State Secretary of the Ministry of Foreign Affairs of Ukraine Oleksandr Bankov: "Ukraine should not be a supplier of raw materials, but a part of international production chains"

The balance between imports and exports is the foundation of financial stability in the state, and our foundation has been destroyed. Imports are growing incredibly fast and will grow during the reconstruction period, exports, on the contrary, are shrinking because part of the business has stopped operating. And the remaining part of the business lost not only the usual logistics routes, but also traditional sales markets. Therefore, increasing exports is one of the primary tasks of the government, literally a guarantee for its survival. And the "grain" dispute with neighboring countries shows that this task is also quite difficult and requires a lot of effort. ZN.UA spoke with the State Secretary of the Ministry of Foreign Affairs of Ukraine, Oleksandr Bankov, about ways to solve it. Also the journalists asked about the prospects for our manufacturers to enter new markets, and the assistance that the state is ready to provide them.

— Mr. Oleksandr, I thank you very much for this conversation. It has already happened that you and I are talking about the promotion of exports against the background of the confrontation between Ukraine and our closest neighbors related to the supply of Ukrainian grain. In your opinion, is this a purely trade dispute or is it already a political one? How important is it to keep this balance between the political and economic interests of countries?

— Of course, there is nothing separately commercial, economic or political. Everything is interconnected. Any balance is fragile and many factors need to be taken into account in order to maintain it.

In particular, the position of Ukraine in this case is influenced by a huge number of factors. There are hostilities in our country. We have lost a significant part of our export potential, production and logistics capabilities. Considering this and the new unprecedented challenges that are currently facing us, the issue of maintaining a balance becomes more serious and important.

However, we are working to constructively solve the problem and find an understanding with our partners. We already have agreements with the European Commission on a road map: how it is possible to carry out joint monitoring and control of the export and transit of Ukrainian agricultural products to the respective countries. This is the basis of the settlement of this issue.

No one hides that there is politics in it, as well as emotions. To achieve the result, as the president said, we need to calm these emotions. We are determined to act constructively and find compromise solutions based on generally accepted rules of international trade, in the spirit of mutual respect and good neighborliness. I am sure that together we will be able to find these solutions.

Moreover, we already have a successful experience of reaching an understanding with two countries – Romania and Bulgaria, which proves that we know how to negotiate, can find both a common language and compromise solutions in order to settle these issues in a mutually beneficial way. There are also agreements regarding the diversification of transit logistics of our agricultural exports, which will be announced in the near future.

— In fact, this case about the grain issue shows very well that the openness of markets is a rather conditional concept. Markets are defending themselves, markets are trying to do everything to be successful, in general, the world has been gravitating towards protectionism in recent years. Is Ukraine ready for this? Does the Ukrainian manufacturer realize that easy access to markets is not given?

— It turns out that, until February 24 of last year, Ukraine successfully exported a rather large amount.

— But we exported in other ways, and if we talk about grain crops, they mostly went to other countries and by other ways. And here, for the first time, a situation arose on the EU markets when they met with a large volume of our grains.

— Indeed, the markets of neighboring countries are not a priority for our agro-traders. We have traditional consumers in Africa and Asia, 80% of all goods were transported precisely through the Black Sea ports of Ukraine. And this makes solving the issue of the transit component of logistics in this matter a key task.

But, nevertheless, it was not long ago that we started exporting, including to EU markets. In fact, any exporter has an understanding that markets do not open up just like that. And for companies that just want to export or are already exporting and plan to expand their presence on foreign markets. It's a struggle. For their rights, for their niche, their place in the markets of other countries. Because restrictive measures and protectionism are in principle present in the politics of many states.

Reasonable protectionism is a normal practice, because each state must protect its producers, protect its markets, fill its markets mainly at the expense of its own production and have a trade balance, a positive balance between exports and imports.

However, there is one important nuance in the issue of protectionism, or rather, reasonable protectionism. In today's global world, where production chains are increasingly combined and connecting more and more countries, this provides an opportunity to receive investment and technology transfer. And this, in turn, means modernizing production facilities. Ultimately, to become part of a global production network.

This includes issues of security, not only economic.

Moreover, international trade is a two-way street. Having openness to certain countries, we, of course, also receive reciprocal openness to Ukrainian goods.

We already have agreements on free trade zones, on various preferences within regional trade agreements with various countries. This is all part of those agreements that provide an opportunity to win by opening existing markets for Ukrainian products.

Today, the Ministry of Economy of Ukraine, the State Production and Consumer Service and the Ministry of Foreign Affairs of Ukraine are working on market opening for about 63 countries in almost 200 directions, including South Korea, Malaysia, Vietnam, Kuwait, the Kingdom of Saudi Arabia, SAO Hong Kong, the EU, Canada, China, Oman, Thailand, South Africa, Colombia, Indonesia and others.

— In order to really win, it is desirable for goods to be exported with a high degree of processing, and raw materials to be imported. But in Ukraine, the situation is the opposite. So we can quickly recover by increasing exports of raw materials. It will be more or less easy. But then we lose in this export-import game. Or we can increase processing, but then it will be more difficult to reach the shelf in other countries, because the shelves are protected, and processing itself is time and investment that we do not have at the moment. What to choose?

— There is no perfect recipe. Increasing recycling with higher added value is clearly a development path with very few alternatives. This is the path that Ukraine, one way or another, will have to go through.

We are all used to the fact that we are doing well, at least it was two years ago, when the export of raw materials was a huge part of Ukrainian exports, much larger than the export of goods with added value. However, even in the period up to February 24, we still had an increase in exports of goods with deep processing, especially with EU countries. Separately, it is worth noting that Ukrainian exporters occupy some niche categories of the EU market with a fairly high added value. The most striking example is non-chocolate confectionery.

Ukraine, being an agrarian country and having such an export potential of 45 million tons of grain, naturally moves in an inertial way. It's easier. No need to invest in processing, spend additional money. One can earn them anyway.

But this indecision disappears.

Currently, it seems that not all, but a significant part of entrepreneurs working in agribusiness have realized that it is still necessary to invest in processing. This is not even a question of increasing their incomes, it is a way to reduce the risks that Ukrainian farmers, traders and exporters are currently facing. If, instead of 55,000 tons of grain, you can export much less finished, and therefore more expensive, products that end up on supermarket shelves with large ships, that is an obvious advantage.

— But getting to the shelf is perhaps the most difficult part of this task...

— Actually, access to these shelves is precisely a question of our cooperation with other countries, with our partners. In Ukraine, I am convinced, productions can be created, including joint productions, or parts of larger processing chains. We can produce products that will go on the shelves in Western European countries or in the USA. Our task is to evaluate the advantages of the international division of labor and take an integral place in these chains. Ukraine should not be a supplier of raw materials, but a part of international production chains.

— In such a world, such confrontations as we currently have with Poland will be many times more. It will be an ongoing process – customs restrictions, anti-dumping investigations, arbitration courts, etc. Ideally, this process would always lead to the World Trade Organization (WTO). How fully functional is the World Trade Organization (WTO) today, where the arbitration mechanism is currently blocked?

— Of course, one can discuss the jurisdiction of the World Trade Organization (WTO) or lack of jurisdiction, but we currently have no other mechanisms within which similar disputes between states regarding international trade and international trade rules can be considered.

— Yes, but it turns out that even our latest appeal to the World Trade Organization (WTO) in the current dispute with Poland is not hopeless, but definitely not a good solution.

— I do not undertake to evaluate the results of what will happen. As you know, Ukraine applied to the World Trade Organization (WTO) to hold consultations with three neighboring countries — Hungary, Slovakia and Poland. Actually, we did what is provided by the rules and procedures. Regarding the introduction of unilateral trade restrictions by our partners, we have a strong legal position in this dispute both under the World Trade Organization (WTO) rules and under European legislation. I don't want to predict how this story will end. But purely statistically, a third of such cases end precisely at the stage of consultations and do not go to the arbitration court.

This indicator, in my opinion, can already speak about the effectiveness of this organization in general, and in particular in the context of consideration of similar disputes between states.

— Oleksandr, do we understand correctly that in any case this is a slow process?

— Unfortunately, we do not have any very fast alternative ways. If they existed, Ukraine would probably not neglect these opportunities, but we can use the tools that exist.

Of course, we would all like such disputes to not arise at all. And if they do occur, they should be resolved as quickly as possible. But, unfortunately, the world is more complicated than our thoughts about it.

— And in this difficult world, Ukraine does not stop trying to increase exports, in particular, by creating the NAZOVNI service. Why, in fact, does the Ministry of Foreign Affairs take care of this business assistance tool, because the Ministry of Economy of Ukraine even has a separate special organization for this?

— Actually, the Ministry of Foreign Affairs of Ukraine has always been engaged in supporting the promotion of exports. This is part of our functionality. Such work is provided both in the law on the diplomatic service and in the regulation on the ministry. So, as early as 2021, we started working on improving this component of our work as much as possible, expanding the services of the ministry, and improving the policy of economic diplomacy in particular.

This is how this service was created. In fact, it is a communication platform between Ukrainian business and our diplomats abroad. Since the Ministry of Foreign Affairs of Ukraine relies on the network of foreign economic institutions and on our workers engaged in economic assistance in matters of export promotion and assistance to our producers. We have quite a wide range of functionality here.

These include market analysis, consultations on finding the best ways to enter this or that market, and expo activities, i.e. support for the participation of our companies in various exhibition events, and business missions. It is clear that the missions were both more frequent and more effective before the start of a full-scale invasion, but the other components of the aid do not lose their effectiveness.

In total, we already have more than 1,600 Ukrainian companies registered in the service. It is mainly about small and medium-sized businesses. If I am not mistaken, during this time experts  of the NAZOVNI platform processed more than six and a half thousand applications. There are more than 70 concluded contracts.

— Why is there such a discrepancy: thousands of applications and dozens of contracts?

— We resumed work in September of last year. During this year, some time was spent on restoring, reloading and supplementing our database. At the same time, some companies started to think again about starting exports only this year. Therefore, we can actually talk about a year of active work. And 70 contracts per year, it seems to me, is a very good indicator of development, especially in the extremely difficult conditions of restrictions for Ukrainian business caused by Russian military aggression. For some representatives of the business, of course, this is just the beginning of the journey, but for others it is a significant expansion of their opportunities, especially for the segment of small and medium-sized businesses.

— Which markets are we mainly talking about?

— We mainly help with the conquest of the EU markets, of course, but we also have in our portfolio, so to speak, the USA, the countries of Asia and the Persian Gulf. The geography is gradually expanding, which indicates both the world's interest in our products and the readiness of Ukrainian business to enter new markets where there was traditionally no presence of Ukraine or it was very insignificant. African and Latin American countries can become promising destinations for Ukrainian exports.

In my opinion, this is a great indicator that our manufacturers are becoming, firstly, more open to mastering new markets, and secondly, they are aware of the need to develop in order to withstand competition in new conditions.

It is obvious that we no longer have the traditional markets that existed, and the conditions to which we are accustomed will not return. If last year I personally observed how some businessmen sat and waited for everything to turn out well by itself, to return to the usual course of events, then this year we see that even large manufacturers are already starting to be interested in new opportunities.

— Does the Ministry of Foreign Affairs of Ukraine have enough human and financial resources for this work? Because you are talking about thousands of companies and this is a big load on the system.

— Taking this opportunity, I would like to note: we are always looking for professionals. Not only for the positions of ambassadors, but also for the positions of diplomats, who are engaged in economic diplomacy as well. We periodically conduct recruitment for positions, including in foreign diplomatic institutions, and we always invite people who understand the economy and international trade, who have experience working abroad, for example, in international companies or representative offices of Ukrainian companies.

We are always open to such cooperation, because, I won't hide it, there is a shortage of specialists, just like many state and non-state bodies.

— Can you compete with an international trading company in terms of salary?

— We definitely cannot compete with international corporate business in terms of salaries. But in principle, we count on people who profess the idea of helping Ukraine and go to the diplomatic service not only for the sake of money. It is about a certain vocation, certain moral qualities of a person. Of course, somewhere they pay more, somewhere even more than it is possible, but working for us means participating in how Ukrainian diplomacy is changing, how Ukraine is changing.

— How long does it take to process one application? If we take the most successful case that you had, how long did it take from the time you submitted the application from the manufacturer to the conclusion of the contract?

— Several months "from contact to contract". This apt definition, by the way, was coined by my colleague, who currently works as an ambassador in one of the states. But this path "from contact to contract" is not easy, you need to go through coordination procedures, check certifications, lawyers must work on the terms of contracts, in which logistics, quality and a lot of everything must be agreed. It all takes a few months for sure.

However, experience, including the work of the NAZOVNI platform, shows that this is an absolutely effective and efficient way of searching. The results speak for themselves. And those who are engaged in the export business well understand that entering foreign markets is primarily determined by economic and business conditions: until you find a proven or interested counterparty, agree on the basic terms of supply, a year or even more may pass.

— Did of the NAZOVNI platform have failed cases? Were there people who came, looked and said: no, we do not want to export, we are not ready?

— This system also works as a filter. Thanks to the digital solution, we have created filtering during registration and can immediately evaluate companies according to the basic requirements that apply to exporters.

We did not have such an opportunity before.

At the moment, if something is missing, we immediately advise you to finalize some points, offer help, including various partners who can help in this.

There were cases, for example, when companies came, registered to receive information, and then tried to resell the information received from us. That is, it turned out that these are consulting companies that decided to use a state service, and then sell our market analysis to their clients as their own work.

There are other cases when, for example, a diplomat collects information and contacts for the company, contacts potential partners abroad, transfers all this information to the company, and then nothing happens. He contacts the company, and there they say that they thought and changed their minds, decided that they are not ready. They overestimated themselves, did not fully realize the complexity of the procedures required for export. Often, manufacturers have a very superficial understanding of the amount of resources – human, time, and financial – that international trade requires. There is often a certain misunderstanding that state aid does not involve anything other than political and diplomatic support, and we cannot do part of its work for business.

However, the general readiness to develop and enter new sales markets among businesses is still growing.

— But, unfortunately, the logistical problem is not going away. You probably can't help our manufacturers here. Or can you still help them?

— There are various initiatives. To help small manufacturers dealing with niche products, we agreed, for example, on cooperation with a Ukrainian private logistics company called Nova Poshta. This company provides certain preferences and discounts to customers who apply to the Ministry of Foreign Affairs of Ukraine through of the NAZOVNI platform, and handles the delivery of their goods. However, of course, in this case we are talking about some small volumes of deliveries.

Regarding larger volumes of supplies, we understand that Ukraine is working on the development and expansion of alternative routes, but these are difficult processes. The situation changes every day and, unfortunately, worsens. The Danube ports are systematically destroyed. We need to develop new directions, build new infrastructure facilities – this is not a month or two. But there are already certain developments, there are not new, but those that were not used before, overland routes. They will be opened soon.

Systematic work on unblocking access to transit through the territory of Hungary, Slovakia and Poland should also help. There is still an opportunity to increase transit with those neighboring countries that have not joined this blockade.

— I see that you are full of optimism and are sure that the current conflict will quickly end and we will resume transit, and even more, we will attract new countries to it. What is this optimism based on?

— This is pragmatic optimism that requires systematic painstaking work.

— In this optimism, are you associate with October 15, when parliamentary elections will be held in Poland? What to do if the position of our partners does not change after October 15?

— Actually, the same as what we are doing now. This does not mean that we have no way out, we will continue to work and develop joint solutions that will allow us to get out of this situation with dignity for all parties.

— Ukraine in particular. This grain conflict very well, among other things, illustrates the difference in approaches to doing business in Ukraine and in EU countries. Our companies, let's say, do not shy away from techniques and approaches that are either practiced much less often in the EU, or not practiced at all – the use of offshore companies, sales to themselves, substitution of documents or even offloading of supplies somewhere expensive. This is the soil on which conflicts will constantly sprout. What to do with it?

— It really will not work to turn a blind eye to this, especially since sometimes such companies also turn to us for help. They sold the goods to themselves, but they cannot bypass the currency restrictions, they are asking for help. Or were caught overloading the delivery just somewhere on the road...

— ...and seek protection from the state?

— Exactly. Their logic is simple – why not give it a try? And suddenly they will help and something will be resolved. Of course, none of them say that they did something unscrupulous, they all start conversations with the fact that they are being illegally restricted, but the truth in such stories is not so difficult to reach.

But, first of all, it is not only our practices, unfortunately. In most of these cases, the partners are still foreign counterparties, who also do not disdain dubious practices. And the only way out of this is our development and improvement.

The deeper our involvement in global trade and production processes, the less room there will be for questionable export practices. There will be less and less space for them, except in the markets of developing countries.

— But the world is big...

— Yes, if you want to transport your goods in rusty tankers everywhere, as Russia under sanctions is doing now.

But if you want to trade in developed and large markets, where you can really earn a lot, in markets for which everyone is fighting, then you will have to change business practices.

Actually, the interaction of states or interstate associations with business, their regulatory policy, is aimed at such an evolutionary purification, among other things.

— However, it will be quite difficult up to a certain point. Because either the state will have to protect its not-so-honest producer, or, if it is not protected, it will give way to state interests in international trade policy.

— The fact is that the state, defending the interests of this manufacturer, is still guided by the norms of international law, agreements on bilateral partnership, association, etc. So if a manufacturer, exporter or trader violates these rules, it cannot be justified by the state in any way. Yes, it is our national, and we must protect it. But if it is a violator, we can't do anything about it. This is not possible in large Western markets. If a company wants to work there, it must adapt to the practices adopted there.

Undoubtedly, there are markets of developing countries, there are also a considerable number of consumers, there is demand, but the risks of working there are also higher. Maybe they will settle with you, maybe not, everyone is paying attention to that too. It is often better to change the usual practices.

— What lessons should the state and business learn from the current grain conflict?

— It seems to me that the main lesson is that this is not a unique situation. Because trade wars in the world will never end. There are different interests, each state has its own, often they do not coincide or contradict each other, and this is normal for international trade.

We are mature enough to realize that any of these situations should be neither emotional nor overly politicized.

In each of these situations, there are those key points that have and can unite the parties to the conflict. The search for these points, their combination and, ultimately, the solution of the situation make Ukraine a good experienced world player.

This, in fact, is what we are demonstrating now – wisdom and the ability to find a way out of difficult situations. By understanding the motives of our neighbors, we act like wise people, allowing others to play their game at home and then come back to find a constructive solution. And yet there is an inner conviction that we will eventually come to an understanding and find ways that will satisfy everyone. Because we are all interested in cooperation and its expansion, not the other way around.