Agenda

1. Institutional harmonization and its costs and benefits in the context of EU cooperation with its neighbors Seminar supporting the project «EU Eastern Neighbourhood: Economic Potential and Future Development», (ENEPO) Implemented within Sixth Framework Program of the European Commission Dmytro Boyarchuk CASE Ukraine January, 2009 The materials express exclusively the views of the authors and cannot be identified with the official stance of European Commission.

2. Agenda • Concept of institutional harmonisation and its applications to European integration • What institutional harmonisation with the EU may mean - lessons from existing arrangements • Agenda for institutional harmonisation of EU Eastern Neighbors • Institutional harmonization – our research 1

3. Concept of institutional harmonisation and its applications to European integration • Institutions are an important factor of economic growth like labour, capital, natural resources etc. • Institutions are formal rules, informal constraints, and enforcement mechanisms that provide thebasic structure by which human beings create order and attempt to reduce uncertainty in exchange • Ukrainian institutions are of poor quality and for Ukraine and other CIS countries poor institutions are the main impediment for European integration 2

4. Concept of institutional harmonisation and its applications to European integration (continued) • Ukrainians understand integration as market access, labor mobility (simplified visa regime) and increase in salaries (to European level). • For the EU integration means institutional harmonization – named Europeanization • All instruments of European integration (technical assistance, twinning etc.), first of all, target harmonizing institutions with European standards 3

5. What institutional harmonisation with the EU may mean - lessons from existing arrangements Institutional harmonisation with the EU can have different degree of arrangements. The major economic difference among the forms of integration is the scope and degree of market access. In order to get a wider and deeper market access, countries have to do more harmonization. • Accession to the EU (membership) – states give each others’ laws and standards the same validity as their own. • European Economic Area – full markets integration with the EU without membership (do not adopt selected EU acquis) 4

6. What institutional harmonisation with the EU may mean - lessons from existing arrangements (continued) • EU-Switzerland cooperation – based on a free trade agreement and a range of sectoral agreements (“cherry-picking”) • EU-Turkey Customs Union – full trade liberalization accompanied by an application of a single external tariff (Customs Union) • Free trade area (FTA) – the depth of harmonisation is insignificant 5

7. Agenda for institutional harmonisation of EU Eastern Neighbors • European Neighbourhood Policy (ENP) is a search of an optimal arrangement for the Eastern neighbors of the EU • ENP Action Plans is the main instrument guiding first steps of harmonisation • Action plans envisage harmonisation across sectors, as well as so called horizontal issues • ENP Action Plan prepare the ground for the conclusion of comprehensive Free Trade Agreements (FTA) 6

8. Institutional harmonization – our research • The major question of the study: measuring the costs and benefits of institutional harmonization in CIS area in the context of creation of deep FTAs • Studies on European Integration mainly concentrate on trade issues • Numerical estimate of institutional harmonization benefits • Problems of institutional harmonization 7