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Where there is no law, but every man does what is right in his own eyes, there is the least of real liberty
Henry M. Robert

EXPORT AT A LOSS Or why Ukraine longs to trade at any cost

13 November, 2012 - 00:00

Ukraine is a very dependable country in terms of its exports and imports with exports and imports about 37-38% of GDP. This dependability is becoming even worse because of the lingering production decline which resulted in decrease of consumer's demand on domestic market. This is why domestic producers are trying to export their goods to solvent foreign markets.

Someday Ukraine will increase its own consumption and put an end to this problem, but at this stage we still need to build up our foreign trade potential. Unfortunately, we cannot condone this.

According to absolute numbers the most successful year during our independent state was 1996, when total amount of foreign trade amounted to $37.9 billion (exports were $19.1 billion). But the following year saw a tendency to decline, and this process continues. Among our neighbors only the Czech Republic, Slovakia, and Bulgaria are behind us (2-2.5 times), Poland and Hungary are ahead of us (2-3 times). Simultaneously the annual foreign trade of Singapore reaches $300 million and Japan over $1 trillion. These numbers are fantastic for us.

The structure of our export seems to be quite trivial. Every year the share of ferrous materials grows (40%) as does that of chemical products (over 10%) – these factors lead to technological capacity. The market share of food industry products has decreased almost in two times for the past years. Export of sugar, alcohol, and crop production goods has slumped 1.5 times.

QUOTAS AND ANTIDUMPING BARRIERS

Low quotas and high (but fair) European standard requirements seem to be an obstacle for our agricultural and industrial products finding foreign markets.

Moreover, antidumping measures are taken against Ukrainian strategic export products (coal iron and steel industry products). Such measures are one of the tools of "legal" protectionism allowed in the countries belonging to the World Trade Organization (WTO).

During 1996-97 the access of Ukrainian coal, iron, and steel products to markets in the USA, Canada, Chile, Indonesia, and Thailand was very limited. Soon India, Mexico, Egypt, South Africa, and Malaysia will follow their example. The same thing has happened with ferrous alloys and magnesium in the USA and EU.

One of the reasons for this is the fact that Ukraine is not a member of GATT/WTO system which protects its members against crude protectionism.

ASSISTANCE WITHOUT MUTUALITY

Ukraine signed accords on free trade zones (FTZ) almost with all countries of the former USSR and more than 60 accords on maximum assistance regime (MAR) with other countries. (FTZ provide for zero tariffs, MAR reduced tariffs). Giving foreign goods advantages in the access to our domestic market we expect to have the same under conditions of mutuality. Decrease of the proceeds from tariffs into state budget should have been compensated by a tax revenue increase due to export growth. This, however, did not happen because of chronic tax nonpayments. Our authorities did not even conduct a thorough analysis of the balance of losses and additional revenues.

Ukraine was not able to elaborate a well-defined mechanism, which would have defined the procedures and time of tariff preference application in trade in order to guarantee the completeness and simultaneity of their promotion.

REMISSIONS GIVEN AUTOMATICALLY

It may have happened because our country was expected to enter the GATT/WTO system which stipulates common approaches, rules, and standards in every aspect of trade policy: from permissible levels of customs duties and unified customs documentation to fair procedures in antidumping investigations and settlement of trade disputes through arbitration. In this case all antidumping sanctions would not be applied to our exporters.

In addition, the GATT/WTO system provides for the operation of a maximal assistance customs regime (MAR). According to MAR it is not necessary to make bilateral trade agreements (which would take much time and expense). This regime also stimulates the diversification of foreign trade.

Despite all the advantages of GATT/WTO Ukraine is not moving ahead because the requirements for entrance are not met. In particular we have very high and unstable customs tariffs and our system of standardization and certification is oriented on the creation of "technical barriers." The financial and trade problems foreign companies face in Ukraine can often be resolved only through political pressure on the government.

SOMEWHERE IN THE FAR CORNER OF STATE ATTENTION

At the beginning of this year there were more than 6,500 representative offices and branches of foreign companies in Ukraine. At the same time Ukrainian companies are not that numerous: about 100 joint-ventures and representative offices giving sea and air transport services.

We are not capable of trading on foreign markets yet. Domestic exporters do not venture to sign other contracts than those on FOB and DAF conditions. However, shipments on CIF conditions (to the ports of the countries-buyers) are extremely rare despite the fact that under such conditions the exporter receives a bigger profit. And using dealer and trade networks this profit could be considerably increased, more stable, and predictable. World experience shows the efficacy of work according to the following scheme: goods production – export – marketing – guarantee service – post-guarantee service. But the Ukrainian government pays little attention to this universal scheme. We have no export stimulation systems – due to the absence of credit and insurance of export operations. In addition we do not have an information and consulting center with branches throughout the country which could provide assistance to potential exporters. And the main point is that we lack a tax system to stimulate exports.

Using their advantages, foreign companies are successfully working on our market, giving us an example of effective and aggressive trade policy. The knack of effective trade with the rest of the world does not appear by itself, and it seems that our country is making no progress in this domain.

 

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