WRITTEN QUESTION E-3175/02

by Charles Tannock (PPE-DE) to the Commission

(7 November 2002)

Subject: The issue of Market Economy Status for the Ukraine

At the Joint Statement of the Copenhagen Summit on 4 July of this year it was confirmed that the EU is in the process of analysing the relevant information as a prelude to determining whether or not to grant full Market Economy Status to the Ukraine. The intention was to make a decision within six months, although that has now been put back until March, 2003.

Could the Commission indicate the criteria on which such an assessment will be made? Will the size of the state sector be a major determining factor or only one of a number of factors, and how does the Commission compare the economic situation of the Ukraine with, say, Russia or Romania? Can the Commission give an indication of the areas of economic activity which require the greatest improvement if Market Economic Status is to be achieved?

Finally, can the Commission offer an assurance that the decision on Market Economic Status will be made on economic grounds alone and not on the basis of any political difficulties, the need to resolve those difficulties notwithstanding?

Finally, as a long-term aim does the Commission regard it as important to integrate countries such as the Ukraine (or even Russia, should she eventually indicate a wish to join) into the European Union or would the Commission prefer them to stay outside?

Answer given by Mr Lamy on behalf of the Commission

(13 December 2002)

As the Honourable Member knows, the Union has explicitly recognised progress by Ukraine towards a market-based system by classifying since 2000 this country as a transition economy rather than as a non-market economy. This has allowed individual Ukrainian companies who are operating according to market criteria to be treated as such in anti-dumping investigations, and signals the Union's continuing support of the on-going reforms in the Ukraine.

The Joint Statement released after the Copenhagen Summit (July 2002), stated that the Commission was analysing whether the process of economic reform in the Ukraine was sufficiently advanced to warrant a classification of Ukraine as a whole as a market economy for the purpose of trade defence investigations, and that the analysis would be completed as soon as possible. Once the analysis was sufficiently advanced to shed light on a more concrete time frame, the President of the Commission announced in September 2002 that the analysis would be completed at the latest by March 2003. This time frame is not only transparent but also rather ambitious given the complexity of the exercise.

As was communicated to the Ukraine early 2002, such analysis is conducted on the basis of objective criteria: degree of government influence over the allocation of resources and decisions of enterprises; presence of State-induced distortions in the operation of enterprises linked to privatisation or carry-over from the centralised system; existence and implementation of transparent, non-discriminatory company law which ensures adequate corporate governance; existence and implementation of a coherent, effective and transparent set of laws which ensure the respect of property rights and the operation of a functioning bankruptcy regime; and existence of a genuine financial sector which operates independently from the State and which in law and practice is subject to sufficient guarantee provisions and adequate supervision.

As can be seen from the above criteria, the assessment carefully examines not only whether the legal structures necessary for the functioning of a market economy are nominally in place, but also whether in practice, they are actually implemented and market principles thus apply in the operation of firms.

The Commission performs its market economy assessment on a case-by-case analysis. Upon completion of the assessment, the Commission intends, if necessary, to indicate to the Ukrainian authorities the areas where it believes improvement is warranted in order for Ukraine to be treated as a full market economy in the field of trade defence. The Commission also keeps the Ukrainian side regularly informed of progress in the analysis.

The decision as to whether or not to graduate Ukraine into the market economy category will be made according to economic and legal rather than political criteria. In practice, however, the extent to which an economy can function as a market economy per se is very much dependent on the authorities' political will to pass and enforce the relevant laws enshrining market principles.

As to the Honourable Member's question on the long-term strategy with Ukraine, the Partnership and Co-operation Agreement (PCA) and the 1998 Common Strategy with Ukraine, set out the framework of Union relations with Ukraine. On this basis, and as reiterated at the Union-Ukraine Summit in Copenhagen on 11 July 2002, Ukraine should first take full advantage of the possibilities offered by the PCA to facilitate two-way trade and investment and should also make all necessary efforts to accede to the World Trade Organisation as soon as possible. The Union is supporting Ukraine in this process. Furthermore, in the context of the enlargement, discussions are on going as to the ways to strengthen Union relations with our future neighbours, including Ukraine.