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SUBJECT: UKRAINE: 2008 INVESTMENT CLIMATE STATEMENT, PART I 
 
REF: 2007 STATE 158802 
 
¶1. As requested reftel, below is Part I of the 2008 
Investment Climate Statement (ICS) for Ukraine.  Post is 
transmitting the ICS in two separate parts due to its large 
size.  Post will send the ICS in Microsoft Word version to 
EB/IFD/OIA by email. 
 
Begin Text: 
 
A.1. Openness to Foreign Investment 
 
GOVERNMENT'S ATTITUDE TOWARDS FOREIGN INVESTMENT 
 
Since taking office in January 2005, President Viktor 
Yushchenko has made improving the investment climate one of 
his top economic policy goals.  While progress has not been 
as swift as some may have hoped, almost all of Ukraine's 
major political forces remain committed to improving the 
business and investment climate.  There have been several 
positive steps for U.S.-Ukraine trade and investment 
relations over the past several years.  Both the United 
States and the European Union granted Ukraine market 
economy status, in February 2006 and December 2005, 
respectively.  In March 2006 the United States terminated 
the application of the Jackson-Vanik amendment to the Trade 
Act of 1974 to Ukraine, providing Ukraine permanent normal 
trade relations status. 
 
After eight years of decline following independence, the 
Ukrainian economy has been growing steadily since 1999, 
with real GDP growth at about 7% in 2007.  Over the past 
few years, Ukraine has taken steps to liberalize its 
markets, reduce regulation, eliminate most licensing 
requirements, eliminate most restrictions on foreign 
exchange, and begin the transformation of the agricultural 
sector from state-run farms to private agriculture.  After 
years of hyperinflation and plummeting currency values, the 
national currency, the hryvnia (UAH), has been stable 
against the U.S. dollar for over six years.  The inflation 
rate remains high, however, and was 16.6% in 2007.  Ukraine 
remains in need of substantial reforms in order to achieve 
full economic liberalization.  Ukraine's economy is still 
shackled by corruption, poorly developed rule of law, over- 
regulation, and excessive government interference in what 
should be private business decisions. 
 
Ukraine is in the process of negotiating terms of accession 
to the World Trade Organization (WTO).  Ukraine made 
significant progress during 2007 in adopting legislation 
and regulations needed for compliance with WTO 
requirements, enacting some 11 WTO-related laws in May and 
adding to its steady progress in this area during the 
previous three years.  Ukraine also made a major 
breakthrough in signing a bilateral market access agreement 
with Kyrgyzstan, the last such agreement outstanding. 
Ukraine had signed a bilateral agreement with the United 
States in March 2006.  Accession to the WTO remains a 
priority for the government and now appears imminent. 
 
Foreign investors continued to express little confidence in 
the Ukrainian court system.  In a noticeable number of 
cases, predatory minority shareholders have been able to 
procure dubious court decisions in an effort to wrest 
control of companies away from the majority investors. 
Some researchers claim that as many as 2,500 Ukrainian 
enterprises have suffered so-called corporate hijacking 
attempts in the last several years.  Ukrainian courts have 
a long record of striking down or ignoring contractual 
provisions that assign legal responsibility for dispute 
resolution to a foreign court or arbitrator. 
 
Many investor complaints over the years have involved the 
State Tax Administration's (STA) selective enforcement of 
tax policy.  Businesses have claimed that STA local and 
regional branches use investigative authority to advance 
favored political or business interests.  Arrears in the 
payment of VAT refunds to exporters have also been a 
serious problem. The GOU decreased the pace of VAT refunds 
beginning in August 2006, reimbursing only 76 percent of 
verified claims, down from 87 percent refunded in 2005. VAT 
refund problems continued in 2007, leading to calls for an 
overhaul of the VAT reimbursement mechanism.  Delays in 
reimbursements can create opportunities for tax officials 
to demand kickbacks in return for quicker processing of 
rebates.  Numerous exporting companies, both Ukrainian and 
foreign, claim that STA officials openly expect bribes 
between 10 and 30 percent of outstanding VAT refunds in 
order to process reimbursement.  Currently, the process for 
obtaining a refund of VAT payments can take from 3 to 18 
months for foreign companies.  Increasingly, the delays in 
reimbursement are becoming an important cost factor for 
many foreign companies and are seriously affecting the 
profitability of planned investments. 
 
MAJOR LAWS/RULES AFFECTING FOREIGN INVESTMENT 
 
Ukraine's Law "On the Foreign Investment Regime" (1996) 
provides for equal treatment of foreign and Ukrainian-owned 
business with some restrictions in broadcasting and weapons 
manufacturing. 
 
Both a new Civil Code and a competing new Commercial Code 
went into effect on January 1, 2004.  Lawyers and judges 
continue to grapple with how to implement the two laws, 
whose approaches to the regulation of business activities 
are contradictory.  The Commercial Code has a number of 
provisions considered to be incompatible with market 
economics, and most experts believe it should be eliminated 
entirely. 
 
In October 2001, the Ukrainian Parliament passed a Land 
Code.  It provides for private ownership of land, 
facilitating the privatization of land for agricultural 
purposes, but also provides for a moratorium on 
agricultural land sales.  This moratorium has been extended 
until the GOU succeeds in adopting new legislation 
necessary to open the land market.  This legislation has 
been drafted, but prospects for its enactment are currently 
unclear.  The moratorium blocks private investors from 
purchasing some of the 33 million hectares of agricultural 
land in Ukraine and constitutes a serious obstacle to the 
development of the sector.  The Land Code also prohibits 
foreign ownership of farmland. 
 
A new Customs Code that went into effect in January 2004, 
along with December 2005 amendments to the Customs Code and 
Single Customs Tariff, brought Ukraine's customs regime 
into near-complete compliance with WTO rules.  Problems, 
particularly in the area of customs valuation, remain, 
however, and industry representatives have expressed 
concern with current draft amendments meant to fix the 
Customs Code.  Cabinet of Ministers Resolution #269 from 
2005 introduced preliminary documentary control at customs 
checkpoints in order to simplify customs clearance of goods 
entering Ukraine, and to reduce the wait time for 
importers.  Implementation of this resolution has been 
imperfect, however, as imported goods entering Ukraine 
often still must be "cleared" by a number of state bodies, 
some of which do not operate 24 hours a day, causing 
extended delays.  Corruption also remains a serious 
problem.  President Yushchenko pushed in November 2007 for 
the dismissal of several high-level Customs officials and 
for the creation of a new body within the State Security 
Service to combat smuggling.  Prime Minister Yuliya 
Tymoshenko announced in January 2008 that her government 
would restart an anti-smuggling campaign that had had some 
success back in 2005. 
 
Under the 2001 Law "On the Customs Tariff of Ukraine," only 
Parliament can introduce or change tariffs.  The import 
tariff system of Ukraine has 21 sections, encompasses 97 
groups of goods, and lists over 11,000 import duty rates. 
In 2005, Parliament passed amendments to the Customs Code 
to decrease tariff rates in an effort to meet WTO accession 
requirements.  The average applied tariff rate for all 
goods is now 6.5 percent, and 61.5 percent of the total 
tariff lines face ad valorem rates of five percent of less. 
For agricultural goods, the average applied rate is 13.8 
percent (down from 19.7 percent) and for industrial goods 
the average applied rate is 4.4 percent (down from 8.3 
percent). 
 
Ukraine's Anti-Monopoly Committee implements anti-monopoly, 
competition, and consumer protection legislation under the 
March 2002 Law "On Protection of Economic Competition." 
New companies and mergers/acquisitions face strict 
controls.  Most investments, joint ventures with multiple 
partners, and share acquisitions require the Committee's 
approval.  Those violating fair competition rules may be 
fined up to 10% of the prior year's turnover.  If unfairly 
gained profit exceeds 10% of income, up to three times the 
normal penalty can be collected.  The applicant, defendant, 
or a third party may appeal a Committee decision, but the 
appeal must be filed within two months after the decision 
is taken. 
 
PRIVATIZATION AND FOREIGN PARTICIPATION 
 
The State Property Fund oversees the privatization process 
in Ukraine.  Privatization rules generally apply to both 
foreign and domestic investors, and, in theory, a 
relatively level playing field exists.  Observers claim, 
however, that a common abuse of privatization laws is the 
adjustment of the terms of a privatization contest to fit 
the characteristics of a certain, pre-selected bidder.  Few 
major, new privatizations have been conducted since the 
privatization rush of 2004.  As of September 2007, revenues 
from privatization were only 15.4 percent ($320 million) of 
the fiscal year's budget target.  In 2005, the GOU revoked 
the privatization of the Krivorizhstal steel factory, which 
had been sold to a group of domestic investors for $800 
million, and subsequently sold it in a fair and transparent 
tender to Mittal Steel for $4.8 billion.  Since then, the 
GOU has taken no further steps to reverse previous 
privatizations, although Prime Minister Tymoshenko has 
stated she expects the government may stage re- 
privatizations in a handful of cases where the courts have 
overturned privatizations. 
 
The few privatizations that took place in 2007 were often 
marked by controversy.  In March, the State Property Fund 
sold a majority share in Luganskteplovoz (a Ukrainian 
locomotive manufacturer) to Russian-owned CJSC Bryansk 
Machine Building Plant.  Only two bidders (both related 
parties) were able to meet the tender requirements as set 
by the State Property Fund, and the Fund also appeared to 
have violated rules governing the announcement of the 
tender, making it impossible for potential investors to 
learn of the tender in time to submit bids.  The courts 
subsequently ruled that the sale was in fact illegal. 
 
In August, the state-owned electricity generation company 
Dniproenergo increased its capital by 52 percent, allowing 
the Donbas Fuel and Energy Company (DTEK), owned by a 
Member of Parliament in the then-ruling coalition, to 
purchase the fresh capital and causing the state's share in 
the company to shrink from 76 percent to 50 percent plus 
one share.  The transfer was conducted as a controversial 
debt-for-shares swap, whereby DTEK acquired the shares in 
exchange for covering a debt owed by Dniproenergo to coal 
suppliers.  Some experts claimed that DTEK acquired the 
shares in Dniproenergo for only 30-40 percent of the market 
value.  A court of first instance ruled the sale to be 
illegal, but an appeal is pending. 
 
Ukrainian law authorizes the government to set limits on 
foreign participation in "strategically important areas," 
although the wording is vague and rarely used in practice. 
Some strategically important companies, including natural 
monopolies, producers of military equipment, and some fuel 
and energy companies, are barred from privatization and 
foreign ownership.  A company's "strategic status" can be 
lifted by Parliament, on the recommendation of the Cabinet 
of Ministers, and foreign entities would then be allowed to 
participate in its privatization.  Foreign shares of TV and 
radio broadcasting and publishing companies are restricted, 
and can generally not exceed 30%.  In January, 2006, 
Parliament adopted a new law "On Television and Radio 
Broadcasting" that eliminated restrictions on the share of 
foreign capital in the charter funds of television and 
radio broadcasting companies.  Foreigners are prohibited 
from founding TV or radio stations, however. 
 
PROCUREMENT 
 
Ukraine is not currently a signatory to the WTO Agreement 
on Government Procurement (GPA), but will become an 
observer to the GPA upon WTO accession, and has promised to 
then begin negotiations to accede to the GPA. 
 
Most experts agree that recent amendments to the law "On 
Procurement of Goods, Works and Services Using State Funds" 
have been a step backwards in terms of bringing Ukraine's 
procurement system into compliance with international 
norms.  A recent study on Ukraine by the Atlantic Council 
of the United States concluded that "government procurement 
is one of the most corrupt spheres of state activity." 
Amendments to the procurement law passed in March 2006 
transferred the authority to coordinate government 
procurement from the Ministry of Economy to the Anti- 
Monopoly Committee of Ukraine, a body with no particular 
expertise in regulating public procurement, and one that 
has struggled to secure compliance with its own rulings. 
The amendments scattered policy and oversight functions 
across several bodies, including the Anti-Monopoly 
Committee, the Accounting Chamber of Ukraine (reporting to 
Parliament), the State Control and Audit Unit (under the 
Ministry of Finance), and the Tender Chamber of Ukraine. 
The amendments have been criticized for creating an overlap 
in authority of various regulatory agencies and decreasing 
the transparency of the system. 
 
The 2006 amendments granted the Tender Chamber of Ukraine, 
purportedly a non-governmental organization for monitoring 
the procurement process, a number of key operational 
functions that are inherently governmental.  The Tender 
Chamber has exclusive authority to maintain a catalog of 
bidders, consider claims of tender participants, and issue 
conclusions.  It also maintains a UAH 7000 ($1400) 
obligatory fee for bidders that want to be registered in 
the catalogue, in conflict with the international practice 
of free listing for all interested parties.  The Tender 
Chamber has faced widespread criticism, including from some 
of its former members, as contributing to the procurement 
system's corruption and lack of transparency. 
 
The March 2006 amendments also introduced special security 
requirements for websites in order to be eligible for 
tender announcements.  Only one organization, the European 
Consulting Agency, a Ukrainian private enterprise with 
links to the Tender Chamber, has been allowed to operate a 
website announcing tenders.  Several observers have charged 
that this intermediary fosters corruption in the process 
and decreases transparency.  In addition, the March 2006 
amendments introduced burdensome and lengthy procurement 
procedures, and required all tender proposals to be secured 
by collateral, limiting the number of tender participants 
and increasing the cost of participation.  For some 
procurements, the Tender Chamber assesses fees at four 
percent of the value of the procurement, which in many 
cases makes the fees extremely high by international norms. 
 
December 2006 amendments to the law created a legion of 
special public sectors, such as defense, postal and 
telecommunications services, and railways, for which 
procurement rules do not apply for all tenders.  Yet the 
December 2006 amendments also required most state-owned and 
municipal companies to follow state procurement procedures, 
resulting in some disruptions, most notably for procurement 
done by municipal hospitals and the military.  Parliament 
attempted to amend the law again in June 2007 in order to 
exempt all state-owned enterprises from government 
procurement rules, but the President and the Kyiv 
Commercial Court blocked the amendment from taking effect. 
 
All government procurement of goods and services valued at 
more than $10,000 and works valued at more than $80,000 
must be procured through competitive tenders.  Open 
international tenders must be used when procurement is 
financed by any entity outside of Ukraine.  The Tender 
Chamber publishes information on government procurement in 
the "State Procurement Bulletin." 
 
The procurement law does not restrict foreign enterprises 
from participating in government procurement, but in 
practice foreign companies are rarely able to compete on an 
equal footing.  Foreign companies generally win only a tiny 
fraction of the total tenders (0.01 percent during the 
first nine months of 2006, with no more recent statistics 
available).  Among the problems faced by foreign firms are: 
(1) the lack of public notice of tender rules and 
requirements; (2) covert preferences in tender awards; (3) 
subjecting awards to conditions that were not part of the 
original tender requirements; and (4) non-effective 
grievance and dispute resolution mechanisms, which often 
allow a losing bidder to block the tender after the 
contract has been awarded.  March 2007 amendments to the 
law did eliminate preferential provisions in favor of 
domestic bidders on tenders below certain values.  Some 
regulations still serve to exclude foreign bidders, 
however.  For example, there is a practice in health sector 
procurement of only accepting bids from Ukrainian resellers 
or Ukrainian producers of pharmaceuticals. 
 
The Law "On Production Sharing Agreements" (PSA), effective 
October 1999, provides a legal framework guaranteeing that 
the terms of agreements between foreign investors and the 
GOU for natural resources development cannot be changed 
once an investment is made.  However, additional enabling 
legislation is needed in order to harmonize Ukrainian laws 
with the PSA's joint exploration and production license. 
Also needed are Cabinet of Ministers resolutions to 
establish special tax benefits envisioned by the PSA law, 
such as the amount of profit tax revenue the government 
will receive from the PSA producer.  The development of 
PSAs was tested after the GOU awarded the U.S. company 
Vanco a tender for the Prikercheskiy block for offshore oil 
exploration in the Black Sea in April, 2006.  Vanco and the 
GOU signed Ukraine's first-ever production sharing 
agreement in October 2007.  It is unclear, however, if the 
GOU is willing to pursue additional PSAs for offshore 
exploration at this time, especially since additional PSA 
legislation is still required. 
 
A.2. Conversion and Transfer Policies 
 
RESTRICTIONS ON CONVERTING/TRANSFERRING FUNDS 
 
The 1996 Law "On Foreign Investment" guarantees the 
"unhindered transfer" of profits, revenues, and other 
proceeds in foreign currency after taxes and other 
mandatory payments.  By intervening in exchange markets, 
the National Bank of Ukraine (NBU) maintains a de facto peg 
of Ukraine's currency, the hryvnia, to the dollar.  In 
2007, the hryvnia traded against the U.S. dollar at or near 
UAH 5.05 to the dollar. 
 
While foreign investors may repatriate earnings, companies 
must obtain a license from the NBU for some operations. 
For repatriation of hard currency, each transaction over 
$50,000 must be approved by the NBU.  The NBU also charges 
a fee to review the transaction.  In view of increased hard 
currency inflows, the NBU in 2005 canceled its 1998 
surrender requirement that exporters convert half of their 
hard currency revenues into hryvnias.  As of January 2008, 
foreign currency derived from export sales has to be 
repatriated within 180 days.  Foreign exchange is readily 
available at market-determined rates, which generally do 
not vary greatly from the daily official exchange rate.  In 
February 2005, the NBU lifted the 2% limitation on 
deviation of bank exchange rates from the official exchange 
rate, which had been in effect since October 2004.  A 
pension fund tax is levied on transactions to purchase hard 
currency.   The Law on the 2008 Budget lowered the tax from 
1.0% to 0.5%. 
 
Foreign investors have complained of cumbersome NBU 
regulations (2005 Resolutions 280 and 281) requiring them 
to open local accounts in Ukrainian banks and to use the 
services of Ukrainian brokers in order to make investments 
in Ukraine.  Past direct investors seeking to liquidate and 
repatriate their investments face stringent documentary 
requirements, though the NBU has stated its willingness to 
waive requirements if documents from the original 
transactions are no longer available.  On December 4, 2007, 
the NBU issued a new regulation requiring nonresident 
investors who wish to convert dividends or divestment 
income into foreign currency to provide proof of the 
initial foreign investment, making such operations more 
difficult. 
 
Investors convert their earnings into foreign currency 
through commercial banks, which purchase foreign currency 
on the electronic inter-bank currency market.  Commercial 
banks may trade foreign currency in electronic form with 
other banks through participation in electronic inter-bank 
currency market, regulated and operated by the NBU.  To 
purchase hard currency, companies must provide their banks 
with a copy of their foreign trade contracts.  In an 
attempt to expedite purchases of hard currency, in March, 
2005, the NBU cancelled the requirement that companies 
obtain State Tax Administration permission to purchase hard 
currency.  Commercial banks must announce their clients' 
intentions to sell on inter-bank currency market if the 
transactions exceeded $500,000.  The Law "On the 
Circulation of Promissory Notes" provides an opportunity 
for payments in foreign currency and issuance and 
circulation of promissory notes, in accordance with the 
1930 Geneva Convention "Providing a Uniform Law for Bills 
of Exchange and Promissory Notes."  Residents may transfer 
up to USD 600 abroad without opening a bank account. 
Illegal trade of hard currency is not a criminal matter but 
brings administrative penalties. 
 
A.3. Expropriation and Compensation 
 
Under the 1996 Law "On the Regime of Foreign Investment," a 
qualified foreign investor is provided guarantees against 
nationalization, except in cases of national emergencies, 
accidents, or epidemics.  Expropriation of property is 
rare.  International institutions have recommended that 
definitions of expropriation and nationalization in the 
foreign investment law and bilateral treaties be expanded 
to include indirect and creeping expropriation.  Courts can 
determine whether owners of privatized enterprises failed 
to pay for an enterprise or to implement investment 
commitments in a privatization sale.  Failure to pay or 
invest allows the GOU, with court permission, to revoke 
ownership and resell the property. 
 
A.4. Dispute Settlement 
 
EXTENT AND NATURE OF INVESTMENT DISPUTES 
 
The Embassy continues to provide advocacy on behalf of U.S. 
investors.  For many years, investment disputes frequently 
have involved key problems with the investment climate such 
as the lack of adequate rule of law, fair and impartial 
dispute resolution mechanisms, and enforcement of domestic 
court and international arbitration decisions.  Another 
problem is poor corporate governance (inadequate protection 
for shareholder rights, inadequate disclosure, asset- 
stripping, and voting fraud).  Currently, there is no 
single point of contact in the Ukrainian government tasked 
to help resolve business and investment disputes involving 
foreign companies, although the Ukrainian Center for 
Foreign Investment Promotion, a state body commonly known 
as InvestUkraine (http://www.investukraine.org), has 
pledged to take on this role.  Most U.S. businesses have 
little confidence in Ukrainian courts.  Commercial 
contracts may permit the parties to use international 
arbitration or specified foreign courts to settle disputes. 
Though Ukrainian legislation recognizes international 
arbitration decisions, in practice such decisions can be 
very difficult to enforce in Ukraine. 
 
Corruption continues to lie at the heart of many investor 
disputes.  Laws and regulations are vague, with 
considerable room for interpretation, providing officials 
at every bureaucratic layer ample opportunities for rent 
seeking. 
 
DESCRIPTION OF UKRAINE'S LEGAL SYSTEM 
 
Ukraine has a civil law system relying on codes and 
separate legislative acts.  The court system comprises the 
Constitutional Court, which interprets the Constitution and 
laws of Ukraine, and a system of courts of general 
jurisdiction.  The courts of general jurisdiction are 
further divided into general courts, which handle civil, 
criminal, and administrative matters, and specialized 
commercial courts, which review business disputes, 
bankruptcy, and anti-monopoly cases.  Both the general and 
commercial court systems feature a hierarchy of local 
and/or regional courts and appeals courts.  The Supreme 
Court of Ukraine is the highest court in the system of 
courts of general jurisdiction. 
 
The Law "On the Judiciary," in force as of June 2002, 
creates four levels of courts -- local courts, courts of 
appeal, courts of cassation (higher specialized courts), 
and the Supreme Court.  This law also establishes an 
independent judicial department, the State Judicial 
Administration, to manage the court system, with the 
exception of the Supreme Court, which is self-administered. 
There is also a separate system of Administrative courts, 
and the Supreme Administrative Court started its work in 
¶2005.  The Administrative Procedural Code, which entered 
into force on September 1, 2005, governs the organization 
and work of the administrative courts. 
 
ENFORCEMENT OF RIGHTS 
 
Investors criticize Ukraine's legal system for its 
inefficiency, burdensome procedures, unpredictability, 
corruption, and susceptibility to political interference. 
Even when they obtain favorable decisions, investors claim 
the decisions are often not enforced.  The enforcement 
responsibilities fall under the State Enforcement Service, 
which reports to the Ministry of Justice, but whose head is 
appointed by the Cabinet of Ministers. 
 
The procedure for recognizing and enforcing foreign court 
decisions is regulated by Section 8 of the Code of Civil 
Court Procedures of Ukraine.  In accordance with the Code, 
a foreign court decision is recognized and enforced in 
Ukraine if such recognition and enforcement is provided for 
in international treaties, the mandatory nature of which 
has been endorsed by the parliament, or based on a mutual 
ad-hoc agreement with a foreign state whose court has 
rendered a decision that is to be enforced in Ukraine. 
 
The State Enforcement Service implements decisions rendered 
by foreign courts and arbitration tribunals in accordance 
with the Law "On Enforcement Proceedings."  The Law "On 
Implementing Decisions and Applying Practices of the 
European Court of Human Rights" entered into force on March 
30, 2006.  Along with a subsequent Cabinet of Ministers 
implementing Resolution, the law obligates the Ministry of 
Justice to ensure implementation of the Court's decisions. 
 
COMMERCIAL LAW 
 
A new Civil Code and a competing Commercial Code both went 
into effect on January 1, 2004.  Lawyers and judges have 
since grappled with how to implement the two conflicting 
laws.  Despite heavy criticism of the Commercial Code by 
businessmen and GOU officials, Parliament has not yet taken 
action to amend or annul it.  The Civil Code ensures 
protection of the rights of private property, of engaging 
in contracts, and of entrepreneurial activity.  It provides 
a unified framework for economic regulations. 
 
The Civil Code is generally market-oriented and modern, but 
the Commercial Code is often contrary to market economy 
principles and directly contradicts provisions of the Civil 
Code in numerous instances.  The Commercial Code aims to 
preserve a privileged position for the public sector of the 
economy and allows for governmental interference in private 
commercial relations.  Further, in both codes gaps in 
regulation exist.  The existence of these two codes creates 
uncertainty in planning and structuring transactions, and 
leaves questions surrounding transactions unanswered. 
Problems arising from these two codes also surface in the 
resolution of disputes, as courts are not able to resolve 
the conflicting provisions of the codes, or are not able to 
fill in the gaps in regulation that arise as a result of 
the missing provisions in the codes.  Finally, other 
commercial laws have not been harmonized with these codes. 
 
A 1999 bankruptcy law provides for debtor-led 
reorganization, a meaningful moratorium on payment and 
collection of pre-existing debt, and a tax forgiveness 
provision.  The 1999 law provided thousands of heavily 
indebted industrial enterprises with an alternative to 
liquidation that did not exist under Ukraine's original 
1992 bankruptcy law.  Since then, many firms have reached 
amicable settlements with their creditors and established a 
workable schedule of debt forgiveness and repayment. 
Creditors protect their rights under the law by electing a 
creditors' committee, which is actively involved in the 
bankruptcy proceedings. 
 
Most observers believe the bankruptcy laws must be amended 
to provide more protection for creditors.  Notice 
provisions, protections for the rights of minority 
shareholders, and procedures for valuation and the sale of 
assets to satisfy liabilities are undeveloped. 
 
CORPORATE GOVERNANCE 
 
Problems with corporate governance in Ukraine involve 
corporate ownership, shareholder rights, transparency, and 
disclosure.  The Law "On Companies" offers scant protection 
for minority shareholders against insider dealing, asset 
stripping, profit skimming, and share dilution.  Corporate 
finance is restricted.  Some examples of shareholder rights 
abuses include limited disclosure, capital restructuring 
without shareholders' consent, and shareholder voting 
fraud.  Nevertheless, a Company Register that was 
established in 2004 improved transparency.  A new Joint 
Stock Company law was first drafted in 1998 to improve the 
current law by introducing sound corporate practices that 
meet international standards.  It has failed repeatedly in 
Parliament, despite increasing interest in the business 
community.  In May 2007, Parliament passed the latest 
version of this draft law in the first reading, but a 
protracted political crisis prevented the law from moving 
forward. 
 
BINDING INTERNATIONAL ARBITRATION 
 
Ukraine enacted an international commercial arbitration law 
in February 1994, which parallels commercial arbitration 
laws set forth by the United Nations Commission on 
International Trade Law.  Ukraine is a member of the New 
York Convention of 1958 on the Recognition and Enforcement 
of Foreign Arbitration Awards.  Some investors have 
problems enforcing foreign arbitration awards in Ukraine. 
Foreign arbitral award enforcement procedures in Ukraine 
are regulated by a number of statutes and regulations, 
including the Section 8 of the Civil Procedural Code and a 
law "On Enforcement Proceedings."  In early 2000 Ukraine 
ratified the Washington Convention, providing for use of 
the International Center for Settlement of Investment 
Disputes (ICSID), an internationally recognized mechanism 
for resolving investment disputes between investors and the 
GOU.  The U.S.-Ukraine Bilateral Investment Treaty (BIT), 
signed in November 1996, recognizes arbitration of 
investment disputes before the ICSID.  One major investment 
dispute involving a U.S. company was resolved in May 2006 
through a combination of direct consultations with the 
Ukrainian government and international arbitration by 
ICSID. 
 
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 pledged to eliminate measures that conflict 
with the WTO Agreement on Trade-Related Investment Measures 
(TRIMs) in the automobile industry and other sectors in the 
context of its accession efforts. 
 
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. 
 
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 during a 180 day period.  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.  Visas may be obtained from the Consular Office of 
the Embassy of Ukraine in Washington, D.C., or from 
Ukrainian Consulates General in New York, Chicago, or San 
Francisco. 
 
Ukrainian law requires that foreign residents of Ukraine 
register with local authorities.  American travelers 
entering Ukraine under the visa-free regime do not have to 
register any stays of 90 days or less.  Travelers entering 
Ukraine on a visa must register after six months' stay in 
Ukraine.  Registration is done at the local offices of the 
Department of Citizenship, Immigration, and Registration. 
 
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.   Cabinet of Ministers Resolution #917 from July 
11, 2007 introduced some changes to the rules surrounding 
work permits, although implementation of this new 
regulation has been unclear and inconsistent. 
 
Resolution #917 states that, if a foreigner intends to 
travel to Ukraine for employment, the employer in Ukraine 
must obtain a work permit from the Ministry of Labor.  The 
foreigner should then apply at a Ukrainian Consulate for an 
IM-1 visa.  After the applicant enters Ukraine, he/she 
should submit his/her passport with the IM-1 visa and work 
permit to the local Department of Citizenship, Immigration, 
and Registration, which will provide a passport stamp 
allowing the person to leave and re-enter Ukraine.  For 
stays longer than one year, the employer must apply to the 
Ministry of Labor for an extension of the work permit.  If 
a foreigner enters Ukraine without a visa, the employer 
must apply to the Ministry of Labor for a work permit, and, 
upon approval, the employee must register with the 
Department of Citizenship, Immigration, and Registration. 
Spouses/family members of IM-1 visa holders are not 
automatically entitled to IM-1 status.  However, if they 
intend to stay in Ukraine for more than 90 days, they must 
have a visa - most likely a P-1 (private) visa.  When the 
IM-1 visa holder registers his/her work permit at the 
Department of Citizenship, Immigration, and Registration, 
he/she should request the same status for family members. 
Family members will receive a different stamp (most likely 
a permit for temporary residence) to allow them to stay in 
Ukraine and travel in/out of the country just like the IM-1 
visa holder. 
 
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. 
 
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.  A moratorium on 
the sale of agricultural land remains in place, and the 
Land Code also 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 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, as 
well as broad government/state rights to "influence" the 
land market.  In 2003, Parliament adopted a new law on 
mortgages that allows the use of agricultural land as 
collateral and spells out foreclosure and eviction 
procedures. 
 
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. 
 
End Text of Part I. 
 
TAYLOR