Welcome to the U.S.-Ukraine Business Council

Top AeroSvit official says there will not be any interruptions or suspensions
U.S.-Ukraine Business Council (USUBC), Kyiv, Ukraine, Tue, Aug 4, 2009

Delta suspends from early September 2009 until Summer 2010 Season, no service
By Joshua Freed, Associated Press (AP), Monday, July 20, 2009

Ukrainian Business Development News newsletter
Asters law firm, Kyiv, Ukraine, July, 2009

Baker & McKenzie law firm, Kyiv, Ukraine, Monday, July 27, 2009 

Analysis & Commentary: by David J. Kramer
The Weekly Standard, Wash, D.C., Sat, Aug 1, 2009 

Analysis & Commentary: by Ariel Cohen, Ph.D.
InsiderOnline, WebMemo#2565, The Heritage Foundation, Wash, D.C., July 27, 2009

Top AeroSvit official says there will not be any interruptions or suspensions

U.S.-Ukraine Business Council (USUBC)
Kyiv, Ukraine, Tue, Aug 4, 2009

KYIV - Kostadin Botev, Executive Director of AeroSvit Ukrainian Airlines in Kyiv, confirmed Monday that it is full-speed ahead with Aerosvit's non-stop New York-Kyiv flight.  Kostadin stated, "There will not be any interruptions or suspensions for the AeroSvit non-stop flights from New York City to Kyiv and from Kyiv to NYC."

AeroSvit's executive director said, "AeroSvit will continue to fly four times a week in the winter season and five times a weak in the summer season. Aerosvit is ready to fly more flights to the USA, but additional flights are presently limited by the U.S. government's Federal Aviation Administration (FAA)."

"AeroSvit is a member of the U.S.-Ukraine Business Council (USUBC) and is working with USUBC to resolve the issues raised by the U.S. government regarding Ukraine which are now restricting the approval of any additional flights to the USA such as to New York, Chicago or other destinations of interest to AeroSvit," according to Botev. 

Botev said that there is now a special promotion from AeroSvit-Ukrainian Airlines that allows passengers out of New York City to upgrade their travel to Kyiv from Economy Class to Business Class for just $450.

During the month of August only passengers will pay just $450 [*] instead of regular $600 for one way business class upgrade on an economy class ticket from New York to Kiev according to Botev. 

[*] Upgrade is only available for airport check-in at our airports of JFK and KBP. The upgrade is valid for sale at airport of departure provided seats are available in the Business Class Cabin. The upgrade may be applied for on OW sector carriage, and not earlier than 3 hours before departure.

AeroSvit has announced “Crazy Friday” on Friday, August 7, 2009. Only for 24 hours, you can get a ticket for your flights in August from New York to Kyiv for only $499, including all taxes. AeroSvit said it gets better in October and November – the tickets are just $399. http://www.aerosvit.ca/e_us.html.

FOOTNOTE:  Tickets for AeroSvit fights can be purchased from Dunwoodie Travel Bureau, Ltd., contact Alesia Kozicky, Owner/Travel Agent, Dunwoodie Travel Bureau, Yonkers, NY, 914 969 4200, 800 550 4334, E-mail: Dunwoodie@vacation.com website: http://www.dunwoodietravel.com/.

FOOTNOTE:  AeroSvit Ukrainian Airlines and Dunwoodie Travel are members of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.com.

Delta suspends New York-Kyiv flightfrom early September 2009 until Summer 2010 Season

By Joshua Freed, Associated Press (AP), Monday, July 20, 2009

Like most businesses, airlines want to grow. But during these difficult economic times, their survival depends on their ability to shrink, as they try to match how much they fly with the number of travelers willing to pay for a ticket.

Just like Detroit shutting factories rather than building more cars than people want to buy, airlines are reducing the number of available flights to avoid flying empty seats around the sky. That saves them money on fuel and labor costs. Airlines also hope it will tip the supply-and-demand equation back in their favor and allow them to raise fares.

What the industry calls capacity cuts began last year as oil prices spiked. At one point fuel amounted to 40 percent of an airline's costs, said Morningstar equity analyst Basili Alukos, who covers airlines. Cutting flights was one way to reduce that expense.

Last year's fuel prices were the first blow of a one-two punch for airlines. The other has been the recession, which has cut business travel sharply. Airlines rely on business travelers for profits because they generally buy higher-priced last-minute tickets and front-of-the-plane seats.

UBS analyst Kevin Crissey estimates that American Airlines will cut flying by 10.4 percent in August, and that United will fly 6.3 percent fewer seats. The biggest carrier, Delta Air Lines, will reduce capacity by 3.9 percent in August. Even Southwest Airlines, which has never planned a capacity cut, plans to reduce flying by 6 percent this year.

"After summer I expect most of the major airlines to be more aggressive with capacity cuts, simply because the economics are not working for them right now," said Jim Corridore, an airline analyst at Standard & Poor's.
Here are some questions and answers about capacity cuts.

Q: What is airline capacity, anyway?
A: Capacity is the amount of space available on an airline's flights. Airlines measure it in "available seat miles." That's one seat flown one mile, whether or not someone paid to sit in it. A reduction in seat miles equals less capacity.

Q: How do airlines cut capacity?
A: Two big ways: smaller planes and fewer flights. Airlines can put smaller planes on a route that used to be served by a bigger jet. Often, this is done by assigning the route to a regional carrier, which can operate anything from propeller-driven planes with a couple of dozen seats to 76-seat regional jets. So maybe the airline keeps just as many flights between two cities, but on a regional jet instead of, say, a 120-seat jet.

Or, they can cut a flight altogether. This has a bigger impact on passengers because a town used to two flights a day might drop to one. "The airlines have been carefully pruning their own networks to see where they're just not able to make money," Corridore said.
This is tricky in big markets because travelers — especially lucrative business travelers — often shop by flight time. So if one carrier drops its 5 p.m. flight from that city, that traveler may fly on a competitor instead.

Some cities without good prospects for profitable routes are being eliminated from the schedule altogether. Moves like that may or may not leave another carrier serving that city. "So some cities are seeing much fewer choices, and some cities are seeing very little service whatsoever," Corridore said.

Q: What about international flights?
A: International expansion that looked promising just a couple of years ago is now on hold.


Last week Delta won permission from federal regulators to reduce flights, including Atlanta to Moscow and New York to Kiev, from year-round service to seasonal. Delta needed the waiver so it doesn't lose the permission to fly to those cities, which it won under international agreements.

Delta said in a filing with the Transportation Department that it is reducing capacity "primarily through frequency reductions, changes to seasonal service patterns, and by serving certain international cities through fewer hubs."

Q: Is it working? By flying less, have airlines managed to raise fares or become profitable?
A: Profitable? No. And fares are down this year. But it could have been even worse for the airlines.
The International Air Transport Association expects North American airlines to lose $1 billion this year, but notes that those airlines lost $5.1 billion last year in part because of rising fuel prices. The trade group said capacity cuts are one factor preventing airlines from losing even more this year.

Q: Is there anything that limits how much the airlines can cut?
A: Well, parking planes has its costs, too. Even parked planes require some maintenance, and getting them ready to fly again is expensive.
Also, most airlines owe money on their planes, either for loans or leases. Corridore said that as long as they can generate enough money from the plane to cover at least some of those payments, they're often better off flying the plane — even at a loss — rather than parking it.

FOOTNOTE: Delta fought hard to win the New York-Kyiv from the U.S. Federal Aviation Administration (FAA) in competition with other U.S. airlines who wanted the flight and now Delta has decided to cut back the New York City-Kyiv/Kyiv-New York City service significantly, to suspend the fight totally from early September 2009 until the summer season of 2010.  Delta applied to the U.S. Department of Transportation (DOT) for approval to suspend the flight.  The U.S. DOT approved Delta's request.

Reports around Kyiv indicate there are some people in the business community in Kyiv who are not pleased at all with the decision by Delta and are working to get the decision changed.  There are also reports that there are some people within Delta Europe who would like to get the decision by Delta in their Atlanta, Georgia headquarters changed.  Delta ran a full-page ad in the "What's On" weekly magazine in Kyiv on July 31 with the headline, "The biggest airline in the world is pleased to announce it's biggest BUSINESS CLASS sale in Ukraine ever!" (www.delta.com)

Stories indicate the new Delta Air Lines promotion is addressed to try to attract business class customers to Delta quickly and thus generate additional volume of travelers who otherwise would not travel in business because of economical situation uncertainty. There is a 7 day advance purchase requirement and travel period is from August 1 to September 11, 2009 and the last ticketing date is August 14, 2009.

The idea is said to be to try and increase sales significantly so is would be not necessary from business point of view for Delta to suspend the NYC-Kyiv service for the so-called winter season and so an urgent appeal could be made to the higher Delta authorities to reverse their previous decision.  

Ukrainian Business Development News newsletter
Asters law firm, Kyiv, Ukraine, July, 2009

KYIV - Ukraine intends to hold a repeatedly-delayed sale of the Odessa Port chemical plant on Sept. 29 and is looking to raise at least 4 billion hryvnias ($525 million), the privatisation agency said on 15 July 2009.

The plant, a fertiliser producer and one of the biggest firms in Ukraine, has been a flashpoint in rows pitting Prime Minister Yulia Tymoshenko against her estranged ally, President Viktor Yushchenko, who has barred the sale three times. Yushchenko last banned the sale in May 2008 on the grounds that the plant was a strategic asset giving the buyer exclusive access to a key pipeline and port terminal. At the time, buyers from Ukraine, Russia and Estonia were touted.

The government wants to sell a 99.6 percent stake in the plant, based in the southern Black Sea port. A State Property Fund spokeswoman told Reuters the
auction would take place on Sept. 29.

Last year, when the State Property Fund last tried to sell the plant, it set a minimum price of 3 billion hryvnias, which at the time amounted to over $650 million, and said it had hoped to get $1 billion for it.

Conditions for the plant include guarantees that the plant remain profitable and that investments of 1.3 billion hryvnias ($170 million) are made during the first five years of ownership.

The new owner would also be obliged to increase revenues at the chemical plant to 3.02 billion hryvnias by the fifth year of ownership, from 2.34 billion hryvnias in the first year.

The plant had revenues of 3.6 billion hryvnias and profits of 800 million hryvnias last year, against revenues of 2.3 billion hryvnias and profits of 310 million hryvnias in 2007.

Revenues stood at 419 million hryvnias in the first quarter, against 756 million hryvnias in the same period last year. The plant recorded a loss of 4 million hryvnias in the first quarter, compared with a profit of 118 million hryvnias a year ago.

Canada's SNC Lavalin International Inc, Britain's SNC Lavalin UK-Limited, Japan's Mitsubishi Corporation, and Turkey's Chalyk Holding, Gap Insaat and Sancakli Group are considering the possibility of taking part in the construction of a liquefied natural gas transshipment terminal in Ukraine, as reported on 16 July 2009 by the press service of the Ukrainian Fuel and Energy Ministry.

The meeting on the realization of the project on the construction of the terminal chaired by Deputy Fuel and Energy Minister Burza Aliev was held in Kyiv on Wednesday. At the meeting, Aliev said that according to the directives of the European Union on the diversification of energy supplies to Ukraine, the construction of the liquefied natural gas transshipment terminal is an urgent issue today in the strategic development of the country's energy sector.

The meeting participants noted that several gas suppliers should exist in Ukraine in order to create a competitive energy market. The meeting took the decision to create a working group to coordinate work linked to the implementation of the project to build the new terminal.

Chalyk holding's vice president said that despite the restricted transit capacity through the Bosporus and Dardanelles, there are no problems with the passage of tankers with liquefied gas.

The representatives of SNC Lavalin, which today is realizing similar projects in Poland and other countries, informed the meeting participants that they are interested in the realization of the project, adding that a final decision on the scale of their participation could be made only after a business plan elaborated. The Mitsubishi Corporation's director general in Ukraine also confirmed his corporation's readiness to realize the project.

France's AXA Group, which is represented by AXA Insurance Company and AXA Ukraine (both based in Kyiv) in Ukraine, is considering Eastern Europe as a strategically important region for the group's development and plans to continue investing into its business in Ukraine, the group informed on 15 July 2009.

The board chairman Henri de Castries said that investment in Ukraine in the near future would be forwarded to study needs of clients, draw up innovative
products, and increase the quality of services and staff training.

The AXA Group in Ukraine consists of two insurance companies – AXA Insurance (formerly VESKO, which has been working in Ukraine since 1994) and AXA Ukraine (formerly the Ukrainian Insurance Alliance, which has been working in Ukraine since 2001).

An agreement on the acquisition of VESKO and the Ukrainian Insurance Alliance by the AXA Group was concluded in mid-November 2007. Today, both companies are headed by Philippe Wautelet.

The Ukrainian cabinet plans by the end of 2009 to hold a tender to select companies to build a new oil refinery in the country, Ukrainian Premier Yulia Tymoshenko said on 16 July 2009.

By the end of the year, a tender to select companies to build the refinery will be conducted, as Tymoshenko said at a meeting with the leadership of SK
telecom Company in Seoul. She proposed to the company's leadership consider the possibility of taking part in the tender.

Tymoshenko also drew the attention of Korean businessmen to the possibility of participating in a tender for the privatization of Ukrtelecom state company, and the prospects for gas extraction on the Black Sea shelf. SK telecom is in the top-five largest companies of South Korea. Its total assets are estimated at $72 billion.  LINK:  www.asterslaw.com.

NOTE:  Asters law firm, Kyiv, is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.

Baker & McKenzie law firm, Kyiv, Ukraine, Monday, July 27, 2009 

KYIV/LONDON - Baker & McKenzie announced today that it has acted as English and Ukrainian law counsel to XXI Century Investments Public Limited (XXI Century) on the restructuring of its USD175 million Guaranteed Secured Notes due 2010 (now renamed USD175 million Variable Rate Guaranteed Secured Notes due 2010/2014).

Pursuant to the restructuring, Noteholders were issued 2,068,698 new shares in XXI Century and 163,241 warrants giving an entitlement to subscribe to further 4,244,266 shares. 

The Baker & McKenzie team was led by Partners Chris Hogan  in London and Glib Bondar in Kyiv, with the key input from associates Andriy Nikiforov, Anna Voropayeva in Kyiv, and Iryna Nagayets, Hilary Owens and Laura Watson in London.

XXI Century is one of Ukraine's leading real estate investment, development and property management companies. In December 2005 it was listed on the AIM market of the London Stock Exchange and in May 2007 it completed its debut Eurobond offering listed on Luxembourg Stock Exchange's Euro MTF Market. Baker & McKenzie also advised on both these transactions.

Commenting on the news, Lev Partskhaladze, Chairman of the XXI Century Board of Directors, said: "We are grateful to the whole team in London and Kyiv for bringing this deal to a successful close."

Glib Bondar added: "We enjoyed working with one of our key clients, and are proud to have helped XXI Century on this important project. This transaction is another milestone for our CIS restructuring practice." Renaissance Capital acted as a Solicitation Agent.

Founded in 1949, Baker & McKenzie provides sophisticated advice and legal services to many of the world's most dynamic and successful organizations through more than 3,900 locally qualified lawyers and 7,000 professional staff in 67 offices and 38 countries.

Baker & McKenzie - CIS, Limited, Renaissance Business Center, 24 Vorovskoho St., Kyiv 01054, Ukraine, Glib Bondar, Partner
380 44 590 0101, glib.bondar@bakernet.com; Oksana Buchatska, Marketing & PR Coordinator, 380 44 590 0101, oksana.buchatska@bakernet.com.

NOTE: Baker & McKenzie law firm is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.


Analysis & Commentary: by David J. Kramer
The Weekly Standard, Wash, D.C., Sat, Aug 1, 2009 

Vice President Biden had just completed a successful visit to Ukraine and Georgia last week when he created a new controversy with dire predictions about Russia. His comments, arguably ill-timed for his boss's efforts to reset relations with Moscow, were not the only ones in the past few days offering a gloomy outlook on Russia.

The outgoing European Union Ambassador to Russia Marc Franco similarly warned that Russia would maintain "many characteristics of a Third World economy" unless it established real rule of law.

In an interview with the Wall Street Journal on July 23, Biden described a Russia with a looming demographic crisis, a "withering economy", and a banking sector in trouble. He noted Russia's interest in negotiating further cuts in nuclear weapons because they cannot afford to maintain even current levels. Russia is having difficulty adjusting to "loss of empire," Biden said, adding that it is "clinging to something in the past that is not sustainable."

In a separate interview over the weekend with Reuters, Franco cited Russia's insufficiently developed civil society and lack of freedom of the press. "I do believe," Franco said, "that you cannot have rule of law without the basic elements of democracy, implying free elections and a vibrant civil society supported by a free press."

In their descriptions of current Russia, both Biden and Franco were on the mark. Russia's economic troubles (the World Bank predicts GDP will decline 7.9 percent this year) are compounded by its continued dependence on the export of raw materials (energy, metals), leaving it vulnerable to outside factors beyond its control.

Over the past eight years despite the bounty from high oil prices, Russia's leaders failed to diversify the economy or invest in its declining infrastructure and energy sector, production in which has flattened out and likely to decline in the next several years. At the same time, Russian corporate debt is estimated at $500 billion, $130 billion of which is due this year.

Meanwhile, Russia's population has been declining by an average of 700,000 per year and may reach a low, in worst case scenarios, of 100 million by 2050 from roughly 143 million today. This will have enormous implications for Russia's labor force, its military, and its ability to control restive regions like the North Caucasus, one of the few places where the population is on the rise. Corruption remains a huge problem, while civil society activists, journalists, and opponents of the government deal with regular harassment, attacks, and even murder. Russia, in other words, faces a very difficult future.

In an appearance on Sunday's Meet the Press, Secretary of State Hillary Clinton described Russia as a "great power" and reiterated President Obama's hope to see a "strong, peaceful, and prosperous" Russia. White House press secretary Robert Gibbs said in a statement Saturday evening, "The president and vice president believe Russia will work with us not out of weakness but out of national interest."

Alas, that is wishful thinking. Contrary to Biden's description of Russia's leaders as "pretty pragmatic in the end" and likely to cooperate with the U.S. out of national interest on issues such as Iran, the very problems he identified are likely to make Russia a more difficult country with which to engage. We and Russian leaders simply do not share many national interests, to say nothing of common values.

A Russia facing the kinds of problems Biden and Franco described is more apt to deflect its population's attention from the growing number of difficulties at home by projecting onto others like neighboring Georgia or Ukraine. There's nothing like a "threat" from Tbilisi or Kyiv -- or from NATO enlargement -- to drum up popular support and take everyone's minds off the problems at home, at least temporarily.

Even on the issue of arms control, Russian leaders have insisted that a final agreement be linked to the U.S. abandonment of missile defense plans in Poland and the Czech Republic. If Russia cannot afford to maintain its current declining levels of nuclear warheads and delivery vehicles anyway, Obama need not cave to Russian demands to link a post-START agreement to missile defense. Russian leaders need an arms control treaty more than we do.

On Iran, Biden said, "I can see Putin sitting in Moscow saying, 'Jesus Christ, Iran gets the nuclear weapon, who goes first?' Moscow, not Washington." This, too, is wishful thinking given that Russian leaders have repeatedly declined to get tougher with Iran over its nuclear weapons aspirations. They would much prefer the United States and its allies play the role of the heavy vis-à-vis Tehran while Russia reaps the benefits of economic, energy, and arms sales ties with Iran.

A Russian leadership facing the kinds of problems Biden and Franco describe is less, not more, likely to work together with us on a whole host of issues. Its leadership is apt to clamp down even more against the slightest possible threats to its control, increasing the dangers to the country's own human rights activists and journalists such as Natalya Estimorova, murdered in Chechnya July 15.

Sadly, these are not the characteristics of a "great power" or even a country with a leadership that reflects "pragmatism" or "shared interests" with us. As the Obama administration seeks to reset relations with Moscow, it should do so very much keeping in mind the truth, inconvenient and ill-timed though it may be, spoken by the vice president.

NOTE:  David J. Kramer is a Senior Transatlantic Fellow at the German Marshall Fund of the United States and served as Assistant Secretary of State for Democracy, Human Rights and Labor and a Deputy Assistant Secretary of State responsible for Russia, Ukraine, Belarus, and Moldova, in the George W. Bush Administration.

LINK: http://www.weeklystandard.com/Content/Public/Articles/000/000/016/803tfwfc.asp


Analysis & Commentary: by Ariel Cohen, Ph.D.
InsiderOnline, WebMemo#2565, The Heritage Foundation, Wash, D.C., July 27, 2009

Last week, the White House dispatched Vice President Joe Biden to Ukraine and Georgia to assuage fears that America may be abandoning its allies in the post-Soviet space, as Washington continues to try to push the reset button with Moscow. Instead, fudged messages and more confusion prevailed. As Biden visited Kyiv and Tbilisi, the Obama Administration managed to dilute a key message--that Russia should respect the sovereignty and territorial integrity of its neighbors.

The mere fact that the Vice President ventures into what Russia calls its "near abroad" two weeks after President Obama's visit to Moscow indicates that the White House has downgraded its relationship with Ukraine and Georgia. In the past, a U.S. President en route to Moscow would make a stopover in the Baltic States, Ukraine, or another country in the former empire. These visits were a signal that Washington would not have "preferred partners" in the region.

Things have changed since the Obama Administration decided to prioritize the relationship with Moscow in such vital areas as Afghanistan, Iran, and arms control. While the global agenda is important, so is U.S credibility. It is crucial to demonstrate to U.S. allies near and far that the United States stands by its friends. Unfortunately, Joe Biden's messages, carefully monitored in Moscow, fell short of making that case.

Biden offered "tough love" to the political elite in Kyiv, and deservedly so. However, his tone was pedantic, if not high handed--something the Ukrainian political elite will surely resent.

Biden pointed out that the promises of the Orange Revolution of 2004 have not been completely fulfilled. He publicly criticized the lack of cooperation between President Victor Yushchenko and Prime Minister Yulia Timoshenko, rivals in the forthcoming January 2010 presidential elections. And his team's assumption that after the elections Ukraine will scale down Euro-Atlantic integration may be wrong.

The Vice President called for an intensified fight against corruption, an effort to increase energy efficiency, and an improvement in Ukraine's abysmal economic performance (negative 14 percent of its GDP). Ukraine's dependence on Russian gas and its inability to pay market prices to Gazprom are at the heart of the country's strategic insecurity. Biden's criticisms on these points were fully warranted.

Biden also announced a meeting of the U.S.-Ukraine Strategic Partnership Commission to be held in Washington in the fall. The intention is to implement the U.S.-Ukraine Strategic Charter, signed in December 2008 by the Bush Administration, and to deepen bilateral cooperation in the areas of security, economy, trade, energy, and the rule of law.

Where Biden fell short was in the area of national security. According to Kommersant Daily, in April 2008, then-President Vladimir Putin told George W. Bush at the NATO summit in Bucharest that Ukraine is "not a real state." Since then, he has pejoratively referred to Ukraine as "Little Russia."

Vice President Biden was tight-lipped in describing what kind of security and military cooperation the U.S. and NATO can have with Ukraine. While he left the matter of potential Ukrainian Euro-Atlantic integration to the Ukrainian people, Biden ignored Russia's staunch opposition to the prospect. He also failed to call upon America's European allies to step up Ukraine's integration into the EU.

Biden's trip to Georgia was even more problematic, despite receiving a hero's welcome there. People lined the streets with slogans "Don't Forget Us" and "No to Occupation" in reference to Russia's occupation of Abkhazia and South Ossetia in the summer of 2008. Biden met with the democratic opposition, which is demanding President Mikheil Saakashvili's resignation, yet indicated that the U.S. will not dictate an election timetable.

In a speech before the Georgian parliament, Biden correctly rejected Russia's claims to a 19th-century-style sphere of influence. He delivered a message that the U.S. is seeking a free, secure, democratic, and united Georgia. Yet again, he fell short of operational details.

Biden's call to the world not to recognize the independence of Abkhazia and South Ossetia is the minimum Washington can do, yet the Vice President rejected any "physical security guarantees" to Georgia in case of a Russian attack. Nor did he articulate any concrete roadmap intended to restore Georgia's sovereignty and hold Moscow to its commitments to the Medvedev-Sarkozy accords of August 2008, which call for the restoration of the status quo ante along Georgia's borders.

Behind closed doors, Biden warned against any future use of force to liberate the Russian-occupied territories--a position inherited from the Clinton and Bush Administrations--and rejected Georgia's requests for defensive weapons, such as anti-tank and anti-aircraft systems. Denying Georgia defensive weapons will hamper its ability to defend itself in case of another Russian attack and may be interpreted by some in Moscow as de-facto encouragement of a tougher line toward the Saakashvili administration.

While Biden was in Tbilisi, Russian Deputy Foreign Minister Grigory Karasin warned that Moscow will take "concrete measures" against any country that seeks to rearm Georgia. Particularly in this light, Biden's declaration of a partial weapons embargo and refusal to provide "physical security guarantees" may be interpreted as an Obama Administration cave-in to Moscow's pressure.

The Obama Administration is walking a tightrope between trying to improve the frayed relationship with Russia while simultaneously rejecting Moscow's spurious claims to a "sphere of exclusive interests" in the former Soviet Union and Eastern and Central Europe.

To boost the confidence of U.S. allies while ensuring that Russia remains in a cooperative mode, Washington should:

     [1] Expand cooperation with NATO allies in formulating and implementing a joint policy that clearly delineates security "red lines" in Europe, including
           contingency planning for the defense of Eastern and Central European NATO members--something that has so far been postponed.
     [2] Continue to cooperate with, upgrade, and improve the militaries in the post-Soviet states, especially Azerbaijan, Georgia and Ukraine, which are
           interested in NATO membership.

     [3] Work with post-Soviet states on developing democratic institutions, transparency, the rule of law, and good governance, as stronger institutions and
           stronger states also enhance national security and improve the investment climate.

     [4] Announce a visit by President Obama to a non-Russian state of the region in the first half of 2010. The President should deliver a strong message of
           support for their sovereignty, territorial integrity, diplomatic and security cooperation, Euro-Atlantic integration, democratic development, and energy

"State sovereignty must be a cornerstone of international order," declared President Obama in his speech at the New Economic School in Moscow on June 7. "Just as all states should have the right to choose their leaders, states must have the right to borders that are secure, and to their own foreign policies. That is true for Russia, just as it is true for the United States. ... That's why we must apply this principle to all nations--and that includes nations like Georgia and Ukraine." Yet after Biden's visit, these words ring somewhat hollow.

The Administration is understandably focused on Afghanistan, Iraq, Iran, North Korea, and other priorities, but Eastern Europe and Eurasia, the heart of the Eastern hemisphere, cannot and should not be neglected. Nor can they be abandoned to the geopolitical ambitions of those with transparent anti-American agendas. President Obama and Vice President Biden should make certain that this message rings loud and clear even before their next visit to the region.

NOTE: Ariel Cohen, Ph.D., is Senior Research Fellow in Russian and Eurasian Studies and International Energy Security in the Douglas and Sarah Allison Center for Foreign Policy Studies, a division of the Kathryn and Shelby Cullom Davis Institute for International Studies, at The Heritage Foundation.

LINK: http://www.insideronline.org/summary.cfm?id=10722