ip [Kyiv Post, Sept. 16], his plea provoked Gunter Verheugen, EU Commissioner in charge of enlargement, emphatically to dismiss any such possibility for the foreseeable future. The next EU enlargement, which eventually will embrace up to 10 countries of Central and Eastern Europe, the CEE‑10, as well as Cyprus and Malta, poses sufficient problems of its own.
But there are other issues to be considered. A Partnership and Co‑operation Agreement between the EU and Ukraine came into force in 1998, and an EU Common Strategy on Ukraine in 1999. The Common Strategy _aims at developing a strategic partnership between the EU and Ukraine on the basis of the PCA, while acknowledging Ukraine_s European aspirations and welcoming the country_s European choice._
The strategy_s specific objectives leave no doubt that Ukraine is to be brought into the fold of democratic market economies. If effective, the issue of Ukraine_s EU membership may in time become irrelevant. Ukraine will become a member of a European community of states, which are similar in political and economic characteristics, irrespective of whether it formally joins the EU. The pressing questions now concern Ukraine_s state of preparation for assuming that European status.
Comparison of current circumstances in Ukraine with those of the new accession members from Central and Eastern Europe is instructive. The histories of these countries share much in common since 1945, including the 1990s when transition from central planning accelerated. Evidence of convergence is required for countries aspiring to join the EU‑15, and the Copenhagen criteria provide the relevant framework. The focus for these criteria stable institutions, democracy, rule of _ law, respect for human rights; a competitive market economy; ability to take on the acquis communautaire (obligations of membership) _ is also discernable in the strategy for Ukraine.
Much attention is devoted to the political, economic, and legal dimensions of preparations for EU membership by the CEE‑10. For Ukraine, soon to be on the EU_s eastern periphery, domestic politics command most international attention. So, increasingly, do the implications of border controls for trade and labor migration with the enlarged EU. But developments in Ukraine_s economy merit greater attention, especially in comparison with the CEE‑10.
The problems of obtaining comprehensive up‑to‑date data are well‑known. Although mainly for 1999, Philipp Schroder provides a helpful starting point for comparing Ukraine with the CEE‑10 (_Eastern Enlargement: the New Challenge,_ in J.D. Hansen, _European Integration: An Economic Perspective,_ Oxford University Press, 2001). In certain respects, Ukraine_s economic structure and performance in recent years was not too dissimilar from the CEE‑10. For example, in 1999, before the economic turnaround to strong positive GDP growth, Ukraine_s negative 0.2 percent growth already exceeded that of the Czech Republic, Romania, Lithuania and Estonia. Ukraine_s corresponding year‑end inflation, 19.2 percent, was, however, less favorable. Of the CEE‑10, only Romania was worse at 55 percent and, except for Slovakia (14 percent) and Hungary (11 percent), all other potential accession states had inflation well under control.
At market exchange rates, Ukraine would have accounted for under 0.5 percent of EU‑15 GDP in 1999, while the CEE‑10 together accounted for only just over 4 percent. That year Ukraine_s per capita GDP was less than 4 percent of the EU‑15 figure at market exchange rates, but 11 percent at Purchasing Power Parity. These are lower than for Bulgaria, poorest of the CEE‑10, with 6.5 percent at market rates and 23.5 percent PPP. The problem with all such comparisons, though, is the size of the unofficial, therefore unrecorded, economy. According to the Economist Intelligence Unit, for Ukraine this is estimated to be around 50 percent of the official economy.
More startling contrasts become evident with respect to the main structural characteristics of the economy. The relative contribution of agriculture to GDP is a key indicator of a country_s general level of economic development. With growth, agriculture declines and services increase their share in GDP. For the CEE‑10, in 1999 agriculture accounted for 7.2 percent of GDP and services 64.1 percent. Corresponding figures for the EU‑15 were 2.1 percent and 67.4 percent. By these criteria, Ukraine exhibits signs of progress in development. For example, in 1990 agriculture accounted for 25.6 percent of GDP and services 29.9 percent. By 2000, these proportions were 13.9 percent and 47.7 percent respectively.
However, as in all transition countries, caution must be exercised in the interpretation because of the output collapse after 1989. If output falls differentially across the main sectors of the economy, then the relative share of sectors more resistant to cut‑backs will be exaggerated. Given its abundance of black soils, Ukraine can be expected to have a comparative advantage for agriculture. All the same, the relative underdevelopment of services is telling.
Ukraine_s unemployment rate is also revealing. In 1999 this amounted to a mere 4.3 percent of the working population, much lower than the EU‑15 (9.1 percent) and the CEE‑10 (12.6 percent). Of the CEE‑10, Slovenia was lowest at 7.5 percent. The remarkably low figure for Ukraine reflects the slow rate of industrial restructuring.
It is consistent with the conclusions to be drawn from European Bank for Reconstruction and Development_s scale measuring progress in transition. Scored from 1 (no reform) to 4+ (performance similar to market economies), for factors including price and trade liberalisation, privatisation, enterprise, banking sector and infrastructure reform, and competition policy, Ukraine_s modal score since the mid‑1990s for most categories is 2. Some progress earlier in the decade was followed by relative stagnation. By comparison, the majority of the CEE‑10 scored around 3.
These facts are also consistent with the share of the private sector. According to the EBRD Transition Report for 1999, this was only 55 percent for Ukraine, equal to Slovenia, but lower than in all other CEE‑10 countries. The Czech Republic and Hungary were highest at 80 percent, and all others 60 percent or above.
So, a pattern emerges. Ukraine badly needs to accelerate industrial restructuring and privatization. It will need international assistance to do so, and that is still not forthcoming on sufficient scale. In 1999, foreign direct investment per head in Ukraine was only $9.6. Compare this with the three lowest of the CEE‑10 countries, $20 per head for Slovenia, $36 for Romania, and $89 for Bulgaria. Remarkably, Bulgaria_s annual total for 1999 equalled FDI per head for Ukraine for the entire period 1992‑2001.
The World Bank attributes this abysmal performance to Ukraine_s risky and illiquid local debt/equity instruments, lack of adequate corporate governance, lack of incentives and transparency in the privatisation process and, most importantly, complex and high taxes. Moreover, in their 2001 Corruption and Perceptions Index, Transparency International and Gottingen University place Ukraine 83rd of 91 countries surveyed world‑wide for perceived corruption. On the basis of all such evidence, it seems that Ukraine still has to make considerable progress before it could be considered capable of meeting the Copenhagen criteria.
At the same time, Ukraine remains highly dependent on Russia for external trade, acquiring over 50 percent of its imports and selling 25 percent of its exports there in 1998. Bulgaria, Latvia and Lithuania all obtained over 30 percent of their total imports from the Former Soviet Union. Lithuania still exported as much as 50 percent of all exports to the FSU, and Latvia and Estonia both exported 40 percent. Clearly, the historical ties are not yet severed. But all the other CEE‑10 countries have become highly dependent on other European countries, mainly the EU‑15, for export sales.
From the EU‑15_s perspective, external trade with the CEE‑10, Albania, and the Former Yugoslavia approximately doubled after 1991. By 1999 it amounted to 10.3 percent of all imports and 13.3 percent of exports outside the EU. Notably, about 20 percent of Germany_s own external trade (imports and exports) was conducted with these countries by the decade_s end. Ukraine obtains around 8 percent of its imports and sells 4.5 percent of its exports in Germany. Nevertheless, these proportions are modest compared with Ukraine_s trade with the FSU.
In conclusion, much economic progress still has to be made before Ukraine can be seriously considered for EU membership. Certainly, the current impressive recovery to around 4 percent growth, and the underlying economic improvements implied, are grounds for greater optimism. But such progress must be sustained. For the present, the EU‑Ukraine partnership and co‑operation agreement and the common strategy offer the best avenues available to further integration.
Dr Keith Howe is senior lecturer in agricultural economics at the Center for Rural Research, University of Exeter, UK. He is also an honorary professor in the economics faculty of Bila Tserkva State Agrarian University.
