Saprykin, Volodymyr

English

Policy Documentation Center

UKRAINE'S EXPORT
POTENTIAL: 
THE PRIORITIES OF 
INTEGRATION
Volodymyr SIDENKO,
Leading expert,
Ukrainian Centre for Economic and Political Studies
A characteristic trait of Ukraine's export poli-
cy remains its inconsistency with the foreign poli-
cy priorities announced by the state: integration
with the European Union, a deepening of co-oper-
ation with Russia and with the U.S. This is demon-
strated by the analysis of the geographic structure
of Ukraine's exports of goods. In 1999, only 18.3%
of goods exported from Ukraine were supplied to
EU member countries (while there was a general
tendency toward an increase in the EU share)1, and
the share of the former USSR amounted to 29.5%,
this figure decreasing substantially (Diagr.
"Geographic structure of Ukraine’s exports of goods").
It is worth noting that among the countries of the
former USSR, exports to Russia are dominant,
amounting to 20.7% of Ukraine's overall exports,
or 74% of the country's exports to the CIS.
Therefore, it is namely "the other countries of the
world" that presently make Ukraine's primary and
most dynamic export market.
In relations with Russia, there is a tenden-
cy to lose markets, which leads to the overall
process of economic disintegration. Other coun-
tries of the former USSR, including CIS mem-
ber countries, and also CEFTA member coun-
tries (Poland, Slovakia, Slovenia, Romania,
Hungary, and the Czech Republic) play an
insignificant role in Ukraine's export. If one is to
add that in 1999, 48% of Ukraine's export to EU
member countries went to only two countries
(Germany and Italy), while for most other EU
countries Ukraine is an insignificant economic
partner, then the following general conclusion
becomes evident: Ukraine's present-day geo-
graphic structure of export supplies reflects the
lack of clarity and the weakness in the country's
realistic integration strategy with respect to both
the EU and CIS. Evidently, there is an inconsis-
tency between political declarations regarding
Ukraine's European vector of integration, on the
one hand, and the actual practice of development
of Ukraine's foreign trade, on the other.
The main reasons for such a state of affairs
can be characterised in the following way. 
In the first place, Ukraine is primarily an
exporter of ferrous metallurgy production and
Geographic structure of Ukraine’s 
exports of goods
1  
It is worth noting that mutual trade between EU member countries accounts for around 63% of their foreign trade turnover over the last several years. Within
the structure of Poland's and Hungary's exports on the threshold of 1998-1999, exports to EU member countries amounted to more than 70%.
48  UCEPS  NATIONAL SECURITY & DEFENCE
UCEPS  NATIONAL SECURITY & DEFENCE  49
INTEGRATION INTO THE EUROPEAN UNION TT
HH
EE
 
PP
RR
II
OO
RR
II
TT
II
EE
SS
 
OO
FF
 
II
NN
TT
EE
GG
RR
AA
TT
II
OO
NN
other products with a low added value, and is lit-
tle noticed on high-tech markets. This makes
Ukraine a nearly unpromising partner for region-
al integration both in the West and East alike. It
is namely the high-tech branches and technical-
ly complex industries that involve international
co-operation, and are the main spheres of inte-
gration in the modern world economy.
Furthermore, the EU history shows that
namely coal mining and metallurgy (as was the
case with the European Coal and Steel
Community), atomic energy (Euroatom), and
later on, a single agricultural policy — that is,
the sectors important for Ukraine's economy —
were the basis upon which the integration of
Western European countries took place. These
branches were paid primary attention with regard
to mutual international regulation, because they
contained the largest problems for member
countries. At present, the entry of new competi-
tors into this supra-national regulated sector can
lead to negative consequences for maintaining a
balance on the single EU market.
Secondly, the high level of monopolisation
of many markets in Ukraine is paradoxically
combined with the absence of powerful transna-
tional corporations (TNC) with global strategies
of marketing and foreign investment. But it is the
TNCs that have long been the main carriers
(subjects) of international integration processes.
No government intentions (declarations, strate-
gies, programmes) can compensate for the
absence of the basic mechanism of integration
related to TNC activities. Today, Ukrainian
companies are by a factor behind leading
European TNCs, given the formers' financial and
organisational potential of competitiveness. And
this cannot but limit Ukraine's presence on the
EU market. 
Thirdly, the overall institutional conditions
of Ukraine's foreign economic activity are char-
acterised by contradictions, instability, and a low
level of fitness for implementing large-scale and
technically complex projects of international co-
operation. Under these conditions, the more
complex the object of trade is, the more problems
the exporters experience. Possibly as a result of
this, being a raw materials exporter is the simplest
way out. However, the export of raw materials, or
semi-finished goods demands the formation of
developed international regulatory bodies to a far
lesser extent and, therefore, does not actively
engender relations of an integrational nature.
Therefore, it is necessary to clearly under-
stand which branches and industries of the nation-
al economy will become the forces behind the
European vector of development, when declaring
the priority of Ukraine's integration into the EU.
The naive belief in agreements reached on a gov-
ernmental level regarding the conditions for inte-
gration into the EU is insufficient, because this
is, above all, an integration of markets, with
mutual activities of the governments of different
countries following as a result. 
Given the indicated factors, it is of the
utmost importance that Ukraine defines its realis-
tic economic (and not only political and ideologi-
cal) potential for international integration activi-
ties, according to possible scenarios. For this, one
of the most important criteria in decision-mak-
ing should be the present-day and prospective
state of the country's export potential. Below,
individual features of the integration process are
outlined according to three principal directions.
INTEGRATION INTO THE EUROPEAN
UNION 
Present-day practical actions in this direc-
tion require the understanding that in order to
achieve the end goal, Ukraine needs to undergo
a long period of adaptation to the EU institu-
tional requirements, even under the conditions
of the radical and effective implementation of
structural reforms. A more realistic and achiev-
able task appears to be the creation of a free
trade zone with the EU. All the more so, as this
step can be co-ordinated with the Russian vector
of co-operation, if Russia also enters this
"expanded European free trade zone". 
At the same time, it is worth noting that,
given Ukraine's technological lag behind the EU,
lifting economic barriers is not likely to give
Ukrainian exporters unquestionable advantages.
Undoubtedly, in separate sectors that today
come under the EU protectionist measures (agri-
culture, textiles, ferrous metallurgy), trade
expansion will be a positive development even
for a short-term period. The prospects for
machine-building and instrument engineering are
more problematic. Many Ukrainian enterprises
outperformed by more powerful European compa-
nies will inevitably be liquidated, given the much
higher level of competitive pressure on the EU
internal market. 
50  UCEPS  NATIONAL SECURITY & DEFENCE
UKRAINE'S EXPORT POTENTIAL: THE PRIORITIES OF INTEGRATION 
Naturally, the expansion of European com-
panies on the Ukrainian market under free trade
conditions could also have a significant positive
effect, in the form of the spread of high tech-
nology. However, from the point of view of
national economic security, the above-indicated
factors favour a very careful approach to the idea
of creating a free trade zone in relations with the
EU until Ukraine achieves substantial progress in
structural reforms on the microeconomic level,
with the emergence of strong companies in vari-
ous sectors, capable of competing on an interna-
tional level.
CREATING A FREE TRADE ZONE
WITHIN THE CIS 
Despite all of the advantages this possibility
presents for Ukraine, today, this looks problem-
atic given Russia's very low interest in it.
However, the Russian position can change under
the influence of the generally positive economic
development of that country over the last year.
Should this pattern continue, Russia could
become interested in expanding its market fron-
tiers for the growing national companies, willing
to compete internationally. 
This scenario presents Ukrainian exporters
with the possibility of making certain economic
gains as a result of easier access to the Russian
market. However, the overall differences in the
pace and scale of economic transformation
between Ukraine and Russia means that Ukraine
should approach the situation with a certain
degree of caution (as in the case with the EU),
as free trade always favours more powerful and
competitive companies.
The task of rapid liberalisation of trade with
Russia can, in principle, be achieved by Ukraine
entering the Customs Union of Russia, Belarus,
Kazakhstan, Kirghizstan, and Tadjikistan. This
would immediately allow for the introduction of
a regime of completely free trade (without
exceptions, or restrictions) in the relations with
the members of the Customs Union. This is one
of the main goals that Ukraine is pursuing in its
relations with countries of the CIS, and its
Economic Union in general. With respect to
Russia, the following possible positive economic
effects might be noted:
 restrictions on access to imported ener-
gy resources would be removed, and the possi-
bility created for obtaining energy resources on
equal footing with Russian enterprises; this
would signify the effect of the removal of actual
oil and gas supply quotas within the framework
of international agreements, and the effect of
removing export duties for energy resources;
 the possibility would emerge for signifi-
cantly improving conditions for the transit of
energy resources obtained from third countries,
such as Kazakhstan and Turkmenistan, over
Russian territory;
 a noticeable improvement would occur
in the conditions for supplying the Russian mar-
ket with Ukrainian goods (sugar, alcoholic bever-
ages), whose exports were seriously damaged by
Russia's application of quantitative restrictions;
 better conditions for implementation of
international co-operation projects as a result of
lowered transaction costs, and the creation of
better conditions for implementing the principles
set down in the Ashghabat agreements;
 from a longer-term perspective, the
possible slowing down and removal of the nega-
tive pattern of losing markets in the Customs
Union member countries. Those countries are
now creating alternative enterprises and an alter-
native transit infrastructure, which is not in line
with the interests of Ukraine's exporters. 
However, the possible political consequences
of membership in the Customs Union of "the five"
do not make this choice very promising for
Ukraine.
CHANGING THE FOCUS FROM 
REGIONAL, TO GLOBAL INTEGRATION 
Under certain conditions, this alternative
can become the principal one for Ukraine. When
compared with the regional group integration
scenario, this one envisages a generally slower
pace of trade liberalisation, and fewer obligations
with respect to the international (supra-national)
regulation of economic relations. It is also more
convenient from the perspective of the ideology of
Ukraine's "multi-vectored" approach, which cur-
rently coincides with the country's current geo-
graphic structure of exports. However, prospects
for this choice will depend on the possibility of
creating strong companies in Ukraine with global
marketing strategies. And this scenario can
become not an alternative, but a supplement to an
effective regional integration strategy, all the
more because the economic openness of the
regional integrated groups is turning into one of
the main principles underlying the new system of
global economic regulation.


Ukraine's export potential: the priorities of integration

Abstract

Similar works

Full text

Available Versions

Policy Documentation Center