The Development of foreign trade of Ukraine

KROK Economics and Law University

International Relations Faculty

International Economics and Business Department

Research Paper:

„The Development of foreign trade of Ukraine ”

2^nd year student

of “International Economics KROK

Exclusive” Programme:

Anna Posikera

KYIV - 2011Scientific advisor:

PLAN

INTRODUCTION

CHAPTER I. THEORETICAL ASPECTS OF FOREIGN TRADE ORGANIZATION

1.1 Principles of foreign economic activity

1.2 Concepts and theories of international trade

1.3 Regulation of foreign trade

CHAPTER II. MODERN TRENDS OF FOREIGN TRADE DEVELOPMENT OF UKRAINE

2.1 Evaluation of export potential

2.2 Export and import flows of commodities

2.3 Export and import flows of services

2.4 Problems of foreign trade of Ukraine

CHAPTER III. DEVELOPMENT PERSPECTIVES OF UKRAINE’S FOREIGN TRADE

3.1 Strategy of foreign trade of Ukraine

CONCLUSION

REFERENCES

INTRODUCTION

The promotion of independence of Ukraine started its actual output on the world stage as a subject of international economic relations. Changes in the geopolitical situation of Ukraine, were made after independence, and situational features of the current state of transformation processes in the economy substantially increased role of foreign economic relations in development. Reinforcing this factor is dictated objectively undertaken by market transformations, which form a qualitatively new framework for further economic and social development. Only part of Ukraine in world economic space and of how this process will take place depends on further economic and social development of States as the world economy organic subsystem.

The most effective and efficient strategy of Ukraine's integration into the global economy is to combine economic restructuring with its focus on strong growth in exports and its differentiation potential. This can be achieved by improving the overall investment climate and attracting investments in related sectors, establishing a mechanism to stimulate exports and the formation of viable competitive export industries.

As a subject of international economic relations, Ukraine has consciously to log in economic links to the most effective use all their capabilities and improve competitiveness.

The main objective of the course work - to explore the features of Ukraine's foreign trade. Subject of research are economic relations with the formation of modern international economic relations.

The research object is a foreign trade of Ukraine.

The urgency of the work is that at this time in our country, the real prospects for a truly open economy, its effective integration into the world economy. Active use of external factors contribute to overcoming the negative processes in the economy and further development of market relations. Theoretical and methodological basis of course work are the main provisions and conclusions expressed in the fundamental scientific works of domestic and foreign economists in the theory of international trade.

The work consists of three parts, which consistently explored issues of modern international economic relations and Ukraine's place in this system.

In the first chapter I will tell you about “THEORETICAL ASPECTS OF FOREIGN TRADE ORGANIZATION”. After that I will move on to “ MODERN TRENDS OF FOREIGN TRADE DEVELOPMENT OF UKRAINE”. And then I will give you some background about “DEVELOPMENT PERSPECTIVES OF UKRAINE’S FOREIGN TRADE”.

To conclude I would like to say that today the issue of foreign trade of Ukraine is very important and needs special attention, that is why I chose the topic for my course work, named „The Development of foreign trade of Ukraine ”

CHAPTER I. THEORETICAL ASPECTS OF FOREIGN TRADE ORGANIZATION

1.1 Principles of foreign economic activity

export import foreign trade

Ukraine's economic entities and foreign economic entities in carrying out foreign trade activities are guided by relevant principles.

1. The principle of sovereignty of the people of Ukraine in the implementation of external low economy activity that is:

- Exclusive right of the people in Ukraine alone and independently carry out foreign economic activities in Ukraine, following the laws in force in Ukraine;

- Ukraine obligation to comply strictly with all agreements and obligations of Ukraine in international economic relations.

2. The principle of freedom of foreign trade enterprises to production, that is:

- The right to foreign economic entities to voluntarily engage in foreign economic relations;

- The right of foreign economic activity to make it in any form not expressly prohibited by applicable laws of Ukraine;

- The obligation to adhere to the foreign trade activity of the established laws of Ukraine;

- Exclusive right of ownership of foreign economic activity in all the results obtained by them foreign economic activity.

3. Principle of legal equality and nondiscrimination, which is:

- Equality before the law in all subjects of foreign economic activity, regardless of ownership, including the state in foreign trade activity;

- Prohibition of any, except those provided for in this Law, the state action resulting in restrictions on rights and discrimination of foreign economic activity and foreign business entities by ownership, location and other characteristics;

- Restrictive inadmissibility of activity on the part of any of its subjects, except as provided by law.

4. Rule of law, that is:

- In the regulation of foreign economic activity only by the laws of Ukraine;

- Prohibition of the use regulations and administrative acts of local bodies in any way to create conditions for foreign economic entities, which are less favorable than those specified by laws of Ukraine.

5. The principle of protecting the interests of foreign economic activity, which is that Ukraine, as:

- Ensure equal protection of the interests of foreign economic entities and foreign business entities in its territory under the laws of Ukraine;

- Provides equal protection to all foreign economic entities of Ukraine outside of Ukraine in accordance with international law;

6. The principle of equivalence of exchange, the inadmissibility of dumping in the import and export goods.

Foreign policy of any state concentrates on such questions: what goods to export and import that with which further improve information: what products to export and import that with which countries to trade and to what extent, if you want the state to intervene in free flow of goods, and if so, to what extent?

Today, developed two types of trade theory, which in many ways answer these questions. According to the theories of the first type of state is be involved in trade. These theories and study explain which products and to what extent the country and who will traded without any government restrictions. These theories include: the theory of absolute advantage, comparative advantage, country size, proportion of production, product life cycle, similarity of countries' international competitiveness of nations "and so on. The second type of theories involves government intervention in the free flow of goods between countries to change the volume, composition and direction of trade. The theories this type include: the theory of mercantilism neomerkantylizmu, depending and others. The purpose of theories of international trade was and is to help companies and governments in choice of specialization and the most expedient option strategies to promote deliberate use of national resources.

Mercantilism. The first theory of international trade - the theory of mercantilism – was developed by European scientists Manom Thomas (1571-1641), Charles Deyviantom (1656-1714), Jean Baptiste Colbert (1619-1683), Sir William Petty (1623 - 1687). Prove the role of the product and the need national economic output to foreign markets. Mercantilism - an economic doctrine and economic policy, which represents commercial bourgeoisie in feudal times and formation of capitalism. According to the theory of mercantilism wealth of the country measured by number gold and silver in their possession. Mercantilists believed that the economic system consists of three sectors: industrial, agricultural and foreign colonies. For effective functioning of the economic system most relevant to their opinion, were the traders, their work was seen as a major factor production. Thus, the source of wealth is the sphere of circulation, not field production of monetary wealth ototozhnyuvalosya capital.

Because in the world, according to supporters of this theory, there is limited of wealth (gold and silver), the country can increase its wealth and poverty at the expense of others, is due redistribution.

One of the main prerequisites merkantylistskoyi theory was that economic system functioned under conditions of underemployment due to what additional inflow of gold from abroad could in conjunction with,surplus labor to increase production. If employment population was complete, the flow of gold from abroad would cause the inflation and not found effective use.

Mercantilists merit is that they were first offered a coherent theory of international trade, showed its importance for economic growth countries, have developed a model of its development, first described that in the modern economy is called the balance of payments.

Theory of absolute advantage

The founder of classical school of economic thought was Adam Smith (1723-1790). He declared that the basis of wealth nations and peoples is an international division of labor and an appropriate specialization of different countries in producing those goods for which they have absolute advantage.

The theory of absolute advantage is based on two assumptions:

 1) the only factor of production is labor

2) full employment, that all available labor used in producing goods

3) global economy has two countries, so international trade involved only two countries that produce and sell with each other only two goods

4) production costs - permanent and their reduction increases demand for goods

5) the price of one good expressed in amount of labor required to produce other

6) transportation costs of transportation of goods from one country to another is zero

7) foreign trade is free from restrictions and regulations.

The advantage of the theory of absolute advantage is that it is based on labor theory of value and confirms the advantages of division of labor not only nationally but also internationally.

The disadvantage of this theory to explain international trade is that it does not answer the question why countries trade among themselves even the absence of absolute advantage in producing certain goods, is when one country has absolute advantage in producing all goods.

The theory of comparative advantage

The theory of absolute advantage A. Smith, David Ricardo developed (1772-1823), proving that absolute advantage is only a partial case of general rules.

Advantages of the theory of comparative advantage:

1) first described the balance of aggregate demand and aggregate supply. Although It was envisaged that the cost of goods determined by the amount of work, necessary for its production, the theory of comparative advantage showed that the cost really depends on the ratio of aggregate demand and offers the goods on the domestic and foreign markets.

2) proved existence of gains from specialization and trade for all member countries, not just one country due to the fact that others suffer losses.

3) Allows you to conduct scientifically based foreign policy.

Shortcomings of the theory of comparative advantage resulting from these assumptions, the which it is based.

Therefore, applying it to analyze foreign economic relations should take into account that it:

1) No takes into account transport costs.

2) Ignores the impact of foreign trade on income distribution within countries, fluctuations in prices and wages, inflation and international capital flows.

3) Based on the assumption existence of only one factor of production - labor.

4) Ignore existence of such important conditions of international trade, the differences in the provision of inputs.

5) Based on the premise full employment, which means that one industry workers freed can immediately find jobs in other, more productive. In other words, an assumption about fixed costs and therefore ignored law costs are rising.

6) Do not explain trade between approximately equal in economic development, none of which has relative advantage over another.

Current theories of international trade

Current theories of international trade can be grouped in two main areas: Keynesianism (neokeynsianstvo) and Monetarism (neoclassicism).

Keynesianism - macroeconomic theory, which emerged as a response economic theory on the Great Depression in the United States. Of this work was work "General Theory of Employment percent and Money by John Maynard Keynes.

The essence of Keynesianism. The market is characterized by balance, which provides full employment. The reason is - a tendency to keep some profits which leads to the fact that the total demand less than the total supply.

Keynes proposed the following output. If the mass consumer is not able revive the total demand in the scale of national economy, it should make state. If the state will do (and pay) great entrepreneurs order that will cause additional hiring labor. Getting salaries cost, past unemployed will increase their spending on consumer goods and this will increase overall economic demand, and this in turn will increase total supply of goods and services and economic recovery.

Monetarism - macroeconomic theory, one of the main areas neo-conservative economic thought. It appeared in 1950 as a series empirical research in the field of currency circulation.

Key provisions

1. Regulating role of state in the economy should be limited to control over monetary circulation.

2. Market economy - self-regulatory system. All the negative signs related to stay overweight state in the economy.

3. Money supply to affect the consumers' firms. Increase money supply leads to the growth of production, and after full loading of opportunities - to inflation and prices.

4. Inflation must be overcome by any means, including a by reducing social programs.

5. When choosing a money growth rate should rule "Mechanical" money supply growth, which would reflect two factors: level of expected inflation and the growth rate of public product.

According to the views of monetarist money is the main area which sets the movement and production development. The demand for money is constant tend to increase and to ensure consistency between the demand for money and their proposal to conduct a course for gradual increase money in circulation. State regulation should be limited to control over money turnover.

1.3 Regulation of foreign trade

Foreign trade policy subdivided into following basic groups: tariff (custom duties) and non-tariff (quantitative restrictions, other non-tariff methods, trading - political methods of stimulation of export, trading contracts and agreements).

Tariff regulation

Custom duties are a list of the customs duties with which the goods are assessed at their import and export. The customs duties represent some kind of the tax raised at crossing by the goods of customs border the one who these goods import or take out. The customs duties raise goods cost as the exporter (importer) it is compelled to compensate the expenses on payment of the duty at the expense of increase in the price at the goods. High import duties make foreign goods noncompetitive in home market and used for protection of national manufacturers of the similar goods.

Duties: ad value - raised in percentage of goods cost; specific - raised in the form of a certain sum of money from weight, volume or goods piece; mixed, a simultaneous application ad value and specific duties.

According to this law the Custom duties of _Ukraine are systematized according to the Ukrainian classification of the goods of foreign trade activities - the list of rates of the import customs duties raised from the goods which are imported on customs territory of Ukraine.

The Ukrainian classification of the goods of foreign trade activities (national variant of the qualifier of the Commodity nomenclature of foreign trade activities) which is based on Harmonized system of the description and coding of the goods of 2007 is put in a basis of the commodity classification scheme of Custom duties of Ukraine (the commodity nomenclature).

The duty which is subject to payment, pays off customs body under the rates of the tariff operating at date of giving of the customs declaration.

The custom duties rates of Ukraine are divided as follows:

Preferential rates, including clearings of duty payment, are applied to the goods occurring from the countries, entering together with Ukraine in the customs unions or forming special zones or to which the special mode according to the international contracts is given, and also an origin from a number of developing countries;

Preferential rates are applied to the goods occurring from the countries, using on Ukraine by a most favored nation treatment;

Full rates are applied to other goods.

Non-tariff regulation

Quantitative restrictions, other non-tariff methods, trading-political methods of stimulation of export, trading contracts and other non-tariff methods of regulation of foreign trade activities. Quantitative restrictions include quota and licensing.

Quotas are limiting volumes of the certain goods which are authorised for importing to (export) on territory of the country during certain term. Quotas are individual, limiting import (export) in one concrete country; group, establishing volume of import (export) in certain group of the countries, and also global when import (export) is limited without instructions of the countries on which this restriction extends.

Licences are permissions to import (export) of the goods during any time, given out by competent bodies (Ministry of Economy).

Licences are general which represent permissions to import (export) operations with the certain goods during all period of validity of a mode of licensing. Besides, licences are individual, resolving to one subject of enterprise activity realisation of one import (export) operation on the licensed goods. Licences establish volumes of the imported (taken out) goods in quantitative expression when it is authorised to import to (take out) certain quantity of the goods, or cost expression when under the licence it is possible to import to (take out) the goods for the certain sum.

Quotas and licenses limit independence of businessmen concerning a choice of the market and trade volume, however, these kinds of the external economic regulation have gained now the greatest distribution.

Except quantitative, non-tariff methods of the foreign trade regulation complication of customs procedures, increase in quantity of the necessary documentation, increase of requirements concern quality of packing and marks, an establishment phytosanitary, veterinary and other kinds of the sanitary and ecological control. Various taxes to import and export concern not tariff methods over the duty, the currency restrictions connected with reception of the permission to use of currency for import purchase, etc.

The state can take measures also on unfair competition suppression at foreign trade activities realisation, in particular, dumping that sales of the goods under the prices below international commodity market. The establishment of the facts of a dumping in Ukraine, for example, is done by the claim to the Ministry of Economy of Ukraine or the State committee on the prices. In case of an establishment of the fact of a dumping to the Ukrainian or foreign businessmen the antidumping duty can be applied.

Except antidumping duties can be applied as well countervailing duties which are raised in case of an establishment of that fact, that the exporter by goods manufacture used the state grants that has allowed it to underestimate the price for the goods.

Measures of stimulation of export have for an object encouragement of the national enterprises-exporters. These measures include subsidizing (grants), preferential crediting, the state insurance of export (when the exporter has an opportunity to sell the goods and the risk of non-payment by the importer of the put sum incurs the state), carrying out of a special currency policy (maintenance of the underestimated rate of national currency), tax privileges to exporters (clearing of a part of profit taxes or the income of payment of the tax to the added cost), information, consulting service, a professional training for foreign trade, diplomatic support of exporters. These measures are applied usually in a complex, therefore it is necessary for exporter to be guided in stimulation system to take advantage of possible privileges.

The inclusion of Ukraine in world economic relations requires a major adaptation of its structure, the entire economic mechanism to extremely severe requirements, which dictate the world economy and its economic institutions. Slowing the pace of reforms and policy uncertainty puts Ukraine in the face of losing the chance of joining the world community. The important factor for reform in Ukraine is restructuring the economy.

CHAPTER II. MODERN TRENDS OF FOREIGN TRADE DEVELOPMENT OF UKRAINE

2.1 Evaluation of export potential

Export is considered as took out outside the country of commodities for realization of them at the oversea market or as an amount and cost of the commodities taken out abroad. However, if to consider an export as substantial factor of influence on the economic growth, on integration of country in a world economy, then it gets trait of potential that means the hidden ability to provide achievement of the set purpose and decision of certain problem of community development. Such dualistic look at essence of export has an important value for deepening of methodological basis of directions lay-out of its development, increase of possibilities of positive influence on the economy of country. Samuelson and Northous determined an export as commodities and services which are produced inside a country and are for sale abroad. An export consists of export of goods and services.

Beginning from 2000 Ukraine is having an economic growth accompanied by unstable traces of the movement of the GDP, products of agriculture, investments, comsumers expenditure and the foreign trade indicators .

The data in Table 1 show that the rate of the change in the exports correspond to the increase of the GDP value, while the decrease of the rates of its augmentation in 2005 are very much associated with an abrupt decrease in the exports deliveries under conditions of a rising political non-stability in the country. The estimation of the investment of the foreign trade into the process of the economic growing is very contradictive, since between 2005 and 2007 the economy’s losses due to the negative balance amounted to $ 18.5 milliard, and according to a forecast for 2008 that value is expected to be at the level of $ 12.5 milliard .

A weak link in Ukraine’s foreign trade is the exports structure, in which 3/4 is the raw materials and the primary processing products. Because of delay in the restructuring of the economy, the most important exporting opportunities are still concentrated in traditional industrial and raw materials branches. The largest commodity groups in the structure of the exports of the industrial products there are the basic metals (42.8 %), minerals (10 %), chemicals (almost 9%) and other raw materials products (12%) (Table 2). The structural dynamics of Ukraine’s industrial exported products shows that the movement of its separate positions contradicts the world trends. For instance, in the exports structure there is rising of the share of the basic metals, while this in the world has a decreasing dynamics. On the contrary, the share of machines, apparatus, transportation means goes down, despite its intensive rising in the global trade.

The competitive advantages of the national producers are accounted for by the availability of specific natural resources, in particular, of the iron-ore raw materials, a developed transport infrastructure, favouring geographical location, low costs of the labour force, low level of the expenditures on the upgrading and renovation of the fixed production funds. Wearing of the fixed funds in Ukraine’s industry is over 50 %, while in the basic export-oriented branch — metallurgy — it amounts to 65 %. Moreover, in this branch almost a half of steel is melted by using the Martin process, while in the world that process is used for production of only 2.5 % of steel. It is metallurgy that the problems of Ukraine’s economy and its exports are associated with. The study shows that the external demand for the products of this industry in fact defines the prospects for the economic growth on the whole, as metallurgy makes a significant share of the commodity exports. Calculations demonstrate that during 1997 — 2005 the GDP and exports dynamics determined the variation of the multiplication coefficient by approximately 1 %, that is 1 % of the decrease or increase in the exports of the metallurgical products was associated with about 1% of a decrease or an increment of the GDP .

Аn analysis of the states of the global markets made it possible to identify the set of the products the demands for which have been rising incessantly for more than decades. The market dynamics of these goods remains even at the present time, which is proved by the indicators of their dynamics and the share in the global exports (Table 3). The global exports of the above given goods rises in average annually by almost 13 %, while their total share in 2006 amounted to 22 % of the total volume of the exports. According to some data, this share in the exports of some countries, for example, the Republic of Korea, Taiwan, is till larger. Due to our calculations, these goods made only 3.7 % in the structure of Ukraine’s exports, though their share rose by almost twice as compared to the level in 2002. The share of the exports of machines for automatic data processing, as well as that for the office equipment components, transistors and semiconductors is very insignificant. It is these kinds of products that are most characterised by the highest rate of the growth (15—16 % annually) and by their importance concerning their share (4.0—3.4 %) in the structure of the global exports, which is typical for the modern informational economy.

The performed analysis shows that Ukraine has non-prospective positions on the global market, for the raw materials oriented exports and an insignificant share of the goods being on growing demands results in losing profits and worsening of the conditions for trading. The structure of the commodities exports of the electronic industry products include computers, office equipment, television-sets, radio-sets, transistors and semiconductors, which in 2006 amounted to 3.4 % and exceeded the cost value of their exporting by 3,3 times as compared to that in 2002 (Table 5). From these tables it is evidently that the increase of export of these highly technological wares is accompanied growth of negative balance through exceeding of volume of import of the resulted positions of analogical foreign wares, that in a transformation period it is possible to consider positive. However, the absence of structural reforms of the Ukrainian economy can result in irretrievable lag from main direction in the globalizing world: wider use of high technologies able to produce scientific products with high maintenance of surplus value. Creation of the technical base for forming of high technologies in all industries of national economy requires the use of effective measures of structural and scientific and technical policy of countries, the result of which adjusting of domestic production of microelectronic components and electronic wares, which are characterized high maintenance of value-added and became the source of the economy growing of Korea, Japan and other countries. Except for industrial sector Ukraine has ponder able agrarian sector. Its potential of which, unlike the traditional participants of world markets of agrarian products (The USA, EU, Canada), yet is not outspent. According to the estimation of specialists, there is involved only third of productive forces of nature and company in Ukraine. Agrarian products of Ukraine are competitive on world markets and entering to WTO, in our view, will not entail substantial problems in this sector. At the favourable state of affairs the volume of export of basic types of agrarian products in 2006 was increased against 2005 in a value term on 315 million dollars and arrived at almost 2,5 milliards of dollars even at diminishing of his volumes in natural indexes (table. 5). However braked development of agrarian sector is through the lacks of pricing on an agricultural produce. Foreign firms which comes to the national market on the Uruguayan agreement buy in an agricultural produce on low regional prices, and difference between them and allows to appropriate not only export but also natural (absolute), rent world prices.

From above-explained it is possible to come to the conclusion, that Ukraine was not yet able to occupy the own reliable niches of supply of the prepared commodities in the world market, but not raw material and low- technological products. Overwhelming part it most point-of-sale partners on the indexes of GDP and export on one person are at considerably higher level .

For development of export potential of Ukraine it is necessary in the nearest prospect: — to promote the competitiveness of the Ukrainian producers on the basis of activation of structural reformation of economy, foremost export-oriented sector; to carry out the high-quality changes of specialization of Ukraine in the world division of labor on the basis of development and realization of complex export strategy, oriented to the increase of part in the export of the innovative and traditional Ukrainian products with the high level of valueadded, increase of grant of highly technological services: — reorient the imported strategy in direction of providing of complex decision of problems of modernization of national industry and active policy of import substitution (limitation of import of the imported commodities is during intensification of analogical production in Ukraine); — to solve the problem of disparate of purchase and imported prices on the products of agrarian sector.

Ukraine foreign trade operations carried out with partners from 200 countries.

The volume of export deliveries to CIS countries amounted to - 35.1% of total exports, Asia - 27,8%, Europe - 25,8% (including the EU - 24,2%), Africa - 6,8 %, USA - 4,3%, Australia and Oceania - 0,1%.

The largest volumes of export deliveries to the Russian Federation - 24.9% of total exports from Ukraine, Turkey - 6.6%, Italy - 4,6%, Belarus - 3,5%, Poland - 3,2 %, Germany - 3,1%, India - 2,9%.

The export of goods also in all major partner countries: Italy - by 89,7%, Poland - by 71.8%, Russian Federation - on 68,2%, Turkey - by 56.8%, Belarus-40, 7%, Germany - by 37,8%, India - 25,6%.

In total exports of goods in January-May 2010, compared to January-May 2009 increased share of ferrous metals - from 27,5% to 30,9%, energy materials, petroleum refining and products - from 4,3% to 7,3%, mechanical machines - from 6,2% to 6,5%, railway or tramway locomotives, Putnam equipment - from 2,1% to 4,1%, fats and oils of animal or vegetable origin - of 4 9% to 5,1%, ores, slag and ash - from 3% to 4,2%.

Volume of exports of finished products made from imported raw materials, was $ 1.4545 billion, which is 77,5% more than in January-May 2009.

Ukrainian exports of more than 50 percent of gross national product of Ukraine.

 Today the main export industries are metallurgy (metal products), agriculture (wheat), machine building and chemical industries, whose share is over 80 percent of Ukrainian exports. The feature of the development of domestic export-oriented industries is their raw nature and high level of dependence on fluctuations in world markets.

Main exports of Ukrainian goods to the Economic Unions:

§ the Asia-Pacific Economic Cooperation (APEC): ferrous and nonferrous metals and articles thereof;

§ CIS: machinery, ferrous and nonferrous metals and products, prepared foods;

§ no-country Central European Free Trade Area (TSEFTA): mineral products, ferrous and nonferrous metals and articles thereof;

§ EU: ferrous and nonferrous metals and articles thereof, mineral products, vegetable products;

§ of the country's manufacturers and exporters of petroleum (OPEC): ferrous and nonferrous metals and products, herbal products.

The volume of exports from Ukraine increased in 2010 comparing with 2009 by 29,6% and amounted to 51 billion 430.5 million U.S. dollars. At the same time imports grew by 33,7% and reached 60 billion 739.9 million dollars.

The largest share (85%) in exports were transport services - 3 billion, including pipeline transport services (52%), sea transport (13%), rail (10%), air transport (6%).

2.3 Export and import flows of services

In January-March exports of services exceeded imports by 1 430.7 million. Told the State Statistics Committee, submit the "Ukrainian News".

According to Goskomstat, service exports in January-March 2010 was 2 557.4 million, an increase of 19,6% compared with January-March 2009.

Imports of services amounted to 1 126.7 million, decreased by 0,2% compared with January-March 2009. The increase in services exports was primarily due to growth in services exports pipelines - in 2,3 times to 959.2 million dollars, travel - by 16.4% to 50.3 million dollars and transportation services - 33 9% to 1 884.3 million.

Imports of services decreased mainly due to imports of financial services - by 22,7% to 228.1 million dollars, various business, professional and technical services - by 11,6% to 188.1 million dollars of services - by 39.4% to 27.7 million, and insurance services - by 46% to 13,2 million dollars. In January-March 2010, service exports to CIS countries increased by 82,1% compared with January-March 2009 to 1 370.0 million.

Imports of services from the CIS in January-March 2010 increased by 13,2% compared with January-March 2009 to 179.7 million dollars.

It was reported that in 2009 exports of services exceeded imports by 4352 million. Exports of services in 2009 amounted to 9 520.8 million, decreased by 18,9% compared with 2008. Imports of services amounted to 5 168.8 million, decreased by 20,1% compared with 2008.In 2009, service exports to CIS countries decreased by 10.3% compared with 2008 to 3 808.7 million.

In recent years, Ukraine has passed most of the hurdles of postcommunist economic transformation. Macroeconomic stabilization was accomplished long long. Prices and trade are liberalized. Privatization has proceeded so that about two-thirds of GDP arises in the private sector. For the last three years, Ukraine has had a sound average economic growth of over 6 percent a year, and it is likely to stay around 6-8 percent a year for the foreseeable future.

A fast economic restructuring is taking place. Industries in which Ukraine appears to have comparative advantages have grown particularly fast: steel, food processing, agriculture, and light industry. Within each sub-industry a desirable consolidation of 3-5 leaders is apparent. Although a few oligarchic groups hold out, they are becoming more normal conglomerates, and a sizeable number of new large and medium-size corporations have emerged. While corruption and repression remain problems, business surveys undertaken by the European Bank for the Reconstruction and Development (EBRD) and the World Bank in 1999 and 2002 suggest great improvements. Ukraine's transition to a market economy has succeeded.

In this situation, foreign trade attracts new attention for many reasons. First, with an official GDP at current exchange rates of about $40 billion, the Ukrainian economy is rather limited, and access to export markets is critical for future economic growth. In recent years, Ukrainian exports have expanded fast by slightly over 10 percent a year and are driving economic growth, but clearly much more can and should be accomplished. The old adage "trade rather than aid" describes what Ukraine needs now.

Second, the Ukrainian economy is very open with exports corresponding to about half of GDP, and exports have increased at over ten percent a year for the last three years. Exports comprise the growth engine in the Ukrainian economy.

Third, while the domestic market in Ukraine appears to work reasonably well, regional distortions in foreign trade are all too apparent. The most recent statistics for 2002 demonstrate that as little as 19 percent of Ukraine's exports went to the European Union (EU). According to the gravity model, which assesses how much countries should trade with one another, given the size of their economies and the distance between them, it should have been about 60 percent. Meanwhile, the share of Ukrainian exports going to Russia has fallen steadily to only 17 percent last year. Instead, Ukraine is increasingly exporting to all kinds of new distant Third World markets in Asia and the Far East, notably China, and the Middle East, which are more open. It is more important that exports grow than where they go, but this is not a normal development. With little doubt, this represents trade distortion, and Ukraine would benefit if it were able to export more to big markets in its neighborhood. Although Ukraine is a very open economy, agriculture is considered to be 93 percent self-sufficient, suggesting substantial sectoral distortions as well.

Fourth, Ukraine suffers from a predominance of so-called sensitive products in its exports, that is, goods that are particularly exposed to protectionist measures by other countries. They account for about three-quarters of Ukraine's total exports. Steel comprises 40 percent of Ukraine's exports, while each of the three sensitive commodity groups, agricultural goods, chemicals and textiles, account for over 10 percent. According to the WTO, Ukraine came in the 10th place in the world in terms of suffering from actual antidumping measures from January 1995 to June 2002, with no less than 37 antidumping measures concluded by various countries.

Fifth, Ukraine is now facing critical changes in its foreign trade agreements. Its negotiations about accession to the World Trade Organization (WTO) are approaching their final stage. The EU is suggesting that its Partnership and Cooperation Agreement (PCA) with Ukraine should be replaced with an agreement on a Common European Economic Area (EEA). The Presidents of Russia, Ukraine, Kazakhstan and Belarus just signed a declaration of their intention to negotiate a free trade zone. Thus, Ukraine is facing monumental decisions on its foreign trade relations in all directions.

Yet, sixth, although Ukraine is facing so many important problems and decisions in foreign trade, trade issues have been all but ignored in the country until recently. The preoccupation with getting the domestic market economic reforms has been so great. In the mid-1990s, Ukrainians had a tendency to blame the outside world for their hardships. Now, on the contrary, Ukrainians tend to blame themselves for whatever problems they encounter. While an admirably humble attitude, it does not necessarily reflect the truth.

There are always many barriers to trade. First, everybody mentions the problem for exporters to obtain a value-added tax refund. Another query is what the Ukrainian economy looks like at enterprise level, but it appears a rather normal market economy. Then, the three big trade issues come, trade relations with the EU, trade with Russia and WTO accession. The EU should be Ukraine's main export market, but its imports from Ukraine remain surprisingly low, while Ukrainian exports to Russia are swiftly dwindling. WTO accession appears to be the key to Ukraine's trade policy. Agricultural concerns are a topic on their own, but they appear to be less severe than widely presumed.

Ukraine has great export potential. With an area of ​​0.4% of the total global land and the population at 0,8% of global, Ukraine makes 5% of world mineral and food processing. The main strategic goal for Ukraine - the transition to economic development, export oriented and, therefore, the production of goods able to compete in the global market.

A fast economic restructuring is taking place. Industries in which Ukraine appears to have comparative advantages have grown particularly fast: steel, food processing, agriculture, and light industry. Within each sub-industry a desirable consolidation of 3-5 leaders is apparent. Although a few oligarchic groups hold out, they are becoming more normal conglomerates, and a sizeable number of new large and medium-size corporations have emerged. While corruption and repression remain problems, business surveys undertaken by the European Bank for the Reconstruction and Development (EBRD) and the World Bank in 1999 and 2002 suggest great improvements. Ukraine's transition to a market economy has succeeded.

Since 1996, Ukraine has repeatedly stated that it wants to become a member of the European Union at the highest official level. The EU has however cold-shouldered them, although Article 49 of the Treaty of the European Union stipulates that any European state may apply to become a member of the European Union. Many European politicians and EU commissioners have publicly ruled out Ukrainian membership of the EU, but formally the question remains open. A broad Ukrainian opinion favors the country's "European choice," though its implications are usually left open.

The institutional cooperation between the European Union and Ukraine has been rudimentary. The EU offered Partnership and Cooperation Agreements (PCA) to the CIS countries, which were little but a codification of WTO principles for non-WTO members. They do not offer any trade concessions beyond what the EU accords to its WTO partners, while the EU has concluded free trade agreement with many other countries. Ukraine has been treated as one CIS country among many. The Ukrainian PCA was concluded in 1994, but it did not come into force until 1997. It is valid for ten years and can be prolonged. Although it is comprehensive, covering political dialogue, trade in goods and services, economic, environmental, scientific, cultural and legal matters, it contains little of substance. The EU's only subsequent trade policy advance to Ukraine is its conclusion of a textile agreement that eliminated its import quota system.

The contrast between the development of exports to the EU from the ten post-communist EU candidate members in Central-Eastern Europe (CEE) and the CIS countries is huge. Barely half of the exports from the former went to the EU in 1989, rising to 67 percent in 2000. By contrast, 33 percent of Soviet exports went to the EU in 1989, but by 2000 that share had fallen slightly to 31 percent, according to IMF statistics. With exports to the EU of only 16 percent of its total exports in 2000, Ukraine was especially disadvantaged in spite of its vicinity to the EU. Given economic geography - Ukraine's location, transportation routes and the relative size of adjacent economies - the EU should be Ukraine's all-dominant export market buying 60 percent of its exports. Through regression analysis, Peter Christoffersen and Peter Doyle have established that the growth of potential export markets has been one of the most important determinants of growth in the transition countries.

One reason for the disparity in EU trade between the CEE and the CIS countries has been slower economic reforms in the CIS countries, but another reason has been diverse EU trade regulations. The EU has developed an elaborate hierarchy of trade treaties, ranging from simple trading partner to full member-state. As countries on the way to be full members, the CEE countries are close to the top of this hierarchy, while the CIS countries are at the bottom. The EU offered favorable Europe Agreements to the CEE early on, which committed all parties to eliminate tariff and non-tariff barriers on industrial products by the end of a ten-year period, which ended in 2001 or 2002. They were asymmetric to the benefit of CEE. Agricultural products are subject to preferential treatment under tariff quotas. On January 1, 1998, the EU lifted quantitative restrictions on imports of textiles and clothes from CEE.

The CEE countries are considered market economies by the EU (and the US), which means that an antidumping investigation is based on their own prices. The CIS countries, on the contrary, have been labeled "economies in transition" by the EU, which signifies that they are treated as state-trading countries and an antidumping investigation is based on a hypothetical country's (much higher) prices. Recently, Russia and Kazakhstan have been recognized as market economies of the EU and the US, and Ukraine should be able to make that grade very soon. The last EU objection is that the state plays too great a role in the Ukrainian economy, while the US last year rejected Ukraine as a market economy because of tax benefits for the steel industry, which have since been abolished.

Unlike the Central European economies, the major CIS countries are not members of the WTO. To date, four small CIS countries have become members of the WTO, the Kyrgyz Republic, Georgia, Moldova and Armenia, while all the others are at various stages of their accession.

Altogether, there is a world of difference in EU treatment of the CEE and CIS countries, respectively. CEE is about to become EU members, while the CIS countries have no associate status, no customs union or free trade arrangement. Largely, they are not even members of the WTO or recognized as market economies by the EU. Their trade status is reminiscent of "open season," and the US offers similar treatment.

These differences in status are reflected quite consistently in trade treatment and their total effect is significant. Even before their entry into the EU, the CEE countries get 80 percent of lines duty free to compare with, while 54 percent of lines for the CIS countries as GSP beneficiaries. GSP (Generalized System of Preferences) are trade benefits designed for developing countries, but they are not very beneficial for the CIS countries. For very sensitive goods - textiles, metals and many agricultural goods, most-favored nation (MFN) duty rates are reduced by only 15 percent, and for sensitive goods - chemicals, many agricultural goods, footwear, plastics, rubber, leather goods, wood, wood products, paper, glass copper, etc. - MFN tariffs are reduced by 30 percent. Only non-sensitive goods, which are not very significant in Ukraine's export, are duty-free. Moreover, the GSP regime suffers from many weaknesses. The supposed beneficiaries do not conclude any contract and therefore have no recourse to any dispute settlement conflict. The rules of origin are onerous, while special simplified agreements have been reached with CEE. GSP tariff reductions are less than those the EU accession countries get. Besides, Ukraine is so developed that it can easily be deprived of GSP because of too high economic development. Strikingly, nobody even talks about GSP in Ukraine.

Patrick Messerlin assessed EU Protection by industry in 1999. He put the level of overall protection for the whole of the EU economy at almost 12 percent. EU protection however varies by commodity, with rates of overall protection exhibiting wide differences by sector. Messerlin studied ordinary customs tariffs, major border non-tariff barriers (quantitative restrictions and antidumping measures), while he has ignored all the non-border barriers, that is, an array of norms and standards.

The simple average of all existing EU tariffs on goods was 7 percent in 1999. They are not very high, but protection is much higher for goods that Ukraine would like to export. Besides, if other costs in the CIS countries are similar to CEE countries, even small barriers can rule out imports from the CIS countries. The CIS countries generally have a cost advantage compared to the CEE countries through lower wages, but this is counteracted by higher transportation and other costs.

EU trade policy is more restrictive than simple average tariffs indicate, especially for the sensitive products, agriculture, steel, textiles, clothes and chemicals. Non-tariff barriers include variable levies in agriculture, voluntary export restraints in industrial sectors (notably in textiles and clothing), quotas on imports from centrally planned economies (to which the EU counts Ukraine) and antidumping measures. The peaks of overall protection are very high. The maximum tariffs exceed prohibitive 200 percent for certain agricultural goods. Also these EU measures are persistently milder for CEE countries than CIS countries. For instance, the number of antidumping cases that the EU instigated against the CEE countries from 1990-99 was 42, admittedly almost equal to the 41 initiated against the CIS countries, but the duties imposed against the CIS countries were about twice as high as those levied on the CEE countries .

EU agriculture is particularly well protected. The simple average tariff is estimated at 17.3 percent (WTO 2000, p. xix), but the actual protection is often prohibitive for the CIS countries because of variable levies an