May 16, 2014

Foreign Economic Cooperation of Ukraine: State, Prospects of Development, Threats and Risks

1. Modern factors of influence on the development of Ukraine's foreign trade

1. Modern factors of influence on the development of Ukraine's foreign trade

2. Analysis of world regional markets in the context of Ukraine's interests

  2.1. The post-Soviet space

    2.1.1. The Russian Federation and the CU/CES

    2.1.2. Other post-Soviet countries

  2.2. Western Europe

  2.3. Central and Eastern Europe

  2.4. Baltic States and Scandinavia

  2.5. Balkan region

  2.6. Middle East

  2.7. Near East

  2.8. Eastern Asia

  2.9. Southern Asia

  2.10. Southeast Asia

  2.11. Northern Africa

  2.12. West and Central Africa

  2.13. Latin America

  2.14. North America

3. Measures for the Protection of Foreign Economic Affairs of Ukraineы

Appendix. Statistics for Ukraine's Foreign Trade in 2013

Foreign trade is a major source of filling the state budget of Ukraine. Last year, the development of trade and economic cooperation between Ukraine faced a number of problems, the key ones among which were associated with the diversification of the geopolitical and regional priorities of the Ukrainian state. A number of other negative factors also had a decisive impact on the development of foreign trade:

  • unfavorable for Ukraine situation in key world markets;
  • uneven development of different countries;
  • redistribution of financial flows and assets;
  • fluctuations in world currencies and raw material prices;
  • instability of the national currency;
  • aggravation of problems in the economic, trade and political relations with Russia;
  • irrational structure of domestic exports, which is dominated by raw materials and products with low levels of processing;
  • low competitiveness of Ukrainian goods and services;
  • increasing financial obligations because of untimely payment of Ukrainian enterprises with foreign partners.

Globalization of world commodity markets and economies, growing importance of foreign economic and trade relations, development of international cooperation are responsible for the more and more close integration and interdependence of foreign trade and the domestic economy. However, the critical dependence of Ukraine on external markets is one of the major constraints affecting the economic development of the state. Therefore, the large-scale crisis in the international economy limits the ability to build up and geographically diversify our exports, which adversely affects the economy of Ukraine.

At present, in the world economy a more rapid growth is shown by the countries of the “Great Seven”, in contrast to the group of the BRICS and other “new” markets, where there is a limitation of the growth in consumer demand, for traditional commodity groups of the Ukrainian industrial exports (metal, engineering goods and chemicals) included.

Especially negative impact on the dynamics of Ukraine's foreign trade will have the probable economic slowdown in China and Russia. On the other hand, these negative processes will have smaller impact on domestic agricultural exports, as in developing countries will continue dynamic increase in demand for food. Besides, with a positive scenario of development of the global metal products market (including overcoming the crisis in the industry in China and Turkey, as the main players in this market), Ukraine will have opportunities to improve the balance of its foreign trade.

Apart from the influence of global trends in the world economy, socio-economic changes in regional markets will also depend on the impact of risks in political and security spheres, associated with:

  • deterioration of the West's relations with Russia (including introduction of mutual economic sanctions) because of the occupation of the Crimea, supporting separatist movements in the south and the east of Ukraine;
  • complication of general security situation in the Black Sea basin. This can cause formation of new challenges to economic security, primarily in Eastern Europe and the Baltic States, the South Caucasus, Turkey and the countries of the Customs Union;
  • holding the next election cycle in the EU (including in countries with priority status and leading economic partners for Ukraine, especially Hungary and Slovakia), in some G-20 countries (namely, Brazil, India, Indonesia, South Africa and Turkey), as well as in Iraq, Algeria, Egypt, Colombia;
  • growth of the risk of further increase of instability (due to social unrests) in Argentina, Bolivia, Venezuela, Bahrain, Yemen, Nigeria, Greece, Bosnia and Herzegovina;
  • preservation of the threat of escalation of military conflicts in the Middle East and North Africa region (Syria, Lebanon), in Africa (South Africa, Congo, Mali, Sudan/South Sudan) with the prospect of expanding the existing zones of instability.

2. Analysis of world regional markets in the context of Ukraine's interests

2.1. Post-Soviet territories

Positions and influence of the Russian Federation in the post-Soviet territories are strengthening, despite the increase in negative trends in the Russian economy, as well as the gradual deterioration of innovation-technological development in the most countries of the region. This is due to the use by the official Moscow of a wide range of economic and political leverage within the framework of relevant regional organizations and associations included. However, among the member countries of the Customs Union/Common Economic Space (CU/CES) continues the negative dynamics of the fall in mutual trade. This fall is due to the influence of global trends and the development of economic cooperation of states of the region with third countries. Besides, in the Central Asian region continues growing the influence of external factors, in particular, of China's economic expansion, gradual establishment of relations of the USA and EU with Iran, growing regional ambitions of Turkey, deterioration of the general state of security and additional threats to stability in Central Asia.

2.1.1. The Russian Federation and the CU/CES countries

The current character of Ukrainian-Russian relations shows the official Moscow's willingness to use all the tools to block bilateral trade and economic cooperation (through a full-scale trade war), freezing for an indefinite period of cooperation in the financial and credit and investment spheres, as well as projects in the fields of industrial cooperation and infrastructure.

It is expected that Ukraine's receiving foreign financial assistance and credit funds from the IMF, EU and USA to stabilize the economic situation in the country, will cause forcing by the official Moscow of active measures aimed at ousting of Ukrainian exports from foreign markets (in order to block the inflow of additional currency).

For this purpose, the Russian side most possibly will mobilize all its political and economic resources, abilities of partners in the Customs Union and the potential of oligarchic groups oriented to the Russian authorities. Will be used the Russian military presence in some foreign countries, as well as military-technical cooperation with the countries whose armed forces are equipped with samples of Russian arms. At this, the post-Soviet region will be a key subject to application of the correspondingefforts.

Additional risks for foreign economic cooperation of Ukraine with Russia's partners in the Customs Union can be as follows:

  • President of Belarus Alexander Lukashenko's desire (in the context of the presidential elections in 2015) to obtain from Russia sufficient to maintain social and economic stability and its own political authority volume of preferences in the preparation and signing the agreement on the Eurasian Economic Union (EEU). It is also advisable to take into account the expected growing of influence of Russian businesses structures in Belarus, where there is an increase in their disposition to carry out hostile takeovers of Belarusan enterprises after the signing of the agreement on the EEU (showing unwillingness to pay for the assets located in member countries of the future Union);
  • Kazakhstan's gradual transformation into the most important within the framework of the Customs Union partner for Central Asian countries' investments. This is due to the ambiguous attitude of Asian countries to Russia's actions against the background of the government of Kazakhstan's measures to improve the investment and business climate. This, in its turn, can cause a decrease in the interest of Astana to the domestic market of Ukraine (as a consumer market for Kazakhstan's products) and cooperation with Kyiv (use of Ukrainian products to ensure the rapid industrial development of the country).

The growing influence of Moscow in post-Soviet territories is means the following risks for Ukraine:

  • a significant reduction in exports to Kazakhstan, Belarus, Armenia, Kyrgyzstan, Tajikistan, and an inability to compensate for losses associated with the decline in exports to post-Soviet countries, to Russia included, only due to the introduction by the EU of provisions of the Free Trade Agreement “Ukraine-EU” in terms of import duties on Ukrainian exports;
  • deterioration of indexes of exports to Azerbaijan, Turkmenistan, Uzbekistan;
  • complications of trade and economic cooperation with Moldova, Azerbaijan and Georgia because of security problems in the Black Sea-Caspian region (Trans-Dnister, Nagorno-Karabakh, South Ossetia).

We should keep in mind that the currently existing possibilities of the Russian authorities allow them to apply the tools of partial compensation to the Russian suppliers of products similar to the Ukrainian nomenclature of goods to traditional Ukrainian export markets (North Africa, Middle East, South Asia, as well as some countries in South-East Asia and Latin America) at low prices (as a special form of support to exporters) with simultaneous realization of the policy to discredit Ukrainian producers in foreign markets.

Taking this into consideration, the main risks for Ukraine originating from the Russian Federation, and having an impact on relations with other countries, are as follows:

  • high capacity of the Russian market as a consumer of products from developing countries, in particular China (in 2013 — 53.2 billion US dollars), Turkey (7.3 billion US dollars), Brazil (3.5 billion US dollars), India (3.1 billion US dollars) Vietnam (2.6 billion US dollars), Thailand (2.1 billion US dollars), Argentina (1.1 billion US dollars), Mexico (1.1 billion US dollars). At this, except for India and Turkey, all these countries within the framework of trade with the Russian Federation have a very positive balance. With this in mind, the Russian side can initiate a dialogue with them about the feasibility of eliminating the current imbalances (including through the replacement of Ukrainian exports to these countries with Russian ones);
  • significant influence of Russian exporters in the markets of Mongolia (in 2013 — 1.6 billion US dollars), Algeria (1.6 billion US dollars) and the UAE (2.1 billion US dollars).

It is possible that special emphasis can be placed on shaking out of Ukrainian products from the markets of Syria, Nigeria, Pakistan, Egypt, Iran and Cuba, where Russian companies have the most significant competition from domestic producers.

Into the area of priority attention of the Russian side can also get such traditional partners of Ukraine as Iraq, Saudi Arabia, Lebanon, Jordan, Bangladesh, Tunisia, Indonesia, Malaysia, Libya.

The Russian side (including through energy leverage and inspiration of military intervention) will continue to implement actions to destabilize the situation in eastern and south-eastern regions of Ukraine in order to disrupt or complicate the planting season, to obstruct the work of domestic mining and metallurgical and mining enterprises (products of iron-and-steel industry, food grains and power station coal are among the most important items of domestic exports) and functioning of logistics schemes of supply of Ukrainian goods across the black Sea and Azov ports to North Africa, the Middle East, South and South-East Asia.


2.1.2. Other post-Soviet countries

The main risks for foreign economic cooperation of Ukraine with countries of the former Soviet Union, which at present are not member countries of the CU/CES:

  • Moldova's efforts for the development of national shipping on the river Danube with the support of the Romanian side. This will significantly strengthen Moldova's positions in the Danube region, will create competition not only to the port of Reni, but to the ports of Great Odessa too. Besides, additional dredging in the mouth of the Danube will have negative ecological impacts both, in the context of the impact on the river Danube's flow regime, and in the context of pollution of the river as a result of the discharge of spoil;
  • no special mention of Ukraine in Georgia Government Program on Foreign Relations (Ukraine is included in the list of the countries of the Black Sea basin). This can lead to a decrease in Georgian side's interest to the development of bilateral economic relations, which will most possibly have a negative impact on indexes of foreign trade with this country;
  • Azerbaijan's giving priority within the framework of the strategic direction of the external economic development to questions ensuring stable energy carriers exports to the main partner countries and attracting investments into the economy of the country. Despite this, the Azerbaijani side will not consider the question of hydrocarbon supplies to Ukraine as a priority, which determines the persistence of this issue only on the declarative level without the existence of realistic prospects for its solving in the interests of Ukraine. A limiting factor for the development of bilateral Ukrainian-Azerbaijani trade is also Baku's unilateral violation of provisions of the existing agreement between Ukraine and Azerbaijan on the introduction of a free trade area (FTA). The consequence of this is the establishment by the customs authorities of unmotivated informal restrictions on volumes of imports of Ukrainian-made products, in some cases, domestic goods are subject to additional “shadow” fees;
  • in relations with Armenia a deterrent factor is this country's plans to join the Customs Union, the high probability of monopolization of its market by the Russian Federation, the insufficient transit potential (closed borders with Turkey and Azerbaijan), the debt of the Armenian side to domestic enterprises, which will lead to a reduction of volumes of the trade turnover with Ukraine;
  • the highly specialized content of the foreign economic policy of Turkmenistan aimed at supporting exporters (mainly consists of legal instruments to ensure security of energy exports), as well as the high degree of its centralization and conservatism (any significant foreign economic contracts must be approved personally by the President) may lead to suspension of the development of cooperation with Ukraine;
  • the complicated nature of Ukraine-Uzbekistan relations against the background of President Karimov's sticking to the principle of maintaining the priority of political stability over economic interests. This can cause stagnation or decline in economic cooperation with Ukraine, but primarily will depend on changes in the position of Kiev concerning its participation in the construction of the Rogun HPP in Tajikistan. It should also be borne in mind that Uzbekistan, within the framework of its foreign economic policy, gives priority to attracting foreign direct investments, that are mainly directed to the export-oriented sectors of the economy (in parallel is being implemented the program to support Uzbek exporters). This policy indicates Tashkent's conservative approach to the issue of increasing imports without investment inflows into the national economy.

Significant gaps in the parity of trade and economic relations between Ukraine and Azerbaijan, Moldova, Armenia and Kyrgyzstan, as well as Ukraine's low ability to invest into foreign projects can reduce the motivation of these countries to further deepen trade relations with the official Kiev. Under these circumstances, there is a risk of their rapid reorientation to consuming foreign substitutes of domestic products that will not have a significant negative impact on the state of national economies of these countries.

2.2. Western Europe

Significant differences in the rate of development of states of Western Europe are responsible for the difficult macroeconomic situation in the region. This is due to the uneven impact of the crisis on the state of national financial systems, labor and real estate markets, as well as different levels of the steps of governments (fiscal and monetary) to overcome the crisis.

Recently, the situation tends to stabilize, which is confirmed by active actions of leaders of the leading states of Western Europe to strengthen fiscal discipline and formation of Banking Association. Measures are being taken (both bilaterally and within the European Union) to expand the geography of European exports. But problems remain unresolved, bearing risks for further economic development, key ones among them are a reduction of volumes in bank lending; inequality of sizes of loan rates in the countries of different regions; instability of domestic political situation in a number of countries, high unemployment, worsening social standards, activation of radical political forces before the elections to the European Parliament (the end of May 2014).

The main risks for foreign economic cooperation of Ukraine with the countries of Western Europe are as follows:

  • aggravation of the Russian-Ukrainian conflict will provoke outflow of investments from Ukraine, primarily from the sector of financial and insurance activities, where the share capital from Italy, Austria and France is mainly concentrated. At the same time, countries such as Germany may put pressure on the Ukrainian side to strengthen guarantees to protect interests of its own investors operating in the domestic market;
  • orientation of the leading countries of the EU (notably the UK, France, Germany), directly involved in resolving the Ukrainian crisis, to receive individual benefits from the situation and political and economic bonuses for the future, including those which can directly affect the economic sovereignty of Ukraine;
  • coordination between the UK, France, Italy and Spain in the process of information exchange in order to counteract the use by European companies of offshore jurisdictions for tax evasion and increasing regulation of traditional financial institutions that may be dangerous for the transfer of a part of the risk transactions (with participation of Ukrainian business included) into the “shadow” banking sector;
  • France's inclusion (as part of the policy of the state to facilitate movement of goods and services to foreign markets) of Ukraine onto the list of the 47 countries, the domestic markets of which should be used in order to increase exports. This should contribute to the elimination of negative foreign trade equity of the country because of the significant negative balance, especially in its relations with China and Germany;
  • determination as strategic goal within the framework of the development of the national economy of Great Britain of the question of support to its own small and medium-sized businesses. This leads to implementation at the national level of a set of measures aimed at improving the effectiveness of the implementation of their export potential. Therefore, we should not exclude intensification of actions for development of the Ukrainian internal market, which will increase the imbalance in foreign trade with the United Kingdom;
  • enhancing of the Federal Republic of Germany's political relations with the countries and regional associations that are developing dynamically, as a rule, is used by the official Berlin as a way to ensure stability of the economic situation in the country, taking into account the structure of the export-oriented German economy. At this, Germany leads a policy that provides for application of the platform of joint counteracting key global/regional challenges and threats in order to ensure the growth of the German supply of commercial products and services;
  • the status of Italy as one of the largest foreign trade partners of Russia may cause an increase in the influence of the Russian government on the position of the Italian business elite in the issue of Ukrainian-Italian cooperation.

At this, it should be noted that an increase in innovation and technology gap between Ukraine and Western Europe limits Kyiv's ability to use strategies aimed at ensuring parity in trade relations with them.


2.3. Central and Eastern Europe

For the countries of the region as part of measures to support economic and social stability, the most pressing remain issues such as struggle against unemployment, narrowing the gap in the economic development of countries of Western Europe, search for new sources of external financing. Besides, the majority of CEE countries face the task of reconstruction and improvement of rail, road transport, ports and energy infrastructure. At the same time, special attention is paid by leaderships of the countries to the development of the model of EU cooperation with Russia and China and strengthening the structural stability of the European Union. A significant role in the economic recovery of the region are playing actions of countries to diversify foreign trade and attract foreign direct investment.

The main risks for the foreign economic cooperation of Ukraine with the countries of Central and Eastern Europe:

  • formation in the sphere of Poland's foreign trade activity of a stable trend of advancing growth of exports over imports, as well as significant changes in its commodity composition. At present, the country specializes in the export of machinery and electrical, electrical-technical and transport equipment, which determines further reduce of Poland's dependence on raw materials imports from Ukraine. At the same time it is expected that such changes will lead to strengthening of positions of Polish producers in emerging markets (in 2014 exports are expected to grow by 21 %), thus creating additional competition for Ukrainian companies. At this, Poland's expansion to the markets of Central and Eastern Europe (exports in 2014 are forecasted to grow by 19 %) can lead to a partial expulsion of domestic producers from this regional market;
  • the official Warsaw's compliance with the practice of ignoring the problems of Ukrainian investors in Poland (first of all those related to the situation around the JSC Gdansk Shipyard). At this, is being activated the issue of solving the problem aspects of activity of Polish investors in Ukraine (in particular this concerns VAT recovery);
  • given the export orientation of the economy of the Czech Republic, Ukraine to the official Prague is a priority in the context of opening of the Ukrainian domestic market for European goods;
  • Slovakia's dependence on Russian supplies of energy carriers, questions of pricing policy in relations with the Russian “Gazprom”, as well as cooperation in the sphere of atomic engineering form the risks of the RF's using these opportunities to influence the depth of the Ukrainian-Slovak trade and economic cooperation. For this purpose, Moscow can also use Bratislava's desire to carry out diversification of exports of the car-building industry (which generates 30 % of the country's GDP) within the framework of the CIS;
  • high dependence of the stability of the economic situation in Hungary on funding from the EU structural funds can lead to partial freezing of implementation of important for Ukraine infrastructure cross-border projects. This is associated with possible worsening of relations in 2014 between the official Budapest and Brussels. At the same time getting by Hungarian farmers in 2014 of the economic aid from the EU's budget for them to work at the level of the “old” EU members, could actualize for the Hungarian side the questions of further expansion of supplies of food and agricultural products to Ukraine. Besides, in case of the failure of introduction in the foreign economic sphere of the course breakthrough to the East” due to the crisis of relations “EU-Russia”, the official Budapest will be interested in compensating the corresponding losses, at the expense of the domestic market of Ukraine included.

2.4. The Baltic States and Scandinavia

The results of 2013 showed the overall weakness of national economies of the Baltic-Scandinavian region, except for Latvia and Lithuania, which have demonstrated some of the highest GDP growth rates in the EU. At this, despite the restrictive fiscal policy and high migration, the governments of the Baltic countries manage to keep the positive dynamics of economic development of their countries, through large-scale Euro-donations (the external factor) and the growing demand in connection with the improvement of the purchasing power of citizens (the internal factor). Structural unemployment and significant income inequality remain the main social challenges. Worsening of their export positions is connected with the economic slowdown in the EU countries and the Russian Federation — the main trade collaborates of Latvia, Lithuania and Estonia.

The main risks for foreign economic cooperation between Ukraine and the Baltic States and Scandinavia are as follows:

  • low capacity of the domestic market of the Baltic countries does not allow to consider it as an important in the context of Ukraine's development of strategies to compensate for possible losses on other foreign markets;
  • limited opportunities to increase the supply of Ukrainian products to the markets of Scandinavian countries, even in conditions of liberalization of “Ukraine-EU” trade relations. However, the domestic market of Ukraine will be used by these states as a target to build up their own exports. The structure of the system of economic management in Scandinavian countries gives the Ukrainian side almost no possibility of obtaining economic dividends from rapprochement with the EU.

2.5. The Balkan Region

The development of the socio-economic situation in the Balkans is characterized by actual crisis of economies of most countries of the region (Greece, Cyprus, Serbia, and Bulgaria) and their significant dependence on foreign funding sources. At this stage, the need for national governments' austerity measures to reduce deficits and levels of public debt, actually excludes the possibility of using economic incentives and increases social tensions. Implementation by the leaderships of the region of plans to privatize state-owned facilities, actualized by the need to repay loan debts (or to get new tranches of loans) and to support national economies, is connected with seeking strategic investors, the vast majority of which (European ones) are sticking to the wait-and-see position in the unstable world situation.

The main risks for foreign economic cooperation of Ukraine with the countries of the Balkan region are as follows:

  • Greece in relations with Ukraine intends to focus on the revitalization, first of all, of economic cooperation, which is caused by objective desire of the Greek side as soon as possible to overcome the effects of the deep financial and economic crisis. For this are supposed to grow the volumes of Greek exports to Ukraine with the concentration of priority on agricultural production and diversification of product lines. So, at this stage the plans of the Ukrainian and Greek sides are completely identical, making it difficult to work out a compromise on the implementation of relevant national priorities;
  • Serbia's economy demonstrates the highest in the region openness to the Russian capital. The official Belgrade's policy is to strengthen the strategic partnership with Russia, trying to attract Russian investments into the economy (especially into the energy sector), as well as to intensify relations with Moscow in the defense and military spheres;
  • Romania's investments into the Ukrainian economy are usually in the form of capital income into the statutory fund of joint ventures that are being opened by Romanian companies. However, at this stage Bucharest is not showing being directly interested in this, first of all because of the lack of opportunity to participate in large-scale projects on the territory of Ukraine. It is also advisable to take into account that among the main reasons for the inertia of the Romanian companies is their low capitalization, lack of effective management and greater profitability of activity in the domestic market of Romania. Besides, due to the current economic situation in the country, representatives of the Romanian business circles are expected to direct efforts to restore their positions in the domestic market (except for energy companies that major efforts will direct to the search for new energy sources and diversification of supply routes for hydrocarbons);
  • the Romanian authorities' plans provide for the development of the strategy of re-industrialization of the country, the main directions of which are already determined — a large-scale privatization (but strategic sectors), maintaining public support for key sectors of the economy, promoting the processing industry, creation of new industrial parks and promoting the development of existing business incubators, as well as activation of economic diplomacy abroad. Taking into consideration all this, as well as the current structure of the Romanian industry (which is based on the metallurgical industry, chemical industry, automobile building and aircraft building, IT sector and MIC), Bucharest's needs for imports of Ukrainian raw products can rapidly decline;
  • Bulgaria's leadership plans to strengthen the economic dimension of its foreign policy. New priorities include revitalization of diplomatic missions, search for new markets for Bulgarian producers and promoting foreign investments. Under such circumstances, taking into consideration the significant negative balance of trade with Ukraine, the Bulgarian side will take measures to ensure parity in the trade and economic relations, it is possible that through the reduction in imports.

2.6. The Middle East

The Turkey's Government's desire to turn the country into a regional center of distribution of hydrocarbons, as well as the high rate of energy dependence (the country's demand for energy by 90 % is met by imports of raw materials), make Ankara maneuver between the major geopolitical players, proving to each of them its status of the regional leader. Against the background of the positive results of the negotiations between Iran and the G5+1, Turkey declares its intention to develop bilateral relations with the official Tehran (creation of a free economic zone, increase in energy carriers imports and in total bilateral trade). At the same time, the struggle for regional leadership and existence of a number of unsolved issues, the “Syrian” one included, introduce limitations into the further Turkish-Iranian rapprochement. Besides, inconsistent policies of Turkey in relations with Baghdad, existence of “the Kurdish question” and formation of economic and trade relations with the Kurdistan Region (the illegal export of energy carriers from the region included) create difficulties for the development of the Turkey-Iraq relations. In its turn, Iran and Iraq's desire to sell their hydrocarbons bypassing Turkey, makes the latter introduce the tactics of blocking alternative supply routes.

The main risks for foreign economic cooperation of Ukraine with countries of the Middle East are being formed under the influence of the following factors:

  • to counteract the economic challenges, Turkey's government is taking steps to hold tight fiscal and monetary policies, as well as to reduce dependence on imports, including by development of import — substituting industries. Taking into consideration all this, it is possible that the Turkish side will lower the level of interest in investment cooperation with Ukraine, where Turkish companies have already implemented 128 large-scale projects totaling more than 3 billion US dollars;
  • today the Turkish side is considering the issue of the agreement on free trade zone with Ukraine the only important item on the agenda of bilateral trade and economic relations. That is why it is possible that the implementation of the Ukrainian-Turkish agreement on the most promising for the official Kyiv directions of cooperation will be adjusted by the official Ankara, depending on the progress in the dialogue on the FTA. We should also keep in mind that, despite the positive for Ukraine trade and economic cooperation with Turkey in 2013, Ankara's policy for the development of the internal market of Ukraine is more effective than the Ukrainian one. Introduction in 2013 by both the parties of new trade barriers showed consistent sticking to the strategy of defending national interests in foreign trade;
  • Turkey seeks to maintain a close relationship with Russia, which is considered an important source of energy supplies and an alternative to Ukraine source of imports of iron, steel, iron-based alloys, wood, crops;
  • orientation of Ukrainian exports to Iran to supplies of agricultural products and foodstuffs against the background of the extreme complexity of the implementation of banking settlements between the two countries, causes vulnerability of such a structure of exports to the actions of Tehran for the commodity offsets with India, Pakistan and China for supplies of similar groups of goods;
  • taking into consideration the positive expectations of resolving the Iranian nuclear issue, leading EU member states have intensified contacts with the official Tehran. The initiators are powerful European financial and industrial groups that are using their own lobbying power and influence national governments for their support in the implementation of the concept of “returning” to the Iranian market in high-level competition from Asian companies, mainly Chinese ones. In case of continued passivity of the Ukrainian side in this direction, will get formed the risk of further losing segments of the Iranian market. At the same time, the limiting factor in this question most possibly will be the position of the USA which consistently prevent the development of Iran's cooperation with third countries, with Ukraine included, seeing it as a direct or indirect assistance to Iran in realizing its nuclear program;
  • high dependence of trends in the development of the socio-economic situation in Iraq on the security situation in the nodal centers of production, transportation and supply of oil on the international market, as well as lower investment attractiveness of Iraqi projects for foreign investors (primarily in so-called “Arab” provinces of the country) creates significant risks for the economy. First of all is the ability of government agencies to fulfill their financial obligations and maintain the stability of the social processes in the face of a possible entry of Iraq into a phase of growing instability in the period after the parliamentary elections. In this case, the resignation of Nouri al-Maliki as Prime Minister of Iraq will require the Ukrainian side to develop new schemes and work out in the Iraqi market. At the same time the negative experience of cooperation with Iraq in the field of military-technical cooperation, taking into account the support provided by the US involvement in Ukraine to implement it, can significantly complicate the prospects for additional defense orders carried out with financial support from Washington for the needs of the Iraqi armed forces.

2.7. The Near East

The vast majority of countries in the region show an increase in “non-oil” sector, which is ensured by involvement of public funds and gradual growth of private lending. At the same time, due to the instability in the region, countries-outsiders are experiencing growth of the crisis in the economy, which leads to a decrease in the level of competitiveness, employment, wages, and growth in consumer prices. The unstable security situation reduces tourist flows and foreign investments.

The main risks for foreign economic cooperation of Ukraine with the countries of the Near East:

  • a significant dependence of the volume of future supplies to Saudi Arabia of Ukrainian ferrous metals and their products on the country's leadership's position on the introduction of measures to protect the interests of domestic producers (primarily of the Saudi Corporation SABIC) on the domestic market;
  • use by the Saudi side in food importing of the scheme, according to which part of the sum (10.6 %) of foreign economic contract is returned to personal accounts of the princes, who provide appropriate solutions and financing transactions. At the same time in the state, there is a ban on leaving the country (without the permission of the Crown Prince) of Princes of the younger generation (in order to eliminate “deviant” behavior of members of the royal family abroad), which makes it difficult to establish and develop contacts with them;
  • orientation of the Saudi “International agricultural and food investment company “Agroinvest” (whose main aim is to invest in poultry farming and construction of irrigation systems, as well as creation of agricultural companies abroad for crop production) to development of cooperation with Brazil, Vietnam, Indonesia, the Philippines, Pakistan and Turkey. At the same time, as part of the implementation of infrastructure projects, the Saudi side as a rule prefers companies from China, India and Turkey;
  • it is possible that the development of Ukrainian-Emirate relations can be viewed by the United Arab Emirates through the prism of Russian interests. Besides, it is advisable to take into account that within the framework of cooperation in the field of mechanical engineering the UAE side is focused on cooperation with companies of the USA, Germany, Sweden, the UK, and in the healthcare industry of India, China and the United States. During the construction of large industrial facilities and residential areas they prefer interaction with specialized companies of Malaysia, Indonesia, India and Turkey. Also, there has been a gradual decline in imports of metal products as part of the strategy of the UAE Federal Government, aimed at the development of national production;
  • the insignificant level of cooperation with Qatar in the sphere of investment cooperation creates risks of further decrease in the importance of this issue to the Qatari side. Taking into consideration the extremely high level of centralization of decision-making system in Qatar, the Ukrainian side needs to establish and develop contacts on high-top level with the new Emir of the State Tamim bin Khalifa Al-Thani, as receiving from the Qatari side of any large orders for the production or acquisition of Ukrainian products of aircraft building and MIC is impossible without his approval of the relevant contracts;
  • even if a free trade area between Ukraine and Israel is created, exports of certain products from Ukraine can be difficult, since Israel widely uses methods of non-tariff regulation of trade, in particular, the practice of banning the import of goods, explaining this by reasons of protection of health, morals and safety of the nation. Importation of significant quantities of goods into the customs territory of this country requires a license, which aims to guarantee the security and restricting imports within the tariff quotas;
  • Israeli businessmen show interest and readiness to cooperate with Ukraine only if the state guarantees their investments, which is difficult in the current economic situation in Ukraine. Most Israeli companies in the schemes of transfer of investment resources into the Ukrainian economy use offshore businesses which actually makes it impossible to carry out appropriate procedures for their registration in Ukraine;
  • consumer capacity of domestic markets in the region, especially in Lebanon and Jordan, for Ukrainian products may continue to decline due to the expected growth of dependence of economies of the States on external financing, as well as due to the gradual loss of the status of the leading re-exporters of foreign goods and services in the Middle East Region.


2.8. East Asia

China's gradual transition from export-oriented growth concept to the strategy of using internal factors of development slows down the dynamics of economic development of the region and creates risks for export-oriented economies of East Asia. Countries of the region are implementing special programs to prevent and counteract the potential financial risks of monetary instability by forming political buffers for quick response to changing situations in the sphere of global liquidity of assets. In accordance with these conditions, is forecasted temporary stagnation of regional trade with simultaneous activation of negotiations on overcoming tariff barriers and ensuring access to new markets.

The main factors that will be influencing the development of Ukraine's foreign economic cooperation with the countries of East Asia:

  • the main growth driver of Ukrainian exports to China's market in 2013 was Beijing's intention to demonstrate concrete steps to address the significant imbalance in mutual trade, primarily by increasing imports of Ukrainian products and artificial suppressing of the growth in the supply of Chinese products to the domestic market of Ukraine. This made it possible to declare the effectiveness of the established in the bilateral trade of MFN treatment in the collection of customs duties on exports and imports between the two countries, taxes and other internal charges. However, the chances that the Chinese side will stick to similar approaches in the future are questionable;
  • the relatively low price competitiveness of Ukrainian products (equipment and facilities) and its technological lagging behind the similar products from leading international manufacturers will continue to limit the growth of Ukrainian exports to China. It is also important to take into account that Beijing considers innovation and technological progress as one of the most important priorities for the development of the Chinese society;
  • according to the position of the Chinese leadership, a prerequisite for the start of new large-scale projects with Ukraine in various sectors of the economy is steady, high-quality and timely implementation of all the signed contracts and agreements on pilot projects in agriculture, energy and infrastructure spheres, as well as strict fulfillment by all parties-participants of their obligations under the agreements and contracts. It is possible that the growth of the factor of credit risk for financial and banking system of the PRC could trigger a change in Beijing's approaches to lending projects being implemented or planned for implementation in Ukraine;
  • China's large-scale investments into the development of its mining industry are a threat to Ukrainian metallurgists. Most vulnerable to Chinese expansion in the global metal market are Ukrainian producers of ferronickel, who, due to the Chinese damping have to reduce production or to fill warehouses, which negatively affects their financial condition.
  • in the sphere of international business China actively and widely uses practice of using false single-use companies (companies under various pretexts provide false information about themselves, or do not provide it at all) to obtain information about prices, products, needs, and in particular, the client base. Foreign and domestic companies in the mining and metallurgic industry have repeatedly suffered from fraudulent activities of such Chinese firms.
  • the USA's significant influence on Japan's foreign economic activity in conjunction with the strategic aspect of Ukrainian-Chinese relations (in the face of the crisis of China-Japan relations over the disputed Senkaku Islands), as well as Ukraine's introduction of a special tax on imports of new cars, are the main factors that will determine the nature of Ukrainian-Japanese trade and economic cooperation;
  • South Korea's leadership's attention is focused on measures for the development of the “creative” economy, as well as on the development of relations with the countries of the Asia-Pacific region. This will be determining Seoul's being hardly interested in major investments into projects in Ukraine, which confirms the perception of the Ukrainian market solely as a consumer market for Korean products.

It should be noted that an increase in innovation and technological gaps between Ukraine and Japan and South Korea limits Kyiv's ability to ensure parity in trade relations with them.

2.9. South Asia

Characteristic features of the development of South Asia are a significant demographic potential, low living standards and a significant role of the state, which is realized through broad regulatory powers and control over individual sectors and enterprises. The main factors of economic growth in the region are the development of infrastructure industries (electric power industry, transport, heavy industry) and export industries (light industry, pharmaceuticals, agriculture, the sphere of information technologies) due to large-scale foreign investments. At the same time, the devaluation of national currencies, as well as deterioration of conditions for attracting foreign loans and direct foreign investments will determine the slow pace of the economic growth in the region. An additional catalyst of formation of negative phenomena in the economy may become delaying of negotiations on an acceptable formula for peaceful co-existence between India and Pakistan (with periodic worsening of relations), cautious attitude of less powerful countries to any India's initiatives (which are seen as an attempt to strengthen only its own positions), and internal political instability of the situation in Bangladesh.

The main risks for Ukraine's foreign economic cooperation with the countries of South Asia get formed under the influence of the following factors:

  • priority of India's foreign policy in the economic sphere is increase by the end of 2014 of the volume of exports of goods to 450 billion US dollars. Taking this into consideration, ignoring by the Ukrainian side of problematic aspects related to the import of Indian goods, will reduce New Delhi's motivation to ensure the dynamic development of trade and economic cooperation with Ukraine. It is advisable to take into account that the Indian side constantly emphasizes the presence of a number of problematic issues of cooperation in the pharmaceutical industry (certification and licensing, analysis of batches of imported products, analysis of working standards), which significantly affects the image of Ukraine as a reliable business partner and creates unfavorable conditions for the development of further cooperation including direct foreign investments;
  • chances of Ukrainian companies to participate in tenders in India, as well as to fulfill their contractual obligations, significantly limit the financial difficulties associated with the requirements of the Indian side to provide additional financial guarantees from the Ukrainian state-owned enterprises and companies in the implementation of pre-contract and contract work with Indian government agencies. Unsettlement of this issue may complicate or make impossible settlement payments between Ukrainian and Indian partners. At this, the question of recognition of bank guarantees by the Ukrainian side is actually ignored by the Indian side;
  • further development of cooperation with India may be affected badly by further non-recognition by the Indian government of the market status of the Ukrainian economy (despite the fact that such status has long been confirmed and recognized by a number of WTO member countries, the USA and the EU). This poses a threat of the spread of the practice of anti-dumping investigations concerning domestic products;
  • continuation of negative trends in the economy of Pakistan can directly lead to a reduction in exports to this country. The country is reorienting its markets of construction and maintenance of energy facilities to the suppliers of goods and services from the credit and financial donors in Pakistan. With this in mind, the official Islamabad will focus on the development of the political dialogue at high and top levels with creditor countries, as well as those states which give market preferences to Pakistan. At the same time, in case of not achieving the planned indexes of the state budget, quite possibly will take place closing up of individual projects being already implemented or planned for implementation. Under threat are promising for Ukrainian companies projects (construction and modernization of electric power facilities, implementation of projects on coal gasification, thermal power plants, numerous projects to improve the network of power lines and switchgear);
  • the main priority of the foreign economic policy of Bangladesh is introduction of diversification strategy of exports of domestic producers. Therefore, the level of interest of the official Dhaka for further purchases of Ukrainian products may depend on the willingness of Kiev to increase imports from Bangladesh, primarily of textile industry.

2.10. Southeast Asia

Maintaining the growth of economics in the region in early 2014 is partially leveled out by the risks of deterioration of prospects for the global trade. The combination of global oversupply with low trade barriers within ASEAN enhances international competition in the region, which is putting pressure on pricing and reduces the level of profits in some industries. Gradual stabilization of the dynamics of development of advanced countries will help to improve the situation in the countries of the region with high-tech export-oriented sectors of the economy, particularly in Singapore and Malaysia. At the same time curtailing the USA's policy of “quantitative easing” can lead to significant negative consequences. Among them — the increase in long-term interest rates, volatility in the equity markets and a sharp decline in capital flows to countries such as Indonesia and the Philippines. Despite this, the region will remain sufficiently attractive for foreign direct investments due to political stability, low labor costs, preservation of significant consumer demand and the implementation of large-scale infrastructure projects.

The main risks for Ukraine's foreign economic cooperation with the countries of Southeast Asia are as follows:

  • Ukraine should use a balanced approach to the implementation of its trade and economic policy in the ASEAN region in order to prevent formation of lines of potential tension in Ukrainian-Chinese relations. It is necessary to take into account the official Beijing's proposal for Malaysia and Vietnam of a capacious package of economic proposals (possible growth by 2017 of the volume of bilateral trade with China — up to 100 billion US dollars for Hanoi and 160 billion US dollars for Kuala Lumpur). Besides, the PRC is working for deepening the format of cooperation with Brunei, Thailand and Singapore (respectively in the energy, economic, trade and financial spheres);
  • cooperation with Singapore in science and technology does not have a systemic nature due to lack of necessary legal framework. Such cooperation is based mainly on occasional contacts between representatives of domestic enterprises of high-tech sphere, scientists and their Singaporean counterparts, which does not exclude complications of the character of bilateral relations;
  • Singapore business' focusing on investments into projects in the Crimea (considered as the primary platform for powerful companies from Singapore's coming into Ukraine), taking into consideration the annexation of the Crimea, is lost;
  • a significant deterrent of the development of cooperation with Indonesia is the use by the officials of that country of practice of artificial blocking of the negotiation process with foreign suppliers of commercial products because of the “red tape.” With this in mind, the necessary contacts require a long negotiation process and a direct interest of the business circles of Indonesia in doing business with the Ukrainian side. Besides, as a rule, there is a practice of mediation to initiate and establish true business contacts. In the sphere of supplies to Indonesia of rolled tubular products, the greatest competitors for domestic enterprises will be regarded companies of China and Russia;
  • Malaysia's top priority in the context of expansion into foreign markets is to strengthen economic ties with all countries of Southeast Asia (development of strategic relations with Indonesia, Singapore, Thailand, the Philippines and Brunei) and Oceania. Given this, the Malaysian side will continue to strengthen trade, investment and tourism ties with strategically influential countries in the region, as well as with Myanmar, Vietnam, Australia and New Zealand. At the same time in order to create a springboard for expansion into Central and Eastern Europe, Malaysia is considering, apart from Ukraine, some alternatives options, Macedonia and Turkey included;
  • a significant risk for the development of relations with Thailand is the vulnerability of the economic structure of that country due to its focus on foreign investments, exports and cheap labor force, as well as high dependence on energy carriers imports with constant growth in demand. At this, Russia is seen as a key market for Thai rice and rubber, which can lead to the influence of the Russian factor in the cooperation with Ukraine;
  • within the framework of cooperation with Vietnam, it is advisable to take into account that the Russian side in the course of bilateral activities regularly communicates to partners information aimed at discrediting competitors in the Vietnamese market, Ukraine included. As a rule, the stress is on criticism of Ukrainian products of the MIC, shipbuilding, aircraft building and power engineering. Besides, the Vietnamese side was under the pressure aimed at prevention of signing of a FTA agreement between Vietnam and Ukraine. Besides, in 2013 within the framework of the Russian-Vietnamese contacts were coordinated decisions on the conclusion of the negotiations on signing of a Free Trade Agreement between Vietnam and the countries of the Customs Union by the end of 2014 and signing of the agreement in 2015.

2.11. North Africa

Due to the high level of terrorist activity in the region, the situation in security sphere remains difficult, especially in Libya. In view of the growing influence of the crisis, this leads to instability of the socio-economic situation as a result of growth in consumer prices, job cuts, complications with filling the revenue side of the budget, reduce of the volume of gold and foreign exchange reserves, and blocks the possibility of attracting foreign direct investments. Besides, against the background of slow growth of the dynamics of the world economy, most countries in the region are experiencing a decrease in demand for their own exports.

The main risks for foreign economic cooperation of Ukraine with the countries of North Africa are as follows:

  • Egypt's exclusively nationally-pragmatic foreign economic policy can lead to pushing away of Ukrainian suppliers from this market due to their replacement by suppliers from the countries of first priority (for example, wheat — Russia/Kazakhstan and metal products — China). At this, it is advisable to take into account that the growth in the supply of Ukrainian metal to the market of Egypt occurred only because of the crisis of relations between the new Egyptian authorities and Turkey (domestic exporters promptly took a share of supply segment, which had belonged to the Turkish metal traders);
  • considering the adoption of a new Constitution of the ARE, the level of further cooperation with this country in the economic and military-technical spheres will depend on the ability of the Ukrainian side to ensure the development of contacts with the Commandment of the Egyptian Army which has maintained control over strategic sectors of the Egyptian industry and has received enhanced powers. However, such cooperation can be complicated because of the already declared readiness of the Russian Federation and the United States to take similar steps in this direction;
  • preservation on the Egyptian market of significant financial and economic risks will lead to complications in the work of foreign companies and foreign trade operations. The main among those risks may be questions of solvency; risks connected with nationalization of previously privatized companies; uncertainty of the legislative, regulatory and contractual framework; problems connected with security of companies and environmental conditions;
  • taking into account the lack of prospects of Egypt's national economy's coming out of the systemic crisis in the nearest future, there may be difficulties with settles between the Egyptian side and the branch of “Naftogaz of Ukraine”, that operates in this country;
  • development of Ukraine's cooperation with Algeria in high-tech sectors (aviation, energy, metallurgy, MTC) is threatened by the country's orientation to a partnership with world leaders in each industry and creation of production facilities in its territory;
  • Algerian grain market is almost completely bound to France (80 % of the wheat market). At the same time Algerian inter-professional office of cereals (monopolist on the grain market, engaged in the purchase/sale of grain, preparation and conduct of relevant tenders, performs regulatory functions), thanks to long-established corruption schemes, in the preparation of technical specifications for tenders focuses exclusively on French producers and this actually does not give a chance to other competitors. Therefore, potential chances for increased exports of Ukrainian grain will be limited to corn and barley;
  • priority of the domestic market of Algeria for individual EU countries, especially France, as well as the existence of free trade between Algeria and the EU will not give Ukrainian exporters serious price advantages over European suppliers;
  • increasing in 2013 of Algerian-Russian cooperation and deepening of co-operation on political and economic levels, and in the military sphere will create a counterweight to the regional policy of France, as well as the USA's gradual activization in the region;
  • because of the difficult situation in the economy (due to the political crisis), Tunisia will experience a significant lack of its own financial resources to pay for imports;
  • cancellation of the visit of the President of Ukraine to Morocco will revive the Moroccan side's impression (formed in previous years) of a lack of Kyiv's willingness to develop cooperation, which may negatively affect the level of trade and economic cooperation. It could also jeopardize the development of such potentially attractive directions as cooperation in geological exploration, mining, energy engineering, water economics, and building of agricultural machinery.

2.12. Western and Central Africa

GDP growth of the vast majority of countries in the region is slowed down by harsh environments (unfavorable pricing environment for raw materials, reduction of the dynamics of the emerging markets, rising costs of financing) and internal factors (the slow pace of investments, decrease in consumer demand, complications arising during the supply of goods to foreign markets). In the context of slowdown of the global economic growth, foreign investors' choosing to invest into mining industry will lead to a reduction in exports from African countries and growth of the negative current account balance. This causes a depreciation of national currencies, which demands from governments to conduct monetary policy aimed at reducing inflation. For the vast majority of countries in the region keeping inflation under control requires the implementation of significant currency interventions in the situation of the shortage of foreign exchange reserves, which de facto determines the key influence on the state of their economies external players, transnational companies included.

The main risks for foreign economic cooperation of Ukraine with the countries of the region are as follows:

  • intensification of Turkey and the Gulf states' foreign policy, aimed at the development of economic cooperation with African countries having an important mineral resource base and a significant portion of the Muslim population in the region. With this in mind, seems quite possible growing of influence of financial and banking capital of the leading countries of the Islamic world in these regions, which will lead to further sharpening of the competitive struggle;
  • characteristic features of internal political processes in the countries of Western and Central Africa in 2013-2014 allow Western states, especially France, to ensure optimization of political and economic costs of implementing the strategy of “returning to Africa” with taking into account possible reformatting of political elites of individual countries already in 2015-2016;
  • the authoritarian style of leaderships of leading oil producing countries (Angola, Nigeria, Congo, Equatorial Guinea, Gabon, Chad, Cameroon) and prolonged terms of their being in power cause the primary orientation of the latter to the development of trade and economic partnership with geo-political leaders who are able to provide a guarantee of stability to the current regimes, but Ukraine is not one of such states;
  • in accordance with the statement of Minister of Foreign Affairs of Senegal, the search for economic partners, foreign investors and financial sponsors is the main task of foreign diplomatic institutions of the country, and they will be evaluated precisely by the results of this work. Taking into consideration the limited opportunities of Ukraine in this direction, there is a risk of stagnation or decline in trade and economic cooperation with that country;
  • worsening of Nigeria's investment attractiveness due to the revision of previously concluded contracts with foreign investors, as well as intentions of the Nigerian authorities to introduce restrictive measures to protect the domestic market. Such actions may lead to a reduction in the supply of Ukrainian products to Nigeria. Besides, in that country there is a risk of further growth of inter-ethnic and inter-religious conflict, in view of the preparations for the presidential elections in 2015 included;
  • among the risks in the relationship with Côte d'Ivoire, we should point out that the state provides financial support for the implementation of only a small number of projects in the country, giving preference to the use of the scheme BOT (Build Operate Transfer), which primarily applies to the energy sector, transport infrastructure and housing construction. At the same time the lagging behind technical condition of the railway in the country hinders the development of the potential of Abidjan as an important foreign trade seaport;
  • the low level of solvency of Kenya, as well as the country's leadership's commitment to the implementation of the economic intensive projects mainly at the expense of the foreign investor may hinder the development of Ukrainian-Kenyan cooperation. At this, foreign states like Ukraine are used by the government in order to obtain concessions in relations with strategic investors, especially with China. In particular, the set of proposals that have been offered to the Ukrainian side as promising directions of economic cooperation, are identical to the issues discussed by the President of Kenya during his visit to Russia and China;
  • Angola's using the principle of “planned economy” will determine limited bilateral cooperation in the absence at this stage of the bilateral commission on the development of trade and economic cooperation. Besides, the official Luanda within the framework of economic cooperation with Ukraine will start from the position of Russia on this issue;
  • on the market of Ethiopia is observed intensification of competition between leading foreign companies mainly from China, Russia and Turkey for the right to be involved in the implementation of large-scale energy and infrastructure projects. At this, a special feature of the country's policy on updating the industry is putting forward demands to foreign partners for the mandatory establishment of joint ventures through which the Ethiopian side will be getting technologies of production of the final product, as well as put a part of orders for the production of its individual components at national enterprises.

2.13. Latin America

Activation of inflation, decline in exports and foreign investment inflow, the level of business and consumer confidence are characteristic features of the economic situation in the region. Geographic structure of Latin American exports, judging by the results of 2013, has undergone some changes, including a decline in the proportion of the EU's share and the increased supply of products to the Asia-Pacific Region (APR). In 2014, in the region is expected acceleration of economic development thanks to Mexico and Central America, and this will be contributed to by the recovery of the US economy. At the same time, the factor of limiting may be the reduction of prices on the world market for raw materials, which will have a negative impact on the largest economies of MERCOSUR. The main risks for economies of the Pacific Alliance will be possible growth of political instability in Colombia, as well as a too high social orientation of the ideological foundations of the economic policies of the newly elected President of Chile M. Bachelet.

The main efforts of the countries in the region will be aimed at counteracting external threats and challenges in the economic and financial spheres through diversification and deepening of trade and economic relations with the developed countries of the world.

Prospects for the development of the situation in the region will mainly depend on the course of confrontation “USA-China.” Washington is considering a gradual change of priorities in Beijing's expansion in Latin America and the Caribbean (LACS) from economic and trade into military-political ones as one of the greatest threats to its national interests. To prevent this, the White House, is going to realize the so-called “strategy of pulling out”, according to which the United States will try to focus on working with individual, most vulnerable leftist governments, stressing the importance of a significant expansion of economic cooperation with the United States for sustainable development and prosperity of these countries.

For China, the development of wide political and economic contacts with the countries of the LACS region is part of the renewed foreign policy strategy aimed at achieving by 2049 the status of a global power. The main objectives which are set by the Chinese leadership on the Latin American direction are improving China's energy security and access to natural resources in the region LACS (with the possibility of blocking the USA and its satellites' traditional ways of delivery of resources, especially energy carriers); expansion of markets for Chinese goods; continuation of the policy of building up the Chinese military power in conjunction with the localization of the USA and its allies' attempts to curb global aspirations of China; creating a network of China's “friends and allies” in the international arena through diplomacy and active economic cooperation with individual states.

The main risks for foreign economic cooperation of Ukraine with the countries of Latin America:

  • Brazil'sleadership at this stage will be trying to turn the country into a global player not by expanding its role in regional integration processes, but, mainly, through ensuring their own economic and military leadership. Taking into account this, as well as the current state of trade and economic cooperation with Brazil, Ukraine's chances to use the format of strategic partnership to promote (with the help of the Brazilian side) Ukrainian products on other markets in the region will be limited;
  • despite Venezuela's membership in MERCOSUR, the chances of this country's turning into a full-fledged member of the association are connected with a long procedure of Caracas' bringing its legal framework in line with the requirements of the bloc. The recent aggravation of trade conflicts of Argentina with Brazil and Chile has made it virtually impossible to develop a unified approach to the strategy of further development of MERCOSUR. Against this background, a permanent internal conflict between the leaders of this association (Argentina and Brazil) with other members will have destructive impact on prospects of the development of this integration association;
  • Mexico, having actually given up leadership in regional integration processes, is looking for an effective format of interaction in the process of promoting common interests in the international arena with approximately equal players. In particular, today the official Mexico shows special interest in the project “MINT” (economic formation similar to the BRICS, which apart of Mexico, may be joined by Indonesia, Nigeria and Turkey), and also seeks, securing its status as the leader of the Pacific Alliance, to pursue a policy of strengthening relations with countries of the Asia-Pacific region;
  • gradual restoration of bilateral relations between the EU and Cuba, in particular, economic and trade ones, will help to improve the socio-economic situation in the country and will positively influence its financial position. At the same time deepening of Cuba-EU relations will strengthen competition in this market, which could lead to weakening of positions of the domestic exporters.

2.14. North America

The question of broadening and deepening of the North American Free Trade Agreement (NAFTA) of 1994, has became the central theme of negotiations within the framework of the latest summit of the leaders of North America (in February 2014). This is due to new opportunities to enhance regional integration and strengthen positions of North America in the international arena. In addition, there has been reached an understanding between the USA, Canada and Mexico in the question of introduction of a common policy with the aim of turning North America into a modern innovative region. The updated agreement is planned to carefully determine all matters relating to the production, processing and trade of oil and oil products, as well as to supplement its provisions regulating trade relations in relatively new spheres (innovative technologies and alternative energy sources). It was decided to expand trade and economic cooperation of the North American Free Trade Area with the Asia-Pacific region (within the framework of the Trans-Pacific Partnership).

The main factors that will influence the development of Ukraine's foreign economic cooperation with the countries of North America are as follows:

  • orientation of countries of North America to enhance trade and economic cooperation with countries of the Asia-Pacific Region (through introducing a more liberal trade regime included), threatens with reduction in the supply of domestic products and services to the Asia-Pacific region;
  • the dynamics of trade relations with the United Statesof America will be largely determined by the progress made towards signing of the Transatlantic Agreement “USA-EU” in the context of signing of association and free trade zone agreements between Ukraine and the EU. At this, the major problems in bilateral economic relations between Ukraine and the United States are anti-dumping measures regarding certain types of Ukrainian products, problems in the sphere of intellectual property rights protection, Ukraine's intentions to revise within the framework of the WTO more than 350 tariff lines of basic agricultural and industrial goods, and guarantees of protection of the USA's investments into Ukraine;
  • prospects of trade cooperation with Canada will depend on completion of the process of signing an agreement on free trade zone “Ukraine-Canada.” Among the industries that are most attractive for bilateral cooperation are agriculture, agricultural engineering, energy production, technologies.

3. Measures for protection of Ukraine's foreign economic activity

Economic consequences of the actual and potential negative impacts of global and regional processes will lead to risks of accelerated exhaustion of inner reserves of growth of the Ukrainian economy and decline in the effectiveness of use of external stabilization loans. This will reduce for Ukraine the economic effect of the action of free trade area with the EU and can trigger formation of a deep crisis in certain sectors of the domestic economy. Trading and geographical imbalance of Ukraine's exports and imports shows absence of the state export-import policies which adversely affects the guarantee of economic security of Ukraine.

Additional risks are connected with Russia's implementation of the strategy of blocking Ukraine's cooperation with the countries of the former Soviet Union and expulsion of Ukrainian products from priority export markets. Ukraine has a limited capacity to counteract Russia's measures for blocking Ukraine's trade and economic cooperation with individual countries and regional groups, primarily geographically remote and with low-official diplomatic presence of the official Kyiv. This needs an urgent start of political consultations with the EU, the USA and China to counteract such a threat. In particular, it is necessary to develop a “road map” of guidelines determining acceptable to the parties forms of cooperation in the sphere of foreign trade in third countries. Similar measures should also be taken within the framework of a dialogue with Germany, France, Britain, Italy, Spain, and Poland.

In order to prevent risks and overcoming the threats to Ukraine's foreign trade activities, the country should:

  • diversify the geographical structure of foreign trade, minimizing dependence on individual markets and countries;
  • optimize and ensure a balanced structure of imports and exports;
  • develop long-term programs of Ukraine's international cooperation with leading economies of the world and the leading importers of domestic products, taking into account the dynamics of their development and risks of another financial crisis in the group of countries with emerging markets;
  • determine the most attractive for Ukraine key regional players who can ensure Ukraine's trade interests both, in the format of bilateral relations and in the regional context (especially in North Africa, the Middle East, Latin America);
  • develop a “road map” of intensification of investment cooperation with Gulf states (especially Saudi Arabia, UAE, Qatar and Kuwait), South-East and East Asia (Japan, South Korea, Brunei, Singapore, Malaysia) and North America (the United States, Canada);
  • focus the state, corporate and scientific sector's efforts on creation of domestic high-tech product groups and their promoting on regional (European market, CIS countries) and international markets. Here, first of all, is meant electronics, energy, biotechnology, engineering services;
  • determine opportunities for independent (or in cooperation with western companies or PRC) completing the suspended Ukrainian-Russian projects in high-tech spheres;
  • use the factor of WTO to influence the position of foreign countries on diversification of foreign trade relations and cooperation with Ukraine.

It should be noted that the effective implementation of foreign economic activity contributes to the competitiveness of domestic producers, and is a determining factor of economic growth and a real lever for structural transformation and stabilization of the national economy of Ukraine.


Appendix. Foreign Trade Statistics of Ukraine in 2013

In 2013, Ukraine carried out foreign trade operations with 229 countries of the world. 13.7 thousand Ukrainian enterprises exported domestic goods totaling 63.3 billion US dollars (by 8 % less than in 2012). The negative balance of foreign trade last year totaled 13.7 billion US dollars.

In recent years, the basic positions of Ukrainian exports remained almost unchanged. The structure of merchandise exports in 2013 was dominated by ferrous metals — 22.6 % of total exports, mechanical and electrical equipment – 11 %, cereals — 10.1 %, ores, slag and ash — 6.2 %, mineral fuels, oil and oil products — 4.5%, ferrous metals products  — 4.1%, railway locomotives — 3.9 %, fats and oils — 5.5 %, seeds and fruits of oil plants — 3.2 %.

Foreign trade in goods in 2013


Among the major trading partners of Ukraine in the past year, should be noted the Russian Federation and CIS countries, Europe, Asia and Africa (including Turkey, China, Egypt, Poland, Italy and Kazakhstan).


The main economic partners of Ukraine in the export of goods in 2013


Besides, in 2013 Ukrainian enterprises provided services to 216 countries around the world, worth 14.8 billion US dollars, which is by 9.1 % more than in 2012. The positive balance of foreign trade in services amounted to 7.2 billion US dollars.

Foreign trade in services in 2013

The main trade partners, who used the services of Ukraine were the Russian Federation and CIS countries, EU countries (including Great Britain, Germany, Cyprus and Belgium), Switzerland and the United States. Among the services offered by Ukraine, a significant part of total exports traditionally was occupied by transportation services (56 %). The export of services for the processing of material resources made 11.6 %, business services — 10.6 %, services in the sphere of telecommunications, computer and information services — 10.1 %.

The main economic partners of Ukraine in the export of services in 2013