Motherland Defended out of Court

The Ukrainian News Agency put the Ukrainian Mobile Communications Company on top of the hit list. The Day contacted UMC manager Martin Dirks, who declined comment. The company seems to be searching for ways to settle the problem that has emerged without complicating relations with the President.

According to experts, the burden of the presidential instruction is on the Cabinet of Ministers to find a justification, with at least a remote semblance of legality, for it. No less complex a challenge is faced by the National Bank (NBU), which was told to force commercial banks not to serve the blacklisted companies. The NBU press service has bluntly called this action unlawful and said the NBU has not yet made any move in this direction.

Not even of the Pride of Ukraine National League of Food Producers has dared to comment on such an unpopular decision by the chief executive. Meanwhile, a Presidential Administration clerk, who wished to remain anonymous, noted that only a court can legally make such a decision and only with respect to each company individually, not in bulk.

The conflict, one should note, has a rich prehistory and is especially interesting in its economic implications. The firms listed in the President’s instruction entered the Ukrainian market not only for the sake of export and import operations. Even their names are self-explanatory: Hermes, Ukrtekhnosyntez, Interkauchuk, Interpak, Grand Hotel, Internord, Goodwill Ukraine, Bizon, and Ukrainian Mobile Communications, the International Drilling Tool Enterprise, etc. However, over time, as various spheres of business were being monopolized by quasi-governmental structures and the business climate worsened, the preferential import regime granted joint ventures by the euphoric lawmakers in the early 1990s became a virtual gold mine for those who bore the status of “enterprises with foreign-investment registered before 1993.” After several abortive attempts* to rob the alien investors of their privileges, the latter continued to actively develop their businesses, supported by the Supreme Court of Ukraine. They not only imported themselves the “excise-dutiable goods” (as the President says), but also “leased out” their status. In other words, the funds of so many importers were rushed abroad to purchase things via the privileged importers’ accounts, without paying taxes. For it is much cheaper to pay for the services of a transit account than to deal with tax inspectors. Hence, monopolization really is something to be afraid of

Is the President right when he calls the problem of lifting joint venture privileges a “question of the country’s national security?” Is he right when he appeals for help to Verkhovna Rada and the National Bureau of Investigation? You can, of course, understand him in purely human terms. For the joint ventures do not stand in his personal way. It is because of their efforts that prices for “excise-dutiable” and ordinary goods are lower than they might otherwise be, and this is not the liking of “national producers.” It is the efforts of these joint ventures that cause favorites scurrying around the Throne to lose out in the price competition, and this is not to the liking of all those favorites, without exception. So one can easily understand those who failed to win over the “privileged few” and are now trying to destroy them by the methods of a war of edicts. Are national interests being identified with those of clans? Indeed, why doesn’t the President worry about unfair zones on the Ukrainian territory or why isn’t he indignant over the privileges of critical importers, clearly unfair with respect to ordinary importers? Is this the only injustice in our law?

To put the question differently, suppose, the President again finds an opportunity to make short work of the law. Does this threaten national security? Was one of The Day’s interviewees really right when, comparing the actions of the current and previous presidents, he noted a surprising law-abidance of the former and an equally surprising flouting of law by the current one? There are reasons for indignation.

In general, the issue of joint venture privileges is quite dramatic. We have to greet court rulings that defend overtly poor and unjust legislation only because these are concrete, if small, precedents of enforcing the law and protecting the rights of an economic entity (which crossed swords with the state apparatus). Unfortunately, it is only through such examples that we can see that some laws are still being adhered to, contrary to the wishes of Ukrainian top leaders.

The Day’s Reference

* For the period 1992-1996 Ukraine saw the adoption of three standard-setting instruments that regulate the behavior of foreign companies. It will be recalled that on March 13, 1992, the law On Foreign Investments came into force. Then on May 20, 1993, the Cabinet of Ministers decree On the Foreign Investments Regime was issued. And, finally, on March 19, 1996, Verkhovna Rada voted for a law On the Foreign Investments Regime. Let us note that all three documents adopted in 1992, 1993, and 1996 guaranteed to foreign investors (although to a different extent) that the special legislation in force at the moment of foreign investment registration, would be subject to no change for ten years. Even the 1996 law, while canceling all tax privileges for foreign investors (including joint ventures), still kept intact a provision on “guarantees in case of changes in legislation.”