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 You are in: Under Secretary for Political Affairs > Bureau of European and Eurasian Affairs > Bureau of European and Eurasian Affairs Releases > Bureau of European and Eurasian Affairs Remarks > 2004 > May

Ukraine's Future and U.S. Interests

Steven Pifer, Deputy Assistant Secretary for European and Eurasian Affairs
Testimony Before the House International Relations Committee, Subcommittee on Europe
Washington, DC
May 12, 2004

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.


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 régime. 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.

Released on May 12, 2004

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