Canada likes to tout Ukraine’s special status to the North American country with 1.3 million citizens of Ukrainian descent.
But Ukrainians don’t always feel so special for at least three reasons.
1. Canada is keen on financial aid, spending hundreds of millions of dollars on assistance programs and loans since Ukraine gained statehood in 1991, but has been less keen on trade and investment with Ukraine. Canada’s investment officially stands at a modest $42 million and bilateral trade came in at less than $250 million in 2016 – and that trade was dominated by Canadian exports to Ukraine.
2. Visas are required for travel to Canada — and the rejection rate is high, 34 percent in the first four months of 2017. Related to the visa-free issue, a youth mobility agreement — allowing citizens of both nations under age 30 to study or work in each other’s countries — is stuck in limbo.
3. Ukraine has been asking for defensive weapons from Canada since the start of Russia’s war in 2014, but none has thus far been forthcoming.
In an interview with the Kyiv Post ahead of Canada Day on July 1, the date on which America’s northern neighbor is also celebrating its 150th birthday, Canadian Ambassador to Ukraine Roman Waschuk reassured that Ukraine is one of his nation’s priorities and that it occupies a special place in Canadian hearts.
Ukrainian DNA is, after all, quite literally inside many Canadians, including Waschuk, the son of Ukrainian parents who fled the nation after World War II and settled in Canada.
As for the nettlesome issues of visas, defensive weapons and trade, Waschuk said Canada has justifiable explanations and he expects improvement in all three areas.
Canada 150 logo. (supplied by Department of Canadian Heritage)
Trade and investment
Waschuk said that trade and investment figures in a globalized world are deceptive. Activity on both fronts is much higher between Ukraine and Canada “than it appears on the surface,” Waschuk said.
And bilateral economic ties are set to go even higher yet when the free trade pact between Ukraine and Canada takes effect in August.
He notes that Canadian-based Fairfax Financial Holdings Limited made a $100 million investment into Astarta, the giant agricultural holding that is Ukraine’s largest sugar producer.
He said that Canadian pension funds, which according to news reports have nearly $1 trillion in assets, are making other investments, such as taking a big stake in Global Logic, a California-based software firm that employs more than 4,000 people in Kharkiv.
Investors and pension fund managers “are looking at what in Ukraine has a proven track record over the past five or six years and are taking a significant look at” investing in such firms. He said that Canadian pension funds, for instance, have also been invested in Glencore Grain Ukraine and elsewhere. Kodisoft, the Ukrainian start-up with the interactive restaurant tables, participated in the Canada-Ukraine business forum last year.
“Ukraine, to my knowledge, actually sells more in software to Canada than it does in goods. Those sales are much harder to track,” he said.
But even in official numbers, Canada’s exports to Ukraine in the first four months of 2017 have jumped 87 percent, to $113 million from $60 million, from the same period a year ago, mainly due to a surge in the sale of Canadian coal to Ukraine.
Even though both nations are big grain exporters and have no need to trade in this area, Canada makes agricultural storage equipment that is in demand in Ukraine. “The fact is Ukrainian agriculture has been very successful in the past few years, made a lot of money and is reinvesting, and one investment is grain storage equipment from Canada,” he said. “It’s a way for Canadians to profit from the success of Ukraine as major global grain player.”
‘Triangle’ of free trade
Most promising for the future is the appearance of a “triangle” of free trade agreements linking Canada, the European Union and Ukraine.
“Canada has signed a free trade agreement with the E.U. that includes harmonization of a range of standards between our country and the union. Ukraine has also signed an agreement that sees modernization largely on EU terms,” Waschuk said, while the Canada-Ukraine deal is “less complex and less detail-oriented than either of the E.U. agreements.”
The key for increased Ukrainian presence on the Canadian market will be to quickly adapt to E.U. standards.
“Once Ukrainian companies align themselves with E.U. requirements it will become much easier for them to export to Canada,” he said. “The effort put into the E.U. trading relationship will also bring benefits on the Canada side.”
Aside from seven key commodities “there are no quotas or restrictions on duty-free access that Ukrainians enjoy to Canada.”
Canada even launched a drive to help Ukrainians enter the Canadian market. The program is called Canada-UkraineTrade Investment Support, or CUTIS.
“We see that Ukrainian producers, especially those previously dependent on the Russian market, need help in adapting their products to markets they are not as familiar with,” Waschuk said. The aim of Ukrainian exporters should be to sell to a mass market, not a niche one, he said. “We have seen Ukraine do well in the fruit juice concentrate market. We see potential in confectionery and chocolate. We see potential in clothing and footwear and in IT — it’s one of those areas where distance is almost irrelevant. It’s the best at bridging the transatlantic gap.” Two big trade missions from Ukraine have gone to Canada and reciprocal ones are expected in the fall.
As for Canadian investors in Ukraine, they are bypassing the sectors where oligopolies and monopolies exist.
“People have not been going into the sectors that have a particular range of hurdles. People are going into sectors where there are Ukrainian partners who have a proven track record of operating successfully or transparently, where there are not oligopolistic arrangements.”
Those include IT, agriculture and light industry manufacturing such as clothing — all areas “where you cannot sit on a resource monopoly and cash flows,” he said. “Most of those are developing quite well. Construction is up 20 percent — residential and commercial.”
He also cited Horizon Capital’s new emerging fund of $110 million to invest in export-oriented businesses. The private equity fund manager is led by Canadian Lenna Koszarny. “In talking to people like her, the experience of her stable of companies is not fraught daily with horror and despair,” the ambassador said. “They make money. They operate.”
By contrast, those who have been trying to penetrate the oligopolistic sectors have run into many problems and many disappointments,” he said. “That remains a structural problem of the Ukrainian economy and politics.”
Nonetheless, “I am by nature an incrementalist,” Waschuk said, and he sees progress “company by company, sector by sector” in eliminating corruption and achieving a market economy in Ukraine.
One of the biggest improvements occurred in state-owned energy monopoly, which now runs at a profit rather than requiring government subsidies of up to 7 percent of Ukraine’s annual gross domestic product. Another breakthrough has taken place in taxation, where Prime Minister Volodymyr Groysman’s doubling of the official minimum wage, a return to economic growth and a more transparent value-added tax refund system — which Canada assisted — have combined in a surge of government revenue this year.
Remaining obstacles
However, reforms have slowed or stopped or face obstructions in many areas — including election law, pensions, agricultural land market, privatization of state-owned companies and creation of an anti-corruption court as part of broader judicial reform.
The sense of urgency is gone, Waschuk conceded.
“Ukraine, for one thing, is a more economically stable country than it was,” he said. “It does not have its collective back to the wall. There is modest, if so far, inadequate economic growth.”
Consequently, vested interests block changes and the trick for the collective West “is to try and figure out what is the combination of positive incentives and strict conditionalities that will help those in Ukraine who realize what the needs of the Ukraine state” are. He thinks the West has struck the right balance “for the moment” but its representatives will “continue to look at the way things are evolving.”
No visa-free soon
If Ukrainians are hoping that Canada will drop visa requirements on them just because the E.U. did, they’re mistaken. Canada makes no apologies for “stricter” entry controls than many nations, he said. But once people are granted visas to Canada, they face “no exit controls’ and no residency registration requirements, unlike many European nations.
The go-slow approach means that only this year Canada lifted visa requirements for E.U. members Romania and Bulgaria “as part of an overall package of measures with the European Union,” he said.
“We are always ready to look at and review our visa policies,” he said, but Canada would have to be convinced that Ukrainians who arrive as tourists, students or for business would return home once their visas expired.
Canada will watch how Ukrainians conduct themselves in the E.U. visa-free areas. If they do so successfully, “I think it would certainly be a favorable factor,” Waschuk said.
As for the holdup of a youth mobility agreement, “the problem on the Ukrainian side is there has been no legislation in place that would enable Canadians to work or study in Ukraine under such an arrangement,” he said. The program had an experimental year in 2011-2012 and, before reinstating it, Canada would need to see that Ukrainians “work for their designated period and return to Ukraine with their valuable experience they have gathered,” he said.
The high visa rejection rate “is not dissimilar to the rate for the United States and reflects the relatively high cost of transatlantic travel and the impact that has on resources available to support yourself once you get to your destination,” he said.
Defense spending
There’s considerable grousing about Canada among its other NATO allies. The nation of 35 million people is criticized as talking loudly and carrying a small stick — spending just 1 percent of its annual economic output on defense, rather than the 2 percent it and all other NATO allies committed to in 2014. Many think that Canada simply has grown complacent under America’s protective defense shield.
Canadian Prime Minister Justin Trudeau recently came up with a plan to spend $60 billion over the next 20 years — a figure that would still leave Canada spending only 1.5 percent of its GDP on defense.
Waschuk said he’s proud of Canada’s global presence and willingness to spend more on defense. “Canada is the lead nation of the forward presence battle group in Latvia and Canada is No. 2, and not by much, in military training in Ukraine, just behind the Americans in numbers,” Waschuk said.
Canada is also prepared to fight in places, like Afghanistan, where others are “not willing to show up,” so: “I feel Canada has nothing to apologize for in its defense policy stance.”
As for Canada’s unwillingness thus far to supply Ukraine with modern lethal defensive weapons, such as Javelin anti-tank missiles, Washuk noted that ” Ukraine is a significant producer of weapons — higher up on the SIPRI (Stockholm International Peace Research Institute) list than Canada.”
But Canadian thinking is evolving. Both nations this year signed a defense cooperation agreement. “The discussion about just how we cooperate with Ukraine on military technology is not fully resolved in Canada,” he said. “It isn’t in any other NATO country. We continue to look at the issues, observe what other allies are doing and talk to Ukrainians about their needs.”
Canada is also participating on a defense reform advisory board that helps Ukraine’s military to reach NATO standards. “I think the Ukrainian armed forces have now become a well-run force, although it is not reformed as much as either Ukraine or we would have hoped. We have a clear idea of where Ukraine want to go and how we can help them get there.”
Canadian national anthem “O Canada.”
Celebration
Celebrations of Canada’s 150th birthday will take place in Ukraine as well. The big public one is on June 25 from 10 a.m. to 5 p.m. on the main Khreshchatyk Street in front of Kyiv City Hall. The festivities will include street hockey games, the appearance of a member of the Royal Canadian Mounted Police and an exhibition of Canadian goods on the street and on the 6th floor of the central department store, or TsUM.
Other events will also be held in Kyiv, leading up to the July 1 holiday in Canada.
