Development scenarios for Ukraine’s trade in the years to come.
EXTENSIVE FACTORS HAVE BEEN EXHAUSTED
Development scenarios for Ukraine’s trade in the years to come.
The first meeting of the Ukrainian Council of Exporters took place on November 24, 1999. This Council will generate advice on improvement of the current legislation in order to encourage exports and ensure cooperation of exporting companies from different economic sectors in pursuing a single conjuncture and pricing policy on external markets. This shall allow forecasting production volumes and the range of products manufactured, making Ukrainian commodities more exportable (keeping in mind demands of the domestic market) and eliminating the cases of rivalry among Ukrainian manufacturers on foreign markets. Since 1994, when the government declared the course of thoroughgoing economic reforms, our state has performed an enormous amount of work to set up independent and truly civilized market conditions in foreign trade. This process embraced numerous and sophisticated components of foreign trade operations.
At the moment, we have achieved the following:
almost completely liberalized export activities (lifting quotas and calling off the licensing mechanisms);
nourished civilized rules for attraction of foreign investments in the country’s economy (today almost USD 3 bln. have been invested in the Ukrainian economy). Recently, the investment process has intensified a great deal owing to promulgation of special (free) economic zones in Ukraine;
set in force the flexible protectionism system shaped in compliance with the civilized international standards (tariff and non-tariff import regulations);
paved the legal way for bilateral and multilateral economic cooperation (signing more than 70 various treaties to meet this objective);
currently take active steps to make Ukraine a member with the World Trade Organization and with regional organizations, foremost, with those European.
Throughout the recent years, the geopolitical pattern of Ukraine’s foreign trade has featured the stable trend for profound transformations. Back in 1997, trade turnover with CIS member-states made up 51.2% of the total commodity turnover; whereas in 1998 this ratio lowered to 45.5%. Over the same period the ratio of CIS-bound exports reduced from 47% of the total exports to 39.8%, while the ratio of imports from the CIS dropped from 55.4% to 51.3%. Respectively, the portion of Ukraine’s trade turnover with non-CIS countries rose from 48.8% in 1997 all the way to 54.5% in 1998.
It is worth mentioning that it would be impossible to succeed in foreign economic activities without operations of Ukrainian trade and economic missions abroad. At the moment, such missions function in 32 countries of the world (predominantly, in the major trade partners of Ukraine). It is of extreme importance for Ukraine to consolidate cooperation with these foreign states.
Ukrainian trade turnover with countries, which host Ukrainian trade and economic missions, forms some 84.3% of the total, while exports bound to these countries make up 80.1% of the overall exports. Therefore, one can state that the lion’s share of Ukrainian trade was built up with the assistance of trade and economic missions.
It should be noticed that trade evolves under extremely complicated situation. In January-April 1999, trade turnover plunged by USD 1.8 bln. or 17.6% as compared to the respective period of 1998. Over this period, exports of goods lowered by USD 546.4 mln. or 14.2%, whereas import supplies dropped by 22.7%.
However, export behavior has started showing some encouraging tendencies since May 1999. In January-April 1999, average monthly exports amounted to some USD 1.1 bln.; whereas in May-September this figure rose to USD 1.3 bln.
Furthermore, the September 1999 export of goods increased as high as 23.7% compared to September 1998 and as high as 3.9% compared to August 1999. This means that export supplies have stabilized. In January-September, exports of goods reduced by some 8.2%, though the first four months of this year saw a 14.2% drop in exports of goods.
I would especially like to point out the changes in formation of the balance of trade. For the first time in recent years, Ukraine achieved favorable balance on trade in goods for a certain period of time. In January-September 1999, the net balance of goods and services was positive and amounted to USD 2.0 bln. Throughout January-September, balance of trade in goods rose as high as 9.4 times, i.e. increased by more than USD 1.5 bln. Owing to this, in the second quarter of 1999 the independent Ukraine attained an active balance of payments for the first time.
In January-September 1999, Ukrainian foreign trade turnover in goods and services with non-CIS countries equaled USD 10.7 bln., 13.4% below the respective figure of January-September 1998. Over this period, exports amounted to USD 7.2 bln. (indicating an 0.8% increase), while imports equaled USD 3.7 bln. (a 31.6% decrease).
It should be mentioned that trade with non-CIS countries traditionally features a favorable balance. In January-September 1999, active trade balance with these countries was USD 3.3 bln., surpassing the level of the respective 1998 period by USD 1.8 bln., i.e. by 2.2 times.
One should keep in mind that exports of goods to foreign countries, save for the CIS, even indicated a USD 136.4 mln. (2.3%) increase up to almost USD 6 bln. At the same time, import supplies from non-CIS countries plummeted by 32.5% to USD 3.4 bln. Therefore, favorable balance on trade in goods with these countries rose by USD 1.8 bln. or as high as 3.1 times.
It is worth noting that, in January-September 1999, exports of goods to EU member-states increased from USD 1,391.2 mln. to USD 1,546.2 mln., i.e. up by 11.1%. Active balance on trade in goods with the EU countries went up by USD 902.7 mln. during January-September of the present year.
The fact that Ukraine retained its export standing on non-CIS markets in 1999 once again proves that the pursued course towards diversification of foreign trade is correct. Besides, exports to non-CIS countries somewhat counterbalanced the losses in trade with CIS member-states.
The tendencies, which have been taking shape in trade in the recent months, create grounds for positive changes. I am positive that the USD 1.9-2.0 bln. active balance on trade in goods and services will be retained until the end of the year. Undoubtedly, there will be retained high exports to the non-CIS countries, which are even anticipated to rise as high as 3.0-5.0%. The improved conjuncture for traditional Ukrainian export commodities, such as metal products, chemical commodities etc., further backs this process. Export-oriented sectors of the economy started showing signs of gathered output, which will certainly facilitate the increase in export volumes. Since the beginning of the year, ferrous metallurgy has boosted production output by 4.6%, electric power industry – by 7.2%, nonferrous metallurgy – by 5.6%, food processing industry – by 6.5% etc.
One should also reckon the chance of light industry building up exports of its products. It is known that Ukraine has managed to expand quotas on selected types of textiles as high as 1.5-1.6 times against the previously agreed-upon levels. Trade with the Russian Federation has indicated definite progress towards improvement.
I want to emphasize that, although foreign trade figures fail to be unambiguously called acceptable, the evolution of these figures and their general behavior seem rather propitious. It should be stated that a lot of this has been achieved owing to well-weighed steps taken by the executive power to secure functioning of the industry, to protect the domestic market and encourage export transactions.
In the near future, particular importance will be given to activities aimed at diversifying Ukraine’s foreign trade. Mainly, the diversification is expected to take shape by concentrating efforts at promotion of Ukrainian commodities to new markets and getting a foothold on the traditional markets.
Foreign trade policy will be targeted at expansion and intensification of bilateral relations with CIS member-states.
To meet this goal, Ukraine has already signed long-term (for 10 years) Intergovernmental programs for economic cooperation with the Russian Federation, Republic of Moldova, Republic of Belarus, Kazakstan and Georgia; whereas similar programs for economic cooperation with Turkmenistan, Azerbaijani Republic, Republic of Uzbekistan and Republic of Armenia are being generated.
In relations with CIS member-states the Ukraine’s principal position will rest on the necessity of establishing the actual free-trade regime based on the full-length GATT/WTO standards and principles.
The situation in trade with the Russian Federation will considerably affect development of Ukrainian foreign trade. The financial crisis revealed that both countries are extremely interested in mutual cooperation to meet the immediate economic challenges (particularly, this relates to barter settlement for power resources with foodstuffs).
In negotiations with the Russian Federation, it will be particularly specified that the Russian government should avert from taking protectionism steps, which violate the previously reached agreements and signed bilateral treaties (in particular, those on free trade), without coordination of these steps with the Ukrainian party. Solution of the existing problems in mutual economic relations with the Russian Federation will become one of the main targets of Ukraine’s foreign trade policy.
Expansion of Ukrainian presence in the Transcaucasian region and in Central Asian countries remains an important direction for trade and economic relations. In particular, Ukraine can partake in establishment of the Transcaucasian transport corridor, sign special agreements on cooperation in transportation, oil & gas conveyance, cotton supplies etc. Special heed will be given to increase in the amount of rendered services, particularly by constructing and reconstructing specific structures and communications, engaging in geological prospecting, transit and other services.
Regional cooperation will progress further on. In the first place, local state administrations will intensify their efforts to set up firms (including those on consignment terms) in the most attractive CIS regions in order to expand trade and economic cooperation on the regional level.
The European market, particularly the EU market, will be one of the most alluring places for Ukrainian companies, especially for those manufacturing metals and textiles. In order to boost export supplies to the EU, it is envisaged to sign a new agreement between Ukraine and the EU on trade in textiles in 2000-2002. The new agreement should stipulate for a considerable increase in quota limits or for a complete repeal of the quotas.
It important to make efforts for Ukraine to acquire the status of the free economy. This status is required to avert antidumping inquiries against Ukrainian manufacturers, which export their products to the markets of EU member-states.
It is necessary to take steps to prolong the exchange of letters Agreement between the European Union and Ukrainian government until 2000. The Agreement should rule establishment of a restriction-free system of double control over EU-bound exports of steel products from Ukraine. The new system may allow preventing antidumping and countervailing measures stipulated for in the Treaties on European Union and the OSCE. In the first place, jointly with the EU, it will be necessary to settle the issue of seamless tubes.
As Ukraine penetrates to the global and, particularly, to the European economic community, our country will spur execution of the necessary steps to make Ukraine a member with the Central European Free Trade Association.
In expansion of exports to European countries, Ukraine’s strategic aim is in boosting sales of end products, hi-tech products and services on European markets. This is a true opportunity to build up exports of Ukrainian-made goods to this region, though the process itself comes across objective and subjective obstacles.
Foreign trade with Asia-Pacific countries, Middle Eastern and African economies will experience stable development. These countries seem to be the most worthwhile for sales of machinery and rolled metal products, for rendering scientific, technical and construction services, as well as for cooperation in the military and technical sphere.
Developing countries make up the bulk of the states in these regions. Quite a few of these countries pursue a policy of industrialization and development of domestic industry, which requires large quantities of material resources (such as machines, machinery and rolled metal products). Participation of Ukrainian companies in construction of communications, such as bridges, roads, flyovers and underpasses, ports, airports, railways, power-generating and industrial facilities, will also feature rather good prospects.
It is planned to export such major commodities as various metal products, chemical fertilizers, machines and machinery, watercraft and power equipment to these regions.
The fact that Middle Eastern and North African countries possess the largest explored deposits of oil & gas adds more value to cooperation with these regions. Foremost, cooperation with Saudi Arabia, Kuwait, Algeria, Libya, Nigeria and Iraq should be targeted at fostering stable supplies of oil & gas to Ukraine.
The American countries and especially the USA will still remain the most important market for Ukrainian-made commodities.
The main problems persisting in relations with the USA are as follows:
permanently and unconditionally granting Ukraine the most favored nation treatment;
extending the term of the General Preference System and broadening the scope of this system to embrace goods exported from Ukraine;
supporting Ukrainian efforts to access the World Trade Organization;
reconsidering of the previously accepted antidumping sanctions against Ukrainian-made commodities and prevention of new antidumping inquiries;
cooperation in standardization and certification of products;
problems of certain US investors in Ukraine etc.
Rendering geological prospecting services, services in design and construction of oil & gas and power facilities promises to become a worthwhile direction of cooperation with Latin American countries. Ukrainian-made machinery, which is interior to machines made in the leading countries by its quality but is offered at more suitable prices, will be highly competitive on these markets owing to poor solvency of these countries.
In 2000, Ukraine’s foreign trade turnover is anticipated to amount USD 29.6 bln., 3.1% up from the 1999 figure. The overall exports of goods and services are expected to indicate USD 15.3 bln. and the total imports – USD 14.3 bln. It is anticipated that active balance of trade will equal USD 946 mln. in 2000.
Frankly speaking, the potential for extensive development of foreign trade (predominantly by boosting export supplies) has almost been exhausted at present. This situation sets demands for introduction of amendments to the foreign trade strategy to further enhance its efficiency. Diversification of foreign trade activities may and should become the only way justified and backed by the previous experience.
Program “Ukraine 2010", which was generated by the government and approved by both scientists and foreign representatives, is closely linked with the mentioned problem. This Program treats the issue of diversifying foreign economic activities as top priority. Diversification should become the mechanism to stimulate both further structural adjustments in the economy and thorough changeover of the whole system of foreign economic relations.
The first stage will enable accumulating all the necessary material and financial resources to make structural adjustments in export-oriented economic sectors. At the same time, it is expected that exports of selected types of chemical and ferrous metallurgic commodities will be lowered on the first stage, though this reduction will be offset by boosted exports of commodities with higher degree of processing. Ferrous metallurgy will retain its leadership in exports; however, this industry will abandon exports of low-grade rolled ferrous products and will switch to exports of high-grade ferrous commodities, especially of high-quality steel.
Cooperation activities under the Agreement on partnership and cooperation with the EU (which is in force till 2008) will be of paramount importance. Other important activities include signing of new treaties with the EU, as well as consultations on concluding treaties on free trade with the EU and NAFTA.
It is planned to complete generation of the required and sufficient conditions for Ukraine’s accession to the WTO. Should Ukraine become a member with the GATT/WTO system, it will have all the opportunities to integrate to the EU and other international communities.
On the whole, owing to the diversification processes, foreign trade with non-CIS countries will make up some 65-70% of the total Ukrainian foreign trade turnover by 2010 (as compared to 50% of the total at present). Ukraine will engage in equal trade with almost all the countries worldwide.
Thus, continuing its close cooperation with CIS countries and mainly with the Russian Federation, Ukraine will break through to the world markets and will adjust the pattern of trade, which is a direct consequence of foreign economic activities.