THE WORLD BANK Ukraine’s Trade Policy A Strategy for Integration into Global Trade A WORLD BANK COUNTRY STUDY A WORLD BANK COUNTRY STUDY Ukraine’s Trade Policy A Strategy for Integration into Global Trade THE WORLD BANK Washington, D.C. Copyright © 2005 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First Printing: June 2005 printed on recycled paper 12345070605 World Bank Country Studies are among the many reports originally prepared for internal use as part of the continuing analysis by the Bank of the economic and related conditions of its developing member countries and to facilitate its dialogs with the governments. Some of the reports are published in this series with the least possible delay for the use of governments, and the academic, business,financial, and development communities. 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Contents Abstract Acknowledgments Acronyms and Abbreviation Executive Summary 1. Trade Performance Since the Early 1990s— Looking for Its New Role in Global Trade Main Trends in Trade Performance Merchandise Tr Commodity Structure of Trade Geographic Structure of Trade Export Concentration and Specialization Foreign Trade Data Quality Conclusions 2. Tariff and Trade Regime Import Tariff Structure Import Non-Tariff Barriers Quantitative Import Restrictions and Contingency Measures Export Regime Fiscal Aspects of Trade Regime Trade Regime: Perceptions by the Private Sector Conclusions 3. Ukrainian Exports and Access to the EU Market Overview Policies Affecting Ukraine’s Access to the EU Market: The GSP EU Protection and the Structure of Ukraine’s Exports The Impact of EU Enlargement Conclusions 4. Ukrainian Steel Export—Performance, Sustainability, and Medium-Term Prospects Export Performance Assets, Investments, and Capacity Constraints Government Policies: Main Instruments of Support to Local Steel Producers iii 1 1 ade Dynamics in 1996–2003 8 9 13 20 29 33 35 36 43 48 49 54 55 61 65 65 69 82 87 89 91 91 98 100 xi xiii xv xvii Comparative Advantages of Ukrainian Ferrous Metallurgy Medium-Term Pr Conclusions 5. Ukraine’s Accession to the WTO—Completing the Negotiations and Maximizing the Benefits of Membership WTO Accession Negotiations Remaining Roadblocks to Accession Reaching the End of Negotiations Reaping the Benefits of WTO Membership Conclusions 6. Medium-Term Priorities for Trade Integration Strategy Trade Integration with the EU: Follow a Pragmatic Approach Toward Attaining Realistic Goals Trade Integration with the CIS: Expand Cooperation Based on WTO Principles Strengthening Institutional Framework for Trade Policy Formulation Conclusions Statistical Annex References TABLES 1. Ukraine’s Trade Performance: Comparative Perspective 2. Structural Characteristics of Ukrainian and Polish Trade with the EU 3. Import-Weighted Average Tariff Rates in Ukraine 1.1. Merchandise Trade Balance, Exports and Imports of Ukraine in 1990–2003 1.2. Trade Performance of Ukraine: Comparative Perspective 1.3. CIS Actual versus Theoretical Trade Openness 1.4. Comparative Dynamics of Machinery and Equipment Exports to Russia from Ukraine and Belarus. 1.5. Export Concentration Indicators: Ukraine and Poland 1.6. Export Specialization Indices, 1-digit SITC Level 1.7. Export Specialization by Export Market 1.8. Grubel-Lloyd Index: Ukraine and Poland 1.9. Mirror Statistics 2.1. Import-Weighted Average Tariff Rates in Ukraine 2.2. Import-Weighted Average MFN Tariffs on Non-Agricultural Goods in Ukraine for Major Commodity Groups iv Contents 106 ospects 108 110 113 114 118 129 133 143 145 146 151 158 161 163 229 2 6 7 15 21 23 24 27 30 37 38 xix xxi xxiii 2.3. Import-Weighted Average MFN Tariff Equivalents on Agricultural Goods in WTO MTN 2.4. Tariff Escalation in the Non-Agricultural MFN Tariff Schedule 2.5. Tariff Escalation in the Agricultural MFN Tariff Schedule 2.6. Basic Characteristics of Tariff Schedules in Ukraine and Selected Countries 2.7. Ukraine’s Non-Tariff Measure Intensity Indices, 1993–2004 2.8. Frequency and Import Coverage Indices for Core Non-tariff Barriers, 1993–2004 2.9. Frequency Indices of Core NTBs in Developing Countries 2.10. Ukraine’s Market Share in Goods Subject to Export Taxes, 2001–02 2.11. Main Privileges Granted to Investors in the Territory of Special (Free) Economic Zones, 2004 2.12. Taxation of Trade in Ukraine, 1998–2002 2.13. Major Document Requirements for International Trade Operations in Ukraine 2.14. Selected Indicators for the Quality of the Business Environment, 2004 2A.1. Budget Revenues from Foreign Economic Activities in Ukraine 3.1. Structural Characteristics of Ukrainian and Polish Trade with the EU 3.2. Ukraine GSP Scheme, 2001 3.3. Weighted Average Tariffs on Ukraine’s Exports to the EU 3.4. Key Sectors in Ukraine’s Exports to the EU and Tariff Preferences. 3.5. Export to the EU of HS 10019099 Spelt in 1992–2002 (h thousands) 3.6. Unit Value and Tariffs on HS 10019099 Spelt Exports to the EU 3.7. Application of EU Tariffs to Products that Ukraine Exported to Russia in 2002 (percent) 3.8. Ukrainian Products Subject to Anti-Dumping Measures in the EU 4.1. Contribution of the Steel Sector to Ukraine’s Economic Performance in 2000–03 4.2. Structure of 1999–2003 Ukrainian Rolled-Stock Exports 4.3. Output and Investments in the Cast Iron & Steel Sector, 1985–2003 4.4. Comparative Cost Structure in Ferrous Metallurgies of Ukraine and Germany in 2001 4.5. Financial Indicators of Ukraine’s Ferrous Metallurgy 4.6. Ukraine’s Projected Output, Domestic Consumption, Exports and Imports of Rolled Steel in 2004–10 4.7. Medium-Term Projections for Output and Employment in Ukraine’s Ferrous Metallurgy Sector 5.1. Bilateral Market Access Protocols Signed Contents v 39 40 41 42 45 46 47 50 52 54 55 61 63 67 72 74 76 78 79 83 85 92 97 98 107 108 109 110 117 5.2. Planned Reductions in Agriculture Tariffs 5.3. Agriculture Commitments by New WTO Members, 1995–2003 5.4. Intellectual Property Projects 5.5. Technical Standards Projects 6.1. Bilateral Free Trade Arrangements Signed and Ratified by Ukraine A1. Foreign Trade Statistics’ Sources: A Comparison A2. Balance of Payments in 1997–2002 A3. Merchandise Trade Balance, Exports and Imports of Ukraine in 1990–1994 A4. Geographic Structure of Merchandise Exports in 1996–2003 A5. Geographic Structure of Merchandise Imports in 1996–2003 A6. Geographic Structure of Net Merchandise Exports in 1996–2003 A7. Commodity Structure of Merchandise Exports in 1996–2003 A8. Growth Rates of Merchandise Exports by Commodity Groups in 1997–2003 A9. Contributions to Exports Growth by Commodity Groups in 1997–2003 (Percent Change) A10. Contributions to Exports Growth by Commodity Groups in 1997–2003 (Percent Share of Change) A11. Commodity Structure of Merchandise Imports in 1996–2003 A12. Growth Rates of Merchandise Imports by Commodity Groups in 1997–2003 A13. Contributions to Imports Growth by Commodity Groups in 1997–2003 (Percent Change) A14. Contributions to Imports Growth by Commodity Groups in 1997–2003 (Share of Percent Change) A15. Commodity Structure of Net Merchandise Exports in 1996–2003 A16. Merchandise Exports Analytical Representation, 1996–2002 A17. Commodity Structure of Merchandise Exports in 1996–2002 A18. Growth Rates of Merchandise Exports by Commodity Groups in 1997–2002 A19. Contributions to Exports Growth by Commodity Groups in 1997–2002 (Percent Change) A20. Contributions to Exports Growth by Commodity Groups in 1997–2002 (Share of Percent Change) A21. Merchandise Imports Analytical Representation, 1996–2002 A22. Commodity Structure of Merchandise Imports in 1996–2002 A23. Growth Rates of Merchandise Imports by Commodity Groups in 1997–2002 vi Contents 11 127 136 140 152 164 165 166 167 170 172 174 175 176 177 178 179 180 181 182 182 183 184 185 185 186 187 188 7 A24. Contributions to Imports Growth by Commodity Groups in 1997–2002 (Percent Change) A25. Contributions to Imports Growth by Commodity Groups in 1997–2002 (Share of Percent Change) A26. Commodity Structure of Merchandise Exports in 1996–2002 A27. Growth Rates of Merchandise Exports by Commodity Groups in 1997–2002 A28. Contributions to Exports Growth by Commodity Groups in 1997–2002 (Percent Change) A29. Contributions to Exports Growth by Commodity Groups in 1997–2002 (Share of Percent Change) A30. Commodity Structure of Merchandise Imports in 1996–2002 A31. Growth Rates of Merchandise Imports by Commodity Groups in 1997–2002 A32. Contributions to Imports Growth by Commodity Groups in 1997–2002 (Percent Change) A33. Contributions to Imports Growth by Commodity Groups in 1997–2002 (Share of Percent Change) A34. Export Specialization Indices in 1996–2002, 2-digit SITC level A35. Export Specialization Indices in 1996–2002, Exports to CIS, 2-digit SITC level A36. Export Specialization Indices in 1996–2002, Exports to the EU, 2-digit SITC level A37. Export Specialization Indices in 1996–2002, 3-digit SITC level A38. Export Specialization Indices in 1996–2002, Exports to CIS, 3-digit SITC level A39. Export Specialization Indices in 1996–2002, Exports to the EU, 3-digit SITC level A40. Contribution of commodity groups to the Grubel-Lloyd index in 1996–2002 A41. Contribution of Commodity Groups to the Grubel-Lloyd Index for Trade with the CIS in 1996–2002 A42. Contribution of Commodity Groups to the Grubel-Lloyd Index for Trade with the ROW in 1996–2002 A43. Complementarity of Ukraine’s Export Structure with its Trading Partners’ Import Structures in 1996–2002 FIGURES 1. Main Trends in Merchandise Trade 2. Import Procedures Perceived as Problematic 3. The Logic of the Proposed Trade Integration Strategy Contents vii 189 189 190 191 192 192 193 194 195 195 196 199 202 205 211 217 223 225 226 228 xviii xxii xxx 1.1. The Value of Exported and Imported Goods and Balance of Trade in Goods 1.2. The Value of Exported and Imported Services and Balance of Trade in Services 1.3. Dynamics of Terms-of-Trade (TOT) Index, 1996–2003 1.4. Commodity Structure of Ukraine’s Exports in 2003 1.5. Commodity Structure of Ukraine’s Imports in 2003 1.6. Geographic Structure of Exports 1.7. Indices of Physical Volumes and Prices of Exports to the CIS and ROW 1.8. Growth Rates for Russia’s Imports from Selected Countries in 1996–99 1.9. Growth Rates for Russia’s Imports from Selected Countries in 1999–2003 1.10. The Seasonally-adjusted Indices of GDP in the CIS and ROW 1.11. Real Effective Exchange Rate 1.12. Reorientation of Exports in Ukraine and Poland 1.13. Geographic Structure of Imports 1.14. Ukraine’s Export Concentration 1.15. Concordances of the ESIs in Ukraine’s Ttrade with the CIS and the EU 1.16. Indices of Trade Complementarity of Ukraine 1.17. Discrepancy between Reported Trade Flows from NBU and SSC 1.18. Annual VAT Refund Claims as a Share of Merchandise Exports, 1999–2003 2.1. Import Procedures Perceived as Problematic, IFC Study 2.2. Import Procedures Perceived as Problematic, World Bank Study 2.3. Assessment of Different Components of the Export Reg 2.4. Evaluation of Domestic and Foreign Barriers for Export 3.1. Ukraine’s Exports to the EU and Russia 3.2. Evolution of Exports to the EU 3.3. Ukraine’s Exports to EU 3.4a. EU Quota on Imports of Flat-Rolled Steel Products from Ukraine 1997–2004 3.4b. EU Quota on Imports of Long Steel Products from Ukraine 1997–2004 3.5a. Quota Utilization Rates for Flat-Rolled Steel Products, 1997–2003 3.5b. Quota Utilization Rates for Long Steel Products, 1997–2003 4.1. Exports Volumes and Average Export Price for the Ferrous Metal Sector in 1999–2003 viii Contents 4 5 1 1 12 13 14 16 16 18 18 19 20 22 25 26 31 31 57 57 58 60 66 67 68 79 80 81 81 93 ime 1 1 4.2. Export Structure of Ukrainian Ferrous Metallurgy in 1994 by Type of Product 4.3. Export Structure of Ukrainian Ferrous Metallurgy in 2003 by Type of Product 4.4. Geographic Structure of Ferrous Metal Exports in 2003 4.5. Evolution of Scrap Metal Prices, 1999–2003 BOXES 1.1. Determinants of Ukraine’s Merchandise Trade and Trade-Growth Links 1.2. Comparative Dynamics of Exports to Russia from Ukraine and Belarus 1.3. Methodology of the Ukrainian Foreign Trade Statistics 2.1. Primary Non-Tariff Measures Applied in Ukraine from 1993–2004 2.2. 2004 Survey of Ukrainian Exporters 3.1. Rules of Origin 4.1. EU Quotas for Ukraine’s Steel Imports. 4.2. Kryvorizhstal Privatization: Insiders Won, Who Lost? 5.1. Technical Regulations versus Standards. 5.2. Some Pending Policy Issues Related to WTO Accession 6.1. EU Common Strategy toward Ukraine 6.2. Acknowledgement and Aspirations: EU and Ukraine Positions on Strategic Perspectives of Mutual Cooperation 6.3. Russo-Ukrainian Reciprocal Trade Protection Measures 6.4. Adoption of the EU Technical Regulations Contents ix 95 95 96 102 10 14 29 44 58 73 94 101 123 130 148 149 154 159 [...]... Mutual recognition agreement National Accreditation Agency of Ukraine National Bank of Ukraine Non-tariff barrier Organization for Economic Cooperation and Development Outward Processing Trade Partnership and Cooperation Agreement Rest of the world Revealed Comparative Advantage index State Customs Service Single Economic Space Standard International Trade Classification Sanitary and phyto-sanitary measures... Anna Musakova, Irina Partola, and Virginia Sapinoso provided support during the entire preparation process for the study The team is also grateful for the comments and suggestions received from the staff of the Ukrainian Agency for Humanitarian Technologies (AHT), Ukrainian Center for International Integration, as well as from Farhat Farhat, Timo Hammaren, Irina Kobuta, Evgenia Korniyanko, Roger Lawrence,... measures introduced are quite insignificant and are not worth the damage of souring trade relations Such micro trade wars bring about considerable political damage and inflate the ambitions of sectoral lobbyists The fundamental conclusion of this study is that the global trade integration agenda should become an anchor for Ukraine’s medium trade strategy That is, over the short to mediumterm, global trade. .. the main obstacles to furthering Ukraine’s global trade integration are domestic and relate to improving the business environment These include ensuring low and uniform tariffs, modernizing customs administration, improving standardization, and reducing administrative barriers for new entry The potential for expanding trade is large The best strategy for Ukraine for fostering its global trade integration. .. be a key issue in improving access to the EU and other markets, it will also play a key role in improving quality standards for Ukrainian consumers and in providing for a more efficient and effective conformity assessment system Standard compliance is an important element of export diversification strategy Standards serve as a catalyst for technical and administrative change, enabling industries to reach... State Statistics Committee of Ukraine Technical Assistance for the Commonwealth of Independent States Integrated Tariff of the European Communities Technical barriers to trade Terms of trade Trade-Related Aspects of Intellectual Property Rights Agreement, which is part of the WTO Tariff rate quota Ukrainian Hryvnia Ukrainian-European Policy and Legal Advice Centre United Nations Conference on Trade and... communication campaign to improve Ukraine’s investment image as an attractive location for business and investment I Strengthening the institutional framework for trade policy elaboration and implementation aimed at improvements in intra-Governmental coordination and more efficient control of sectoral and group interests Ukraine needs to formulate a realistic trade policy strategy toward the EU, which anticipates... through an accelerated completion of WTO accession CHAPTER 1 Trade Performance Since the Early 1990s—Looking For its New Role in Global Trade Main Trends in Trade Performance This Chapter describes Ukraine’s merchandise foreign trade developments, focusing on the recent (since 1996) changes in the geographic and commodity structure of foreign trade, and looks into various indicators of trade performance,... of Ukraine’s partners, particularly with Eurostat, might improve the accuracy of trade data, support government policies to improve enforcement of the trade regime, and eventually contribute to a better fiscal position for Ukraine Analysis of the trade mirror statistics also suggests that since 2001 foreign trade has facilitated an unregistered net capital inflow In 2002, such a transfer could amount... and diversification are crucial to Ukraine’s growth While recent trade performance has been successful, the current trade patterns have been driven by temporary market developments and are unlikely to be sustainable in the longer term Yet, for export diversification, significant additional domestic reforms are needed in order to facilitate new entry and integration in global value chains, and to attract . BANK Ukraine’s Trade Policy A Strategy for Integration into Global Trade A WORLD BANK COUNTRY STUDY A WORLD BANK COUNTRY STUDY Ukraine’s Trade Policy A Strategy for Integration into Global Trade THE. the Ukrainian Agency for Humanitarian Technologies (AHT), Ukrainian Center for Interna- tional Integration, as well as from Farhat Farhat, Timo Hammaren, Irina Kobuta, Evgenia Korniyanko, Roger Lawrence,. Follow a Pragmatic Approach Toward Attaining Realistic Goals Trade Integration with the CIS: Expand Cooperation Based on WTO Principles Strengthening Institutional Framework for Trade Policy Formulation Conclusions Statistical