to the Ukraine-EU Summit, 7-8 July 2004

1. EU enlargement: "pro's" and "contra's" for Ukraine
2. The Ukrainian approach to the European Neighbourhood Action Plan
3. Granting to Ukraine the market economy status
4. On the way to visa-free regime between Ukraine and the EU
5. Joint Ukraine-EU development of border infrastructure

1. EU enlargement: "pro's" and "contra's" for Ukraine

After entry into the EU of 10 countries of Central and Eastern Europe, which took place on 1 of May of 2004, has ended the biggest wave of EU enlargement.

Strategically for Ukraine EU's enlargement is very important factor of further European integration that provides for much wider possibilities of broadening and deepening of co-operation with the European Union. However, that creates not only positive outcome in many spheres of life . political, economic, humanitarian and social, but also generate some losses, first of all in trade and economic relations and contacts between people.

Political sphere

"Pro's"

• After enlargement Ukraine becomes closest neighbour of the EU, which will determine intensification of the EU impact on Ukraine, particularly in terms of further democratisation of Ukrainian society and strengthening of the European orientation of Ukrainian population.

Trade and economic relations

"Pro's" (for a long-term prospects)

• The EU will become the most important market for Ukrainian goods and a source of increase and expansion of Ukrainian export scale which mean that EU will become the main trade partner for Ukraine. In 2002 rate of growth of Ukrainian export to the EU was 5.7 billion $ in comparison to 4.4 billion $ to the NIS countries.
• Will be improved conditions for Ukrainian exporters of access on the separate commodity markets owing to essential decrease of the level of tariff protection and increase of the level of Ukraine's competitive positions on the markets of the new EU Member States. At the preservation of volumes and structures of Ukrainian export, owing to extension of EU custom tariffs to the new EU Member States, cost of Ukrainian export goods will decrease on 0.73 % (from 4.24 % to 3.51 %) that will raise their competitiveness.
• Market regulation institutes which will start to operate in the new EU Member States, should lead to the certain decrease in volumes of illicit trading operations and other forms of shadow economic activities, which will have a positive effect on the state budget of Ukraine.

"Contra's" (for a shot-term prospect)

• Extension of common EU customs tariff to the new EU Member States and rise of tariff protection level for certain goods of Ukrainian exports;
• Extension to the new EU Member States of European agreements on trade liberalisation with certain countries and groups of countries, as well as custom preferences granted for developing countries, which could cause relative deterioration of Ukraine's competitive positions on markets of certain goods of medium manufacturability;
• deprivation of the new EU members of possibility to independently regulate their trade regime with Ukraine;
• denunciation of free trade agreements between Ukraine and Baltic states, which could cause decrease of trade turnover and deterioration of Ukraine's competitive positions on relevant markets;
• establishment of non-tariff restrictions for Ukrainian exports by the new EU members;
• possible loss by Ukrainian exporters of their traditional markets in the new EU Member States due to extension of scope of anti-dumping measures against Ukrainian exports. In respect of certain important items the share of Ukrainian exports to the new EU members is between 30% (welding pipes, ammonium nitrate) and 60 % (silicon carbide);
• decrease of traditional Ukrainian exports volumes to the EU due to partial reorientation of flows of goods among present and new EU members;

People's contacts

"Pro's"

• Bilateral co-operation toward stopping of illegal migration through the territory of Ukraine from the third countries, fighting organised cross-border crime, contraband and drug trafficking will increase;

"Contra's"

• increase of numbers of illegal migrants (approximately by 17%) as a consequence of the severance of the immigration control by the neighbouring states at the Ukrainian Western border, and due to inadequate equipment of the Ukrainian Eastern border;
• Negative effect of introduction of visa regime between Ukraine and neighbour EU member states now affecting such spheres as cross-border co-operation and tourism. In this respect it seems very demonstrative that according to the studies in new member countries, the level of organised crime did not drastically decrease, which was one of the important arguments in favour of introduction of visa regime with Ukraine. So, in order to achieve positive results in co-operation in the sphere of people's contacts between Ukraine and enlarged EU the study of possibilities and step-by-step cancellation of visa regime for Ukrainian citizens is becoming issue of the day for the European Union.
• restrictions of access of labour force from Ukraine to the labour markets of the new EU Member States, emerging problems with regard to employment of Ukrainian citizens in those countries.

Sectoral co-operation

"Pro's"

• shortening of the relative gap between Ukraine and other states in some particular key sectors of economy, especially in the spheres of high technology and "know-how";
• possibility to start process of integration of EU's and Ukrainian energy markets;
• speeding up the process of creation of gas-transportation consortium composed of Ukrainian, Russian and European companies;
• possibilities of taking part in the sectoral programs of EU and opening of the scope of participation in financial mechanisms of Transeuropean networks;
• unification of commercial standards and energy trading rules;
• increase of energy efficiency and energy saving in Ukraine.

"Contra's"

• After EU enlargement all animal production is tested by Community veterinary services in specially defined points on EU's external borders, which will determine additional losses for exporters due to the reorientation of the flows of goods from Ukraine to EU and losses of the state due to the decrease of number of tests;
• After EU enlargement Common food quality standards have come into effect. For Ukraine it may result in decrease of volume of agricultural exports to the new EU Member States.

2. The Ukrainian approach to the European Neighborhood Action Plan

In accordance with the EU General Affairs and External Relations Council (June 2003), the main tools of the implementation of the European Neighbourhood Policy are the Action Plans, which are developed now with the partner-countries (the first group consists of Ukraine, Moldova, Marocco, Tunis, Jordan, Israel and Palestine Autonomy).

The EU considers that the main principle of the Action Plans is in providing certain incentives in return for meeting by the partner-countries some demands. The Action Plans defines concrete common tasks, stages and time-frameworks of their implementation.

The Action Plans are focused on the next priorities of the enhanced cooperation:

- political dialogue and reforms,

- social and economic reforms and development,

- trade, market, regulatory reforms, gradual participation in the EU Internal Market,

- justice and home affairs,

- energy, transport, information society, environment,

- people-to-people contacts, including science and technology, culture and education.

The procedure of monitoring the implementation of the Action Plan in the framework of the existing bodies is also envisaged.

The European Commission places an increased importance to the conclusion of the Action Plan with Ukraine, stressing that among other participants of the ENP, our state is of main priority.

Under the approach of the Ukrainian side, the Action Plan should be a bilateral paper and contains joint commitments and actions, practical steps and incentives, ways of gradual development of the relations from cooperation into integration, based on principles of joint ownership, added value and differentiation.

The Action Plan should also have provisions of gradual opening of the EU Internal Market for Ukraine, starting negotiations on creating Free Trade Area, as well as defining the ultimate goal of the AP implementation . the conclusion of a new enhanced agreement. The paper should also envisage the measures of minimizing possible undesirable outcomes of the EU enlargement for the trade sphere and people-to-people contacts.

After holding three rounds of consultations with Ukraine on the Action Plan (in Kyiv in January, in Brussels in February and March) the European Union decided to stop the process temporarily with all participants, including Ukraine, because of the disagreement between the Member States over the Strategy of the ENP. The Member States expressed their intention to discuss and agree general frameworks of the Action Plans, the final goals of their implementation, a level of access to the Internal Market, possible incentives and so on.

On the 1^st of April the representatives of the Member States at the COREPER II meeting confirmed their readiness to continue with the consultations.

On the 12^th of May the European Commission published its Strategy Paper on the European Neighbourhood Policy and country reports (including Ukraine). In the first paper from his list the EU mentions that the ENP is distinct from the possibilities available to European countries under Article 49 of the EU Treaty. Simultaneously, the Ukrainian side was suggested to renew the consultations on the Action Plan, which, in accordance with the Strategy Paper, should be approved by the Cooperation Council. The draft paper, delivered to Ukraine on the 26^th of May, maintains the provisions that were previously agreed. They concern three year term of the AP implementation, prospects of transforming relations from cooperation into the significant degree of the economic integration through granting Ukraine access to the share in the Internal Market and EU programmes.

However, some proposals of the Ukrainian side were not taken into account. They concern measures of facilitating visa regime on the basis of Ukrainian proposals delivered to the EU side at the Cooperation Council on the 18^th of May this year, of providing rights for Ukrainian citizens that temporarily work in the EU Member States through concluding a bilateral agreement, of creating Free Trade Area without any linkage to the WTO accession, of minimizing negative impact of the EU enlargement. The EU also changed the provision of concluding new enhanced agreement under successful implementation of the Action Plan. From now on the Commission suggested to conclude a so called Neighbourhood Agreement that in its turn is no acceptable for the Ukrainian side.

The 4th round of consultations was being held on the 15^th of June in Brussels. Its participants reached certain progress in the prevailing parts of the draft paper. Nevertheless, taking into account that on some elements both sides didn't reach a consensus, it was decided to continue the consultations in order to prepare a document of high quality that would meet demands both Ukraine and the EU.

3. Granting to Ukraine the market economy status

On the 26^th of October 2001 Ukraine has officially handed over to the European Commission (EC) the Memorandum, by which there has been launched the procedure of Ukrainian economy examination as to its compliance with market criteria in the frames of the EU unti-dumping legislation.

On the 14^th of May 2002 the EC was provided with the materials on compliance of Ukrainian economy with the market criteria applied in the EU.

In September 2002 the President of Ukraine and the President of the EC have reached the agreement that during following six months the EC will take final decision as to market economy status granting to Ukraine.

On the 12^th of March 2003 the EC has handed over to the Ukrainian side the corresponding assessment, which indicated that Ukraine had achieved considerable progress in market reforms implementation in such spheres as prices and foreign trade liberalisation, banking sector reforms, and accounting. At the same time, there was defined a number of spheres where up to the EC's mind there were some distortions and state interference. The EC has proposed to submit additional detailed information on the underlined issues.

On the Ukraine-EU Co-operation Council (Brussels, March 17-18, 2003) the sides have agreed Joint Score-Board as to further actions in the frames of recognising of Ukrainian economy with the market criteria. According to this Score-Board the decision on market economy status granting to Ukraine was to be taken in September 2003.

On the 22^nd of May 2003 the Ukrainian side has handed over to the EC additional materials as to this issue as a response to the letter of the EC Commissioner Mr. Pascal LAMY dated March 2003 which indicated five criteria afer complience with which Ukraine would be granted the market economy status. On the 24^th of November 2003 the Ukrainian side has presented the information on three of them and preliminary information concerning bankruptcy procedure in Ukraine. On the Sixth Ukraine-EU Co-operation Committee (Brussels, December 11, 2003) the Ukrainian side has presented full explanation as to compliance with criteria defined by the EC in March 2003. In its turn, the EU side has expressed its readiness to hold expert meetings in order to discuss the problematic issues which could arise in this context.

At the Ukraine-EU bilateral meeting which have taken place in 2004 the Ukrainian side has repeatedly underlined the necessity to take positive decision by the EC . to grant market economy status to Ukraine . in the near future. In its turn, the EU side stated that Ukraine have presented all necessary information and there was no need to have additional explanations or meetings.

On the 18^th of May 2004 the Minister of Economy and European Integration of Ukraine Mr. M. Derkach has received Mr. P. Lamy's letter (dated May 17, 2004) containing the EC assessment as to Ukrainian economy compliance with market criteria. In particular, the letter marked significant progress achieved by Ukraine as well as states some problems which were to be settled: 1) prices of goods . to secure non-interference of the state in pricing, and 2) bankruptcy law. It was noted that the EC was ready to review its assessment and to grant market economy status to Ukraine as soon as the Ukrainian side undertook all necessary measures to settle the mentioned above concerns.

Having analyzed the EC's Final Assessment of Ukraine's request for graduation to market economy status in trade defence investigations, the Ukrainian side has come to conclusion that the negative EC's conclusions did not correspond to the economic realities that exist in Ukraine. Namely, this situation was caused by the fact that while analyzing the economic situation in Ukraine the European Commission had no at its disposal the needed volume of information (as it happened while analyzing the bankruptcy procedure and activity of enterprises with "kazenni" or public status) or the information and documents, being in hands of the EC, were not reflecting to a full extent the real situation (as it happened while examining pricing of metallurgical and chemical enterprises).

The issue of granting the market economy status to Ukraine has been also discussed at the Ukraine-EU Sub-Committee on Trade and Investments meeting (Brussels, June 14, 2004). The EU side has state that EC experts were studying the materials presented by the Ministry of Economy and European Integration of Ukraine on the 8^th of June this year, noting that results of this assessment would be given as soon as the work over it finished.

The market economy status, having not been granted to Ukraine, creates unequal market conditions for Ukrainian enterprises, especially for metallurgical companies, in comparison with other companies on the EU market.

Due to high unti-dumping duties being applied to Ukrainian companies' products after the 1^st of May 2004 the access to the EU new member-states' markets will be limited.

4. On the way to visa-free regime between Ukraine and the EU

Ukraine makes considerable efforts to avoid the appearance of the new .iron curtain' after accession of some neighbouring countries into the European Union and to create mutually acceptable conditions for travelling, business, cultural, sport and personal exchanges between its own citizens and citizens of the EU member-states.

Among vivid examples of Ukraine's readiness to move in that direction are granting visa-free regime of Ukraine for the citizens of the EU member-states, holders of diplomatic passports, and adoption on the 28^th of July 2003 a Resolution of the Ukrainian Government #1168, which envisages the possibility for the citizens of the EU member states and some other countries to enter and stay in the Ukrainian territory with the purpose of tourism during the period of up to 14 days without visas. Such regime is established for the persons, entering Ukraine through Kyiv, Simpferopol, Odessa international airports and Odessa international sea port, where they could obtain necessary permits.

Another important step was signing an Agreement between governments of Ukraine and Poland on conditions of trips for their citizens on the 30^th of July this year. The Agreement concluded with Poland is the first international document of Ukraine which establishes a "asymmetric" mode of trips for citizens of Ukraine and Poland. According to the provisions of the aforementioned document, the visa-free regime for Poles, visiting Ukraine, is established. For citizens of Ukraine visas will be issued free-of-charge and needlessly to show invitations. Issuing of multilateral visas with validity till 5 years for Ukrainian citizens, who take part in regular bilateral contacts in sphere of economy, education, sciences, culture, sports, and also for support of the confirmed family contacts, visiting places of their origin, is granted. Ukrainians, owners of diplomatic passports, can enter, leave and stay in territory of Poland without visas for the period of 90 days. Members of crews of civil aircraft and sea vessels, involved in the international cargo or passenger transportation, do not require visas.

Later similar agreements were concluded with Hungary and Lithuania.

Considering the European Neighbourhood policy, Ukraine is strongly intended to launch a practical work, aimed at simplification and, in the perspective, abolishing of the visa regime between Ukraine and the European Union on the basis of the corresponding Position paper, presented to the EU side at the seventh Joint meeting of Co-operation Council (Brussels, 18.05.04), which envisages:

- adoption by EU Council a Directive on the local border traffic, which could serve simplification of visa procedures for citizens of Ukraine . border areas inhabitants, by conclusion of bilateral agreements with neighbouring countries;

- granting visa-free regime for citizens of Ukraine - holders of diplomatic and service passports;

- introduction a practice of issuing long-term multiply visas to citizens of Ukraine, who take part in economic, cultural, educational, sports contacts and exchanges with the EU;

- granting visa-free regime of Ukraine for the citizens of the EU member-states, holders of service passports;

- drafting and concluding an Agreement on visa facilitation between Ukraine and the EU, considering Shengen acquis flexibilities;

- establishing and ensuring effective work of joint High level Task Force in order to work out a Road Map for introduction of a visa-free regime in a long-term perspective.

5. Joint Ukraine-EU development of border infrastructure

Using funds from 1999 budget year of TACIS program, "Tysa" border crossing point on Ukrainian-Hungarian border was built in Ukraine.

European Union, in accordance with the budget years 2001-2003 of National TACIS program for Ukraine, will render 33 million 500 thousand euros for the construction of Ukrainian check-points .Jagodyn' and .Rava-Ruska' on the border with Poland and .Uzhorod' on the border with Slovakia. Besides, these check-points will be equipped with necessary technical equipment and their personal will be subsequently trained.

The Ukrainian side highly values the EU asisstance for the development of border infrastructure and hopes on the increase of its volumes, improvement of procedures for granting such asisstance as well as on implementation of infrustruture projects with the EU financial support on Ukrainian-Russian, Ukrainian-Bielorussian and Ukrainian-Moldavian sections of the state border of Ukraine.

It is worth mentioning, that after inheritance from the former USSR administrative borders, without any infrastructure, with Russia, Byelorussia and Moldova, Ukraine independently constructed more, than 80 border crossing points, about 40 of them being built on the permanent basis and meeting all international standards. In spite of the shortage of financial resources, Ukraine continues this work within the framework of Program of the actions directed on support of the regime of state border of Ukraine and development of border and customs authorities of Ukraine, on a period till 2005.