VZCZCXYZ0001
RR RUEHWEB

DE RUEHKV #0114/01 0181346
ZNR UUUUU ZZH
R 181346Z JAN 07
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC 0921
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUCPCIM/CIMS NTDB WASHDC

UNCLAS KYIV 000114 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB/IFD/OIA (JNHATCHER) AND EUR/UMB 
STATE PLEASE PASS TO USTR FOR KLEIN/MOLNAR 
USDOC FOR 4201/DOC/ITA/MAC/BISNIS 
USDOC FOR 4231/ITA/OEENIS/NISD/CLUCYCK 
 
E.O. 12958: N/A 
TAGS: EINV ETRD KTDB OPIC USTR UP
SUBJECT: UKRAINE: 2007 INVESTMENT CLIMATE STATEMENT 
 
REF: A) KYIV 113 
     B) 2006 STATE 178303 
 
¶1. Ref A contained part one of the 2007 Investment Climate 
Statement (ICS) for Ukraine.  Part two of the ICS continues 
below. 
 
Text Continued: 
 
A.5. Performance Requirements/Incentives 
 
PERFORMANCE REQUIREMENTS 
 
There are no known cases of performance requirements 
imposed on foreign investors other than those clearly 
spelled out in privatizations conducted via open tender. 
Ukraine has eliminated measures that conflicted with the 
WTO Agreement on Trade-Related Investment Measures (TRIMs) 
in the automobile industry and other sectors in the context 
of its accession efforts.  Some potentially conflicting 
practices remain in the agricultural sector, however. 
 
INVESTMENT INCENTIVES 
 
Ukraine modified its foreign investment law of 1996 to 
provide foreign investors a number of state guarantees, the 
most important being the unhindered and immediate 
repatriation of profits and stable regulations for the time 
of the investment.  Foreign investors are exempt from 
customs duties for any in-kind contribution imported into 
Ukraine for the company's charter fund.  Some restrictions 
apply and import duties must be paid if the enterprise 
sells, transfers, or otherwise disposes of the property. 
The Government has drafted legislation to introduce tax 
incentives for investment within special economic zones. 
 
VISA/WORK PERMIT REQUIREMENTS 
 
According to Ukrainian Presidential Decree No. 1008 dated 
June 30, 2005 (with amendment dated August 18, 2005), U.S. 
citizens traveling to Ukraine on short-term tourist, 
business, or private travel do not need a visa to enter 
Ukraine.  Visas are still required of other categories of 
travelers including those who intend to study, reside, or 
work in Ukraine.  Short-term travelers entering Ukraine 
under the auspices of this decree can stay in Ukraine up to 
90 days.  Any requests for extension of stay due to 
extenuating circumstances should be directed to the 
Ministry of Interior's Department of Citizenship, 
Immigration and Registration (formerly known as OVIR). 
Extensions are not automatic, however, and are valid only 
for continued presence in the country.  It is not possible 
to depart Ukraine and return on the extension, nor can an 
adjustment to visa status be made from within Ukraine. 
U.S. citizens do not have to return to the U.S. to renew 
their visas -- they may apply for and pick up a visa at any 
Ukrainian Embassy outside of Ukraine.  Most go to 
neighboring Poland, Germany, or the Czech Republic.  All 
foreigners -- except those with permanent residency status 
-- are required to have a work permit to work in Ukraine. 
The laws of Ukraine "On Population Employment" and "On the 
Legal Status of Foreigners" define the procedures for 
obtaining a permit at the State Employment Service.  There 
is one exception:  the Law "On Production Sharing 
Agreements" allows foreigners under such agreements to be 
hired without permits. 
 
The Cabinet of Ministers Instruction No. 892, dated 
September 12, 2005, extended work permits from one year to 
the tenure of employment for foreign citizens working in 
managerial or specialized positions in Ukraine and 
individuals providing services without their commercial 
presence in Ukraine.  Employers must notify employment 
centers, police, and the State Committee for Border 
Protection three days before revoking contracts with 
foreign nationals. 
 
Foreigners residing in Ukraine must register with the 
government.  Effective July 1, 2002, foreigners entering 
Ukraine are registered automatically by the State Committee 
on Safeguarding Ukraine's Border at border checkpoints. 
Foreigners legally coming to Ukraine for short periods no 
longer need to register at Internal Affairs Ministry 
Offices. 
 
A.6. Right to Private Ownership and Establishment 
 
The Constitution of Ukraine guarantees the right to private 
ownership, including the right to own land.  A new Land 
Code consistent with the Constitution was adopted on 
October 25, 2001.  The Land Code provides for foreign 
ownership of non-agricultural land and clarifies the rights 
of foreign investors. 
 
The major provisions of the Land Code address the right of 
individuals to own, buy and sell land.  It classifies land 
into seven categories, based on potential use including 
agricultural, industrial and natural reserve lands.  The 
mix of state control and ownership rights varies with each 
type of land.  It is easier to own, buy, sell, and mortgage 
industrial land than agricultural land.  The Code forbids 
the sale of agricultural land until 2008, and restricts 
agricultural land purchases by any one legal entity 
(Ukrainian citizen or Ukrainian-based business) to no more 
than 100 hectares until 2015.  Efforts to cancel the 
moratorium on agricultural land sale in 2007 failed.  The 
Rada voted to override President Yushchenko's veto of the 
moratorium, citing the need to first strengthen the legal 
framework covering land sale, while Yushchenko called on 
the Rada to hasten passage of legislation necessary to end 
the moratorium.  The Land Code continues to prohibit 
foreigners from owning agricultural land directly.  The 
creation of a legal Ukrainian-registered business to 
purchase and manage land in Ukraine is not prohibited.  The 
Land Code codifies the state's right to oversee private 
land transactions via registration, the court system and 
dispute mediation and broad government/state rights to 
"influence" the land market.  On June 5, 2003 the Rada 
adopted a new law on mortgages.  The law allows the use of 
agricultural land as collateral and spells out foreclosure 
and eviction procedures.  The U.S. Government via USAID 
sponsored a land titling initiative that provided technical 
assistance both to reduce the cost of agricultural land 
titling and to provide direct support for the issuance of 
land titles. 
 
Ukraine's law "On Ownership" recognizes private ownership 
and includes Ukrainian residents, foreign individuals, and 
foreign legal entities among those entities able to own 
property in Ukraine.  It permits owners of property 
(including foreign investors and joint ventures) to use 
property for commercial purposes, to lease property, and to 
keep the revenues, profits, and production derived from its 
use.  The law "On Ownership" is not comprehensive and 
mechanisms for the transfer of ownership rights are weak. 
Some difficulties have arisen when foreigners acquire 
majority control of enterprises, with the government or the 
current management in some cases continuing to exercise 
effective control of company decisions. 
 
A.7. Protection of Property Rights 
 
MORTGAGE 
 
During the last few years, Ukraine's policymakers have 
launched many initiatives to develop a mortgage market, 
which has resulted in a strong increase in the number of 
mortgages and laid the legislative and administrative 
groundwork for a functioning mortgage market.  In late 2002 
Ukraine adopted a law on "Withholding Land Shares in Kind." 
In June 2003, a law "On Mortgages" was adopted.  The GOU 
created the State Mortgage Institution (SMI) in October 
2004 with authorized capital of UAH 50 million ($10 
million) as a liquidity facility largely aimed at putting 
downward pressure on lending rates by allocating capital 
efficiently.  The 2006 budget allocated UAH 1 billion to 
issue state guarantees on loans to SMI that was approved in 
late December.  The SMI will begin issuing corporate 
securities during the first quarter of 2007.  The use of 
mortgages in Ukraine to secure ownership in property is 
growing - apartments, houses, office buildings, other types 
of buildings, and summer house (dacha) plots have secured 
mortgages.  Development of the secondary mortgage market is 
underway -- enabled by passage of the Covered Bond Law in 
late 2005.  USAID currently has a pilot covered mortgage 
bond in registration at the SSMSC to demonstrate how 
mortgages can be traded as securities. USAID helped create 
of a pledge registry, the first of its kind in the former 
Soviet Union, which applies to individuals' obligations 
with regard to movable property and tax liens.  Though 
rudimentary, the registry is nationwide, providing a more 
transparent lending market for personal property. 
 
INTELLECTUAL PROPERTY RIGHTS 
 
Ukraine was the only country named a Priority Foreign 
Country in the 2002-2005 Special 301 reviews conducted by 
USTR, based on widespread piracy of copyrighted goods such 
as compact discs (CDs) and digital video discs (DVDs).  The 
United States withdrew Ukraine's benefits under the 
Generalized System of Preferences (GSP) program in August 
2001 and imposed $75 million worth of sanctions on 
Ukrainian imports on January 23, 2002.  These latter 
sanctions, which affected a number of Ukrainian products, 
including metal, footwear, and chemicals, were lifted on 
August 30, 2005 after the Ukrainian Government secured 
passage of important amendments to the Optical Disc 
Licensing Law, which went into effect on August 2, 2005. 
 
In January 2006, USTR conducted a Special 301 Out-of-Cycle 
Review (OCR) of Ukraine to assess Ukraine's implementation 
of the new amendments and its overall trend of enforcement 
since the time that sanctions were imposed.  In recognition 
of the GOU's efforts to improve the enforcement and 
protection of intellectual property rights, the United 
States lowered Ukraine's designation under Special 301 from 
Priority Foreign Country to Priority Watch List and 
reinstated GSP benefits.  Enforcement has been improving 
and the new amendments enhanced law enforcement's role and 
lowered the threshold for imposing penalties and sanctions. 
Ukraine agreed to work with the U.S. Government and with 
the copyright industry to monitor the progress of future 
enforcement efforts through the Enforcement Cooperation 
Group.  Despite these efforts, Ukraine remains a trans- 
shipment point, storage location, and market for illegal 
optical media produced in Russia and elsewhere.  In 
November 2006, the Rada passed an amendment to the Customs 
Code granting customs officials greater authority to 
protect intellectual property rights. 
 
Ukraine is an active member of the World Intellectual 
Property Organization and a signatory to a number of 
international agreements and conventions.  As part of its 
ongoing efforts to negotiate accession to the WTO, Ukraine 
has adopted legislation, including a May 2003 Omnibus 
package, to bring its laws into compliance with the WTO 
Agreement on Trade-Related Aspects of Intellectual Property 
Rights (TRIPS).  In November 2006, the Rada passed 
amendments to the Law of Ukraine "On the Protection of 
Rights to Indications of Origin of Goods" that ensured 
national treatment and most-favored-nation (MFN) for 
geographical indications. 
 
Ukraine is in the process of strengthening its legal 
protections for pharmaceutical test data that 
pharmaceutical companies must submit to government 
authorities to obtain marketing approval.  Patent and 
trademark violations are common in Ukraine, and U.S. 
industries have reported widespread counterfeiting of 
pharmaceuticals and consumer products.  The Ukrainian 
Ministry of Health reportedly does not check the validity 
of patents when it permits pharmaceutical sales in Ukraine. 
In one case, the Ministry of Health allowed a European 
company to register the same drug for which a U.S. company 
held a valid patent. Ukraine improved its protection of 
pharmaceutical data through November 2006 amendments to the 
Law "On Medicinal Drugs," introducing a five-year period 
for protecting undisclosed information in the course of 
medicinal drugs registration. 
 
The State Department of Intellectual Property (SDIP) is 
responsible for the formulation and implementation of 
Ukraine's intellectual property policy.  In order to 
improve IPR enforcement, the Ministry of Internal Affairs 
and the State Customs Service have also set up units to 
deal exclusively with IPR violations.  These under-staffed 
units have difficulty dealing with the large number of IPR 
infringements.  Amendments to the Criminal Code of Ukraine 
passed in February 2006 lowered thresholds, so that 
violations with smaller amounts of damage to rights holders 
can also be prosecuted as IPR infringement.  However, in 
many cases, the rights holder must actively engage with the 
Ministry of Internal Affairs or the State Customs Service 
to obtain enforcement.  Implementation and enforcement of 
these new amendments and other existing intellectual 
property laws have been ongoing with some positive results. 
During the first 10 months of 2006 law enforcement 
authorities opened 381 IPR-related criminal cases, compared 
with only 104 in 2005.  Only 40 offenders actually received 
sentences during the first six months of the year.  Judges 
too often dismiss cases for improper reasons, or hand down 
minimal sentences.  Generally speaking, the number of 
judges trained in IPR law remains low. 
 
Trademarked and copyrighted goods must be registered for a 
fee ($400 for the first good for the first year) in 
Customs' rights holder database in order to be guaranteed 
protection.  Optical discs, however, also receive 
protection under the import-licensing regime, so few 
recording or motion pictures companies bother to register. 
Generally low confidence in the Ukrainian judicial system 
has meant few enterprises have brought private lawsuits to 
protect intellectual property rights.  Legal experts and 
government officials have called for the formation of a 
special patent court in Ukraine to adjudicate patent cases, 
but to date there has been no concrete action towards this 
end 
 
A.8. Transparency of the Regulatory System 
 
TRANSPARENCY OF REGULATORY POLICIES 
 
While there has been progress on deregulation, the number 
of regulations, required certificates, and inspection 
regimes in Ukraine still impose a significant regulatory 
burden on private enterprise.  In response to presidential 
decrees No. 799 dated May 12, 2005 "On Liberalization of 
Business Activity and State Support of Entrepreneurship" 
and No. 901 dated June 1, 2005 "On Some Measures to Ensure 
Enforcement of State Regulatory Policy," the State 
Committee for Regulatory Policy and Entrepreneurship 
(SCRPE) undertook a review of regulatory acts.  By the end 
of 2005 the Committee had reviewed 9340 regulatory acts, 
52.8% of which it decided to cancel.  Review of Ukraine's 
regulatory policies was dormant in 2006. 
 
BUREAUCRATIC PROCEDURES 
 
While the time and costs related to business registration 
have been reduced, the GOU still requires enterprises to 
obtain numerous permits to conduct business.  On January 5, 
2006 the law "On Permits System in Economic Activity" 
entered into force.  As a result of this law, more than 
half of required permits have been cancelled and the number 
of locations for obtaining permits has increased six fold. 
The Yushchenko government also streamlined business 
registration procedures, expanding "One-stop Registration 
Shops" and introducing a new "Single Window" for customs 
registration procedures.  On September 30, 2006 a new law 
on registration procedures, which further simplified the 
procedure to start a business and reduced registration 
costs, entered into force.   In some places one can now 
register a business within two to three days, instead of 
two to three weeks, as in the past.  The World Bank "Doing 
Business" database rated Ukraine 101st in 2006 for ease in 
starting a business, up from 122nd in 2005.  The World Bank 
estimated that it took 33 days and $140.18 (9.2% of GNI per 
capita) to open a business in Ukraine in 2006; OECD 
averages are 16.6 days and 5.3% of GNI per capita. 
 
LICENSING 
 
Ukraine applies both activity and import licensing regimes. 
A Law "On Licensing Certain Types of Economic Activities" 
of June 2000 (and amended on January 17, 2002) provides a 
list of activities subject to licensing.  Licensing applies 
to nearly 60 goods and services and is meant for protection 
of human, animal or plant health, the environment, public 
morals, and national security, or for prudential regulation 
of the financial sector.  Businesspeople continue to cite 
burdensome activity licensing requirements as major 
impediments to commerce in Ukraine.  Fees are described as 
high and compliance burdensome, particularly for 
telecommunications equipment.  Import licenses are required 
for some goods, primarily pesticides, alcohol products, 
optical media production inputs, some industrial chemical 
products and equipment containing them, official foreign 
postage stamps, excise marks, officially stamped/headed 
paper, and checks and securities. 
 
RULEMAKING/INSPECTIONS 
 
Proposed draft laws and regulations are available on the 
Rada website for public review, but there is no formal 
procedure for submitting comments. 
 
Current Ukrainian legislation envisages a mandatory 
financial inspection of a business entity per year and 
requires a minimum of 10 days notice.  Non-financial 
inspections (i.e. taxes, fire safety, sanitation, etc.) can 
be burdensome and impediments to doing business in Ukraine. 
 
CERTIFICATION/HEALTH AND SAFETY POLICIES 
 
Technical standards and certification requirements are 
imposed on many imports.  The certification body is the 
State Committee of Ukraine for Technical Regulation and 
Consumer Policy ("DerzhSpozhyvStandard").  Although Ukraine 
belongs to several international standardization bodies, 
such as the International Organization for Standardization 
(ISO), for many years it generally had not recognized 
foreign product certificates, even if they are issued in 
line with international standards, unless recognition is 
mandated through an international treaty signed by Ukraine. 
Standardization procedures can be lengthy, burdensome, and 
expensive; standards can be vague, inflexible, and subject 
to frequent changes. 
 
Numerous certification bodies continue to operate 
independently without coordination or oversight.  Local, 
regional, and municipal authorities often require 
additional documentation beyond that required by 
certification bodies.  As of November 2006, 
DerzhSpozhyvStandard had a network of 115 accredited 
product certifying bodies, including 53 accredited 
certifying bodies for quality management systems, as well 
as about 780 testing laboratories throughout Ukraine. 
Moreover, appropriate resources, such as modern analytical 
equipment and reactants, are not available in most 
laboratories.  Quality management systems are also needed 
to ensure testing is done within an acceptable margin of 
error.  DerzhSpozhynStandard's system includes 28 state 
centers for standardization, systematizing weights and 
measures, certification and 27 territorial departments for 
consumer protection.  Companies seeking testing should 
first contact DerzhSpozhyvStandard. 
 
Importers can apply for three types of technical standard 
certificates: a certificate for a single batch of goods; a 
certificate for one year, which is valid for all imported 
goods during that year with one or two additional selective 
tests (this type of certification is the most common in 
Ukraine, covering 70% of issued certificates); and a 
certificate for 5 years, for which mandates inspection of 
production facilities. 
 
In addition, Ukraine applies a range of sanitary and 
phytosanitary (SPS) measures, many of which do not appear 
to be consistent with an international, science-based 
approach to regulation.  The certification and approval 
process is lengthy, duplicative, and expensive, with 
politics and corruption still often behind arbitrary 
application of regulations.  Amendments to the laws "On 
Quality and Safety of Food Products and Food Raw 
Materials," "On Veterinary Medicine," "On Plant 
Quarantine," and others, to bring Ukrainian legislation in 
compliance with requirements of the WTO Agreement On 
Sanitary and Phytosanitary Measures, passed in 2005 and 
¶2006. 
 
For many years, Ukraine has worked to bring its 
standardization system into conformity with the European 
Standards System.  The law "On Assurance of Conformity" is 
replacing mandatory certification for many types of 
products with assessment procedures in conformance with 
international standards and the "New Approach" directives 
of the European Union, including the principle of 
"presumption of conformity to standards."  On August 1, 
2002, the National Accreditation Body started operations to 
ensure the use of standards and procedures consistent with 
European Cooperation for Accreditation (ECA) policy. 
 
TAYLOR