Special report: Russia’s western border

Date: 25/10/03

With the European Union opening its arms to ten new members, we look at the borderland that will remain just outside its embrace

IN THE fading daylight, the dumpy haystacks on the hillsides take on the look of an army of babushkas, brooding over the highway that rises from Uzhhorod into the Carpathians. As it winds up and over the gentle peaks, the air sharpens, and the grapevines and the lushness of the plains give way to the forests of birch that will run uninterrupted from there almost to the other side of the planet. It feels an appropriate place for Europe to end.

This has always been borderland. Trans-Carpathia has shifted between the clutches of half a dozen states. For a millennium, travellers from farther east have descended into Europe by this route. For a good part of the 20th century, when the Iron Curtain lay far to the west, the peoples of the region moved and mixed; in the towns near Ukraine's border, it is not unusual for a secretary in a local company to be fluent in Ukrainian, Russian, Hungarian and Slovak, as well as in English.

From next May, though, there will be a new hard line across the land. When ten countries enter the European Union - Latvia, the last to hold a referendum, gave its nod on September 20th - the people in Ukrainian trans-Carpathia, along with those in the westernmost bits of Belarus and Russia, will find themselves once more on the wrong side of a border. And this time it will be one designed not to hold them in the grip of a regime, but to keep them out of the promised land that has welcomed erstwhile brother-nations. If these countries ever join the EU, it will not be for decades. Meanwhile, as if through a crystal curtain, they will see all too clearly how Europe sparkles compared with their own drab surroundings.

They will, however, have their own union. The day before Latvia's vote, the Commonwealth of Independent States (CIS), a loose confederation of most of the former Soviet countries, voted to form a common economic area, beginning with Russia, Ukraine, Belarus and Kazakhstan, but eventually to include the whole of the CIS.

Where Europe and the CIS will rub up against one another, an economic fault-line is forming. How these two economic empires treat the region will determine what happens to it: whether it can westernise, pulling the rest of the CIS with it; or becomes a dump for manufacturing and migrants, like Mexico's border with the United States; or stagnates, ignored by all.

Western Ukraine has always thought of itself as different. Long a part of the Austro-Hungarian empire, then briefly part of Poland, some of it did not rejoin Ukraine until 1945. Opposition to the Soviet regime had its cradle in Lviv, and it is still the nationalist centre, where speaking Russian on the street can get you dirty looks. If the houses appear well-kept and the people relatively well-off, says Ihor Ilko of the Carpathian Foundation, which fosters cross-border co-operation, that is not because they are rich - this is still one of Ukraine's poorest areas - but because “people are more oriented to private property and more entrepreneurial than in the east, where they just drink their money away.” His is a common perception.

The poverty is real. The traditional industries, lumber and heavy machinery, have withered. To escape soaring unemployment, many have gone away to work in the west. Getting across is already harder than it was: Slovakia has required visas since 2001, which, with all the fees, can cost $100 for a six-month stay, a month's average wage in trans-Carpathia. Yet such is the desire to leave that people will find $1,500 to get into western Europe illegally, or ten times that amount to get into the United States.

And yet the mood of businesspeople is upbeat. “EU-widening will be good for western Ukraine,” Mykola Palinchak, a professor at Uzhhorod's Institute of Public Management, tells his students. As costs and salaries rise across the expanded European Union - manufacturing wages in Poland are already five or six times higher than in Ukraine - companies are moving their factories across the border.

With them come western standards and ways of working. When E. Walters, a British firm which makes clothing for high-street brands, hired its first contractor in the area seven years ago, “Their factory didn't even have enough light bulbs,” says Alan Wood, the company's local representative. Now the firm is the main customer for four factories, one of which is already up to international standards.

This summer LEONI, a German firm, opened a car-wiring systems plant in Stryj, south of Lviv, which will eventually employ 4,000 people, and is planning another. Foreign direct investment in the Lviv oblast or region was $30m in 2001, $55m in 2002, and is heading for $80m this year - tiny figures, but growing fast. It could, says Mr Wood, be a catalyst for investing in the rest of Ukraine: firms that get a foothold will, as salaries start to creep up, move ever farther east.

Moreover, a tighter border will mean a captive workforce. LEONI had trouble finding skilled staff. Yaroslav Rushchyshyn, another clothing-factory owner, says that he has to compete with E. Walters' suppliers for labour: “All our seamstresses are off working in Slovakia and Poland.” He also hopes that an EU-run border will mean shorter customs delays.

And yet he thinks that the region's true potential, as yet undeveloped, is in tourism. You can still see, sheltered in the foliage, the sanatoriums where the Soviet middle classes spent their summers. Dotted with historical towns, such as Lviv itself, and with a climate less harsh than farther north, western Ukraine could be the first stop for curious Euro-tourists venturing beyond their own orderly confines.

Predictably enough, though, what holds trans-Carpathia back is its Soviet legacy of bureaucracy. During a grand opening ceremony at the LEONI plant, a manager confides sotto voce that they needed 18 different documents just to open a company bank account. Registering a small business, says Mr Rushchyshyn, requires over 30 signatures. The authorities help steer big investors like LEONI through the legal minefield. But it will deter locals who might be considering a start-up with a little money brought back from abroad.

Making a bit on either side

The route north to Belarus is a series of time-capsules, dropped there by a century that was hurrying by: crumbled farmhouses, donkey-drawn carts, hand-ploughs, Soviet monuments to the heroes of the second world war, and the flimsy 1960s buildings that are the depressing reminder of socialism everywhere. At the entrance to Chernovohrad, a prototypical Lenin statue stares grimly at a jumble of abandoned factories down the road. It seems nothing has changed here for decades, just a few dozen kilometres away from the fastest-changing region in the world. But drive on, and there are rows of shiny bicycles for sale, a brand-new bus terminal, a church under construction, sleek petrol stations. “There are more of those here than in Poland,” the driver says.

At the border, a man opens the boot of his car to reveal four grimy jerrycans. The customs official shrugs and waves him on. Petrol is cheaper in Belarus than in Poland and cheaper still in Ukraine; people make money on the difference, bribing customs officers if need be. On the Polish side, the road towards Brest is lined with wholesalers whose speciality is supplying this “shuttle trade”.

Perhaps the biggest riddle of the border region is how many people depend on the shuttle trade, how the EU's expansion will affect them, and how they will earn a different living. At the moment, some trade just for a bit of extra cash when crossing anyway; some finance a weekend of drinking over the border by taking merchandise with them; others make up to ten crossings a day. A day's work may reap only a handful of dollars in profit, but still be more than the average wage. In Kaliningrad, the Russian exclave on the Baltic Sea, and the hardest-hit economically by being cut off from the mainland, one estimate says that shuttle trading is the main earner for a tenth of the population; or at least it was, until Lithuania ended visa-free travel earlier this year. Along the border region, locals' guesses of how many people engage in at least some shuttle-trading range from a fifth to half of the population.

The governor of the Brest region, Vassily Dolgolev, estimates that before October 1st, when Poland too began requiring visas, 70% of the cars crossing the nearby border carried some goods to sell. Many of them were just making a bit of business out of a family visit: Brest, like trans-Carpathia, was once an indeterminate melting-pot. Stalin sliced down the map, and towns, villages, even cemeteries fell apart into separate countries. For over 50 years it made no difference. What will now happen to the shuttle traders, never mind their Polish wholesalers?

“The visa regime has been put off and put off,” says Mr Dolgolev. “People have known about it for a long time, and will find ways to legalise their business.” Though Belarus is the last bastion of state ownership in eastern Europe, a Cuba without sun and sea, he claims it can take advantage of having the EU next door. As in Ukraine, companies are moving here for the cheaper wages, setting up plants in Brest's free economic zone. Warsaw is less than 200km (125 miles) away, on a road and rail route that runs all the way to Moscow. Belarus's open border with Russia makes it an easy route for foreign firms into that burgeoning market. The people are educated - and not like those Russians: “Our advantage is our work ethic: we're closer to the Europeans in discipline.”

A group of businesspeople assembled at Brest's Chamber of Commerce, a run-down building with an entrance that smells of urine, is not so upbeat. The problem, they say, is that the rules of the game, dictated by the whimsical and despotic president, Alexander Lukashenka, keep changing.

Their current gripe: earlier this year the government decided that it wasn't getting enough tax from private entrepreneurs - who had been allowed to operate without the bureaucracy and higher tax rate of registered companies - and changed the rules. Now a private entrepreneur cannot employ more than three people; a bus driver cannot hire himself out unless he is employed by a company. “Bringing order,” the governor calls it. “Strangling small business,” say the entrepreneurs.

Brest also faces another, almost unquantifiable, challenge. Thanks to Russia's huge and porous frontiers, the western border regions are potentially a funnel for migrants from a vast swathe of Central and East Asia heading for the EU. The Neeka refugee centre in western Ukraine is a barometer of social disturbance everywhere from Chechnya to China, says Albert Pirchak, one of its directors. “We hear on the radio of problems in Chechnya, and a week later they're turning up here.”

Stopping such migrants is now the EU's problem; the Soviet Union's once-formidable frontier defences are underfunded and decaying, says Colonel Vasili Gorbatenko of the Belarussian border guards, and the alarm systems will soon be switched off. But dealing with those who are stopped will fall to the EU's neighbours. Nobody, however, seems to know how many refugees to expect, nor what to do with them.

In Moscow's shadow

Pskov ought to be prosperous: it has an ancient Kremlin and churches, enjoys a central role in Russian history, celebrated its 1,100th anniversary this summer, and is just 30km from the border with Estonia. Yet this city of 200,000 people rivals any other in Russia for shabbiness. The guests at the anniversary celebrations quickly outnumbered the hotel rooms, and had to be put up in local hospitals. Foreign direct investment in the Pskov region is just 0.1% of that for Russia's north-west area, though it has over 5% of the population.

The city's location is in fact more of a curse than a blessing. Moscow and St Petersburg are near enough to draw away the lion's share of industry, as well as talented workers, but far enough away to forget about Pskov. Yet wages are already high enough, and the investment climate bad enough, to give an investor little reason to choose Pskov either over a town nearer Moscow, or over neighbouring Latvia and Estonia. The lack of development means that the forest-rich region sells wood abroad but buys it back, expensively, as furniture, instead of making its own.

Businessmen's complaints are the same as in Ukraine: decent laws maybe, but a corrupt and slovenly bureaucracy gets in the way. “I need a clear understanding of how to get decisions, even if it's just to know which bribes I need to pay,” says Andrei Temukhin, an entrepreneur with construction and communications interests. He also needs cheaper and faster credit: a $200,000 loan at 16% above inflation from the state-owned Sberbank took two months to arrange.

One possible benefit of EU widening is obvious. Pskov would be an ideal first stop for tourists coming to Russia by land, or for those who just want a quick peek. But the country's expensive and tortuous visa process makes that difficult.

Pskov region plans to lobby the federal government to allow instant 72-hour visas to be granted on the border. Yet when Dmitry Shakhov, the region's deputy governor, talks of what Russia would like from Europe in return, he echoes the fantasies typical of the Moscow bureaucracy: “We think the rights of entry to the [European] Schengen zone for Latvians and Estonians should be perfectly acceptable for Russians too.”

And you do not have to go far out of the city to see some of the biggest possible losers to an expanded EU. A study, financed by the Swedish government and produced by Revival, a Pskov research centre, found that agriculture is the one part of the economy that is certain to suffer after EU expansion. All along the border region, farmers face a double threat: EU standards and tariffs will make it harder for them to export their produce; at the same time, they will face competition at home from imported, subsidised, better-quality EU goods.

And while some may be prepared for more competitive times, others are plainly not. The Memory of Lenin collective farm, with its rusting tractors and cannibalised trucks, is just a few minutes' drive from the Estonian border near Pechory; but the way its director, Gennady Shalstuck, talks, the modern world might as well be a thousand miles away. “Europe is no competition for us,” he argues, “because Russia needs a lot to feed it. Maybe I'm being optimistic, but I just think we need to work a bit better. And drink less.”14#vety=41;enum=0;

Feature looks at the countries just over the soon-to-be new borders of the EU - and examines their prospects and the impact of EU enlargement.