Asking for Trouble

The Ministry of Economy has published on its Web site a joint statement by the US and Ukrainian governments signed in Washington at the end of January. On behalf of Ukraine, the document was signed by minister Valery Khoroshkovsky. In essence, the declaration is the US opinion on Ukrainian reforms. The document gives a clear picture of US interests in this country. By analyzing Washington’s positive and negative assessments in the document’s text, one can easily forecast the scenario of further relations between the two countries. These assessments are very important for Kyiv because the White House will have the final say in the international recognition of Ukraine as a market-economy country, its admission to the WTO and removal from the FATF black list.

PLUSES

The US side welcomed achievements by the Ukrainian Government in strengthening the macroeconomic environment. Underlying Ukraine’s growth of last year was strong domestic demand and rising incomes, the diversification of exports and trading partners, and the growth of small business. US experts think that Ukraine can only achieve further economic growth if it pursues a responsible fiscal policy.

Washington expressed its support for Ukraine’s efforts to take all the necessary steps towards World Trade Organization accession and “is prepared to work with the Ukrainian Government at as fast a pace as it can move forward,” the document says somewhat ironically. The United States is ready to support a Working Party on Ukraine WTO Accession before the end of the first quarter of 2003. The adoption of laws on the protection of intellectual property rights in Ukraine will ensure a positive vote. Additional liberalization of the requirements for US exports of poultry to this country will help the vote as well.

The US also recognized progress in energy sector reforms, including the improvement of payment disciplines. Washington hopes this sector will continue privatization in the near future. By all accounts, some of the facilities to be sold are already in the sphere of US companies’ interests. The US is also satisfied with the newly-adopted Ukrainian anti-money laundering laws and the pace of the agrarian reform.

MINUSES

What the US considers the greatest economic risk for the Ukrainian economy is an unstable national budget. Indeed, can any taxes be possibly cut if the monthly revenue deficit is always 10-15%? The Americans draw official attention to the violation of the equality principle in paying VAT compensation to exporters. With compensation being paid on a selective basis, this document does not mention corruption in this field perhaps for diplomatic considerations.

The US also believes that a large number of barriers in small business is another factor that impairs this country’s economic growth. The documents points out an imperfect procedure for registering businesses. There are very few, if any, other countries in the world, where businesses receive registration certificates from law-enforcement bodies. The Americans suggest implementing the one-stop-shop model of registration which entrepreneurs discussed and approved long ago.

Although complaints of foreign investors about unfair Ukrainian courts are not widely publicized in this country, the document devotes a separate paragraph to this problem. What is more, by all accounts, US businesspeople are the most frequent victims of the Ukrainian judicial system. They are dissatisfied with not only the judges but also the court marshals who are reluctant to enforce the already- handed-down rulings unless properly “encouraged.” Also quite mysterious is the US side’s concern over the difficulty that two U.S. Government funded technical assistance projects had in registering with the relevant authorities in Ukraine. In all probability, the Cabinet of Ministers will soon solve these problems as quickly as it created them.

WHAT REMAINED OUTSIDE THE TEXT

It still remains unclear whether the US is going to recognize Ukraine a market-economy country. Only one line in the document says that “the American side outlined the steps it is taking to engage the U.S. Congress on possible removal of the Jackson-Vanik restrictions on... Ukraine.” Undoubtedly, the decision on this matter will wholly depend on Washington’s political mood. Yet, economy minister Valery Khoroshkovsky admitted that the two sides had not discussed the Jackson- Vanik amendment, while the above-quoted line was written on the US initiative. Unfortunately, Ukraine did not dare raise the question of many unfounded trade restrictions which keep Ukrainian exporters, including steel and textile makers, from the American market. Conversely, the US did not fail to mention its desire that Ukraine lift restrictions on the import of US poultry.

To sum up, the very fact that the two countries signed a program statement is a positive thing. Although the Ukrainian government was too embarrassed to express its wishes, it is at least clear now what Washington wants. The above-mentioned problems do not seem insoluble. This means that “the 2002 problem” (worsened relations with the US, according to the President) will be solved at the pace Kyiv will set itself.