NEWS ANALYSIS: Rada's "no" vote a major setback to international trade agreements (06/19/05)

NEWS ANALYSIS

Rada's "no" vote a major setback to international trade agreements

by E. Morgan Williams

The Verkhovna Rada on Tuesday, May 31, once again voted down, by a narrow margin, a package of amendments to Ukraine's intellectual property rights laws that would have brought Ukraine into compliance with widely accepted international standards.

The amendments, if adopted, would have allowed the government of Ukraine to move forward to finalize the completion of several major international business and economic agreements, including several with the United States and those needed for possible accession to the World Trade Organization (WTO) in late 2005.

Ukraine again failed to legally protect intellectual property rights, which many experts believe will jeopardize Ukraine's efforts to join the WTO and its efforts to get rid of economic sanctions imposed by the United States and undermine its efforts to substantially increase its trade and investment levels and its program to improve the image of its overall business environment.

Several top U.S. government officials involved in economic and trade agreements indicated last week in Washington that they were very disappointed in the Ukrainian Parliament's failure to pass the needed amendments. They felt this action was a huge blow to Ukraine and do not see much chance now for Ukraine to meet the requirements needed for WTO membership by late 2005.

Reports from Kyiv indicate that the Yushchenko/Tymoshenko government did not do an adequate job of informing Parliament members about the international and domestic importance to Ukraine of passing the intellectual property rights amendments.

Also, a considerable number of Our Ukraine members in the Parliament did not vote for the intellectual property rights amendments and several key Our Ukraine bloc members were not even in Kyiv the day the vote was taken.

Passage of the amendments would have provided substantial benefits to Ukraine. The failure of the Our Ukraine bloc in the Parliament to strongly support Ukraine's rapid movement toward major international economic and trade agreements has been alarming to many private business and government leaders around the world.

The major negative consequences for Ukraine most likely include the following.

1. U.S. Economic Sanctions Against Ukraine Will Not Be Removed. The U.S.-imposed $75 million worth of sanctions on Ukrainian imports on January 23, 2002, thus blocking some access for Ukrainian goods to the American market.

The United States Office of the Special Trade Representative declared in late April 2004 that it would keep in place economic sanctions against Ukraine because of its poor efforts to fight optical media piracy and trademark counterfeiting.

The United States had indicated it is ready to cancel the economic sanctions against Ukrainian goods if the amendments to the bill of optical information carriers had passed the Verkhovna Rada.
2. The bilateral trade agreement with the United States cannot be signed.

Ukraine needs to sign a bilateral trade agreement with the US as part of the agreements needed for accession to the WTO. The U.S. will not agree to sign such a bi-lateral trade agreement until the intellectual property rights amendments are passed and a few other trade conflicts are settled.
3. U.S. support to assist in jump-starting and supporting further work on Ukraine's WTO Accession will now be further delayed.

The Parliament's failure to pass the needed amendments will keep the U.S. from working with Ukraine to assist in jump-starting and supporting further work which is needed immediately if Ukraine's accession to the WTO is to happen in the late fall of 2005. Ukraine's Parliament has also failed to pass approximately 20 or so other laws that are needed to comply with WTO regulations.
4. Jackson-Vanik restrictions on Ukraine will not be removed in 2005.

The U.S. Senate Finance Committee is one of two committees in the U.S. Congress that would have to bring up the Jackson-Vanik issue and pass out of committee a bill that would lift the restrictions on Ukraine and send it to the floor of the Senate. Officials in Washington last week indicated the Jackson-Vanik issue for Ukraine was not on the Committee's agenda for the rest of 2005.

There were also indications that it was highly unlikely the issue would be brought before the committee until Ukraine passes the intellectual property rights amendments and also works to resolve trade issues related to the import of U.S. poultry, pork and beef and to GMO [genetically modified organisms] seeds to Ukraine.

One of the key issues of importance to the U.S. Senate Finance Committee right now is the enforcement and compliance of trade agreements.
5. The international business and economic community continues to receive negative signals from Ukraine.

Ukraine has sent to the international business and economic community a series of negative signals over the past three months. These include the imposition of some price controls, the confusion over re-privatization and new privatizations, the fuel crisis, the increase of some taxes on business, the sudden removal of all the rights under free-trade zones, the dramatic increase in public expenditures for wages and pensions, and now the failure of the Parliament to pass amendments to Ukraine's intellectual property rights legislation and the laws needed to comply with WTO requirements.

Among the comments regarding the issues reported above that were expressed by various private business, government and other leaders in Washington last week were the following.

1. The government of Ukraine needs to immediately focus on, give top priority to and organize top government officials and staff to effectively deal with the many bilateral and international agreements they need to complete in 2005-2006. The new government has not done this yet, and valuable time is being lost. There seems to be little focus on setting priorities, assigning responsibility and holding people accountable for accomplishing the work in a professional manner and on time.
2. Ukraine is grossly underutilizing the many opportunities it now has to benefit from new agreements with major Western governments and the many programs of the international financial institutions. Ukraine is one of the slowest countries in the world in the implementation of development programs that have been agreed to. Ukraine draws down only 7 percent on its programs with the World Bank, which is also one of the lowest percentages in the world. The normal drawdown would be in the 25 to 33 percent per year range.
3. We have serious concerns about the new Ukrainian government's ability to implement the reforms needed to quickly improve the business environment - reforms that will deliver real, tangible results. Reforms are the key to Ukraine taking advantage of the huge good will and opportunity it now has with the international investor and business community because of the Orange Revolution.
4. We have not yet seen a professional, well-coordinated plan from the Ukrainian government regarding the assistance they would like to have from Western governments and international financial institutions.
5. Every week we see a new plan for a new vertically integrated business company to be owned and run by the Ukrainian government. Thankfully, nothing has happened yet regarding the implementation of these ill-conceived and proposed plans.
6. The recent negative vote by the Parliament regarding intellectual property rights was not encouraging at all; it was very disappointing. We do not understand, given the importance of the amendments, why they did not pass. This could have been a major positive signal from Ukraine - one that was badly needed.
7. Ukraine's movement to complete its requirements for WTO membership in 2005 is very slow. It is way behind schedule. We do not see how Ukraine can complete what needs to be done in time to join the WTO in 2005. If it does not make the 2005 deadline it could be the fall of 2006 before Ukraine is ready to join. The sheer amount of conforming legislation needed is a formidable task and it is becoming increasingly difficult to see how this can now be done.
8. The United States and other governments are solidly behind Ukraine. It is very important that the new Ukrainian government organize key staff persons in its various ministries to utilize this positive environment and accomplish just as much as possible before time runs out - before the window closes.
9. The government of Ukraine does not seem to have a clear governmental regulatory or legislative strategy for the development, approval, passage and implementation of major business reforms. This is creating problems for potential investors and considerable unpredictability as to what will happen in the Ukrainian marketplace.
10. Important documents submitted by Ukraine's government in the past (and also in 2005) to the U.S., other governments, to international financial institutions and trade organizations many times have not met the necessary criteria, are not world-class, not professional, and thus do not produce the desired positive results. Documents also usually take far too long to develop and thus are not submitted in a timely fashion.

With the opportunities now available to Ukraine, if this pattern continues, various agreements favorable to Ukraine will be delayed and Ukraine will lose its participation in other programs needed in Ukraine to move the reform agenda forward. The Ukrainian government at the highest level needs to quickly address and solve this issue by setting up better organizational systems for planning, execution and oversight.

Many of the 10 comments reported above were heard more than once and represent the general consensus that now exists in Washington. The same general message was heard over and over in a variety of meetings held on Capitol Hill, with various government officials, private business leaders and other officials from think-tank organizations in Washington who are quite knowledgeable about Ukraine.

E. Morgan Williams is publisher and editor of The Action Ukraine Report (AUR), which is published in Washington. This analysis is reprinted with permission from the report's June 13 issue (No. 501).

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