Models of legislation on social enterprise

Turning to commodity composition by destination markets, Figure 13 and Figure 14 illustrate the composition of Ukrainian trade with the EU and Russia in 2008. The asymmetry is easily observed. Trade with Russia is reminiscent of intra-industry trade, with similar goods being exchanged between the two countries. Moreover, Ukraine is running a positive balance in most product categories, including the highest positive balance in technology-intensive industries of machinery and equipment, with a negative balance only in mineral products (due to high oil and gas dependency on Russia) and chemicals. Trade with the EU, on the contrary, is more representative of a North-South pattern of trade, whereby Western economies export high-value added products to an emerging economy and import raw materials and products with a low degree of processing. Ukraine has a positive balance with the EU only in iron and steel, energy and low value-added agricultural products. In all other lines there is a huge negative balance, especially in technology-intensive goods – machinery and transport equipment – reflecting the fact that EU is a major source of technological upgrading in Ukraine. Indeed, as Annex 3 shows, intra-industry trade (IIT) with the CIS has been about twice as high as with the rest of the world in 2000 – 60 percent versus 28.7 percent, the former being quite high by international standards and approaching the level of OECD countries. Moreover, no significant change has been observed since 1996. In trade with CIS the level of IIT increased by 2 p.p., while with the rest of the world only by 1 p.p. Among all CIS members, Ukraine has the highest level of intra-CIS IIT (Freinkman et al., 2004).

Figure 13. Commodity composition of Ukrainian trade with the EU, 2008

Source: European Commission (2010)

Figure 14. Commodity composition of Ukrainian trade with Russia, 2008

Source: Tsvetkov (2009)

A useful insight can be gained from making a similar comparison with the two new EU members – Bulgaria and Czech Republic (see Figure 15 below). In 1988 these two countries had very similar trade relations with the EU – both countries were net importers of machinery and equipment, and net exporters of fuels and energy. In 2002 the picture was very different.

Bulgaria remained a net importer (with big trade deficit) of machinery and transport equipment, whereas Czech Republic’s trade has become more of an intra-industry type, with high inward and outward trade flows in technological goods. Therefore, a positive evolution of the commodity composition in trade with the EU, and hence closer economic integration, is not the only logical consequence of political integration and is not a self-reinforcing process – even having a free trade agreement with the EU and deeper cooperation in many other areas may not be sufficient to promptly boost competitiveness of some of the EU members. The chapter will look at a more detailed picture of Ukrainian exports to the EU below, to reveal any emerging signs of improving competitiveness.

-15,000 -10,000 -5,000 0 5,000 10,000 15,000

M&E, and transportation Agriculture and food Mineral products

USD million

UA exports UA imports Balance

Figure 15. Evolution of trade balances between EU and Bulgaria and Czech Republic (ex-Czechoslovakia)

a) Trade balances of the EU in trade with Bulgaria and Czechoslovakia, 1988

Source: Smith (2000), Chapter 4.

b) Merchandise trade of Bulgaria with the EU, 2002

Source: http://trade-info.cec.eu.int, retrieved on 8 December 2003

c) Merchandise trade of the Czech Republic with the EU, 2002

Source: http://trade-info.cec.eu.int, retrieved on 8 December 2003 3.3.2.1. Top markets and products

Table 3below further describes the commodity and geographic distribution by top destination markets and top export products. In 2005 there was an observable geographic reorientation of exports – four of the top 5 importers were EU customs union members, which was not the case in 1999, Belarus and China both not featuring among the top five. Russia remains Ukraine’s by far most important export partner throughout the years, although its share was shrinking sharply between 1996 and 2004 – falling from 39 to 18 percent. Since 2005, however, as was discussed above, reorientation has somewhat reversed – the share of Russia and other CIS economies has grown substantially, Russia recovering to 24 percent, and Belarus re-emerging as one of the top five trade partners again in 2008, with a share of 3 percent of Ukraine’s total exports. Germany is no longer in top five, and only three of the top five are members of the EU customs union, although their share is still rather high, at 15 percent, compared to only 6 percent in 1996. In terms of geographic distribution of exports trade structure has become less concentrated, with top 5 partners now accounting for 41 percent, compared to 54 percent in 1996. However an alternative calculation shows that product structure, on the contrary, became more concentrated. If in 1996 the top ten products (at 2-digit level according to HS 1996 classification) accounted for 64 percent of total exports,

1.4

in 2008 this share was 74 percent, which was mainly due to a 10 p.p. increase in the share of metals.⁶¹

In terms of top commodities, little restructuring seems to have occurred, apart from trade with Russia. Now all top four commodities exported to Russia, after iron and steel, are high- to medium-technology intensive products. In trade with Belarus electronic equipment emerged as one of the top five. With the rest of the countries no visible qualitative change in the commodity structure has occurred. Turkey became a member of the EU Customs Union in 1996, which might explain the disappearance of live animals from top five products, but other than that export structure has undergone little change.

Table 3. Top five export partners and top five export lines

1996 2000 2005 2008

28 Inorganic chemicals 31 Fertilisers 27 Mineral fuels, oils 85 Electrical and

61 Author’s calculations based on data retrieved from UN Comtrade Online Database.

steel steel 40 Rubber and articles

thereof

31 Fertilisers 44 Wood and articles of wood

27 Mineral fuels, oils 27 Mineral fuels, oils 84 Nuclear reactors, boilers,

29 Organic chemicals 23 Residues, wastes of food industry

Source: UN Comtrade Database, HS 1996 classification.

3.3.2.2. Commodity diversification by destination markets

In addition, a simple test was conducted of the extent of diversification of exports and imports with different trade partners by taking top ten countries in terms of the number of HS 1996 tariff lines (disaggregated at 6-digit level) they bought from or sold to Ukraine in 1996, 2000 and 2005, as shown in Table 4 and Table 5 below.

Table 4. Diversification of exports, top 10 destination countries

1996 2000 2005 2005/1996 % ch. 2005/1996

Note: diversification by 6-digit tariff lines in HS 1996 classification.

Source: UN Comtrade Online Database, accessed in February 2007.

Table 5. Diversification of imports, top 10 countries of origin

1996 2000 2005

Note: diversification by 6-digit tariff lines in HS 1996 classification.

Source: UN Comtrade Online database, accessed in February 2007

The striking feature of export data is that most of the top ten countries listed in Table 4 are either CIS or former Comecon members (Poland, Latvia, Hungary), with the exception of Germany and USA. While exports to Russia are still the most diversified, the number of products Ukraine sold to Russia in 2005 was 15.2 percent less than it was in 1996. The same negative trend is observed with Belarus. Imports from Russia have also become more concentrated, with the number of tariff lines shrinking by 10.4 percent. In general, changes in overall nomenclature of products in the period 1996-2005 for both exports and imports are not that high - +2.8 and +3.7 percent respectively, but one can see that with many countries Ukraine has experienced more than doubling of export (with Kazakhstan, Azerbaijan, Georgia and USA) and import lines (particularly with China and Belgium, whose role in terms of diversification structure was very low in 1996). Changes in export structure, however, first of all reflect not an East-West reorientation, but rather East-within-East: it is mainly with CIS economies that Ukraine manages to significantly broaden the range of exported products. As far as imports are concerned, the dominating role of non-CIS economies driving the diversification trend, first of all Germany, Italy, China, France, Turkey, the Netherlands, reflects the fact that CIS economies cannot fully satisfy either the consumers’ tastes, or the demand for new technologies and capital investment products. Export diversification has been shown to be positively associated with economic growth in transition economies, including Ukraine (Funke and Ruhwedel, 2005), therefore it is an important trend that Ukraine is

undergoing an increase in product variety, in particular with West European economies (Germany, USA), which are more demanding markets.

3.3.2.3. Sectoral dimension

Moving to a sector-by-sector analysis, from Figure 15 below (see Annex 5 for a numerical breakdown) one can immediately notice a clear U-shaped trend of exports to CIS in most sectors.

Figure 16. Geographic distribution of exports by commodity categories, 1996-2008, % of exports of respective commodities⁶²

a) b)

c) d)

62 The categories include the following two-digit level HS product lines: a) 01-15; b) 16-24; c) 84 and 85; d) 28-40; e) 72-83; f) 25-27, 68-71; g) 50-67; h) 86-89; i) 44-49.