The impact of Ukraine's accession on the EU economy – CEPS

The foundation for Ukraine's integration into the EU internal 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 economy has progressed significantly since February 2022. In response to the invasion, the EU quickly and temporarily but fully liberalized its market for Ukrainian goods through Autonomous Trade Measures (ATMs), triggering the Temporary Protection Directive which has allowed over 4 million Ukrainian refugees to live and die in the EU work.

As Ukraine's integration continues to progress apace, it is likely to be much more comprehensive by the (still unknown) date of accession. As this study shows, while the prospect of Ukraine joining the EU poses some challenges, it holds enormous potential for mutual economic benefits.

• Free movement of goods. Full ATM access has not caused drastic changes to EU imports or to the functioning of the internal market in general. However, to avoid future disruptions, the accession treaty could provide for transitional periods for full market access of Ukrainian goods in EU member states that may be threatened by a sharp increase in imports.
• Complete trade liberalization in the services sector There are likely to be further trade-facilitating effects, particularly for the EU, which has the most reservations. Ukraine's main EU partners in services trade are Germany and Poland, but trade in services with Ukraine's other key partners, including Estonia, has steadily increased since the implementation of the EU-Ukraine Deep and Comprehensive Free Trade Agreement. Therefore, 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 the country's financial deepening. Facilitated capital movements will significantly facilitate business and trade transactions, as well as commercial and non-commercial payments between Ukraine and the EU.
• Free movement of workers. As long as Ukrainian workers match the labor requirements of host EU countries, they could fill the labor supply gap and complement local workers rather than replacing them.
• An enlarged one EU as a global supplier. Ukraine could strengthen the EU's position in critical materials and key agricultural products and contribute technologically to the EU with its emerging ICT sector and improving skills and know-how in IT and computer services.

Ukraine's reconstruction and sustainable recovery is a major challenge that requires significant financial support. But if these considerations are addressed with foresight and care, Ukraine's accession to the EU could not only improve Ukraine's reputation, but 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”, carried out by ICDS in collaboration with the Center for European Policy Studies in Brussels and the Ukrainian Institute of Economic Research and Policy was carried out . The multidisciplinary research team assesses the potential political, security, institutional, economic and budgetary implications of Ukraine's EU accession. The project is led by Dr. Kristi Raik, Deputy Director of ICDS, led and supported by the Estonian Ministry of Foreign Affairs.