EUROINVEST Summer 2003
UKRAINE AND THE ENLARGED EU
EUROINVEST interview with the Prime Minister of Ukraine Mr. Viktor Yanukovych
EUROINVEST interview with the Prime Minister of Ukraine Mr. Viktor Yanukovych
Ukrainian Prime Minister, Viktor Yanukovych, spoke to John Muir about Ukraine’s plans to seek early EU
membership and its strategy for sustaining its programme for economic reform.
John Muir: Prime Minister, what are your views on Ukraine potentially joining the European Union?
Victor Yanukovytch: The President of Ukraine, the Government, the parliamentary majority and the majority of
Ukrainian political parties see no alternative to joining the European Union. Ukraine's culture, geography and
mentality are a part of Europe. Centuries ago, Ukraine was the European civilization's border with the East.
Historically Ukrainian territory was Europe's shield against the expansion of the steppe peoples. Ancient trans-
national transport corridors, which connect Europe and Asia, cross Ukraine. In olden times, Ukrainian
aristocracy married into European dynasties. We have always felt European. Therefore, it is quite strange that
some European politicians do not understand our natural aspiration to join in with the rest of Europe. After all, an
enlightened European history has always embraced something more than today's purely pragmatic considerations.
We realize that instant EU integration for a country the size of Ukraine is a complicated task. Nevertheless,
Ukraine has already made its choice. It is steadily implementing political and economic reforms in order to join
the European community as a fully-fledged member. The prospects for Ukraine's European integration depend on
the depth, pace and consistency of Ukraine's social, economic, political and administrative transformations. For
Ukraine, internal reforms represent the shortest road to the European Union. We have much to do before Ukraine
gains fully-fledged EU membership, and we are resolute about achieving this goal.
During meetings of the Ukraine-EU Partnership Council and my meeting with EC President Romano Prodi, we
discussed a model for relations between Ukraine and the future enlarged EU. The Ukraine-EU Partnership and
Cooperation Agreement is the basis of our existing relations. Ukrainian and European experts assessed its
implementation and provid-ed a joint report, which demonstrated that cooperation between Ukraine and the EU in
many key European areas, such as justice, home affairs and common European defence and security policy,
extend beyond the Agreement.
Present-day Ukraine is a stable and predictable European state that is growing, and where common European
democratic values are being established and the welfare of the popula-tion is improving.
The success of our political reforms is illustrated by the fact that a parliamentary majority has been achieved
through a coalition. This majority and the Government are jointly responsible for reforms and the development of
the state. A transition from the presidential/ parliamentary political structure to a parliamen-tary/presidential one,
which exists in most European countries, should become the next step in political reform in Ukraine. Already, a
large-scale process of adaptation of Ukraine's laws to EU legislation and WTO norms is taking place in the
country.
Regarding the European Commission's "Broader Europe - Neighbourhood: New Framework of Relations with our
Eastern and Southern Neighbours", we welcome new opportunities for Ukraine to be engaged in the EU internal
market. These include the liberalisa-tion of the movement of people, goods, services and capital, the introduction
of new EU instru-ments of investment and credit in Ukraine and technical assistance and cross-border coopera-
tion. Their realization will promote the rapprochement between Ukraine and the EU. We also hope to see the
development of joint projects in energy supply to the EU, infrastruc-ture for pan-European transport corridors
and increased investments from EU countries.
However, we are concerned that the European Commission has not reaffirmed the openness of the European
Union to all European countries, and has failed to provide concrete answers to Ukraine regarding clear terms and
conditions for EU accession. After all, cooperation between Ukraine and the European Union even now can add a
qualitatively new dimension and proceed from the principles of partnership and cooperation to the principles of
real integration.
During recent visits to Brussels, London, Athens and Berlin we discussed a new model for relations between an
enlarged EU and Ukraine. I felt strong interest and support both from the EC President and leaders of the EU
countries for Ukraine's European integration course. Germany in particular has promised to use its influence in
the European Commission to have Ukraine recognized as a country with a fully functioning market economy.
Ukraine is closely monitoring enlargement developments in the EU with which we will soon have a common
border. However, the EU border should not turn into a new Wall that would separate Eastern Europe from
Western Europe.
JM: How do you plan to accelerate WTO membership for Ukraine and what do you see as the benefits?
VY: Recently Ukraine activated bilateral negotia-tions with WTO Member States. Thirteen bilater-al protocols on
access to markets of goods and services have already been signed with Member States of the Working Group
(Czech Republic, Slovak Republic, Hungary, Slovenia, Latvia, Georgia, India, Canada, Mexico, Uruguay, New
Zealand, Southern Korea and EU protocol). Negotiations with other countries are underway. Today Ukraine has
advanced to the next stage of WTO accession - namely drafting a Working Group's Report on Ukraine's WTO
accession.
The Government is going to complete bilateral negotiations on access to markets of goods and services with
Member States of the Working Group in 2003. By doing so, we'll provide for the drafting and approval of most
important legislation required to harmonize Ukraine's foreign trade regime with the WTO's norms and
requirements.
The opening of Ukraine's markets after WTO accession will bring an increase in competition among domestic
and foreign manufacturers, which will lead to competitively priced goods. Realistically speaking, Ukraine hopes
to accede to the WTO in the first half of 2004.
JM: Your government has an ambitious privatisation programme this year. What steps are you taking to boost
foreign investment in Ukraine?
VY: The Law of Ukraine on Investment Activity has established legal, economic and social conditions for
investment in the country. The law establishes equal protection of rights, interests and property for investors
irrespective of types of property. It is aimed at the develop-ment of Ukraine's international economic cooperation
and integration into the global community. Citizens and legal entities of Ukraine may invest in Ukraine, as well as
foreign states. All subjects of investment, irrespectively of ownership, have equal rights as to investment activity.
There is a government programme called "Ukraine's Investment Image" which is aimed at enhancing Ukraine's
achievements and favourable investment image abroad. We want our country to have the reputation of a country
with a reliable investment climate. State policy implemented by the Ukrainian Government includes measures to
improve conditions for the privatisation of strategically important assets in Ukraine and the creation of free
economic zones.
Today there are 20 economic free zones and territories of priority development for hi-tech businesses in Ukraine.
An optimal combination of skilled labour and low salaries has been created. The fact that 393 investment projects
are being implemented in free economic areas and territories of priority development at the beginning of 2003
confirms their attraction to foreign investors.
In 2003, the Government is going to offer for sale share holdings of strategically important enterprises, including
energy distribution companies, big metallurgy plants and chemical companies.
A considerable improvement in the legal base for business entities represents yet another important factor. A
national procedure has been introduced for foreign investors, providing them with equal conditions in comparison
with domestic investors. The Land Code will facilitate investment by settling problematic issues of land use. The
approval of the Land Code will create a stable legal basis for investment, taking into account international
requirements. The Customs Code was approved last December, which will play an important role in the creation
of stable and favourable conditions for invest-ment. The Tax Code will be approved in the first half of 2003,
ensuring legal stability with regard to taxation, as well as considerably decreasing the tax burden on business
entities.
JM: How far advanced is Ukraine's economic reform programme?
VY: Ukraine's modern economic development is based on market-oriented reforms. After a linger-ing crisis
related to the restructuring of the economy inherited from the former Soviet Union, a period of economic growth
has been in place in Ukraine since 2000. GDP grew by 21% in 2000-2002 and the real income of the popula-tion
started to grow. The Hryvnia has a stable exchange rate and we have a positive trade balance. The real economy
has extended credits, currency reserves are being accumulated and foreign debt obligations are being met.
We are establishing Ukraine as a high-tech country for development of high-end technology manufacturing
facilities and production of goods with a high level of processing. Ukraine will thus take full competitive
advantage of its economic strengths in aircraft and shipbuilding, space technology, superhard materials and so on.
Governmental policy is aimed at ensuring the rights and freedoms for its citizens and creating a qualitative
transformation in their economic, social and spiritual lives. Thus, a cardinal change in ideology, from
authoritative to democratic, is taking place in Ukrainian society.
JM: How does your Government plan to promote the role of SMEs in Ukraine?
VY: So as to encourage the development of entrepreneurship, the Government has introduced simplified taxation
schemes, licens-ing procedures and state registration. The list of products subject to mandatory certification has
also been shortened. An important new document is now being drafted which will simplify the procedure for
issuance of permits required for business start ups.
So as to stimulate the financial system, the Government and the National Bank will legislate for the establishment
of mortgage banks, the development of a secondary market for securities as well as legally settle the position of
the Fund for Insurance of Deposits of Individuals. Furthermore, a State Registry of Immovable Property Rights
will be established, which will provide an opportunity to influence the banks' ability to finance mortgaged
property and simplify the procedure for declaring indebted companies bankrupt.
JM: What is Ukraine's strategy for promoting energy efficiency?
VY: Excessive power consumption in Ukraine's economy is a considerable problem facing Government. We
intend to create administrative, legal and economic mechanisms that 1 promote energy efficiency and saving.
The introduction of new energy-efficient technologies will require considerable investments, which can be
attracted, inter alia, on basis of an efficient price and depreciation policy. The most important factor in energy
savings is a regulatory policy that ensures energy prices and tariffs fully cover the cost of production,
generation, transformation and delivery. All consumers, without exception, must pay full and on time for fuel and
energy consumed as well as contribute to the reduction of energy waste.
In order to achieve this, the Government will improve the legal base for the efficient use energy resources and
mass use of energy met by consumers. Managers of state and budget- funded companies will have their
responsibilities for the efficient use of fuel and energy significantly increased.
JM: How important is decentralization in Ukraine's programme for attracting investment?
VY: "Ukraine's Investment Image" Programme provides for the participation of 'oblast' or state administrations in
the search for investors. I particular, the Programme provides for 'Days c Ukraine's Regions', regional
investment fairs an forums with the participation of foreign investors working in Ukraine. It also offers
participation in thematic public events abroad and in cross-border cooperation forums.
In particular, good work with investors is underway in Lviv oblast, where the Second Economic Forum on
Cross-border Cooperation was held last October. Representatives of official and business circles from 18
countries of the world participated in the Forum. More than 300 investment projects covering all spheres of the
economy were presented at the Forum. Similar successful work with investors is taking place in Donetsk,
Dnipropetrovsk, Zaporizhya, Lugansk, Ternopil and Kherson oblasts.
Analysis of investment activity in Ukraine shows that investment potential of the national economy continued to
grow last year. Preliminary data showed that fixed capital investment in 2002 amounted to UAH 37,000,000,000,
which is UAH 4,400,000,000 more than in 2001. For four consecutive years, the rate of growth of fixed capital
investment exceeds the dynamics of GDP and industrial output.
Many foreign business people who work in Ukraine are very satisfied with the business conditions of our
country. We have many attrac-tive projects to interest foreign investors. We have a friendly and hard-working
people and our nation boasts a cultural and scientific charac-ter of great potential.
JM: Many thanks, Prime Minister.
membership and its strategy for sustaining its programme for economic reform.
John Muir: Prime Minister, what are your views on Ukraine potentially joining the European Union?
Victor Yanukovytch: The President of Ukraine, the Government, the parliamentary majority and the majority of
Ukrainian political parties see no alternative to joining the European Union. Ukraine's culture, geography and
mentality are a part of Europe. Centuries ago, Ukraine was the European civilization's border with the East.
Historically Ukrainian territory was Europe's shield against the expansion of the steppe peoples. Ancient trans-
national transport corridors, which connect Europe and Asia, cross Ukraine. In olden times, Ukrainian
aristocracy married into European dynasties. We have always felt European. Therefore, it is quite strange that
some European politicians do not understand our natural aspiration to join in with the rest of Europe. After all, an
enlightened European history has always embraced something more than today's purely pragmatic considerations.
We realize that instant EU integration for a country the size of Ukraine is a complicated task. Nevertheless,
Ukraine has already made its choice. It is steadily implementing political and economic reforms in order to join
the European community as a fully-fledged member. The prospects for Ukraine's European integration depend on
the depth, pace and consistency of Ukraine's social, economic, political and administrative transformations. For
Ukraine, internal reforms represent the shortest road to the European Union. We have much to do before Ukraine
gains fully-fledged EU membership, and we are resolute about achieving this goal.
During meetings of the Ukraine-EU Partnership Council and my meeting with EC President Romano Prodi, we
discussed a model for relations between Ukraine and the future enlarged EU. The Ukraine-EU Partnership and
Cooperation Agreement is the basis of our existing relations. Ukrainian and European experts assessed its
implementation and provid-ed a joint report, which demonstrated that cooperation between Ukraine and the EU in
many key European areas, such as justice, home affairs and common European defence and security policy,
extend beyond the Agreement.
Present-day Ukraine is a stable and predictable European state that is growing, and where common European
democratic values are being established and the welfare of the popula-tion is improving.
The success of our political reforms is illustrated by the fact that a parliamentary majority has been achieved
through a coalition. This majority and the Government are jointly responsible for reforms and the development of
the state. A transition from the presidential/ parliamentary political structure to a parliamen-tary/presidential one,
which exists in most European countries, should become the next step in political reform in Ukraine. Already, a
large-scale process of adaptation of Ukraine's laws to EU legislation and WTO norms is taking place in the
country.
Regarding the European Commission's "Broader Europe - Neighbourhood: New Framework of Relations with our
Eastern and Southern Neighbours", we welcome new opportunities for Ukraine to be engaged in the EU internal
market. These include the liberalisa-tion of the movement of people, goods, services and capital, the introduction
of new EU instru-ments of investment and credit in Ukraine and technical assistance and cross-border coopera-
tion. Their realization will promote the rapprochement between Ukraine and the EU. We also hope to see the
development of joint projects in energy supply to the EU, infrastruc-ture for pan-European transport corridors
and increased investments from EU countries.
However, we are concerned that the European Commission has not reaffirmed the openness of the European
Union to all European countries, and has failed to provide concrete answers to Ukraine regarding clear terms and
conditions for EU accession. After all, cooperation between Ukraine and the European Union even now can add a
qualitatively new dimension and proceed from the principles of partnership and cooperation to the principles of
real integration.
During recent visits to Brussels, London, Athens and Berlin we discussed a new model for relations between an
enlarged EU and Ukraine. I felt strong interest and support both from the EC President and leaders of the EU
countries for Ukraine's European integration course. Germany in particular has promised to use its influence in
the European Commission to have Ukraine recognized as a country with a fully functioning market economy.
Ukraine is closely monitoring enlargement developments in the EU with which we will soon have a common
border. However, the EU border should not turn into a new Wall that would separate Eastern Europe from
Western Europe.
JM: How do you plan to accelerate WTO membership for Ukraine and what do you see as the benefits?
VY: Recently Ukraine activated bilateral negotia-tions with WTO Member States. Thirteen bilater-al protocols on
access to markets of goods and services have already been signed with Member States of the Working Group
(Czech Republic, Slovak Republic, Hungary, Slovenia, Latvia, Georgia, India, Canada, Mexico, Uruguay, New
Zealand, Southern Korea and EU protocol). Negotiations with other countries are underway. Today Ukraine has
advanced to the next stage of WTO accession - namely drafting a Working Group's Report on Ukraine's WTO
accession.
The Government is going to complete bilateral negotiations on access to markets of goods and services with
Member States of the Working Group in 2003. By doing so, we'll provide for the drafting and approval of most
important legislation required to harmonize Ukraine's foreign trade regime with the WTO's norms and
requirements.
The opening of Ukraine's markets after WTO accession will bring an increase in competition among domestic
and foreign manufacturers, which will lead to competitively priced goods. Realistically speaking, Ukraine hopes
to accede to the WTO in the first half of 2004.
JM: Your government has an ambitious privatisation programme this year. What steps are you taking to boost
foreign investment in Ukraine?
VY: The Law of Ukraine on Investment Activity has established legal, economic and social conditions for
investment in the country. The law establishes equal protection of rights, interests and property for investors
irrespective of types of property. It is aimed at the develop-ment of Ukraine's international economic cooperation
and integration into the global community. Citizens and legal entities of Ukraine may invest in Ukraine, as well as
foreign states. All subjects of investment, irrespectively of ownership, have equal rights as to investment activity.
There is a government programme called "Ukraine's Investment Image" which is aimed at enhancing Ukraine's
achievements and favourable investment image abroad. We want our country to have the reputation of a country
with a reliable investment climate. State policy implemented by the Ukrainian Government includes measures to
improve conditions for the privatisation of strategically important assets in Ukraine and the creation of free
economic zones.
Today there are 20 economic free zones and territories of priority development for hi-tech businesses in Ukraine.
An optimal combination of skilled labour and low salaries has been created. The fact that 393 investment projects
are being implemented in free economic areas and territories of priority development at the beginning of 2003
confirms their attraction to foreign investors.
In 2003, the Government is going to offer for sale share holdings of strategically important enterprises, including
energy distribution companies, big metallurgy plants and chemical companies.
A considerable improvement in the legal base for business entities represents yet another important factor. A
national procedure has been introduced for foreign investors, providing them with equal conditions in comparison
with domestic investors. The Land Code will facilitate investment by settling problematic issues of land use. The
approval of the Land Code will create a stable legal basis for investment, taking into account international
requirements. The Customs Code was approved last December, which will play an important role in the creation
of stable and favourable conditions for invest-ment. The Tax Code will be approved in the first half of 2003,
ensuring legal stability with regard to taxation, as well as considerably decreasing the tax burden on business
entities.
JM: How far advanced is Ukraine's economic reform programme?
VY: Ukraine's modern economic development is based on market-oriented reforms. After a linger-ing crisis
related to the restructuring of the economy inherited from the former Soviet Union, a period of economic growth
has been in place in Ukraine since 2000. GDP grew by 21% in 2000-2002 and the real income of the popula-tion
started to grow. The Hryvnia has a stable exchange rate and we have a positive trade balance. The real economy
has extended credits, currency reserves are being accumulated and foreign debt obligations are being met.
We are establishing Ukraine as a high-tech country for development of high-end technology manufacturing
facilities and production of goods with a high level of processing. Ukraine will thus take full competitive
advantage of its economic strengths in aircraft and shipbuilding, space technology, superhard materials and so on.
Governmental policy is aimed at ensuring the rights and freedoms for its citizens and creating a qualitative
transformation in their economic, social and spiritual lives. Thus, a cardinal change in ideology, from
authoritative to democratic, is taking place in Ukrainian society.
JM: How does your Government plan to promote the role of SMEs in Ukraine?
VY: So as to encourage the development of entrepreneurship, the Government has introduced simplified taxation
schemes, licens-ing procedures and state registration. The list of products subject to mandatory certification has
also been shortened. An important new document is now being drafted which will simplify the procedure for
issuance of permits required for business start ups.
So as to stimulate the financial system, the Government and the National Bank will legislate for the establishment
of mortgage banks, the development of a secondary market for securities as well as legally settle the position of
the Fund for Insurance of Deposits of Individuals. Furthermore, a State Registry of Immovable Property Rights
will be established, which will provide an opportunity to influence the banks' ability to finance mortgaged
property and simplify the procedure for declaring indebted companies bankrupt.
JM: What is Ukraine's strategy for promoting energy efficiency?
VY: Excessive power consumption in Ukraine's economy is a considerable problem facing Government. We
intend to create administrative, legal and economic mechanisms that 1 promote energy efficiency and saving.
The introduction of new energy-efficient technologies will require considerable investments, which can be
attracted, inter alia, on basis of an efficient price and depreciation policy. The most important factor in energy
savings is a regulatory policy that ensures energy prices and tariffs fully cover the cost of production,
generation, transformation and delivery. All consumers, without exception, must pay full and on time for fuel and
energy consumed as well as contribute to the reduction of energy waste.
In order to achieve this, the Government will improve the legal base for the efficient use energy resources and
mass use of energy met by consumers. Managers of state and budget- funded companies will have their
responsibilities for the efficient use of fuel and energy significantly increased.
JM: How important is decentralization in Ukraine's programme for attracting investment?
VY: "Ukraine's Investment Image" Programme provides for the participation of 'oblast' or state administrations in
the search for investors. I particular, the Programme provides for 'Days c Ukraine's Regions', regional
investment fairs an forums with the participation of foreign investors working in Ukraine. It also offers
participation in thematic public events abroad and in cross-border cooperation forums.
In particular, good work with investors is underway in Lviv oblast, where the Second Economic Forum on
Cross-border Cooperation was held last October. Representatives of official and business circles from 18
countries of the world participated in the Forum. More than 300 investment projects covering all spheres of the
economy were presented at the Forum. Similar successful work with investors is taking place in Donetsk,
Dnipropetrovsk, Zaporizhya, Lugansk, Ternopil and Kherson oblasts.
Analysis of investment activity in Ukraine shows that investment potential of the national economy continued to
grow last year. Preliminary data showed that fixed capital investment in 2002 amounted to UAH 37,000,000,000,
which is UAH 4,400,000,000 more than in 2001. For four consecutive years, the rate of growth of fixed capital
investment exceeds the dynamics of GDP and industrial output.
Many foreign business people who work in Ukraine are very satisfied with the business conditions of our
country. We have many attrac-tive projects to interest foreign investors. We have a friendly and hard-working
people and our nation boasts a cultural and scientific charac-ter of great potential.
JM: Many thanks, Prime Minister.
Since December 2002!
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