Europe throws Ukraine economic lifeline with ‘unprecedented’ temporary free trade area. Meanwhile, the U.S. still maintains Trump’s 25% tariffs on Ukrainian steel
The European Union is set to temporarily drop all its tariffs on imports from Ukraine, to help the country’s industry weather Russia’s invasion.
The European Commission, the EU’s executive body, proposed the move Wednesday, calling it “an unprecedented gesture of support for a country at war.” The European Parliament and the EU’s member states still need to give the green light, but the tariff suspension would take place immediately after agreement is reached.
The establishment of what is effectively a temporary free-trade area would be particularly meaningful for Ukraine’s agricultural sector, which is the backbone of the country’s economy, as well as its vital steel industry—the proposal also includes a one-year suspension of EU anti-dumping duties and safeguards on Ukrainian steel exports.
“Russia’s unprovoked and unjustified aggression is severely affecting the Ukrainian economy,” said Commission President Ursula von der Leyen. “I have been in discussions with President Zelensky on ways of supporting the economy, beyond the macro-financial assistance and grants we are providing. We both agree on the critical importance of a quick and broad import duty suspension to boost Ukraine’s economy. The step we are taking today responds to this call. It will greatly facilitate the export of Ukrainian industrial and agricultural goods to the EU.”
The World Bank said earlier this month that Ukraine’s economy would likely shrink by nearly half this year, owing to the invasion’s effects.
The EU’s announcement came a couple of days after the United Kingdom, until recently an EU member, said it would cut tariffs on all Ukrainian imports to zero.
Ukraine and the EU struck an “association agreement” five years ago, which set out a gradual plan for establishing a free-trade area. Wednesday’s announcement effectively accelerates that road map, at least for the next year.
Meanwhile, after the U.K. “brexited” the EU a couple of years ago, it struck its own agreement with Ukraine, replicating the effects of the EU-Ukraine deal. Again, its suspension of tariffs on Ukrainian imports takes place within that context—without free-trade agreements, countries risk falling foul of World Trade Organization rules if they give preferential treatment to imports from particular countries but not others.
“The U.K. will continue to do everything in its power to support Ukraine’s fight against Putin’s brutal and unprovoked invasion and help ensure the long-term security and prosperity of Ukraine and its people,” said International Trade Secretary Anne-Marie Trevelyan on Monday.
Although the Russian invasion has severely hampered Ukrainian industry, the European Commission’s proposal to suspend safeguards on imports of Ukrainian steel will likely stimulate further calls for U.S. President Joe Biden to drop American tariffs on the product.
Biden has yet to remove 25% tariffs on Ukrainian steel, levied during President Donald Trump’s tenure in the White House—Trump caused major diplomatic ructions by imposing tariffs on steel coming from around the world, including from U.S. allies.
“The United States should do everything it can to ensure that the Ukrainian people can effectively rebuild after the war,” Senators Dianne Feinstein (D-Calif.) and Pat Toomey (R-Pa.) wrote in an open letter to Biden earlier this month.
“Lifting the U.S. tariff on steel from Ukraine is a small but meaningful way for the U.S. to signal support for Ukraine and to provide stability and improve the country’s long-term economic outlook.”
In its proposal, the European Commission estimated based on 2021 imports from Ukraine that the suspension of tariffs would cost the EU less than €31 million ($32.75 million), and the loss of anti-dumping duties would be around €34.6 million.
“This figure is very likely to be significantly lower, as the level of imports from Ukraine has been affected by the conflict,” it added. “Therefore, the impact on the EU’s own resources will be very limited.”