What will the status of the closest EU neighbor give Ukraine? How will EU enlargement affect Ukraine in social and economic terms? And what are the prospects for Ukraine’s economic cooperation with the enlarged EU? These were the key issues addressed at the round table, EU Enlargement: New Possibilities and Prospects for Ukraine, held recently at the National Institute for Strategic Research.
An enlarged Europe is not an ideology of divorce. This is an ideology of the EU plus the zone of a less intensive integration, which Ukraine and several more countries are part of. Such is the belief of Anatoly Halchynsky, aide to the president of Ukraine and director of the National Institute for Strategic Research. He is convinced that in the geopolitical dimension such a process is especially favorable for Ukraine, evidence of which is the document on the enlarged EU, “A Broader Europe: a New Dimension of Our Relations With Eastern and Southern Neighbors,” that the European Commission signed last March. According to Halchynsky, the document does not envision the separation of the enlarged EU from its neighboring countries, but, on the contrary, sets forth mechanisms of active cooperation with the countries that are not EU members.
In particular, as part of the Broader Europe program that has been proposed to Ukraine, next spring an action plan will be adopted that will enable Ukraine to enter the EU domestic market and will provide for a less strict visa regime. According to the European Commission, in the future Ukraine’s common market with the EU will be based on the so-called four freedoms: free movement of capital, goods, services, and workers. As a result, Ukraine will only be unable to participate in the EU administrative bodies. The creation of a free trade zone between Ukraine and EU members is mentioned in the Agreement on Partnership and Cooperation. However, this will be possible only after Ukraine joins the WTO. In the best-case scenario this will happen next year.
That Ukraine looks toward Europe in its foreign policy is only natural. Simultaneously, Ukraine’s orientation toward Russia is becoming weaker with each passing year. While in 1994 the Russian market accounted for nearly half of all Ukrainian exports, in 2000 Ukraine’s exports to Russia dropped to 24% and to 17.8% in 2002. Meanwhile, over the same period Ukrainian exports to the EU increased from seven to 19.2%. According to Halchynsky, further proof of the Ukrainian economy’s Western orientation is the dynamics of foreign investment. As of early 2003, foreign direct investment in the Ukrainian economy from EU members came to 34.4% of the total investment, while Russia accounted for a mere 6% of foreign investment (of course, these are official statistics that do not take into account offshore capital and Russian interest in affiliated companies.) Significantly, Western investment outstrips Russian investment in qualitative terms.
Many experts are certain that EU enlargement will only strengthen the positive trend of Ukraine’s drawing closer to the EU. First this will happen through trade. According to Halchynsky, the Central European states do not have a significant potential for expanding their trade in the Western direction. Thus they will try to use their opportunities on the Ukrainian market. We can also expect some export-oriented companies in the Czech Republic, Slovakia, Hungary, and Poland to relocate to Ukraine to use its competitive advantages and escape from the extremely stringent regulatory requirements in force on EU territory. The mentioned countries already view Ukraine as a gateway to the markets of other post- Soviet countries.
Western Europe is also expected to show a greater interest in the Ukrainian economy as the union expands. Italian Ambassador to Ukraine Jolanda Brunetti Goetz pointed out that Italian businesses are relocating part of their operations from other European countries to Ukraine, since they consider it attractive in economic terms. According to him, today Ukraine must “encourage such attention.” Yet the fact remains that Western Europe still knows little about Ukraine. Meanwhile, the Central European states to join the EU in 2004 should open a sort of window onto Ukraine for other European countries. After all, most of the ten prospective EU members know Ukraine very well and have extensive experience of cooperating with it. “This is like a snowball that will pull Ukraine into EU structures more and more,” Goetz said. The issue of Ukraine’s economic prospects was picked up by Helen Cray, acting chair of the EC Mission in Ukraine. She stressed that as the EU expands “new markets will evolve along Ukraine’s border.” Ukraine should take advantage of these changes and opportunities. As a closing remark Ms. Cray said: “To be able to participate in the big game Ukraine needs to accept certain rules of this club.”
In fact, Ukraine has been working to adapt to such “rules” for many years now. Aside from ensuring sustainable economic development that would enable Ukraine’s EU integration, it also has to adapt its legislation to EU standards. According to Hennady Druzenko, acting director of the Center for European and Comparative Law, the concept of a broader Europe has given a powerful impulse to adaptation. The Broader Europe program spells good prospects for Ukraine in this sphere. According to Druzenko, Ukraine has adequately received Europe’s requirements that changes be made in its national legislation and quickly introduced a European algorithm of adaptation.
The project of EU enlargement itself is very complex and might have adverse consequences for the whole region, Ukraine included. According to Volodymyr Sidenko, economic programs director at the Razumkov Center for Economic and Political Research, should this project fail, Ukraine will incur far greater losses than initially expected. The uncertainty surrounding the future enlarged EU is cause for concern. According to Valery Chaly, international programs director at the Razumkov Center for Economic and Political Research, “we are in an undecided system of coordinates: what will the EU be like? What will Ukraine be like?” Moreover, according to Mr. Chaly, the EU and Ukraine have some divergent views and priorities. “This is a two-way road,” he is convinced, since the EU is above all lobbying its interests in the process of its enlargement, while Ukraine insists on the economic aspect of the adverse consequences it may face in the initial stage of EU enlargement.
Despite the medium and long- term prospects and advantages that EU enlargement spells for Ukraine, in the short term Ukraine could incur significant economic losses estimated at $250-500 million. This is above all due to a decline in Ukrainian exports to Baltic states and an increase in the prices of exported and imported goods after the termination of the free trade agreements that Ukraine signed with these countries. Ukraine will also lose its traditional markets in the prospective EU member states, since the EU antidumping measures against Ukraine will also be enforced in them. Moreover, Ukraine’s exports will suffer after the new EU members embrace European norms and rules of technical, sanitary, veterinary, and environmental regulation, along with the rules of consumer rights protection. Moreover, even though Ukrainian exports to the prospective EU members are growing at a high rate, such positive dynamics will slow down as a result of EU enlargement. Complications are expected in other spheres: introduction of a visa regime and more complex technological schemes of crossing the state border for vehicles and goods, as well as limitations on the access of Ukrainian workforce to the job markets of the new EU members.
All these complications await Ukraine in 2004-2005, for which reason Kyiv is trying to mitigate their impact over the negotiating table with Brussels. However, according to presidential aide Andriy Fialko, the EU is “a very egotistical and tough negotiating partner.” After all, Brussels forces the issues that are of primary interest to it. According to Fialko, the new neighbor concept also shows the “healthy egoism” of the European Union. Brussels cares above all about its own interests even as it speaks about establishing preferential relationships with neighboring states, as envisioned by the Broader Europe program.
