and exports more wheat as a result of allocative improvements that are triggered by WTO accession, then prices for wheat on world markets will fall as a result, offsetting some of the allocative efficiency gains.

In the case of processed products such as beef and milk it may sound odd that Ukraine is a ‘large country’ because it actually has quite a small share of overall world trade. For these products, however, questions of quality and product differentiation play an important role. Table 5-5 helps to explain this issue. Table 5-5 highlights seven product groups that together account for 66% of the total terms of trade loss in Scenario 1a. As the export share data in Table 5-5 illustrate, Ukraine’s exports of these products are concentrated on a small number of destinations. Russia plays an especially important role, absorbing 54% of Ukraine’s dairy product exports, and 94% of Ukraine beef, sheep and goat meat exports, and 41% of Ukraine’s exports of other food products. Many of the exports in question can only be exported to Russia and some other FSU countries because they fail to meet quality standards in other markets such as the EU.

**Table 5-5: Identifying the main sources of Ukraine’s terms of trade losses due to WTO accession in Scenario 1a**

|**Product group**|**Share of**<br>**terms of**|**Share of**|**destination i**<br>**the produc**|**n Ukrainia**<br>**t in questio**|**n exports of**<br>**n**|
|---|---|---|---|---|---|
||**trade loss**<br>**(%)**|EU 25|Russia|Turkey|Switzerland|
|Food productsnec|18.50|13.2|40.9|3.3|0.3|
|Dairy products|16.76|18.8|54.3|0.7|0|
|Vegetable oils andfats|10.40|33.2|12.8|5.2|16.6|
|Beverages and tobacco products|7.51|10.6|56.8|2.2|0.1|
|Forestry|5.78|45.4|0.1|44.8|0|
|Meat: cattle, sheep, goats,horse|5.20|2.9|94.1|0|0.1|
|Cerealgrainsnec|2.31|11.8|10.1|4.7|0|
|Sum: Share oftotal ToT loss|66.47|||||

When Ukrainian production of these products increases due to increased allocative efficiency, exports to Russia increase further and prices there fall, generating negative terms of trade effects. If Ukraine’s export structure was more diversified, increased production and exports could be spread over a larger number of markets and would not generate such large negative terms of trade effects. Indeed, if the GTAP model is manipulated in a way that permits a diversification of Ukraine’s export structure, the terms of trade losses in the WTO accession scenarios quickly turn into gains.<sup>5</sup> This highlights the great importance of adopting internationally accepted quality standards and certification systems. The benefits of WTO accession especially for processed food products will largely hinge on whether Ukraine succeeds in this regard.

A similar source of terms of trade losses for Ukraine is the structure of its imports: Table 5-4 indicates that especially Latin America experiences a positive terms of trade effect as a result of Ukraine’s WTO accession (Scenario 1a). Latin America currently supplies a large share of Ukraine’s imports of processed meat, and Ukraine’s tariff cuts due to WTO accession are substantial for these import flows (-41%; see Table D1 in Appendix D). Therefore, Ukraine’s

> 5 This can be demonstrated by adding to the GTAP model an exogenous import augmenting technical change shock for countries other than Ukraine’s current main trading partners for the products in question. Detailed results are not shown here but are available from the authors on request.

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