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Abstract
How do the politics of economic integration pursued by the European Union (EU) and Russia in their shared neighborhood affect domestic change in these countries? Do the two external powers further economic integration with one or the other, and how do their strategies shape the survival of rent-seeking domestic elites? Examining the case of Ukraine’s car industry, the paper reveals a considerable degree of disengagement by both the EU and Russia. Both external actors offer domestic elites surprisingly few opportunities for economic integration but rather pursue a “policy” of de facto exclusiveness that caters to the domestic interests of the EU and Russia. So far, the EU has strongly promoted trade liberalization to facilitate market access for European car producers but has not created opportunities for foreign-led restructuring of Ukraine’s car industry, thereby leaving the sector without a chance to benefit from liberalization. Russia, in turn, compromised existing trade linkages with Ukraine to protect its own domestic car industry. What is more, the strategies of both the EU and Russia even provided opportunities for Ukrainian oligarchs with stakes in the domestic car industry, who were not interested in transparent forms of economic interaction in the first place, to pursue rent-seeking strategies that undermined any chance for sustainable development of the industry. While Russia’s disengagement has caused trade disintegration that may have contributed to Ukraine’s reluctance to join Russia-led integration regimes, the EU is well advised to create opportunities for sustainable integration if it does not want to become a factor of further destabilization in Ukraine.
Acknowledgments
I would like to thank two anonymous reviewers and all contributors to this special issue of EGE for most helpful comments as well as Laura Milchmeyer, Nele Reich, and Felix Rüdiger for their invaluable research assistance. The usual disclaimer applies.
Notes
1. These include Armenia, Azerbaijan, Belarus, Georgia, Moldova, and Ukraine. From the perspective of the EU, these countries are grouped under the term “Eastern neighbors.” Russia considers these countries as being part of its “near abroad.”
2. For more information on the company’s history see http://bogdan.ua/en/corporation.html.
3. For more information on the company’s history see http://www.ukravto.ua/en/about_us/history.
4. Law of Ukraine “On the Unified Customs Tariff,” No. 2097-XII, Feb. 5, 1992.
5. Interview with Ukrainian expert, Kyiv, Nov. 12, 2014.
6. Law of Ukraine “On the Stimulation of Automobile Production,” No. 535/97, Sep. 19, 1997.
7. Cabinet of Ministers Degree “On Making Amendments and Additions to some Resolutions of the Cabinet of Ministers of Ukraine,” No. 146, Feb. 16, 1998.
8. Import duties did not apply to the temporary import of cars for a period that varied throughout 1990s. Cars could be taken out of the country within that period but could again be temporarily imported right after. The practice was and still is used by Ukrainian car dealers and owners to circumvent import duties. This trend remained constant even though the “Temporary Clause on the Regime for Temporary Import of Goods, Property and Transportation Means,” issued on Dec. 30, 1991, was amended in 1997 with additional limitations on the temporary entry of cars to Ukraine. Corporations and individuals were only allowed to bring one car per company/individual into Ukraine for a period of three years, exempt from customs fees.
9. According to UNCTAD International Trade Statistics, the value of Ukraine’s car exports to Russia was 1.613.000 USD. As mentioned earlier, the price for Ukrainian Tavria models was US$35,000 in 1996 (Yegorov Citation2004). Assuming that the price did not change, not more than 461 Tavria models were sold in Russia in the year 2000.
10. Interview with Oleh Nazarenko, Ukrainian Association of Car Dealers and Importers, Kyiv, Nov. 12, 2014; Interview with Valeriy Pyatnizkii, former deputy Minister of Economy of Ukraine and chief negotiator for Ukraine’s WTO accession, Kyiv, Nov. 13, 2014.
11. The acquis communautaire is the accumulated body of EU law and obligations. It comprises all the EU's treaties and laws, declarations and resolutions, international agreements, and the judgments of the Court of Justice. It also includes all EU measures relating to Justice and Home Affairs as well as to the Common Foreign and Security Policy.
12. As Bruszt et al. (Citation2015) show, the Romanian car industry experienced a similar downward trend during 1990s but has seen an impressive recovery since 2000 onward.
13. The joint venture was established in 1995 by Gorky Car Works of Russia and Kremenchuk Experimental Mechanical Plant.
14. SKD means assembling welded and painted cars.
15. Interview with Oleh Nazarenko, Kyiv, Nov. 12, 2014; Interview with Valeriy Pyatnizkii, Kyiv, Nov. 13, 2014.
16. CKD means assembling a product using a complete kit which contains all the necessary parts. Usually, the parts are manufactured in one country and then exported to another country for final assembly.
17. Interview with a representative of DG Trade, Kyiv, Nov. 10, 2014.
18. Interview with a former employee of AIS, Nov. 12, 2014.
19. “Law on Amending Certain Legislative Acts of Ukraine for Improving the Balance of Payments in Connection with Global Financial Crisis,” Feb. 20, 2009, in effect from Mar. 6, 2009.
20. Interviews with Ukrainian experts, Kyiv, Nov. 13, 2014 and with Oleg Nazarenko, Kyiv, Nov. 12, 2014.
21. Interview with Valeriy Pyatnizkii, Kyiv, Nov. 13, 2014.
22. Interview with a Ukrainian expert who was involved in preparing Ukraine’s accession to WTO, Kyiv, Nov. 13, 2014.
23. Interview with a representative of DG Trade, Kyiv, Nov. 10, 2014.