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Action Ukraine Report

"THE ACTION UKRAINE REPORT"
An International Newsletter
In-Depth Ukrainian News, Analysis, and Commentary

"The Art of Ukrainian History, Culture, Arts, Business, Religion,
Sports, Government, and Politics, in Ukraine and Around the World"

URGENT AND RADICAL IMPROVEMENTS NEEDED!

It is clear that the legal regime for business and investment in Ukraine
demands urgent and radical improvements. Without them the current legal
regime will remain a major obstacle to implementing the new Government's
program and to creating a business- and investment-friendly environment in
our country. [article one]

"THE ACTION UKRAINE REPORT" - Number 438
morganw@patriot.net, ArtUkraine.com@starpower.net
Washington, D.C. and Kyiv, Ukraine, THURSDAY, March 10, 2005

-----INDEX OF ARTICLES-----
"Major International News Headlines and Articles"

1. "URGENT AND RADICAL IMPROVEMENTS NEEDED IN UKRAINE'S
LEGAL REGIME FOR BUSINESS AND INVESTMENT"
By Dr. Irina Paliashvili
President and Senior Counsel
Russian-Ukrainian Legal Group, P.A.
Washington, D.C. and Kyiv, Ukraine
THE ACTION UKRAINE REPORT
Washington, D.C., Thursday, March 10, 2005

2. YUSHCHENKO PROMISES A NEW UKRAINE
The Ukrainian president got a standing ovation after his speech
Agence France Presse (AFP), Deutsche Welle (DW)
Berlin, Germany, Wednesday, March 9, 2005

3. VIKTOR YUSHCHENKO COURTS THE GERMANS
He asks for support on bid to join the EU
By Judy Dempsey, International Herald Tribune (IHT)
Europe, Thursday, March 10, 2005

4. UKRAINE'S GRATEFUL YUSHCHENKO PUTS UKRAINE'S
EU CASE TO GERMAN PARLIAMENT
ddp news agency, Berlin, in German 1422 gmt 9 Mar 05
BBC Monitoring Service, UK, in English, March 9, 2005

5. GERMAN CHANCELLOR PLEDGES SUPPORT TO UKRAINIAN PRESIDENT
ddp news agency, Berlin, in German 1241 gmt 9 Mar 05
BBC Monitoring Service, UK, in English, March 9, 2005

6. GERMAN BUNDESTAG WELCOMES UKRAINE'S YUSHCHENKO
ddp news agency, Berlin, in German 1317 gmt 9 Mar 05
BBC Monitoring Service, UK, in English, March 9, 2005

7. FASHIONABLE TIMOSHENKO SHAKES UP STODGY POLITICS
New Europe, Athens, Greece, Monday, March 14, 2005

8. YUSHCHENKO APPOINTS BUTEIKO FIRST DEPUTY FOREIGN MINISTER
Ukrainian News Agency, Kyiv, Ukraine, Wed, March 9, 2005

9. FOREIGN MINISTER TARASIUK TRAVELS FROM GERMANY TO THE
UNITED STATES FOR MARCH 10-11 OFFICIAL MEETINGS
Ukrainian News Agency, Kyiv, Ukraine, Wed, March 9, 2005 (17:00)

10. KHARKIV TRACTOR FACTORY CONCERNED OVER LOW VOLUME
OF TRACTOR SALES IN UKRAINE
Agricultural producers unable to obtain loans for ag machinery
Ukrainian News Agency, Kyiv, Ukraine, Wed, March 9, 2005

11. DEUTSCHE BANK OPEN EUR 2-BILLION CREDIT LINE TO
NAFTOHAZ UKRANY FOR INTERNATIONAL PROJECTS .
IntelliNews Intraday Updates, Kyiv, Ukraine, Wed, March 9, 2005

12. UKRAINIAN INVESTMENT WEEKLY LOOKS AT BUSINESS INTERESTS
OF NEW CUSTOMS CHIEF
Invest-Gazeta, Kiev, Ukraine, in Russian 9 Mar 05, p 10
BBC Monitoring Service, UK, in English, Wed, March 9, 2005

13. "WHY UKRAINIAN TROOPS SHOULD STAY IN IRAQ"
OP-ED: by Volodymyr Hrytsutenko, Ph.D,
An Egyptian-Israeli 1969-1972 war veteran
Lviv Franko University, Lviv, Ukraine,
THE ACTION UKRAINE REPORT
Washington, D.C., Thursday, March 10, 2005
================================================================
1. URGENT AND RADICAL IMPROVEMENTS NEEDED IN UKRAINE'S
LEGAL REGIME FOR BUSINESS AND INVESTMENT

By Dr. Irina Paliashvili
President and Senior Counsel
Russian-Ukrainian Legal Group, P.A.
Washington, D.C. and Kyiv, Ukraine
THE ACTION UKRAINE REPORT
Washington, D.C., Thursday, March 10, 2005

In light of the fundamental and systematic economic reforms that our new
President and new Cabinet are planning to undertake, their pronounced "rule
of law" ("verkhovenstvo prava") policy, and the expected dramatic increase
in foreign and domestic investment, it is imperative to ensure that our
legal system is prepared to serve as a modern and adequate legal basis for
the economy.

As a lawyer educated in Ukraine, practicing business law since the very
first days of independence and having extensive experience in other CIS
countries and in the West, I regret to say that the current legal basis is
not only inadequate, but that to a large extent it sabotages the development
of a market economy in our country.

Very often we hear: "the laws are good, but implementation is a problem".
Certainly, there are some good laws in Ukraine, and certainly there are
problems with their implementation, but unfortunately there are many more
bad laws, numerous outdated laws, and many gaps, inconsistencies and
conflicts within the system.

Today, everybody, from small local entrepreneurs to giant multinationals,
suffers from this "legal chaos", and no business can operate in Ukraine
without being forced to violate one law or another on a regular basis,
sometimes because of their conflicting provisions and sometimes because
of their sheer absurdity.

It is well known that the new Government is currently conducting an
inventory and evaluation of everything that has gone wrong with our economy,
privatization, government and administrative structure, etc. The good news
with regards to the legal regime is that the evaluation part has, to a large
extent, already been accomplished: the problems and the proposed solutions
were identified in great detail in several major recent reports, including:

(i) the UNDP Blue Ribbon Commission for Ukraine's "Proposals for the
President: A New Wave of Reform", which greatly influenced the new
Government's Program. This report is available at
http://www.carnegieendowment.org/publications/index.cfm?fa=view&id=16377;

(ii) the EBA Report on Barriers to Investment in Ukraine, available at
http://www.eba.com.ua/files/Investment_paper/Barriers_to_Investment_in_Ukraine_April_2004_Eng.pdf,

(iii) the OECD Report on Improving the Conditions for Enterprise Development
and the Investment Climate for Domestic and International Investors in
Ukraine: Legal Issues With Regard to Business Operations and Investment,
available at http://www.rulg.com/OECD_project.asp, and many others.

The main priority for the new Government, therefore, should be to act, and
to act swiftly and decisively. Fortunately, our legal system can be
improved immediately and dramatically just by canceling the most archaic and
damaging legislation, using the so called "guillotine" principle, which
worked successfully in other countries that undertook modernization reforms.

The new Government should not engage in any debate on this; there has been
enough debate already and the arguments collected by the business and
investment communities are overwhelming. Other improvements may take
longer, but systematic work should start immediately.

What is also very important for this work is that the Government stays in
constant contact with the business and investment communities, which have
suffered enough already from the previous Governments' abuses and which are
willing to work productively with the new Government.

To this end, I would suggest a number of practical measures, which basically
center on opening up the Government and making it available for on-going
dialogue with the business and investment communities, represented by
various business groups (such as the European Business Association,
AmCham, reputable industrial and trade associations, associations of small
and medium-sized businesses, the business press, etc.).

IN PARTICULAR:

(i) the Cabinet should designate a Vice Prime Minister and one Deputy
Minister in each Ministry, and assign to them the responsibility to act as
a liaison with the business and investment communities;

(ii) Government officials should actively participate in business
conferences in Ukraine and abroad (which very rarely happened in the past);

(iii) Government officials should attend meetings of various business groups
and take immediate action on their concerns;

(iv) the Government should create an analytical/monitoring body (perhaps on
the basis of the current Committee on Entrepreneurship and Regulatory
Policy) that will research, collect and summarize the problems that
businesses are facing and swiftly react to them and hold Government bodies
and individual officials accountable for violations;

(v) the practice of carrying out joint meetings of the Cabinet and
representatives of the business community on specific issues should continue
and expand (the first such meeting was carried out recently on the issues of
customs control and customs fees).

Below, I outline just FIVE key substantive problems that we have in the
current legal system and suggest solutions to them. Obviously, there are
many more problems, which cannot all be mentioned in the space of one
article, but which still require the Government's immediate attention.

I. CIVIL AND COMMERCIAL CODES-----

This problem was many years in the making and culminated on 1 January 2004,
when two separate Codes took effect on the same day, becoming the new legal
basis for civil and business relations in Ukraine. On that day, the legal
situation in Ukraine turned from bad into disastrous, and we have been
functioning under these disastrous conditions for more than a year.

Both Codes were developed over the course of several years by two different
drafting groups with very little or no coordination between them. The Civil
Code, which covers relations among both individuals and legal entities, was
developed by a group of Ukrainian academics, who were generally
market-oriented and tried to use the experience of other developed countries
(unfortunately, many better provisions of the Civil Code were reversed by
the Parliament in the process of its adoption).

The Commercial Code was also developed by a group of academics, but
with strict socialist anti-market orientation, who seemed to rely in their
work mostly on old Soviet laws and concepts.

Those of us who began our careers under the Soviet system are experiencing
a surreal sense of déjà vu. Suffice it to say that the Commercial Code
severely restricts the freedom of contract and replaces such basic types of
contract as sale-purchase with the archaic "supply" contract, which was used
under the Soviet system. Moreover, the Commercial Code specifies that
"supply" contracts will be further regulated by decrees from the Cabinet of
Ministers.

Needless to say, with the two opposing Codes, in practice, we ended up with
two fundamental laws, regulating largely the same subject, but being
conceptually opposite and containing numerous specific conflicts. Moreover,
each of these two Codes has many internal conflicts, and both of them
conflict with other existing laws.

Today, drafting any simple contract in Ukraine is a frustrating and
impossible exercise in reconciling artificially created irreconcilable
differences.

Numerous other unnecessary obstacles and hidden charges (some of them
are described below) were created by both Codes that make full compliance
with the law virtually impossible.

This is a disaster, the real scale of which will not be known for some time,
until half of the businesses operating in Ukraine find themselves in courts
disputing opposing provisions of different laws. Such legal chaos will be an
excellent breeding ground for corruption in the regulatory authorities and
in the court system.

Based on a thorough study of both Codes and on more than one year of trying
to apply them in practice, we have come to a firm conclusion, which is the
same as the one made in the UNDP Blue Ribbon Commission Report's Key
Recommendation #8 (out of 12): there is an urgent need "to abolish the
anachronistic Economic [Commercial] Code and improve the market-oriented
Civil Code".

The "guillotine" principle would work perfectly in this case, and should
bring an immediate and unequivocal end to the long and fruitless academic
debates about which Code is better and how to reconcile them.

The Civil Code should be quickly and substantively improved, based on the
Dutch Civil Code, which in a slightly transformed format, has been
successfully applied in Russia and Kazakhstan for the last 10 years (good
quality civil and commercial legislation in Russia should not be associated
with infamous cases of abuses by the Russian government, such as the Yukos
case, which result from bad policies rather than from bad legislation).

II. CORPORATE LEGISLATION------

Corporate legislation suffers from two major gaps: we badly need a Law on
Joint-Stock Companies and a Law on Limited Liability Companies, which are
the two most often used corporate structures in Ukraine. Here I would like
to again cite the UNDP Blue Ribbon Commission Report's Key
Recommendations (#7), which calls on Ukraine to "improve corporate
legislation".

The catch here is that good quality corporate laws cannot be developed until
the problem of the irreconcilable Civil and Commercial Codes is resolved.
Otherwise, we will have just another addition to our existing legal chaos.

III. ANTIMONOPOLY LEGISLATION------

The unnecessarily broad and ambiguous antimonopoly legislation of Ukraine,
which regulates (actually over-regulates) coordinated actions and economic
concentrations, and the formalistic and low monetary thresholds for
transactions requiring prior approval from the Antimonopoly Committee of
Ukraine ("AMC"), force companies to seek AMC prior approval of actions that
really have no bearing on competition in the Ukrainian market at all. It is
no surprise that the AMC's prior approval requirement is frequently ignored,
knowingly or unknowingly.

The problem is that the AMC has extensive instruments for applying large
and often unjustified sanctions for even minor violations. The solution
would be to remove the prior approval requirement in many cases altogether,
or to replace it in some cases with notification requirement.

IV. UNNECESSARY OBSTACLES AND HIDDEN CHARGES------

Under the previous political regime, Ukraine was notorious for its
bureaucratic red tape, its unnecessary barriers and serious charges that
were disguised as various fees, fines, mandatory intermediary and commission
payments, etc. The new Government has an excellent opportunity now to
reverse this bad reputation, but it will require immediate and drastic
measures.

One of the most outrageous examples here is the ongoing "war" of the
National Bank of Ukraine ("NBU") against foreign investors. This story
probably deserves a separate article because it demonstrates how Ukrainian
bureaucracy sabotages at least two key priorities declared by the President,
which are to support foreign investment and the rule of law.

The NBU started this war in October 2004, i.e., under the previous regime,
by adopting NBU Resolution 482, which created massive roadblocks to foreign
investment in Ukraine and violated key laws and international treaties on
foreign investment.

Without going into detail, suffice it to say that the Resolution demanded
that:

----------All direct foreign investment into Ukraine (i.e., investment into
Ukrainian companies from abroad) must be made first into separate foreign
currency "investment" accounts that must be opened by foreign investors in
Ukrainian banks, then converted into UAH, then placed in yet another
separate UAH "investment" bank account and only thereafter transferred
to the recipient company in UAH.

Not only did this multi-step operation place additional time and cost
burdens (banking charges at each step, currency exchange losses, etc.) on
making direct investment into Ukraine, but it also deprived foreign
investors of all their rights, protections and guarantees because UAH
investment cannot be registered as "foreign" and without such registration
(which, by the way, the Commercial Code absurdly demands must be made
within three days), all protections and guarantees are lost.

----------All other investment operations, including with securities between
non-residents outside Ukraine, must be "domesticated" by the same procedure
of opening "investment" accounts in Ukraine, converting foreign currency
into UAH, etc. Imagine how "happy" this made non-residents who had already
invested in Ukrainian securities.

No less "happy" should be Ukrainian companies that are trying to list their
securities on international stock exchanges. If a Ukrainian company issues
ADRs on the New York Stock Exchange, for example, trading even a small
amount of such ADRs will require going through the "domestication"
procedure.

It is indeed surprising and appalling how the new management of the NBU is
rigorously defending this Resolution and adamantly refusing to repeal it.

While President Yushchenko spoke to major international investors in Davos
last month about low foreign investment in Ukraine and tried to persuade
investors to come to Ukraine, extending his hand to business, the "new" NBU
was fighting in the courts against legitimate attempts by foreign investors
to block Resolution 482, thus altogether paralyzing foreign investment into
Ukraine for several weeks.

Numerous direct investments were stuck outside of Ukraine, ready to enter,
but Ukrainian banks refused to accept them because it was not clear what
the status of Resolution 482 was, and the NBU was not cooperating. No
foreign investment whatsoever came into Ukraine for several weeks!

This shameful saga continues because courts also demonstrated their devotion
to the old ways and tried to dismiss legitimate claims by foreign investors
on procedural grounds, and the NBU refuses to give up its illegal approach.

The investment community and business press (see the article in "Business"
dated 21 February 2005: "Games of 'Patriots'") is declaiming this abuse and
continues fighting in the courts. The main and most urgent questions now
are: how can this sabotage be immediately stopped and who will pay for the
tremendous damage caused to the Ukrainian economy and its international
reputation?

Other unacceptable hidden obstacles and charges include:

----------The artificial, unnecessary, overly expensive and steadily
increasing involvement of notaries in many aspects of business relations.

For example, a mandatory notarization requirement was imposed
on many routine transactions between legal entities for a notary fee of a
hefty 1% of the value of the transaction. Thus, the new Civil Code
introduced an
unnecessary rule that all lease agreements, including between companies,
whose term is one year or longer, are subject to notarization, forcing all
such lease agreements to carry a burden of an extra 1% for no added value.

Another problem, partially created by the new Civil Code and
partially by subsequent regulations, is complications with issuing powers of
attorney, which businesses use in their operations all the time.

First, an underlying contract is now required for a power of
attorney to be issued (a requirement that does not exist in most legal
systems of the world) and second, a power of attorney no longer can be
broad, but must be very specific. Considering that the cost of notarizing
each power of attorney is around UAH 50 ($10), this adds unnecessary
complications and costs to doing business.

The following measures are recommended for putting notarization
under control:

(i) immediate cancellation of all unnecessary notarization
requirements;

(ii) reducing notary fees for all remaining notarizations;

(iii) returning to a simple power of attorney system with no
underlying contract requirement and reintroducing a possibility for giving
broad authorizations.

----------90-days rule. This is a rule that was designed some time ago,
allegedly to prevent capital flight, and which while failing this task, put
a tremendous financial burden on legitimate business operations.
Specifically, the tax authorities impose severe fines and sanctions when a
Ukrainian business fails to receive hard currency proceeds from sales (in
case of export contracts), or goods (in case of import contracts), under its
international contracts within 90 days of the due date.

Moreover, the fines are not limited to the amounts that the
Ukrainian company in question failed to receive within 90 days, meaning
that the imposition of fines continues indefinitely and can exceed the
original unreceived amount by many times, and could theoretically bankrupt
a company.

The best recommendation here would be to remove this outdated
90-days rule altogether, because it has proved incapable of preventing
capital flight, and only serves as an absurdly heavy burden on doing
legitimate business.

----------Outdated requirements as to the form of contracts. Modern
business operations are often conducted electronically; the contracts are
signed via fax or electronic mail and corporate seals are not used in most
developed countries. It is interesting to note that in Ukraine, until the
new Civil Code came into effect in 2004, the law only required that parties
to a contract agree, in appropriate form, on certain essential terms and
conditions.

The lack of an imprint of a corporate seal on a signed agreement
in most cases did not constitute a violation of the form of the agreement.
The new Civil Code, however, demands that all contracts, domestic and
international (including addenda, amendments, and other contractual
documents) be signed with an original corporate seal affixed.

Lack of a corporate seal can make the contract invalid. This is
a big step backwards and a major inconvenience, so businesses continue
making contracts ignoring the corporate seal requirements, which obviously
puts the validity of numerous contracts in doubt and provokes unnecessary
disputes.

The recommendation with regard to this problem is to modernize the
requirements as to the form of contracts, including accepting contracts made
by fax and other electronic means of communication and removing the
corporate seal requirement altogether.

----------Unnecessary obstacles and hidden charges in the areas of the
currency regime and the financial sector, including:

(i) overregulation of ordinary financial activities (for example,
in order to issue a simple parent guarantee, a company needs to be
registered with the State Commission of Ukraine for Regulation of
Financial Services Markets of Ukraine);

(ii) the requirement that any sale-purchase of Ukrainian
securities (even outside of Ukraine between non-residents) must be
carried out only with the participation of a Ukrainian securities trader;

(iii) restrictions on inter-company loans;

(iv) excessive licensing requirements by the NBU with regard to
foreign currency transactions and payments outside Ukraine, including
overly burdensome scrutinizing of transfers of foreign currency abroad in
amounts exceeding EURO 50,000; and many others.

· Ongoing restrictions on land ownership for foreign investors,
whereby Ukrainian subsidiaries of foreign companies still cannot acquire
ownership of land plots in Ukraine.

V. REGULATORY GOVERNANCE AND THE PERMITS SYSTEM-----

Another tremendous problem, which affects all businesses operating in
Ukraine at all times, is the chaotic, arbitrary, excessive and incredibly
costly overregulation and interference by the authorities in all spheres of
business. It is loosely referred to as the "permits system", or by the
broader, internationally known term "regulatory governance".

Several half-hearted attempts to "deregulate" were made by previous
Ukrainian Governments, but in the absence of true political will, they
generally resulted in more overregulation and more chaos. In this regard, I
would like again to refer you to Chapter 5.2 of the UNDP Blue Ribbon
Commission Report.

The solution to the above problem has been proposed by the OECD which,
as a first step, suggests adopting a framework Law on Fundamentals of the
Permits System as soon as possible, which shall achieve two major goals:

(i) stop the abuse of entrepreneurs; and

(ii) give a head start to establishing a modern, transparent and
liberalized permits system, setting up its principles and its framework,
including for enforcement, monitoring, appeals procedure and liability (for
the abuse of the system by Government officials) mechanisms.

IN SUMMARY------

It is clear that the legal regime for business and investment in Ukraine
demands urgent and radical improvements. Without them the current legal
regime will remain a major obstacle to implementing the new Government's
program and to creating a business- and investment-friendly environment in
our country. -30- (The Action Ukraine Report Monitoring Service)
================================================================
NOTE: Irina Paliashvili began her private practice in 1992 by founding one
of the first private law firms in Kiev and expanded by co-founding a private
law firm in Moscow. In 1995, she founded the Washington-based Russian-
Ukrainian Legal Group, P.A., where she serves as the President and Senior
Counsel.

Before going into private practice, Dr. Paliashvili served as General
Counsel (International) to two major companies in Ukraine. In 1991, Dr.
Paliashvili completed a six-month assignment with a prominent Chicago law
firm as a part of the American Bar Association's Soviet Lawyer Internship
Program followed by a four-month assignment in Frankfurt working with a
leading German law firm on an EEC-sponsored project for restructuring the
banking system of Ukraine.

She has also served as a Professor of Law at the Kiev State University Law
School. Dr. Paliashvili graduated with high honors from the Kiev State
University School of International Law and received a Ph.D. in Private
International Law from the same school. She also holds an LL.M. in
International and Comparative Law from George Washington University.

Dr. Paliashvili frequently speaks at international conferences on the legal
and business climates in Ukraine, Russia, and other newly independent
states. Her articles regularly appear in leading professional publications
in the United States and Europe.

Dr. Paliashvili is licensed to practice Russian and Ukrainian law as a
Special Legal Consultant in the District of Columbia and is a member of the
Russian International Law Association, the Kiev Bar, the American Bar
Association, the Washington Foreign Law Society, the Committee on Non-
Member Economies of the Business and Industry Advisory Committee to
the OECD (BIAC), the Congress of Fellows of the Center for International
Legal Studies, the International Trademark Association (INTA), and other
professional organizations. She was individually designated as a
"recommended company and corporate transaction practitioner in Ukraine"
by the Global Counsel 3000.

Dr. Paliashvili has special expertise in the area of commercial dispute
settlement and mediation. She is a mediator trained and certified by the CPR
Institute for Dispute Resolution in New York and a member of its
International Panel of Distinguished Neutrals, a founding member of the
Moscow Center for Dispute Resolution and a member of the INTA International
Panel of Neutrals.

She also serves on the Board of Reporters of the Institute for Transnational
Arbitration of The Center for American and International Law (ITA) as
Reporter for Ukraine. Dr. Paliashvili is fluent in English, Ukrainian,
Russian, Georgian, and Spanish. She divides her working time among
Washington, Kiev, and Moscow. E-mail: irinap@rulg.com, web: www.rulg.com
-----------------------------------------------------------------------------------------------------------------
FOOTNOTE: We wish to thank Dr. Irina Paliashvili for writing this very
important document at the request of The Action Ukraine Report. We would
encourage you to assist in giving this outstanding analytical article very
broad distribution. The article may be republished with credits to Dr. Irina
Paliashvili and The Action Ukraine Report. Dr. Paliashvili is also a
member of the Ukraine-U.S. Business Council. Editor
================================================================
2. YUSHCHENKO PROMISES A NEW UKRAINE
The Ukrainian president got a standing ovation after his speech

Agence France Presse (AFP), Deutsche Welle (DW)
Berlin, Germany, Wednesday, March 9, 2005

BERLIN - Ukrainian President Viktor Yushchenko promised in a speech to the
German lower house of parliament on Wednesday that the world would soon see
a new, more democratic Ukraine.

Yushchenko told the parliament, or Bundestag, that the Ukrainian people were
grateful for Germany's support during the so-called "Orange Revolution" last
December but he called for it to do more to help the former Soviet republic
transform itself into a modern European country.

"Ukraine deserves special attention," Yushchenko told a packed house. "The
world will see another Ukraine, a Ukraine which is stronger, healthier and
economically robust and one that is not plagued by corruption. Germany
understands that a new chapter of European history is being written in
Ukraine."

By addressing the German parliament, Yushchenko followed in the footsteps of
world leaders such as US President George W. Bush and Russian President
Vladimir Putin, but the reformist liberal's first official visit to Germany
has been dogged by a continuing scandal over visas issued to immigrants
from the former Soviet bloc, mainly Ukraine.

The German opposition claims that by relaxing the criteria for issuing visas
between 2000 and 2003, hundreds of thousands of people were able to enter
Germany, many with the help of organised crime networks. Yushchenko's team
is said to be concerned that the scandal is leading all Ukrainians to be
portrayed as illegal workers, or even criminals, in Germany and undermining
their efforts to change the country's image. In his only reference to the
visa affair, Yushchenko called on Germany to "support our students, artists
and journalists through your visa policy."

THE EU TRACK

Continuing the theme of his two-day visit, Yushchenko said Ukraine's future
lay in the European Union and he called for his country to be given swift
membership in the European bloc. "Our road map lies down the route towards
the European Union," he said, borrowing a term from the Middle East peace
process. "I see Ukraine in a unified Europe in the not-too-distant future."
He said he predicts his country will enter the EU as a full member well
before 2016, but that view is seen with some scepticism in Brussels.

For his part, Chancellor Schröder refused to set any timetable for Ukrainian
EU membership, saying that was up to the European Commission. He added that
Ukraine's attempts to move closer to the EU and NATO should not be seen as a
slight to its neighbour and former master. "Russia is our eternal strategic
partner," he said.

CHANGE PROMISED

Seeking to demonstrate that Ukraine was on the road to change, Yushchenko
promised to solve the brutal murder of Ukrainian opposition journalist
Georgy Gongadze, whose headless corpse was found two months after he
disappeared in September 2000. "Four years after it happened, we will arrest
Gongadze's murderers and bring them to justice," Yushchenko said. As
Yushchenko was speaking in Berlin, Ukrainian prosecutors announced that
former president Leonid Kuchma would be questioned as part of the
investigation. Kuchma denies any involvement in the killing.

German Chancellor Gerhard Schroeder said after talks with Yushchenko earlier
on Wednesday that Germany was throwing its weight behind efforts to help
Ukraine emerge from its former isolation.
"We intend to support Ukraine's desire to be accorded the status of market
economy by the European Union as quickly as possible and naturally we are
committed to assisting Ukraine to become a member of the World Trade
Organization," Schroeder added. Germany is Ukraine's second biggest trading
partner after Russia.

The furor over the first Ukrainian presidential election last year, which
produced a victory for the pro-Russia candidate Viktor Yanukovych but was
marred by widespread reports of irregularities, was a severe test of
Schröder's close relationship with Russian President Vladimir Putin. -30-
================================================================
3. VIKTOR YUSHCHENKO COURTS THE GERMANS
He asks for support on bid to join the EU

By Judy Dempsey, International Herald Tribune (IHT)
Europe, Thursday, March 10, 2005

BERLIN - President Viktor Yushchenko of Ukraine appealed Wednesday to
Germany for support in trying to join the European Union while reassuring
Berlin that his country wanted good relations with its eastern neighbor,
Russia. Yuschenko's balancing act, made during a speech to the German
Bundestag, or Parliament, and often interrupted by applause, ended an
official two-day visit to Berlin, his first trip there since being sworn in
as president in January.
.
"My first big foreign trip is to Germany, the motor of European
integration," said Yushchenko during his short speech read from an orange
folder, the color used by the hundreds of thousands of demonstrators who in
December swept Yushchenko into power. "Ukraine also wants good relations
with Russia, which is an important partner for us," Yushchenko added.
.
Although Yushchenko received a warm reception and a standing ovation, he had
to work hard during his visit to repair the damage to Ukraine's image inside
Germany caused by a visa scandal for which Foreign Minister Joschka Fischer
of Germany recently accepted responsibility.
.
Between 2000 and 2002, a few hundred thousand Ukrainians were given visas to
enter Germany without sufficient scrutiny, according to investigators. It
has since been claimed that mafia rings and drug traffickers exploited the
more liberal visa regime to enter Germany. As more details of the
investigations were released, many newspapers gave the impression that all
Ukrainians who received a visa were either drug dealers or prostitutes.
.
Yushchenko did not refer directly to Fischer in his speech but instead asked
for a visa-free regime for business people, students, artists and young
people seeking contact with EU countries. He received brief applause.
.
The largest part of Yushchenko's speech, however, was devoted to moving
closer to Europe, with Germany's help, as well as introducing economic and
political reforms to underpin the rule of law.
.He struck a chord when he said Ukraine would be a stable and secure
country, especially for the transportation of energy. It was a message
welcomed by parliamentary deputies, not least because nearly 80 percent of
Russia's gas exports to Europe use Ukraine as a transit route. Also, Germany
depends increasingly on Russian gas imports, so it requires water-tight
guarantees for the security of supplies.
.
"Yushchenko struck the right tone. It was a good speech," said Matthias
Wissmann, European integration spokesman for the opposition, the
conservative Christian Democrats. "Russia matters so much to Germany." When
asked whether Yushchenko would succeed in preparing Ukraine for membership
to the European Union, Wissmann was emphatic. "No, Ukraine can have a
privileged partnership without full membership. The Christian Democrats
wanted that for Turkey but we did not manage to get it."
.
After holding talks with Yushchenko, Chancellor Gerhard Schröder said
Germany "would be helpful in bringing Ukraine into the euro-Atlantic
structures," without naming the NATO military alliance. He also said Germany
would support its effort to become a market economy and join the World Trade
Organization.
.
Germany has close ties with Ukraine, now one of the European Union's
external borders since May, when Poland, Slovakia and Hungary, all of which
also border Ukraine, joined the European Union along with seven other
countries. Those ties, however, are nowhere near as close as those between
Germany and Russia. Trade between Russia and Germany in 2003 was valued
at more than Euro 25 billion, or $34 billion, while total trade between
Ukraine
and Germany was valued at Euro.3 billion in the same period.
.
Regardless of what government was in power in Germany, every chancellor has
paid special attention to Russia, making it one of the country's foreign
policy priorities, in contrast to the status of Ukraine. German industry,
too, has worked hard to establish a foothold in Russia, while Schröder has
forged close relations with President Vladimir Putin of Russia, which
explains Schröder's reactions to the "Orange Revolution," the movement last
year that brought Yushchenko to power.
.
During the demonstrations in December, Schröder called Putin twice to ask
him to accept the changes taking place in Ukraine and a rerun of the
election. Putin had already publicly endorsed Viktor Yanukovich as president
and congratulated him on his victory, even as the Yushchenko opposition,
backed by the United States and later by the European Union, said the
election had been rigged.
.
Addressing the Bundestag, Yushchenko thanked Germany for "all the solidarity
and support you gave us during the demonstrations." Even though Schröder
said little publicly during the demonstrations, a German senior official
said he used his personal ties with Putin to stave off any possibility of
instability or a crackdown on the demonstrators by the security forces.

"Heartfelt thanks," Yushchenko said. -30-
======================================================================
4. UKRAINE'S GRATEFUL YUSHCHENKO PUTS UKRAINE'S
EU CASE TO GERMAN PARLIAMENT

ddp news agency, Berlin, in German 1422 gmt 9 Mar 05
BBC Monitoring Service, UK, in English, March 9, 2005

BERLIN -: Ukrainian President Viktor Yushchenko banks on Germany's
support for his country's efforts to get closer to the EU. Speaking in the
Bundestag on Wednesday [9 March], Yushchenko explicitly proclaimed Ukraine's
goal of EU membership. At the same time, he firmly declared himself for the
"implementation of European democratic values" in his country. "The world
will see a different Ukraine - a strong, healthy, prosperous, and democratic
Ukraine," the president said.

He sees Ukraine "in the united Europe" in the not too distant future,
stressed Yushchenko, who addressed the Bundestag at the invitation of all
parliamentary groups. He hopes that he will be able to enter into membership
negotiations by 2007 "against the background of the conclusion of an
association agreement. He is sure that Germany will soon recognize the
"European prospect" of his country.

Germany will continue to be "the engine of European integration", the
Ukrainian head of state stressed. Regarding the view of Russia as Ukraine's
"eternal strategic partner", Yushchenko stressed at the same time that his
country's integration into the EU and NATO would not be directed against the
interests of other states.

Yushchenko also advocated liberal visa regulations for his compatriots. The
"winners of the 'orange revolution'" have proven that they regard themselves
as Europeans and want to be together with the other European nations, he
said, and went on to ask for support for the "liberalization of the visa
regime" for Ukrainian adolescents, students, artists, journalists, and
businessmen.

At the beginning of his speech, Yushchenko thanked the FRG for its support
for the peaceful revolution in his country. The Germans had understood at
that time that a new chapter of European history would be opened in Ukraine.
Germany's solidarity had come at a time "when Ukraine needed it urgently".
================================================================
5. GERMAN CHANCELLOR PLEDGES SUPPORT TO UKRAINIAN PRESIDENT

ddp news agency, Berlin, in German 1241 gmt 9 Mar 05
BBC Monitoring Service, UK, in English, March 9, 2005

BERLIN -Chancellor Gerhard Schroeder has offered Germany's support to
Ukraine in restructuring the country on the basis of democracy and the
market economy. There was real interest in bringing "new dynamism" into
relations between the two countries, Schroeder stated in Berlin on Wednesday
[9 March] after his meeting with new Ukrainian President Viktor Yushchenko.

Schroeder stressed that Germany will support Ukraine on the path towards the
Western community of states and will be "helpful" concerning Ukraine's
efforts to establish closer relations with the Euro-Atlantic organizations.

Since, after Russia, Germany is Ukraine's largest trading partner, economic
issues were mainly discussed, Schroeder added. Both sides want to establish
a group that defines important economic projects and ensures their
implementation. In addition, the development of small-and medium-sized
companies is to be promoted. The Reconstruction Loan Corporation as well as
Hermes guarantees could help here.

Yushchenko thanked the chancellor for the cordial reception. He supported
the plans for setting up a group for the development of projects. This
applies, above all, to the energy sector and the natural gas consortium. A
senior German delegation is expected to visit Kiev in two weeks. In
addition, he asked the chancellor for help on matters of border protection.
================================================================
6. GERMAN BUNDESTAG WELCOMES UKRAINE'S YUSHCHENKO

ddp news agency, Berlin, in German 1317 gmt 9 Mar 05
BBC Monitoring Service, UK, in English, March 9, 2005

BERLIN - Bundestag President Wolfgang Thierse has praised the
changes in Ukraine as "another link in the chain of successful and peaceful
revolutions to establish democracy". The resistance of the Ukrainians to the
"attempted election fraud by the post-Soviet rulers" has completed the
"European freedom revolutions of 1989", Thierse stated on Wednesday [9
March] when he welcomed Ukrainian President Viktor Yushchenko in the
Bundestag.

The Ukrainian example also showed "how valuable freedom is and how long it
can take for a people to regain it", Thierse added. Nobody denied that
depressing worries and problems also existed in freedom, but things were
"much worse without freedom".

Referring to the German debate about the relaxation of visa regulations in
Kiev, Thierse rejected the notion that Ukrainian visitors were "generally
suspected of being potential criminals". The opposite was true: Ukrainians
are as welcome in Germany as all other visitors, he added.
================================================================
7. FASHIONABLE TIMOSHENKO SHAKES UP STODGY POLITICS

New Europe, Athens, Greece, Monday, March 14, 2005

Julia Timoshenko, Ukraine's hard-as-nails prime minister, has triggered
earthquakes in domestic politics and fashion scene by not wearing the same
outfit twice, Deutsche Presse-Agentur (dpa) reported last week. Timoshenko,
44, has just completed her first month as the apparently sleepless head of
Ukraine's reform government. She has been very busy, and has looked great
for almost the entire time.

Earlier in February, the Timoshenko administration sacked the entire
leadership of the corrupt customs service, deployed troops to the
mobster-ridden Donetsk region, and pointedly informed the European Union
that Ukraine wants full membership a good decade before Brussels is
apparently ready even to consider it.

Ukrainian political observers, used to previous lethargic governments
dedicated to not rocking the boat, are scrambling to guess what "Julia," as
she is universally known in the country, will do next.
"Smart people...already have figured out what (Timoshenko's) outfits mean,"
Segodnia newspaper said. "If she is in white or pastels, she is in a kind
and forgiving mood; but if it's grey or black, look for the executioner."

Dozens of Ukrainian politicians across the board have underestimated the
petite, but iron-willed Timoshenko to their regret. But even Timoshenko's
clothes designer Aina Hase concedes that Julia has spent almost as much
energy on appearance as on overhauling the country's politics. "It's a lot
of work," Hase said. "The main thing we are working on is proper business
suits."

According to Hase, Timoshenko accepts only natural fabrics, and ignores
labels. Her favourite colours are pale pink, beige and of course classic
black and white. The main thing is that the material is high-quality and
that it is on her "colour wavelength."

The Timoshenko look is nothing, if not calculated. Her hair was naturally
brunette and worn down until 2002. A "honey tint like Julia" can now cost up
to USD 200 at a top Kiev beauty salon. The Timoshenko braid, modelled on
Ukrainian peasant tradition and made famous during the Orange Revolution, is
quite real. The braid scored her a typical coup in 2003, after parliament
detractors accused her of wearing a hairpiece.

MP Timoshenko was ready for them, letting her hair down during rebuttal. The
move proved her opponents liars and what's more placed her image atop
evening newscasts and on front pages of newspapers the next morning. "Like
any woman, I try to look attractive in my own way," Timoshenko told
Ukrainska Pravda magazine, adding, "I think people sometimes make too much
of my outfits."

Timoshenko's public wardrobe, nonetheless, is already Ukraine's hands-down
most discussed style, and also a fair catalogue of the country's recent
political history. The abbreviated list of Timoshenko outfits, and their
context, includes: white pastel dress and blazer, chiffon blouse with deep
v-neck, lace sleeves, aggressively high heels worn at the inauguration
ceremony of Viktor Yushchenko, Ukrainian President and Orange Revolution
leader whom Timoshenko frequently upstaged.

Her wardrobe also includes an orange-and-black Shakhtar Donetsk football
jersey worn at a New Year's Eve television interview in the hostile Donetsk
region. Timoshenko coquettishly declined to identify the Shakhtar player who
had given her the jersey. -30- (Action Ukraine Report Monitoring Service)
===============================================================
8. YUSHCHENKO APPOINTS BUTEIKO FIRST DEPUTY FOREIGN MINISTER

Ukrainian News Agency, Kyiv, Ukraine, Wed, March 9, 2005

KYIV - President Viktor Yuschenko has appointed Anton Buteiko as First
Deputy Minister of Foreign Affairs. The presidential press service disclosed
this in a statement, the text of which Ukrainian News has obtained, with
reference to the corresponding decree.

Buteiko, 57, was appointed as vice president of the Association of Ukrainian
Banks in December 2003. He is a deputy chairman of the Ukrainian People's
Party. .

Buteiko was First Deputy Minister of Foreign Affairs in 1995-1998, and he
worked as Ambassador of Ukraine to the US in 1998-1999. He holds a degree
in international law and foreign languages.

As Ukrainian News earlier reported, Buteiko was ambassador of Ukraine from
2000 to 2003, but he submitted his resignation letter because he disagreed
with Ukraine's course towards entry to the Common Economic Area.

He submitted his resignation letter right after Presidents of Ukraine,
Russia, Belarus and Kazakhstan signed an agreement on CEA formation in
September 2003. -30- (The Action Ukraine Report Monitoring Service)
-----------------------------------------------------------------------------------------------------------
FOOT NOTE: The Action Ukraine Coalition sponsored a public briefing/
roundtable discussion with Anton Buteiko in Washington, D.C. last year.
Ambassador Boteiko made an excellent presentation and was well received.
He is well known in the Washington community because of his previous service
as Ukraine's Ambassador to the United States. His appointment as First
Deputy Minister of Foreign Affairs is an excellent one. Ambassador Boteiko
is known as a man of highest integrity. Editor
================================================================
9. FOREIGN MINISTER TARASIUK TRAVELS FROM GERMANY TO THE
UNITED STATES FOR MARCH 10-11 OFFICIAL MEETINGS

Ukrainian News Agency, Kyiv, Ukraine, Wed, March 9, 2005 (17:00)

KYIV - Foreign Affairs Minister Borys Tarasiuk has traveled from Germany,
where he was part of an official delegation led by President Viktor
Yuschenko, to the United States for an official visit that will continue
until March 11. The press service of the Foreign Affairs Ministry disclosed
this to Ukrainian News.

Tarasiuk is scheduled to meet with United States Vice President Dick Cheney,
State secretary Condoleezza Rice, Defense Secretary Donald Rumsfeld, and
President George Bush's National Security Adviser Stephen Hadley. Moreover,
Tarasiuk will meet with senators [Lugar, McCain and Fritz], congressmen, and
heads of Ukrainian and Jewish communities and organizations.

Tarasiuk will discuss agreement of terms on Ukraine's admission into the
World Trade Organization with the United States, i.e. the signing of a
protocol on access top markets of goods and services. Moreover, the agenda
of the visit includes abolition of the Jackson-Vanik amendment to the United
States Trade act, United States recognition of Ukraine as a market economy,
and development of trade, economic, and investment cooperation.

Tarasiuk will deliver an address at the Center for Strategic and
International Studies as well as at the George Washington University. As
Ukrainian News earlier reported, Yuschenko intends to visit the United
States in early April. Deputy Prime Minister for European Integration Oleh
Rybachuk has promised to prepare for the issue of securing an agreement with
the United States on Ukraine's admission into the World Trade Organization
by the time of Yuschenko's visit. -30-
----------------------------------------------------------------------------------------------------------------
FOOTNOTE: The Action Ukraine Coalition also sponsored a briefing/round-
table discussion with Borys Tarasiuk last year in Washington, D.C. While
in Washington this week Ambassador Tarasiuk will also attend a luncheon
in his honor sponsored by the International Republican Institute (IRI); lay
a wreath at the Taras Shevchenko monument; give a lecture at George
Washington University; meet with the National Democratic Institute; and
hold a breakfast with members of the Ukrainian Congressional Caucus.
=================================================================
10. KHARKIV TRACTOR FACTORY CONCERNED OVER LOW VOLUME
OF TRACTOR SALES IN UKRAINE
Agricultural producers unable to obtain loans for ag machinery

Ukrainian News Agency, Kyiv, Ukraine, Wed, March 9, 2005

KYIV - The Kharkiv tractor factory named after Ordzhonikidze is concerned
over the low volume of tractor sales on the Ukrainian market. The factory's
Deputy Marketing Director Dmytro Serhienko disclosed this to Ukrainian News.
"There is presently a zero level of sales in Ukraine, and this is on the eve
of the spring [agricultural] fieldwork," Serhienko said. According to him,
agricultural producers are unable to obtain loans for purchasing new
agricultural machinery, even the cheap ones.

Moreover, according to him, the Cabinet of Ministers-approved mechanism that
provides for compensating 30% of the cost of leasing agricultural equipment
that was used in 2004 is presently being blocked by the Agricultural Policy
Ministry. "For now, Mr. Baranivskyi is limiting himself to declarations but
one would like to see results," Serhienko said.

According to him, there is demand for the factory's products in Russia and
Kazakhstan, but it is also hoping for and counting on higher demand for
Ukrainian agricultural equipment on the domestic market.

As Ukrainian News earlier reported, the Agricultural Policy Ministry intends
to replace the practice of compensating agricultural producers and
enterprises in the food and processing industries for part of the costs of
locally manufactured complex agricultural equipment they purchase with a
mechanism for reducing the costs of loans.

The Kharkiv tractor plant plans to supply 240 KhTZ-150-K-09 tractors to the
Russian market before the end of April. The Cabinet of Ministers decided in
July 2004 to partially compensate agricultural producers and enterprises in
the food and processing industries for part of the costs of locally
manufactured complex agricultural equipment they purchased.
The size of the partial compensation was set at 30% of the cost of the
agricultural equipment.

The Kharkiv tractor plant plans to increase output in 2005 by 30% to 2,600
tractors. The plant increased output by 29% or 450 tractors to 2,000
tractors in 2004. The Kharkiv tractor factory ended the year 2003 with a
loss of UAH 71.173 million. Its revenues fell by UAH 44.806 million or 18.3%
to UAH 199.938 million in 2003, compared with 2002.

According to the Agency for Development of the Stock Market's
Infrastructure, 27.6% of the factory's shares belonged to the state (managed
by the State Property Fund) as of May 2004, 26% belonged to the Katredes
company (Canada), 12.9% belonged to the KhTZ Invest closed joint-stock
company (Kharkiv region), 12.1% belonged to the Redan company (Kharkiv),
while 10.35% belonged to the Ukrinvest company (Kharkiv).
================================================================
11. DEUTSCHE BANK OPEN EUR 2-BILLION CREDIT LINE TO
NAFTOHAZ UKRANY FOR INTERNATIONAL PROJECTS .

IntelliNews Intraday Updates, Kyiv, Ukraine, Wed, March 9, 2005

KYIV - Deutsche Bank has opened a credit line to the oil and gas company
Naftohaz Ukrainy for the amount of about EUR 2bn for implementation of
international projects of the company, Ukrainian News - on-line reported.
According to Deputy Minister Of Fuel And Energy, Chairman of Naftohaz
Ukrainy's board of directors Oleksii Ivchenko, the loan should be paid back
within 5-7 years, and its average annual interest rate constitutes about 8%.

It is expected that allocated amount will be sent for modernization of oil
and gas transportation sphere, geological prospecting, and implementation of
other projects. Ivchenko did not rule out that this money may be used in
completion of Odesa-Brody oil and gas pipeline to the Polish city of Plock,
and may also be used for Ukraine's participation in tripartite gas
transportation consortium with Germany and Russia.

The loan may also be used for modernisation of gas extraction in Ukraine to
increase it on the average by 2bn cubic meters annually. Ivchenko told that
under conditions of loan provision, the Ukrainian side has a priority for
the right to determine how it would be used. He said that the company had
received this money directly, and not under governmental guarantees.
Naftohaz Ukrainy extracted 18.8911bn cubic meters of natural gas in 2004,
including 14.4041bn cubic meters of gas extracted by the Ukrhazvydobuvannia
company, 3.35bn cubic meters extracted by Ukrnafta, and 1.137bn cubic
meters extracted by Chornomornaftohaz.

Naftohaz Ukrainy monopolizes transportation of natural gas via transit
pipelines and crude oil via oil pipelines in Ukraine. It is also a major
extractor and seller of crude oil and natural gas in Ukraine. -30-
================================================================
12. UKRAINIAN INVESTMENT WEEKLY LOOKS AT BUSINESS INTERESTS
OF NEW CUSTOMS CHIEF

Invest-Gazeta, Kiev, Ukraine, in Russian 9 Mar 05, p 10
BBC Monitoring Service, UK, in English, Wed, March 9, 2005

KYIV - At the end of last week [4 March] Ukrainian President Viktor
Yushchenko appointed Volodymyr Skomarovskyy the new head of the State
Customs Service. Prior to this Skomarovskyy was an MP and belonged to the
Our Ukraine faction (Solidarity group). He is regarded as one of the biggest
businessman in Vinnytsya Region and close to the secretary of the National
Security and Defence Council, Petro Poroshenko.

The destinies of Volodymyr Skomarovskyy and Petro Poroshenko were brought
together at the parliamentary elections in 1998: the well-known businessman
from Vinnytsya competed against the head of Ukrprominvest [company, Petro
Poroshenko] in constituency No 12 in the city. In 1998 Poroshenko managed to
win with the smallest ever majority in Ukrainian electoral history - 58
votes. It is not known why this fight ended up as cooperation in the future
and not the destruction of the losers, as is usually the case in Ukrainian
politics. But in 2002 [at the parliamentary elections]

Poroshenko managed to secure his former competitor a place high up on the
Our Ukraine list as part of the quota apportioned to the Solidarity party.
In the last presidential election [autumn 2004] Skomarovskyy was the chief
of Viktor Yushchenko's regional campaign headquarters.

Volodymyr Skomarovskyy earned his money in the car business. In fact, this
is the main line of business carried out by the Vladimir company, which is
the largest regional car dealer selling several car brands. Skomarovskyy's
business interests also include trade in building materials, food items as
well as insurance. Volodymyr Skomarovskyy also had an interest in the TAKT
FM radio station and the Tumba newspaper.

However, Skomarovskyy's path in politics and business also had its cloudy
moments. In 1999 he, along with several high-ranking officials from the
Vinnytsya regional state administration, found himself under investigation
for illegal operations with hard currency. The move by law-enforcers at the
time was said to be connected with persecution of the region's former
governor, Anatoliy Matviyenko, who was a member of the People's Democratic
Party at the time. -30- {The Action Ukraine Report Monitoring Service]
================================================================
13. WHY UKRAINIAN TROOPS SHOULD STAY IN IRAQ

OP-ED: by Volodymyr Hrytsutenko, Ph.D,
An Egyptian-Israeli 1969-1972 war veteran
Lviv Franko University, Lviv, Ukraine,
THE ACTION UKRAINE REPORT
Washington, D.C., Thursday, March 10, 2005

Faced with an ever-increasing terrorist threat in the wake of September 11,
the United States and its allies had to go to war with Iraq. Back in 2003, a
quick and effective strike was needed to foil Saddam Hussein's assertive
plans. It would have taken years, if the US and its allies opted at the time
to get a UN blessing for the operation. Needless to say, the varying, and
often conflicting, interests of major international payers, France, Germany,
Russia, China and many more, would have protracted a UN-supported
operation for years.

Feelings in Ukraine were mixed when the US-led coalition forces invaded
Iraq. There were no condemning resolutions by the Ukrainian legislature as
was the case in Russia and Belarus, but many leftist and rightist parties
criticized the military involvement. They accused the US-led coalition of
pursuing military goals (to capture Iraq and create a NATO bridgehead in the
Middle East), economic goals (to get control of Iraqi oil reserves), and an
overarching political goal (to assert the role of world policeman).

In this context, surprisingly little, if anything, was said that would
substantiate the role of the US as the sole superpower and the ensuing U.S.
responsibilities for maintaining democracy and civil liberties in the world.
In the Balkan conflict, for instance, analysts and the media preferred to
focus on massive NATO-led bombardments, Slobodan Milosevic's genocidal
policies, violations of human rights. In Ukraine, with state-run mass media
being dominated by the government and commercial mass media openly
harassed, the coverage of the events in Yugoslavia was restricted to cool,
short of critical, reporting on the West's military action, without any
noticeable analysis of the scope of the US peace mandate. Equally, very
little had been said about the failure of the United States to get the UN
umbrella in Bosnia, with Russia clearly indicating to its Serbian ally that
she would not back the use of UN military sanctions in the Security Council.

The media gave little ink, if any, to the US track record in similar
conflicts in the past, for example, in Grenada in 1983 where the US role was
to put the democratically elected government back into office after a
Marxist coup, or in Haiti and the Philippines in the 1990s, when the US
encouraged these countries to move toward democratic self-government.
No one tried to counter a popular argument that the US wants to economically
subjugate foreign countries by citing the US policy toward rebuilding
Germany and Japan after WWII.

When the US requested other nations to join the operation, Leonid Kuchma
jumped at the chance because he was badly in need of any international
recognition in the wake of the mind-shattering decapitation of investigative
journalist Gongadze and the alleged sales of weapons to Iraq. With the
upcoming 2004 presidential election, Kuchma was also eager to boost his
single-digits approval ratings inside Ukraine, as the beleaguered president
still cherished dreams of standing for his third term in office.

In political terms, Ukraine's presence in Iraq is of crucial importance to
its new democratic government as it is evidence in deeds, not in words, of
the country's declared course toward the West. For the United States,
Ukraine's presence is largely symbolic, demonstrating the amount of
international support behind its operation in Iraq.

In military terms, Ukraine's role in Iraq is insignificant and all the talk
that the Ukrainian pull-out will dent the allied defense is mere rhetoric:
just compare the mammoth allied force to the 1.6-thousand-strong Ukrainian
contingent of which 2-3 hundreds are non-combat supporting troops.

Ukraine's presence in Iraq has never been much of an issue with ordinary
Ukrainians. From a quite pompous campaign preceding the deployment to
Iraq they knew that the servicemen were recruited on a voluntary basis.
Therefore, when the leftists started massive hue and cry many knew it was
part of their political games in the run-up to the 2004 presidential
election.

Except the Communists, the pull-out issue was low on the agenda's of
presidential candidates vying for the office in 2004. Toeing Kuchma's line,
his hand-picked successor Viktor Yanukovych was against the withdrawal at
the outset of his campaign. His rival, Viktor Yushchenko, gave the issue a
passing attention, focusing on the regime riddled with corruption and crime.

However, later in the campaign, especially after Round One when Yushchenko
was seeking more voter support, including the leftist-leaning electorate of
the Communist candidate then out of the race, he was forced to move the
pull-out issue up his campaign agenda, making a number of committing and,
unfortunately, rash statements. He was soon joined by Yanukovych, who was
also after the leftist voters and who, after Round Two, made a dramatic
U-turn ( although many doubted its sincerity) trying to distance himself
from Kuchma and blasting his godfather for his policies.

But the big question is whether the Ukrainian peacekeepers (and Yushchenko's
voters at that) are that keen to go home. It's an open secret that the
majority of our servicemen went to Iraq, on a voluntary basis, tempted by
money. Being professional soldiers, they would hardly be scared by the
present losses (about 20 dead, of which nearly a half were non-combat
losses). The pull-out puts an end to their financial plans. Still, things
are not that bad for them out in Iraq. A month ago, the customs in Kyiv
seized $300,000 in contraband money which the servicemen, escorting the
body of an officer who died from a heart attack, were carrying on
themselves.

Ukrainian troops will be needed in Iraq - not least because joint economic
projects the Ukrainian government so eagerly seeks in Iraq must be protected
from guerilla attacks. History shows that civil wars, and what's going on in
Iraq is a full-fledged civil military conflict, do not end any time soon:
after the Soviet occupation of Western Ukraine in 1944 bloodshed continued
for ten more years. And Stalin's police and KGB were no match for Iraq's
nascent security forces.

That is why Yushchenko should move fast to find the way out of the corner in
which he got himself painted. He has several face-saving options how to
prolong the stay of Ukrainian troops in the country that badly needs
international help. Our troops can be moved to a neighboring country
(Kuwait, Afghanistan) where they can train Iraqi soldiers. Their status can
be changed from that of belonging to a US-led coalition to a unit protecting
the projects in Iraq in which Ukraine is involved. Finally, our soldiers can
go to Iraq as soldiers of fortune if the Iraqi government agrees to such
arrangement. In all these scenarios, however, there is one crucial
condition: the initiative must be taken by Ukraine. -30-
[The Action Ukraine Report Monitoring Service]
------------------------------------------------------------------------------------------------------------
OP-ED by Volodymyr Hrytsutenko, Ph.D, Lviv Franko University,
Egyptian-Israeli 1969-1972 war veteran, mail to: vhryts@lviv.farlep.net
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week, let us know by e-mail to morganw@patriot.net.
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PUBLISHER AND EDITOR
Mr. E. Morgan Williams, Director, Government Affairs
Washington Office, SigmaBleyzer Investment Banking Group
P.O. Box 2607, Washington, D.C. 20013, Tel: 202 437 4707
mwilliams@SigmaBleyzer.com; www.SigmaBleyzer.com
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Senior Advisor; Ukrainian Federation of America (UFA)
Coordinator, Action Ukraine Coalition (AUC)
Senior Advisor, U.S.-Ukraine Foundation (USUF)
Interim Secretary-Treasurer, Ukraine-U.S. Business Council
Publisher, Ukraine Information Website, www.ArtUkraine.com
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