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Testimony by Steven Pifer, Deputy Assistant Secretary,
for European and Eurasian Affairs, U.S. Department of State,
Committee on International Relations, Subcommittee on Europe,
U.S. House Of Representatives, Wash, D.C., Wed, May 12, 2004
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Ambassador Steven Pifer
(Photo by Natalie Gawdiak)
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Mr. Chairman, Members of the Committee, I am pleased to be here today
to discuss with you U.S. policy towards Ukraine.
As requested, I shall provide an assessment of the current state of
U.S.-Ukrainian relations; the U.S. view of current political and economic
developments in Ukraine, including the critical presidential campaign and
October election; U.S. assistance to Ukraine; and the status of Ukraine's
relationship with NATO and the European Union.
I shall also update you on recent interactions we have had with senior
Ukrainian officials, including the visit to Kiev by Deputy Secretary
Armitage at the end of March. I had the opportunity myself to spend three
days in Kiev at the end of April to assess Ukraine's progress on democracy
and the presidential election. I hope this information will provide useful
background for your upcoming visit to Ukraine, which the State Department
very much welcomes.
U.S. Vision for Ukraine
The U.S. vision for Ukraine has remained constant for more than ten years.
The U.S. Government wants to see Ukraine develop as a stable, independent,
democratic, economically prosperous country, a country that increasingly
draws closer to Europe and to European and Euro-Atlantic institutions, that
promotes human rights and abides by the rule of law, that maintains
positive, mutually-beneficial relations with its neighbors, and that
actively contributes to strengthening peace and security in the
international community.
We believe that the majority of the Ukrainian people shares this vision. We
support this vision because we believe such a Ukraine will be good for its
people, will contribute to a more stable and secure Europe, will be a
partner with the United States in meeting today's new challenges, such as
countering proliferation and defeating terrorism, and will be a country with
which we can have robust and mutually beneficial economic and trade
relations. Many Americans understand that helping Ukraine to realize this
vision is in our own national interest.
It is important to recall that the road to Ukrainian independence during the
past century has not been an easy one. In 1917, the Central Rada proclaimed
Ukrainian autonomy and in 1918, following the Bolshevik seizure of power in
St. Petersburg, the Ukrainian National Republic declared independence.
After three years of conflict and civil war, however, the western part of
Ukraine was incorporated into Poland, and the central and eastern regions
were incorporated into the Soviet Union in 1922.
The Ukrainian national idea persevered throughout the Soviet period, but
Ukraine suffered immeasurably. In 1932-33, the Soviet authorities waged a
campaign of terror that ravaged the Ukrainian elites and created an
artificial famine (called the Holodomor in Ukrainian) that took the lives of
many millions of innocent Ukrainians. The Second World War was another
heavy blow; estimates are that some 10 million Ukrainians lost their lives.
In 1986, Ukrainians again suffered a tragedy of historic proportions with
the explosion of Reactor Number Four at the Chernobyl nuclear power station.
Ukraine and its neighbors recently marked the 18th anniversary of the
Chernobyl explosion, and the country continues to feel the effects of that
disaster.
Post-Communist Achievements and Problems
Ukraine began a new chapter in its history in 1991, when it regained
independence with the collapse of the Soviet Union. Ukraine has changed
dramatically since independence - as you will see when you visit later this
month. Long gone are the breadlines and dour expressions that characterized
the Soviet period. Ukraine now is a vibrant, dynamic country that is
carving out an important place in Europe.
Ukraine has not made as much progress as we had hoped it would in the early
1990s. In part, this reflects choices that the Ukrainian leadership made,
or did not make. But in retrospect, it is also fair to say that our
expectations for rapid progress were somewhat unrealistic. Ukraine has had
to undergo three transformations: from a Communist political system to
democratic structures; from a command economy to the market; and from a
part of the Soviet Union to an independent state with its own foreign
relations. Ukraine has had to manage these transformations simultaneously.
I want to highlight in particular several important Ukrainian achievements
in the post-Soviet era. The first is strengthened statehood. There were
some - including in Ukraine itself - who doubted that the country, after so
many years of imperial Russian, then Soviet domination, could stand on its
own. But now, more than a dozen years since the fall of the USSR, Ukrainian
statehood is stronger than ever. Whereas a National Intelligence Estimate
in 1994 entitled "Ukraine: A Nation at Risk" postulated that there might be
no Ukraine in five-ten years, few serious analysts would pose that question
today.
A second major achievement was Ukraine's de-nuclearization. When the Soviet
Union broke up, Ukraine had on its territory the third largest strategic
nuclear arsenal in the world - greater than those of the United Kingdom,
France and China combined. Ukraine agreed in January 1994 to return the
strategic nuclear warheads located on its territory to Russia for
dismantlement in exchange for security assurances, compensation for the
nuclear material in the warheads, and expanded Western assistance. Ukraine
acted on its commitment by returning strategic nuclear weapons to Russia,
completing the transfer in the middle of 1996. In addition, Ukraine acceded
to the Non-Proliferation Treaty as a non-nuclear weapons state on December
5, 1994.
Since 1993, Ukraine has been a recipient of U.S. assistance in dismantling
its nuclear arsenal, including delivery systems and the infrastructure
associated with strategic nuclear systems under the Cooperative Threat
Reduction (CTR) (Nunn-Lugar) Program. This assistance included missile,
silo and bomber elimination. Building upon this success, the CTR Umbrella
Agreement also allows for activities such as upgrading an automated export
control system in order to prevent weapons of mass destruction
proliferation, and a Proliferation Prevention Initiative designed to offer
assistance with border security, again to thwart proliferation.
A third achievement is that Ukraine has built increasingly stronger
relations with Europe and Euro-Atlantic institutions. At the NATO summit in
1997, NATO and Ukraine launched the Distinctive Partnership, defining a
special relationship between the Alliance and Ukraine. Conclusion of a
NATO-Ukraine Action Plan in 2002 charted the way forward for Ukraine to
strengthen further its relations with NATO. Ukraine has a Partnership and
Cooperation Agreement with the European Union and a regular dialogue on
issues of mutual interest.
Ukraine's recent strong economic performance represents a fourth important
achievement. After a decade of decline, Ukraine's economy began to expand
in 2000, spurred in part by reform of the energy and agricultural sectors,
and has continued at a strong pace since then. Last year, Gross Domestic
Product grew by a remarkable 9.4 percent. Exports of manufactured goods
drove the growth, and construction is booming. The government met its
budgetary targets, kept inflation under control, and accumulated substantial
foreign exchange reserves. Ordinary Ukrainians are beginning to feel the
benefits: household income and consumption have risen dramatically. This
impressive performance continued in the first quarter of 2004. Ukraine has
even managed to repair its sometimes-troubled relations with the IMF and
World Bank.
However, while Ukraine has made progress on economic reform, much remains
to be done. Tax reform is incomplete, and the problem of arrears in refunds
of the Value Added Tax persists. Energy sector reform is stalled. Many in
the government appear not to trust market mechanisms, as was evident during
last year's grain shortages when the government implemented informal price
controls. The investment climate remains hampered by a cumbersome and
opaque regulatory framework, corrupt and illicit business practices, and an
arbitrary judicial system. Intellectual property protection is weak, with
piracy and counterfeiting of U.S. products at unacceptably high levels.
Protection of private property is still inadequate, and privatizations are
executed with little transparency for investors. As a result, foreign
investment remains low compared with other countries in the region (a
cumulative $6.7 billion at the end of 2003, compared to about $70 billion
in neighboring Poland). Ukraine needs to correct fundamental legal and
business infrastructure problems in order to stimulate the investment needed
to sustain economic growth over the long term.
Ukraine has had other problems, and these have complicated U.S.-Ukrainian
relations. Ukraine's democracy and human rights record reflects significant
problems, and the country lags in this area behind its Central European
neighbors. Application of the rule of law can be arbitrary. Government
authorities interfere with the press by harassing, intimidating, and, in
some cases, violently attacking journalists, censoring material, and
creating a climate of self-censorship. The murder of the journalist Heorhiy
Gongadze in 2000 was one of the most notorious cases.
The lack of a credible and transparent investigation into the Gongadze
murder, particularly in light of indications of involvement by Ukrainian
government officials, is troubling and has had a detrimental impact on
U.S.-Ukraine relations. We likewise have been concerned about other deaths
of journalists, including the July 2001 beating and subsequent death of
Donetsk regional television director Ihor Aleksandrov and the incredible
"suicide" hanging of journalist Volodymyr Karachevtsev on his refrigerator
door last December. We have continued to press for a full and transparent
investigation of the Gongadze case and other cases of violence against
journalists, but Ukrainian authorities have been largely unresponsive.
Although Ukraine made a historic decision to support nuclear
non-proliferation in 1994, the proliferation of other dangerous weapons
systems has been another factor complicating U.S.-Ukrainian relations. In
the summer of 2001, the Ukrainians gave assurances to the United States and
NATO that Ukraine would not transfer heavy arms to Macedonia. But no more
than a month after these assurances, Ukraine supplied such weapons to the
Macedonians, complicating the search for peace and stability in the Balkans.
Ukraine eventually terminated such transfers, but the slow implementation of
that decision created a problem for Ukrainian relations with the United
States and NATO.
Bilateral relations suffered a further setback in September 2002 when a
recording of President Kuchma's July 2000 approval to transfer a Kolchuga
early warning system to Iraq was authenticated as genuine. We have not
located Kolchuga systems in Iraq, and the transfer might not have taken
place. But we could not understand why such a transfer was approved.
The fall of 2002 could be said to represent the nadir in U.S.-Ukraine
relations. During the past 16 months, however, both sides have tried to
find ways to improve the relationship, and we have resolved some problems.
The high-level dialogue resumed last fall, especially during a visit by
Prime Minister Yanukovych to Washington.
As the war on terrorism has intensified, the United States and Ukraine have
found new avenues for cooperation. Ukraine has contributed one of the
largest contingents of troops to the stabilization effort in Iraq. We very
much value the important contribution that Ukraine is making to the
stabilization effort in Iraq. Their brigade operates in the region of Al
Kut as part of the Polish-led division and recently suffered three combat
fatalities. There have been calls in Ukraine for the withdrawal of the
troops, but President Kuchma has stood firm in his commitment, and we are
very grateful for Ukraine's efforts and sacrifices. The Ukrainians have
also rendered valuable assistance in Afghanistan, providing thousands of
overflight clearances for American aircraft and donating weapons and
equipment to the Afghan National Army. And Ukrainian troops have
performed admirably in peacekeeping operations in Kosovo and in Africa
under the auspices of the United Nations.
Democracy and the 2004 Presidential Election
Looking forward, the single most important issue now on our bilateral agenda
is the conduct of the Ukrainian presidential campaign and election. We
believe that the upcoming presidential election - scheduled for October 31
this year - will affect Ukraine's strategic course for the next decade.
Ukraine has set itself the goal of integration into European and
Euro-Atlantic institutions, including NATO. These institutions are, above
all, communities of shared democratic values. The presidential campaign and
election provide Ukraine an opportunity to demonstrate that it, too, shares
Western democratic values and a respect for human rights.
How well Ukraine does in holding a free and fair election will have a major
impact on how quickly it can become integrated into European and
Euro-Atlantic institutions and will also affect the direction and pace of
U.S.-Ukrainian relations.
The Ukrainian president serves a five-year term. President Kuchma was first
elected in 1994 - in an election that was widely applauded as generally free
and fair, and which represented the first time in a former Soviet state when
a leader yielded power to another as the result of a free election.
President Kuchma was re-elected in 1999, in an election where the balloting
process itself went generally well but in which there were concerns about
the campaign, including pressure on the media and abuses of "administrative
resources."
President Kuchma has not officially endorsed a successor. He has, however,
repeatedly said, privately to U.S. officials and publicly, that he will not
run for a third term, which a December 2003 ruling of the Constitutional
Court of Ukraine claimed would be constitutional despite the past and
current constitutions' two-term limit. On April 14, pro-presidential forces
in the Rada (parliament) chose the current Prime Minister, Viktor
Yanukovych, as their candidate, but it is unclear whether he will enjoy the
support of all of the various pro-presidential factions throughout the
campaign. Former Prime Minister Viktor Yushchenko is the leading opposition
candidate and still the most popular politician in Ukraine. Ukrainian
political observers anticipate a number of other candidates will enter the
campaign, which officially begins in July.
The U.S. Government does not back any particular candidate in the election;
our interest is in a free and fair electoral process that lets the Ukrainian
people democratically choose their next president. We would be prepared to
work closely and eagerly with whomever emerges as president as the result of
such a process.
Unfortunately, there have been discouraging signs in recent months. First,
Ukrainian authorities continue to harass opposition politicians and those
that support them. Starting with the disruption of an opposition rally in
the eastern city of Donetsk last October, Ukrainian authorities have put
various obstacles in front of members of the opposition - who have a right
to be able to compete on a level electoral playing field. More than 100
businesses have reportedly been subject to harassment by the tax police with
the goal of putting the firms out of business or getting them to sever their
ties with the opposition. One recent - and particularly brutal - example of
the harassment was the March 7 beating of an independent trade-union leader
and oppositionist's son, who suffered a severe concussion and head wounds.
Recent local and regional elections have been marred by severe problems.
For example, in a March 7 Donetsk by-election for a seat in the Rada,
regional tax administration head Vasylyev was elected in a supposed
landslide following a campaign characterized by extensive abuse of
"administrative resources" to his advantage. In the March 28 mayoral
election in Romny (Sumy Oblast), pro-government candidate Kalyshnyk won
following a campaign of administrative abuses and disqualification of the
opposition front-runner. And in the most blatant example of manipulation,
in the April 18 mayoral election in Mukacheve, the territorial election
commission disqualified 6,000 of 19,000 votes for opposition candidate
Baloha and declared the pro-presidential candidate Eduard Nuser the victor.
The U.S. Government does not believe that the result announced by the
Mukacheve territorial electoral commission reflects the will of the voters
of Mukacheve; we have welcomed President Kuchma's call for an investigation
and hope for a rapid, transparent review that will lead to rectification of
the fraudulent result.
Harassment of the press has included closures of critical media outlets for
alleged tax violations or for licensing problems. Most recently, the
authorities took steps to end Radio Liberty broadcasting in Ukraine. Radio
Dovira, which had broadcast Radio Liberty for the previous five years, ended
its contract February 17 after a new pro-presidential director assumed
control; the grounds for ending the contract seemed spurious. Radio
Kontynent, which offered to begin broadcasting Radio Liberty, had its
transmitter confiscated March 13 because of alleged license problems. In
mid-March, President Kuchma ordered a moratorium on tax inspections of
media outlets, but Embassy reports indicate the authorities have not fully
implemented the order.
Pro-presidential forces have attempted to change Ukraine's constitution to
protect and extend their power and positions. The constitutional changes
proposed last year were originally two-fold in nature: 1) popular election
of the president would be replaced by election of the president by the Rada
(which is controlled by pro-presidential forces); and 2) the presidency
would cede many powers (particularly those having to do with appointments)
to the prime minister chosen by the Rada.
In February, the constitutional provisions dealing with election of the
president were dropped following polls showing that 80-90 percent of
Ukrainians favored direct presidential election and strong critical messages
by the United States, European Union and others. On April 8, the provisions
dealing with strengthening the powers of the prime minister narrowly failed
to obtain the two-thirds Rada majority required by the Ukrainian
constitution. While Rada Speaker Lytvyn stated on April 14 that the
constitutional change issue was dead until at least 2005, there are
indications that forces close to President Kuchma may continue to push for a
new vote on what they label "constitutional reform" before the October
election. The U.S. Government believes that such changes are best left
until after the election.
The U.S. Government is committed to supporting a free and fair election
process in Ukraine. We have worked very hard in bilateral and multi-lateral
fora, press statements and speeches, and in diplomatic exchanges - indeed,
in all possible contexts - to press home the message that a free and fair
election is key to Ukraine's integration with the West. In late March,
Deputy Secretary Armitage carried a letter from President Bush to President
Kuchma on the importance of a free and fair election for U.S.-Ukraine
relations, Kuchma's political legacy, and the future of Ukraine. Secretary
Powell has strongly conveyed the same point to senior Ukrainian officials.
I double-tracked the democracy message in meetings with senior Ukrainian
officials April 26-27.
Ambassador Herbst meets with Ukrainian officials, legislators, and others on
a daily basis to discuss the issue. He also works very closely with other
members of the Kiev diplomatic corps to coordinate our message. We have
cooperated with the Europeans and other allies on the issue. The European
Union, the Parliamentary Assembly of the Council of Europe, the European
Parliament, and the OSCE have all taken strong stands on democracy and
election issues in Ukraine, and we expect to work closely with them through
election day and beyond.
We have kept our investment in promoting democracy and civil society a
strong one. For example, the proportion of democracy programs within the
FREEDOM Support Act (FSA) budget for Ukraine has been increasing (even
though the overall FSA budget for Ukraine has dropped), reflecting the
priority we place on these goals. Over the past two years, democracy
assistance has gone from one-fifth of the FSA budget for Ukraine to nearly
one-third. We are making $10 million available in direct support for a free
and fair presidential election process through support for election
administration, independent media and voter education, election monitoring
and training, and opinion and exit polling.
We believe that this type of support reinforces what is already a very
encouraging trend in post-independence Ukraine: namely, the growth of civil
society. Civic groups are playing more and more of a role in Ukraine's
political and economic life, extending their reach to every sector:
business, environment, human rights, media and health care. Everything that
we do to strengthen this bottom-up, positive force for change reinforces the
ability of Ukrainians to take control of their own lives and make the right
choices for their country and their leadership.
NATO-Ukraine Relations
Our message to Ukraine on democracy and the election stresses the importance
of a free and fair process for Ukraine's integration into Euro-Atlantic
structures, including NATO. President Kuchma and other members of the
Ukrainian leadership have set NATO membership as a goal for Ukraine.
The United States is prepared to support Ukraine drawing closer to, and
ultimately entering, the Alliance, provided that Ukraine takes and
implements the decisions needed - for defense, economic and political
reform - to meet the standards of NATO. By virtue of its deployment to
Iraq, Ukraine has already demonstrated that it has the political will and
the capability to make a serious contribution to meeting global security
needs.
NATO has conducted a dialogue with Ukraine about the requirements for
membership within the framework of the Charter on a Distinctive Partnership
between NATO and Ukraine (signed July 9, 1997) and has advised Ukraine
on the content of its 2002 Action Plan goals on defense, economic, and
political reform. It is important to note that the Action Plan is a
Ukrainian-generated document, which is reviewed by NATO member countries,
though the Ukrainians are not obliged to accept suggestions.
In terms of defense reform, Ukraine has been receptive to our suggestions
and has done well in beginning the process of reforming its military to make
it interoperable with NATO forces. Ukraine has developed new national
security objectives and outlined its goals for military reform through 2015,
which were recently published in a Strategic Defense Bulletin which Defense
Minister Marchuk briefed to NATO representatives in mid-April. The Bulletin
is a serious and realistic document. Reform of Ukraine's military will be a
difficult process, requiring a massive and costly reduction, retraining and
re-equipping of Ukraine's forces. Despite the obstacles that lie ahead, we
believe Ukraine is committed to seeing the military reform process through
to completion, and we look forward to assisting Ukraine's military meet its
goals for interoperability with NATO.
Another critical aspect of Ukraine's NATO membership requirements is
political reform. We have stressed to Ukrainian officials repeatedly that
Ukraine's NATO aspirations can only be realized by Ukraine demonstrating
that it shares the community's core democratic values. The United States
and our European allies advised the Ukrainians that the latest draft of the
Action Plan lacked goals on democratic reform and ensuring a free and
presidential election, and that the Ukrainians had to go beyond the Plan -
especially on elections - to advance their NATO aspirations.
Ukraine-EU Relations
As part of its "European Choice" policy, Ukraine has expressed its ambition
to join the European Union. This ambition has recently intensified as
Ukraine saw three of its neighbors - Poland, Hungary, and Slovakia - become
part of the European Union on May 1. On several occasions, the Ukrainian
government has spoken of seeking compensation for the losses its economy
will suffer as a result of EU expansion. The fact that the new members will
now require Ukrainians to obtain visas has also generated concern of a new
divide being built along Ukraine's western border.
President Kuchma has acknowledged that Ukraine is not ready at this time for
EU membership, but he has argued fervently for an association agreement.
Such an agreement suggests the issue of ultimate EU membership is a question
of when, not if, and the European Union has not been ready to take that
step. The European Union, however, is in the process of developing a
European Neighborhood Policy, which will address relations with Ukraine.
The Ukrainian government had hoped to be granted market economy status by
the European Union prior to expansion, but the European Union, while not yet
issuing a formal decision, has expressed concern about several aspects of
Ukraine's economy, especially with respect to the government's regulation of
prices.
Ukrainian-Russian Relations
Ukraine has an important and complex relationship with Russia. On the one
hand, the two countries are drawn together by overlapping histories and
cultural identities, and a significant proportion of Ukraine's citizens -
particularly in the east and in Crimea - are ethnic Russians. Most
Ukrainians realistically understand the importance of maintaining good
relations with Russia. On the other hand, many are wary of domination by
Moscow and increasingly look Westward. They want good relations with
Moscow, but also want to maximize their options with the West. We support
this; we see no contradiction between Ukraine strengthening its relations
with the West and having stable and positive relations with Russia.
Ukraine's balancing act between the West and Russia is evident in a number
of policy decisions by the Ukrainian leadership. For example, last month
Ukraine ratified the Framework Agreement for the creation of Single
Economic Space (SES). This is a framework agreement, signed at Yalta last
September, between Russia, Ukraine, Belarus and Kazakhstan, intended to
promote economic integration. Many Ukrainian officials insist that
Ukraine's only interest in the SES is in obtaining a free trade agreement
with Russia, whereas Russia and the other SES signatories speak more
ambitiously of customs, tax and monetary union.
In ratifying the SES framework agreement, the Rada attached a reservation
saying that Ukraine would not participate in any parts of the SES that are
inconsistent with the Ukrainian constitution. Our view is that Ukraine
needs to be careful that, as SES mechanisms are developed, Ukraine does not
compromise its goal of entry into the World Trade Organization.
The controversy over Tuzla Island and the Kerch Strait is another topical
issue in Ukraine-Russia relations. Last September, Russian engineers
unexpectedly began construction of a causeway between the Taman Peninsula
of the Russian Krasnodar territory and the Ukrainian island of Tuzla in the
Kerch Strait. The Russians eventually halted construction just short of the
island. Then Kiev and Moscow began negotiations on delimiting a maritime
border in the Kerch Strait, as well as establishing the status of the Sea of
Azov. Last December, Presidents Kuchma and Putin announced that they had
signed an agreement, which was recently ratified by both the Rada and the
Russian Duma, though the precise location of the border has yet to be worked
out by experts.
The interplay of U.S., Russian and Ukrainian interests has been one of our
most complicated and delicate policy concerns for the region in the
post-Soviet era. On the one hand, we have stressed to Russia that our aim
is to cooperate, not to compete, with Russia in the former Soviet space. At
the same time, we have emphasized that Russia must respect the sovereignty
and independence of its neighbors, and that we intend to have normal
relations with those countries. We do not view our relationships in the
region in zero-sum terms, and our hope is that our interlocutors in Moscow
and Kiev will share a similar view. We believe Ukraine's good relations
with Russia and Euro-Atlantic integration can be complementary, rather than
competing, goals.
Non-Proliferation
Historically, Ukraine's record on non-proliferation has been strong, albeit
with some serious lapses. Ukraine's decision in 1994 to transfer nuclear
weapons to Russia was a very positive step in the nuclear non-proliferation
effort. Ukraine has cooperated with efforts to limit proliferation of
weapons and technologies of mass destruction (WMD) and participates actively
in numerous international non-proliferation regimes. For instance, Ukraine
supported the Wassenaar Arrangement's successful efforts to establish more
stringent standards for the export of Man-Portable Air Defense Systems. In
1998, Ukraine agreed to end its participation in the construction of a
nuclear power plant at Bushehr, Iran.
At the same time, there remain some serious questions on arms export
controls and containing illicit arms sales. We have noted improvement over
the past year, as Ukraine has made some significant efforts to strengthen
its export control system. Ukraine passed a new export control law in March
2003. The law codified and clarified a body of decrees and regulations that
had served as Ukraine's basis for export controls. Through our Export
Control and Border Security program, we are supporting Ukraine's efforts to
identify additional legislation that may be necessary for effective
enforcement of this law.
The Ukrainian government has reinforced the role of the Committee for
Military Technical Cooperation and Export Control (CMTCEC), a licensing
review body that considers sensitive export cases. In early 2004, the
Ukrainian government improved the CMTCEC's oversight of the transport of
military and dual-use goods by air transportation companies. These changes
support parallel efforts to bolster the effectiveness of Ukraine's State
Service for Export Control, the chief export licensing body. The Ukrainian
government has also welcomed visits by foreign (including U.S.) experts to
discuss export control issues, and later this month Ukraine will hold its
first non-proliferation discussions with NATO.
Continued efforts are necessary if Ukraine is to establish fully effective
export controls. Ukraine needs to encourage greater transparency about its
arms exports, broader information-sharing among the agencies involved, and
thorough oversight of the activities of arms exporters. Stricter
enforcement and vigorous punishment of violators would also send a clear
message of Ukrainian seriousness in implementing its export control laws.
We continue to monitor arms transfers and military cooperation between
Ukrainian entities and countries of proliferation concern. We seek more
cooperation from the Ukrainian government to prevent such transactions, and
continue to work with Ukraine to improve Ukrainian enforcement and
enactment of structural reforms.
Economic Issues
We remain strongly engaged with the Ukrainian government on economic issues.
We strongly support Ukraine's efforts to accede to the World Trade
Organization (WTO). WTO membership would help boost Ukraine's economic
growth, diversify trading partners, and strengthen its ties to Europe. The
U.S. funds assistance programs to help Ukraine develop legislation to bring
its trade regime into conformity with WTO requirements. We are working
closely with the Ministry of Economy and European Integration and other
agencies, but we have stressed that Ukraine's progress towards accession
will depend on its commitment to effect needed changes in its trade rules
and practices.
We have also advised the Ukrainians that a particular prerequisite to our
concluding a bilateral market access agreement is improved protection of
intellectual property. Ukraine is designated under Special 301 as a
Priority Foreign Country, is subject to U.S. trade sanctions, and has lost
its GSP benefits due to deficiencies in intellectual property rights
protections. Ukraine has improved its performance on curtailing optical
media piracy, but it has yet to fulfill its commitment made in the 2000
Joint Action Plan to enact legislation to protect optical media.
The government has several times proposed amendments to the Optical Disc
Licensing Law, but the Rada has so far failed to pass it. We hope they will
be successful. Although the government has improved its enforcement of IPR
and reduced production of pirated optical media, it needs to do more to
combat distribution of pirated products.
In the course of our bilateral dialogue, our Ukrainian interlocutors often
raise the question of Ukraine's status as a non-market economy (NME) country
under the U.S. antidumping law. There are six statutory factors that guide
the Department of Commerce in determining a country's status. These are:
the extent of currency convertibility; wage determination; openness to joint
ventures and foreign investment; government ownership of and/or control over
means of production; government control over prices and the allocation of
resources; and other factors deemed appropriate.
When the Commerce Department last conducted a formal review into Ukraine's
NME status, it decided in August 2002, in consultation with the Ukrainian
government, to defer indefinitely its final decision. As Commerce explained
to Ukrainian government officials at the time, in order for Commerce to
resume its inquiry, the Ukrainian government must submit a new formal
request on the basis of changed circumstances. In so doing, it should
consider its progress in the statutory areas. We have provided information
to the government on the process it needs to follow and have advised that no
further action on NME can occur until it submits its request.
We are continuing our efforts to resolve a number of long-standing disputes
involving U.S. investors. These cases are symptomatic of problems with
Ukraine's investment climate. On several occasions, the Ukrainian
government has failed to enforce arbitral awards, contracts, and court
decisions involving U.S. companies, including three business initiatives
involving FREEDOM Support Act funds. These cases form part of the agenda
of the biannual U.S.-Ukraine Committee on Economic Cooperation. We have
made progress on several of the cases, but we will need to continue to press
the Ukrainian government to keep its commitments and obligations until all
the cases have been resolved.
Ukraine has complied with the provisions of the Jackson-Vanik Amendment to
the Trade Act of 1974. In principle, we support Congressional action to
"graduate" Ukraine from Jackson-Vanik and to grant normal trade relations
with Ukraine.
Another key issue on the economic agenda is the Odesa-Brody pipeline. Late
in 2001, construction was completed on the Odesa-Brody oil pipeline linking
the Black Sea to the southern Druzhba pipeline system in western Ukraine.
The Ukrainian government asked for our help in marketing the pipeline as a
Eurasian Oil Transportation Corridor. We remain convinced that the best use
of the pipeline is to transport Caspian crude to refineries in central
Europe, enabling the oil to bypass the increasingly crowded and
environmentally sensitive Bosphorus Straits. This option would help Ukraine
integrate into European energy structures and to diversify its own supply of
oil.
As we have told the Ukrainian government, reversing the flow of the pipeline
to facilitate export of Urals crude through the Black Sea, as some have
proposed, could undercut Ukraine's interests. Even a "temporary" reversal
would lead shippers to develop other land-based routes from the Caspian to
Europe, essentially shutting Ukraine out of this potentially profitable
transport business. It is our understanding that U.S. oil companies are
interested in using Odesa-Brody, and we have urged the Ukrainians to try to
negotiate a transparent commercial agreement with potential suppliers,
customers, and transit countries.
I am pleased to report significant success in working with Ukraine in the
fight against money-laundering. The international Financial Action Task
Force (FATF) placed Ukraine on its list of Non-Cooperating Countries and
Territories (NCCT) in September 2001 due to inadequacies in its
anti-money-laundering regime.
The U.S. Government worked closely with the Ukrainian government to help
develop a comprehensive anti-money-laundering law consistent with
international standards. The new law entered into force in June 2003, and
the Ukrainian government has made a serious investment in its
implementation. As a result, FATF was able this past February to remove
Ukraine from the NCCT list. We continue to work with the Ukrainian
government to address remaining deficiencies, such as lack of progress on
criminal prosecution for money-laundering.
U.S. Assistance
Transforming Ukraine - building a modern market economy, consolidating
democratic structures, and building other institutions of a 21st century
European state - is a task first and foremost for the Ukrainians themselves.
The United States, however, can help, and it is in our interest to do so.
Therefore, during the years since Ukraine achieved independence, we have
provided $3.328 billion in assistance through the Cooperative Threat
Reduction Program, the FREEDOM Support Act and other assistance programs.
These transfers have contributed significantly to achieving important U.S.
foreign policy goals with respect to Ukraine, and there are numerous
examples.
· Nuclear Threat Elimination - U.S. CTR assistance has eliminated the
missiles, missile silos and bombers that once targeted some 2000 nuclear
warheads against the United States.
· Nuclear Safety - Much progress in the area of nuclear safety
already has been achieved, including the installation of and training of
specialists in operating full-scope simulators. For example, vital upgrades
for sabotage protection were completed at the Khmelnytskyy nuclear power
plant and are being implemented at the Zaporizhzhya nuclear power plant,
thus improving nuclear reactor security.
· Military Restructuring - U.S. Government assistance has contributed
to Ukraine's increasing capacity to promote regional stability through its
growing involvement in peacekeeping activities. For example, in FY-03, $1
million in Enhanced International Peacekeeping Capability funding helped
Ukraine establish its own multinational-staff course to enhance the
interoperability of Ukrainian peacekeepers with U.S. and NATO forces. These
types of programs have helped prepare Ukraine for deployments such as Iraq.
· Exchanges - In FY-03, some 1,480 Ukrainian citizens traveled to the
United States on USG-funded training and exchange programs implemented by
USAID and the U.S. Departments of Agriculture, Commerce and State, bringing
the cumulative number of Ukrainian participants to over 19,570.
· Democracy Achievements - U.S. Government-supported legal programs
have provided media professionals with training in media law and legal
defense, helping to achieve a 63% success rate in media-related legal cases.
As another example, USG assistance helped to develop election-related
amendments which in 2003 were added to the Criminal Code to deal with
so-called "dirty election technologies."
· Election Assistance - The U.S. Government is funding over $10
million in assistance for the election and coordinating with other bilateral
and multilateral donors on assistance programs.
· Economic Achievements - In 2003, a successful U.S.
Government-funded deregulation program facilitated the streamlining of 210
regulatory procedures by regional authorities and city councils: a total of
20 "one-stop-shops for business registration reduced registration time from
30 to 14 days, and additional one-stop shops are being established
nationwide in FY-04. Under a U.S. Government-funded agriculture reform
program, by the end of 2004 more than one million individuals will have
received land titles, providing the recipients with twice the rental income
as those without land titles, plus solid proof of private ownership.
· Health - U.S. Government health-care reform programs continued to
support a shift in health-care services from costly tertiary care to
community-based primary health care and family-medicine clinics. A total of
18 demonstration centers in six regions were established under a
U.S.-Ukraine partnership.
· Law Enforcement - U.S. law enforcement agencies worked closely with
senior Ukrainian officials to help them develop an anti-money laundering law
and related regulatory framework that met international standards.
· Anti-Trafficking - To fight trafficking in persons, the U.S.
Government improved the Ukrainian government's ability to combat trafficking
by helping to beef up investigations, prosecutions and regional cooperation
with law enforcement agencies in destination countries. Prosecution numbers
have steadily increased. We also supported a crisis center that provides
training and counseling to victims.
Looking to the Future
It is clear that there is significant potential for further development of
U.S.-Ukraine relations, to the advantage of both countries. We have a broad
and robust agenda, and hope to work to advance individual bilateral issues,
expand cooperation on global challenges, and increasingly integrate Ukraine
into Euro-Atlantic and global institutions.
As I have noted, the most important issue now on the agenda is the conduct
of Ukraine's presidential election. During his March visit, Deputy
Secretary Armitage delivered an unambiguous message to President Kuchma
and others about the importance of a free and fair election. We have tried
to make as clear as possible what we see at stake in the conduct of the
presidential campaign and election, and we now wait to see if the Ukrainian
leadership will create the conditions for a good election. If that election
process is free and fair, it will provide an important boost to U.S.-Ukraine
relations and to Ukraine's effort to draw closer to Europe. It will also,
most importantly, be a true victory for the Ukrainian people.
Thank you very much for this opportunity today to discuss our Ukraine
policy. I would be happy to address your questions.
FOR PERSONAL AND ACADEMIC
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