Which way to choose - European Prosperity or Trade Stability

“Which way to choose - European Prosperity
or Trade Stability”

Introduction
There is an actual question: what choice to make Ukraine? Events that are
happening in the country and the choice of Ukraine between Europe and Russia are
discussing worldwide. Researches of leading sociological companies shows that
people wishing to integrate into the European Union, more than those who want to
join to the Customs Union and become closer to Russia. So 46,9% of Ukrainians
believe that the country should sign an association agreement with the EU. At the
same time, only 28,9% of the citizens of Ukraine's integration options selected
entry into the Customs Union.
What choice will make Ukraine? Today, this question can be heard as never
often. Choice between the Customs Union and the European Union makes people
in the country to weigh the pros and cons and finally decide. Build a future on their
own or in alliance with someone to see confidence in the future will help us to
Europe or the Customs Union?

Anastasiya Burma, Alexey Chepenko, Yuliya Karachun, Oksana Kryuchkova,
Irina Kurkina, Kate Myndra, Ianina Sotnik

Master`s Level Students, NTU “KhPI”, International Business Course,
Autumn-Winter 2013

General macroeconomic indicators
European integration – a key priority, which accumulates in a range of
domestic and foreign policy of Ukraine's efforts to align to the European Union
(EU) and create the necessary preconditions for accession to the European Union
in the future. But in addition to the European integration for Ukraine there is a
second option - the Customs Union. In order to determine which vector should take
Ukraine it is necessary to analyze the economic, social, technical indicators and
compare in what union Ukraine has more prospects for the development and
functioning of various industries.
Basic macroeconomic indicators are summarized in the table 1
Table 1– General macroeconomic indicators
Indicator (2012 year)

Ukraine

CU

EU

Population (mln)

44,6

169,8

503,8

GDP, bln $

180,2

2212,8

16190

GDP percapita, $

4 040,36

13 031,80

32 135,77

GDP growth, %

3

4,47

-0,2

GDP at PPP, bln $

335,4

2885,6

15630

Growth rate of industrial
production,%

7,6

3,1

0

Rateofinflation, %

0,6

26,77*

2,4

Unemployment, %

7,4

3,63

10,6

Exportvolume, bln $

69,8

665,9

2170,00

Volumeofimports, bln $

90,2

421

2397

Source:http://www.ereport.ru
*high average inflation rate in the customs union was caused by 70% inflation in
Belarus

Autumn-Winter 2013

The European Union has a greater population density and, consequently, a
higher GDP and purchasing power. At the same time, GDP growth has worsened
and unemployment is much higher than in the Customs Union.


Autumn-Winter 2013

Ukrainian export to EU
Question of export to EU and Custom Union is essential to be studied. It’s
very important to understand what we have now and what we will have after
accepting of one of the agreements. Firstly, we analyze the situation with export to
EU countries. The EU is among Ukraine's most important commercial partners
and accounts for about one third of its external trade. On the graph 1 we can see
which products exactly we export to EU countries and what share each product
type has. Also table 1 shows us export products in numbers.
Table 2 – Ukrainian export to EU
Product
thsd, $
Metallurgy
Carbon steel
1569831
metal
ferroalloys
cast iron
Chemistry and
petrochemistry
oil and petroleum products
ammonia
dyes
fertilizers
engineering
aircraft and space
technology
trains
electric power
electric power

1108841
443994
229942
203764
114120
108307
243909
305190
204367
135328

Product
Agriculture
corn
soybeans
wheat
rapeseed
Food industry

thsd, $
157089
3
471110
393351
670475

sunflower oil
juice
Raw materials
iron ores and
concentrates
granite and sandstone
coal

783122
80296

timber
clay

330418
88975

161342
5
557041
348537


Autumn-Winter 2013

Figure 1 –Ukrainian export to EU
More than half of Ukrainian exports to the EU constitute products of
metallurgical industry, agriculture, and raw materials: each of these industries
provides about 20% of total exports. In
addition, the important role is taken by the
Main export items to EU:
food industry (about 6%), chemical and
petroleum industry (about 4%) and
 corn
 iron ores and concentrates
engineering (approximately 2.5 %).
 carbon steel
Almost half of Ukrainian agricultural
 metal
export is corn: in 2012 Europe imported from
 sunflower oil
Ukraine more than 6 million tons of this
product. As to the food industry, the basis of

Autumn-Winter 2013

Ukrainian exports to the EU is sunflower oil: in 2012 Europeans have bought it for
$ 780 million. The main raw materials, exported to EU, are iron ore and iron ore
concentrate (17 million tons valued at $ 1.6 billion). In addition, Ukraine supplies
coal, wood, clay, granite and sandstone, etc.
The supply of Ukrainian goods to Europe for 9 months of 2013 decreased by
only 2.4 % - to 12.29 billion dollars, and European import increased by 3.5 % - to
20.55 billion dollars. As a result, the share of exports to Europe increased from
22.4% to 26.6 %, and imports - from 31.9 % to 36.7 %.
Final conclusions about the impact of signing free trade agreements with the
EU according to export:
1. Ukraine is unlikely to gain from the elimination of import duties. For
agricultural and food products Europe has established too low quota for duty-free
imports, and as raw materials and metallurgy, duties are absent.
2. Cancelation of export duties on raw materials will facilitate the
export of these items from Ukraine, that will cause problems, particularly for
metallurgical and food industries.
3. Revenues of the state budget of Ukraine will seriously diminish by the
abolition of import and export duties.
Ukrainian export to Russia
Ukrainian exports to Russia in 2012 was 23.0 billion U.S. dollars.
Imports from Russia amounted to 28.4 billion U.S. dollars. Negative balance
for Ukraine is $ 5.4 billion.
Russia remains the main trading partner of Ukraine - 27.9 % of the whole
Ukrainian export of goods and services belongs to Russia. Main group of
products that are exported to Russia we can see in the table 3.


Autumn-Winter 2013

Table 3 – Ukrainian export to Russia
Groups of goods

Export
% to 2011

mln. U.S. $

Groceries and agricultural

98,9

2002,4

Mineral products

41,8

1332,3

Chemical products

111,4

1902,1

Leather and fur

90,1

4,6

Timber and paper products

107,6

895,3

Textiles, textile products and footwear

107,7

190,2

Stone, glass, ceramics products

110,0

331,2

Metals

92,13

3760,6

Machinery, equipment, vehicles

95,7

6909,6

Other products

109,0

291,3


Autumn-Winter 2013

Figure 2 – Ukrainian export to Russia


Autumn-Winter 2013

Using the figure 2 we can see the shares of each product in the whole export
to Russia. Products of Ukrainian engineering make the biggest part of export
profit, the second place goes to the metal products. Also the huge part of export is
formed by agriculture, chemistry and
mineral production.
Main export items to Russia:
According to the State
Statistics
Service of Ukraine
 machinery, equipment,
decreasing of Ukrainian export to
vehicles
Russia began in the 2nd quarter of
 metals
2012 and lasted for half of a year.
 groceries and agricultural
The total decrease constituted 4.2
billion dollars. In July-September
products
2013 year export declined by 576
 chemical products
million, or 13.1%. The main reason is
 mineral products
considered to be Ukrainian attempts
to sign association agreement with
EU. Export to other countries of the Customs Union also declined during this
period: in Kazakhstan - it fell by 8.9%, to 1.73 billion, Belarus - 8.3%, to 1.51
billion dollars.
Final conclusions about the impact of signing trade agreements with the CU
according to export:
1.
Keeping the main export market. Russia historically remains the
main Ukrainian trade partner and signing agreement with EU could possibly
lower activity between our countries.
2.
Continuing rough competition in automobile industry. Russian
protection policy in this field regards to introduction of utilization duties, which
increased the price of Ukrainian trucks, while native (Russian) producers got a
postponement in the duty payment.
3.
Lowering of international image. Continuing one-side cooperation
(with post-Soviet countries, which forms the CU, and limiting trade with other
countries) could be considered as the growing dependence of Ukraine from
Russia and thus lower the international image of the country.

Autumn-Winter 2013

Harmonized standards and tariffs
Not less important factors in the decision to join the one union or another
remain tariffs and harmonized standards, with which all Ukrainian goods and
services will have to comply.
At the present time general number of commodity positions that are
subject to tariff for export to Russia is equal to 10691. Moreover, Russia will
take countermeasures to protect its market from the supply of European goods
from the Ukrainian territory after signing by Ukraine agreement on free trade zone
with the European Union and will introduce new import tariffs. This was stated by
Advisor to the President of the Russian Federation Sergei Glazyev. It is assumed,
that corresponding measures of Russian government will be implemented as soon
as all the tariffs between Ukraine and the EU are eliminated.
In additionthere is a greatrisk toUkrainian companies thatthey will have
toworkin the Russian market after FTA agreement signing between Ukraine and
the EU. Primarily this peril is connected with modern equipmentabsence on a huge
number of domestic enterprises that means impossibility European technical
regulations realization. As a result – too many Ukrainian goods may
proveuncompetitivein the European market.
AsMFN has reported Presidential Aide Sergei Glazyev predicts default in
Ukraine in 2-3 months.
Thus, we can see, signing an agreement with the European Union Ukraine
automatically loses the Russian market, which has always been and still remains
one of the largest sales markets for products of most Ukrainian companies. And
even if the ability to export products to Russia will remain, it will become more
expensive due to new tariffs that again will reduce the competitiveness of our
enterprises and their commodities.
From the other hand in case of entering to the EU 5710 of Ukrainian
commodity positions will be exempted from tariffs for export to Eurozone
(according to an agreement terms). Also there is an estimate that 63 commodity
positions that are exported from Ukraine will be able significantly increase their
volumes in nearest 3 years. Although of course no one does not negate the fact that

Autumn-Winter 2013

Ukrainian producers will have to work hard to make their products comply with all
required harmonized quality standards.
Today the fund of national standards includes 27 thousand documents,
of which 7074 - national standards harmonized with international and EU,
representing 15% of the total number of international and European standards.
Also 1340 national standards among all accepted and harmonized with
international and European are the standards, voluntary use of which is considered
as a proof of conformity with the technical regulations developed on the basis of
the EU directives . The development of such national standards has a greatest
priority for our country.
Besides, according to Minister of Economic Development and Trade of
Ukraine Igor Prassolov at different stages of development there are still 386
drafts of national standards harmonized with international and EU under the
EU Directive. It is important thing that funding the work on harmonization of
national standards implemented in the framework of the budget programs of public
authorities, and by business entities.
Thus there is no simple answer, both agreements give Ukraine stupendous
potential for development and growth opportunities. The question is how to use all
this options and where find enough investment to realize them in the most effective
way.


Autumn-Winter 2013

Branches that are highly depend on Russia
Observing consequences of entry in these unions, we should put our
attention at the “opportunity cost” of such interaction. The main threat at this area
is sanction that Russian Federation and other countries that participate in Custom
Union, can put on goods, exported from Ukraine.
There is a necessity to observe branches that are highly depend on Russian
market by huge volume of exported production. Amount of exported goods
exceeds $ 100 million, the share of export to Russia more than 50%.
Table 3 – Observing branches that are highly depend on Russian market [1]
Branch

Share of export
to Russia (%)

Sum exported to
Russia ($ mln)

Wagons for the transport of goods by waterway, not selfpropelled

61

1 782 154

Turbojet engines , gas turbines

64

603 296

Artificial corundum, alumina, aluminum hydroxide

94

562 648

Railway parts of locomotives or tramway

72

554 376

Angles, shapes and sections of carbon steel

63

521 590

Chocolate

65

412 966

Transformers, inductors and throttle

72

341 882

Cheeses

86

307 783

Pebbles, gravel, crushed

93

289 967

Other rail locomotives , locomotive tenders

98

274 731

Wallpaper and wall coverings , window transparencies

77

264 182

Motor cars and other motor vehicles for the transport of
passengers

98

208 772

Pumps for liquids , the mechanisms for maintaining liquids

76

192 236

Paper, cardboard, wool , thick coated

85

185 236


Autumn-Winter 2013

Continuation of table 3 - Observing branches that are highly depend on Russian
market
Branch

Share of export
to Russia (%)

Sum exported to
Russia ($ mln)

Flat-rolled products

56

170 736

Air or vacuum pumps , air compressors or fans , hoods or
cabinets with fan

53

164 309

Metal structures and parts

69

163 293

Motors and Generators

87

156 200

Radioactive chemical elements and isotopes

100

144 373

Other articles of plastics

84

135 925

Polymer chloride

91

135 008

Flat-rolled carbon steel

83

116 721

* we highlight industries which dependence is biggest
**based on the State Customs Service of Ukraine data

As we can see from this table there are lot of branches, which dependence on
Russian market exceeds 90%. It can easily predict huge losses that company will
get.


Autumn-Winter 2013

Migration trends comparison
European Union
During 2011 there was estimated 1.7 million immigrants 1 to the EU from
the outside countries. In addition, 1.3 million people who were living on the
territory of some EU country
migrated to another Member
State.
Thus, about 3.2 million
people immigrated to one of
the EU countries, when at the
same time at least 2.3 mln
emigrants have left EU
Source: Eurostat (migr_imm1ctz) and (migr_pop1ctz)
countries. It has to be
emphasized that given numbers do not represent the migration flows to or from the
EU as a whole, because they also take into account flows between different EU
countries.
The largest number of immigrants in The United Kingdom (566 044) was
observed in 2011, next greatest countries were Germany (489 422), Spain (457
649) and Italy (385 793); these four countries together amounted for 60.3 % of all
immigrants to European Union.
The greatest number of emigrants was observed in Spain in 2011 (507 742),
the United Kingdom (350 703), Germany (249 045) and France (213 367). 16
countries of EU reported the higher rate of immigration than emigration in 2011,
but in Bulgaria, the Czech Republic, Ireland, Greece, Spain, Poland, Romania and
the threeBaltic countriesamount of emigrants exceeded number of immigrants.
Depending on the size of the population of the country, Luxembourg
amounted the highest number of immigrants in 2011 (38 immigrants per 1000
persons), followed by Cyprus (26) and Malta (13).
The highest rates of emigration in 2011were observed for Ireland (19
emigrants per 1 000 persons) and Lithuania (18 emigrants per 1000 persons).
1

http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Migration_and_migrant_population_statistics


Autumn-Winter 2013

Observing the methods of the analysis of the migration problems we can
consider the EUROSTAT principle of the categorization of the migrants according
to the level of development of the country of their citizenship. This method of
analysis is based on the considering human development index (HDI) calculated by
the United Nations.
So,
EUROSTAT
proposes
next
figures. The largest
share (52.4 % of all
immigrants to the
EU) constitutes the
citizens
from
medium
HDI
countries and 34.6
% are from high
HDI (but non-EU)
Source: Eurostat (migr_imm1ctz)
countries. Low HDI countries (6.3 %),EFTA countries (3.6 %) and candidate
countries to the EU (3.1 %) amounted relatively low shares of total immigration to
the EU in 2011.
In 2011, the relative share of returning nationals in total number of
immigrants was highest in Lithuania (89.3 % of all immigrants), Portugal (63.6
%), Croatia (55,3 %),
Estonia (54.8 %) and
Greece
(54.5
%).
Moreover,
the
EU
countries evaluated the
returning migration level
higher than 50 %.
Opposite situation is
observed in Luxembourg,
Austria, Italy, Cyprus and
Spain which reported
Source: Eurostat(migr_imm1ctz)


Autumn-Winter 2013

about relatively low shares of return migration in 2011 accounted for less than 10
% of immigrants.
Looking on the gender distribution of immigrants in 2011, there was
observed highest share of men than women (52.1 % compared to 47.9 %). The
country with the highest share of male immigrants was Slovakia (62.4 %); on the
other hand, the highest share of female immigrants was reported in Cyprus (55.2
%).


Autumn-Winter 2013

Ukraine
Current
political
and
economical situation in Ukraine has
provoked substantial changes in the
population migration level. Last year
tendencies showed us growing level of
emigration of the Ukrainian citizens to
the EU countries and countries of
North America and Russia. So, let us
Source: http://iom.org.ua
consider main statistics, proposed by
Ukrstat, connected with the Ukrainian migration trends.
Emigrationof Ukraine can be
characterized by following factors:
●
Cumulative
number
of
emigrants: 6.5 million
●
The
total
number
of
emigrants in the percentage of the
population: to 14.4%.
●
Most popular destination
countries: Russian Federation,
Germany, the USA, Israel, Czech
Republic, Hungary, Poland.
Looking on the graph we can see
that bigger part of the Ukrainian
migrants amounted to the 67% of
men versus 33% of women. At the
same time, we can recognize main
employment branches of Ukrainian
emigrants, the biggest of which
constitutes construction – 54%,
homecare – 17%, agriculture – 9%,
retail – 9%.


Autumn-Winter 2013

Imigrationto Ukraine mainly occur because of its benefitial geographical
position. It means that Ukraine somehow represents the linkage between Asia,
Africa and Europe. So, immigration to Ukraine can be characterized by following
indicators:
The total number of immigrants: 198 325 (the number of immigrants
●
registered by Ministry of International Affairs, 2010 - UKRSTAT), 5.3 mln
(residents of Ukraine, according to the 2001 census were not born in its territory UKRSTAT).
●
The main countries of citizenship of immigrants: Russian Federation,
Moldova, Uzbekistan, Belarus, Georgia, Armenia, Azerbaijan.
Сustoms union
Today, Russia represents the most attractive destination for labour
migrants from the Customs Union (CU) countries and Central Asian countries. Its
labor market requires migrants with high and low qualifications for employment
and given the imperfection of migration legislation, the overwhelming majority of
unskilled migrants work in Russia irregularly. So, let us consider main trends of
this region’s emigration and immigration.
●
Emigration:Depending on the country of migration destination
Eurostat accounts at least 1 out of 2 Russian migrants living in the European
Union, with Germany which amounting the greatest number, followed by Estonia
and Latvia. Other countries, which are always chosen by Russian migrants as a
destination, are Ukraine, Israel, and the US. However, there exist some differences
between such countries.
Overall, Russian migrants have an intermediate skill profile with 70.0% 2
persons with a medium-high level of education (2006) with no significant
differences according to destinations. In OECD countries, a huge mismatch
between educational and occupational level is observed: 2 out of 3 (65.9%) of
Russian migrants were indeed employed in low-skilled jobs, such as ‘service, shop,

2

http://www.migrationpolicycentre.eu/docs/migration_profiles/Russia.pdf


Autumn-Winter 2013

craft and related trade workers’ as well as ‘plant and machine operators or
assemblers’ or simply in ‘elementary occupations’
Russian refugees by country of asylum, 2000-2011
Country of
asylum

Germany
Austria
Poland
France
USA
Norway
Belgium
Canada
Sweden
Others
Total

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

0

0

44,284

45,568

45,030

41.732

25,347

30,424

35,505

37,642

39,460

39,816

201

186

150

911

4,152

6,438

8,723

11,571

14,122

15,828

17,229

18,473

37

244

469

674

1,671

3,785

6,024

8.987

12,034

14,510

14,730

14.897

499

718

1,794

2,613

3,991

5,292

5,945

6,613

7,615

8,942

9,858

10,882

11,916

16,294

18,499

18,964

15,891

18,812

86,914

7,915

7,652

7,434

7,043

6,863

104

245

457

1,204

2,249

2.694

3,034

3,552

3,790

3.969

4.104

4,056

35

107

112

168

1,081

3,899

5,425

5,150

3.981

3,428

2.964

2.894

1,694

2,196

1,990

1,994

2,118

2,073

1,916

2,960

2,770

2,612

2,311

1,931

1,490

996

978

1,017

1,078

1,178

1,493

1.488

1,583

1,705

1,739

1,786

24,334

24,170

22,878

23,307

30,839

17,134

14,561

14.196

14.009

13,385

12,510

8,187

40,310

45,156

91,611

96,420

108,100

103,037

159,382

92,856

103,061

109,455

111,948

109,785

Source: http://www.migrationpolicycentre.eu

From the table we can see that three main destination countries of Russian
labor emigrants are Germany, Austria and Poland. It is also important to say that
amount of labor emigrants beginning from the 2000th was growing and for 2011
amounted to almost 110 thds people.
Stocks of Russian refugees continues to be one of the largest in the
European Union. In 2011 there were 109,785 refugees in the area with almost one
half based in German speaking countries.
●
Immigration: Beginning from 1991 Russian Federation has become
one of the greatestmigrants’ amount host countries in the world, with the
biggest part of neighbor countries’ migrants.
In 2002, the population census recorded almost 12 mln 3 individuals born
abroad and around 1 mln of foreign citizens in Russia (8.3% and 0.7% of the total
resident population, respectively). In both cases, the the biggest part is originating
in other CIS states (94.0% and 88.4% respectively) confirming the exceptional
importance of Russia within the CIS migratory area for cultural, historical and
3

http://www.gks.ru/


Autumn-Winter 2013

language affinities as well as its scarce attractiveness with respect to the rest of the
world.
Immigrants stocks in Russia according to different criteria 2002-2010
Country of citizenship/
2002
2002
2010
Country of birth
(birth)
(citizenship) (citizenship)
CIS countries
11.284.511
906,314
686.993
of which Ukraine
3,559,975
230,568
93.39
Kazakhstan
2,564,955
69,472
28.06
Belarus
935,782
40,330
27.668
Uzbekistan
918,037
70,871
131,062
Azerbaijan
846,104
154,911
67.947
Georga
628,973
52,918
(a)
Armenia
481,328
136,841
59,351
Kyrgyzstan
463,521
28,843
44 611
Tajikistan
383,057
64,165
87.123
Moldova
277.527
50988
33 884
Turkmenistan
175,252
6,417
5.575
Other countries
722.311
119,099
106,245
Stateless
429,891
178,245
Total
11,976,822
1,456,304
971,483
% of the total population
8.3
1
0.6
Source: http://www.migrationpolicycentre.eu

By comparing the size and origins of the foreign population in 2002 and
2010 (columns 2 and 3), there are several important issues to be emphasized.
First, rapid decreases in immigration were seen in nearly all countries,
except for most central Asian countries (Kyrgyzstan, Tajikistan and Uzbekistan).
For example, in 2002, 22.5% of migrants were from Ukraine, which has fallen to
13.6% in 2010. In the same time period the share of Uzbekistani’s increased from
6.9% to 19.1%. Hence immigration stocks in Russia have seen significant changes
in 8 years a relatively short period of time 4.

4

Source: http://www.migrationpolicycentre.eu, http://www.gks.ru/


Autumn-Winter 2013

CONCLUSION
So, returning to the main point of this article, we can conclude consequences
of 3 main scenarios of Ukraine ascension to EU, CU or remaining independent.
First scenario is signing the FTA Association Agreement and in future
joining to the European Union. The main factor, that should be positively assumed,
is reciprocal lifting of customs duties between Ukraine and EU countries. This
will lead to growing export on 10%, when import will probably rise by 15%.
Main macroeconomic indicators are relatively increased in EU.
But on the other hand the GDP growth of these countries is decreasing in
comparison with previous years. Other difficulties can appear from harmonization
of standards viewpoint. 85% of all standards have to be agreed with EU one.
Furthermore this scenario will obviously lead to decreasing trade turnover
between CES countries and Ukraine by approximately 2.5%.Ukrainian GDP
dynamic will lower, because of diminution in export volumes to CES countries
and growth in import volume from EU countries. One more important factor that
should be taken into account is dependence of some branches on the Russian
market. “Custom war” will lead to huge losses in machine-building, chemical,
confectionary industry.
Second scenario is joining Custom Union. Positive side is expansion of
inter-country trade, increasing of industrial cooperation between countries,
stimulating technological convergence.
But on the other hand such interaction will not lead to strategic long-run
changes in organizational and productive spheres. And formation of unified
currency system can lead to reduction of export from Ukraine and growth in
import. Such decision will strengthen political and economic dependence of
Ukraine on Russia.
Remaining independent is one more scenario. But in a world, where struggle
between blocs of countries is constantly intensifying, Ukraine will not be able to
maintain full independence.
Thus there is no simple answer, both agreements give Ukraine stupendous
potential for development and growth opportunities from one side and terrified

Autumn-Winter 2013

losses from another. The question is how to use all this options and where find
enough investment to realize them in the most effective way.


Autumn-Winter 2013

Which way to choose - European Prosperity or Trade Stability

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