Национальный инвестиционный совет

Вид материала

Is there a theoretical possibility to create a large pan-European economic integration area ?
The Ukrainian participation: parallel or precluding integration?
EU-Ukraine “FTA+” concept – some major dilemmas
2.2 Ukraine in the SES(4) concept – already a buried vision?
2.3 Economic irrationality of the either/or approach – the case of Ukraine
Ukraine’s major trade partners in 2006
Table 2. Structure of Ukrainian exports to the EU25 and Russia
Chemical products
Iron and steel
Above mentioned together
FDI-stock in Ukraine by countries of origin (2005-2007)
EU-Russian ‘FTA+’ ideas - major dilemmas
The circle of other affected countries – clashing or matching interests?
Politics as major barrier
Conclusions and recommendations
What should be done to overcome the diverging intentions?

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Introduction

Economic integration ideas and initiatives are spreading all over Europe. Nowadays we may speak not only about successful integration formulations within the West but also challenging South-West or East-West ideas. This article focuses on those East-West ideas that are emerging between the enlarged European Union and countries of the European CIS-space. A special partnership has been launched between Russia and the EU for the past years formulating the idea of four common spaces including the common economic space. Almost at that time the European Union initiated a new process aimed at attracting closer its new Eastern (and Southern) neighbours in the economic sense as well. On the other hand, one may find interesting East-East integration initiatives on the post-Soviet space, such as the Union state of Russia and Belarus, the Eurasian Economic Community or the vision of the Single Economic Space (SES4) embracing Russia, Belarus, Kazakhstan and Ukraine. This study deals with the latter mentioned grouping, arguing that from an all-European perspective this is the most interesting idea. Moreover, this is the first initiative within the post-Soviet space that could involve Ukraine what could result in a grouping representing 94 per cent of total GDP produced within the CIS space. Furthermore, the SES concept seemed to be a new-type model of economic integration among post-Soviet states.

The real question about SES is whether it is aimed to be a competitive integration to European integration, or the idea is to built it on a complementary basis, for which it may be possible in the future to jointly link to the enlarging European economic space. European (EU) and post-Soviet integration initiatives are frequently interpreted as contradictory ones, especially when speaking about integration possibilities for Ukraine. A kind of ‘either/or‘ approach can be observed. This study tries to give some impetus for thinking over the necessity of such an approach. It may not give full answers to all emerging dilemmas and questions, but at least intends to encourage the very much needed common thinking.

Economic literature distinguishes between several stages of economic integration. Based on the theory of Béla Balassa^²²⁸, we can speak about the following stages of economic integration, with each stage representing a more developed form:

free trade area – within the area trade is liberalised by the elimination of customs tariffs and quotas, but maintaining national tariffs and quotas towards third partners
customs union – free trade plus commonly established customs tariffs towards third parties and converging foreign trade policies
common market – customs union accompanied by free movement of capital and labour (nowadays frequently interpreted as the ‘four freedoms’)
economic union – common market with economic policy harmonisation process
political union – creation of supranational power.

In practice economic integration groupings combine the above mentioned elements. The best example for this combined character is the single market of the European Union which has not been yet listed in the theory of Béla Balassa.

Is there a theoretical possibility to create a large pan-European economic integration area ?

The main argument of this study is that from economic point of view it seems possible to link East-East ideas to West-East ones having in mind mostly the SES-concept and ‘FTA+’ offer of the European Union to Ukraine and Russia. ‘FTA+’ or with other words deep free trade means normal free trade area complemented with economic policy harmonising elements that results in sharing the single European market with the affected third partners. The idea is still being developed both within the EU and Ukraine, but there is no doubt that this European invention tries to solve the dilemma lying between the large number of EU(-self) candidates and the absorbing capacity of the European Union itself. This policy means elaborated within the framework of the European Neighbourhood Policy intends to establish closer ties, including economic ones, with EU neighbours, but without offering full membership.^²²⁹ The ‘+’ stands for readiness of partners to start a harmonising process in several economic policy areas. Naturally, for candidate countries harmonisation means one-sided adjustment to EU norms and legislation. However, the depth and details of this process is subject to further investigations and negotiations. Though firstly the idea has been worked on Ukraine, and even now this is the most deeply elaborated direction of ‘FTA+’ idea, later it appeared in EU-Russian relations as well. In autumn 2006, the EU offered the same “deep free trade” possibility to Russia but still without clarifying its content. On the other hand, Russian ideas about Single Economic Space also incorporated the stage of free trade but they would go further towards the creation of the customs union and even further towards some kind of an economic union which already means deep harmonising intentions in several fields^²³⁰. The necessity of addressing the energy issue is also a common feature of both ‘FTA+’ ideas and the SES concept. The author if this study is convinced that European energy problems (import diversification, security of Russian gas and oil deliveries etc.) cannot be solved by excluding any of the three partners, that is Russia or Ukraine. Bilateral negotiations and ‘energy dialogs’ that exclude either Russia or Ukraine from the discussion cannot pave the way towards stable solutions. These features indicate a possibility, if not the necessity of thinking along the triangle of EU – Russia –Ukraine.

The circle of affected countries by the ‘FTA+’ and SES concepts is partly identical: on the one part, the 27 member-states of the European Union; on the other part, Russia (in the framework of the common spaces) and Ukraine (in the frame of the ENP). The role of Belarus, a member in the SES initiative, is rather questionable. Though at moment there are no concrete plans in EU-Belorussian relations on deepening co-operation, Belarus is a potential target country in the ENP framework. The realisation of this potential is being hampered only by the recent autocratic political regime in Belarus, in the change of what Belarus may come up into one priority line with Ukraine. Lying geographically in Asia Kazakhstan is not being covered by ENP actions. However, the energy issue may be a crucial linking factor between Kazakhstan and the EU in the future.

Though the either/or approach can be observed in official Brussels rhetoric especially thinking of Ukraine, a recent EU-document^²³¹ encourages the formulation of regional groupings in the EU-neighbourhood. SES concept may be considered as such.

The Ukrainian participation: parallel or precluding integration?

Most dilemmas concerning the possibility of a complementary approach, that is parallel realisation of SES and European “deep free trade” concepts relate to the Ukrainian participation in both projects. Why is Ukraine so important in both ideas? First, it is the second large CIS economy that is a crucial point in the SES concept. On the other hand, Ukrainian market is attractive from EU point of view as well. At moment Ukraine is most probably one of the most important target countries in the whole ENP framework. Second, its strategic transit position further raises the significance of co-operating with Ukraine for both partners, the EU and Russia as well. Third, solutions regarding Ukraine serves as reference for countries with similar problems, such as other GUAM member-states, Georgia or Moldova. Due to the mentioned factors at the time being deep free trade concept is elaborated for Ukraine in most details, meaning that the Ukrainian case is important from model-building point of view, as well.^²³²

EU-Ukraine “FTA+” concept – some major dilemmas

Though several scientific works have already been devoted to the issue of ‘deep free trade’ that tried to apply it to the case of Ukraine, there remained important questions to be answered. First of all, what will be the depth of ‘regulatory convergence’ in concrete sectoral levels? How much of the ‘acquis’ will be adopted in Ukraine? From Ukrainian economic point of view an essential issue is the case of trade in agrarian products. Is free trade possible in this field? Though EU papers say ‘yes’ in principle, arguing for the overall scope of planned free trade, based on European experiences on exaggerating protectionism in agrarian EU trade, Ukrainian experts doubt it.

What will be the time horizon for the realisation of ‘FTA+’ concept? EU documents usually use the term “medium to long term”. But what will this mean in practice? How much time will the Ukrainian economy have for adjusting?

Inner Ukrainian political division also raises important questions. Though in principle there is a consensus among Ukrainian elite and different political powers on the euro-integration priority in Ukrainian foreign policy goals, it is rather questionable whether agreements will be able to be found on sectoral level due to the different economic interests of Ukrainian lobby groups. The way of concrete solutions and decisions is not without real significance since EU intention is to give “binding commitment” to the new agreement.^²³³

Though some detailed studies are already available on ‘deep free trade’ these reports have a rather one-sided approach without mentioning some important - potentially - negative consequences. For example the study made by Ukrainian experts^²³⁴ supports the idea of Ukraine’s joining the Pan-Euro-Mediterranean Cumulation System, but without admitting that this action would create new relative disadvantages for those Ukrainian companies that are regularly customers of Russian raw materials. Furthermore, they forget to indicate that these kinds of consequences could lead to new conflicts in both Ukrainian-Russian and EU-Russian relations as well.

2.2 Ukraine in the SES(4) concept – already a buried vision?

The major problem regarding Ukrainian participation in the SES-concept is raised by the planned degree of economic integration between the four countries. According to the work packages elaborated on SES^²³⁵, customs union is an important goal already at the first stage of integration. The essence of the whole concept is to go further than free trade by establishing a customs union in the short or medium run, formulating a common market and later some kind of an economic union. These stages strictly follow the logic of theory, stepping one by one on stages introduced by Béla Balassa. However, Ukrainian readiness does not go beyond free trade. Ukrainian interests are limited to free trade without exceptions since protectionist measures introduced by the Russian side in trade of several products cause serious economic damage to Ukrainian exporters.^²³⁶

There are several decisive Ukrainian arguments for not going beyond the stage of free trade. First, a customs union needs supranational organs the joining of which is prohibited by Ukrainian constitution. Second, participating in a customs union would hamper Ukrainian WTO-accession process which is perhaps a step ahead of the state of Russia’s accession.^²³⁷ Third, final goals of the SES idea incorporate the immense task of economic policy harmonisation, but Ukraine already committed itself to a harmonisation process with EU legislation called “regulatory convergence”.

Since Ukrainian refusal to join the customs union within the SES may not be expected to be changed the other three countries decided not to wait for Ukraine, but leaving it out of the project. This is not a really good solution for Ukraine, the economy of which is strongly linked both to the EU and Russian (CIS-partner) economies. From economic point of view the best solution for Ukraine would be the parallel liberalising-harmonising process into both directions. This option seems to be excluded due to the prevailing ‘either/or’ approach . It is mainly Brussels that seems to rule out the possibility of parallel economic integration. The Brussels “Communication on Relations with Russia” in February 2004 was already ‘sceptical’ about the concept of SES, bearing in mind EU ideas on a common economic space with Russia and planned free trade with both Ukraine and Russia after their WTO accessions. However, this document failed to give specific reasons for this scepticism. On the contrary, a recent EU report even supports the formulating of different integration grouping in the EU-neighbourhood including East-East ones. So EU positions on parallel integration remained unclear and detailed analysis of specific questions is still lacking.

2.3 Economic irrationality of the either/or approach – the case of Ukraine

Duality is a feature of the Ukrainian economy. Following figures (for 2006) well illustrate its double linkage. The share of the EU in Ukrainian exports is almost the same as the portion of the three SES-partners. On import side one may see similar situation. Both the EU and the big CIS-countries represent major markets for the Ukrainian producers, while both country groupings are essential as sources of imports as well. As a single country, Russia is by far the most important trading partner in both Ukrainian exports and imports.

Table 1.

Ukraine’s major trade partners in 2006

Exports			Imports
ranking	country	share	ranking	Country	Share
1.	Russia	22,5	1.	Russia	30,6
2.	Italy	6,5	2.	Germany	9,5
3.	Turkey	6,2	3.	Turkmenistan	7,8
4.	Poland	3,5	4.	China	5,1
5.	Germany	3,3	5.	Poland	4,7
6.	Belarus	3,2	6.	Italy	3,3
7.	USA	3,2	7.	Belarus	2,8
8.	Hungary	2,5	8.	France	2,2
9.	India	2,2	9.	Kazakhstan	2,1
10.	Kazakhstan	2,2	10.	Korean Republic	2,1
	SES (3)	27,9		SES (3)	35,5
	CIS	33,0		CIS	44,8
	EU25	28,3		EU25	34,7
	Total	100,0		Total	100,0
source: Ukrainian Statistical Office

The EU and CIS spaces are both crucially important trading partners for Ukraine, but for different reasons. Deeper analysis of structural features indicates these significant differences. Iron, steel and chemical products are almost equally important in both directions of exports, owing to the special significance of these industries to the Ukrainian economy as a whole. But while total Ukrainian exports to the EU represent very low added value, the structure of Ukrainian supplies to the Russian market is much more favourable according to figures available for the previous years. The share of machinery amounted to more than 30 per cent of total Ukrainian supplies to Russia, while agricultural and food products totalled to 16 per cent (figure for 2004), contrary to the 7.5 and 1.7 per cent shares in total exports to the EU (figures for 2005).

Table 2.

Structure of Ukrainian exports to the EU25 and Russia

Product group	To EU25 (%) 2005	To Russia (%) 2004
Live animals	0,2	8,0
Food products	1,5	8,3
Mineral products	24,5	3,1
Chemical products	7,1	7,8
Textile products	6,1	0,9
Iron and steel	32,7	27,1
Machines	5,2	18,0
Vehicles	2,3	12,4
Above mentioned together	79,3	85,6

Source: Eurostat, Gostamkom

What is more, both Russia and the EU are important sources of FDI for Ukraine. Although official Ukrainian statistics show strong asymmetry towards the EU, the presence of Russian capital in the Ukrainian economy is also vitally important if all the special hidden flows of Russian capital are considered, such as arrival through tax havens like Cyprus or Brit Virgin Islands or under Ukrainian cover. The high weight of Russian investments in the Ukrainian economy is also highlighted by their structural features. Russian capital landed to key sectors of the Ukrainian economy.

Table 3.

FDI-stock in Ukraine by countries of origin (2005-2007)

	January 2006	January 2007	April 2007	January 2006	January 2007	April 2007
	Million USD			%
Germany	5505,5	5620,7	5690,1	33,6	26,5	25,4
Cyprus	1562,0	3011,7	3236,6	9,5	14,2	14,4
Austria	1423,6	1600,8	1782,3	8,7	7,6	7,9
United Kingdom	1155,3	1557,2	1699,9	7,1	7,4	7,6
Netherlands	721,8	1493,0	1692,2	4,4	7,0	7,5
USA	1374,1	1418,0	1360,0	8,4	6,7	6,1
Russia	799,7	980,8	1077,9	4,9	4,6	4,8
Brit Virgin Islands	688,7	808,3	883,7	4,2	3,8	3,9
France	-	826,8	873,2	-	3,9	3,9
Switzerland	445,9	504,9	566,5	2,7	2,4	2,5
Poland	224,0	366,0	380,0	1,4	1,7	1,7
Hungary	191,1	364,5	347,5	1,2	1,7	1,5
major EU country investors together	10783,3	14840,7	15701,8	65,9	70,0	69,9
others not indicated	2283,3	2633,3	2843,8	13,9	12,4	12,7
all together	16375,2	21186,0	22433,7	100,0	100,0	100,0
source: Ukrainian Statistical Office

EU-Russian ‘FTA+’ ideas - major dilemmas

Vision of free trade between the EU and Russia emerged as early as at the wording of the Partnership and Co-operation Agreement in the nineties. Later it appeared in the concept of the Common Economic Space also. However, it could never be started negotiated in the absence of Russian WTO-membership. In the autumn of 2006 the idea was again raised by the EU, already in the newly invented form of ‘FTA+’. Since the mid-nineties Russian enthusiasm towards concluding free trade agreement with the EU has been decreasing to a great extent. Due to the very specific and one-sided structure of Russian deliveries to the EU, the bulk of which is consisted of oil, gas and other raw materials facing no or very law customs tariff, Russian interests in FTA with the EU are very much limited. Although there is no sense to put FTA in the centre of any new basic agreement between the parties, it is expected to be part of the new agreement to be negotiated in the near future.^²³⁸

Special features of ‘FTA+’ between the EU and Russia are still to be elaborated. This job is lagging behind all those efforts that have already been taken for the case of Ukraine. But the biggest problem is something more essential: the necessity of ‘+’ element, that is harmonising with EU legislation is questioned in Russia. Nevertheless, Russia seems to be ready for adjusting to WTO rules and norms, meaning that Russian acceptance for ‘regulatory convergence ’is higher in multilateral framework. The latter could constitute a good basis for further convergence, in case it will be needed in future EU-Russian relations.

A second major problem in EU-Russian economic integration project is created by the recent awkward issue of co-operation in the energy field. Having in mind the diverging EU and Russian approaches to the transit issue harmonising in this field seems to be very problematic, although crucially important for the future.

The circle of other affected countries – clashing or matching interests?

The Russian-initiated SES integration concept involves two states that are not targeted by the ‘FTA+’ concept within the ENP at moment: Belarus and Kazakhstan. Does the participation of these countries in the SES-project create serious barriers to a potential matching of the SES on part of Russia and FT ideas with some European CIS-countries on the EU part? Anyhow, there might be a fear on EU-side to get unintentionally into free trade zone with countries outside the scope of the ENP-offer or the Russia-related Common Economic Space.

As far as Belarus concerned, it is a potential candidate for future EU intentions to deepen co-operation with it. One may expect an EU free trade offer to Belarus in the future. At the time being this is hindered by the Belorussian political foundation, but after a democratic turn Belarus is most likely to be treated by the EU as Ukraine is at moment. Since the time scope of EU-Ukrainian and EU-Russian integration plans is medium to long term, Belarus may turn up as another potential partner country in the meantime.^²³⁹

At first glance the case of Kazakhstan is more problematic. Being a non-European country it is not expected to be targeted by European Neighbourhood Policy in the future. However, there are basically no significant economic arguments on EU-side against a FTA with Kazakhstan based on present trade structure. On the other hand, Kazakhstan may not be interested in liberalising process with the EU, since it may turn to be a looser in this process. Proper timing and initial asymmetry in mutual liberalisation may decrease these potential threats. Still, political considerations in the Kazakh case may also create barriers to further tightening of co-operation efforts on part of Brussels. It is the issue of energy that may be considered as a linking factor, since both partners are interested in a closer co-operation in the energy field.

Both Belarus and Kazakhstan committed themselves to economic policy harmonisation within the SES (and another post-Soviet integration initiative: the EurAsEC). They are ready to start an adjusting process within their WTO-negotiations as well, with the necessity of applying internationally accepted norms and rules in their foreign economic relations with third countries.^²⁴⁰ These two already launched processes may pave the way towards getting closer to EU legislation in case the harmonising process within the SES (and EurAsAC) is not conducted in a way that is contradictory to the European way of thinking.

EU free trade with Ukraine and potentially with Russia is likely to create serious technical problems until similar free trade EU-offers to Belarus and Kazakhstan come up. According to international trade practice rules of origin may not solve emerging problems due to their very problematic implementation.

Politics as major barrier

Though there is a more and more increasing aware of the necessity to apply a complementary approach in Russian-initiated and EU-launched integration activities on expert level, politics in all affected parties may create serious obstacles towards realisation.

On EU-side it is the ‘no one voice’ syndrome that seems to impede a more co-operative and understanding approach towards its CIS-partners as a grouping. Some member states may insist on the isolated treatment of Russia and Ukraine with the intention to offer Ukraine much more than to Russia. This problem is hardly to be overcome soon in the light of recent inner EU phenomena.

On Russian side excessive patriotism based on the image of the possibility to built a Russia-based own economic block, that is to become another world economic power centre, may be a major obstacle to the implementation of a co-operative approach. Though the strength of the competitive way of thinking on expert level is declining even in Russia, political will is still lacking for initiating common thinking and activities.

On Ukrainian side in a situation of political instability one may face another inside-type ‘no one voice’ syndrome. Ukrainian parties have different opinions on the emphasises of Ukrainian policy towards the EU and Russia. Although, euro-integration as a foreign policy priority is not questioned by any of the major political forces, the possible consequences for relations with Russia are seen differently, which may result in a changing and indefinite Ukrainian position.

Conclusions and recommendations

Linking East-East integration ideas, first of all the SES concept, to West-East ones is a possibility from theoretical and economic point of view. However, some very deep problems have to be addressed and solved in order to be able to develop a co-operative way of thinking on the issue of the “common neighbourhood” between Russia and the EU. Though at the time being the EU co-operates in two different frameworks towards Russia (common spaces) and other European CIS-countries (ENP), their real content is very much similar as regards economic visions. Brussels has already “stealthily” introduced identical elements into these frameworks, which creates chances for linking them into each other in the future with the final aim of establishing a pan-European free trade area embracing recent EU-member countries, some of the CIS-counties mainly from the European part of the post-Soviet space and some other European states as well.

More and more experts in each affected parts of Europe are on the same opinion that this final aim is not only a possibility, but rather a necessity in order to be able to manage European problems in an efficient way. What is missing at moment is political will and consensus inside and between the parties affected.

What should be done to overcome the diverging intentions?

The problems of the Russian-initiated SES-idea may be overcome by the following perceptional changes. Bearing in mind the economic reasonability of keeping Ukraine within the SES-space, it is necessary to give up forcing the establishment of a customs union. It is not necessary to strictly follow the logic of economic integration theory from free trade area till economic or even political union including the stage of a customs union. Beside, the idea of a customs union between SES(4)-countries was still based on the vision of separate Russian-led world economic centre, which is now more and more out of agenda even in Russia. On the one hand, creating a customs union on the common will of the three remaining countries is still a possibility, but in a way which keeps Ukraine still interested in the SES project as part of free trade area. Harmonising intentions both within the EU plans (either in the ENP-frames or in other ways like building Common Economic Space with Russia) and the Russian ideas may well fit in to each other in case regulatory convergence in the SES is directed in line with EU legislation where it is already possible (selectivity), and in line with international norms represented by WTO norms and rules elsewhere. All what is needed, on part of the SES-countries and especially in Russia, is readiness to give up “competitive approach”.

How may the EU support this idea? It may keep the two different frameworks for relations with Russia and its other neighbours, but with a clear intent to harmonise their contents by involving all the affected parties into the same discussion. The readiness on conducting one dialog with all participants is especially essential on energy issues. The vision of the pan-European ‘FTA+’ should be worked out thinking commonly and with carefulness regarding timing and peculiarities of each affected countries. This is the only way towards the dreamed “Neighbourhood Economic Community” outlined in a recent EU document.

Applying this approach whole Europe will gain much. It will help the EU to overcome its ‘Russia-problem’, it will be major step to solve the EU’s Ukraine problem, while being a milestone in the European dream of a strengthened world economic and general international position.

For Russia the possibility to think commonly with the EU on the future of their common neighbourhood is the only possibility to gain the EU as a strong ally, a real strategic partner that has already been laid down in their common documents. This is also the only way to have chances for solving intra-CIS problems, to overcome desintegration processes by successful integration initiatives.

For Ukraine this commonly agreed position on the future incorporates the possibility to avoid and overcome the ‘either/or’ dilemma in foreign orientation and economic integration. Only in this way may Ukraine develop its economic relations intensively in both directions, which is crucial for the Ukrainian economy in not only the short run but in medium to long term as well. With a co-operative way of thinking on European integration models we all may gain a Europe with less conflicts.

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Национальный инвестиционный совет

Introduction