"THE ACTION UKRAINE REPORT - AUR"
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"

ANALYSIS AND COMMENTARY
James Sherr, Paul M. Carter, Jr., Ilan Berman
Madeleine Albright, James Baker III, Zbigniew Brzezinski,
Frank Carlucci, John Hamre; Henry Kissinger, Brent Scowcroft
Celeste A. Wallander, Jaap De Hoop Schaeffer

"THE ACTION UKRAINE REPORT - AUR" - Number 512
Mr. E. Morgan Williams, Publisher and Editor
morganw@patriot.net, ArtUkraine.com@starpower.net
Washington, D.C. and Kyiv, Ukraine, THURSDAY, June 30, 2005

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

1. "REALISM ABOUT UKRAINE"
Part I - Internal Conditions
ANALYSIS AND COMMENTARY: By James Sherr
Conflict Studies Research Centre, UK Defence Academy, UK,
Published by The Action Ukraine Report (AUR), Number 512
Washington, D.C., Thursday, 30 June 2005

2. U.S.-UKRAINE RELATIONS: A NEW CENTURY AGENDA
Remarks by Paul M. Carter, Jr., Ph.D.
Ukraine Desk Political Officer, U.S. Department of State
Inaugural Event, U.S.-Ukrainian Security Dialogue
Longworth House Office Building, Washington, DC, June 23, 2005
Published by The Action Ukraine Report, Number 512
Washington, D.C., Thursday, June 30, 2005

3. U.S.-UA ECONOMIC SECURITY: THE ISSUE OF ODESSA-BRODY"
Remarks by Ilan Berman, Vice President for Policy
American Foreign Policy Council (AFPC)
Inaugural Event, U.S.-Ukrainian Security Dialogue
Longworth House Office Building, Washington, DC, June 23, 2005
Published by The Action Ukraine Report, Number 512
Washington, D.C., Thursday, June 30, 2005

4. FORMER SENIOR U.S. OFFICIALS OUTLINE STRONG & SUSTAINED
U.S. STRATEGY FULLY INTEGRATED, DEMOCRATIC UKRAINE
Madeleine Albright, James Baker III, Zbigniew Brzezinski,
Frank Carlucci, John Hamre; Henry Kissinger, Brent Scowcroft
CSIS STRATEGY STATEMENT
Challenge and Opportunity: A U.S. Strategy on Ukraine
Center for Strategic and International Studies (CSIS)
The Action Ukraine Report (AUR), Number 512
Washington, D.C., Thursday, June 30, 2005

5. CHALLENGE AND OPPORTUNITY: A U.S. STRATEGY ON UKRAINE
Background Paper: CSIS Statement
Challenge and Opportunity: A U.S. Strategy on Ukraine
By Celeste A. Wallander, Director
Russia and Eurasia Program, and Trustee Fellow
Center for Strategic and International Studies (CSIS)
The Action Ukraine Report (AUR), Number 512
Washington, D.C., June 30, 2005

6. MUST CONCENTRATE ON THE FULFILLMENT OF OUR COMMITMENTS
Interview with Jaap De Hoop Schaeffer, NATO Secretary General
Interview by Vladimir Kravchenko
Zerkalo Nedeli, Mirror-Weekly,No. 24 (552)
International Social Political Weekly
Kyiv, Ukraine, Saturday, 25 June - 1 July, 2005
===============================================================
1. REALISM ABOUT UKRAINE
Part I - Internal Conditions [1]

COMMENTARY AND ANALYSIS: By James Sherr
Conflict Studies Research Centre, UK Defence Academy, UK,
Published by The Action Ukraine Report (AUR), Number 512
Washington, D.C., Thursday, 30 June 2005

In a remarkably swift period of time, the mood about Ukraine has swung from
one of expectation to disappointment. The change of mood has been
unreasonably swift. President Yushchenko has only been in office since 23
January, and preliminary judgements might be premature ones. Yet
conditions are also unreasonable.

Political reforms transferring important powers from the President to the
Verkhovna Rada, the country's parliament, are scheduled to take effect in
the autumn, and parliamentary elections will take place in March 2006. The
President therefore has little time to use the current powers, afforded by
the country's 1996 Constitution, to launch profound and systemic reforms.

'Irreversibility' cannot be achieved in so short a period, even if it is
exploited to the full. What can be achieved is to demonstrate that the new
leadership has the will and competence to change the nature and not only the
image of the system that has governed Ukraine since 1991. In this, so far,
it does not appear to be succeeding.

External support (and criticism) must be grounded in the 'art of the
possible' if it is to be constructive and effective. Emphasis needs to be
placed on problems (and mistakes) that are remediable within constraints
which need to be understood and, over the short term at least, respected.
In three respects, the starting conditions present obstacles to radical
change:

[1] Yushchenko and his supporters did not come to power on their
own. They were assisted by an ideologically diverse, anti-Kuchma coalition
and, at least illicitly, by forces within the country's powerful and
resourceful state apparatus.[2] They were also assisted by money, the
donors of which not only have principled aspirations, but concrete
interests.

For all their repugnance towards the culture of power in Ukraine,
President Yushchenko, Prime Minister Tymoshenko and many of their
closest allies built their careers inside it. The new leadership,
therefore, is exercising power with many of the forces, instruments and
instincts of the old. It represents a principled break from the past, but
not a clean break.

[2] Not only is the bureaucracy intact, so is Ukraine's deeply
flawed legal system. Law in Communist and post-Communist states has
rightly been called a system of 'codified arbitrariness'.[3] Ukraine's
assortment of laws, codes and 'normative acts', rife with contradictions,
gaps, permissive powers and regulative minutiae, has not only stimulated
arbitrariness, but criminality and corruption. It has also usurped many of
the normal prerogatives of entrepreneurship and management, thus as in
Soviet times persuading people that 'initiative is punishable'.

The demand to 'respect the law' is therefore double edged: by
some, an earnest appeal against the capricious actions of self-serving
authorities; by others a principled defence of the status quo's indefensible
abuses and by still more, a weapon against rivals in business and politics.
How can reform advance within this legal system? How can legality be
maintained outside it?

[3] Economic conditions are difficult and, in the energy sphere,
worsening. During the pre-electoral period, state property and budgetary
resources were redistributed and pillaged on an unprecedented scale.
Russian oil prices increased 25 per cent between January and March, and
steep increases for the price of gas (from Turkmenistan as well as Russia)
are likely to take effect in January 2006. [4]

These conditions make tax reform and (legal) wealth generation
urgent. Since 1991 state and local budgets have collapsed, yet state and
local bureaucracies have grown. That relationship is no longer sustainable.

It should be clear that the very conditions that make systemic change so
difficult heighten the necessity for it. A policy of reversing isolated
injustices or punishing individuals is unlikely to gain momentum in this
framework. Ukrainian and foreign experts now fault the authorities for
'eclecticism', 'ambiguity' and the 'absence of a clearly formulated
strategy'. [5]

The faults reflect:

[1] WEAKNESS IN LEADERSHIP AND COORDINATION - Between
his inauguration and the recent oil crisis, President Yushchenko tended to
act more as the spiritual than the political leader of the country. He also
made twelve trips abroad. When the oil crisis reached the point of peril, he
intervened with wisdom and firmness, but it is not clear whether he will now
exercise direct and active authority. [6] His Prime Minister, Yulia
Tymoshenko, an electoral ally but a personal rival, is not averse to
confrontation and seems determined to exercise authority without limit.

If Yushchenko has confused leadership with inspiration, she has
confused it with control and, to the astonishment of many in Ukraine's
business sector, these controls are taking the form of Soviet style
'administrative measures' which extend to the micro economy. In his other
ministerial appointments, Yushchenko deferred considerably, perhaps
excessively, to his coalition partners. The result is a 'contra rather than
a pro' group of like-minded professionals [7] and, at the top of the state,
a realm rather than a team.

[2] ABSENCE OF ADMINISTRATIVE REFORM - Ukraine's largely
Soviet era bureaucracy-opaque, inflexible, meddlesome, jealous of its powers
and oblivious to their effects-is a fundamental obstacle to the creation of
a state in which 'man is the architect of his fortunes'. If the power and
scale of bureaucracy are not diminished, and its working practices not
transformed, Yushchenko will not succeed. The keys to reform must be
deregulation and cadre (personnel) policy.

If the latter is ad hoc, it will invite charges of cronyism and
abuse. If it is formalised (i.e. bureaucratic), then the bureaucracy will
control it. It is therefore difficult, but essential in this transitional
period to
form teams of reform-minded professionals who can drive policy and
internal restructuring forward. Yet outside the security sector (where the
'human factor' confronts one at every turn), the focus of many ministers
remains policy and politics rather than the people and structures that
transform principles into practice.

[3] STATE MEDDLING INSTEAD OF ECONOMIC REFORM - The
previous tenure of Yushchenko and Tymoshenko in government gave the
West-and much of the Ukrainian middle class-every confidence that they
were committed to the rules and institutions of a liberal market economy.
[8] That confidence has been shaken. The decision (20 April) to revalue
Ukraine's currency, the hryvnya, was taken without warning to those who
would be affected by it, as was the decision to abolish tax privileges of
entrepreneurs in free enterprise zones.

What conclusions are businesses expected to draw when a tax regime,
integrated into marketing, pricing and investment strategies, is replaced
without consultation or notice? Tymoshenko's decision to impose temporary
caps on oil prices (since reversed by the President) has been defended by
some as an anti-monopoly (and hence free market) measure.

But this defence cannot be stretched to justify price controls on
meat or subsidies on electricity, and the decision to increase public sector
salaries by almost 57 per cent flies in the face of economic reality.[9]
Although she has since reversed herself, Tymoshenko also spoke of
renationalising, rather than reprivatising some of the state enterprises
sold off on dubious terms during Kuchma's presidency. Her reasoning seems
to be that since she has the power of the state behind her, she should use
it.

The reasoning of Valentyna Semenyuk, an ardent socialist and Head of
the State Property Fund, is classically ideological. If her appointment is
a calculated concession to the Socialists (who have already been awarded
the Ministry of Agriculture and the Ministry of Internal Affairs), what is
the calculation? These measures, half-measures and reversals (which have
come to a head in the reprivatisation issue) have shaken confidence not only
in the government's principles, but its competence. [10]

Two questions need to be posed.

FIRST, is the performance of the President and government justified by the
imperatives of electoral and coalition politics?

So far, Tymoshenko's interventions have been popular with voters, but why?
Is it because of their substance or because she is doing something? So far,
Yushchenko's popularity remains substantial, but it is declining. Is it
wise for him in these circumstances to 'give her rope'? Or would it be wiser
to take the lead himself? [11]

For how long will Yushchenko or Tymoshenko inspire confidence if inflation
mounts, if the petty, daily institutionalised abuses of power are not
addressed, and if people begin to realise that nothing has changed? If the
opposition is too shattered to deny the coalition victory in March, then is
it really essential to hold the entire coalition together, and who will
benefit from the attempt: Yushchenko or coalition partners whose vision of
Ukraine's future differs from his own?

Who will believe that real reform will begin after these elections-
entrepreneurs? investors? neighbours?-if no firm direction is set before
then? The risks of hesitancy are that friends lose interest and enemies
become engaged. The risks of leadership are not only fewer, but better.

The SECOND question is whether today's errors are correctible or whether
they are congenital, the product of incapacity and incompetence. In Russia,
there are many who claim to know the answer. In the West, the question is
being posed. The considered, prudent answer is that today's errors are
correctible, but not self-correcting.

Two mechanisms are needed to assist the process.

FIRST, Western supporters of Ukraine and Yushchenko need to speak
clearly and fairly, without exaggerating problems, but without mincing
words, and the country's decision makers need to be asked plainly whether
they want praise or help. SECOND, it is imperative that Ukraine's NGOs
retain the ability to perform the function they performed so ably in the
past. It is already becoming more difficult for them to do so.

Many of their most talented experts are being siphoned into government
(where some might have less influence than they would outside it). More
ominously, several well established Western donors have already shifted
their focus: either to Ukrainian analytical centres tied to government (and
hence limited in their independence) or, with less justification, to
countries such as Belarus, Azerbaijan and Uzbekistan, where local 'people
power' and Western 'soft power' have yet to triumph. In politics, not to say
geopolitics, it can prove very costly to leave the field before triumphs are
consolidated.

To reiterate a far from novel point, 'the worst outcome [for Ukraine] would
be if [Yushchenko] wins and then fails'.[12] Yushchenko is very far from
failure, but it would be unwise to forget that he is also very far from
success.
-----------------------------------------------------------------------------------------------------------
--------- ENDNOTES --------
[1] Parts 2 and 3 of this series will focus on foreign policy and
security sector reform, respectively.
[2] This support from within the state testifies to the dynamic
observed after the parliamentary elections of March 2002: 'Whilst at one
level the growth of civic instincts is sharpening the divide between state
and society, it is also creating points of friction within the state and
hence, a dynamic of evolution inside it'. (James Sherr, 'Ukraine's
Elections: The Limits of Manipulation', CSRC Occasional Brief No 91, April
2002.)
[3] As characterised by the French Sovietologist and Russian
specialist, Françoise Thom.
[4] The price of Russian oil sold in Russia increased 26 per cent
between January and March 2005. During the same period, there has been
a 24 per cent increase in Russian export duty from $83 per tonne to $102.60
per tonne. At the new price, Russian oil is now sold in Ukraine at $300 per
tonne. Ukraine is almost totally dependent on gas supplies from
Turkmenistan (36 bn cubic metres per annum) and Russia (24 bcm per annum).
Following Yushchenko's visit to Turkmenistan, the country's president
Saparmurat Niyazov publicly criticised Ukraine for failing to honour the
terms of the existing gas supply agreement under which Ukraine pays for half
its imports in cash (at $58 per thousand cubic metres) and half in
industrial goods. (Niyazov alleged that Ukraine withheld delivery on goods
whilst unilaterally increasing their unit costs.) (Jamestown Foundation,
Eurasia Daily Monitor, Vol 2, Issue 121, 22 June 2005.) According to the
chairman of the state company, Naftohaz Ukrainiy, Oleksiy Ivchenko, a
compromise was reached on 24 June, whereby Ukraine will pay for all
deliveries in USD at the reduced price of $44 per thousand cm for the
balance of 2005 and 2006. (RFE/RL Newsline, Vol 9, No 121, Part II, 27 June
2005.) Russian imports operate under a different regime, whereby Russia
supplies 24 bcm as compensation for transit of gas across Ukraine to
customers in Europe (134 bcm in 2004). At present, Russian gas is valued at
$50 per thousand cubic metres which, like Ukraine's transit fee, is well
below the world market price. In June Gazprom announced that it would
prefer to shift to an arrangement whereby Ukraine would raise its transit
fee to European levels in exchange for a revaluation of Russian gas to $160
per thousand cubic metres. Even with the increased transit fees, the
revised price-which is probably an opening gambit for negotiations-would be
well beyond Ukraine's means. (Jamestown, op cit.)
[5] These criticisms, put forward by a number of Ukrainian
specialists at the 1 May Kyiv roundtable, 'Political Situation in Ukraine:
100 Days of New Power and Reforms Strategy', were echoed by several senior
Western representatives at the 16-17 June Kyiv World Economic Forum
('mini-Davos'), hosted by President Yushchenko.
[6] On 19 May, Yushchenko emerged as a blunt and tough arbitrator
in several meetings between Tymoshenko and senior Russian oil company
executives and traders, as well as Ambassador Chernomyrdin and the President
of TNK-BP, Robert Dudley. Whilst admonishing Russian traders for imposing
artificial shortages, he cancelled Tymoshenko's price caps (which he
criticised as an 'administrative, non-market measure') with immediate
effect. Simultaneously, he ordered Tymoshenko to cancel VAT on oil and oil
products transit. The previous day, he signed legislation cancelling import
duties on high-octane petrol and diesel fuel.
[7] Speech of Volodymyr Malynkovych at the 1 May Kyiv roundtable,
'Political Situation in Ukraine: 100 Days of New Power and Reforms
Strategy'.
[8] Yushchenko was Prime Minister of Ukraine between December 1999
and April 2001; Tymoshenko served as Deputy Prime Minister between January
2000 and February 2001.
[9] The lack of consultation stands in ironic contrast to the
elaborate public discussion that preceded the hryvna's introduction under
Kuchma in 1996. The decision was immediately criticised by the conservative
but extremely able First Deputy Prime Minister, Anatoliy Kinakh, who does
not appear to have been part of the magic circle that made it. To judge
from the comments of President Yushchenko to the newspaper, Ukraina
Moloda, it is possible that he was not consulted either: 'I negatively
assess
any shock change of the currency rate, because it undermines the authority
of its stability, which was formed for years. Even if the issue is the
strengthening of the hryvnya, it cannot be settled in one day and by such
drastic steps. In fact, revaluation of the hryvnya worsens and complicates
the conditions of work primarily for the national producer' (cited in
Ukrainskaya Pravda, 28 April).
[10] By general consensus, reprivatisation, which began as a
flagship of the President's programme, has become a shambles. Two fissures
immediately surfaced: how many firms should be reprivatised and by what
means? should they, indeed, be reprivatised or returned to state ownership?
To date, Yushchenko does not appear to have put an end to these arguments.
[11] As noted by Oleg Varvfolomeyev, '[m]any of Tymoshenko's
mistakes as prime minister go unnoticed by the general public. And
Yushchenko, wanting to maintain the unity of the governing coalition ahead
of the elections, abstains from openly criticizing Tymoshenko.' (Jamestown
Foundation, Eurasia Daily Monitor, Vol 2, Issue 86.)
[12] James Sherr, 'Ukraine's Elections: The Interplay Between
Internal and External Factors', (Zerkalo Nedeli, No 40(515), 9-15 October
2004).
-------------------------------------------------------------------------------------------------------
DISCLAIMER: The views expressed are those of the Author and not
necessarily those of the UK Ministry of Defence -30-
===============================================================
2. U.S.-UKRAINE RELATIONS: A NEW CENTURY AGENDA

Remarks by Paul M. Carter, Jr., Ph.D.
Ukraine Desk Political Officer, U.S. Department of State
Inaugural Event, U.S.-Ukrainian Security Dialogue
Longworth House Office Building, Washington, DC, June 23, 2005
Published by The Action Ukraine Report, Number 512
Washington, D.C., Thursday, June 30, 2005

Thank you Professor Zaryckyj for the introduction, thank you Congressman
Weldon for your generous remarks, and thank you to the American Foreign
Policy Council, the Center for U.S.-Ukrainian Relations, the Ukrainian
Congress Committee of America, and the Congressional Ukrainian Caucus
for the invitation to speak today. U.S.-Ukrainian relations and security
policy are important issues and particularly topical right now.

Many speakers today will discuss specific aspects of security policy. I
would like to put this into a larger political context by describing for you
briefly the current overall picture of U.S.-Ukraine relations, how we see
the relationship developing, and some of the challenges and opportunities
that lie ahead.

U.S.-Ukrainian relations have entered a new era. For years relations were
in a kind of holding pattern. After a warm period in the early and
mid-nineties, relations from the late nineties until the Orange Revolution
were not what we wanted. The United States never forgot the strategic
importance of Ukraine or lost faith in the Ukrainian people. But the
scandals, corruption, and human-rights violations of the Kuchma leadership
retarded close contact. The Orange Revolution changed that and started us
on a new trajectory of open dialogue and closer cooperation.

But the Ukrainian people's choice for freedom and democracy was only the
first step in a long journey. After the exhilaration of the Orange
Revolution, now comes the less dramatic - but no less important - work of
reforming the Ukrainian polity, economy, and society and preparing Ukraine
to become a full-fledged member of the Euro-Atlantic community.

The success of the Ukrainian government in this endeavor is critical in many
respects - first and foremost for Ukraine and the Ukrainian people; equally
important for the model it could offer to the region; and third, for the
positive impact it could have on Ukraine's relations with the West.

THE CHALLENGES AHEAD ---------

The challenges, to be sure, are many. For one, the Orange Revolution lifted
expectations very high. Meeting those expectations will require hard work
and sustained implementation of political and economic reforms. In eastern
and southern Ukraine, large Russian-speaking majorities opposed candidate
Yushchenko in the presidential campaign, and some regional officials spoke
of federation, autonomy, and even secession. President Yushchenko and his
government have much work to do to convince former Yanukovych supporters
and to ensure the unity of the country and make Ukraine a cohesive unit.

President Yushchenko's anti-corruption policies will directly challenge
those who have made a living from corrupt practices. The new government has
begun to prosecute some offenders and to remove officials who abused their
positions. It is vital that members of the new government not succumb to
the temptations of corruption. It is important and good that the new
government be held to high standards. A free media can play an important
part in exposing instances of corruption.

Many in Ukraine are already looking intently at the 2006 Rada elections.
President Yushchenko will try to maintain a working majority in the Rada.
At same time, he and his government must avoid measures that may in the
short term curry favor with voters but in the longer term threaten reforms,
liberalization of the economy, and achievement of such goals as WTO
membership. I

In the long run, free-market reforms are what will boost prosperity, not
short-term populist measures. Further complicating this picture is the fact
that Yushchenko's government is a coalition, with ministers and others
drawn from different parties with different philosophies and different
political interests.

Still, adopting measures that the country will later regret - or postponing
critical reforms out of short-term political expediency - can only harm the
interests of Ukraine and its people. There is a need for everyone to speak
from the same page and to avoid splits in the government.

Political infighting is not unique to Ukraine - we have our share of it in
the United States - but it is important that political competition not
burden the new government and keep it from doing the important work of
reform.

Foreign relations pose another set of challenges. President Yushchenko has
set integration with European and Euro-Atlantic institutions as a primary
goal. The U.S. strongly welcomes and warmly embraces this orientation.
But eventual membership in the EU and NATO will depend on Ukraine's
willingness and ability to implement difficult political, economic, and
military reforms. NATO membership cannot be taken for granted. There is
a lot of hard work to be done.

There is a lot of political goodwill toward Ukraine in Washington, but
Ukraine must be sure not to lose momentum. A democratic, prosperous
Ukraine is the best possible neighbor for Russia, and we understand
President Yushchenko is working hard - as are we - to convince Russian
President Putin of this fact. At same time, we must be realistic and bear
in mind that Russian-Ukrainian relations face their own set of challenges in
the wake of the Orange Revolution.

Last, but certainly not least, in terms of challenges is the deep-seated
legacy of Soviet communism. Years of Soviet domination exacted a terrible
toll on the Ukrainian people. Ukrainians have made great strides in
reclaiming their heritage, but I do not need to tell you how difficult is
the task of eliminating the last vestiges of totalitarianism.

A NEW CENTURY AGENDA ----------

As President Yushchenko and the Ukrainian government tackle these
challenges, Ukraine can count on the support of the United States. During
President Yushchenko's recent visit to the United States, he and President
Bush signed a joint statement outlining what we call a New Century Agenda
for the American-Ukrainian Strategic Partnership.

If you have not read this document, it is available on the White House
website, and I recommend it. It succinctly lists concrete aspects of our
cooperation and will serve as a kind of "action plan" for U.S.-Ukraine
relations. Let me mention a few of the issues it highlights.

The United States and Ukraine will work together to strengthen democratic
institutions in Ukraine and to advance freedom in Europe, its neighborhood,
and beyond. We will work to defeat terrorism wherever it occurs and to
advance economic development, democratic reforms, and a peaceful
settlement of regional disputes. In the area of economic policy, the United
States and Ukraine will cooperate closely on issues that are vital to
Ukraine's growth and prosperity. As a first step, the Ukrainian government
will seek expeditious U.S. recognition as a market economy.

I understand that the Ukrainian government has submitted an application, but
since this is a quasi-judicial process, success cannot be taken for granted.
We are committed to working together to achieve Ukraine's accession to the
World Trade Organization and to moving as rapidly as possible to lifting the
provisions of the Jackson-Vanik amendment.

We are initiating an energy dialogue to advance Ukraine's plans to
restructure and reform its energy sector to encourage investment, diversify
and deepen its energy supplies, bolster commercial competition, and
promote nuclear safety.

In terms of international relations, the United States pledges to support
Ukraine's NATO aspirations and to help Ukraine achieve its goals by
providing assistance with challenging reforms. We remain grateful for
Ukraine's contributions in Iraq and recognize the ultimate sacrifice some
Ukrainian service members have made in defense of freedom and security
there.

The fight against proliferation of weapons of mass destruction and their
means of delivery is one of the most important issues facing the
international community today. The United States and Ukraine will deepen
cooperation on nonproliferation, export controls, border security, and law
enforcement.

The security and stability of nations increasingly depends on the health,
well-being, and prosperity of their citizens. The United States and Ukraine
therefore have committed to cooperate on a broad agenda of social and
humanitarian issues, including halting the spread of HIV/AIDS and TB;
fighting organized crime, trafficking in persons and child pornography; and
completing the Chornobyl Shelter Implementation Plan.

At the recent EBRD meeting on nuclear safety and the Chernobyl Shelter Fund,
the United States made a pledge of $45 million. We also support a bold
expansion of contact between our societies. To this end, the United States
and Ukraine will work to lower barriers that separate our societies and to
enhance citizen exchanges, training opportunities, and cooperation between
business communities of both countries.

THE RECORD SO FAR ---------

Admittedly, this is an ambitious agenda. Some tasks are longer term in
nature, others can be completed fairly quickly. The agenda was adopted just
two and a half months ago. Let us consider for a moment our progress so far
in implementing it.

For its part, the United States has taken important steps. We proudly led
support of the Allies for an offer to Ukraine of an Intensified Dialogue on
NATO Membership Issues. ID is a significant new stage in Ukraine's
relationship with NATO. It provides a platform for Ukraine to work closely
with NATO in Brussels to prepare Ukraine for the Membership Action Plan
program, the formal path to NATO membership.

Also in terms of NATO, the United States announced it would take lead-nation
status in the Partnership-for-Peace program to destroy obsolete and excess
weapons and munitions in Ukraine. Given the size of the problem in Ukraine,
the NATO PfP destruction program is fittingly the largest such destruction
program ever undertaken anywhere.

The United States also took a key first step in a new Energy Dialogue.
Secretary of Energy Bodman recently visited Kiev to initiate this dialogue,
stressing the importance of market-based solutions. The Bush Administration
won Congressional support for $60 million in additional funding for
assistance to Ukraine.

Belt tightening has begun throughout the U.S. Government, but it is
indication of the great importance Congress places on relations with Ukraine
that it adopted the full $60 million for Ukraine that the Administration
requested. We are working now to ensure that these funds will help the new
government pursue the highest priorities, such as combating corruption and
instituting the rule of law.

Ukraine for its part has also taken important steps. For example, during
its first 100 days, the Ukrainian government ended the practice of providing
"temniki" to guide journalists and has strengthened press freedom.
President Yushchenko recently said that temniki were a thing of the past.
In a May meeting with some 40 Kiev-based media representatives, he
emphasized that freedom of the press remained a fundamental priority for
his administration.

He even thanked them for "unbiased and justified criticisms." He also has
renewed his commitment to solving the Gongazde case and bringing to justice
those responsible for the murder. The Ukrainian government has removed
corrupt officials and instituted other measures to fight the scourge of
corruption that has eaten away at the Ukrainian economy and society.

We applaud Kiev's decision to expand our dialogue on nonproliferation
issues, and we are pleased to note a new openness in discussing such issues.
President Yushchenko's energetic steps to engage Western leaders and
institutions is laudable, and we commend Ukraine for making the right
decision to support the UN Human Rights Commission resolutions on Cuba
and Belarus.

We are pleased with the leadership demonstrated by Ukraine at the recent
GUAM Summit - and recently President Yushchenko was in Ankara welcoming
Turkey's participation in this organization as an observer. GUAM is turning
into the kind of organization we have wanted to see - one in which the
member states take responsibility and the lead. We are also encouraged by
Ukraine's helpful engagement on Transnistria.

THE WAY AHEAD ---------

These and other measures that the Ukrainians have already taken are, of
course, only the first steps on the reform path. We are encouraged by these
measures. But we will also watch closely to monitor progress. We support
Ukraine's efforts to join WTO and its graduation from Jackson-Vanik
amendment. But the protection of intellectual property is essential to the
realization of Ukraine's aspirations.

We were quite disappointed when optical disk legislation recently failed to
pass the Rada, although we understand that the Ukrainian government is
trying again to get a bill through the Rada. Until such legislation passes,
it is impossible to consider removing Ukraine's Special 301 designation and
accompanying sanctions. High barriers to meat imports and the fact that the
Rada has not lowered agricultural tariffs also make progress on WTO
negotiations difficult.

We are concerned as well about some of the economic policies that the
Ukrainian government has been pursuing to control prices and lift wages and
pensions. These measures may make sense in terms of strengthening popular
support in advance of the 2006 Rada elections.

But such policies could fuel inflation, reduce macroeconomic stability, and
undermine prospects for sustainable, long-term prosperity. We are concerned
about the talk by some senior officials about the virtues of state ownership
of economic assets and the uncertainties surrounding the difficult question
of re-privatization of enterprises.

An unfortunate, but predictable, result of all this is a sharp drop in
investment. Investors are concerned by the government's intervention in
energy prices and mixed signals on re-privatization.

There are enormous expectations of the new government. Fair or unfair,
many people will judge the new team in Kiev by its ability to meet some, if
not all, of these expectations. A strong start is very important, but we
must also understand that transforming Ukraine into what we all want to see
- a prosperous, democratic, strong member of the international community -
will not happen overnight.

We are in close touch with the Ukrainian government to discuss these and
many other issues. Ambassador Herbst meets with high-level Ukrainian
officials daily. Secretary Rice and other high-level officials from the
State Department, the Department of Defense, and other U.S. agencies often
meet counterparts at various international meetings and frequently discuss
important issues by phone.

Senior Administration officials and members of Congress travel to Ukraine
on a regular basis, and at any particular time our embassy in Kiev is in the
process of making preparations for two or three delegations.

Finally, it is important to mention the role that NGOs and other private
organizations play. We often focus on government-to-government contacts.
But equally significant to relations are, of course, the thousands and
thousands of private business, academic, social, and other contacts.

As we move forward, much work remains. Indeed, we are only beginning the
journey to full integration of Ukraine in European and Euro-Atlantic
institutions. But Ukraine can count on U.S. support and we look forward to
moving ahead smartly with implementing our new agenda of cooperation.
---------------------------------------------------------------------------------------------------------
Contact: Dr. Paul M. Carter, Jr., carterpm@state.gov
---------------------------------------------------------------------------------------------------------
NOTE: The US-Ukrainian Security Dialogue Series intends to track the
progress of Ukraine's professed "Euro-Atlantic" ambitions in the realm of
"security affairs." The organizers hope to annual examine and evaluate
through the use of symposia on the Hill, Ukraine's attempts to deepen
"strategic" bilateral ties with the United States as well as monitor the
pace of Ukraine's NATO accession process.

The four sponsors of series are the: American Foreign Policy Council,
Center for US-Ukrainian Relations, Ukrainian Congress Committee of
America and the Congressional Ukrainian Caucus. Contact: Walter
Zaryckyj, Executive Director, Center for US-Ukrainian Relations,
UA-US Security Dialogue Series Program Coordinator; 212 473 0839;
e-mail: waz1@nyu.edu.
----------------------------------------------------------------------------------------------------------
FOOTNOTE: Material edited by the Action Ukraine Report (AUR)
Monitoring Service, Kyiv, Ukraine and Washington, D.C.
===============================================================
3. U.S.-UA ECONOMIC SECURITY: THE ISSUE OF ODESSA-BRODY"

Remarks by Ilan Berman, Vice President for Policy
American Foreign Policy Council (AFPC)
Inaugural Event, U.S.-Ukrainian Security Dialogue
Longworth House Office Building, Washington, DC, June 23, 2005
Published by The Action Ukraine Report, Number 512
Washington, D.C., Thursday, June 30, 2005

Let me begin on a cautionary note. All too often, official Washington tends
to have a fairly short attention span. Despite major gains over the past
year, there is the lingering thought that, now that Ukraine finally has a
truly representative government, our work is done.

But the Orange Revolution is not the end of the story. It is only the
beginning. There is little doubt that, with sufficient pressure from Moscow,
and without adequate and sustained attention from Washington, the
substantial gains made by Ukraine can still be rolled back.

And, in many ways, energy is the key. Ukraine today remains deeply
dependent on Russia's good graces. Ninety percent of Ukraine's oil supplies
come from Russia. So does 80% of its natural gas and 100% of its nuclear
fuel. The detrimental effects of this dependence can be seen in the gas
crisis that is now brewing between Moscow and Kyiv.

The Kuchma regime found this state of affairs acceptable. The Yuschenko
government, to its credit, does not. Kyiv has declared repeatedly in recent
weeks that energy independence from Russia is a national priority. The
enduring question is how to achieve it.

Here, two realizations are important.

FIRST, Ukraine's strategic position between East and West makes it a key
transit point for oil flowing into Europe. Ukraine, in other words, has the
potential to be an energy powerhouse. Not in the same way as Saudi Arabia,
of course. But Ukraine can play a more decisive role in dictating the
geo-politics and geo-economics of the "post-Soviet space" and Eastern
Europe than it currently does.

SECOND, is the fact that, despite the Orange Revolution, a struggle is still
underway over Ukraine's ultimate energy direction. Whether Ukraine remains
dependent on Moscow, or definitively turns toward the West, will go a long
way toward determining not only its own political and economic future, but
that of its neighborhood as well.

That's where Odessa-Brody comes in. Odessa-Brody is the most important
pipeline you have never heard of.

When it was begun back in 1993, Odessa-Brody was envisioned as a much-
needed independent energy conduit for the Caspian region-one that was
capable of linking Central Asian producers with European markets. The
result, completed in the spring of 2002, was a 674-kilometer pipeline
stretching northwest from the Black Sea port of Odessa to Brody in western
Ukraine, with the capacity to carry up to 14.5 million tons of oil a year.

The ultimate plan is to extend the pipeline by 500 kilometers, to the Polish
port city of Gdansk, and use it to supply tankers bound for Western and
Northern Europe with Caspian crude.

Odessa-Brody is a key component in Ukraine's economic development,
and an important asset for Kyiv in its evolving relationship with NATO and
Europe. But, since its completion, Odessa-Brody has remained mostly idle.

This has allowed Russia to step in. Ever since the pipeline's completion,
Moscow has intensively lobbied Kyiv for a "reversal" of its flow -
basically, to use it in the opposite direction of the one initially
intended: instead of shipping oil northwest, to Poland, and from there to
European markets, it would be used to ferry Russian oil south to the Black
Sea.

Moscow's interest has been consistent: it wants to prevent Ukraine from
gaining energy independence. There are a number of reasons why:

1) Ukraine is essential to Russian energy plans. An estimated 90 percent
of Russian natural gas exports currently transit Ukraine on their way to
European markets. Moreover, if Ukraine wanted to, it could exert substantial
leverage over Russian energy supplies. This is a vulnerability that Russian
officials are acutely aware of, and are actively trying to prevent. Their
reasoning is that if Kyiv remains dependent on Russia economically and
politically, it will be less likely to act assertively on the energy front.

2) Odessa-Brody will definitively determine Ukraine's political
orientation. Kyiv's major partner in the extension of Odessa-Brody is
Warsaw, which has emerged as a key U.S. ally in "New Europe," and in the
Global War on Terror. Ukraine's partnership with Poland can therefore nudge
Kyiv much deeper into the American and NATO fold - and away from Russia.

3) Russia wants to retain its preferential status in the Caspian. This
requires derailing plans for independent energy routes capable of lessening
Russia's economic clout and political leverage among the Caspian states.

As proof positive of this fact, consider the following: During the course of
its negotiations with the Ukrainian government over "reversal," the Kremlin
turned down a more logical, eastern route for Russian crude offered by Kyiv
as a substitute to Odessa-Brody. That pipeline, dubbed
"Kremenchuk-Sniherivka," runs south to Odessa through eastern Ukraine, and
is capable of carrying nearly double the capacity of Odessa-Brody at $3 less
per ton than Odessa-Brody. The only logical explanation is that the Kremlin
cared more about preventing Ukraine's economic and political independence
than about output.

So far, it has been successful. In September 2004, after much diplomatic
back-and-forth, Ukraine acquiesced to "reversal."

Fast forward almost two years, and not much has changed. Reversal is still
a reality. Oil is still flowing from Brody to Odessa, rather than the other
way around, despite the fact that Kyiv has made serious efforts to engage
Caspian suppliers like Azerbaijan and Kazakhstan. For all practical
purposes, however, the Kuchma government's original Russia-friendly
energy policy remains in force.

If the Yuschenko government is committed to changing this, and I believe it
is, then there are a few factors to consider.

1) Russia still has substantial leverage over Ukraine's energy
trajectory. Moscow has made no secret of the fact that it prefers that
"reversal" continue, and that Odessa-Brody continue to pump north-south.
To make sure it gets what it wants, the Kremlin has engaged in a number of
strong-arm economic tactics, including substantially delaying the signing a
15-year agreement for transporting oil through Ukraine, linking it to the
"reversal" issue.

Given this vulnerability, diversification of Ukrainian oil and gas
supplies - including through expanded energy cooperation agreements
with Caspian producers - should be a serious and long-term priority.

2) Greater international economic attention is needed. From the start,
Odessa-Brody has struggled to stay solvent. In fact, the ultimate decision
for reversal, to hear at least some Kuchma-era officials tell it, was
predominantly an economic one.

The bottom line is that Ukraine needs oil to flow through Odessa-Brody. If
there is no international attention, then Kyiv will have to look to Russia.
In the first half of 2004, the Kuchma government held open the prospect
of reversing "reversal," but no international takers stepped forward to
underwrite such a move. The rest is history.

Today, the question is the underwriting of a consortium to extend
Odessa-Brody to Gdansk. If there is not enough funding for this, "reversal"
will remain the logical economic choice.

3) Kazakhstan is key. To paraphrase one analyst, "without Kazakh oil,
Odessa-Brody becomes Brody-Odessa." What this means is that, without
Kazakh participation and a continued Kazakh commitment to ship oil to fill
the pipeline, westward flow is not economical. Kyiv should keep close watch
over diplomatic moves from Russia - and from China, for that matter - that
would prevent Kazakhstan from shipping oil to Odessa.

4) Regional politics play a large role. Increasingly, Odessa-Brody has
become linked with other regional economic and strategic issues, such as
the Single Economic Space (SES) now under development by Russia. In
fact, Kazakhstan recently signaled that its participation in Odessa-Brody is
contingent upon Ukraine's participation in the SES, and in all sorts of side
energy deals with Russia.

Pipeline politics are an issue as well. In the wake of the late-May launch
of the Baku-Ceyhan pipeline, Ukrainian officials should only expect energy
pressure from Russia to increase, as the Kremlin struggles to maintain
control over Caspian resources.

5) New momentum needed. The Polish government remains a willing
partner in Odessa-Brody extension. The pace of the project, however,
depends on political will in Kyiv, and on the ability of Ukraine to grab
international political and economic attention for it. Ukraine should
articulate that it is in its interest for Poland to become an independent
energy hub.

6) Energy orientation is important to other security issues.
Odessa-Brody has enormous political significance. Its south-north operation
would send a clear signal to the countries of the EU and NATO that Kyiv is
fully committed to Westward integration. Conversely, continued acquiescence
to "reversal," and to Russian manipulation, could call that commitment into
question among Ukraine's new partners. -30-
---------------------------------------------------------------------------------------------------------
Contact: Ilan Berman: berman@afpc.org
---------------------------------------------------------------------------------------------------------
NOTE: The US-Ukrainian Security Dialogue Series intends to track the
progress of Ukraine's professed "Euro-Atlantic" ambitions in the realm of
"security affairs." The organizers hope to annual examine and evaluate
through the use of symposia on the Hill, Ukraine's attempts to deepen
"strategic" bilateral ties with the United States as well as monitor the
pace of Ukraine's NATO accession process.

The four sponsors of series are the: American Foreign Policy Council,
Center for US-Ukrainian Relations, Ukrainian Congress Committee of
America and the Congressional Ukrainian Caucus. Contact: Walter
Zaryckyj, Executive Director, Center for US-Ukrainian Relations,
UA-US Security Dialogue Series Program Coordinator; 212 473 0839;
e-mail: waz1@nyu.edu.
----------------------------------------------------------------------------------------------------------
FOOTNOTE: Material edited by The Action Ukraine Report (AUR)
Monitoring Service, Kyiv, Ukraine and Washington, D.C.
===============================================================
4. FORMER SENIOR U.S. OFFICIALS OUTLINE STRONG & SUSTAINED
U.S. STRATEGY FULLY INTEGRATED, DEMOCRATIC UKRAINE
Madeleine Albright, James Baker III, Zbigniew Brzezinski,
Frank Carlucci, John Hamre; Henry Kissinger, Brent Scowcroft

CSIS STRATEGY STATEMENT
Challenge and Opportunity: A U.S. Strategy on Ukraine
Center for Strategic and International Studies (CSIS)
The Action Ukraine Report (AUR), Number 512
Washington, D.C., Thursday, June 30, 2005

WASHINGTON - A fully integrated and democratic Ukraine is very
important to U.S. national interests and requires a strong and sustained
strategy, according to a new CSIS strategy statement, Challenge and
Opportunity: A U.S. Strategy on Ukraine.

"The United States should challenge Ukraine's leaders and society to
undertake the policies and institutional changes necessary to become a
full member of the Euro-Atlantic community, and should create every
opportunity for Ukraine's leaders and society by removing outdated
obstacles to progress,"according to the strategy statement 'Challenge
and Opportunity.'

The strategy statement is the result of collaborative efforts of Madeleine
Albright, former U.S. secretary of state; James Baker III, former U.S.
secretary of state; Zbigniew Brzezinski, former U.S. national security
adviser and CSIS counselor and trustee; Frank Carlucci, former U.S.
secretary of defense; CSIS President and CEO John Hamre; Henry
Kissinger, former U.S. secretary of state and CSIS international
counselor; and Brent Scowcroft, former U.S. national security advisor.

Celeste Wallander, director of the CSIS Russia and Eurasia Program
and trustee fellow, directed the statement project.

The entire text of the new CSIS Strategy Statement follows:

CSIS STRATEGY STATEMENT
Challenge and Opportunity: A U.S. Strategy on Ukraine

Ukraine's successful integration and consolidation as a democratic country
are important to U.S. national interests and require a strong and sustained
strategy. Ukraine is a key European country with geopolitical importance in
Europe, the Black Sea region, and the Caucasus. Its economy is more
diversified than many in the post-Communist region, with potential in the
energy, defense, scientific-technological, manufacturing, and agricultural
sectors.

Security and prosperity in Ukraine will prove that a promising
post-Communist future is possible also for Russia itself. The stakes are
global as well, and affect the credibility of an American strategy of
promoting democracy for security: if the United States cannot sustain a
serious strategy for Ukraine, it is difficult to see how it can do so for
countries with less economic potential, with weaker democratic institutions,
and more distant from vital European allies.

Ukraine, which joined Georgia in separate but similar democratic
transformations that have inspired one another, has a convincing claim for
U.S. support. Ukraine voluntarily gave up what would have been the world's
third-largest nuclear arsenal in 1994. Through fully contested presidential
elections in 2004 and the legitimate transfer of power to the winning
candidate, Ukraine showed that it belongs to the Euro-Atlantic community.

Ukraine's leaders have much work ahead to realize the promise of the Orange
Revolution. Many observers have become concerned about uneven progress
in achieving the country's transformation. Ukraine's reforms must begin at
home: the government must improve policy coordination and implementation,
pursue reform in the security and intelligence sectors, and move decisively
to pass and implement legislation to join international institutions and
attract foreign investment.

However the United States, in close coordination with the European Union,
must also play a leading role in Ukraine's full transformation and
integration into the Euro-Atlantic community. The United States should
challenge Ukraine's leaders and society to undertake the policies and
institutional changes necessary to become a full member of the Euro-Atlantic
community, and should create every opportunity for Ukraine's leaders and
society by removing outdated obstacles to progress.

There is little time to lose for such a strategy. With parliamentary
elections scheduled for March 2006, Ukraine's citizens will soon have the
opportunity to send a signal to their new leadership on whether the promise
of a better future as a European country is meeting the democratic test.

By the end of 2005, the United States can and should create the following
challenges and opportunities for Ukraine:

(1) Press the EU to commit unambiguously to an Open Door for eventual
Ukrainian EU membership. The peaceful and legal resolution of the election
in 2004 demonstrated that Ukraine's place is in Europe. An EU statement
need not be a commitment of membership, especially in light of the EU's
constitutional crisis and its focus on absorbing ten new members, but it
should challenge Ukraine's leaders and citizens to develop a European
democracy and market economy.

(2) Lead within NATO the implementation of the alliance's Intensified
Dialogue on Membership Issues with Ukraine, with commitment to a
Membership Action Plan (MAP) following free and fair parliamentary
elections in March 2006. A detailed MAP should lay out how Ukraine will
have to fulfill membership requirements, and the government must be held
to those requirements.

(3) Support enhancement of the regional multilateral grouping GUAM
(Georgia-Ukraine-Azerbaijan-Moldova) to promote regional democratic
development and economic cooperation, including border security. Enhanced
cooperation on regional border security would support Ukraine's efforts to
cope with smuggling in and from Moldova, thereby making a contribution to
resolving the frozen Transnistrian conflict.

(4) Support the development of stable and constructive Ukrainian
relations with Russia. Ukraine's European orientation should not come at
the expense of its relations with Russia, which itself seeks closer
relations with Europe and greater global integration. The United States
should endorse President Viktor Yushchenko's policy of fully developing free
trade and economic cooperation with Russia consistent with Ukraine's
eventual integration into the EU.

(5) Help Ukraine improve its energy independence, while relying on
market mechanisms. Ukraine needs diversification in energy sources to
reduce its vulnerability to supply shocks, and greater efficiency of its
energy use to control costs and improve economic performance. The United
States can work with Ukraine to improve the environment for investment in
the exploration and development of oil, gas, coal-based methane, and coal,
as well as improvements in fuel efficiency.

(6) Free Ukraine from Jackson-Vanik Amendment restrictions and
conduct intensified negotiations for Ukraine's World Trade Organization
(WTO) membership in 2005. Ukraine must reform its trade laws and legal
system, but the United States should keep pressure on the new leadership
to adopt strategies for effectively addressing the requirements for (WTO)
membership.

(7) Designate Ukraine an eligible country of the Millennium Challenge
Corporation so that it can compete for funds to help fight corruption,
reduce bureaucratic obstacles to market reforms, and engage civil society
in the country's social development. After the Orange Revolution, Ukraine
exemplifies the type of country President George W. Bush described as a
target of the program.

Consistent with this, the United States should immediately create
a bilateral program for anticorruption technical assistance to help the new
leadership improve the investment climate in Ukraine, and so spur economic
growth. However, Ukraine must sustain its reforms for the Millennium
Challenge Account. It is not enough to simply receive designation for
having conducted a revolution.

IN CONCLUSION: Enhancing Capacity for a Strong and Sustained
U.S. Strategy on Ukraine

The United States and Ukraine should establish a bilateral review of
progress in implementing the Joint Statement, "A New Century Agenda
for the Ukrainian-American Strategic Partnership," of President Bush and
President Yushchenko from April 4, 2005.

The joint presidential statement laid out an ambitious yet well-targeted
plan for work in the coming years and in particular before the March 2006
elections so that recent democratic gains can be solidified. The question
is how fruitfully the two countries will implement the vision of the
presidents.

Establishing the practice of a regular review will spur commitment to
implement the presidential goals within each government and will enable
each country's civil society groups and nongovernmental organizations to
play a constructive role in holding their governments to account for their
progress. -30- [The Action Ukraine Report Monitoring Service]
-------------------------------------------------------------------------------------------------------
LINK: http://www.csis.org/ruseura/050628_usandukraine.pdf
-------------------------------------------------------------------------------------------------------
The Center for Strategic and International Studies (CSIS) is a private,
tax-exempt institution focusing on international public policy issues. Its
research is nonpartisan and nonproprietary. CSIS does not take specific
public policy positions. Accordingly, all views, opinions, and conclusions
expressed in this publication should be understood to be solely those of
the authors.
===============================================================
5. CHALLENGE AND OPPORTUNITY: A U.S. STRATEGY ON UKRAINE

Background Paper: CSIS Statement
Challenge and Opportunity: A U.S. Strategy on Ukraine
By Celeste A. Wallander, Director
Russia and Eurasia Program, and Trustee Fellow
Center for Strategic and International Studies (CSIS)
The Action Ukraine Report (AUR), Number 512
Washington, D.C., Thursday, June 30, 2005

Consolidating Ukraine's future as a democratic country with a globally
integrated market economy and a European orientation will contribute greatly
to a more secure and inclusive Europe and thus must be a strategic priority
of U.S. foreign policy. Ukraine is a key European country with geopolitical
importance in Europe, the Black Sea region, and the Caucasus.

Its location makes it a vital country in geoeconomic terms, as well as a
potential trade corridor between Europe and Asia. Its economy is more
diversified than many in the post-Communist region, with potential in the
energy, defense, scientific-technological, manufacturing, and agricultural
sectors.

Security and prosperity in Ukraine will prove that a promising
post-Communist future is possible for countries that once comprised the
former Soviet Union, especially as a prospect for Russia itself. In short,
Ukraine's success is important to U.S. national interests and justifies a
strong and sustained strategy.

Furthermore, Ukraine has a convincing claim for U.S. support. Ukraine
voluntarily gave up what would have been the world's third-largest nuclear
arsenal in 1994. Through the peaceful and legal resolution of the election
crisis in 2004, Ukraine showed that it belongs to the Euro-Atlantic
community. Ukraine's political system, ultimately, passed the most difficult
tests of democracy: fully contested elections and the legitimate transfer of
power to the winning candidate.

Because of the leading role of average Ukrainian citizens in demanding the
right to have their votes counted and in refusing to accept fraudulent
results, Ukrainian society has confirmed that it embraces Western values. In
sum, Ukraine's presidential election reaffirmed the hopes of 1991: that
after the Cold War, global security would be rooted in a Europe whole and
free.

The election, however, was only the beginning of the process. Ukraine's
leaders have much to do to realize the promise of the Orange Revolution and,
in close coordination with the European Union (EU) and the United States,
must play a leading role in Ukraine's full transformation and integration in
the Euro-Atlantic community.

For their part, Ukraine's leaders must implement ambitious reforms in the
coming months. Ukraine's leaders cannot wait for the United States to do its
part alone: the two countries have a synchronous responsibility.

In order for the United States to play its leadership role, U.S. leaders
must make Ukraine a priority. Ukraine is a priority not only for the
strategic reasons outlined above, but also because U.S. credibility is at
stake: if the United States cannot sustain a serious strategy for Ukrainian
development and integration, it is difficult to see how it can do so for
countries with less economic potential, weaker democratic institutions, and
further removed from vital European allies.

There is little time to lose for the articulation and implementation of such
a strategy. With parliamentary elections scheduled for March 2006, Ukraine's
citizens will soon have the opportunity to send a signal to their new
leadership on whether the promise of a better future as a European country
is meeting the democratic test. During the intervening months, the United
States should work constructively with Ukraine's new democratically elected
leadership to fulfill its promise as a European country.

The basis for a U.S. strategy toward Ukraine in 2005 should be challenge
and opportunity.

CHALLENGE. The United States should challenge Ukraine's leaders and
society to undertake the necessary policy and institutional changes to
become a full member of the Euro-Atlantic community. Ukraine is an
important country with enormous potential: it deserves to be treated as a
serious candidate for membership in the broadest array of political,
economic, and security institutions.

The goal should be integration, but integration on the merits. It would do
Ukraine no favors to confer membership in the broad array of institutions
that define the Euro-Atlantic community without Ukraine meeting the
requirements expected of all current members, since meeting those
requirements is what will make Ukraine a full member of the Euro-Atlantic
community.

OPPORTUNITY. The United States should create every opportunity for
Ukraine's leaders and society to accept the challenge. While it is crucial
that Ukraine meet the requirements for membership in Euro-Atlantic
institutions, it is also crucial that the United States remove outdated
obstacles, bureaucratic impediments, and status quo assumptions that
impede rapid progress where Ukraine has the commitment and capability
to adapt its policies and institutions to the country's aspirations.

By the end of 2005, the United States can and should create the following
challenges and opportunities in its policy toward Ukraine.

(1) The United States should use its channels and influence to press the EU
to commit unambiguously to an "Open Door" for Ukrainian membership. 2004
demonstrated that Ukraine's place is in Europe, yet the EU has not made a
statement equivalent to NATO's Open Door statement on membership for
qualified countries.

An EU statement would not be a commitment of membership, especially in
light of the EU's constitutional crisis and its focus on absorbing ten new
members: it would be a European statement of challenge and opportunity to
Ukraine's leaders and citizens to develop a democracy and market economy
compatible with those of EU countries.

(2) The United States should lead within NATO the implementation of the
alliance's Intensified Dialogue on Membership Issues with Ukraine, with
commitment to a Membership Action Plan (MAP) following free and fair
parliamentary elections in March 2006. NATO and Ukraine have an excellent
track record of cooperation over the past decade. Ukraine has already proven
that it has the capacity to make positive contributions to transatlantic
security by contributing peacekeeping forces in the Balkans and by sending
forces for the stabilization mission in Iraq.

In recent years, the questions holding back Ukraine's progress toward
NATO membership have been primarily political, not military. After
democratic presidential elections in 2004, democratic parliamentary
elections in March 2006, and the commitment of the new leadership to
Euro-Atlantic integration, Ukraine will have answered questions about its
political orientation. A detailed MAP should lay out how Ukraine will still
have to fulfill membership requirements, and the government must be held to
those requirements.

(3) The United States should support the enhancement of the regional
multilateral grouping GUAM (Georgia-Ukraine-Azerbaijan-Moldova) to support
the exploration and implementation of regional solutions to the regional
problems the member countries face based on democratic development and
economic cooperation. Among the most important of those problems is border
security. Professional and effective policing of borders in the region will
enable the countries to better tackle problems of criminal trafficking,
corruption, and potential movement of transnational terrorist and criminal
groups.

In addition, enhanced cooperation on regional border security would
support Ukraine's efforts to cope with smuggling in and from Moldova,
thereby making a contribution to resolving the frozen conflict over
Transnistria. The United States should play a more active role, working with
Ukraine in a multilateral effort to resolve the status of the crime-ridden
Transnistrian enclave, which prevents Moldova's development as a normal
European country.

(4) The United States should support the development of stable and
constructive Ukrainian relations with Russia. Ukraine's European orientation
should not come at the expense of its relations with Russia, which itself
seeks closer relations with Europe and greater global integration. The
United States should endorse President Viktor Yushchenko's policy of fully
developing free trade and economic cooperation with Russia as long as the
agreements supporting them do not inhibit Ukraine's eventual membership in
the EU.

(5) Ukraine should be freed from Jackson-Vanik Amendment restrictions. Even
more, with Ukraine's application for status as a market economy in the
process of review by the U.S. government, the United States should conduct
intensified negotiations for Ukraine's World Trade Organization (WTO)
membership over the summer of 2005 with the goal of WTO accession by
November 2005.

Ukraine must reform its trade laws and legal system, including
important intellectual property rights legislation, to advance the process,
but the United States has a role to play in actively engaging and supporting
the Ukrainian government and advising the new leadership on priorities and
strategies for effectively addressing U.S. and global requirements for WTO
membership.

(6) By November 2005, the United States should include Ukraine as an
eligible country of the Millennium Challenge Corporation (MCC). The
Millennium Challenge concept is to encourage and support countries that are
committed to a free market economy, rule of law, growth through encouraging
domestic and foreign investment, and promoting good governance. The program
is meant to target not only countries where the need is great, but where the
opportunity is credible because the country's leadership and society have
made a commitment to these goals.

Ukraine qualifies as a candidate country based on the country's per
capita income level: what is needed in 2005 is for the MCC board to include
Ukraine on the list of eligible countries based on measures such as progress
in free market policies and democratic governance. As an eligible country,
Ukraine would be able to compete for funds to support programs for fighting
corruption, reducing bureaucratic obstacles to market reforms, and engaging
civil society in the country's social development. After the Orange
Revolution, Ukraine exemplifies the type of country President George W. Bush
described as a target of the program.

(7) The U.S. and Ukrainian governments should immediately create a
multiagency bilateral program for anticorruption technical assistance. A
rule-of-law society is fundamental to Ukraine's future and encompasses not
only government and business, but human rights, independent media, and
citizen activism. Reduction of corruption is key to several core reforms
that Ukraine must implement to be able to improve its economy and negotiate
integration in Euro-Atlantic institutions, including the WTO, NATO, and the
EU.

It is necessary to improve the investment climate in Ukraine in order
to attract both the domestic and foreign investment necessary to spur
economic growth and improve living standards for Ukrainian citizens.

(8) Along these same lines, the U.S. government should help establish a
U.S.-Ukraine business dialogue, including representatives of American and
Ukrainian industry and finance, on how to improve the business and
investment climate in Ukraine. Cumulative foreign direct investment in
Ukraine is about $8 billion, a tiny figure compared to $65-70 billion in
Poland.

If the government of Ukraine can reform the laws and regulations
affecting commercial and investment practices, experts estimate that the
country could attract $2-4 billion per year, which would boost growth,
employment, and government revenues. The business dialogue would be
a low-cost way for the United States to spur growth in the country and
demonstrate to Ukraine's citizens that they have chosen the right path to
a better future.

(9) The United States should help Ukraine to promote its energy
independence. To do so, the United States must encourage and support the
government of Ukraine in its efforts to enhance the diversification and
efficiency of its energy use, while relying on market mechanisms. The United
States can help the government of Ukraine to recognize realistic options to
increase the diversity of its supplies, including through the increase of
Ukraine's domestic production.

The United States can work with Ukraine to improve the environment for
investment in the exploration and development of oil, gas, coal-based
methane, and coal. Just as important will be improvements in fuel efficiency
by ending Ukraine's reliance on subsidized energy, which is also a necessary
condition for European integration.

(10) The United States should increase funding for American-Ukrainian
exchanges of experts, professionals, academics, and students. As a
consequence of limited funding and opportunities to study in the West,
Ukrainians do not have as many opportunities to enhance their training and
learn about American culture and society as do their neighbors in Russia,
Poland, or Romania. Exchanges contribute to a long-term strategic
partnership, but they also have an immediate positive effect in building
human capacity in vital professions such as medicine, scientific research,
entrepreneurship, the humanities, and the legal profession.

CONCLUSION: Enhancing Capacity for a Strong and Sustained U.S.
Strategy on Ukraine

In order to manage the demands of a strong and sustained strategy, as
outlined above, the United States should establish a concrete bilateral
review of U.S. and Ukrainian progress in implementing the joint statement,
"A New Century Agenda for the Ukrainian-American Strategic Partnership,"
of President Bush and President Yushchenko from April 4, 2005.

As part of the review, the U.S. government should lead a strategic
assessment by international donors of the funding needs to sustain Ukraine's
Euro-Atlantic integration. The assessment should identify the scale and type
of funds necessary to achieve the objective and work from that basis, rather
than through an uncoordinated patchwork of programs vulnerable to short-term
funding cuts.

The joint presidential statement laid out an ambitious yet well-targeted
plan for work in the coming years. The question is how actively and
fruitfully the two countries will pursue programs to implement the vision
and commitment of the presidents. Establishing the practice of a regular,
public review will help spur commitment to implement the presidential goals
within each government and will enable each country's civil society groups
and nongovernmental organizations to play a constructive role in holding
their governments to account for their progress. -30-
-------------------------------------------------------------------------------------------------------------
ACKNOWLEDGMENTS ----------
This paper was prepared as background for the June 23, 2005, CSIS
statement, "Challenge and Opportunity: A U.S. Strategy on Ukraine." It
provides further detail on proposals and the strategic rationale for a U.S.
policy toward Ukraine in the coming year. The release of this statement
was made possible by the German Marshall Fund; however, the fund is
not responsible for content.

Celeste A. Wallander is grateful to John Hamre, Robin Niblett, Janusz
Bugajski, Richard Murphy, Keith Smith, Sarah Mendelson, Steven Pifer,
Simon Serfaty, and Zbigniew Brzezinski for their valuable comments and
suggestions. She alone is responsible for the content and argument in this
paper.
-------------------------------------------------------------------------------------------------------------
LINK: http://www.csis.org/ruseura/050628_usstratonukraine.pdf
E:mail: Celeste A. Wallander: cwallander@csis.org
-------------------------------------------------------------------------------------------------------------
The Center for Strategic and International Studies (CSIS) is a private,
tax-exempt institution focusing on international public policy issues. Its
research is nonpartisan and nonproprietary. CSIS does not take specific
public policy positions. Accordingly, all views, opinions, and conclusions
expressed in this publication should be understood to be solely those of
the author.
------------------------------------------------------------------------------------------------------------
The Action Ukraine Report (AUR) Monitoring Service
===============================================================
6. MUST CONCENTRATE ON THE FULFILLMENT OF OUR COMMITMENTS
Interview with Jaap De Hoop Schaeffer, NATO Secretary General

Interview by Vladimir Kravchenko
Zerkalo Nedeli, Mirror-Weekly,No. 24 (552)
International Social Political Weekly
Kyiv, Ukraine, Saturday, 25 June - 1 July, 2005

It looks like the visit of the NATO Secretary General Jaap de Hoop Scheffer
to Ukraine may be very interesting as, during his stay in Kyiv, Ukraine is
going to present the so-called Preliminary Discussion Document within the
Intensified Dialogue framework. This 50-page document states the official
position of Kyiv on political, military, financial, and security issues. The
further dialogue between Kyiv and Brussels will be based on it as well as on
the Action Plan with no commitments from the part of NATO.

The presentation of such a document is a move testifying to the seriousness
of Ukraine's intentions; yet, one has to be concerned with a new drift of
its Euro-Atlantic integration policy. There is an organizational chaos in
the Ukrainian government preventing the fulfillment of the 2005 Target Plan
and the development of Intensified Dialogue.

According to the NATO member states, in Ukraine there is an administrative
gap between the officials of high and middle rank that hiders Ukrainian
ministries in the fulfillment of the 2005 Target Plan. As a result, the
cooperation with the Alliance is far bellow the standard. For example, there
hasn't been a single meeting of the NATO-Ukraine Joint Working Group on
Defense Reform (JWGDR) this year.

This chaos supports the argument of those states that are skeptical about
Ukraine's prospects of Alliance membership. Moreover, the issues of
economic transformations and democratic reforms are also on the agenda.

Thus, Ukraine must concentrate on the attainment of its major goal -
implementation of the relevant reforms, as Jaap de Hoop Scheffer noted
in his interview to ZN ahead of his visit to Ukraine.

One has to remember that the Eastern and Central European states had an
Intensified Dialogue with NATO about their membership, whereas Kyiv has
Intensified Dialogue with Brussels on Ukraine's aspirations to its
membership and relevant reforms. It is Ukraine's readiness for the reforms
but not the Russian factor that will determine the prospects of joining
NATO.

ZN: Mr. Secretary General, many Ukrainians were disappointed to learn that
in Vilnius the Alliance only proposed to begin the Intensified Dialogue with
Ukraine as it hoped that our state will join the NATO Membership Action Plan
(MAP). Why can't Ukraine join MAP now? Will it be ready to join next year?
What are the readiness criteria?

HSch: Evidently, those disappointed with the Vilnius meeting put too high
hopes on it! In actual fact this meeting marked a new phase of NATO's
relationship with Ukraine, as well as the implementation of Ukraine's
membership aspirations. Beginning of Intensified Dialogue is a serious move.
This process includes a wide spectrum of political, military, finance, and
security issues related to Ukraine's possible NATO accession.

This is a clear signal from the Allies of their support of your country's
aspiration to join NATO, but the success of this process will depended to a
greater degree on Ukraine, while NATO will assist and consult.

We as well as the Ukrainian government must concentrate on the attainment
of the major goal - implementation of the relevant reforms. We cannot
neglect it once we have started discussions of the time frames and
bureaucratic procedures.

ZN: Several documents have been signed or are getting ready to be signed in
the framework of the NATO-Ukraine cooperation, yet there is little
difference in their essence. In your opinion, what is the basic difference
between such documents as "Enhancing NATO-Ukraine: Short-Term Actions"
and "The Preliminary Discussion Document" on the one hand, and on the other
hand NATO-Ukraine Action Plan, in the framework of which Kyiv and the
Alliance continue their cooperation?

HSch: I would like to answer your question starting with the first
assumption. There has been good progress in the relations between Ukraine
and NATO, the examples of which are the summit of NATO-Ukraine
Commission in February this year and the decision to start Intensified
Dialogue on Ukraine's membership aspiration and implementation of the
relevant reforms adopted in April in Vilnius, which was only three months
after President Yushchenko's inauguration.

The two documents, which you referred to, are different in their essence yet
both are very important. The Short-Term Actions program, which we publicized
in Vilnius, lays down the decision of the Allies and Ukraine to begin the
Intensified Dialogue. It also outlines the priority spheres for Ukraine-NATO
cooperation in support of the implementation of the reform agenda and
cooperation goals.

The purpose of this program is not to substitute for such official
mechanisms of cooperation as the NATO-Ukraine Action Plan, but to ensure
that their implementation stays in line with the priorities of President
Yushchenko's government. The program provides for strengthening of
democratic institutions, enhancement of the political dialogue, stepping up
of the security and defense reforms, improvement of public information and
overcoming of negative social and economic effects of the reforms. These
are the priorities from the Alliance's point of view.

These are also the areas in which the Alliance can share its practical
experience and provide assistance. These moves are also of key importance
for the success of democratic transformations, which the Ukrainian people
called for last December and which the new Ukrainian government started to
implement in January. We have already implemented a number of activities to
ensure these moves and will be able to analyze their progress at the meeting
of the NATO-Ukraine Commission in Kyiv in October this year.

The Preliminary Discussion Document is also very important. It enables the
Ukrainian government to raise those issues that were dealt with in the 1995
research on NATO expansion issues. It will become the basis of the
Intensified Dialogue, since it will specify the issues on which Ukraine
should achieve progress for the attainment of its goal.

ZN: This year, as well as last year the official approval of the
NATO-Ukraine Annual Target Plan was significantly overdue: the Ukrainian
president signed it late in May. What is your evaluation of this fact? Could
it, along with the lack of the information policy in Ukraine, absence of an
interdepartmental coordinating body for the fulfillment of the 2005 Target
Plan, and problems with the formation of the Ukrainian part of the
NATO-Ukraine working groups testify to Kyiv's superficial attitude to
European integration?

HSch: One should remember that there have been major policy changes under
President Yushchenko and the new government. There has been also a change
of people at key posts. The 2005 Target Plan was drafted under the previous
government in the second half of the last year. Naturally, the new Ukrainian
government seeks the opportunity to revise this document to ensure its
compliance with its goals and objectives. To a certain degree it is clear
within this context that final adoption of such a cooperation program will
take more time.

As for the appointment of Ukrainian representatives to the NATO-Ukraine
bodies, this should be the decision of the Ukrainian government, not of the
NATO Secretary General. I would like to mention, however, that we have
already had a meeting of the NATO-Ukraine Commission at the level of
ambassadors, foreign ministers, heads of states and governments in the
first half of this year, as well as a regular meeting of the key group of
the Joint Working Group on Defense Reform.

A meeting of the NATO political committee with the group of Ukrainian
officials from various ministries and departments was held during the
preparation for the Vilnius meeting. The change of the government
considered, this is not a bad result, I believe.

ZN: While the Ukrainian leadership declares Euro-Atlantic integration policy
important, a great many of Ukrainians are against NATO membership. Other
states, which are already alliance members, have faced similar problems in
the past. Did NATO analyze the experience of the governments of these
states? Does NATO have any recommendations as for internal policy for
effective results?

HSch: Let us make it clear: NATO is not engaged in propaganda. Our
information programs aim to raise the level of awareness of NATO and
Euro-Atlantic security in a broader context among the Ukrainian scientific
community and population. That is why we have set up the NATO Information
and Documentation Center in Kyiv.

Our common interest with the Ukrainian government is to ensure public access
to true and complete information about the Alliance, Ukraine's aspirations,
and specific advantages of your country's cooperation with NATO.

Ukraine and NATO have been cooperating for a long time; they have reached
tangible and mutually beneficial results, like bringing peace and stability
to Afghanistan and the Balkan region, in the war against terrorism, and
management of the programs for specific internal needs of Ukraine---such as
the NATO Partnership for Peace (PfP) Trust Fund project aimed at the safe
destruction of stockpiles of outdated Soviet munitions, small arms, and
light weapons or the NATO-Ukraine retraining program for released military
personnel to ease their adaptation to civil life as a result of downsizing
and modernization of Ukrainian military.

In the framework of the Vilnius program Short-Term Actions, we undertook a
commitment to increase our assistance and provide the Ukrainian government
with any help and advice that may come in handy to implement Ukraine's
challenging reform agenda.

Ukrainians have the right to know about this cooperation and, consequently,
form their own opinion about NATO as an organization and about its relations
with Ukraine. In Vilnius we made a commitment to take concrete efforts
together with the Ukrainian government to improve the coverage of our
specific cooperation measures. We will rely on the experience of the Allies
in this sphere as well as in any other important issues.

ZN: In your opinion, how is it possible to improve coordinating mechanisms
of NATO-Ukraine cooperation?

HSch: In my view, nothing can be perfect, but for the last several years we
have achieved tangible results in establishing highly effective mechanisms
of NATO-Ukraine cooperation. The NATO-Ukraine commission provides a
useful forum for a political dialogue and practical work, while NATO-Ukraine
Joint Working Group on Defense Reform in the framework of the commission
has become an effective management tool for a number of measures related
to the reform security and defense sector.

Last week the NATO-Ukraine Commission at the defense ministers' level
adopted a number of decisions aimed at improvement of the activities of this
key body. Ukraine is gaining valuable experience through participation in
specific measures for international security support in the framework of
NATO operations in Kosovo; soon it will join the Active Efforts
anti-terrorist naval operation in the Mediterranean (and possibly NATO
training mission in Iraq and Alliance's logictical support of the African
Union in Darfurt).

The NATO-Ukraine Action Plan enables to concentrate efforts to support
key goals of Ukraine in the area of reforms, while the Intensified Dialogue
affords an opportunity to deepen our relations.

We do not need the improvement of the mechanisms now---they work well. In
the near future we must concentrate on the implementation of commitments
and attainment of the goals, which we support.

ZN: There is a group of states in NATO that are rather skeptical about the
idea of Ukraine's membership. What should Ukrainian leadership do to make
the governments of those states change their minds?

HSch: I cannot comment on the positions of specific Allies, but let me
remind you that the decision to offer Ukraine an Intensified Dialogue on its
aspirations to membership and relevant reforms was adopted by consensus of
all the Allies. Moreover, last week the Defense Ministers of the NATO states
met with their Ukrainian counterpart Anatoliy Hrytsenko in Brussels made a
joint statement in which they offered their support to "the achievement of
Ukraine's reform objectives and her Euro-Atlantic integration aspirations."

ZN: The opponents of Ukraine joining NATO often say that our country's
membership in the Alliance may have negative effect on the Ukrainian
defense industrial sector. Are these fears justified?

HSch: I consider that they are unjustified. Ukraine took part in the
Conference of National Armaments Directors and NATO Standardization
Agreements. The Alliance utilizes Ukrainian transport aviation on a
contractual bases, while an increase of the level of operational
interoperability of military equipment and armed forces of the Alliance and
Ukraine has been the priority task of our common activities in the sphere of
defense reform for the last seven years.

I must also say that operational interoperability does not mean that the
whole of military equipment used in multinational operations must be
produced by a specific company or a state.

In the long term, I cannot imagine a situation in which a closer cooperation
of Ukraine with the Alliance can have a negative effect on the Ukrainian
defense industry. At the same time, one can expect that new and profitable
markets will open to Ukraine and it will find new opportunities of
participation in joint projects with the industrial representatives of
European and North American countries. -30-
----------------------------------------------------------------------------------------------------------
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