Libmonster ID: UA-12179

Ukraine's relations with the USA are known to be a highly important element of its external policy both politically and economically. It was in no way accidental that Ukraine declared their strategic character. In the present-day world with the Unites States actually representing the sole center of attraction, the majority of nations of the world view the relations with this country more or less as such.

The USA is the fifth biggest our importer and the fourth biggest exporter to this country. At the same time, according to the US data, Ukraine is only the sixty-eighth among the USA's 200 trade partners. Hence, the extent of influence of mutual exchange between the countries on the economy of each other is different, with Ukraine being incomparably more interested in improving economic relations with the USA.

The study of dynamics of the recent trade relations between Ukraine and the USA shows a certain trend of growing Ukrainian export with concurrent stabilization or even reduction of import volumes during some of the years. The Ukrainian goods export to the USA peaked in 2000 and the fact stipulated growth of positive balance of mutual trade in favor of Ukraine (see fig. 1).

The analysis of the Ukrainian export to the USA and import from that country effected during the recent years demonstrated definite instability in the change of indicated activities (see Table 1).

From 1996 to 2001 the volume of the foreign trade turnover of Ukraine with the USA had risen by almost 57% with the growth rate for export outpacing the one for import (correspondingly, 162.5% and 152.9%) (fig. 1). Ukraine benefited from the six-year positive trade balance with the USA. In 2001, however, the yearly 11% decline in Ukrainian export to the US market was observed again. Hence, the conclusion from the analysis could be made: Ukraine has no stable outlets for its goods in the USA, with its export depending on the current market conditions and, especially, on the policy of the U. S. Administration concerning trade with this country.

As to the import, its changes during the period analyzed also showed cyclic pattern with the tendency for growth more clearly defined. Thus, if compared to the data for a year previous, the annual volume of import

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diminished only in 1998 and 1999, and, on the contrary, grew during all the other years.

Table 1.Dynamics of export/import volumes from 1996 to 2001 (in m USD)

 

External trade

Export

Import

Balance

1996

890.3

350.3

540.5

-190.2

1997

914.5

297.7

616.8

-319.1

1997 to 1996 %

102.7

85.0

114.1

 

1998

1046.1

499.4

546.7

-47.3

1998 to 1997,7 %

114.4

167.8

88.6

 

1999

744.2

435.8

308.4

127.4

1999 to 1998, %

71.1

87.3

56.4

 

2000

1179.9

723.7

456.2

267.5

2000 to 1999, %

158.5

166.1

147.9

 

2001

1395.7

569.4

826.3

-256.9

2001 to 1996, %

156.8

162.5

152.9

 

During 1996 to 1998 the trade balance between Ukraine and the USA was negative, but showing tendency for growth of its positive balance in 1999 to 2000. In 2001, however, the negative balance value almost reached its positive value of 2000. In view of a number of experts, this exactly favorable trend for this country in its trade with the USA in 1999 to 2000 forced Washington to resort to a series of repressive measures that finally made for considerable cut of Ukrainian goods export to the American market. This tendency towards reduction of the Ukrainian export to the USA was still lasting in 2002. During the first half of the year the volume of export reduced in comparison with the similar period of the year before almost by 10%. Import volume also declined by 17.4%. Hence, the issue at question is some kind of stagnation in trade relations of Ukraine with the USA.

Table 2. Structure of the Ukrainian export to the USA, %

Items

2000

2001

5 monys of 2002

Raw materials and semi-products

47.1

37.3

57.1

Finished goods, machinery inclusive

41.0

8.2

49.7

6.9

31.0

-

Misc.

11.9

13.0

11.9

The analysis of the structure of trade exchange shows certain changes that occurred during the recent years, and, especially, in 2001. Raw materials and semi- manufactured products are known to top the list of Ukrainian export to the USA, with the share of finished goods being negligible. However, already in 2000, the share of raw and semi-finished products dropped to 47.1%, while the portion of finished goods grew to 41%, or by 1.6 times. In a year, considerable softening of the export structure occurred again.

The trend cited concerning change of the Ukrainian export structure one could consider being positive if there were no overall export volume reduction. Ores and ferrous metal products make up the bulk of the Ukrainian exports to the USA. Its structure improved somewhat due to the substantial (almost by 70%) increase in the volume of outer coating, as well as shirts, traded. In 2001, Ukraine exported to the USA relatively large volumes of oil and petroleum products (over $77m), this resulting in the portion of these goods making up almost 14% of the total volume of exports. Oil and petroleum products are known not to be a representative type of products of the Ukrainian export; since most of its needs in these products Ukraine covers at the account of importing them, their export to the USA will hardly be attractive.

As already noted, the considerable reduction of export from Ukraine to the USA of ferrous and rolled metal was caused by the series of preventive measures applied by the U. S. Administration; these primarily

стр. 23


concerned antidumping issues. In all, twelve antidumping suits were filed against Ukrainian producers during 1992 to 2001, with their number especially waxing lately.

Non-recognition by the USA of Ukraine as a market economy nation to a considerable degree results in the fact that antidumping inquiries launched against Ukrainian enterprises are ending with ascertaining the occurrence of dumping. The U. S. experts define the main character of the Ukrainian metallurgic industry as follows:

By considering the steel industry one of the drives of development of the whole economy and the principle source of hard currency inflow, the government of Ukraine keeps on applying measures to maintain the production volume and modernization (which products are intended for export due to the unstable internal market);

The government allows the use of trade practice that 'leads to market disruption and prevents closure of noncompetitive enterprises under its control". In particular, it gives its consent for the use of barter, and measures are applied to prevent bankruptcy;

The government is backing metallurgy companies relieving taxes, writing off debts, and low-crediting the industry;

Steel-making remains inefficient, requiring the use of considerable manpower (e. g., 480,000 were employed at metallurgical enterprises of Ukraine in 1997, which is twice as many as in the USA). Labor efficiency is low with the majority of plants oriented at the manufacturing of low-grade products.

Analysing the Ukraine's market, the U. S. Department of Commerce relies on the evidence of independent experts from the EBRD, World Bank, and IMF. These organizations special emphasis place on issues of protecting direct foreign investments and pricing mechanism in the energy sphere, as well as elimination of privileges for steel making plants in settlements for electric energy supply.

The antidumping policy of the USA towards Ukraine is yielding correspondent results. Thus, since 1992 the relative U. S. authorities initiated antidumping inquiries concerning import of the Ukrainian steel products in 38 commodity items, which resulted in substantial antidumping duty (in the range from 60 to 237%) applied. This virtually closed the U. S. market for quite a few Ukrainian goods.

Conditions for the Ukrainian metal production export to the American Market may worsen in the short-term perspective. It is linked, primarily, to the so-called "multilateral initiative in the sphere of steel production and trade" by the U. S. President George Bush, which was adopted in 2001.

The decision was in pursuit of actions intended to protect American steel industry that the latter demanded to be taken for some years. In this way, in response to the 1998 crisis, President Bill Clinton's Administration initiated close to 100 antidumping and special proceedings concerning import from different countries, including Ukraine- reinforcement steel and hot-rolled stock. It had also already prepared a general report on the state of the steel production in the world, introduced monitoring on permanent basis of statistics information concerning import deliveries of steel. At the federal level, an interdepartmental rapid response group was created to consult American enterprises of the industry on issues of how to apply protective provisions of the U. S. legislation. Despite the pressure, President Clinton never started investigations in accord with Section 201 of the Commercial Law, which, due to various reasons, President George Bush took the liberty of at present.

Apart from reasons stated above, one of the motives of adopting correspondent declaration is seen the desire of George Bush to obtain from the Congress the powers to promote trade that President Bill Clinton was deprived of in his day. Notwithstanding the fact that the starting lines of the declaration deal with the dedication of the present administration to free trade as a mechanism of growth, observers emphasize its obviously

стр. 24


protective character. Actually, it is a unilateral ultimatum of the USA to foreign steel producer - and exporter-countries.

In view of foreign producers and exporters, the issue of restructuring of the U. S. steel industry, this acute emergency being rooted in the present problems of it, failed to have been given an adequate attention in the declaration. In particular, the head of the EU Commission on Trade P. Lamy called George Bush's decision 'bad news" and warned that "expenses for reconstruction of the U. S. steel industry should not be shifted on the rest of the world." China expressed anxiety over possible use by the USA of "any protective practice or measures". Representative of the NIPPON STEEL of Japan warned that such actions by the USA may cause the wave of protection measures all over the world with primarily American consumer of steel coming off a loser, since the price for it is very likely to rise in the upshot.

Together with Taiwan, India and China, Ukraine was reckoned in the company of countries that so far were "new participants of the steel market", though its considerable potential was noted as second to Russia only among the CIS countries exporting steel to the American market. For this reason, the measures outlined in the President's statement mentioned would undoubtedly concern Ukraine too.

Ukraine's economic development is impossible without the attraction of foreign investments (FI) that should prevail considerably in the structure of the debt capital. The analysis of figures related to the FI composition proves their insignificant volume if compared to the national economy needs.

Analysts note that changes occurred in the list of major investor-countries in 2000. If before 2000 Russian business was quite inactive on this country's market without sizable investment projects realized, then during the year stated Russian companies, which claim the role of transnational corporations (TNC) within the frames of the FSU, gained strength and started their expansion in Ukraine. Consequently, the portion of Western countries in the total volume of investments continues dropping. Within eight years the U. S. share in foreign investment reduced from 20 to 17%, with the same for Germany from 21 to 6.1%. So far, the USA are the first in the official rating, experts abroad believe that is still Russia that is the principal investor albeit officially rated as fourth. If one adds approximately half of funds that had come from Cyprus, Virgin Islands, and Liechtenstein (which partially are Russian money too), the volume of investments of our neighbor would turn out to be larger than the ones from the USA.

Investments of the American as well as of other Western companies are, in the main, of the so-called "pilot" or "conjuncture" type. It is no trouble for a transnational corporation to sink one's million or two dollars in a fresh market to test it. Western companies avoid hurrying and are just sizing up in doubt as to the final success. Fewer doubts have those of them that had already encountered unfavorable set of circumstances at their home market. In this way, they moved east when anti-smoking campaign started in Europe and the USA. They took under their control almost every tobacco factory in Ukraine.

American investors prefer such industries as food, trade market, agricultural sector and the like, which require no substantial starting capital, characterized by high ratio of capital turnover at low risk, and are intended for the existing quite significant internal demand. For instance, at the cost of unveiling of a single McDonald's restaurant close to $1m, the company opened 44 such fast food eateries since starting operations in Ukraine in 1997, thus investing $70m into the Ukrainian economy. McDonald's Corporation is planning to invest another $7 m in 2002, and before 2004 to expand the chain to 857 restaurants. Another example is the American company Cargill, Inc., which investment into the Ukrainian economy is valued at $85 million. Its first plant to products hybrid sunflower seeds was built in 1995, and

стр. 25


another one to make combined fertilizer in two year's time. In 2000, a plant to extract oil was put into operation with a capacity of processing 300 thousand tons of sunflower seeds a year, which makes almost 10 percent of its total resources in Ukraine. The Sun Interbrew Company invested $43.1 million to buy out and re-equip the Ukrainian OJSC "Rohan' Brewery" in Kharkiv, JSC "Chernihiv Brewery "Desna"", OJSC "Mykolaiv Brewery "Yantar", and JSC ""Krym" Beer and Soft- Drink Complex" of Simferopol, allowing it to conquer one third of the country's domestic beer market.

However, there were cases of American investors plowing into branches of heavy industry and power engineering. The AES Washington Holdings B. V. bought 75%+1 holdings of stock of the state electric companies "Rivneoblenergo" and "Kyivoblenergo". The American "Detroit Cold Rolling Company" purchased a 25% share parcel of the OJSC "Central Mining Processing Complex". The purchase contract stipulates implementation of the program to renovate production and advance technologies to be introduced.

Intensification of foreign investment, which also includes the increase in the U. S. capital, depends primarily on the investment climate in the country. This calls for further deregulation of the economy, relief of the taxation pressure and improvement of the system to calculate and pay taxes, as well as creation of stable and transparent legislation. Certain improvements are, indeed, taking place in Ukraine. During 1999 to 2000, in Ukraine a new Tax Code was adopted, the system of accounting and reporting reformed, President's Decree "On Introduction of Licensing System in the Sphere of Business Activity" signed, and a new commodity classification introduced.

The same is with the law of Ukraine "On Sharing Products" to regulate relations that emerge during making, execution and terminating of the contracts on distribution of the product. In accord to these, Ukraine authorized the investor to conduct search, prospecting, and extracting of mineral product within allocated bowels of the earth. In return, an investor commits himself to performing the job at his own risk and account subject to compensation of the expenses and remuneration as a share of final product. The law creates equal starting terms for all potential investors. Hence, there is hope that conditions for foreign investments in Ukraine are being improved.

However, the analysis of the present trade and economic relations of Ukraine and the USA testifies to the growing negative trends becoming especially strong lately. In particular, this includes shrinkage of the volume of Ukrainian export to the USA, reduction of American investments to the Ukrainian economy, and unpractical structure of the Ukrainian export and import. In our view, the basic reasons for stagnation of economic relation between the countries is low competitiveness of the goods of Ukrainian making on the U. S. markets. Their overwhelming majority is able to compete successfully with the American products only under conditions of preferential treatment and low prices. The state of trade and economic relations between the countries, though, are very much affected by so-called normative and judicial factors, namely, a string of problems related to the regime of trade, antidumping procedures, etc.

Despite strategic partnership with Ukraine being declared, the United States failed so far to grant this country standard treatment in trade (STT) on constant and unconditional basis the way it is provided for in trade relations with many states. It its turn, Ukraine extends the STT to the Unites Stated in full without any conditions. The USA enjoys preferential treatment in its trade with Ukraine since 1992, when the agreement on bilateral trade was signed.

The issue of standard treatment in trade stays on the table of bilateral negotiations as far as 1992. For Ukraine the matter is not exclusively of commercial, but also of great political, being one of the components of recognizing this country a democratic state, as well

стр. 26


as investment importance. Protracting with granting the status gives a wrong signal the business circles of the USA and the world about purportedly temporary character of our economic and political reform and serves as evidence of the Administration's doubts as to their irreversibility, depth, caliber, rate, and the like, bringing correspondent adverse results.

Ukraine was eligible for tariff concessions under the U. S. Generalized System of Preferences (GSP) from 1994. The Program extended only to the developing countries, which category Ukraine was classified at the time, and regarding a list of certain products defined by the U. S. legislation. The program periodically undergoes changes (once in two or 3 years) and is of reverse character after renewal. As is known, there is a whole series of items on the line of goods, on which concessions are granted under the GSP (for instance, steel products) and extended to the most backward of the developing countries, but missing Ukraine.

In 2000, the issue vexed concerning appropriate protection of intellectual property rights in Ukraine and related problem of eligibility for the Generalized System of Preferences. At the end of 1999, the International Alliance of Intellectual Property submitted a petition to the Office of United States Trade Representative accusing Ukraine of violating intellectual property rights of the American authors and manufacturers. It also demanded to deprive the country of concessions under the Generalized System of preferences in accord with the U. S. legislation. On instruction of the Office of the United States Trade Representative of January 23, 2002, trade sanctions were applied against Ukrainian export worth $75 million. Starting from this point, 100 percent ad valorem duty was imposed on a number of Ukrainian goods making their export to the USA impossible.

The total value of import to the United States of Ukrainian goods that fall under sanctions was $50.7035 million in January to November 2001(and not 75 million as indicated in the press release). The biggest items on the list in value terms were unprocessed aluminum alloys (over $20 million), titanium oxide based compounds (nearly $13 million), and some types of footwear ($6.6 million). Quite remarkable is the fact that the list contains no goods belonging to the group of ferrous metals. There are reasons to believe that the U. S. government considered that in any case import of these goods was subject to restrictions linked to the inquiries completed concerning imports of steel products of Ukraine's origin by the U. S. Commission on International Trade.

It should be noted that the American actions regarding Ukraine in many respects are obviously biased. In particular, the said concerns primarily inconsistency of piracy level assessment with the actual extent of it. Being based on stereotyped approach to the problem taken by experts of the WIPO and MFFP that were guided by obsolete, squint-eyed and not necessarily properly weighted information. Thus, in accord with statistics provided by the customs services of the CIS countries, as well as of Europe and the USA, the volumes of illegally exported products have diminished greatly.

As a result of sanctions imposed thousands of people in Ukraine that manufactured goods for export to the USA may lose their work. Apart from that, ties may be broken between Ukrainian and American partners that were being established for quite long time as, for example, contacts of suppliers to the USA of goods produced utilizing titanium dioxide. To play safe, American entrepreneurs are already reorienting themselves at other sources of the products they need (that is, for countries not affected by sanctions or restrictions). Hence, these penalties, in addition to tarnishing it international image, are inflicting tangible material damage to Ukraine.

Translated by Viktor Mylovzorov


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By Tetiana BURKAT. The Ukrainian Academy of Foreign Trade, UNDER ADVERSE CONDITIONS // Kiev: Library of Ukraine (ELIBRARY.COM.UA). Updated: 03.12.2021. URL: https://elibrary.com.ua/m/articles/view/UNDER-ADVERSE-CONDITIONS (date of access: 18.01.2022).

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