Canadian Ambassador: IT-services is the future of Ukraine’s export to Canada

Free-trade area (FTA) regime between Ukraine and Canada was established August 1, 2017. This is the 16th free trade regime coming into effect within the period of Ukrainian independence. But the situation with Canada is a specific one. This is because the North American partner opened 98% of its market for the Ukrainian commodities, having set to zero import duties for the majority of commodity groups. The influence of FTA introduction on commodity circulation between the states, the level of increase of the Ukrainian companies’ presence on the Canada’s market, the most promising sectors of the national economy from the perspective of Canada – all these and many more issues in the interview with Roman Waschuk, Ambassador of Canada to Ukraine.

Mr. Ambassador, how has the dynamics of Ukraine-Canada commodity circulation changed within the period after FTA introduction between our countries?

The two-month statistics we have does not give grounds for commodity turnover analysis. Though, it is positive from both sides. I will explain. The thing is that statistics of our countries are a bit different. The Canadian party demonstrates boost of commodity turnover within the first nine months of 2017 up to USD 65 million, i.e. 13,5% more comparing to the same period of 2016. The Ukrainian statistics for the period of three quarters of 2017 estimates USD 33,9 million which is 65% more comparing to the same period of 2016. As you see, the difference is twice bigger. This is due to peculiarities of declaration practice of exporters or statistical systems the adjustment of which will be ensured by the group we are currently establishing.

In fact, the states better maintain import than export statistics. That is why, let’s say, Canada works with the USA in the following way: their import statistics is used as our export ones and vice versa.  If we speak about trade between Ukraine and Canada, we talk about export to Ukraine at a rate of USD 179 million. The Ukrainian data shows that import from Canada equals to USD 196 million. According to our statistics trade balance deficit in Ukraine is less than the one estimated in the Ukrainian statistics.

Could you tell us what kind of commodities make our countries attractive for each other?

I would like to point out that the agreement between Canada and Ukraine has fueled the mutual trade. In 2016 the top-6 commodities of Ukraine’s export to Canada included:  1 — ferrosilicon manganese, 2 — colorants of titanium oxide, 3 — soybeans, 4 — cars, 5 — television and radio equipment, 6 — coffee makers. In our turn, we supply to Ukraine:  1 — coal, 2 — fish (in particular, hake), 3 — shrimps, 4 — pet feed, 5 — medicine, 6 — human or animal blood.

What other sectors benefit from Ukraine-Canada trade liberalization? 

The most promising sectors include, first of all, IT-area, clothes, footwear, furniture, chocolate and confectionary. In particular, there was established a support program for exporters «U CAN Export» aimed at fostering promotion of these goods on the Canadian market. It is important that the project is aimed not at Ukrainian “giants”, but at support of small and medium businesses. We are sure that the companies experienced in export can do a good job on the Canada’s market themselves.

In what way did FTA regime benefit your companies? To what extent does the Ukrainian business exploit opportunities to reach the market of Canada?

The agreement is an asymmetric one. Canada has immediately opened 98% of its market for Ukrainian producers, having reduced customs duties to 0% for almost all commodity groups, except for cars the duty on which will be cancelled within seven years. Also, there are specific restrictions on some agricultural products, which are exported on a duty-free basis only within established quotas. In particular, this is about milk, poultry, eggs, etc.

In case with Canada’s export, Ukraine has opened almost 80% of its market. Duties on some commodities from Canada will be cancelled systematically based on three, five and seven-year long transition periods. And there have been imposed restrictions on importing pork and lard. By the way, talking about lard, the Ukrainian producers persuaded me that it has not only economic but also a symbolic meaning.

Talking about agricultural products, significant dynamics was demonstrated by honey export of which has doubled. This means that there emerge new companies which take up the slacks.  

Analysis of export statistics of Ukraine shows significant leaps of some commodities. Let’s say that export growth of coffee makers within nine months of 2017 estimates 1 500 %, glass containers for transportation and packing of goods – 2 450 %, equipment for seed cleaning, sorting or calibration — more than 3 000 %. Talking about agricultural products, significant dynamics was demonstrated by honey export of which has doubled. This means that there emerge new companies which take up the slacks. Canada’s experience in free-trade areas proves that export grows broad first, and then – deep. To put it in other words, first of all, the range of commodities is increased, and then its volumes of supply are ramped up. Commodity producers which reach a new market explore tastes and demands of consumers and then concentrate upon promotion of commodities. It does not mean that traditional sectors do not face any increase. We, in particular, observe a significant growth related to agricultural equipment. Here, our companies have “overslept” the first phase of large-scale investments into agricultural equipment and are trying to сatch up.

Each market has its own specific features. What kind of difficulties do Ukrainian exporters happen to overcome?

We took into consideration specific features of each market and along with the agreement we have launched Canada-Ukraine Trade and Investment Support Project. Trade means exporting from Ukraine to Canada, and investments mean Canada’s investing to Ukraine. Expert advice is provided to your exporters who are eager to open Canada’s market for themselves. A detailed explanation is provided in relation to market specificities, requirements, ways of adjustment, types of certification required and geographical, palatability and other traits of a consumer.

Are there differences between Ukraine-Canada and Ukraine-EU FTAs?

The most important difference is that Canada’s market is more open for the Ukrainian goods than the EU market. And here there are much less restrictions, and if there are any, they are not really tough. In other words, ship as much as you wish. On the other side, our agreement deals, first of all, with commodities, but talking about trade in services, it is not that much diversified comparing to the agreement between Ukraine and the EU. In that respect, everything is still ahead for us.

Establishment of Canada-EU free-trade area is planned soon. What will this triangle change?

First of all, it is important to harmonize certification of commodities for export with due consideration of all the rules, requirements, qualifications, titles and other aspects. Soon we hope to form a positive free-trade area triangle “Ukraine – Canada – EU”. Then, producers from each side will have a better opportunity to see where inside this triangle there are advantages for their production and choose the most beneficial options for cooperation.

More intensive cooperation is planned in the IT-sphere. As of today, export of IT-services is two-three times the commodity export.

Is Canada involved into investment projects in Ukraine? What projects are the most attractive for investing?

On the part of Canadian investors there is some interest towards Ukraine. During the last two years, most funds were invested into agro-industrial sector. Therefore, one large Canadian fund has already purchased one third of shares belonging to the Ukrainian agro-industrial holding. In future, significant investments are planned to be made into the IT area and everything related to it, for example, infrastructure for information technologies. These are the spheres where I can see potential in the short-term outlook.

Mr. Ambassador, could you please share your predictions as to development of trading relations between our states?

In addition to the commodity market, service market will also grow, in particular, more intensive cooperation is planned in the IT sphere. Export of IT-services is difficult to encompass, but as of today it is two-three times broader than the commodity one. Only one big contract of a Canadian retailer with Ukrainian IT-professionals costs about USD 50 million. Besides, nearly 2 thousand programmers in Ukraine work for Canada. IT-services market belongs to invisible export, but at the same time it is economically sound for your country. And, considering geographical distance between our countries, it can play a huge role.