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. Last Updated: 07/27/2016

Tymoshenko, Yanukovych Look to EU for Trade

KIEV — When Yuri Davydov needed investors to expand his Ukrainian food company, he looked west to the European Union, not east to Russia, even though his VAT Creativ Industrial Group is in the Russian-speaking part of the country.

"We have good connections with Russia, but we prefer to trade with non-Russian companies," Davydov said after a Jan. 19 presentation to potential investors in Vienna. "If the European Union removes barriers, we can find a niche."

His attitude may explain why both contenders in the Sunday runoff presidential election, Viktor Yanukovych and Yulia Tymoshenko, have vowed to sign a trade accord with the EU. They favor it even though Yanukovych had Russian backing for his first run in 2004 and Tymoshenko accused President Viktor Yushchenko of being too confrontational toward Russia.

The EU is looking more attractive to executives from Ukraine's eastern industrial centers of Donetsk and Dnipropetrovsk, as well as in Kiev and Lviv farther west. The need to diversify from Russia, Ukraine's largest single trading partner, has business leaders pushing politicians for easier access to the 27-nation EU. Its market of 449 million people is more than triple the population of Russia.

Both finalists say they will repair relations with Russia that deteriorated under Yushchenko, and they question entry into NATO. Both plan to work with the International Monetary Fund to unblock $5.8 billion in loan funds that were frozen in November when the parliament failed to adopt a budget or cut spending.

Tymoshenko says she wants to abolish the value-added tax, while Yanukovych would cut that tax rate to 17 percent from 20 percent and cut the corporate tax rate to 19 percent in 2011 from 25 percent now.

Both also promise to sign a trade deal this year with the EU. The accord is part of a pledge made by Yushchenko, a former Central Bank governor, after the 2004 Orange Revolution.

But talks over the EU trade accord have been stalled for more than a year. European Commission President Jose Barroso said Dec. 4 that Ukraine had only "partly met" its promises to change laws needed for closer EU ties. The next discussions are set for early March in Brussels.

Ukraine needs more trade: Gross domestic product probably shrank 15 percent in 2009, Yushchenko's office estimates, as the global financial crisis cut demand for Ukraine's products, dried up investments and weakened the currency. Exports make up more than 40 percent of Ukraine's GDP.

The accord is intended to ease trade in all goods and services, including energy, and to eliminate a range of tariffs on both sides. The plan would also provide a blueprint for making Ukraine's regulations on competition, public procurement and customs more transparent, according to the EU's web site.

"For Ukraine, it is very important to have a European perspective," Yanukovych said in an interview Jan. 21 while campaigning near the Black Sea. "The most important thing is to create a real mechanism for real integration into the EU."

A political leader who wants to support business needs to promote easing trade restrictions to the West, said Jathan Tucker, head of trading at the BG Capital investment bank in Kiev.

"Most business leaders lean toward a free trade agreement with the EU," Tucker said. "It would open up a new market for exports that they could take advantage of."

The EU restricts the import of agricultural products that do not meet its norms, and it limits such manufactured goods as steel pipes and imposes tariffs on chemicals and drugs.

Exports to the 11-nation Commonwealth of Independent States accounted for 34 percent of Ukraine's $35.6 billion in international shipments in the first 11 months of last year. Exports to Russia alone totaled 21 percent.

Exports to the EU, including steel, food and chemicals, were 24 percent of the total, the government said Jan. 13.

"Ukraine needs to win Western market share. We need to export more," said Mykola Tolmachov, chief executive of TMM Real Estate Development, Ukraine's largest property developer. "We believe our investors are not in Russia."

Kiev-based TMM is among the Ukrainian companies that have raised money by selling shares in the EU, including in Frankfurt, London and Warsaw, the largest bourse in the EU's eastern states, rather than in Russia.

Kharkiv-based Sintal Agriculture, which grows grains, raised $13 million in October on the Frankfurt Stock Exchange through a private placement of a 17.2 percent equity stake.

Creativ offered shares on the Frankfurt Stock Exchange in 2007. After falling 75 percent from October 2007 to April 2009, the stock has soared 135 percent since.

Davydov is CEO of the company, based in Kirovograd, a Russian-speaking city 300 kilometers southeast of Kiev. He was at the Vienna Euromoney magazine conference seeking as much as $50 million to expand and improve production of his cooking-oil products.

His EU market is limited to Italy and Spain because meeting EU standards reduces the products that the company can ship there.

"Ukraine has a great possibility to export" to the EU, he said. "Standards are very high and only a small quantity of Ukrainian enterprises are certified."