Victor BUDKIN, Doctor of Economy, Prof., Honored Worker of Science and Engineering of Ukraine, Chief Research Fellow of the Institute of the global economy and international relations of the NAS of Ukraine

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2003 will go down into history of cooperation of the European Union and Ukraine as a final year of the previous and beginning of the next stage of their relations. The Agreement about partnership and cooperation (APC), which had been concluded on June, 16, 1994 determined up to now the basis of the development of these relations. Nine parts of APC included 10 sections and 109 articles determining the tenets of cooperation in practically all spheres of mutual contacts concerning the political dialog, trade, entrepreneurial activity, investments, industry, agriculture and other major branches of economy, regional development, taxation, education, etc. At the moment the most-favored-nation treatment was adopted; on the basis of the APC Ukraine was covered by the EU system of general preferences and technical aid. Thus, before the APC came into force (on March, 1, 1998 after it had been ratified by the Verkhovna Rada and all 15 EU members) its main provisions were applied in accordance with the Temporal agreement about trade and related questions, which took effect on Dec., 4, 1995.

It is noteworthy, that Ukraine was the first CIS country to conclude such agreement with the European Union; this fact was specially stressed in the Common Strategy of the European Union in

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relation to Ukraine during the Helsinki Summit of European Council on December, 10-11, 1999. Russia followed four days later on June 20, 1994, whereupon other CIS participants joined the agreement.

The agreement about partnership and cooperation laid the basis for the legal and economic principles of relations between the EU and Ukraine.

This ensured that our regular relations with the developed European economies expanded. So in 1995-2002 the trade turnover between Ukraine and the EU increased 2.2 times, including Ukrainian export-2.4 times, import from this Union-2.1 times ¹ . Ukraine is credited by the EBRD; direct investments from the United Kingdom, Netherlands, Federal Republic of Germany and other countries of the EU climbed as well. The sweeping expansion of economic and political relations among partners proves the efficiency of the APC in cooperation between the EU and Ukraine.

However, there are negative aspects as well. For example, there was this chronic unfavorable annual trade balance $0.3-0.5bn with the EU. They noted great fluctuations in trade with separate members of the EU (ex/imp operations with the United Kingdom made $563m in 1995, $340m in 2000, and $800m in 2002; with Greece-$108m, $87m and $142m accordingly) ² . The greater lump of these investments went to tobacco and pastry industry, wholesale (mainly in the distribution branch of their own companies), instead of leading branches of Ukrainian economy. Ukraine had no market economy status which let the EU to initiate anti-dumping procedures against the Ukrainian commodities which lacked in legal foundation in most cases.

However, the difference in conceptual foundations of mutual cooperation is the main obstacle. It is known, that a year and a half the formation of the sovereign state on July 16, 1990 the Verkhovna Rada adopted the Declaration about the state sovereignty of Ukraine, where the intention to "take part in the European process and in European organizations" was proclaimed (article 10 of this document). The same was include into the Basic directions of the foreign policy of Ukraine passed by the Verkhovna Rada on July 2, 1993. Later on the eurointegration course together with integration into the EuroAtlantic structures became a dominant of the foreign-policy strategy of Ukraine. On June 11, 1998 President L. Kuchma signed the Decree about the approval of the Strategy of integration of Ukraine into the European Union. According to this document the Strategy "had to provide for the entry of the state into the European political, economic and legal space and granting on this basis of the status of the associated member of the European Union, which is the main mid-term foreign-policy priority of Ukraine." The Strategy formulates the task of "obtaining by Ukraine of the full-fledged membership in the EU. " ³

All subsequent governmental programs and annual President's messages to Verkhovna Rada of Ukraine included this eurointegration course orientation. Such message of 2001 carried a special section on problem. It read: "The strategy of integration of Ukraine into the structures of the EU answers the vital interests of Ukrainian people. It remains the priority of the foreign-policy of Ukraine, the long- term main concern of its international activity. " ⁴

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The 2002 President's message to Verkhovna Rada of Ukraine the "European Choice" formulated the task of intensification of the eurointegration for 2002-2011 which "should create real pre-conditions for the entry of Ukraine into the EU. "

Step by step the institutional infrastructure of cooperation with the EU was created in Ukraine. On February 24, 1998 the President of Ukraine Decreed the formation of the National Agency of Ukraine for the Development and European Integration, which was responsible for "realization of interdepartmental co-ordination of inter-branch economic and social cooperation of Ukraine with the European Community (EU)" ⁵ . After administrative reshuffle relationships with the EU got higher priority: as of 2000 it became the responsibility of the new Ministry of economy and European integration. On August 30, 2002 the President Decreed the creation of the State Council for European and EuroAtlantic integration responsible for co-ordination measures. The effectiveness of the Council should have been provided for by inclusion of the President of Ukraine as a Head, Chairman of the Verkhovna Rada, Prime Minister, Minister of Foreign Affairs, Minister of defense, Minister of economy and European integration, and other top administrators. In addition, as of August, 2001 the Commissioner of Ukraine for European integration started to work. In Ukraine on February 26, 2003 the President created the post of the Commissioner of Ukraine for European and EuroAtlantic integration to be held by the first vice-prime minister of Ukraine.

Pursuant to the provisions of the Agreement on partnership and cooperation they created such common organs of Ukraine and EU as the Council and Committee for cooperation (Ukrainian part was formed by the decree of the President on February 24, 1998), Committee for parliamentary cooperation, which began to work in December, 1998. In November, 1998 in Brussels six subcommittees for cooperation in such spheres as finances, economy, energy, transport, science and technologies, migration and others set to work.

Thus, the Ukrainian administration adhered to the eurointegration conception, carried out concrete steps for its realization, activating them after the APC conclusion in 1994. Despite the fact that Ukraine was not invited to enter the EU together with ten Central European, Baltic and Balkan countries in 2004 and even in 2007 (together with Bulgaria and Romania), the perspective orientation towards the entry to this organization remained. Addressing the European conference the "New neighborhood of the EU" in Athens on April 17, 2003, President L. Kuchma underlined the "full membership in the EU in long-term outlook as the strategic purpose" ⁶ .

However, the policy of the European Union in relation to Ukraine officially did not include conceptual provisions for its integration. There are no traces of it in such basic documents, as the APC, Joint position in relation to Ukraine (November, 1994), Declaration of the EU concerning Ukraine (May, 1996), Common Strategy of EU in relation to Ukraine (December, 1999) etc. They do not have as much as a clause about the possibility of granting Ukraine the status of association with the European Union, which in 1991-1995 had been granted to the majority of post-Socialist countries of Central Europe and three post-Soviet Baltic states. The article 4 of the

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Agreement on partnership and cooperation carried only one relevant provision: "In 1998 the Parties will consider the question, whether the circumstances and, in particular, the progress of Ukraine in market economic reforms and economic realities, allow beginning negotiations on the creation of the free trade area" ⁷ . Such basic document of the EU as the 1999 Common Strategy left no hope for the progress as well. If in the late 90s it could be explained by the crisis in the Ukrainian economy and lag in its reformation, now these arguments expired and even foreign experts and political figures acknowledge the high-rate growth of the reformed economy of Ukraine. However, things are right where they started: problems of the free-trade zone and association with the EU are the no-goes.

All it allows to disbelieve even the possibility of joining the EU. Such conclusion contrasts with the relations of the EU with the states of Central Europe and Baltics. The EU signed the so called European agreements on association with Poland, former Czechoslovakia and Hungary on December 16, 1991, with Romania-on February 1, 1993, Bulgaria-on March, 8, 1993; with Lithuania, Latvia and Estonia they signed agreements on cooperation in 1993, substituted for association agreements on June, 12, 1995. At the time of conclusion of these agreements all these states were only at the initial stages of reformation of political and economic system, at the stage of economic crisis or at the beginning of the post-crisis revival. Therefore the EU decision on association was a geopolitical one, because after the ruin of soviet block and disintegration of the FSU it was desirable to support the pro-western states and shut out Russian influence from the region of temporal geopolitical "vacuum". Besides geopolitical reasons, there was a geoeconomical aspect to it: forming of compact European economy, though it came out later, at the end of the 90s.

The basic documents - European agreements and APC-contain fundamental differences in the EU relation to the CEE countries and Ukraine. The preamble to the association agreements with every country CEE includes a clause on their "participation in the European integration process", which is not the case with the partnership-and--cooperation agreements with the CIS states, including Ukraine. The sections on political dialog are closer to one another in both documents, while divergences are more evident in sections on economic and institutional grounds for cooperation. For example, the third section of the APC with Ukraine is entitled "Trade in commodities", while the same section of European agreements is entitled "Free movement of commodities", that is the association agreement foresaw the free trade zone, which was not included in the APC and remains unsolved in relationships of the EU with Ukraine up to now. The article 6 of the European agreements foresaw the ten-year two-stage "transitional period". Each stage was put under control of the Association Council empowered to estimate the integration readiness (this was the basis to admit 10 countries this year and postpone the entry of Bulgaria and Romania until 2007). The institutional structure of mutual relations of the EU with Ukraine does not include any such organ; the article 85 of the APC the Council for cooperation only "examines major issues in the framework of Agreement, and all other bilateral or international questions of mutual interest" and can "suggest necessary

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recommendations agreed upon by the two parties" ⁸ . Such substantial differences are found in all relevant documents.

The summit of the Council of Europe (Helsinki, December 10-11, 1999) became the boundary-mark delimiting states to the east of the EU borders. The list of claimants promulgated then did not include Ukraine. With certain editions this list was realized at the 2003 Athenian conference, where they signed the Act on the entrance to the European Union of Estonia, Cyprus, Latvia, Lithuania, Malta, Slovakia, Slovenia, Poland, Czech Republic and Hungary in 2004 and the basic directions of cooperation with the large group of the "neighboring states", including Ukraine, were delineated.

The Conference in Athens was based on the communique of the European Commission (March 11, 2003) "Neighborhood of wider Europe", which completed the division in two groups of countries initiated by the Helsinki summit: future EU members and states "which presently have no prospects of EU membership" ⁹ . This communique determined common prospects and mechanism of cooperation of the European Union with such states, certain privileges in accordance with their status of "neighboring countries". The future EU policy differentiation in relation to these states is based on the "sectional" principle South Mediterranean countries, western new independent states (WNIS), and Russia. Ukraine together with Belorus and Moldova falls in with the WNIS, though Ukrainian economic and political development is rather different.

The EU reticence concerning the direct eurointegrational initiatives of Ukraine might be explained by substantial lag of its socio-economic indexes in comparison not only with present 15 participants of the common economic space but also with those countries which are going to join it in 2004 and 2007 ¹⁰ . This is a baseless argument since the short - and mid-term suggestions of Ukraine dealt with initial steps only (formation of the free trade zone) to be followed by association and membership issues in due time (there is an example of Turkey the internal development parameters of which are inconsistent with the Copenhagen criteria of integration; Turkey was not put on the candidates list, but it has considerable advantages in economic cooperation with the EU in comparison with the third countries, having been an associate since 1963, and-some time after-having joined the customs union with the EU).

The stagnation of the eurointegration-status-of-Ukraine process suggests a conclusion, that the EU follows the E. Balladur concentric circles conception from the 80s of the last century. According to it, there is the first circle or the nucleus of integration of the then EU members, the second circle includes the EFTA countries, which will be first to be admitted to the EU (in 1995 such EFTA countries as Austria, Finland and Sweden joined the European Union), the third circle includes Central European and Baltic countries, which are joining the EU 10 years later. The rest of the European states, including Ukraine, belong to the fourth circle with prospects of "gradual deepening of participation in the European cooperation", as it was formulated by W. Weidenfeld and W. Wessels in 1992 ¹¹ .

The analysis of policy of the EU between the Helsinki summit and Athenian conference testifies that it was designed to form the compact geoeconomical complex

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limited in the East by the borders of the CIS. There was also the 1991 agreement between the EU and EFTA about the European economic space, pursuant to which Switzerland, Norway, Iceland and Liechtenstein are not subject to all regulations of the EU but economically remain inside the said complex. The communique "Wider Europe Neighborhood" excludes "Western Balkan states" (Albania and descendants of the SFRU, not including Slovenia which has already got an EU entry mandate) from the "neighborhood" status countries; in future such vagueness will enable the EU, its political and economic issues being solved, to consider possibility of their entrance to the noted compact economic space of Europe.

Truth to say, the quoted communique excludes the entry of the "non-European countries-partners of Mediterranean"; "however in other cases, e. g. with the European countries which have stated their desire to join the European Union, the issue remains open." There is also no unanimity among the EU management on the future eurointegration status of Ukraine. For example, Romano Prodi, Chairman of the EuroCommission, was rather critical of it, though his milder statement followed at the 7th Summit "Ukraine-European Union" (Yalta, October 7-8, 2003). Italian Premiere Silvio Berlusconi is far more optimistic; at the same summit he backed Ukraine in its passing through the stages on the way to the EU. In September, 2003 during the 6th meeting of the Committee for Parliamentary Cooperation between Ukraine and the EU Co-Chairman of this Committee Jean Wirsmaa underlined: "Ukraine is the European state, and it is entitled, pursuant to international legal norms, to join the EU in the future. " ¹² .

Such vagueness of the EU management in relation to the general prospects of the entrance of Ukraine into the European economic space, absence of adequate reaction to eurointegration initiatives became, to our mind, one of the reasons of consent of President Leonid Kuchma to take part in the Common Economic Area together with Russia, Belorus and Kazakhstan. There is a characteristic clause in the communique "Wider Europe Neighborhood" which cannot but be interpreted as a support of such processes: "On the future eastern border of the EU there is a close regional economic cooperation among the WNIS, traditionally oriented toward trade and investments to and from Russia. However, promotion of regional political cooperation and/or economic integration failed to become a lever of the EU policy in relation to Russia and WNIS so far." At a press-conference in Yalta covering the results of the 7th summit "Ukraine-EU" R. Prodi, Chairman of the EuroCommission underlined the absence of obstacles for the development of relations between them in the conditions of deepening cooperation between Ukraine and Russia. H. Verheugen, European Commissar for the EU expansion in his interview to the Russian Izvestiya Newspaper opined: "The European Union supports aspirations of these four states for closer economic regional integration" ¹³ . It is noteworthy, that this statement was promulgated in the context of the negotiations on the creation of common European economic space between Russia and the Europan Union.

It is difficult now to forecast the

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subsequent CEA parameters as a result of conflicts among clusters of internal factors in each of 4 countries participating in the agreement, unsolved problems among them (e. g., dependence of the ratification of this document on the settlement of the Russian-Ukrainian Tuzla Island conflict), external influence of western partners. There fore we have to adhere to official position reducing basic CEA functions to creation of the free trade zone without any exceptions within the limits of this area.

The estimation of the differentiated approach of the EU to its eastern partners expressed in the said communique and later contacts may be important in the context of the EU treatment of the CEA forming within the limits of CIS. Conception of the "Wider Europe Neighborhood" includes the idea of "creation of the Pan-European open and integrated market on the basis of compatible and harmonized rules..." The same communique backs Russian suggestions about common European economic space. Analysis of both concept of the "new EU policy" in relation to its Eastern neighbors and first steps of its realization shows that Russia is considered to be the dominant partner among other countries of this region. Meanwhile Ukraine is treated according to the "sectional" principle: co-operation with it is as much as a component of cooperation with all three WNIS.

Therefore Ukraine should take into account such constituents of its geopolitical situation, as priority of Russia in conceptual and real approaches of the EU and newest aspects in cooperation with Russia and other CEA members, the framework agreement with does not cast aside economic relations with the third states both in the CIS and beyond.

To our mind, simultaneous realization of reconcilable possibilities of these two geoeconomic vectors promotes new impulses and expands cooperation of Ukraine with the EU, at least in a mid-term prospect. It is no chance that Ukrainian politickers- despite the possible antagonism over the CEA-think about the "reduction of the way to the European Union" through the active use of the possibilities of boosting national economy due to participation in a free trade zone with the partners in this area. In this regard the most complicated is the dilemma of common or parallel eurointegration processes (WTO presents the similar problems), which could be overcome only with the regard to the interests of every participant of the quadrilateral Yalta agreement on the basis of adequate concessions and indemnifications.

As for the westernmost geoeconomic vector, the mechanism of relationships with neighboring countries offered by the communique can be treated for the same period as a basis for a new stage of cooperation between Ukraine and the European Union. There is an important issue of common interest for the European Union and Ukraine: the possibility to make use of the situation of our state in the center of Europe which had the following formulation in the 1999 Common EU strategy in relation to Ukraine: "The geopolitical location of Ukraine along the axes North/South and East/West make its position unique in Europe which becomes a governing factor in the region" ¹⁴ . This is a geopolitical estimate, but it may well be a geoeconomic advantage of Ukraine.

Among WNIS Ukraine has the best combined (economical, infrastructural,

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scientific and technical etc.) pre-conditions to become the zone of the most active co- operation of the European economic space with the similar Eurasian space and further on to the East. The transit infrastructure is decisive for this zone but we shouldn't content ourselves with it. Therefore for two year now Ukraine has been modernizing and constructing railroads and highways, developing transportation in the country, which is not supported by the European partners (in October, 2003 during the summit "Ukraine-EU" the agreement was concluded about Italian participation in the reconstruction and exploitation of the Kyiv-Odesa Highway, which is positive; this past spring H. Kyrpa, Minister of the Transport, had to turn down the disadvantageous EBRD credit for "Ukrzaliznytsia", which is negative.)

At the same time it is worthwhile to consider the feasibility of such active contact area "West-East" in Ukraine on a broader scale. Higher efficiency of transport axes builds up an additional network of production and trade objects of local and wider range of activity along the way. The substantial improvement of transportation and transit will give possibility to concentrate in Ukraine national and mixed enterprises for reprocessing and distribution of goods in both directions. Besides the considerable potential of Ukrainian market, there are other advantages of this undertaking: better knowledge of CIS market, use of the most important AIC reserves in the WNIS, highly developed scientific and technical complex and skilled labor able to make high-quality and relatively cheap products, etc. By the way, in spite of all political confusions around the CEA, if a free trade zone begins to work in it, the said expansion of economic cooperation between the European Union and Ukraine will climb.

It is necessary to underline possibilities of positive influence on the development of mutual relations between the EU and Ukraine of a new mechanism of cooperation with the neighboring countries foreseen by the communique "Wider Europe's Neighborhood."

The first priority elements are as follows. According to this document, "Russia, WNIS and South Mediterranean countries should be allotted a segment of the internal EU market with subsequent integration and liberalization intended to provide for a free movement of persons, commodities, services and capital ("four freedoms")." So far the European Union is working it over; therefore it is too early to draw conclusions. If the interests of the European Union and its partners are taken into account, it may promote stability of cooperation in the agreed-on directions of relations. Ukraine is a party interested in the sector of the EU market of metallurgical, chemical and etc products, where ill-founded anti-dumping legal procedures were sometimes initiated in the past.

The transformation of the Ukrainian economy on this road may benefit from the EU intention to attract the EBRD and more powerful European Investment Bank as investors. The EIB can trigger the flow of private European investments as a side effect: Ukraine falls behind the CEE countries as to the volume of direct and portfolio foreign investments (on Jan. 01, 2003 they made only $111 and $5.2 per capita, accordingly, that is ten times less, as in applicant countries.) ¹⁵

The EU has a considerable experience

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of transboundary cooperation development with the use of INTERREG programs and Structural Fund. Such projects were carried out on Italian-Swiss (spendings: EU Structural Fund-€ 74.4m, local fund-€ 25.6m), Swedish-Norwegian (€ 32.0m and € 111.0m), Austrian-Czech (€ 29.5m and € 51.8 m), Austrian-Slovak (€ 26.0m and € 52.5m) borders ¹⁶ . The said communique reminds that the new borders with the "neighboring countries" "need subsequent incentives for the transboundary and transnational cooperation as well as local and regional development" backed by respective EU programs. It is of special value for Ukraine which any day now will have borders with such new EU members as Poland, Slovakia, Hungary, and, a bit later, Romania.

The communique also is backing the integration of neighboring countries into the transportation, power, and telecom networks and European research sphere; Ukraine may make the greatest contribution here among other WNIS.

The national and regional schemes differentiated by the EU partners or groups of partners is an important novel in the communique. Its mutual long-term efficiency both for the European Union and Ukraine can be achieved if they account for the interests of each partner; the real potential of our country should be estimated for a contact area between the expanded EU and CIS states with different subinstitutional structures.

The consent of Ukrainian administration to participate in the CEA within the limits of the free trade and adhere to the strategic course of integration into the EU shows the complexity of geoeconomical and geopolitical problems our country is facing now. It is Ukrainian choice on the basis of its strategic self-identification in the system of European and world co-ordinates; at the same time it depends on strategic partners in the West and East which should meet Ukraine halfway.

References:

1 Calculated after: Зовнішньоекономічна діяльність України. 1995. - К., НДІ статистики. - 1996. - С. 4-5; Зовнішня торгівля України товарами за 2002 рік. - К., Держкомстат України. Експрес-доповідь. - N 41. - 14 лютого 2003 р.

2 Ibid.

3 Стратегія інтеграції України до Європейського Союзу // Урядовий кур'єр. - 1998. - 18 червня.

4 Послання Президента України до Верховної Ради України. Про внутрішнє і зовнішнє становище України у 2000 році. - К., 2001. - С. 155.

5 Про забезпечення виконання Угоди про партнерство та співробітництво між Україною та Європейськими Співтовариствами (Європейським Союзом) і вдосконалення механізму співробітництва з Європейськими Співтовариствами (Європейським Союзом) // Урядовий кур'єр. - 1998. - 21 берез.

6 Євросоюз не замикається в собі. Виступ Президента України Леоніда Кучми на Європейській конференції "Нове сусідство EU". Афіни, 17 квітня 2003 року // Урядовий кур'єр. - 2003. - 18 квіт. At the same conference the EU signed the Act on he integration of Estonia, Cyprus, Latvia, Lithuania, Malta, Slovakia, Slovenia, Poland, Czech Republic and Hungary.

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7 Угода про партнерство та співробітництво. - К., Делегація Європейської Комісії в Україні. 1996. - С. 8.

8 Угода про партнерство та співробітництво. С. 52; EG - Polen - Ungarn. Wien. Europaverlag. S. 274,278.

9 Повідомлення Європейської Комісії для Ради та Європейського парламенту. - Брюссель, 11.03.2003. СОМ (2003) 104 final. Further quotations from the communique are based on this document.

10 Economic development overfalls (gross per capita output) in Ukraine, member countries and EU applicants was evaluated by the author in his study of aggregate consequences of the 1999 Helsinki Summit for our country. Viz.: Економіка України Magazine, 2000, N 9.

11 Europa von A. - Z. Europa Union Verlag. - 1992. - S. 363-364.

12 Політика "відкритих дверей" EU має тривати // Урядовий кур'єр. - 2003. - 2 жовт.

13 Істотний крок до взаємного зближення // Урядовий кур'єр. - 2003. - 9 жовт.; "Известия". - 2003. - 30 жовт.

14 Helsinki European Council. 10-11 December 1999. Аnnеx V. European Council Common Strategy 1999 on Ukraine. - Р. І. - Аrt. 1.

15 Інвестиції зовнішньоекономічної діяльності у 2002 році. - К., Держкомстат України. Експрес-доповідь. - 46. - 14 лютого 2003 р.

16 Європейська інтеграція та Україна. - К.: Вид. К. Дуйсберг і Міністерство економіки та з питань європейської інтеграції, 2002. - С. 334-335.

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