Strategy of foreign trade of Ukraine

Since 1996, Ukraine has repeatedly stated that it wants to become a member of the European Union at the highest official level. The EU has however cold-shouldered them, although Article 49 of the Treaty of the European Union stipulates that any European state may apply to become a member of the European Union. Many European politicians and EU commissioners have publicly ruled out Ukrainian membership of the EU, but formally the question remains open. A broad Ukrainian opinion favors the country's "European choice," though its implications are usually left open.

The institutional cooperation between the European Union and Ukraine has been rudimentary. The EU offered Partnership and Cooperation Agreements (PCA) to the CIS countries, which were little but a codification of WTO principles for non-WTO members. They do not offer any trade concessions beyond what the EU accords to its WTO partners, while the EU has concluded free trade agreement with many other countries. Ukraine has been treated as one CIS country among many. The Ukrainian PCA was concluded in 1994, but it did not come into force until 1997. It is valid for ten years and can be prolonged. Although it is comprehensive, covering political dialogue, trade in goods and services, economic, environmental, scientific, cultural and legal matters, it contains little of substance. The EU's only subsequent trade policy advance to Ukraine is its conclusion of a textile agreement that eliminated its import quota system.

The contrast between the development of exports to the EU from the ten post-communist EU candidate members in Central-Eastern Europe (CEE) and the CIS countries is huge. Barely half of the exports from the former went to the EU in 1989, rising to 67 percent in 2000. By contrast, 33 percent of Soviet exports went to the EU in 1989, but by 2000 that share had fallen slightly to 31 percent, according to IMF statistics. With exports to the EU of only 16 percent of its total exports in 2000, Ukraine was especially disadvantaged in spite of its vicinity to the EU. Given economic geography - Ukraine's location, transportation routes and the relative size of adjacent economies - the EU should be Ukraine's all-dominant export market buying 60 percent of its exports. Through regression analysis, Peter Christoffersen and Peter Doyle have established that the growth of potential export markets has been one of the most important determinants of growth in the transition countries.

One reason for the disparity in EU trade between the CEE and the CIS countries has been slower economic reforms in the CIS countries, but another reason has been diverse EU trade regulations. The EU has developed an elaborate hierarchy of trade treaties, ranging from simple trading partner to full member-state. As countries on the way to be full members, the CEE countries are close to the top of this hierarchy, while the CIS countries are at the bottom. The EU offered favorable Europe Agreements to the CEE early on, which committed all parties to eliminate tariff and non-tariff barriers on industrial products by the end of a ten-year period, which ended in 2001 or 2002. They were asymmetric to the benefit of CEE. Agricultural products are subject to preferential treatment under tariff quotas. On January 1, 1998, the EU lifted quantitative restrictions on imports of textiles and clothes from CEE.

The CEE countries are considered market economies by the EU (and the US), which means that an antidumping investigation is based on their own prices. The CIS countries, on the contrary, have been labeled "economies in transition" by the EU, which signifies that they are treated as state-trading countries and an antidumping investigation is based on a hypothetical country's (much higher) prices. Recently, Russia and Kazakhstan have been recognized as market economies of the EU and the US, and Ukraine should be able to make that grade very soon. The last EU objection is that the state plays too great a role in the Ukrainian economy, while the US last year rejected Ukraine as a market economy because of tax benefits for the steel industry, which have since been abolished.

Unlike the Central European economies, the major CIS countries are not members of the WTO. To date, four small CIS countries have become members of the WTO, the Kyrgyz Republic, Georgia, Moldova and Armenia, while all the others are at various stages of their accession.

Altogether, there is a world of difference in EU treatment of the CEE and CIS countries, respectively. CEE is about to become EU members, while the CIS countries have no associate status, no customs union or free trade arrangement. Largely, they are not even members of the WTO or recognized as market economies by the EU. Their trade status is reminiscent of "open season," and the US offers similar treatment.

These differences in status are reflected quite consistently in trade treatment and their total effect is significant. Even before their entry into the EU, the CEE countries get 80 percent of lines duty free to compare with, while 54 percent of lines for the CIS countries as GSP beneficiaries. GSP (Generalized System of Preferences) are trade benefits designed for developing countries, but they are not very beneficial for the CIS countries. For very sensitive goods - textiles, metals and many agricultural goods, most-favored nation (MFN) duty rates are reduced by only 15 percent, and for sensitive goods - chemicals, many agricultural goods, footwear, plastics, rubber, leather goods, wood, wood products, paper, glass copper, etc. - MFN tariffs are reduced by 30 percent. Only non-sensitive goods, which are not very significant in Ukraine's export, are duty-free. Moreover, the GSP regime suffers from many weaknesses. The supposed beneficiaries do not conclude any contract and therefore have no recourse to any dispute settlement conflict. The rules of origin are onerous, while special simplified agreements have been reached with CEE. GSP tariff reductions are less than those the EU accession countries get. Besides, Ukraine is so developed that it can easily be deprived of GSP because of too high economic development. Strikingly, nobody even talks about GSP in Ukraine.

Patrick Messerlin assessed EU Protection by industry in 1999. He put the level of overall protection for the whole of the EU economy at almost 12 percent. EU protection however varies by commodity, with rates of overall protection exhibiting wide differences by sector. Messerlin studied ordinary customs tariffs, major border non-tariff barriers (quantitative restrictions and antidumping measures), while he has ignored all the non-border barriers, that is, an array of norms and standards.

The simple average of all existing EU tariffs on goods was 7 percent in 1999. They are not very high, but protection is much higher for goods that Ukraine would like to export. Besides, if other costs in the CIS countries are similar to CEE countries, even small barriers can rule out imports from the CIS countries. The CIS countries generally have a cost advantage compared to the CEE countries through lower wages, but this is counteracted by higher transportation and other costs.

EU trade policy is more restrictive than simple average tariffs indicate, especially for the sensitive products, agriculture, steel, textiles, clothes and chemicals. Non-tariff barriers include variable levies in agriculture, voluntary export restraints in industrial sectors (notably in textiles and clothing), quotas on imports from centrally planned economies (to which the EU counts Ukraine) and antidumping measures. The peaks of overall protection are very high. The maximum tariffs exceed prohibitive 200 percent for certain agricultural goods. Also these EU measures are persistently milder for CEE countries than CIS countries. For instance, the number of antidumping cases that the EU instigated against the CEE countries from 1990-99 was 42, admittedly almost equal to the 41 initiated against the CIS countries, but the duties imposed against the CIS countries were about twice as high as those levied on the CEE countries .

EU agriculture is particularly well protected. The simple average tariff is estimated at 17.3 percent (WTO 2000, p. xix), but the actual protection is often prohibitive for the CIS countries because of variable levies and technical standards. In addition, the EU is reluctant to give any preferences for farm goods from temperate countries and food products, that Ukraine produces and would like to export (Messerlin 2001, p. 28). EU minimal market access commitments in cereals under the Uruguay round prompted bilateral agreements on a duty-free quota of 300,000 tons of wheat essentially from the CEE, while the major grain producers in the CIS, not being members of the WTO, were left without access. The CEE countries are allowed to export meat, fruit and vegetables to the EU, and the EU has reciprocal protection through bilateral agreements with Bulgaria, Hungary and Romania, the main wine producers in CEE (WTO 2000, pp. 87, 91). As a result, EU imports of agricultural goods from the twelve CIS countries decline from1.5 billion euro in 1995 to 1.3 billion euro in 1998, while EU imports from the 13 EU candidate members were three times larger and rose somewhat, according to the EU Trade Directorate.

The main components of foreign economic strategy of Ukraine - is a powerful export sector, the national currency; attracting foreign investment through the establishment of joint business, liberalization of imports, a foreign business; building an extensive system of foreign trade management, flexible tax, price, deposit, credit, financial and monetary policies, the gradual integration of the economy in the European and world business associations and organizations; staffing department.

CONCLUSION

Ukraine independently form a system and structure of state regulation of foreign economic activity on its territory. State regulation of foreign economic activity should protect the economic interests of Ukraine and the legitimate interests of foreign economic activity, creating equal opportunities for foreign economic entities with the aim of developing all types of business, regardless of ownership, use, income and investment, competition and Elimination of monopolies.

One form of state regulation of foreign economic activity is to establish the regime for currency transactions in Ukraine. Another form is a customs regulation of foreign economic activity. Licensing and quotas for exports and imports as a form of state regulation of foreign economic activity of Ukraine establishes itself in the cases stipulated by the Law of Ukraine "On Foreign Economic Activities".

 Raw-material orientation of Ukrainian exports shows atrophy of the processing industry. Domestic manufacturers have limited opportunities to purchase the necessary raw materials and manufacture relevant products due to low pay. Lacking in domestic market demand, raw material goes abroad for the manufacture of its products that are returned to the markets of Ukraine, displacing domestic producers.

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