"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"

"THE ACTION UKRAINE REPORT - AUR" - Number 516
Mr. E. Morgan Williams, Publisher and Editor
morganw@patriot.net, ArtUkraine.com@starpower.net
Washington, D.C. and Kyiv, Ukraine, WEDNESDAY, July 6, 2005

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

1. TOP U.S. GOVERNMENT INTERAGENCY DELEGATION ARRIVES
IN UKRAINE FOR A SERIES OF IMPORTANT MEETINGS
Headed by the New US Assistant Secretary of State
for European and Eurasian Affairs Dan Fried
E. Morgan Williams, Publisher & Editor
The Action Ukraine Report (AUR), Number 516
Washington, D.C., Wednesday, July 6, 2005

2. NO INNUENDOS: US AMBASSADOR JOHN HERBST ON THE
ECONOMIC POLICY, DEMOCRACY AND AMERICAN INTERESTS
Interview with US Ambassador to Ukraine John Herbst
By Larysa Ivshyna, Oleh Ivantsov, Serhiy Solodky
Varvara Zhluktenko, and Vira Kovtykha
The Day Weekly Digest in English, #22
Kyiv, Ukraine, Tuesday, July 5, 2005

3. UKRAINIAN FOREIGN MINISTER TARASYUK DIFFERS WITH US
AMBASSADOR HERBST ON WTO STATEMENT
UT1, Kiev, in Ukrainian 1610 gmt 5 Jul 05
BBC Monitoring Service, UK, in English, Tue, July 5, 2005

4. EX-FOREIGN MINISTER HRYSCHENKO SAYS THERE ARE NO
CONVINCING ARGUMENTS IN FAVOR OF A VISA-FREE
REGIME FOR US CITIZENS
Ukrainian News Agency, Kyiv, Ukraine, Tue, July 5, 2005

5. PROSECUTOR CHARGES GIANT US AGRO FIRM CARGILL
WITH TAX EVASION AND OTHER CHARGES
New Europe, Athens, Greece, Monday, July 4, 2005

6. BRITAIN'S DS SMITH COMPANY TO INVEST USD 20 MILLION IN
CARDBOARD PACKAGING PLANT IN RUBIZHNE, UKRAINE
Ukrainian News Agency, Kyiv, Ukraine, Fri, July 1, 2005

7. UKRAINIAN PARLIAMENT STALLED OVER WTO LEGISLATION
One Plus One TV, Kiev, in Ukrainian 1630 gmt 5 Jul 05
BBC Monitoring Service, UK, in English, July 5, 2005

8. UKRAINE: RADA FAILS TO VOTE ON BILLS NEEDED TO JOIN WTO
Faction leaders will meet to discuss what to do
Associated Press (AP), Kyiv, Ukraine, Tue, Jul 05 2005

9. THE TANGIBLE VS. THE SYMBOLIC, VALUE OF WTO MEMBERSHIP
LETTER-TO-THE-EDITOR
From: Ethan S. Burger, ethansb@ilma.us
Sent: Tuesday, July 05, 2005 2:34 PM
Published by The Action Ukraine Report, Number 516
Washington, D.C., Wednesday, July 6, 2005

10. 20% OF POLISH CAR MANUFACTURER SOLD TO UKRAINIAN COMPANY
TV Polonia, Warsaw, in Polish 1730 gmt 29 Jun 05
BBC Monitoring Service, UK, in English, Wed, June 29, 2005

11. EUROPEAN UNION TO GRANT UKRAINE EUR 100 MILLION IN
2006 TO IMPLEMENT UKRAINE-EU ACTION PLAN
Ukrainian News Agency, Kyiv, Ukraine, Friday, July 1, 2005

12. UKRAINE: CABINET OF MINISTERS DECIDES TO CHECK FINANCIAL
AND ECONOMIC ACTIVITY OF 34 STATE ENTERPRISES
Ukrainian News Agency, Kyiv, Ukraine, Wed, June 29, 2005

13. PROFILE: UKRAINIAN FIRST DEPUTY STATE SECRETARY MOTSYK
One of the two first deputies to State Secretary Zinchenko
BBC Monitoring research in English 2 Jul 05
BBC Monitoring Service, UK, in English, Sat, July 2, 2005

14. UKRAINE RISK: BUSINESS RISK OVERVIEW
The Economist Intelligence Unit Limited
London, United Kingdom, Friday, July 1, 2005

15. UKRAINE: ULO COLDSTORAGE TECHNOLOGY
LETTER-TO-THE-EDITOR
From: "Jorn van den Dop" jvandendop@yahoo.com
Sent: Monday, July 04, 2005 5:35 AM
The Action Ukraine Report (AUR), Number 516
Washington, D.C., Wednesday, July 6, 2005

16. NSDC ADVISES YUSHCHENKO TO SET UP INVESTMENT AGENCY
UNDER ECONOMIC MINISTRY TO DEAL WITH INVESTMENTS
Also recommends a special investment protection department
be set up at the Prosecutor General's office
Ukrainian News Agency, Kyiv, Ukraine, Wed, June 29, 2005

17. YUSHCHENKO CALLS ON NATIONAL SECURITY AND DEFENSE
COUNCIL TO CREATE CONDITIONS FOR WORK OF INVESTORS
Ukrainian News Agency, Kyiv, Ukraine, Wed, June 29, 2005

18. HOLGER CHRISTIANSEN PRODUCTION UKRAINE SUSPENDS
PRODUCTION DUE TO CANCELING OF BENEFITS ON VAT PAYMENT
Has factories in Denmark, Germany, and Slovenia.
Ukrainian News Agency, Kyiv, Ukraine, Tue, July 5, 2005

19. UP TO 200,000 THOUSAND UKRAINIANS MAY BE
ALLOWED TO WORK IN POLAND
Polish News Bulletin, Warsaw, Poland, Thu, Jun 30, 2005

20. I HAVE THE HIGHEST REGARD FOR THE UKRAINIAN PEOPLE
LETTER-TO-THE-EDITOR
From: Rodney H. Sessions, Petal, Mississippi
Sent: Sunday, July 03, 2005 8:49 PM
The Action Ukraine Report (AUR), Number 516
Washington, D.C., Wednesday, July 6, 2005
===============================================================
1. TOP U.S. GOVERNMENT INTERAGENCY DELEGATION ARRIVES IN
UKRAINE FOR A SERIES OF IMPORTANT MEETINGS
Headed by the New US Assistant Secretary of State
for European and Eurasian Affairs Dan Fried

Morgan Williams, Publisher & Editor
The Action Ukraine Report (AUR), Number 516
Washington, D.C., Wednesday, July 6, 2005

WASHINGTON - A top U.S. government interagency delegation has arrived
in Ukraine for a series of meetings being held July 6-8th in Kyiv discussing
a series of important matters that are now high on the Ukraine-U.S. agenda.

The U.S. government team is headed by the new U.S. Assistant Secretary
of State for European and Eurasian Affairs, Dan Fried, who formerly held
a top position at the National Security Council.

A spokesman of the Ukrainian Foreign Affairs Ministry said yesterday in
Kyiv there would be a series of meetings including one of the Ukrainian-
American Coordinating Group. The meeting would be attended on the
Ukrainian side by representatives of the Foreign Affairs Ministry, the
Economy Ministry, the Emergency Situations Ministry, the Fuel and Energy
Ministry, the Science and Education Ministry, the Health Ministry, and the
Ukrainian National Space Agency.

According to reports in Washington those on the U.S. team, in addition
to Assistant Secretary of State Dan Fried, include: (1) Damon M. Wilson,
Director, Central, Eastern, and Northern European Affairs, National Security
Council; (2) Brian B. Cox, Director, Office of Europe and Eurasia, U. S.
Department of the Treasury; (3) Camille A. Caliendo, Senior International
Relations Analyst, Office of Policy and International Affairs, U. S. Depart-
ment of Energy; (4) Tom Adams, U.S. Assistance Coordinator, Office of the
Coordinator for Assistance for Europe and Eurasia, U.S. Department of
State, (5) Marcus Micheli Senior Ukraine Desk Officer, Deputy Directory,
Europe/Ukraine, Moldova and Belarus, U. S. Department of State;
(6) Jessica Amber Kehl, Country Director for Ukraine, Office of the
Secretary of Defense/ISP/Eurasia; and (7) Laurie Molnar, European and
Middle East Trade Affairs, Office of the United States Trade Representative.

According to the Ukrainian Foreign Affairs Ministry the two sides intend to
discuss Ukraine's European integration aspirations; completion of
negotiations on mutual access to markets of goods and services, which
is a condition for admission of Ukraine into the World Trade Organization;
the outstanding issues regarding Ukraine's accession to the WTO in
2005 and the USA's support for Ukraine's WTO membership drive; the issue
of the United States granting Ukraine the status of a country with a market
economy within the framework of the United States' antidumping legislation.

Ukraine and the United States also plan to discuss the transformation of
the shelter of the Chornobyl nuclear power plant's destroyed reactor into an
environmentally safe system; fighting HIV/AIDS and tuberculosis in Ukraine
and other related issues. -30-
===============================================================
2. NO INNUENDOS: US AMBASSADOR JOHN HERBST ON THE
ECONOMIC POLICY, DEMOCRACY AND AMERICAN INTERESTS

Interview with US Ambassador to Ukraine John Herbst
By Larysa Ivshyna, Oleh Ivantsov, Serhiy Solodky
Varvara Zhluktenko, and Vira Kovtykha
The Day Weekly Digest in English, #22
Kyiv, Ukraine, Tuesday, July 5, 2005

US Ambassador to Ukraine John Herbst is known in the journalistic
community as arguably one of the most laconic diplomats. The Day's recent
interview with the ambassador, however, has largely dispelled this myth
about Mr. Herbst, who has been working in Ukraine for already two years.
Although concise, his replies and judgments are quite incisive, given the
diplomatic status of Mr. Herbst.

Perhaps this is due to his experience and greater familiarity with the
processes unfolding in Ukraine. On the other hand, this may be due to what
he discusses in the interview: since the new government does not heed even
open criticism, it should not be expected to decipher subtle diplomatic
innuendos.

Yesterday the United States celebrated its 229th Independence Day, a
holiday that is perhaps most honored by the American nation. Putting into
practice their vision of freedom, the Americans have managed to build a
country, which the rest of the world has to reckon with.

Perhaps the attitude toward America can be phrased as follows: one may
not like the US for its objective albeit hyperbolized vision of itself as a
country with a mission to protect, educate, and dispense advice. Yet the
Americans must be given their due for having built a society, in which
personal responsibility and freedom come first.

One may either silently ignore or make note of the signals given by
Ambassador John Herbst. The US, which has placed great hopes on the
Orange Revolution and the new Ukrainian government, cannot be an
indifferent observer when something is going amiss in the apparently new
conditions. The previous leadership had been cold-shouldered by the White
House.

What has it gained in the long run? It appears that today the United States
is voicing its first reservations about the first steps taken by the "Orange
government."

[THE DAY] "A group of influential American politicians, including Madeleine
Albright, James Baker, and Henry Kissinger, have asked the US president
to give more active support to Ukraine's aspirations for NATO and EU
membership. Do you think this is a natural desire to support Ukraine or do
the bearers of this message have some grounds for concern?"

[HERBST] "I think their message is quite clear: they believe that Ukraine
will benefit from NATO membership and that this membership is in the
interests of both the alliance and the US. Of course, this is their personal
view, but, as you can see, these are influential people. During President
Viktor Yushchenko's visit in Washington, the US government also positively
appraised this approach. Ukraine is showing interest in Euro-Atlantic
integration, which we fully share and are trying to help you."

[THE DAY] "The impression is that our government has been of two minds for
a long time. The latest speculation about the SES (Single Economic Space)
as a probable alternative to the EU, unclear statements about whether NATO
is the ultimate goal of our foreign political course (Petro Poroshenko,
Secretary of the National Security and Defense Council, finally said it only
a few days ago), may raise certain doubts inside and outside the country
about the course being pursued."

[HERBST] "Naturally, Ukraine must make a clear choice. We believe that
Ukraine's interest in integration with the West is a good thing. We also
remember that the previous government of Ukraine said the same thing. As
for the SES, I remember it was a burning issue in the days when I had just
come to Ukraine. Our stand was the same as it is now.

We are aware that Ukraine undoubtedly shares some interests with Russia
and other SES countries. It is good that Ukraine is developing these
interests, but one must also take into account other priorities, such as WTO
membership. It is important not to take steps in one sphere, which will
complicate things in another."

[THE DAY] "There's the rub. Even President Yushchenko admitted that there
is a delay in passing laws that would allow Ukraine to meet the WTO
deadline. What is this: lack of resolve or reluctance on the part of MPs?"

[HERBST] "We think that Ukraine, or any other country, can only prosper
economically if it is a WTO member - not only because WTO members
conduct a better trade, trade being an important factor in the development
of any national economy. To enter this organization it is also crucial to
carry out a series of reforms that will lay the groundwork for sustainable
development and to pass a number of laws that will put the economy on
a market footing.

Of course, we wish that the Verkhovna Rada had already passed the laws
necessary for WTO membership. We highly appreciate the aspiration of the
state and President Yushchenko to adopt these laws, but what is also badly
needed is cooperation among all the deputies who belong to the ruling
coalition's factions."

[THE DAY] "In Washington George Bush and Viktor Yushchenko signed a
declaration stating that the two countries would do their best to complete
bilateral talks so that Ukraine could join the WTO as early as this year. To
what extent is this possible now that crucial laws have been voted down in
parliament not least because of a lack of support from the pro-governmental
factions?"

[HERBST] "I know it has been common practice here - since the Soviet era -
to maintain international relations on the basis of documents that reflect
the commitments of both sides. In my view, this is a bit too formal. As for
the document that was signed during the Washington visit, I would say it
proclaims hopes and aspirations rather than commitments.

Undoubtedly, we would like to see all the provisions of this document
implemented, but we do not consider them binding. You are right when you
speak about the essence of the document. I mean that, to become a WTO
member, Ukraine must pass quite a few laws, and it is a pity that they
haven't been passed yet.

Regrettably, one of the causes of this situation is the failure of many
members of the pro-governmental factions to support these laws. I hope
the government will somehow find support in the Rada to have these laws
passed."

[THE DAY] "The previous government used to work this way: when an
important decision had to be made, people would turn up to inveigle the
MPs to become involved in legislation, not without some sort of
compensation."

[HERBST] "What you've said means that political life is generally difficult.
I still think that everyone will agree that the government is now working
more or less according to democratic principles, not authoritarian ones,
which not always but quite often characterized the previous leadership's
policies.

Naturally, we do not want the new government to resort to those methods.
Yet it is important to understand that there are purely democratic ways to
achieve one's goals. There is such a thing as political discipline: even in
a democracy, party leaders should know how to run their parties for the
country's benefit."

[THE DAY] "Could you tell us how political discipline is maintained in the
US? Can you recall any instances when Republican congressmen were
expelled from the party for failing to follow the president's line or to
vote on some important issue contrary to the party's guidelines?"

[HERBST] "Party discipline is one of the most important arts that a
democratic political leader must possess. I remember an interesting incident
that occurred in the Senate a few years ago, when a senator quit his party
because he either disagreed with the party's overall approach or could not
endure the criticism of his fellow party members. But he quit on his own."

[THE DAY] "In other words, there is no such thing as expulsion from the
party?"

[HERBST] "I don't know. All I can say is that a step like this cannot be
considered undemocratic. This may be part of democratic politics because
a party is a joint group of people."

[THE DAY] "The past few months have seen a notable tendency toward criticism
and expressing disappointment, especially on the part of Western experts,
such as Anders Aslund, James Sherr, and others. A current joke in Kyiv says
that the Orange Revolution is turning into a socialist one. Do you share the
critics' views? Do they mean exaggerated expectations or concrete mistakes
of the new government, above all, with respect to economic policy?"

[HERBST] "We think that the new government wants to satisfy the people and,
in our view, it is a very good step to levy taxes the way it is done in
democratic countries. It seems to us that now taxes are being collected from
all those who are liable to pay them. This is a positive improvement in
Ukraine. The same applies to customs duties. This has essentially boosted
revenues. In other words, the country has benefited from this, which we can
only commend.

Still, I think that, in an attempt to appease the people, the state is
resorting to the most explicit methods: they have radically increased
pensions and wages and adopted other measures to raise the living standards.
On the one hand, this is good because there really are many poor people in
Ukraine. But, on the other hand, every leader in any state should take into
account his country's resources and the requirements of economic
development.

This means it is first and foremost necessary to create conditions for
investments and to let people work fruitfully. In our view, there are some
problems here. Firstly, we must ask a very important question: can this
country afford to meet budgetary commitments? If it can't, the economy will
come to a standstill. The next question: all economists know that every
economy has phenomena that complicate the life of part of the population.
How can these be overcome?

For example, this government wants to solve such problems as meat and fuel
price hikes. Unfortunately, we often see the application of administrative
measures that are socialist in nature. And if the second half of the last
century has proved anything, it has proved that socialism is not the way to
build a prosperous national economy. The Ukrainian leadership says it
believes in the market, and we hope it will be pursuing a market- oriented
policy. In this case I am sure Ukraine will be an economically prosperous
country."

[THE DAY] "Do you think the government has at least begun to separate itself
from business? At one time you had a conversation with Yuriy Lutsenko,
Minister of the Interior, in which you expressed concern over reports that
there are corrupt people in the present government, too."

[HERBST] "It is not so easy to measure corruption, but I think that certain
progress has been made to combat it. For example, the customs office says
that duties collection has gone up threefold. This means they have much less
corruption than they had eight or nine months ago.

Still, there are rumors of corruption even today, including the possibility
of influence on the part of businessmen closely linked to the government. I
don't have any real information so far, but, undoubtedly, if the state says
it is determined to eradicate corruption, it must take a very judicious and
cautious approach to this situation."

[THE DAY] "It was widely expected that an investment boom would sweep
through Ukraine after the Orange Revolution. Why has this not happened?"

[HERBST] "There was no boom because, instead of carrying out economic
reforms, the government applies administrative measures from time to time.

I would also like to broach the problem of reprivatization, a very delicate
matter indeed. I know that many Ukrainians are, to put it mildly, concerned
over the fact that the country' resources were not just sold but sold for
rock-bottom prices in the past 12- 13 years. The idea is to return these
resources to the state for fairness' sake.

If the question only concerned fairness, I would say it is a sound idea. But
it doesn't just concern fairness but the overall well-being of this country
as well. What seems to be the most important factor for Ukraine's
development is the creation of favorable conditions for investments. If
Ukraine begins to revise a long series of privatization deals, new investors
may view Ukraine as a country where investments are not protected. You
may be aware that I was one of the first critics of the Kryvorizhstal
privatization.

So I fully realize why people have what I describe as an emotional reaction
to this matter. But if the new government is unable to rapidly solve the
reprivatization problem, if it says that almost all businesses may be
subject to reprivatization, you won't see any inflow of the capital that
this country needs so badly.

Many Ukrainian politicians tell me that ordinary people are looking forward
to reprivatization because it is a matter of justice. There must be some
truth in this, for at this moment the majority of Ukrainians want this. But,
my opinion is that while Ukrainians may really want this, what they want
most of all is a better life. So if the government fails to pursue an
investment-friendly policy, the people will not live better."

[THE DAY] "The investigation of the Gongadze case has long been an
indicator of our state's reputation. Now the impression is that this
investigation has ground to a halt in Ukraine. Is it still going on in the
US? Has Mykola Melnychenko testified before the FBI?"

[HERBST] "American officials know only too well that it is better to keep
silent about a case while an investigation is still in progress. So I can't
comment on this issue."

[THE DAY] "You said at one of your first press conferences in Kyiv that you
have more questions than answers about the Gongadze case. Do you have
fewer questions now?"

[HERBST] "If a crime was committed very long ago, it is not unusual to have
a lot of questions."

[THE DAY] "From the very outset The Day has been critical of the current
cabinet lineup. We never upheld the view that a politician who wins the
presidential election should form his cabinet according to some quota
scheme. We also believed that if left-wing politicians were included in the
cabinet, they could be hardly expected to carry out liberal reforms.

What can we expect from the parliamentary elections if even now opinion
polls are showing that a sizable part of the population favors the
Belarusian model? And you are absolutely right that the majority supports
reprivatization, which, incidentally, is already being considered a
pre-election ploy. What can we expect from the new parliament in this
connection?"

[HERBST] "I don't know what to expect from the new parliament. It is always
dangerous to predict election results as well as the parliament's
post-election approaches. I accept the poll results because the majority of
the population really began to live better after the new government's latest
steps, i.e., pension and wages hike. It is only natural that people support
these governmental actions.

But this brings us to the following question: What will the economic
situation be like a year or so from now and what will be the living
standards then? The Ukrainian economy has been on a steep rise in the
past four or five years. Of course, this development was possible owing to
decisions that were made during Viktor Yushchenko's tenure as prime
minister and Yuliya Tymoshenko as his first deputy.

But other prime ministers - Anatoliy Kinakh and Viktor Yanukovych - also
pursued a good macroeconomic policy. We will soon see what interference
in the economy can result in and whether there will be economic growth in a
year's time. Changes in the economic policy can bear upon growth only after
some time. I am somewhat concerned about the prospects because, let me
repeat, development is indispensable without investments."

[THE DAY] "Would US companies like to invest in the Ukrainian market?"

[HERBST] "I can say that US investors began to think about Ukraine already
two or three years ago. They saw that the economy was on the rise, the
population was rather large and highly educated, and wages were low. There
were many general economic indicators that are attractive to investors. But
they were afraid to invest their capital because of huge problems caused by
corruption and lack of transparency.

When Viktor Yushchenko won the elections, they became even more interested
in Ukraine because he promised during his election campaign to tackle all
these problems. This is why we expected an investment boom in Ukraine,
which never occurred due to the above-mentioned actions.

If the government stops adopting administrative measures and takes
additional steps to combat corruption and curb bureaucracy, then I am sure
there will be a tremendous inflow of not just American capital to Ukraine.
You have very great advantages."

[THE DAY] "We feel a bit awkward about asking the next question: it has been
common practice in the last while to ask about repealing the Jackson-Vanik
amendment. Why doesn't the US Congress finally repeal it, which will give
another signal to US business that things are now much better in Ukraine?"

[HERBST] "The Bush administration favors lifting this amendment, but
resolving this problem also depends on Congress. Of course, there are a lot
of Ukraine-friendly congressmen now, and many of them would like to see this
amendment repealed. But we also have other interests.

One must also take into account the practice that has existed for the past
decade: Congress would lift the Jackson-Vanik amendment as soon as a
country was about to join the WTO. This usually happens in the last weeks
before the entry. Naturally, we want Congress to lift this amendment, but
its existence does not greatly influence the intentions of US business.

If Ukraine managed to create favorable conditions for capital, it could
face an investment boom even with the Jackson-Vanik amendment in force.
This amendment is of a purely symbolic nature and does not play any role."

[THE DAY] "But presidents Yushchenko and Bush signed a joint declaration
that they 'favor the immediate repeal of the Jackson-Vanik amendment.' Very
recently President Yushchenko drew thunderous applause from congressmen
who were chanting his name. One would think that after such a welcome there
would be no enemies of Ukraine in the US Congress. What is happening?"

[HERBST] "The point is interests, not enemies. I was in Congress when Viktor
Yushchenko was speaking. Of course, it was a stunning moment. All the
congressmen, without exception, applauded his speech. I remember some
senators and representatives standing up when he mentioned the Jackson-Vanik
amendment. I was watching very closely. I would say about two-thirds of
those present stood up.

If they had been voting, the amendment would have been repealed. But it was
also interesting how they were rising to their feet. There were four waves.
Some congressmen rose immediately. The second wave stood up 15-20
seconds later, the third one after a minute, and the fourth one after
perhaps one and a half minutes.

It seemed to me that some stood up not because they were prepared to vote
for repealing the amendment at that very moment. I think it was caused by
other interests. But, let me say this again, you are talking about the joint
declaration as a concrete commitment."

[THE DAY] "But it contains clear-cut commitments, not just wishes or
expectations..."

[HERBST] "Look at this document very carefully. The point is what one
country wants to do and what another country wants to do. We do not blame
the government of Ukraine for failing to meet its commitments about the WTO.
We are just saying that if you want to join the WTO, you should do what we
said above."

[THE DAY] "But Ukraine has fulfilled its obligations with respect to Cuba
and Belarus - perhaps contrary to its interests."

[HERBST] "I think that if Ukraine is a democracy, it should reflect this in
its foreign policy. So it is not quite correct to say that this was kind of
a gift to America. Undoubtedly, we highly appreciated Ukraine's position.
We thanked your leadership, but we also interpreted this as a true sign that
you are defending your democratic principles in the international arena,
too."

[THE DAY] "But in this country this was interpreted as a shortage of money
for such a high standard of democracy. When Cuba offered to provide medical
treatment to children suffering from the Chornobyl disaster, we had to
choose between treating them at our own expense and refraining from making
any sharply worded comments."

[HERBST] "Are you sure that all the children who went to Cuba were victims
of the disaster?"

[THE DAY] "We do not rule out abuses, but the public at large took a dim
view of Ukraine's position on Cuba and Belarus because of our inability to
take a 'big enough step'."

[HERBST] "Firstly, I think it would be good if you, journalists, studied the
true effect of the Cuban program on the children affected by Chornobyl in
order to be able to discuss this problem knowledgeably. Secondly, we
understand this situation, and I think you will soon see the fruits of our
understanding."

[THE DAY] "You were once the US ambassador to Uzbekistan. To what extent
do you think the world community is responsible for the events in Andijan,
for the groundwork for them was laid long ago, including the days of your
ambassadorial tenure?"

[HERBST] "I am not responsible now for our policies toward Uzbekistan, but
the US believes that an international commission should investigate what
happened in Andijan. Both at the time of my residence in Uzbekistan and now
we have insisted that the human rights situation in that country needs
drastic changes.

Even in the period of closest cooperation we kept telling the government of
Uzbekistan that we could not establish a really strong and close
relationship between our countries without considerable progress in this
sphere."

[THE DAY] "Speaking of the Jackson-Vanik amendment, you repeatedly
used the word 'interests'."

[HERBST] "First of all, I mean economic interests. Membership in the WTO
requires the lifting of the Jackson-Vanik amendment. There are always
economic interests with respect to one country or another."

[THE DAY] "Could you say that if the Verkhovna Rada passed a law on
intellectual property protection, including protection against counterfeit
CDs, which mostly affects US companies, this would essentially ease the
lifting of the Jackson-Vanik amendment?"

[HERBST] "This would undoubtedly play a role. However, I cannot say that if
one thing is done, the other will follow automatically. I want to say again
that when a country enters the WTO, it radically changes the conditions of
trade with all members of this organization, including the US.

This means that this step will influence the economic interests of many
other countries. These interests are also important. As an optimist, I
believe that if Ukraine does everything necessary to become a WTO member,
the Jackson-Vanik amendment will not be an obstacle. Ukraine now has a fine
reputation in Congress because everyone thinks that the Ukrainian people
defended their right to elect the president.

Therefore, in spite of all the existing problems, this is a huge achievement
that gives many people in the West a reason to look at Ukraine with
affection."

[THE DAY] "Communicating with a wide range of politicians is part of an
ambassador's job. What about your dialogue with the opposition?"

[HERBST] "I am in quite close contact with its representatives. As you know,
I have repeatedly met Mr. Yanukovych, invited Mr. Marchuk, Mr. Boiko, and
representatives of the Communist Party. I meet them quite often because
this is part of my job. The US has frequently said that it did not promote a
certain candidate in the presidential elections: it was only interested in
the process itself.

So if the new opposition forms a new government after the parliamentary
elections, OK, we will be ready to work with them. But, I must add, only in
the event that the elections are fair and clean."

[THE DAY] "Do you have any doubts?"

[HERBST] "You know that we funded many observers for the presidential
elections. We are again planning to send a large number of them to the
parliamentary elections because old traditions die hard."

[THE DAY] "The new leadership has repeatedly said that there is still no
opposition in Ukraine. Do you agree?"

[HERBST] "I think this is the opinion of not just the new government but
also the majority of political analysts. But I do not understand this idea.
There are opposition parties and obviously they are doing rather effective
work in parliament. Polls show that at least one person in these parties
enjoys high popularity. So how can one say that there is no opposition? I
think it exists and it is quite strong."

[THE DAY] "Mr. Ambassador, we have to ask you the next question -
otherwise neither our readers nor our colleagues will understand us.
Information was recently leaked that you allegedly spoke to Prosecutor-
General Sviatoslav Piskun. The Prosecutor-General's Office has even
instituted criminal proceedings, thus indirectly admitting this fact. Would
you comment on this?"

[HERBST] "This means that, unfortunately, offices are bugged in Ukraine.
This is all I can say about this 'alleged conversation'."

[THE DAY] "How did the State Department react?"

[HERBST] "Naturally, I informed them about this. Their reaction was the
same as mine: we wish there were no bugging."

[THE DAY] Mr. Ambassador, what priest were you defending? For the
conversation in question pivoted on a priest."

[HERBST] "That this was published means that people expect somebody
to be subjected to eavesdropping. This situation clarifies everything."

[THE DAY] "Greater freedom of the mass media is considered one of the
positive changes in the past few months. At the same time, transparency has
remained at the same level, especially on television. There is so much talk
now about changing the format of television broadcasting and redistributing
TV channels, especially Inter and 1+1, but society knows very little about
these plans and suspects the government of being directly involved in this.
Do you think the media are now more transparent or do you feel some
concern?"

[HERBST] "We don't have any information that there are official media
guidelines. So I can say for sure that the media situation is much better
than it was a year ago. This is about state influence on the media. I do not
think that the current government is trying to influence them the way the
previous one did.

But conditions for the media as a whole and about who can own them -
these are different questions. In all democratic countries the state draws
up development plans in one field or another without disclosing them
because it has the right to confidential planning. I think the new
government is now considering the question of media development and
drawing up plans. I consider it only natural that it is doing this
confidentially. Let us see what they come up with."

[THE DAY] "This in fact sparks the desire to eavesdrop on everyone, if we
didn't suspect that the government is trying to grab, via stooges, the new
channels of influence as the elections are approaching..."

[HERBST] "It is precisely the duty of journalists to look into this process
and expose the scheme. This is the principle of media work in genuinely
free countries."

[THE DAY] "Things go this way in many cases, but there is a fear that the
government is reluctant to listen."

[HERBST] "This is an entirely different question."

[THE DAY] "Yet, the government seems to hear Western embassies very
well, which is also a way of expressing public fear."

[HERBST] "I think the new government would be pursuing a different
economic policy if your guesses were correct."

[THE DAY] "This is just wishful thinking. We, and many of our colleagues,
touch upon issues that the public is concerned about, such as the relocation
of the president's Secretariat to Maryinsky Palace, the problem with the
Children's Medical Center, etc. We must admit that everyone, irrespective of
their political leanings, is saying the same thing: they are concerned about
these things. This may tarnish the new leadership's reputation on the eve of
the elections."

[HERBST] "I see. Not just evidence but even rumors can ruin a person. But as
far as I know, these are just rumors."

[THE DAY] "The relocation to Maryinsky Palace was announced by the
president's new property manager; as for the intention to build houses in a
nature preserve, there was an announcement by the Ivano-Frankivsk oblast
governor. And nobody has denied this. The public can consider this an
opportunity to be heard and told, 'We got the message and have reversed
our policies.' We have not yet seen this kind of reaction. If you ever have
this answer, please tell us."

[HERBST] "Alright."

[THE DAY] "When can we expect George Bush to visit Ukraine? Is it possible
that President Bush will see Kyiv during his second term? Mr. Bush Sr. spoke
here twice: not very successfully during the first visit and very
successfully during the second one. But George W. Bush hasn't visited Kyiv
yet."

[HERBST] "There was a summit only two months ago, so it is difficult for me
to say when my president will come to Ukraine. I think our relations have
become much better and this tendency will only be growing. High-level
contacts between our countries occur much more often now: two US
secretaries have already visited this country since the presidential
summit." -30- [The Action Ukraine Report Monitoring Service]
---------------------------------------------------------------------------------------------------
LINK: http://www.day.kiev.ua/139817/
===============================================================
3. UKRAINIAN FOREIGN MINISTER TARASYUK DIFFERS WITH US
AMBASSADOR HERBST ON WTO STATEMENT

UT1, Kiev, in Ukrainian 1610 gmt 5 Jul 05
BBC Monitoring Service, UK, in English, Tue, July 5, 2005

KIEV - Ukrainian foreign minister Borys Tarasyuk has said that he views
the joint statement by presidents Viktor Yushchenko and George Bush on
ensuring Ukraine's WTO accession this year as binding.

Speaking on the Centre of Attention chat show on state-run UT1 TV, Tarasyuk
said that he disagreed with the assessment by US Ambassador John Herbst
in an interview with the daily Den on 5 July, where he said the document was
less about obligations than about hopes and aspirations.

"Although this was not an international legal agreement from the formal
point of view, it represented political obligations assumed by President
Yushchenko and the US president. So I disagree with the ambassador, and
consider that in the joint statement the US president assumed a political
obligation in the name of his administration that must be fulfilled,"
Tarasyuk said.

Tarasyuk said that this obligation also extended to the granting of market
economy status to Ukraine and the removal of trade restrictions under the
Jackson-Vanik amendment.

Meanwhile, Tarasyuk welcomed former Secretary of State Madeleine
Albright's recent appeal to the EU to help Ukraine join Europe. "I think
that her appeal, and those of her colleagues and compatriots, demonstrates
the desire of the US political elite to help Ukraine integrate with a united
Europe, which will benefit all of Europe and Ukrainian citizens," he said.

Tarasyuk avoided giving a clear answer on recent allegations that Ukraine
illegally sold arms to Congo. "Firstly, this refers to the period of [former
President Leonid] Kuchma's administration. Second, it is necessary to
check all the facts before making statements," he said.

"I rely on the analysis made by [National Security and Defence Council
Secretary] Petro Poroshenko, who said that there are no grounds for
accusing Ukraine in this." -30-
===============================================================
4. EX-FOREIGN MINISTER HRYSCHENKO SAYS THERE ARE NO
CONVINCING ARGUMENTS IN FAVOR OF A VISA-FREE
REGIME FOR US CITIZENS

Ukrainian News Agency, Kyiv, Ukraine, Tue, July 5, 2005

Ex-Minister of Foreign Affairs Kostiantyn Hryschenko, member of the
political council of the Republican Party, believes that introduction of
visa-free regime for the US citizens was unmotivated. Press service of the
Republican Party informed about this in the statement. "So far I do not see
any convincing arguments in favor of such decision," he said.

Hryschenko also believes that aftermaths of introduction of visa-free
regimen for citizens of the European Union, Switzerland, and the US should
be analyzed and conclusions about appropriateness of such regime should
be made after that.

Hryschenko said that theoretically Ukraine may benefit from introduction of
visa-free regime for the US nationals through the increasing number of
tourists coming to Ukraine. At the same time he mentioned that visa regime
previously did not reduce the flow of visitors to Ukraine and the cost of
Ukrainian visa is not an obstacle for an average American in visiting the
country.

Hryschenko said that Ukraine is losing millions of dollars that were
received from the US nationals in fees for Ukrainian visas. Besides that,
ex-Minister said that it is important that Ukraine's introduction of
visa-free regime facilitates simplification of procedure of obtaining the US
visas for Ukrainian nationals.

He added that the Ukrainians have to pay USD 100 for a visa and another
USD 65 for multiple-entry visa for five years. "This is significant money
for Ukrainians," he said.

Hryschenko mentioned that after visas are canceled, the border service will
be completely responsible for control of the US citizens arriving in Ukraine
and prevention of access of people with criminal record and serious
diseases to the country.

As Ukrainian News earlier reported, Ukraine introduced visa-free regime
from July 1 for the US citizens if they visit the country for no more than
90 days. The US reduced the price for multiple-entry visas for Ukrainians
from USD 165 to USD 100 in May. Ukraine had earlier announced its
intentions to waive entry visas for US citizens in exchange for reducing the
fee for American visas for Ukrainian citizens. -30-
===============================================================
5. PROSECUTOR CHARGES GIANT US AGRO FIRM CARGILL
WITH TAX EVASION AND OTHER CHARGES

New Europe, Athens, Greece, Monday, July 4, 2005

A Ukrainian prosecutor last Thursday accused a local branch of the giant
US-based corporation Cargill of tax evasion among other charges,
according to an Interfax news agency report.

Law enforcers in the eastern Donetsk region opened a criminal investigation
into the business activities of Kombinat Kargill, one of the giant US
company's Ukrainian foodstuff-processing factories, a spokeswoman for the
prosecutor's office said.

The Cargill-owned operation is alleged during 2002 and 2003 to have
engaged in businesses not allowed by its incorporation contract, and not
to have paid taxes on income earned from those businesses.

Kombinat Kargill, restricted by foreign investment law to foodstuff
processing, is suspected of earning income from wholesale agricultural
commodity trading, leasing out automobiles and grain storage facilities,
and high-yield bank deposits.

The alleged deviation by the company from its bylaws shortchanged the
Ukrainian government by USD 300,000, exclusive of fines for non-payment
of taxes, said Irina Ankudinova, spokeswoman for the Donetsk regional
prosecutor. If convicted of wilful tax evasion, company officers could face
up to seven years in prison.

The announcement flew in the face of rhetoric by Ukraine's new
business-friendly government, whose President Viktor Yushchenko has
declared attracting foreign investment a top priority of his administration.

The Donetsk region is Ukraine's centre of opposition to Yushchenko's
government. It was not immediately clear whether the charges against
Cargill originating in Donetsk were supported or opposed by the
Yushchenko government. Officials at the Yushchenko administration said
they had no immediate comment on the report, but were looking into it.

Cargill is one of the world's largest privately-owned companies. The firm's
main business is trading agricultural commodities. Cargill began work in
Ukraine in 1991. Since then the company has invested more than USD 100
million in food commodity storage and processing infrastructure, making
Cargill one of the top foreign investors in Ukraine.

Cargill's flagship project in Ukraine is Kombinat Kargill, a world-class
greenfield sunflower seed processing and extraction plant that cost USD
50 million, according to Cargill company reports. -30-
------------------------------------------------------------------------------------------------------
FOOTNOTE: This report from Donesk, according to specialists who
have read it, reminds observers too much of many such news reports
that came out during the past 10 years under the Kuchma government.
It is also very interesting according to analysts that this action comes
from Donesk and may be related to old matters that have already been
resolved so why are they coming up again. These analysts are keen to
know exactly what is going on here and what are the implications of this
'action' for the Yushchenko government and for other US companies
operating in Ukraine, if any. EDITOR
===============================================================
6. BRITAIN'S DS SMITH COMPANY TO INVEST USD 20 MILLION IN
CARDBOARD PACKAGING PLANT IN RUBIZHNE, UKRAINE

Ukrainian News Agency, Kyiv, Ukraine, Fri, July 1, 2005

KYIV - David S. Smith (Great Britain), which is a shareholder in the
Rubizhne cardboard packaging plant (Rubizhne, Luhansk region), has
decided to invest USD 20 million in the plant by 2006. A representative
of the plant disclosed this to Ukrainian News.

According to the representative, the investment plan includes modernization
of the plant's second papermaking machine to increase its capacity by
30,000 tons per year, expansion of its technological line for pulp
production, and further investment in the factory for production of
corrugated-cardboard containers.

As Ukrainian News earlier reported, the plant produced 26,257 tons of
cardboard and 162.332 million square meters of corrugated-cardboard
packaging in 2004. The plant finished 2004 with UAH 74.693 million in net
profit.

The Rubizhne cardboard packaging plant specializes in production of paper
for corrugation, corrugated cardboard, and packaging made of corrugated
cardboard. It has about 30% share of the Ukrainian market of corrugated
products.

DSS Eastern Europe Limited (Great Britain) owns 34.8% of the shares in
the Rubizhne cardboard packaging plant while a nonresident individual
owns 40.14%. -30- [The Action Ukraine Report Monitoring Service]
===============================================================
7. UKRAINIAN PARLIAMENT STALLED OVER WTO LEGISLATION

One Plus One TV, Kiev, in Ukrainian 1630 gmt 5 Jul 05
BBC Monitoring Service, UK, in English, July 5, 2005

KIEV - [Presenter] Tensions have been high in parliament throughout the
day today. The vote on a package of bills needed for Ukraine's entry into
the WTO has not started yet. Our correspondent Yehor Checherynda is
monitoring the events in parliament, we have him live now. Yehor, what are
the arguments of those blocking the parliament's work?

What arguments against the WTO entry do they have? Does anyone have any
other concerns? What is going on at the moment, has the session ended?

[Correspondent] Good evening, Lyudmylo. Twenty minutes ago [speaker]
Volodymyr Lytvyn announced that today's session is closed. In effect, the
vote on WTO bills has been postponed till tomorrow morning. Before that,
lawmakers from the Communist Party's faction and members of the Regions
of Ukraine and the United Social Democratic Party were blocking the rostrum.

They started doing that as soon as it was announced at 1600 [1300 gmt] that
a package on WTO will be put to vote. At about 1600, Ukrainian President
Viktor Yushchenko, Prime Minister Yuliya Tymoshenko and other ministers
arrived in parliament. They, the president himself, proposed that the MPs
vote on all the WTO bills in one package.

This caused outrage among the representatives of some factions, in
particular, the Socialist Party, the Regions of Ukraine, the Social
Democratic Party and the Communists. They expressed their concerns.
Even some representatives of [propresidential faction] Our Ukraine, such
as Yuriy Karmazin, were against the idea of a vote on WTO bills in one
package.

The Socialists wanted to hear economic reasoning behind it, what effect it
would have on our economy. The Communists were flatly against the WTO,
and the Regions of Ukraine also wanted economic calculations. That is all
basically, Our Ukraine were in favour, but no-one listened to them.
Opposition MPs started blocking the rostrum and chanting "Moonlighters
out!"

The photos of MPs combining their parliamentary jobs with work in the
cabinet and the executive were hung on the rostrum. The Regions of Ukraine
and the Social Democrats said they would not vote on the bills until those
MPs combining two jobs relinquish their mandates. [Passage omitted: MPs
comment on today's session] -30-
===============================================================
8. UKRAINE: RADA FAILS TO VOTE ON BILLS NEEDED TO JOIN WTO
Faction leaders will meet to discuss what to do

Associated Press (AP), Kyiv, Ukraine, Tue, Jul 05 2005

KYIV - The Ukrainian parliament on Tuesday failed to vote on a package of
bills necessary for the country's admission to the World Trade Organization,
handing an embarrassing defeat to President Viktor Yushchenko who had
made a personal appeal for support.

Lawmakers seized the rostrum and shouted "Shame" as Yushchenko
watched dejected members of his government file out of the hall at the end
of the evening parliamentary session.

The package of 14 bills had been considered a necessary step for Ukraine
to join the world's top trade body. "It is a little test if we can accept
these rules," Yushchenko said, addressing the parliament.

But lawmakers refused to put the measures up for a vote to protest against
members of Yushchenko's government who refuse to surrender their
parliamentary seats. Ukrainian law prohibits a person from holding a post in
more than one branch of government and the issue was one that Yushchenko
railed against when he was in the opposition. Under his government, the
practice is even more widespread.

As Parliament Speaker Volodymyr Lytvyn, a Yushchenko ally, tried
repeatedly to coax the lawmakers into setting the WTO bills up for a vote,
the lawmakers shouted in protest.

Prime Minister Yulia Tymoshenko, who had predicted last week that the
government had enough support to pass the package, sat next to
Yushchenko, whispering in his ear. The session later broke up with faction
leaders agreeing to meet to discuss what to do.

Foreign investors had urged Yushchenko to ensure the bills were passed
before parliament breaks Friday for its summer recess. The request was
one of the top proposals to emerge from the World Economic Forum
investment conference held in Ukraine last month.

Oleksander Moroz, leader of the Socialist Party, said that by adopting the
bills, "we would be destroying our own economy."

Yushchenko had earlier said he hoped Ukraine would be welcomed into
the WTO this year - citing it as one of the top goals of his administration.

Yushchenko came to power after last year's "Orange Revolution," pledging
to push this nation of 48 million closer to the West. -30-
===============================================================
9. THE TANGIBLE VS. THE SYMBOLIC, VALUE OF WTO MEMBERSHIP

LETTER-TO-THE-EDITOR
From: Ethan S. Burger, ethansb@ilma.us
Sent: Tuesday, July 05, 2005 2:34 PM
Published by The Action Ukraine Report, Number 516
Washington, D.C., Wednesday, July 6, 2005

To the Editors:

I have never quite understood the tangible, as opposed to symbolic, value
of WTO membership for countries that do not export services or goods
in large volumes. In contrast, it is clear that countries such as Canada,
Great Britain, the Netherlands, Singapore, South Korea, the United States,
etc.have a lot to gain from an expanded WTP.

WTO membership for Ukraine may be an important way to communicate
to foreign governments, international lending institutions and foreign
companies that it wishes to open up its markets. Maybe that is a sufficient
reason for it to join. Nonetheless, it is not clear that this would be good
for Ukraine at this time.

Should Ukraine wish to do so, it can simply enact appropriate legislation
that are consistent with WTO norms that it would benefit from, while not
taking on obligations that may not be appropriate for the country at this
time.

Of course, the political leadership may see WTO membership as giving it
a tool to prod the political opposition to agree to to take steps to make
the economy follow more market principles.

Ukraine should carefully assess whether joining the WTO at this time is
good for its citizens. In the short-term. it is likely to lead to greater
unemployment as domestic producers find their products are not competitive
on the world market and they are forced to lay off workers. This may
present political problems to President Yushchenko and Prime Minister
Tymoshchenko.

In addition, there is the risk that if Ukraine adopts WTO standards that
more of the country's economy may fall under foreign control (a significant
share is believed already to be directly or indirectly in the hands of
Russian nationals already, including organized crime groups).

Opening up the economy to more foreign portfolio (as opposed to direct)
investment is not not necessarily desirable development, if such foreign
investment does not serve as a counterweight to Russian control over the
Ukrainian economy. WTO membership thus may result in fewer significant
Ukrainian assets in Ukrainian hands.

Perhaps the Verkohvna Rada should examine these issues before it adopts
legislation in this area. Its members might want to read about concerns in
certain U.S. circles about Chinese organizations buying controlling shares
of U.S. corporations.

Sincerely,
Ethan S. Burger, Scholar-in-Residence
School of International Service
Adjunct Associate Professor of Law
Washington College of Law, American University
Washington, D.C.. ethansb@american.edu
-------------------------------------------------------------------------------------------------------------
FOOTNOTE: We would appreciate hearing from our readers about
the issues raised by Ethan Burger in his letter above. EDITOR
=================================================================
10. 20% OF POLISH CAR MANUFACTURER SOLD TO UKRAINIAN COMPANY

TV Polonia, Warsaw, in Polish 1730 gmt 29 Jun 05
BBC Monitoring Service, UK, in English, Wed, June 29, 2005

WARSAW - The Zeran-based FSO is as of tomorrow becoming the property
of the Ukrainian company AvtoZAZ. The Polish government has sold 20 per
cent of the shares in FSO for just a symbolic one zloty.

The economy minister assured today that the terms negotiated with the
Ukrainians were very good. The agreement gives a maintenance of production
and allows us to pay off the debts of the factory.

The new investor is well-known, because for some time now he has been the
man recipient of the cars manufactured by the factory in Zeran [in Warsaw].
AvtoZAZ has promised that it will not make anyone from the 2,000-strong
workforce redundant for the over six months.

It is not however clear whether, after Lanos production has ended, FSO will
manufacture its successor. The Ukrainians have not yet purchased a licence
from Daewoo, which holds the remaining 80 per cent of the shares in FSO.
===============================================================
11. EU TO GRANT UKRAINE EUR 100 MILLION IN 2006 TO
IMPLEMENT UKRAINE-EU ACTION PLAN

Ukrainian News Agency, Kyiv, Ukraine, Friday, July 1, 2005

KYIV - In 2006 the European Union is going to grant EUR 100 million to
Ukraine for implementation of the Ukraine-EU Action Plan designed for
2005-2007. Director for resources, information and inter institutional
relations of the International Relations Directorate of the European
Commission David Lipman made the statement to the press in Kyiv.

The European Union grants significant money grants to implement the
Ukraine-EU Action Plan and in 2006 this aid will be increased to EUR 100
million, Lipman said. According to him, in addition to economic assistance,
the EU also helps Ukraine in modernization of state governing and war on
corruption.

Lipman stressed that the EU attaches absolute importance of principle to
war on corruption. He also said that the EU is working on soon granting of
the market economy status to Ukraine.

The first advisor of the Delegation of the European Commission to Ukraine,
Steffen Skovmand, added that the European Commission is examining the
information on economic situation provided by the Ukrainian government.

Skovmand voiced hope that during the Ukraine-EU summit in October the
decision on beginning of talks on visa facilitation for Ukraine will be
made, adding that the summit will also decide on opening of talks on free
economic zone setting between Ukraine and the EU.

Ukraine needs strong administrative institutions to conducts market economy,
Skovmand said when asked by journalists to evaluate the acts of the Cabinet
of Ministers during the May gasoline crisis.

As Ukrainian News reported earlier, the European Union reports the progress
of Ukraine on its way toward implementation of the Ukraine-EU Action Plan.
In 2005 the EU is going to grant Ukraine EUR 20 million for judicial,
administrative reforms and fight with corruption. -30-
===============================================================
12. UKRAINE: CABINET OF MINISTERS DECIDES TO CHECK FINANCIAL
AND ECONOMIC ACTIVITY OF 34 STATE ENTERPRISES

Ukrainian News Agency, Kyiv, Ukraine, Wed, June 29, 2005

KYIV - The Cabinet of Ministers has decided to check on the financial and
economic activity of 34 enterprises of the state sector of economy.

This was disclosed in the resolutions of the Cabinet of Ministers "On
Inspecting Financial and Economic Activity of Enterprises of State Sector of
Economy" No. 216-r of June 23 and "On Inspecting Financial and Economic
Activity of Enterprises of State Sector of Economy on Certain Issues" No.
217-r of June 25.

In accordance with the resolution "On Inspecting Financial and Economic
Activity of Enterprises of State Sector of Economy" No. 216-r of June 23,
specially created commissions will have to inspect 21 enterprises within two
months.

For instance, they will check Ukrzaliznytsia, Odesa portside plant, Horlivka
machine building plant, Foton, Leasing Company Ukrahromashinvest,
Boryspil airport, State Company Automobile Roads of Ukraine, Aerosvit
airline, Ukrainian International Airlines, Southern machine building plant
named after Makarov, Luhansk Accumulators Scientific and Industrial Co.,
Siverskodonetsk state enterprise Azot Association, Rubizhne state chemical
Plant Zoria, Turboatom, Ukraerorukh, Zaporizhheoinform, Ukrainian State
Geological Prospecting Institute, Kyiv state enterprise of land surveying,
cartography, cadastre and geo-information systems, Kharkiv FED plant,
Illichevsk commercial seaport, Ukrzakordonnaftohazbud.

In accordance with the resolutions of the Cabinet of Ministers "On
Inspecting Financial and Economic Activity of Enterprises of State Sector of
Economy on Certain Issues" No. 217-r of June 25 special commissions with
officers of Control and Revision Department at the head will inspect 13
enterprises within two months.

For instance, they will inspect Naftohaz Ukrainy and its three affiliate
companies - Industrial and Retail Enterprise, Ukrnaftohazkomplekt and
Ukrhazvydobuvannia, Ukrtatnafta, Enerhoatom, Ukrtelecom, Khlib Ukrainy,
Ukrspetseksport, Ukrzaliznychpostach, Ukrspyrt, Ukrtransleasing, Kharkiv
state aviation production enterprise.

As Ukrainian News earlier reported, the Cabinet of Ministers made a
statement in February about its plans to perform a complex inspection of
state monopolies, as well as large state enterprises. -30-
===============================================================
13. PROFILE: UKRAINIAN FIRST DEPUTY STATE SECRETARY MOTSYK
One of the two first deputies to State Secretary Zinchenko

BBC Monitoring research in English 2 Jul 05
BBC Monitoring Service, UK, in English, Sat, July 2, 2005

Oleksandr Motsyk is one of the two first deputies to State Secretary
Oleksandr Zinchenko. Motsyk's remit in the presidential secretariat includes
foreign issues and legal policy. Motsyk, a career diplomat, has come to
President Viktor Yushchenko's secretariat from the post of first deputy
foreign minister for European integration.

Motsyk was born on 3 May 1955 in a small village in Ukraine's western Rivne
Region. He served in the Soviet army in 1973-75, then was briefly a
construction worker in Kiev. In 1981 Motsyk graduated from Kiev Shevchenko
State University's Foreign Affairs and International Law department, where
international law and English translation were his majors.

Motsyk started climbing up the career ladder at the Soviet Ukraine's Foreign
Ministry immediately after graduating, as third secretary of the consular
department. In 1985-87 he worked as third secretary, then second secretary
at the ministry's international organizations department; in 1987-90 as
second secretary, then first secretary at the personnel department; and in
1990-92, when Ukraine gained independence, as first secretary at the legal
department.

Motsyk served his first long stint overseas as second secretary, then first
secretary at the Permanent Mission of Ukraine at the UN in New York in
1992-95. In 1993 he was a rapporteur of the 48th UN General Assembly's
sixth (legal) committee. In 1994-95 Motsyk was deputy head of the UN
special committee drafting the Convention on the Safety of United Nations
and Associated Personnel.

Motsyk returned to the Foreign Ministry's legal department in 1995, as the
department's head. In 1997 he was appointed ambassador to Turkey. In 2001
Motsyk returned from Turkey to become deputy state secretary of the Foreign
Ministry. In 2003, when this position was scrapped, Motsyk became deputy
foreign minister.

He headed the Ukrainian delegation in talks with Russia on the Sea of
Azov-Kerch Strait border delimitation in 2003-04, and was Ukraine's
commissioner on the delimitation of the sea shelf and other disputes (such
as the row over the Ukraine-built shipping canal in the Danube delta) with
Romania in 2004. In those jobs, Motsyk earned a reputation for being a
tough negotiator.

In July 2004 Motsyk replaced pro-Western diplomat Oleksandr Chalyy in the
post of first deputy foreign minister in charge of European integration. He
has also held the positions of member of the presidential commission for
citizenship and deputy head of the commission for adopting children by
foreigners.

On 14 February 2005 President Viktor Yushchenko appointed Motsyk first
deputy state secretary. Motsyk is married, with two daughters. He speaks
English and French. -30- [The Action Ukraine Report Monitoring Service]
===============================================================
14. UKRAINE RISK: BUSINESS RISK OVERVIEW

The Economist Intelligence Unit Limited
London, United Kingdom, Friday, July 1, 2005

OVERALL ASSESSMENT ----------

Operating risk in Ukraine is fairly high. The new leadership, which took
power early in 2005, is much more likely than the previous one to attempt
to increase political transparency and uphold the rule of law. However,
reforming the political process will take time. In the mean time, the
bureaucracy will remain ineffective, and vested interests will still be in a
position to distort the commercial and administrative system.

Red tape will similarly remain pervasive, although the new government is
moving much more quickly than previous ones to ease the regulatory burden
and simplify procedures. Discrimination against foreign businesses was
common in the past; the new administration will improve on this, but
concrete results will only be noticed gradually.

Moreover, the new government is intent on reviewing an unspecified number
of past privatisation deals, which has increased uncertainty and raised
concerns over property rights. The tax system is unclear and unpredictable.
Infrastructure is inadequate.

SECURITY RISK ----------

Security risk in Ukraine is low. Armed conflict is not a concern. Although
ethnic tensions over Crimea persist, these are not expected to lead to
violent confrontations. The political crisis that followed the flawed
presidential election in late 2004 fuelled inter-regional differences, but a
resort to violence remains unlikely, and there is no indigenous armed
activity of any kind.

There is considerable hostility to foreign capital, but little opposition to
foreign business people as such, and they face no special risks. Violent
crime is a concern for all businesses, as is the influence of organised
crime in Ukrainian politics and the economy. Foreigners have not so far
been targets of kidnapping but there have been attempts at extortion. A
rise in the number of physical attacks against foreigners has been reported
in recent months, although these are still isolated incidents.

POLITICAL STABILITY RISK ----------

Political instability and social unrest represent a risk to businesses in
Ukraine. As Ukraine is still in the early phase of a transfer of power to a
new presidential administration, these risks are even higher than normal.
The new government is a fragile coalition and includes competing interests,
which will give rise to occasional bouts of instability. The election
exposed serious societal divides (along ethnic, regional and economic
lines). These remain a concern.

Although the backers of the old regime, who are still well represented
within parliament, the bureaucracy and the armed services, have so far
mostly co-operated with the new presidential administration, they are still
likely to resist the erosion in their political and economic influence where
possible.

The implementation of sweeping constitutional changes to shift powers
from the presidency to parliament by early 2006 at the latest will add to
political dislocation and could fuel political instability.

GOVERNMENT EFFECTIVENESS RISK ----------

Government effectiveness risk is very high. The leadership and the
bureaucracy have traditionally performed poorly and erratically. Corruption
is widespread and red tape is pervasive. The situation is expected to
improve under Mr Yushchenko, who was inaugurated as president in
January 2005 and has made administrative reforms a priority.

However, progress on administrative reforms will still be slow, and vested
interests will continue to be well placed in the public sector. Moreover,
considerable policy confusion is likely, given the government's ambitious
agenda but weak administrative capacity. The introduction by early 2006 of
constitutional changes to strengthen parliament and the cabinet, in part by
weakening the presidency, will eventually lead to a more effective political
system.

However, political manoeuvring surrounding the shift to a new distribution
of power is likely to reduce government effectiveness over the short term at
least.

LEGAL & REGULATORY RISK ----------

The legal process is not independent and the judiciary is easily cowed
by vested interests. Contracts are difficult to enforce and regulation is
neither impartial nor clear. Although it is possible for foreign firms to
win court cases, particularly at the higher levels, the judicial process
remains slow and inefficient.

Ukraine is dominated by powerful local players who have successfully
excluded foreign capital. The risk that foreign investors’ assets will de
facto be expropriated is low, but recent examples of this exist. The
outgoing government’s record on promoting competition and restraining
unfair competitive practices was poor.

Although the new government is much more committed to a level playing
field, reforming the old system will take a while. Private property rights
are still not well protected. Local accounting standards are well below
accepted levels in the EU and the US.

MACROECONOMIC RISK ----------

Ukraine's economy is growing strongly, albeit more moderately than in 2004.
Inflation has risen but remains moderate, and the currency is stable.
Although relatively strong growth is expected over the forecast period, the
economy is still over-dependent on a few low value-added sectors. This
increases the economy's susceptibility to price and demand swings, and its
vulnerability to anti-dumping charges abroad.

Moreover, low levels of investment raise further doubts over the
sustainability of the economic recovery. Fiscal policy has loosened over the
past year, leading to greater risk of higher inflation. Further inflationary
pressures are to be expected as the government boosts incomes prior to
the 2006 parliamentary election, and as price liberalisation is completed.

FOREIGN TRADE & PAYMENTS RISK ----------

In the event of a financial crisis foreign-exchange availability would
rapidly disappear--as was most recently apparent during the election-related
turmoil in late 2004. Discriminatory tariffs are a low risk but might be
imposed in the event of a grave economic crisis. There is a moderate risk
of excessive trade protection, and some capital controls are expected to
remain in place.

The central bank has loosened currency controls since 2002, which has
facilitated currency operations. Most recently, it abolished the requirement
that 50% of export earnings be converted into the domestic currency. The
central bank has long been under pressure from exporters eager to see
swifter currency depreciation. However, it has thus far resisted demands
from exporters for a more favourable exchange rate.

TAX POLICY RISK ----------

The tax system poses some risks for business, since the tax regime lacks
predictability and transparency. Parliament made some progress in 2003 in
amending tax laws, including passage of a flat 13% income tax rate, which
entered into effect at the start of 2004. Parliament has attempted on
occasion to reduce the VAT rate (from 20% to 17%), but had been blocked
by presidential veto.

The level of corporate taxation is moderate, having been lowered as of 2004
as part of a campaign to encourage tax compliance. However, at 25% it is
still higher than in many Central European economies. There is a persistent
risk that taxes will be enforced in a manner unfavourable to foreign firms
even if, in theory, they are non-discriminatory. An additional risk comes
from sudden changes in the tax environment that leave businesses little time
to adjust.

LABOUR MARKET RISK ----------

Labour market risk is moderate. Strikes are only common in the state sector
and scarcely affect foreign firms. Labour laws are tilted towards the
employee and against the employer. There is a shortage of managers and
employees with exposure to doing business in a market economy. Wage
compensation is slowly moving towards a system under which pay is related
to productivity rather than age. There is no risk that freedom of
association will not be respected.

FINANCIAL RISK ----------

Financial risk remains relatively high in Ukraine. The financial sector is
still underdeveloped, and there is little long-term finance available
domestically for the private sector. Few foreign firms would want to access
the small local financial markets.

There is an inadequate local bond market, while the illiquid stockmarket
plays little role in providing equity finance. In 2004 the international
Financial Action Task Force (FATF) removed Ukraine from its blacklist of
countries deemed not to be sufficiently vigilant in confronting money
laundering.

INFRASTRUCTURE RISK ----------

Infrastructure risk is high. Port facilities are extensive and have improved
over the past three years, but are in need of further upgrading. Air
transport provision has deteriorated, requires investment and is expensive
compared with other locations in the region. The distribution network is
erratic and below standard. The telecommunications system requires
massive investment.

The road network is large but in poor repair, with the railways suffering
from similar problems. Power generation capacity is sufficient, but power
cuts are possible at any time and non-payment for energy is a concern.
Information technology infrastructure is inadequate for a country with
Ukraine's level of education. -30-
===============================================================
15. UKRAINE: ULO COLDSTORAGE TECHNOLOGY

LETTER-TO-THE-EDITOR
From: "Jorn van den Dop" jvandendop@yahoo.com
Sent: Monday, July 04, 2005 5:35 AM
The Action Ukraine Report (AUR), Number 516
Washington, D.C., Wednesday, July 6, 2005

Dear Mr. E. Morgan Williams,

Thank you for considering running an article. Basically, I'd like to outline
the following information:

Brema International B.V. from the Netherlands, specialized in ULO
coldstorage technology would be glad to get into contact with other
companies which are interested in the above mentioned technology.

For information on the technology, the organization or other questions
please contact: Mr. J.W. van den Dop at jvandendop@yahoo.com

Messages as well as replies can be in French, English, German, Dutch,
Ukrainian or Russian. Thank you for this opportunity.

Yours sincerely, J.W. van den Dop
The Netherlands (jvandendop@yahoo.com)
==============================================================
16. NSDC ADVISES YUSHCHENKO TO SET UP INVESTMENT AGENCY
UNDER ECONOMIC MINISTRY TO DEAL WITH INVESTMENTS
Also recommends a special investment protection department
be set up at the Prosecutor General's office

Ukrainian News Agency, Kyiv, Ukraine, Wed, June 29, 2005

KYIV - The National Security and Defense Council is recommending President
Viktor Yuschenko to set up a government agency under the Economy Ministry to
deal with investments. NSDC Secretary Petro Poroshenko announced this at a
briefing.

He said the agency should be supervised by the Ministry of Economy and deal
with procedures and legislative support of investments.

Poroshenko informed that his council has also recommended setting up a
special investment protection department at the Prosecutor General's Office.

Apart from that, an agreement has been reached to liberalize the market for
upcoming investors by, for instance, significantly simplifying the procedure
for land allotment. Poroshenko explained that this procedure takes 134 days
and time reduction will diminish possibilities for corruption in the course
of land allotment.

"Development of an absolutely clear procedure for investors' entrance onto
the market at instruction of the President will be quite a key position. In
fact, it turned out to be quite a lengthy, non-transparent and expensive
procedure," the NSDC Secretary said.

As Ukrainian News earlier reported, President Viktor Yuschenko called on
the NSDC to take decisions facilitating the work of investors. -30-
===============================================================
17. YUSHCHENKO CALLS ON NATIONAL SECURITY AND DEFENSE
COUNCIL TO CREATE CONDITIONS FOR WORK OF INVESTORS

Ukrainian News Agency, Kyiv, Ukraine, Wed, June 29, 2005

KYIV - President Viktor Yuschenko has called on the National Security and
Defense Council to take a decision to create conditions for work of the
investors. He said this while opening the NSDC meeting on June 29. The
President listed difficulties that investors face in Ukraine.

For instance, these include contradictory rules of regulatory policy, long
discussions of revision of privatization results, excessive number of
regulating acts for business. "The main thesis that was presented to
Ukraine was that we have too contradictory, inconsistent positions on
regulatory policy, privatization, and pricing," the President said.

He emphasized that the Cabinet of Ministers should look into regulatory
acts by July 1; there are around 1,300 such acts in Ukraine.

The President also drew attention to the fact that rates of economic growth
fell significantly in Ukraine. He made it understood that investors do not
come to Ukraine due to unclear rights.

"...under present conditions investor will go to Russia, Kazakhstan, Turkey,
but won't go to Ukraine. It will remain terra incognita for him," Yuschenko
said. He also criticized existing procedure of allocation of land. "We have
irrational procedure of land allotment, which makes these (land) relations
criminal," the President said.

He called on the meeting participants to be ready to take decisions that
could change existing rules of investments in land relations.

The NSDC meeting is dedicated to two questions: improvement of
investment climate in Ukraine and fulfillment of legislation and effective
policy in the sphere of land relations. As Ukrainian News earlier reported,
Yuschenko previously promised to investors to create the most modern
market in Ukraine. -30-
===============================================================
18. HOLGER CHRISTIANSEN PRODUCTION UKRAINE SUSPENDS
PRODUCTION DUE TO CANCELING OF BENEFITS ON VAT PAYMENT
Has factories in Denmark, Germany, and Slovenia.

Ukrainian News Agency, Kyiv, Ukraine, Tue, July 5, 2005

KYIV - The plant for regeneration of spent and defective starters Holger
Christiansen Production Ukraine (Krakovets, Yavoriv district, Lviv region)
in the end of June suspended production due to canceling of benefits for
payment of value added tax.

Chairperson of the Yavoriv district state administration Rostyslav
Novozhenets informed about this at the press conference in Novoyavorivsk.
"The plant is idling, lack of benefits in the Yavoriv free economic zone
paralyzed its work," he said.

Novozhenets added that in case with Holger Christiansen Production
Ukraine it is mainly about benefits with for VAT payment. He added that
the district state administration is trying to preserve benefits for Yavoriv
FEZ.

He said that several companies with Polish investments are studying
possibilities to file lawsuits to courts demanding to resume benefits for
enterprises of the FEZ.

As Ukrainian News earlier reported, Yavoriv district council (Lviv region)
and chairperson of the Yavoriv district state administration Rostyslav
Novozhenets asked Prime Minister Yulia Tymoshenko in April that Prime
Minister Yulia Tymoshenko resumed benefits for Yavoriv FEZ which the
Verkhovna Rada canceled with the law "On Making Amendments to the
law on National Budget."

There are 102 enterprises registered in the Yavoriv FEZ. Enterprises
received benefits for UAH 76 million for the entire period of existence of
the zone.

Denmark's Holger Christiansen company built the Holger Christiansen
Production Ukraine factory in Krakovets (Lviv region) for regeneration of
spent and defective starters in 2004. The company plans to produce
goods worth UAH 17.3 million per year.

Holger Christiansen operates on the Ukrainian market of regeneration
equipment. It has factories in Denmark, Germany, and Slovenia.
Yavoriv FEZ was created in 1999 for 20 years. Eleven free economic
zones presently operate in Ukraine while special investment regimes
have been introduced in nine territories of priority development. -30-
===============================================================
19. UP TO 200,000 THOUSAND UKRAINIANS MAY BE
ALLOWED TO WORK IN POLAND

Polish News Bulletin, Warsaw, Poland, Thu, Jun 30, 2005

WARSAW - Up to 200,000 Ukrainians could be allowed to work in Poland
legally under an agreement being negotiated by the governments of the two
countries.

"It will be based upon the agreement which was signed between Poland and
Germany years ago," said Marek Liszewski of the Ministry of Economy. The
Polish side has proposed to let up to 200,000 Ukrainians legally work in
Poland from April to October.

Most of them would be employed in agriculture and would not need work
permits. A similar pattern would also be applied with regard to baby sitters
and cleaning ladies from Ukraine. Under the agreement they would be
exempted from Polish taxes unless their earnings exceeded the proposed
limit.

On the other hand, 1,500 professionals from Ukraine are to be permitted to
work in Poland for 18 months every year. The agreement, which could be
ready for signing within few weeks, will not encompass Ukrainian
construction workers, many of whom work illegally in Poland for very low
wages. -30- [The Action Ukraine Report Monitoring Service]
=============================================================
20. I HAVE THE HIGHEST REGARD FOR THE UKRAINIAN PEOPLE

LETTER-TO-THE-EDITOR
From: Rodney H. Sessions, Petal, Mississippi
Sent: Sunday, July 03, 2005 8:49 PM
The Action Ukraine Report (AUR), Number 516
Washington, D.C., Wednesday, July 6, 2005

Just a note to tell you how much I enjoy your updates on what is happening
in Ukraine. I have visited in Ukraine on 3 occasions. I have lectured in
many schools and Universities and have also worked in two different
orphanages and continue to facilitate an online discussion group with
students in Ukraine/American High School in Dnepropetrovsk.

I have taken over 30 American students to Ukraine for 30 day exchanges and
brought a like number of Ukraine students to America for 30 day exchanges. I
have published articles in Ukraine and appeared on Ukraine television and
radio. I have the highest regard for the Ukrainian people.

Being a retired school superintendent I have traveled and worked over most
of the world. There has never been a country I felt more at home in than
Ukraine. Thank you for you good work on behalf of Ukraine and Her people.

Rodney H. Sessions
Petal, Mississippi (Glenrod@aol.com)
===============================================================
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