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What is wrong with foreign trade policy

Oleg Gavrysh
Deputy Chief Editor, The Page

For 9 months of this year, goods worth more than $38 billion were imported to Ukraine, and exported—for $35.1 billion.

Despite the decline in the cost of imports, the country has a negative foreign trade balance. This is bad for the economy. To put it simply, we feed the countries that import products to us.

The authorities have told us for many years that the main reason for this kind of imbalance is the large volume of energy products imported into the country.

This year, gas prices have dropped to their lowest levels over the past decade. As well as the price of petroleum products. But this did not fundamentally change anything. We still import more than we export.

Maybe we need to try some other options? For example, simply to decide what needs to be imported duty-free, and what products should be prohibited from importing.

The answer to the question here should be very simple: raw materials and production equipment should be imported without hindrance and duty-free. But from the finished products’ import the country should protect itself as much as possible.

Now it is often the opposite. Let me give two examples.

Furniture manufacturers today face the challenge of restricting raw materials imports from Russia. These raw materials are critical for their production.

First of all, this concerns urea-formaldehyde concentrate that is produced in the Russian Federation by three large chemical companies.

In Ukraine, this raw material is produced in negligible quantities by the only enterprise, since, being a raw material, urea-formaldehyde concentrate is not of particular interest for sale.

Products with greater added value are preferred, in particular urea-formaldehyde resin. Accordingly, it is impossible to buy the required volume because they themselves buy ready-made UFC from intermediary importers.

At the same time, having lobbied the ban on the cheapest KFK imports from the Russian Federation, monopolists controlling the market practically killed their competitors—resin producers.

And those who still remained were placed in strict dependence on a couple of suppliers from third countries with rhythmic supply problems and high prices. As a result, the wood-based panels production, including manufacturers of chipboard and plywood, were affected.

The import of products like UFC must be allowed in the country and the sooner the better.

The second example is the import to Ukraine of Belarusian finished products or with a high proportion of processing, let’s say, thermal insulation. It is known that Belarus has a non-market economy.

It is socialist. Enterprises receive electricity, cheap natural gas and tax holidays so that they can dump foreign markets. This is done in order to ensure the flow of hard currency into the country.

That is, the main thing is that the products will be sold for foreign currency, and at what price and what benefits enterprises will receive in order to cover losses, nobody cares. Although, of course, it is difficult to calculate this since we do not understand the average cost of electricity in the country.

There are mechanisms when a person can say that he is not dumping but selling at normal prices. But in general, our industrialists are surprised at the products that are supplied from Belarus and their prices. They are clearly dumped.

In general, it is still obvious that we prohibit the import of raw materials and allow the import of finished products. Honestly, a more stupid strategy is hard to imagine.

It is what creates distortions in foreign trade that lead to a significant deficit in the foreign trade balance.

And, of course, it needs fixing.

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