Ukrainian delegation travels to Washington to keep bilateral economic relations on track

by Yaro Bihun
Special to The Ukrainian Weekly

WASHINGTON - An official delegation from Ukraine spent the last week of January here trying to keep the U.S.-Ukrainian economic ties on track in what its chief negotiator characterized as a period of "cooling" in the overall bilateral relationship.

"As we see it, we made progress in this direction," Minister of the Economy Valerii Khoroshkovskyi told the press on January 31. "After two days of talks we came to understand that the U.S. side is interested in continuing normal, working relations," he said of the January 28-29 meeting of the U.S.-Ukraine Committee on Economic Cooperation.

The committee's agenda covered Ukraine's macroeconomic issues, energy and agricultural reforms, unresolved investment and trade disputes, including U.S. poultry exports, protection of intellectual property rights, money-laundering sanctions and Ukraine's potential membership in the World Trade Organization.

In these talks, members of the Ukrainian delegation, which also included Minister of Fuel and Energy Serhii Yermilov and National Bank of Ukraine Vice-Chairman Oleksander Shlapak, met with officials from the departments of State, Commerce, Energy and Treasury, the U.S. Export Import Bank and the National Security Council, and Ukrainian officials.

During the weeklong visit, the Ukrainian officials also met with representatives of the World Bank and International Monetary Fund, members of Congress, the business community and the press.

Mr. Khoroshkovskyi, who was appointed minister of the economy in November, took over as head of the visiting delegation after a reported illness forced the first vice prime minister, Mykola Azarov, to bow out at the last minute.

Briefing the press on the last day of his talks here, Mr. Khoroshkovskyi said one of the main tasks of the delegation was "to renew the trust" between the two countries following a recent U.S. review of its policy toward Ukraine.

The review had not been made public, and Mr. Khoroshkovskyi said he had not seen it yet, but some of its results were being leaked to the press by an "administration official" before the delegation left Washington who said the Bush administration was shifting $34 million of aid promised for Ukrainian government projects this year to non-government programs fostering political and economic reform in Ukraine. According to these reports, this was being done in response to President Leonid Kuchma's alleged approval of the sale of Ukraine's Kolchuha air defense system to Iraq.

(Three days later, in the administration's 2004 budget request to Congress, Ukraine was among countries to suffer massive cutbacks in its assistance package.)

Mr. Khoroshkovskyi said the joint statement signed at the conclusion of the talks underscores the progress made in many areas, but also "obligates, first of all, our side to take some serious efforts so that our talks will not remain just talks."

He noted that in many of his meetings he "felt that the loss of confidence in us was the main reason for the chill in our relationship. Therefore, we clearly understand the obligation we take upon ourselves today when we speak about continuing reforms, about our government's priorities."

He said Ukraine has to accelerate its entry into the World Trade Organization, restore relations with the IMF, continue working with the World Bank, and concentrate on completing its tax and administrative reforms.

"Truth be told, I understand that much needs to be done in so little time," he said, explaining that at the most, the government has two years to accomplish this task, until the next presidential election.

"We are ending our visit hopeful that we will be able to continue our reform process and that we will have the support in this of the United States," Mr. Khoroshkovskyi said.

One of the areas in which Washington indicated it would support Ukraine was in getting the Financial Action Task Force (FATF) to lift its recommendation that countries use economic sanctions against Ukraine for being lax in dealing with international money laundering.

The FATF sanctions, already instituted by some half dozen European countries, can do "serious harm" to Ukraine's very dynamic financial sector, the foundation of the country's economy, Mr. Khoroshkovskyi explained.

The United States agreed to help Ukraine at the next plenary session of FATF later this month, he said, provided Ukraine agrees to take certain remedial steps to bring its anti-money-laundering practices up to international standards.

"Now everything is dependent on what we do," he said.

The joint statement notes that the United States "expressed its support" for Ukraine's efforts to gain membership in the World Trade Organization and to do so "at as fast a pace as it can move forward."

Mr. Khoroshkovskyi criticized the approach taken by Ukraine's previous government, which kept putting off dealing with the most important issues of WTO membership. As a consequence, he said, he does not expect WTO membership for Ukraine until late 2004, and not in 2003, as was expected earlier.

As for Ukraine's relationship with the International Monetary Fund, Mr. Khoroshkovskyi said that while Ukraine does not need IMF credits right now, maintaining good relations with the IMF sends "a very good signal" for foreign investors.

Another issue that has been discussed in U.S.-Ukrainian talks has been the Jackson-Vanik Amendment, the Soviet-era U.S. legislation passed to pressure Moscow into allowing Jews to emigrate. The law remains in force today and complicates economic relations with Ukraine, Russia and seven other countries.

Although the joint statement indicated that the "American side outlined the steps it is taking to engage the U.S. Congress on possible removal" of the amendment's restrictions, Mr. Khoroshkovskyi said he did not actively pursue the issue, knowing full well that it would not be resolved during these talks.

The removal of the Jackson-Vanik restrictions is important for Ukraine, he said, because that is one of the requirements for Ukraine to get "market-economy status" with the United States.

Getting that status was discussed during the talks in Washington, Mr. Khoroshkovskyi said. He was told that Ukraine could apply for this status at any time, so long as it was ready to meet all of its requirements. Among them, he said, the most challenging for Ukraine was achieving the required proportional balance between the private and the state sectors of the economy and reforming the energy sector.

According to the joint statement, the sides "continued their dialogue" on the protection of intellectual property rights in Ukraine and "discussed the importance" of resolving the issues affecting U.S. exports of poultry to Ukraine.

As for other outstanding bilateral trade issues, he said, things are "more or less" well with the textile dispute, and in steel and metals, where Ukraine is proposing its own voluntary price and volume restrictions in place of U.S. anti-dumping sanctions.

As in similar talks in previous years, the issue of unresolved disputes with American investors also were discussed. Mr. Khoroshkovskyi said that this time around they reached a basic agreement about which disputes need to be resolved by the government and which require legal action.

These issues will be dealt with immediately after the delegation's return to Kyiv, he said, adding, "I hope that when this committee meets again in six months, many of these issues will no longer be on the agenda."

According to Kempton Jenkins, the executive director of the U.S.-Ukraine Business Council, these disputes involve about a dozen mostly small investors, and some have already been resolved.

"In our meeting with Minister Khoroshkovskyi I leaned very hard publicly on him to clean up these irritations - because that's what they are - because the amount of money is not very big," Mr. Jenkins said. "He agreed with me that the price they're paying, in terms of the reputation of Ukraine in the world marketplace, is way out of proportion to the amount of money that's involved to settle them."

Asked about the stalled Odesa-Brody oil pipeline project, Mr. Khoroshkovskyi said the problem is that oil has always been a matter of "big politics," in which Ukraine is not an independent player. Ukraine's role was in providing a pipeline to move the oil, he said. "The question of filling the pipeline is a matter to be agreed on by many players," he added, and it will also require great diplomatic skill on the part of Ukraine.

He was asked whether the United States still backs this project.

Ukraine's Odesa-Brody is one of a number of projects now being considered for transporting Caspian oil to the West, he replied. "As a result, one could say that while the (U.S.) interest has not disappeared, it is being expressed in the context of other possible projects."

The Ukrainian official was also asked about the increased economic activity in Ukraine by Russian investors.

Mr. Khoroshkovskyi said Ukraine has no problem with the increased inflow of Russian investment capital. The fact that the amount of Russian investment now is disproportionately high compared to other sources of investment capital is an indication that the Ukrainian economy is not adequately "open," he said.

Russian entities are investing in Ukraine not so much because they feel "more comfortable" there than Western investors, but because they are more familiar with that kind of environment.

"And this is a result of the lack, or inadequacy, of transparency in the economy of our country," the economy minister said. Ukraine is not satisfied with this state of affairs; it would like to create equal investment opportunities for all investors by creating a truly open and transparent economy, he stated.

Copyright © The Ukrainian Weekly, February 9, 2003, No. 6, Vol. LXXI

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