The Impact of Ukraine’s Accession on the EU’s Economy: The Value Added of Ukraine

The Impact of Ukraine’s Accession on the EU’s Economy: The Value Added of Ukraine

Tinatin Akhvlediani
Research Fellow, CEPS
Veronika Movchan
Academic Director at the Institute for Economic Research and Policy Consulting (IER), Kyiv.

The groundwork for Ukraine’s integration into the EU’s single market was laid by the EU-Ukraine Association Agreement (AA). A key component of the AA, the Deep and Comprehensive Free Trade Area (DCFTA), paved the way for Ukraine’s gradual integration into the EU’s single market.

Building on the DCFTA, Ukraine’s integration into the EU’s economy has significantly advanced since February 2022. In response to the invasion, the EU swiftly and temporarily but completely liberalised its market for Ukrainian goods through Autonomous Trade Measures (ATMs) and triggered the Temporary Protection Directive that has enabled over 4 million Ukrainian refugees to reside and work in the EU.

With a continued swift trajectory, Ukraine’s integration is set to be much more comprehensive by the (yet unknown) time of accession. As this study outlines, the prospect of Ukraine’s accession to the EU brings some challenges but holds immense potential for mutual economic benefit.

  • Free movement of goods. Full access under the ATM has not caused drastic changes in the EU’s imports or in the functioning of the single market in general. Yet, to avoid disruptions in the future, the accession treaty could include transition periods for full market access for Ukrainian goods in those EU Member States that may be vulnerable to a sharp increase in imports.
  • Full trade liberalisation in services is expected to have more trade-easing effects, particularly for the EU, as it holds most of the reservations. Ukraine’s main EU partners in services trade are Germany and Poland, but services trade with Ukraine’s other major partners, including Estonia, has been steadily increasing since the implementation of the EU-Ukraine DCFTA. Thus, trade absorption capacity should be sustainable.
  • Free movement of capital. Given the underdevelopment of Ukraine’s financial sector and capital markets, legislative and policy alignment should serve as a solid foundation for financial deepening in the country. Eased movement of capital will make it significantly easier to conduct business and trade and commercial and non-commercial payments between Ukraine and the EU.
  • Free movement of workers. As long as Ukrainian workers fit the labour demands of the receiving EU countries, they could fill the gap in the labour supply and complement rather than replace local workers.
  • An enlarged EU as a global supplier. Ukraine could strengthen the EU’s position in critical materials and key agricultural products, as well as contribute to the EU technologically with its emerging ICT sector and increasing skills and know-how in IT and computer services.

Ukraine’s reconstruction and sustainable recovery is a significant challenge that requires substantial financial support. Yet, by addressing these considerations with foresight and diligence, Ukraine’s accession to the EU could not only elevate Ukraine’s standing but could also strengthen the EU’s position on the global stage.

This paper is the fifth publication of the project on “The political and economic impact of Ukraine’s EU accession on the EU and Estonia” conducted by the ICDS in cooperation with the Centre for European Policy Studies in Brussels and the Ukrainian Institute for Economic Research and Policy. The multi-disciplinary research team assesses the potential political, security-related, institutional, economic, and budgetary implications of Ukraine’s EU accession. The project is led by Dr Kristi Raik, Deputy Director of the ICDS, and supported by the Estonian Ministry of Foreign Affairs.