NATIONAL SECURITY & DEFENCE ¹ 6 2000 Founded and published by: CONTENTS THE UKRAINIAN CENTRE FOR ECONOMIC & POLITICAL STUDIES UKRAINE ON THE INTERNATIONAL MARKETS: President: Anatoliy GRYTSENKO PROBLEMS AND PROSPECTS Editor: Liudmila SHANGINA (UCEPS analytical report) . 2 1. THE CURRENT STATE OF UKRAINE'S FOREIGN TRADE . 4 This magazine is registered with the State 2. FACTORS THAT INFLUENCE UKRAINE'S FOREIGN TRADE . 19 Committee of Ukraine on Information Policy, registration certificate KB No. 4122 3. CONCLUSIONS AND PROPOSALS . 34 Printed in Ukrainian and English ROUND TABLE BY CORRESPONDENCE Circulation: 1500 DEVELOPMENT OF UKRAINE'S EXPORT POTENTIAL: AN EXPERT VIEW . 39 Editorial office: 9 Prorizna street, apt. 20, Kyiv 01034 ARTICLES Tel.: (380 44) 228-8687 UKRAINE'S EXPORT POTENTIAL: THE PRIORITIES OF INTEGRATION Tel./fax: (380 44) 244-3453 e-mail: [email protected] VOLODYMYR SIDENKO . 48 WEB-site: www.uceps.com.ua CHANGES ON THE WORLD ALUMINIUM MARKET: UKRAINE'S PROSPECTS Reprinted or used materials must refer to the INNA BOHOSLOVSKA, ROSTYSLAV PAVLENKO . 51 «National Security & Defence» UKRAINE ON THE WORLD ARMS MARKET VALENTYN BADRAK . 59 Photos: DINAU — cover, pp. 8, 13, 22, 26, 37, 41, 44, 50, 57; EXPORT OF UKRAINIAN SCRAP METAL: THE EXPERIENCE OF STATE REGULATION UNIAN — pp. 4, 7, 53, 57, 69, 71; VENIAMIN KRAMER . 68 IREX — pp. 15, 16, 20, 21, 30, 44; The Associated Press — pp. 62, UKRAINE - IRAQ: TO TRADE, OR NOT TO TRADE? 63, 64, 66, 67; Corel Corporation — pp. 77-80. VOLODYMYR SAPRYKIN . 76 © UCEPS, 2000 UCEPS expresses sincere gratitude to People’s Deputy of Ukraine Our analytical materials Inna Bohoslovska for support can be found in Internet: of this issue of the magazine www.uceps.com.ua UKRAINEUKRAINE ONON THETHE INTERNATIONALINTERNATIONAL MARKETS:MARKETS: PROBLEMSPROBLEMS ANDAND PROSPECTSPROSPECTS After Ukraine declared its independence, one of its priority tasks became the integration into the world economy. However, Ukraine came up against unusu- ally tough competition on the international markets, while the process of its entrance onto the world economic stage was rather painful for the country's weak economy. The delay in implementing market reforms and the overly slow restructuring of industry led to the deterioration of Ukraine's foreign trade structure. As opposed to the countries of Central and Eastern Europe, Ukraine has remained an exporter of mostly raw materials and semi-finished products without being able to increase its share of goods with a high added value within the overall export structure. The geographic diversification of Ukraine's foreign trade is being achieved gradually, as well as the strengthening of its position on new markets. This often takes place under the influence of external factors, rather than as a result of the implementation of a well thought-out foreign economic strategy. The overall result is that today, Ukraine's main trade partners remain countries of the CIS (above all, Russia). The strategic significance of foreign trade for Ukraine lies in that the mo- dernisation of the economy, the attraction of large-scale foreign investments and the implementation of new technologies are possible only under condi- tions of the formation of a stable economic system in the country which would be open to the outside world, and Ukraine's organic inclusion in the system of international division of labour. An important factor is the existence of hundreds of enterprises in Ukraine oriented toward foreign markets. For decades, not only large industrial giants, but entire industrial branches (ship-building, rocket construction, military- industrial complex, metallurgy, chemical industry) were deeply integrated in the system of industrial co-operation with the republics of the USSR and socialist countries. After the collapse of the USSR, these branches lost access to traditional markets, that is why huge production capacities went unused under lower demand conditions. The reorientation of these excessive capaci- ties toward other types of production proved ineffective (as the attempts to convert the military-industrial complex demonstrate), while their shrinkage is causing social problems. The renewal of broken co-operative ties and the entry into new markets seems to be more productive, including doing so together with former partners. 2 UCEPS NATIONAL SECURITY & DEFENCE UKRAINE ON THE INTERNATIONAL MARKETS 33 NATIONAL SECURITY & DEFENCE UCEPS Nevertheless, foreign trade turnover has been decreasing over the last three last the over decreasing been has turnover trade foreign Nevertheless, The high energy consumption of branches oriented toward export (metal- Ukraine is unreasonably losing its traditional (and geographically proxi- Reasons exist for asserting that the potential for the extensive development The aim of this UCEPS analytical report is to point out the basic problem Despite an enduring and deep economic crisis, preconditions continue to the principal indicators of Ukraine's foreign trade are analysed. world Ukraine's economy, the place role in of foreign the trade in the development of the national geographic The determined. are economy, potential export Ukraine's of characteristics main the and cap- and service the on presence Ukraine's and trade, foreign of structure commodity and ital markets are analysed. The most troubling tendencies apparent on the and basis of the analysis made; imbalances comparative assessments are provided. will become the main internal and external factors influencing the development of Ukraine's fo- reign trade are analysed. More attention account, is would make given it to possible to factors effectively which, utilise Ukraine's if tages, and competitive available export potential. taken advan- into concrete mechanisms and ways for expanding Ukraine's presence on international markets are proposed. Increasing the competitiveness decreasing the volumes of of loss-making the exports, improving the country's mechanisms of state economy, regulation of economic activities, and bringing the GATT/WTO norms are proposed as country's the main priorities. legislation closer to years. Import and export structures alike are deteriorating. Industrial exports of exports Industrial deteriorating. are alike structures export and Import years. individual branches are ineffective, and often loss-making (as in the metallur- export Ukraine's in materials raw of domination The 1997-1999). in complex gy makes it vulnerable to price fluctuations on the world market. lurgy, chemical industry) leads to the dependence of exports on import sup- plies of energy, prevents export revenues from being used for technological renewal of industry, and reinforces dependence on Russia. mate) markets, and moving its production into new markets too slowly. of exports has already nearly been increas- exhausted. toward exports of structure the re-orienting all, above — implemented Quality changes need to be ing the share of finished products in the overall export volume; increasing the effectiveness of export operations; renewing the country's presence on tradi- tional markets and strengthening its position improving the state regulation of on foreign economic activity. new prospective markets; areas regarding the development mechanisms the improving for means of the substantiate and priorities, structural Ukraine's foreign trade, determine its of Ukraine's foreign economic activity. This analytical report is comprised of three sections. exist in Ukraine for the creation of a competitive economy and the strengthening of its position on international markets — these preconditions are, above all, the and qualified a position, geographic convenient resources, natural rich country's high complex, military-industrial the of potential the force, labour cheap relatively technologies, science, and a relatively effective educational system. UKRAINE ON THE INTERNATIONAL MARKETS : PROBLEMS AND PROSPECTS section section section In the first In the third In the second 1.1. THETHE CURRENTCURRENT STATESTATE OFOF UKRAINE'SUKRAINE'S FOREIGNFOREIGN TRADETRADE In this section, the current state of Ukraine's foreign trade, its position in world trade, and individual components of the country's export potential are analysed. The structure of the exports of goods and services is analysed in terms of geographic and commodity dimen- sions. A brief characterisation of Ukraine's export position is given according to individual types of industrial and agricultural products, along with an analysis of the structure of the export of services, and Ukraine's participation in the international flow of capital. UKRAINE'S POSITION IN WORLD TRADE trade in the U.S. GDP comprised 24% (in 1950 — 9%), in France — 43% (and 23%, respective- The liberalisation process, which began ly), in Germany — 46% (27%), Great Britain — developing in world trade after the Second World 57% (30%)1. A similar situation can be observed War, led to a sharp increase in trade volumes. in Ukraine: Ukraine's export share grew from According to WTO information, after 1950, 24% of GDP in 1992 to 42% in 1999. However, world export volumes grew 18-fold, while pro- as opposed to other leading countries, in duction increased only 6.5 times during the same Ukraine, the growth of this indicator over the period. Likewise, world exports of industrial last several years was not a result of the export goods increased 34-fold, while industrial produc- volume increase. At the same time, Ukraine tion increased nine-fold. retains significant export