# **Context and Acknowledgements**

This work was prepared in the course of a dialog with agricultural policy makers in Ukraine who are involved in the free trade agreement (FAT) negotiation process with the EU. The purpose of this paper is to support the FTA negotiations through identification of key issues for the Ukrainian policy makers who will be involved in FTA negotiations with the EU.

Following this Preface and an Executive Summary in chapter I, this paper comprises four chapters. Chapter II presents background information on FTAs in general and a qualitative look at some FTAs that the EU has negotiated with other countries. This overview provides insights into the strategies that the EU is likely to pursue in FTA negotiations with Ukraine. One key result is that agriculture always receives special treatment in the form of less ambitious and less rapid liberalization of trade in FTAs involving the EU. Another important fact is that the EU applies a wide range of stringent quality standards to agricultural raw materials and processed food products. Policy makers in the EU are especially sensitive to food safety issues, and the EU cannot be expected to negotiate any relaxation of its quality standards with Ukraine.

Chapter III provides an introduction to trade policy modeling in general, and the Global Trade Analysis Project (GTAP) model in particular. The GTAP model is used in subsequent chapters to provide quantitative assessments of Ukrainian agricultural trade policy options. GTAP is a state-of-the-art computable general equilibrium (CGE) simulation model that is linked to an up-to-date trade database that, in its most recent version (GTAP-7), includes Ukraine as a separate country for the first time. GTAP distinguishes between 57 products/sectors, including 20 agricultural and food products. This is a considerably higher level of agricultural disaggregation than is commonly available in CGE models. Hence, GTAP is well-suited to the task of providing numerical assessments of the impact on agriculture of an FTA between the Ukraine and the EU.

Chapter IV presents the results of simulations of the impact of highly stylized Ukraine/EU FTA scenarios. The results of this pilot study indicate that both Ukraine and the EU would benefit from an FTA, and they highlight the importance of improving the productivity of Ukrainian agriculture so that Ukraine is able to draw the greatest possible benefit from the opportunities provided by increased access to EU markets.

On May 16, 2008, Ukraine became a member of the WTO. WTO membership changes the initial conditions (for example, Ukraine’s tariff levels) that are the point of departure for the Ukraine/EU FTA negotiations. Chapter V is therefore devoted to updating the GTAP-7 database to incorporate Ukraine’s WTO accession commitments, and to quantitatively assessing how WTO accession will affect agriculture in Ukraine. We are grateful to Janine Pelikan and Martina Brockmeier for giving us access to their tariff aggregation software. The results once again highlight the importance that Ukraine will have to attach to meeting quality standards if it wishes to reap the full benefits of WTO membership in agriculture.

Chapter VI closes with an outlook. The work presented here has established an up-to date modeling platform as a basis for more detailed analysis of FTA options in the future. Both the creation of this modeling platform and the simulations carried out with its have been subject to ongoing peer review by World Bank experts John Nash and Will Martin, and we are very grateful for their many constructive and insightful comments. Finally, we are very grateful to Matthias Grueninger for his great patience and many helpful suggestions and comments in leading the work that went into this paper.

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