VZCZCXRO2895
PP RUEHLN RUEHVK RUEHYG
DE RUEHKV #2017/01 2840646
ZNR UUUUU ZZH
P 100646Z OCT 08
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC PRIORITY 6510
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC PRIORITY
RUEHGV/USMISSION GENEVA 0143
RUCNCIS/CIS COLLECTIVE

UNCLAS SECTION 01 OF 04 KYIV 002017 
 
SIPDIS 
SENSITIVE 
 
STATE FOR EUR/UMB, EB/TPP/BTA, EB/TPP/MTA 
STATE PLEASE PASS TO USTR FOR CKLEIN, PBURKHEAD, EPORTER 
USDOC FOR 4201/DOC/ITA/MAC/BISNIS 
USDOC FOR 4231/ITA/OEENIS/NISD/CLUCYK 
USDA FOR FAS/ONA (KRAMOS, AMANNIX, MSALLYARDS) 
USDA FOR FAS/OCRA (JFLEMINGS) 
GENEVA FOR USTR 
 
E.O.: 12958: N/A 
TAGS: ETRD WTRO PREL UP
SUBJECT: 1ST MEETING OF U.S.-UKRAINE TRADE AND INVESTMENT 
COUNCIL ADVANCES BILAT ECONOMIC RELATIONS 
 
REFS: A) KYIV 1875 
      B) KYIV 1330 
      C) KYIV 1146 
      D) KYIV 964 
 
¶1. (SBU) Summary: The inaugural meeting of the U.S.-Ukraine 
Trade and Investment Council, created by our new bilateral 
Trade and Investment Cooperation Agreement (TICA), took 
place on October 2.  Deputy U.S. Trade Representative John 
Veroneau led the U.S. delegation; Minister of Economy 
Bohdan Danylyshyn headed the Ukrainian side, with reps from 
all major GOU agencies participating.  Ambassador Veroneau 
urged progress on a range of bilateral issues, including 
WTO accession implementation, opening the Ukrainian market 
for biotech products, enforcing contracts, solving the OPIC 
dispute, reforming the tax system, ensuring national 
treatment in electronic payment systems, and combating 
internet piracy.  The Ukrainian side asked for USG help in 
ending some U.S. anti-dumping orders against Ukrainian 
producers, upgrading the FAA's designation of Ukraine's 
State Aviation Administration to CAT 1, and upgrading 
Ukraine's OECD export credit rating.  The GOU also proposed 
negotiating a new U.S.-Ukraine Customs Cooperation 
Agreement.  The TICA calls for the Trade and Investment 
Council to meet no less than once a year.  End Summary. 
 
¶2. (U) While in Kyiv, Ambassador Veroneau held side 
meetings with Danylyshyn and Ukraine's lead trade 
negotiator Valeriy Pyatnytskiy, and was interviewed by the 
prominent weekly journal Invest Gazeta.  Alongside the 
Trade and Investment Council meeting, USG and GOU officials 
participated in a forum with local and international 
business reps.  Morgan Williams, President of the U.S.- 
Ukraine Business Council (USUBC), delivered a passionate 
criticism of Ukraine's investment climate at the forum and 
urged the GOU to improve its cooperation with business. 
 
¶3. (U) The following were the major topics raised at the 
Trade and Investment Council and other meetings. 
 
WTO Accession and EU FTA 
------------------------ 
 
¶4. (U) Ambassador Veroneau congratulated Ukraine on 
completing its accession to the WTO, while at the same time 
urging the GOU to complete the few WTO commitments still 
outstanding (ref B).  Danylyshyn thanked Ambassador 
Veroneau for USG support of Ukraine's accession and 
emphasized Ukraine's interest in further integration with 
the European and global economy, including through a Free 
Trade Agreement with the EU (ref A).  Ambassador Veroneau 
responded that the USG viewed Ukraine's increasing economic 
ties with Europe as a positive development. 
 
Agricultural Issues and Biotech 
------------------------------- 
 
¶5. (U) Danylyshyn and Yuriy Luzan, Deputy Minister of 
Agriculture, described recent progress in agricultural 
development and argued that Ukraine had the potential to be 
among the world's largest food suppliers.  Luzan recognized 
the importance of U.S. investment in this sector and called 
for increased cooperation on issues like biofuels and 
market infrastructure. 
 
¶6. (SBU) Ambassador Veroneau agreed, and argued that 
agricultural biotechnology could play an important role in 
helping Ukraine to realize its potential.  He reminded the 
GOU of its commitment under our bilateral WTO Market Access 
Agreement to open its market for biotech products and asked 
for an update on efforts to establish the appropriate 
regulatory system.  GOU reps dodged the question, but, when 
pressed, noted that they had just conducted a roundtable 
with U.S. officials on biotech issues and claimed that work 
on the necessary regulations was moving forward.  Luzan 
added that a new law needed to move through Parliament, 
which could delay things until next year.  (Comment: 
Luzan's comments were concerning, as Ukraine already has 
the necessary legislation in place and only needs to issue 
implementing regulations to open the market.  Luzan may 
 
KYIV 00002017  002 OF 004 
 
 
have been referring to a draft law requiring labeling for 
biotech products, an initiative thus far successfully 
opposed by the Ministry of Economy.  End Note.) 
 
¶7. (SBU) Pyatnytskiy, both during the Council meeting and 
privately with Ambassador Veroneau, noted GOU concerns that 
a new biotech regulatory system could create market access 
problems for Ukrainian producers.  The EU and Russia, 
Ukraine's major export markets, had drastically different 
rules, said Pyatnytskiy, and he asked for U.S. 
understanding as the GOU proceeded cautiously on biotech. 
(Note: Pyatnytskiy repeated this logic at a meeting hosted 
by the World Bank on October 7.  End Note.)  Ambassador 
Veroneau argued that the EU biotech regulatory system was 
not WTO compliant and reiterated the importance of 
Ukraine's commitment to open its market. 
 
Investment Promotion Efforts 
---------------------------- 
 
¶8. (U) Danylyshyn and Ambassador Veroneau agreed on the 
importance of foreign investment for Ukraine's continued 
economic growth.  Danylyshyn noted that the GOU had created 
a permanent Council of Investors charged to advise GOU 
leadership on investment climate issues, and he cited 
rising levels of FDI in recent years. 
 
¶9. (SBU) Ambassador Veroneau highlighted the rule of law as 
especially important for the investment climate.  While not 
engaging on the substance of the case, Ambassador Veroneau 
raised the government's nullification of a Production 
Sharing Agreement with Vanco International (refs C-D) as an 
example of how failure to uphold contracts can scare away 
potential investors. 
 
OPIC 
---- 
 
¶10. (SBU) Ambassador Veroneau emphasized the importance of 
solving the long-standing dispute that has prevented the 
Overseas Private Investment Corporation (OPIC) from 
operating in Ukraine.  Danylyshyn affirmed the GOU's 
resolve to find a solution, the details of which he said he 
hoped could be worked out by year's end.  Deputy Minister 
of Economy Victor Panteleyenko, who has the lead on this 
issue within the GOU, briefed the group on recent progress. 
He said the eventual solution would contain two distinct 
parts: a Memorandum of Understanding between the GOU and 
USG; and a settlement of OPIC's commercial dispute. 
Panteleyenko noted that Deputy Prime Minister Hryhoriy 
Nemyrya had tasked him to finalize the bilateral MOU as 
soon as possible. 
 
Tax Reform and VAT Refunds 
-------------------------- 
 
¶11. (SBU) Yuriy Gladun, head of the International Relations 
Department of the State Tax Administration (STA), reviewed 
GOU efforts to increase transparency in the tax system. 
Ambassador Veroneau praised the GOU for improving its 
reimbursement of VAT to U.S.-owned exporters, and 
encouraged further reform to ensure debts to exporters 
would not accumulate in the future.  Gladun noted that the 
STA was moving to an electronic system that should 
institutionalize speedier VAT reimbursement. 
 
Electronic Payments 
------------------- 
 
¶12. (SBU) Paul Burkhead, USTR Director for Europe and the 
Middle East, raised U.S. concerns about new regulations 
requiring banks that wish to bid on Ukrainian government 
contracts for issuing state employee salary cards to join 
the National System of Mass Electronic Payment (NSMEP). 
Burkhead and Ambassador Veroneau asked the GOU to review 
this new policy to ensure that it did not discriminate 
against foreign financial services providers. 
 
Customs Reform 
-------------- 
 
KYIV 00002017  003 OF 004 
 
 
 
¶13. (SBU) Igor Pikovskiy, First Deputy Chairman of the 
State Customs Service, reviewed Ukraine's efforts to reform 
Customs operations in line with international best 
practices.  He noted that our bilateral Customs agreement 
dated to Soviet times, and proposed that we launch 
negotiations on a new U.S.-Ukraine Customs Cooperation 
Agreement.  (Note: Ukrainian Customs has increasingly 
approached Embassy of late with requests for cooperation 
and information sharing, but this was the first time such a 
proposal was made.  End Note.)  Ambassador Veroneau said he 
would have to consult with U.S. Customs and Border 
Protection before responding to Pikovskiy's proposal. 
Ambassador Veroneau also encouraged the GOU to ease 
unnecessary restrictions currently faced by express mail 
operators in Ukraine. 
 
Anti-Dumping Orders on Ukrainian Exporters 
------------------------------------------ 
 
¶14. (SBU) Sergiy Gryshchenko, Deputy Minister of Industrial 
Policy, and Natalia Sydoruk, deputy head of the Ministry of 
Economy's Anti-Dumping Department, raised concerns 
regarding long-standing U.S. anti-dumping orders on some 
Ukrainian exports, particularly steel products and 
fertilizers, in place since before Ukraine achieved market 
economy status.  Ambassador Veroneau recognized the 
importance to Ukrainian industry, but noted that U.S. trade 
remedy laws were consistent with WTO rules and among the 
most transparent in the world. 
 
¶15. (SBU) Christine Lucyk, Senior Policy Adviser from the 
Department of Commerce, briefed on a recently signed, 
market economy-based agreement with Ukrainian steel 
producers that would come online on November 1.  Lucyk also 
noted that the Department of Commerce and the International 
Trade Commission (ITC) had just hosted a team of GOU 
officials during the week of September 22 to help explain 
U.S. trade remedy laws.  Sydoruk thanked the USG for 
engaging on this issue, and invited reps from Commerce and 
the ITC for a follow-on session in Ukraine and to meet 
directly with the Ukrainian companies affected. 
 
Aviation 
-------- 
 
¶16. (SBU) Kyrylo Polishchuk, Deputy Chairman of the State 
Aviation Administration (SAA), reviewed GOU efforts to 
improve aviation safety in Ukraine.  Polishchuk made a plea 
for the U.S. Federal Aviation Administration (FAA) to 
reconsider its current Category 2 designation of the SAA. 
(Note: The FAA downgraded the SAA from CAT 1 to CAT 2 in 
¶2004.  End Note.)  USUBC rep Williams argued at the 
business forum that the GOU needed to seriously address FAA 
and International Civil Aviation Organization 
(ICAO) concerns in order to move up to CAT 1, which is 
necessary to open new flights between Ukraine and the 
United States. 
 
¶17. (SBU) Ambassador Veroneau applauded Ukraine for opening 
its market to low-cost airline Wizz Air and urged speedy 
ratification and implementation of the Cape Town Convention 
on International Interests in Mobile Equipment. 
 
OECD Credit Rating 
------------------ 
 
¶18. (SBU) Volodymyr Lytvyn, Deputy Minister of Finance, 
complained that Ukraine's poor score (five on a scale of 
zero to seven) on the OECD's export credit rating (i.e. the 
OECD's Country Risk Classification) made it hard for 
Ukrainian firms to purchase equipment from U.S. companies. 
Lytvyn asked for USG support in achieving a revision of the 
OECD rating.  Ambassador Veroneau said he would look into 
the matter to determine what was holding Ukraine back. 
 
IPR 
--- 
 
¶19. (U) Ambassador Veroneau praised Ukraine for improved 
 
KYIV 00002017  004 OF 004 
 
 
enforcement of intellectual property rights in recent 
years.  He encouraged the GOU to continue the progress, 
especially in new areas of concern like internet piracy. 
 
GSP 
--- 
 
¶20. (U) Ambassador Veroneau mentioned USG willingness to 
help Ukrainian exporters take advantage of the General 
System of Preferences (GSP) program allowing duty-free 
import of some products to the United States.  Marideth 
Sandler, Executive Director of the GSP program at USTR, 
gave a well-received presentation on the program during the 
business forum on October 3. 
 
Next Council Meeting 
-------------------- 
 
¶21. (U) The TICA calls for the Trade and Investment Council 
to meet no less than once a year.  Danylyshyn said he hoped 
the next meeting would take place in Washington sometime in 
¶2009. 
 
¶22. (U) USTR has cleared on this cable. 
 
TAYLOR