after more than a decade of negotiation.
It was the most durable positive development of the entire decade, and it received far less attention at the time than the inflation figures.
What WTO membership changed
Three things, all permanent.
Bound tariffs. Ukraine's tariff schedule became a commitment rather than a policy variable, which removes an entire category of uncertainty for any importer or exporter planning multi-year positions.
Dispute settlement access. Trade measures taken against Ukrainian exports became challengeable through a defined process, and Ukraine became subject to the same discipline.
A precondition satisfied. WTO membership was a prerequisite for negotiating a deep free trade area with the EU, which is the direct line from this quarter to the association agreement six years later.
For a company, the practical effect was that the regulatory environment governing cross-border trade became substantially more predictable, permanently, and independent of which government held office.
Macro position
Inflation peaked during the quarter and began easing slightly. The currency was revalued in May. Global steel prices reached their all-time high and then began falling.
External funding conditions continued deteriorating. Ukrainian banks and corporates found international markets progressively less receptive.
Sectors
Metals — the peak. Prices at record levels through the first half, with the turn beginning in the summer.
Construction — visible distress in developers with foreign-currency obligations.
Banking — funding pressure building steadily.
Agriculture — a very strong harvest in prospect, and grain export restrictions removed as part of the WTO commitments.
What the quarter settled
That the trade framework had been permanently improved at exactly the moment the cyclical position was turning.
This is a recurring pattern worth noting: structural improvements and cyclical downturns are unrelated, and the presence of the second does not diminish the value of the first. WTO membership was worth more to Ukraine over the following fifteen years than the 2008 recession cost it, and almost nobody described it that way at the time.
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