Daily Archives: December 15, 2006

AUR#796 Dec 15 Huge Losses For Ukraine From Grain Export Quotas, Should Be Abolished Immediately, Ineffective, Inefficient & Non-Transparent

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   Recommendation is therefore to abolish quota system as soon as possible.
                                                 [Article One]
Mr. E. Morgan Williams, Publisher and Editor, SigmaBleyzer
               –——-  INDEX OF ARTICLES  ——–
              Clicking on the title of any article takes you directly to the article.               
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     Recommendation is therefore to abolish quota system as soon as possible.
By Stephan v. Cramon, German Advisory Group and
Professor of Agricultural Economics, University of Goettingen
Martin Raiser, Economic Advisor, World Bank Country Office, Ukraine
Institute for Economic Research and Policy Consulting In Ukraine
German Advisory Group on Economic Reform
The World Bank, Kyiv, Ukraine, Monday, November 27, 2006

2.                               KERNEL OF THE PROBLEM
        Ukraine becoming known as country where losses are not counted
By Vitalii Kniazhansky, The Day Weekly Digest #40
Kyiv, Ukraine, Tuesday, December 12, 2006


Ukrainian News Agency, Kyiv, Ukraine, December 14, 2006


Inside Agriculture Newsletter, Kyiv, Ukraine, Thursday, December 14, 2006

Interfax Ukraine News, Kyiv, Ukraine, Thursday, December 14, 2006

7.                     BOOST FOR UKRAINE’S WTO AMBITIONS
By Roman Olearchyk in Kiev, Financial Times
London, United Kingdom, Thursday, December 14 2006

Ukrainian News Agency, Kyiv, Ukraine, Wednesday, December 13, 2006

Ukrainian News Agency, Kyiv, Ukraine, Thursday, December 14, 2006

Ukrainian News Agency, Kyiv, Ukraine, Thursday, December 14, 2006

Ukrainian News Agency, Kyiv, Ukraine, Thursday, December 7, 2006

                 U.S. does not share Ukrainian prime minister’s optimism
By Mykola SIRUK, The Day Weekly Digest #40
Kyiv, Ukraine, Tuesday, December 12, 2006

                Ukrainian website publishes instructions for PM’s US visit
Ukrayinska Pravda website, Kiev, in Ukrainian 29 Nov 06
BBC Monitoring Service, United Kingdom, Tuesday, Dec 12, 2006

14.                  “I AM NOT THE PERSON I WAS BEFORE”
           Weekly says Ukrainian premier failed to impress during U.S. visit
Zerkalo Nedeli, Kiev, Ukraine, in Russian 9 Dec 06; p 2
BBC Monitoring Service, UK, Saturday, December 9, 2006


UT1, Kiev, in Ukrainian 1100 gmt 14 Dec 06
BBC Monitoring Service, United Kingdom, Thursday, Dec 14, 2006

UT1, Kiev, in Ukrainian 1900 gmt 12 Dec 06
BBC Monitoring Service, United Kingdom, Wed, Dec 13, 2006

Art Daily, New York, NY, Thursday, December 7, 2006

18.                       JAMES MACE: CANDLE OF MEMORY
Ihor Siundiukov, The Day Weekly Digest, Kyiv, Ukraine, Tue, Nov 28, 2006
     Recommendation is therefore to abolish quota system as soon as possible.

By Stephan v. Cramon, German Advisory Group and
Professor of Agricultural Economics, University of Goettingen
Martin Raiser, Economic Advisor, World Bank Country Office, Ukraine
Institute for Economic Research and Policy Consulting In Ukraine
German Advisory Group on Economic Reform
The World Bank, Kyiv, Ukraine, Monday, November 27, 2006

            The Quotas on Grain Exports in Ukraine: ineffective,
                              inefficient, and non-transparent*

                              EXECUTIVE SUMMARY:
On September 28, 2006, the Government of Ukraine introduced a system of
licenses for grain exporters. This system was subsequently replaced with a
quota system.

In both cases, the argument made to support these market interventions is
that they are needed to guarantee food security and protect domestic
consumers from rising international wheat prices. This short policy note
argues that:

[1] The introduction of the quota is not justified, because domestic grain
supply is amply adequate to cover all domestic needs and allow considerably
higher grain exports than estimated by the government.

This year’s grain production is well above the average of the last ten years
and high beginning stocks contribute to the good the supply of grain in the
2006/07 marketing year.

Furthermore, if the quota was implemented to keep bread prices stable, there
is no justification at all for the introduction of a corn and barley quota.
Finally, if stabilising consumer prices is such a concern, why does Ukraine
maintain import tariffs on grains?

[2] Ukrainian food consumers gain very little from the quota. Although wheat
prices have been constant, prices for flour and bread have actually
increased since the quota’s introduction.

In fact, wheat prices contribute only to a certain percentage to the final
bread price. The impact of lower feed prices on the prices of meat and dairy
is expected to be very limited.

[3] At the same time, the quota system imposes large losses on grain
producers and significantly affects export revenues.

Total lost export revenue until the end of 2006 are estimated at US$300
million, while the estimated reduction in farmgate prices by around
US$25/ton could lead to cumulative revenue losses in wheat production
alone of US$350 million during the 2006/2007 marketing year.

The proportion of the poor engaged in agriculture in Ukraine is larger than
the average for the country, hence this reduction in revenues for grain
producers may actually increase rather than decrease poverty.

[4] The quota system also hurts grain traders, who have invested significant
amounts of money in grain storage and other logistics to facilitate exports.

Traders incur additional storage costs, financing costs, costs of hiring
shipping tonnage that remains unused, and potential loss of market share
because delivery times cannot be kept.

As a result, an industry that has generated close to US$300 million in
Foreign Direct Investment in recent years may scale back. Even if the quota
was to remain only temporary, the loss of Ukraine’s reputation as a reliable
host for foreign investment could cause lasting damage.

[5] The administration of the quota system so far has been highly
non-transparent, and thus creates opportunities for corruption. Companies
able to secure an export quota can presently cash in a profit of US$ 25/ton
(the equivalent to the lost revenue for producers).

Based on the existing wheat quota alone, this amounts to a pure profit of
US$ 10 million until end 2006. Additional losses due to incentives to
smuggle grain out of the country are likely.

[6] Domestically, the main beneficiaries of the quota are flour millers and
animal feed producers, whose profit margins increase as a result of falling
grain prices on the domestic market.

[7] Thus, the quota is an ill-advised and poorly targeted measure to protect
the poor in Ukraine. Alternative measures exist that would protect the poor
from rising food prices, including the use of means tested cash transfers

The quota system is both ineffective (does not reach the poor), inefficient
(imposes large cost for very limited gain), and prone to corruption.

The paper’s main recommendation is therefore to abolish the

quota system as soon as possible.                     -30-
* The note has benefited from comments and contributions by: Riccardo
Gucci, Oleg Nivyevskiy, and Heinz Strubbenhoff (all IER, German Advisory
Group) and Asad Alam, Matthias Grueninger, Ruslan Piontkivskiy, Lee
Travers and Peter Thomson (all World Bank).

The imposition of a quota only affects prices if the quota is in fact
binding. The quota for grain exports introduced in October amounts to a
total of 1.603 million metric tons (MMT), with 0.6 MMT respectively for
barley and corn, 0.4 MMT for wheat and 0.003 MMT for rye. The quota is
currently valid for the remainder of 2006.

A new draft Cabinet of Ministers resolution published 22 November would
bring the quota for the year to 2.873 MMT for the 2006/2007 marketing year,
with 0.73 MMT for wheat, 1.3 MMT barley, 0.84 MMT for corn, and 0.003
MMT for rye. Government sources expect Ukrainian grain exports in the
2006/07 marketing year to amount to 9.5 MMT. What this implies for further
relaxation of the quota during the course of 2007 remains unclear.

How do these numbers compare with production and net export data in recent
years? Official data on wheat production, net exports and in particular
storage are incomplete, often published with considerable lags and
considered unreliable by many market participants.

This lack of quality statistics is in itself a significant hurdle for the
operation of grain markets. A series of private data sources are available,
as well as data from the United States Department of Agriculture. In this
paper, we use data from the private market information agency

Table 1 tracks the supply and demand (S&D) estimate for Ukraine for the last
three marketing years plus the current 2006/07 marketing year. The S&D
estimate for wheat is attached in Table 2. The total 2006/07 grain crop of
Ukraine is estimated to amount to approximately 35 MMT. This is below last
year’s crop of 36.6 MMT, but nevertheless well above the ten year average
and much higher than the low 2003/04 crop. (NOTE:  To see the tables
referred to in the article click on: http://www.worldbank.org.ua]

Moreover, grain stocks at the end of the 2005/06 marketing year were large.
Thus, the total supply of grain in Ukraine – ending stocks of the last
marketing year plus the year’s crop and grain imports – is very large: 37.8
MMT. The total domestic use of grain is expected to increase to 24.4 (last
year: 23.3) MMT, especially due to growing demand from the livestock sector.

This would, however, still allow for total exports considerably above the
Government’s forecast of 9.5 MMT. Indeed, assuming exports stayed at the
levels of 2006/2006, which was a record year, there would still not be any
shortage on the domestic market, while taking a more conservative export
forecast of 10.2 MMT provided by UkrAgroConsult endyear stocks of grain
would actually increase.

The situation is quite similar for the wheat S&D statistics, which are part
of the total grain S&D statistic. The 2006/07 wheat harvest was well below
previous years due to the dry autumn last year and some winter kill, which
reduced both harvested acreage and yield.

However, a wheat crop of close to 14 MMT is still an average crop and
clearly much higher than the crop of 2003/04. Taking total supply and
forecast domestic demand (with a slight increase in the share of fodder
wheat due to insect damage), exports of close to 5 MMT would still be
possible. In fact, UkrAgroConsult forecasts wheat exports to total only
2.8 MMT, which is still well above the currently allocated quota. (1)

The lack of justification of the quota is most obvious for the case of
barley. The 2006/07 barley harvest reached a ten year high. And despite a
very large increase in domestic use to 6.4 MMT(last year: 5.3), exports
could increase by over 50% without exhausting stocks. Note in addition that
barley is mainly used for feedstock and thus a quota on barley exports has
no direct impact on food security.

However, the distinction between feed wheat and milling wheat is ultimately
a question of degree and price rather than kind. In bad years, millers will
accept lower quality wheat and can if necessary make up the difference
through purchasing supplements.  Moreover, the quota makes no distinction
between flour and fodder wheat.

Until the end of September, when Ukrainian grain exports were stopped, the
country had exported 1.62 MMT of wheat and almost 2.2 MMT of barley.

Exports in October, which were already within the quota, amounted to 0.388
MMT of wheat and 0.496 MMT of barley. Thus, total exports for the 2006/07
marketing year to date are 2 MMT for wheat and 2.7 MMT for barley.

Adding the unallocated amount of the proposed revised quota (0.35 MMT for
wheat and 0.8 MMT for barley), the resulting figures are still well below
the numbers which would lead to a decline in wheat and barley stocks. The
quota is therefore clearly unjustified from a domestic food security point
of view and very clearly highly binding.


The imposition of quantity controls is under any circumstances a very
inefficient and blunt policy tool to achieve a stated objective. The losses
to an economy and society are always greater than the gains.

This basic principle is a widely accepted result in trade economics, and has
influenced the strong position taken for instance in the GATT Article IX,
paragraph 1, against the imposition of quantitative restrictions. Annex 1
explains the economic argument with the help of a simple diagram, which
shows that the losses suffered by domestic producers are always larger than
the gains to consumers.

How much are grain producers in Ukraine losing as a result of the quota? The
size of these losses depends on the impact of the export quota on farm gate
prices. Chart 1 provides information on wheat price developments since the
beginning of 2006 in Ukraine and on world markets.

Since mid-2006, FOB prices (Free On Board, in the US and the EU), which
represent the world market price level, have increased from roughly 140 to
200 US$/t.

These price movements have been driven by indications that world grain
production will fall short of consumption in the 2006/07 marketing year.
Rising demand for food production and biofuel together with lower than
expected grain production in the US and the EU and the devastating drought
in Australia have fuelled the sharp price rises. The Ukrainian export quota
has also contributed to higher world market prices in other countries.

Chart 1 shows that prior to the implementation of the quota, Ukrainian EXW
prices tended to mirror world market prices minus a margin of roughly 25
US$/t. Since the imposition of the quota, however, this margin has increased
to roughly 50 US$/t as Ukrainian grain price developments have been divorced
from corresponding world market price developments, and Ukrainian EXW
prices have remained essentially constant. (2)

The result is that 25 US$/t less is being paid for grain at the EXW level
than would be the case without the export quota system. It is safe to assume
that the resulting reduction in farm gate prices is at least as large.

Assuming that this reduction in farm gate prices is maintained over the
entire marketing year, wheat producers stand to lose a total of US$ 350
million in revenues (25 US$/t over 14 million t). If farm gate prices for
all grains fall by a similar amount, revenue losses of US$ 875 million could
result. (3)

At the same time, Ukraine as a whole is losing export revenues and the
corresponding foreign currency earnings as a result of the quota.

If the price relations prevailing in the first 8 months of 2006 are taken as
a guideline, FOB prices for Ukrainian wheat would have followed the
international trend and would be in the neighbourhood of 190-200 US$/t at
the moment, if not for government interference in the form of the export

Using this price, and a (conservative) average monthly export volume for
wheat before the quota in the order of 0.5 MMT (which corresponds to
slightly less than the average monthly wheat exports during the previous
four seasons), Ukraine is currently foregoing export revenues for wheat in
the range of USD 100 million per month.

For barley, similar calculations based on average exports of 0.4 MMT and a
FOB price in the neighbourhood of 140 US$/t suggest additional forgone
monthly export revenues of another USD 60 million. For corn, losses would
range around US$ 30-40 million.

Until mid November, these losses accrued fully because effectively no
official exports were taking place. Since then, limited exports have resumed
under the quota system. Nonetheless, based on the estimates in section 1,
we can safely assume that the current quota for grain exports until end 2006
effectively cuts grain exports to 1/3 or so of their level without quota.

The estimated total reduction in export earnings until year end would
thus amount as a minimum to approximately to US$ 300 million and

increase the current account deficit by 0.3% of GDP all else equal. (4)

Proponents of the export quota might object to these calculations by
pointing out that these export revenues are only temporary and can be
recouped later on, if the quota was to be lifted or relaxed and exports
re-allowed. This reasoning misses two important points, however.

First delayed exports result in a number of costs. The grain in question
must be stored in the interim, which leads to financial losses in the form
of bound capital, and quality losses in storage. Moreover, real economic
losses accrue to grain traders, who have hired transport ships, at the cost
of several tens of thousands of US$ per day.

Second, there are obvious limits to Ukraine’s storage capacity, and given
the S&D statistics presented above, not all producers will be able to wait
things out. The opportunity costs of not being able to export today could
thus be significant, particularly for smaller producers without access to
their own storage.

In fact, if the purpose of the export quota – to lower consumer prices for
grain and grain-based products – is taken seriously, then over the marketing
year there must be some significant net reduction in exports (so that
domestic supply is significantly increased and prices are effectively
reduced). Hence, a reduction in net export revenues is the inevitable price
that Ukraine pays for implementing a binding quota.

These are only the immediate financial damages caused by the export quotas.
The indirect damages due to corruption, loss of investment and damage to
Ukraine’s reputation could be significantly higher in the long term:

   CORRUPTION: As a result of the difference between the domestic and
world market price, there is a great incentive to obtain export quotas.

For instance, if the difference between the domestic and international price
for wheat is around US$ 25/ton and if the allowable quota is 0.4 MMT for
wheat, then the value of this quota is US$ 10 million until the end of 2006.

This is a pure profit transferred directly to the enterprise that was able
to obtain the quota and represents a significant incentive for corruption.

If the government allocates the quota on a competitive basis, some of these
profits could be recouped through an auction. However, so far, the quota
system has been administered in a largely non-transparent way. (5)

   LOSS OF INVESTMENT: The export quotas for grain make mockery
of government claims that it welcomes and wants to attract foreign
investment in agriculture. The total stock of FDI in agriculture amounted
to US$294 million as of April 2006, with significantly higher numbers in the
downstream food industry.

The de facto export ban hits firms that have been at the forefront of
efforts to modernize and transform Ukrainian grain production and marketing,
and have invested in upgrading grain storage, transportation and port

This investment, the corresponding jobs and transfer of know-how are at
risk, if Ukraine’s Government is perceived to be an unreliable partner.

   LOSS OF REPUTATION: Ukraine is an important European grain
exporter. For international grain traders, reliability of supply is

The introduction of the quota and the subsequent complete stop to grain
exports for a couple of weeks have not only imposed direct financing,
storage and shipping tonnage costs on producers and grain traders, but also
meant that some traders were unable to fulfill delivery orders at the other
end on time.

This has a price, too, and means that Ukrainian grain may henceforth be
traded at a discount to compensate for export and delivery risk.

The loss of reputation is naturally highest in the grain market, but it
could extend to other sectors where foreign investors may ask for a risk
premium to compensate them for the uncertainty surrounding government

This creates the risk that the grain is purchased by a trader and stored but
the quota is not obtained. This is clearly not in line with international

   WTO MEMBERSHIP AT RISK: A final economy-wide cost of the
quota is that it may cause complications to Ukraine’s WTO accession bid.
As noted above, under paragraph 1 of Article XI of the GATT, quantitative
restrictions are in principle ruled out.

Since this concerns an agricultural commodity, the rule can be waived if
the quantitative restriction is needed to support domestic agricultural

In fact, however, Ukraine would have a hard time justifying its stance on
acceptable principles. First, with the grain harvest at 35 MMT in 2006,
there is no real issue over food security that would justify an export

In fact, Ukraine still applies an import tariff of 20 Euro per ton on corn
(6), rye and barley and of 40 Euro per ton on wheat. WTO members could
reasonably ask for this to be removed first, if the issue was one of
immediate food security (as provided for in the so called “safeguard

Second, from the point of view of supporting agriculture, the present quota
makes no sense at all, since the bulk of the costs are in the end borne by
grain producers.

However, we use the cautious formulation “may cause complications” above
because WTO members tend to be far more sensitive about import than
export restrictions.

Indeed, if anything, Ukraine is as a result of its export restriction
subsidizing grain exporters from Russia and Europe, who are gaining
market share and benefiting from marginally higher prices given the lack of
supply from Ukraine.


Despite its large costs, proponents of the quota may still argue that these
costs are only borne by international grain traders and hence don’t really
hurt average Ukrainians, whereas the benefits of lower domestic food prices
are widely shared and particularly welcome for the poor. This argument is
not borne out by evidence.

As Chart 2 suggests food prices have on the whole tended to dampen rather
than push consumer price inflation over the most recent 12 months. Flour and
bread represent 0.54% and 3.87%, respectively, of the consumer price basket.

Thus while the price of bread has an important symbolical value in a country
that experienced one of the worst famines ever recorded in the 1930s, it is
not a major contributor to the cost of living.

Even if the recent rise in international grain prices had been fully passed
through to domestic consumers this would have led only to an increase of
1.75 percentage points in the CPI.

In fact, since the imposition of the grain quota, flour and bread prices
have increased, by 2.3% and 2% respectively in the month of October. This
has happened although the domestic price of wheat has been constant since
the summer. Hence, whatever benefit has been derived from keeping grain
prices low has not been passed on to consumers so far.

One reason why this is the case is that the price of flour and bread
reflects a host of factors, including the price of energy, wages,
transportation to market and a retail margin.

Energy prices, for instance, have increased significantly in the domestic
market since the summer and this may account for higher flour and bread

In some instances, even abstracting from other cost factors, the impact of
lower grain prices on consumer food prices will be effectively nil in the
short run. Take the livestock feeding sector as an example. Since the stock
of animals to be fed is more or less fixed in the short run, the demand for
feed grain is also more or less fixed.

Thus should feed grain prices fall, this will have no immediate impact on
the supply of meat and cattle and hence no immediate impact on meat and
dairy prices (a somewhat price elastic supply curve may exist in the poultry

Furthermore, in particular in the pig and poultry industry meat and
feedstock production are vertically integrated and relatively highly

In the absence of competition there is no reason why meat or feed
producers should pass lower costs on to their customers.

There is every reason to fear, therefore, that the net impact of export
quotas will largely be to tax farmers at one end, and inflate the profits of
meat producers and feed and flour mills at the other, with little or no
noticeable impact on consumer prices, at least in the short run. (7)

At the conceptual level, export quotas are an exceedingly ill-targeted tool
to help consumers who are truly threatened by food price inflation.

To the extent that export quotas for grain really do result in a measurable
reduction in food price inflation, all consumers benefit; rich and poor.
There is no denying that increasing food prices could represent a
significant burden to poor Ukrainians.

But certainly not to all Ukrainians, many of whom have benefited from
increasing real incomes over the last five years of economic growth. A
significant share of whatever benefits the export quotas generate will not
go to help poor consumers but rather be ‘wasted’ on consumers who can
actually afford to pay more for food.

In summary, the argument that export quotas are designed to support
consumers is weak. Experience with similar interventions in Ukraine and
elsewhere shows that it is often instructive to consider whether perhaps
there are other ‘hidden’ beneficiaries, who are using populist arguments as
a cover for other motives.

In particular, anyone who manages to export despite the export quota system
(i.e. smugglers or those who succeed in bribing officials) will profit
handsomely. Based on the price data presented in Chart 1 above, the margin
between the world market price for wheat and the corresponding EXW price in
Ukraine is currently roughly 25 US$/t higher than is usually the case.

We noted above that for wheat alone this provides a pure profit to anyone
able to export totaling US$10 million until end 2006. This profit provides
both a powerful incentive to get around the export quota system, and the
financial means of ‘persuasion’ to do so.

Indeed, many observers suggest that the underlying purpose of the export
quota system is not to reduce exports but rather to make them more lucrative
(at the expense of Ukrainian farmers) and to redirect the proceeds into
certain pockets.


The grain quota is a costly tax on producers and investors in the
agricultural sector. It is an ill-advised policy instrument, giving rise to
fears of corruption and damaging Ukraine’s reputation.

Moreover, taxing farmers to help consumers (even if it were more effective
than we show to be the case presently) is clearly inconsistent with the
stated policy goal of supporting agriculture in Ukraine.

Indeed, according to the draft 2007 budget, 7.3% of total public expenditure
will be channeled towards agriculture, the equivalent of 1.8% of Ukrainian

It is contradictory to give this money to agriculture with one hand, and
take it away via export quotas with the other. Clearly, it would make more
sense to reduce farm subsidies and use the resulting fiscal space to reduce
taxes (thus helping consumers) and/or provide consumers with direct income
transfers to help them cope with increased food prices.

The main policy recommendation that follows from the analysis in this short
note is to abolish the export quota as soon as possible. Time counts,
because of the costs that even a temporary quota imposes both financially to
grain producers and traders and by damaging Ukraine’s reputation.

The gains, as this note argues, are skewed to the benefit of flour and feed
mills as well as meat producers rather than consumers at large, and in any
case an export quota is a particularly blunt and distortive instrument to
shield consumers from the effects of rising world grain prices.

Nonetheless, it is important to realize that grain prices may play an
important political role. Indeed, interventions into the grain market are
not new in Ukraine and have been justified in the name of food security in
the past.

Should the government be genuinely concerned about the impact of rising
grain prices on the poor, the first best policy would be to a cash transfer
system targeted to the poorest segments of the population.

As the government deals with the social impact of administrative price
increases for energy and municipal utilities, adding a small cash transfer
program calibrated on developments in domestic food prices would not
represent a significant additional difficulty.

Such transfers should ideally be funded from general government revenue
(and, indeed, fiscal space for them could be easily created by limiting and
reorienting wasteful agricultural subsidies).

In the extreme case of an acute revenue shortage, an export tax on grain
would still be preferable to the quota system since it does not create the
same risks of corruption, whilst generating the same effect of lower
domestic prices.

However, because Ukraine has no market power in the international grain
market, it will still lose significant export revenues from an export tax,
which will translate into lower producer incomes. As we have argued in this
note, the current supply and demand situation in Ukraine’s grain market
hardly justifies any government intervention.

The abolition of the grain export quota is one way for the Ukrainian
government to reconfirm its market orientation and reformist credentials.
The sooner this happens the better for average Ukrainians.

A quota is essentially an intervention into the market through quantity
controls with the aim to affect the domestic price. In the case of an export
quota, the government aims to lower domestic prices below the world market
price, which is taken as given in most instances – this is certainly the
case for grain. If the quota is binding, domestic prices should fall to the
benefit of domestic consumers of grain.

At the same time, however, producers of grain (and those companies involved
in the export of grain since Ukraine is a net grain exporter) lose out. How
do these gains and losses compare? This section shows using a simple diagram
that the imposition of a quota generates overall welfare losses – in other
words, the losses of producers are larger than the gains of consumers.

Chart 3 explains why. The diagram shows the supply and demand for wheat in

a price quantity space. The supply curve is vertical, since grain is an annual
crop the supply of which in the short run cannot be altered by policy.

Before the imposition of a quota, the demand curve is downward sloping (the
lower the price, the more is demanded), but kinked at the world market price
P(world). This is because at the world price, producers are indifferent
between selling domestically or abroad and the demand curve becomes the
world demand curve. The domestic economy consumes at a, and total exports
are ae.

If the government introduces an export quota, ab, then domestic producers
will supply domestic demand a, then export the amount allowed by the quota
ab, and after this will be forced to sell the remainder of the harvest on
the domestic market. Hence, after b, the demand curve slopes downward again,
until it cuts the supply curve at point d. This corresponds to a domestic
equilibrium price P(dom) below the world market price.

The welfare effects are simply calculated. As a result of the quota, the
consumer surplus (the area below the demand curve and above the domestic
price level) increases by abcd. However, the producer surplus (the area to
the left of the supply curve and below the domestic price level) falls by
acde. A net welfare loss is created by the imposition of the quota, equal to

We provide approximate estimates of the size of this welfare loss in the
next section. Suffice to note here, that the size of the area bde is a
function of the gap between the domestic and the international price for
grain, which in turn depends on the size of the quota relative to exports
under free trade and the elasticity of demand (which is represented
graphically by the slope of the demand curve).

However, here it is important to note that there are additional welfare
losses associated with the quota system. This is because, as a result of the
difference between the domestic and world market price, there is a great
incentive to obtain export quotas. Every exporter has an incentive to
allocate additional resources to obtain the quota (the literature calls this
“rent seeking behavior”) and these additional resources are a net loss to
social welfare.

The size of this welfare loss depends on the mechanism for allocating the
quota. If this is through competitive and transparent auction, then rent
seeking is minimized. However, usually other means of allocation (nepotism,
patronage, discretion etc.) dominate, and the size of rent seeking expenses
may in fact far exceed the total value of the quota and thus welfare losses
multiply.                                      -30-
(1) The argument is sometimes made that due to the lower quality of the
wheat harvest, available milling wheat may not exceed domestic demand by

much and hence the quota on wheat exports (particularly if increased to 0.73
MMT) is adequate.
(2) The Ukrainian FOB price in Chart 1 is, since the implementation of the
quota, essentially a fictional price, as no (official) trade is taking place
at the moment.
(3) The impact on poverty would depend on the distribution of agricultural
revenues across the rural population, on which we know little. The household
budget survey does show that the poor are more likely to live in rural
areas, and average agricultural salaries are well below the national
How revenues are distributed within farms is something that would require
deeper analysis, but it is plausible that the reduction in revenues could on
balance hurt the poor in rural areas and thus may actually increase overall
(4) Estimated exports from Oct-Dec without quota 1.5 MMT wheat, 1 MMT
barley. Losses if quota is fully utilized are 1.1 MMT of wheat * USD200, 0.4
MMT barley * USD140, totals USD 304 million.
(5) Initially, the Ministry of Economy favored an allocation on a
first-come, first-served basis. Later, the idea of an auction was floated.
In the event, general regulations were issued in mid-November, which would
appear to leave significant room for discretion and also require any
applicant to have grain in storage by the time of the application.
(6) The tariff on corn is 20 Euro/ton or 25% ad valorem, whichever is the
(7) Note that one of the stabilizing factors for meat and poultry prices in
2006 has been the export ban on Ukrainian meat imposed by Russia. However,
no one has argued so far for keeping this ban in place to stabilize domestic
meat prices.
NOTE:  To see the several charts referred to in the article click on:
Institute for Economic Research and Policy Consulting in Ukraine
German Advisory Group on Economic Reform
Reytarska 8/5-A, 01034 Kyiv, Tel 38044 278-6342, 278-6360, Fax 278-6336
E-mail: institute@ier.kiev.ua, http://www.ier.kiev.ua
World Bank Country Office Ukraine
1, Dniprovskiy Uzviz St., 01010 Kyiv, Ukraine
Tel: (+38044) 490 6671/72/72, Fax 490 6670, http://www.worldbank.org.ua
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
2.                          KERNEL OF THE PROBLEM
         Ukraine becoming known as country where losses are not counted

By Vitalii Kniazhansky, The Day Weekly Digest #40
Kyiv, Ukraine, Tuesday, December 12, 2006

The Ukrainian Grain Association proposed an evaluation of the grain export
situation during a meeting of the National Security and Defense Council.
“The decision to curtail exports has notably affected the future state of
affairs in the grain sector.

Explosions in Ukrainian ports, caused by the spontaneous heating of grain,
may occur and lead to fatalities,” said the association’s president,
Volodymyr Klymenko, at the meeting attended by the president of Ukraine

and business representatives.

“Companies working on the grain market are forced to wrap up investment
projects and lay off workers,” said Klymenko.

He also believes that the new restrictions will cause massive defaults in
export contracts, loss of credibility on world markets, a deterioration of
Ukraine’s investment attractiveness, and a decrease in foreign currency
receipts, and will affect the trade balance and national currency rate.

So far, the grain traders’ pleas and requests to the government have fallen
on deaf ears. Last week Minister of the Economy Volodymyr Makukha

announced the intention to adopt a decision on export grain quotas by
the end of the week.

“It is now being adjusted. I believe it will be out this week.
Unfortunately, the quotas remain,” the minister said a week ago.

But things haven’t changed one iota. The situation with grain exports is
verging on chaos. Even Makukha mentioned that the cabinet has still not
determined quota sizes because it does not have definitive data on current
grain stocks.

Agriculture minister Yurii Melnyk believes that imposing quotas on grain
exports is necessary because the Agrarian Fund has not finished stocking the
state food reserve. “Grain reserves are still not fully formed; we are
continuing to work on this. As of yesterday, the Agrarian Fund purchased
132,000 tons of this year’s grain but we need to have 565,000 tons,” the
minister said.

“We need to have a clear understanding of how much we are exporting. We

must not do it spontaneously. In previous years the capacity of port elevators
was a limiting factor, but now all the leading exporters have built up their
facilities,” said the minister, explaining the need for export quotas.

Prime Minister Viktor Yanukovych said that grain export quotas may be
canceled after the Ministry of Agricultural Policy reports to the cabinet
about fulfilling the grain procurement plan for the country. Furthermore,
during his visit to the US the prime minister had to explain to his
vis-a-vis the situation with the export quotas.

Ex-foreign affairs minister Kostiantyn Hryshchenko, who is an adviser to

the prime minister, said that in the US the Ukrainian government is going to
explain a series of measures to secure a “calm” situation on the grain
market irrespective of the grain harvest yield. [NOTE: As far as the AUR
is aware this did not happen at all.  Officials in Washington are certainly
not “calm” about the restrictions on grain exports. AUR Editor]

However, it appears that the government will have an even tougher time
explaining these non-market prohibitive measures to producers and traders
in Ukraine that have found themselves on the verge of bankruptcy because

of this decision.
Here is what Yurii HUBANKOV, general manager of Bruklin-Kyiv, told
The Day about the current situation on the grain market:

I went into business in 1990. Already then we all understood the advantages
of Ukraine’s geographical position. Our country also has at its disposal
huge resources for becoming a really civilized country able to compete with
all European countries.

At the time our country had the biggest ports, an extensive railway system,
and large shipping companies, not to mention the world-famous black soils.
And we had the human factor.

At that time the level of education in Ukraine was probably the highest in
Europe. So it seemed that Ukraine could soon be transformed into one
of the most powerful countries on the European continent.

But after 15 years nothing was left of these potential opportunities. The
soil stayed in place but it did not start to produce more, even though it
could have. The Black Sea steamship company, for example, does not
have a single ship. Ship-repair factories are barely operating.

Oil-processing plants are privately owned but they are not in Ukrainian
hands. This is how it happens in uncivilized countries. Civilization means
that no group, once it has come to power, is able to ruin the economy. But
in our country they did. Moreover, this process is still continuing.

No matter how much longer we keep saying that we are striving for a
market-regulated economy, we will not have a free market as long as we use
administrative methods.

Let’s take as an example the government’s actions on the grain export
market. Ukraine’s agricultural output by far exceeds its consumption volume.
Therefore, it should sell agricultural products to other countries where
they are in demand, and earn from this.

But those purely administrative measures such as were used in licensing,
quotas, export curtailment, and export prohibition have affected the
structure of our exports and, most importantly, the businesses of hundreds
of thousands of people.

The consequences of this are unpredictable. This is, roughly speaking, like
Chornobyl because no one knows exactly what may happen tomorrow and
how it will affect our descendants.

Likewise, no one can unequivocally predict how the current export ban will
affect agricultural producers and in general the whole sector, including
trade businesses in Ukraine.

Here in front of me I have graphs showing the change in prices for wheat,
forage wheat, barley, and rye. I can assert that with the introduction of
quotas and licenses, there has been a clear increase in purchase prices
since Oct. 2, 2006. Maybe they have stabilized more or less in the last
three or four days.

As far as the world price is concerned, all our actions have also greatly
affected this market because the prices for agricultural products spiked and
Russians can simply thank Ukrainians because now they can sell, let’s say,
barley at a price that is $5 to $25 higher than it was four or six weeks
ago, or before that. Thanks to us, agricultural producers in Russia suddenly
received a giant boost.

The reasoning from the top officials in the Ministry of Agricultural Policy
is simply primitive, in my opinion. They remind us of 2003, when the country
purportedly sold all the wheat it had and then was left without this most
important product. Wheat supposedly had to be imported at a triple price

But in fact that year we had an extremely poor harvest. In 2002-2003 all the
winter wheat froze and later, after we planted spring wheat, it dried up
because of a drought. True, there was almost no bread-wheat in the country.
It had to be imported.

The prime minister at the time, Viktor Yanukovych, struck a deal with
Russia. In general it was a fairly sensible and competent move. We bought
over 166,000 tons of bread- wheat from Russia at a favorable price of $180,
although on the market it cost around $150 to $160.

But for the Ukrainian government this was a solution that suited both the
country and the political leaders. Interestingly, at that time Russia did
not resort to bans, licenses, or quotas. They did it simply and, in my
opinion, fairly. An export duty was set for all those who wanted to export
agricultural products.

Now we are saying that the budget lacks funds for purchasing grain to be
kept in reserve. Set an export duty and the money will come. This will allow
for the full compensation of the difference between the purchase price on
the domestic market and the price a seller would get on the world market.

This would easily provide the country with a full measure of grain and there
wouldn’t be any problems. The export duty could be used to regulate
everything, whether it is more profitable to sell on the Ukrainian market or
abroad. Traders would have a choice of whether to export and pay the duty or
not to export and not to pay.

But what happened? In early October licensing was introduced. This led to
an embargo by the chief officials of the agricultural and economy ministries
on ships that were being loaded in ports and contracted for concrete fairly
large volumes.

The main customs administration sent instructions to regional customs
departments, ordering them to stop processing papers for exporting grain. As
a result, all cargo ships that were being loaded paid huge fines. The total
sum because of demurrage alone exceeded $1.5 million.

Moreover, during those one and a half months, the temperature, sea water,
and less-than-perfect environmental conditions naturally caused the quality
of this grain to deteriorate. One can only guess what expenditures and
losses traders will incur because of this. Traders failed to fulfill
contracts that were signed six months before these events.

Someone may say, “We are not sorry for them. They are foreigners; they
want to rob Ukraine. But this is not true because traders do not simply buy
grain. They also invest.

They invest in Ukraine and create jobs for our citizens. They have made huge
investments in land and port elevators to construct additional storage

They invest in agriculture, enabling producers to buy seed, new equipment,
and fuel. We are destroying them, but we don’t know what consequences this
step will entail. Now they are not noticeable, but they will show up without
fail in March and April, when the grain that wasn’t sold today begins to

The government does not buy grain because it lacks money and because it
thinks the prices are too high, and traders do not buy grain because they
are not allowed to export. The producer, who is often also the trader, used
his own finances to buy seeds, tractors, harvesters, and diesel fuel, then
sowed and invested in fertilizers and herbicides and, finally, harvested the

And then he is forbidden to export the crop. Where is civilization? This
situation brings vastly different words to mind. But the problem really does
reside in the human factor, i.e., in incompetent administration and
management of the economy, which is unacceptable in a civilized country.

“But all this is nothing compared with what is still to come. The most
damaging blow will be inflicted on producers next spring and fall. They will
need to sow, harvest, and sell crops, but the traders-the top five companies
in the world-will naturally no longer offer the same price as yesterday.

There is a political risk, which typically entails a reduction in price. I
am more than convinced that they will estimate the risk at 10 to 15 percent.

“What will this lead to? Agricultural production in Ukraine is known to be
expensive because the crop capacity of our fields is not very high, unlike
the cost. Crop capacity may be increased only with the help of new
technology, new equipment, and high-quality grain.

All this requires financing. But, unfortunately, in Ukraine there is no
state policy at all that would be aimed at helping agricultural producers,
not to mention compensating for their losses.

The current situation has proved this once again. I have court decisions
saying that the actions of our customs administration are unlawful. But
these decisions are not being enforced. With great difficulty we managed to
free one of our two ships that were in an anchorage area. They still have
the other ship there, citing direct instructions from above.

“In what country of the world is such a situation possible, where they
introduce licensing, cancel it after ten days, then after companies acquire
licenses, they introduce quotas, after three days they start talking about
stopping grain exports, and in another five days they tell us about a new
procedure for issuing quotas.

The most interesting thing is that even now no one really knows how to
obtain these quotas. As a result, the market has been standing still for
over two months. People employed at elevators are not receiving their
salaries, and elevators have stopped operating. Everything is at a

It is very easy to calculate the losses incurred, for example, by Odesa
oblast alone because of the decrease in expected profits. In this region
there are three elevators that over the last 15 to 20 years have been
purchasing barley and wheat from producers in absolutely normal market
conditions and at some of the highest prices.

They can ship almost 1.5 million tons of agricultural products. Every land
elevator charges $3 per ton, a total of between 3 and 4.5 million dollars.
Railway transportation from land to port elevators costs around $10 per
ton. The total now is $15 million.

Port elevators charge $4 per ton, which makes $6 million. Stevedore
companies charge another $2 per ton for transporting to Illichivsk,
Pivdenny, Odesa, and Mykolaiv ports. That’s another $3 million plus
shipping by trucks and various losses because of the overall stoppage.

The total figure of $36 million is the profits that the companies failed to
receive. Do we have this kind of money lying around?

I very much appreciate the courage with which the prime minister
acknowledged the mistake and promised to fix it, and use only market
methods in the future. But this has to be done immediately.

Otherwise, we may be so late that no one on the world market will need our
grain because it will receive crops grown in other latitudes, where they are
harvested a lot earlier.”                             -30-
LINK: http://www.day.kiev.ua/174006/

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
Ukrainian News Agency, Kyiv, Ukraine, December 14, 2006

KYIV – President Viktor Yuschenko has said that the introduction of the
grain export quotas negatively influences the process of Ukraine’s accession
in the World Trade Organization (WTO). He made a statement to that score

at a meeting with journalists of foreign media.  “This question is leaving a
negative mark on our negotiations,” Yuschenko said.

Yuschenko said, however, that he was pleased with the fact that the
Verkhovna Rada had passed all of the bills Ukraine needs endorse to join the
World Trade Organization, including those submitted by the president.

As Ukrainian News earlier reported, the Cabinet of Ministers introduced
quotas for export of grain on October 11 until the end of 2006 and
discontinued grain export licensing by amending its resolution No. 1304 of
December 30, 2005.

Economy Minister Volodymyr Makukha is concerned that quotas for grain
exports are likely to affect Ukraine’s accession to World Trade

In November, the Cabinet of Ministers said the introduction of grain export
quotas was meeting the market principles of trade of the World Trade

World Bank has recommended that the Cabinet of Ministers abolish quotas for
export of grain. Later, Germany, the U.S. and the Netherlands called on the
Cabinet of Ministers to abolish grain exports quotas. To date, the Verkhovna
Rada has passed all of bills Ukraine needs to endorse to join the World
Trade Organization.                              -30-

[return to index] [Action Ukraine Report (AUR) Monitoring Service]

Ukrainian News Agency, Kyiv, Ukraine, Wed, December 13, 2006

KYIV – Economy Minister Volodymyr Makukha is concerned that quotas

for grain exports are likely to affect Ukraine’s accession to World Trade
Organization. He disclosed this to the press after Cabinet of Ministers
meeting on Wednesday.

‘In the case such tendency concerning grain exports will continue taking
place, the situation can become critical,’ Makukha said.

According to Makukha, such problem is likely to appear if Ukraine cannot
prove grain exports limitation was necessary and Ukraine had to act that way
due to complicated situation on the food market of the country.

As Ukrainian News earlier reported, the World Bank has recommended that

the Cabinet of Ministers abolish quotas for export of grain.

The Cabinet of Ministers introduced quotas for export of grain on October 11
until the end of 2006 and discontinued grain export licensing by amending
its resolution No. 1304 of December 30, 2005. Later, Germany, the U.S. and
the Netherlands called on the Cabinet of Ministers to abolish grain exports
quotas.                                              -30-

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
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Inside Agriculture Newsletter, Kyiv, Ukraine, Thursday, December 14, 2006
KYIV………The following comments are being heard around Ukraine
every day now concerning the severe restrictions imposed on grain
exports by the Yanukovych government:

1. The statistics the government is using are wrong.  Good data is
available.  The country is stuffed with grain. There is no statistical
justification for what the Yanukovych government has done and

continues to do regarding grain exports.

They will be forced to open the markets.  They have caused too much

grain to be in storage.  Why does a ban on barley make any sense? 

2.  This is the worst situation for agriculture and agri-business since
Ukraine became independent 15 years ago. People are longing for
Kuchma to be back.  It was never this bad under Kuchma. For those

who have been in Ukraine since 1991 this is the worst situation and
worst illogical and obvious move business people have seen.
3.  Business blocs are running the country…they care about nothing but
stuffing their pockets today at the expense of anyone and everyone
including the government. It is absolutely disgusting.

Certain business groups are getting wealthy off the grain restrictions
at the expense of the farmer and the nations.  These business groups

could care less.

4.  It is very difficult to influence the authorities now to do what is right. 

The whole system is just saturated with corruption.

5.  Ukraine could be a very serious and interesting country for investors. 

People love this country and it has fantastic agricultural potential…it just
has not and is not being allowed to develop.  This is dreadful.

6.  These are very tough, hardball people in charge. They play for keeps. 

It is better to keep your head down if you are in business and live to
fight another day.

7.  There are so many lawsuits.  The only ones making money are the

judges and the lawyers who drag the lawsuits on for months….they can
make more money.

8.  The international grain trade has been hit hard..just hammered. They

have lost tens of millions of dollars with no recourse.  At least $100 million
has been lost.  They bring world prices to Ukrainian farmers.

Those who are corrupt do not want world prices for the farmers. They do

not want farmers to make money. They want farmers to go broke so they
can buy or lease the land cheaply. 

9.  The Kuchma people wanted control and to pad their pockets, the

Orange people wanted control and to pad their pockets and now the
Yanukovych people want control and to pad their pockets.  An endless
cycle of corruption. Statesmen are no where to be found.

10. It is not simply about reduced grain prices. The market is the market,

and even if they continue to block exports, the world market price is so
high, that neither farmers or grain holders are selling at yesterday’s prices. 

It is about control, in a broad sweeping way that touches a variety of
businesses and aspects within the Ukraine Ag sector. Large companies

telling the news media, they might have to quite Ukraine, is of course the
desired effect for those who are profiting from low grain prices and
who want control. 

11.  There are a lot of demoralized people right now in Ukraine. Very few

people really understand how difficult the current business culture is today.
Those in power in Ukraine could not care less about external criticism from
the US, Europe or anywhere else as they have shown clearly the past four
months during the severe grain export quotas which have be denounced
by almost everyone, domestic and international, except by those in the
government and the government’s friends in the business community who
want power and to pad their pockets. -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

Interfax Ukraine News, Kyiv, Ukraine, Thursday, December 14, 2006

KYIV – The Ukrainian government has set new grain export quotas for the
current agricultural year (July 2006-June 2007) that take effect on December

A December 8 Cabinet resolution sets a quota of 1.106 million tonnes,
including 3,000 tonnes of wheat, 3,000 tonnes of rye, 600,000 tonnes of
barley and 500,000 tonnes of corn. At the same time, the government repealed
the previous quotas of 1.603 million tonnes set by an October 17 resolution.

The government set up an eight-member commission to review applications

for licenses to export grain and the distribution of quotas, chaired by First
Deputy Economy Minister Serhiy Romaniuk. The deputy chairman will be
Deputy Agriculture Minister Ivan Demchak.

Eighty percent of the quota will be distributed among applicants who
exported grain in the past three years, in proportion to their actual
exports in this period, as confirmed by the State Customs Service. The
remaining 20% of the quota will be distributed proportionately among other

For companies that already received licenses, the new quota will be reduced
by the amount of the previously received quota, after which the quotas will
be recalculated.

According to revised figures from the Customs Service, Ukraine exported 4.9
million tonnes of grain between the start of this agricultural year and
November 21, compared to 5.2 million tonnes in the same period last year.

Ukraine is expected to have a gross grain harvest of 35.1 million tonnes
this year, including 14.3 million tonnes of wheat, 11.8 million tonnes of
barley and 6.4 million tonnes of corn.

The Agriculture Ministry reckons the country can export no more than 9.5
million tonnes of grain in 2006/2007.                  -30-

[return to index] [Action Ukraine Report (AUR) Monitoring Service]

By Roman Olearchyk in Kiev, Financial Times
London, United Kingdom, Thursday, December 14 2006

KIEV – Ukraine’s hopes of joining the World Trade Organisation received a
boost yesterday as lawmakers adopted the last of more than 20 legislative
changes required to bring it in line with the trade organisation.

Passage of a bill which envisages gradual reduction on export duties for
scrap metal products could help secure Kiev’s chances for joining the trade
organisation ahead of Russia.

Joining the WTO first could give Kiev leverage in tough energy and trade
negotiations with the Kremlin. This autumn, during a trip to Kiev, Mikhail
Fradkov, Russian prime minister, expressed his country’s desire that both
countries “synchronise” WTO membership efforts.

Ukraine’s pro-western president, Viktor Yushchenko, has pressed legislators
hard to pass the WTO legislation. Mr Yushchenko’s political base has accused
the governing coalition of the prime minister, Viktor Yanukovich, of
stalling on WTO legislation and western integration initiatives, including
moves to integrate closer with the EU and Nato military alliance.

Mr Yushchenko had earlier expressed hopes his country would be accepted

into the WTO this year, but conceded recently that membership would only be
possible next year. Government officials are now betting on securing
membership by the spring.
Mr Yanukovich this week ordered government officials to speed up the
process of negotiating with WTO officials and member countries.

Joining the WTO will open access to new export markets for Ukraine’s steel
and chemical industries. But it will also lift protectionist barriers for
many inefficient domestic manufacturers who fear foreign competition.

Ukraine has secured bilateral talks with all WTO member countries with the
exception of Kyrgyzstan, with which talks have been particularly tough.
Ukraine’s government has expressed hope that WTO officials would approve
their country’s bid even if talks with Kyrgyzstan failed.             -30-

[return to index] [Action Ukraine Report (AUR) Monitoring Service]
    NOTE: Send in a letter-to-the-editor today. Let us hear from you.
Ukrainian News Agency, Kyiv, Ukraine, Wednesday, December 13, 2006

KYIV – The Verkhovna Rada [parliament] has cancelled the ban on export of
scraps of nonferrous metal, alloyed metal, and alloyed ferrous metal as well
as the ban on export of semi-finished products made from unrefined copper
after Ukraine joins the World Trade Organization (WTO).

A total of 363 lawmakers voted to pass on the whole bill No. 2398-2 entitled
“On Establishing the Rates of the Export Duty on Scraps of Ferrous Metals
and Scraps of Nonferrous Metals and Semi-Finished Products Made of Them,”
which was proposed by the Cabinet of Ministers, with 226 votes required.

The bill provides for lifting the export ban after Ukraine joins the WTO and
setting the export-duty rates of 30% for scrap metal and semi-finished
products and reducing it to 15% within five years (30% in the first year
after joining the WTO, 27% in the second year, 24% in the third year, 21% in
the fourth year, 18% in the fifth year, and 15% after five years).

It also provides for establishing a transition period of five years during
which export of scrap metal and semi-finished products can be effected only
by scrap processing enterprises that hold quality certificates and meet the
requirements of ISO 9000-2001.

Moreover, the draft law provides for requiring enterprises exporting scraps
of nonferrous metal, alloyed ferrous metals, and semi-finished products from
copper as give-and-take raw materials to make export-duty down payments
(payment via issuance of bills is not acceptable).

The Cabinet of Ministers said in the explanatory note to the draft law that
its approval would facilitate acceleration of Ukraine’s accession to the
WTO, eliminate the non-conformance of Ukrainian legislation to the
requirements of the WTO, and facilitate increased competition on the market
of scrap metal.

As Ukrainian News earlier reported, a similar draft law submitted by
President Viktor Yuschenko was registered with the parliament on October 20
while a similar draft law submitted by parliamentary deputies Mykola Kruhlov
of the Party of the Regions faction and Oleksii Kozachenko of the Our
Ukraine bloc’s faction was registered with the parliament on October 26.

In 1999, the parliament adopted the law entitled “On Scrap Metal,” Article 9
of which bans export of scraps and waste of nonferrous metal and alloys as
well as export of alloyed ferrous metals. Moreover, export of nonferrous
metal scrap as give-and-take raw material is banned.

In September 2005, the parliament refused to lift the ban on export of
scraps and waste of nonferrous metal and alloys as well as export of alloyed
ferrous metals from January 1, 2006.

On November 2, the parliament approved the first reading of part of the
draft laws necessary for Ukraine’s admission into the WTO that Yuschenko

and the Cabinet of Ministers proposed.                        -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

Ukrainian News Agency, Kyiv, Ukraine, Thursday, December 14, 2006

KYIV – Ukraine expects the World Trade Organization’s working group on
Ukraine’s bid for admission into the organization to recommend Ukraine’s
admission after its December 18 meeting. First Deputy Economy Minister
Serhii Romaniuk announced this to journalists.

‘There is every reason to expect the working group to recommend that the

WTO admit Ukraine into this organization,’ Romaniuk said. He noted that a
Ukrainian delegation led by Deputy Economy Minister Valerii Piatnytskyi flew
to Brussels on December 13 to attend the working group’s meeting.

Romaniuk noted that the Ukrainian parliament has adopted practically all the
laws necessary for Ukraine’s admission into the WTO and that Ukraine has
concluded admission talks with all WTO member-states, except Kyrgyzstan.

According to him, the WTO may make a positive decision on Ukraine by
February in case of a positive recommendation by the working group.

According to him, the dare of the decision will depend on how long it takes
the relevant WTO commission to consider Ukraine’s report.

As Ukrainian News earlier reported, President Viktor Yuschenko considers the
end of 2006 as the most favorable period for Ukraine’s accession to the WTO.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

Ukrainian News Agency, Kyiv, Ukraine, Thursday, December 14, 2006

KYIV – Ukraine has signed a bilateral protocol on mutual access into goods
and services markets with Taiwan (Chinese Taipei) in the frames of Ukraine’s
entering the World Trade Organization. The Economy Ministry press service
disclosed this in its message.

“Today, on December 14, 2006, Ukraine and the Chinese Taipei have signed
the bilateral protocol in the frames of Ukraine’s entering the World Trade
Organization in Geneva”, reads the statement.

Now Ukraine continues consulting with Kyrgyzstan as to signing a bilateral
protocol in the frames of entering the WTO. As Ukrainian News reported
earlier, in May 2006 Ukraine and Taiwan in Geneva agreed on mutual tariff
obligations required for Ukraine’s entry to the World Trade Organization.

Agreement on tariff obligation is a step towards signing bilateral protocol
of access into goods and services markets. Ukraine hopes the WTO

workgroup will recommend to accept Ukraine to this organization on
December 18, 2006.

In case of positive recommendations from the workgroup, the World Trade
Organization may decide on Ukraine entering it by February 2007.   -30-

[return to index] [Action Ukraine Report (AUR) Monitoring Service]

Ukrainian News Agency, Kyiv, Ukraine, Thursday, December 7, 2006

KYIV – Ukrainian Prime Minister Viktor Yanukovych has called on the US
finance and business circles to make investments in Ukraine. Yanukovych said
this during his meeting with the leading representatives of US finance and
business circles in New York.

Yanukovych noted that in 2006 Ukraine has set up a new parliamentary-

presidential political system helping towards more effective work of the
authority and predictability of its actions.

He emphasized that the administration system created this year guarantees a
reliable mechanism of cooperation between the government and parliament.

He also noted that this year Ukraine has obtained the opportunity to start
real reforms and guarantee their implementation by way of adoption of the
required laws in parliament.

Yanukovych noted that Ukraine needed to draw great investment resources into
its economy, and the government was ready to create conditions for their
motivation, to guarantee political stability and improve legislation.
The prime minister informed that it was planned to set up a council of
investors to the Cabinet of Ministers in December. “I will be glad to see
you in that council,” Yanukovych said, addressing the participants in the

He added that the government would take into account investors’ opinion in
implementing reforms and perfecting legislation.

“In our actions we will lean on the economy that will bring a growth of
several times rather than several percents,” Yanukovych said. The prime
minister noted that he had visited the New York stock exchange on Wednesday.

He added that Ukraine’s stock market was just beginning to develop, and the
property of Ukrainian companies is largely underestimated. He also noted
that, under preliminary expert estimates, the property of Ukrainian
companies is underestimated ten times. The prime minister predicts that
Ukraine’s stock market will start functioning in the coming 1.5 – 2 years.

“We are sure of a boom in this market during the coming 1.5 – 2 years. Many
Ukrainian companies are already prepared for registration at the IPO. We are
inviting you to do this job together,” Yanukovych said.

He noted that political stability in the state was greatly important for
investments, stressing that the political forces that came to power in Ukraine

were quite capable of securing such stability.

“Stable political forces have come to power, and can guarantee stability. We
are counting for work in the coming five or ten years, and we do not see any
serious obstacles to that,” he said.

Yanukovych also noted that Ukraine had determined its internal and external
policy course, and he came to the US to say about that, voicing hope that he
would be heard.

As Ukrainian News reported, Yanukovych in staying on a five-day visit in the
US. He discussed with Chief Executive of the New York Stock Exchange John
Thain prospects for registration of Ukrainian enterprises at the exchange.
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

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                  U.S. does not share Ukrainian prime minister’s optimism

By Mykola SIRUK, The Day Weekly Digest #40
Kyiv, Ukraine, Tuesday, December 12, 2006

Last week Prime Minister Viktor Yanukovych reported to President Viktor
Yushchenko on the results of his four-day visit to the US. As the
president’s press service announced, during the meeting on Bankivska the

head of state and the head of government talked about Yanukovych’s visit
to the US and the fulfillment of the directives given by the president for this

They also discussed Russian President Vladimir Putin’s upcoming visit as
well as the Ukraine-Russia Action Plan for 2007-2008, to be signed during
Putin’s visit, and the Declaration of Strategic Partnership.

It looks as if the recent “directive” wrangle between the Ukrainian
president and the prime minister is bearing fruit. It is not inconceivable
that there will be no questions concerning the necessity to sign directives
for the prime minister’s future trips.

The Ukrainian prime minister has a positive view of his overseas visit. “As
far as I am concerned, according to the information the president has
received, there are no grounds to consider this journey as having negative
outcomes for us,” Yanukovych said to journalists after his meeting with
President Yushchenko.

The prime minister’s milieu is also satisfied with the results of his US
visit, one of whose participants, Hanna Herman, even reported that during
the meeting with Senator Richard Lugar, the senator called the prime
minister his friend and “predicted” that he would stay long in office.

However, the US does not share the Ukrainian prime minister’s optimism.
Furthermore, the Americans are questioning Prime Minister Yanukovych’s
statements in Washington concerning his intentions to fight corruption and
create a favorable investment climate in Ukraine.

Former US Ambassador to Ukraine Steven Pifer directed attention to the
Ukrainian government’s implementation of export quotas for corn [grain],
which are channeling investments away from the agricultural sector.

“The prime minister made several good statements about the struggle against
corruption. However, in the last few months we have been receiving
information that the tax administration is reverting to a policy of
favoritism. The struggle against corruption should also be applied to the
tax administration,” Radio Liberty quotes Pifer as saying.

Discussing foreign policy questions, Pifer noted that Ukraine risks losing
the dynamic in its relations with NATO, and this may lead to the
organization losing interest in Ukraine’s membership. The American diplomat
was surprised that during his visit to Washington Yanukovych did not explain
whether he sees Ukraine a part of the alliance.

Pifer sees the coordination of views on the state’s foreign policies as the
main task of Ukrainian officials. “It looks as if there is a competition in
the foreign policy sphere. This does not promote trust in the president, the
prime minister, and Ukraine,” he stressed.
Konstiantyn HRYSHCHENKO, ex-foreign minister:
The main thing is that during the meetings with American political leaders
there was an opportunity to present the Ukrainian government’s program and
motivations for the near- and long-term perspective and prove that in the
person of the prime minister, who heads the coalition government, they have
a reliable partner and can work with him.

Meetings took place in all branches of power that are extremely important
for our bilateral relations. A crucial part of the visit was Yanukovych’s
speech at an investment forum devoted to Ukraine, which was very
representative and unique in terms of its participants.

As for Pifer’s speech, I admit that it should be regarded within a wider
context. He also expressed his own opinions and wishes, declaring that it
would be important to intensify the message the prime minister gave in his
assessment: that there are certain difficulties in the implementation of the
anti-corruption program, especially in questions connected with the VAT and
establishing quotas.

There were practically no questions to the prime minister about this. As for
quotas, the government is working on this question and trying to secure
market stability in the country, and create transparent and clear game rules
both for domestic traders and international companies working in the
 market.”                                              -30-
LINK: http://www.day.kiev.ua/173686/
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
             Send in a letter-to-the-editor today. Let us hear from you.
                  Ukrainian website publishes instructions for PM’s US visit

Ukrayinska Pravda website, Kiev, in Ukrainian 29 Nov 06
BBC Monitoring Service, United Kingdom, Tuesday, Dec 12, 2006

A popular Ukrainian website has published scanned copies of foreign policy
guidelines, or “directives”, for the official Ukrainian delegation’s visit
to the USA on 3-7 December.

The document was drafted by the office of Prime Minister Viktor Yanukovych,
who headed the delegation, and approved by President Viktor Yushchenko with
no major changes, according to the website.

The document said that the Ukrainian delegation was to inform US officials
on the progress of democratic reform, reiterate Ukraine’s desire to become a
member of the European Union, NATO and WTO, and to obtain assurances

of US support for these initiatives.

The following is the text of the document with the original introduction by
Ukrayinska Pravda, published on the website on 29 November under the title
“Text of directives for the prime minister’s visit to the USA, which caused
the row between Yushchenko and Yanukovych”:

The scandal around the cancellation of Viktor Yanukovych’s visit to the USA
became another point of contention between the president and the prime
minister [the visit eventually took place]. Our report published in the
early hours of Tuesday [28 November] on the Foreign Ministry’s decision to
postpone Yanukovych’s trip had been confirmed.

On Wednesday Yanukovych and Foreign Minister Borys Tarasyuk began

fighting in public and accused each other of disrupting the visit.

The formal reason for the cancellation was Yanukovych’s failure to submit
his directives, meaning the main policy statements which he plans to make
public in the USA, to Yushchenko for approval. Yushchenko saw this as an
attempt by Yanukovych to take over the presidential power to make foreign

When the argument erupted in the middle of a cabinet meeting with
journalists present, Yushchenko’s representative Arseniy Yatsenyuk found a
way out of the situation. He said that Yushchenko would approve the
directives submitted by Yanukovych. In a few hours, the presidential
secretariat’s foreign relations chief Oleksandr Chalyy announced at a news
briefing that the directives had been approved.

Chalyy said that the version signed by Yushchenko had undergone only minor
technical revisions compared to the version submitted by Yanukovych. Deputy
Prime Minister Dmytro Tabachnyk confirmed this. The document itself was
discussed at a meeting of the anti-crisis coalition council on Tuesday, and
then the prime minister demonstratively signed it during a cabinet meeting.

Ukrayinska Pravda got a hold of the document which had caused

this whole ordeal.

For official use
Approved at the meeting of the Cabinet of Ministers of Ukraine on ” ”
November 2006 [signature line] Prime Minister of Ukraine V. F. Yanukovych

Directives for the Ukrainian delegation for the events held within the
framework of the working visit of Ukrainian Prime Minister Viktor Yanukovych
to the USA (3-7 December 2006)

During the visit of Ukrainian Prime Minister Viktor Yanukovych to the USA
(3-7 December 2006), the Ukrainian delegation is to follow the Constitution
of Ukraine, current legislative acts, provisions of “Main directions of the
foreign policy of Ukraine”, the law of Ukraine “On the foundations of
national security of Ukraine”, presidential decrees, provisions of the
declaration of national unity and these directives.

To maintain a consistent and balanced position in line with the long-term
foreign policy interests of our state, its international obligations as part
of current international agreements and treaties, as well as the generally
accepted principles and norms of international law:

The Ukrainian delegation’s main goal during the working visit of the prime
minister to the USA is to further strengthen the ties of strategic
partnership between Ukraine and the USA, taking into account that these
relations must serve as one of important guarantees of Ukraine’s
sovereignty, independence, territorial integrity and border security,
development of partnerships and equal relationships between Ukraine and
other countries, international organizations and other members of the
international community.

A priority task is to implement an integral foreign policy in
Ukrainian-American relations, consistently follow the foreign policy course
of protecting the national interests and the national security of Ukraine.
                                         POLITICAL ISSUES
During bilateral talks and working meetings with representatives of the US
government, the Department of State, the Senate and the Congress, to
reiterate the course towards democratic developments inside Ukraine, strict
adherence to the basic rights and freedoms of citizens, freedom of the media
and real fight against corruption, which should demonstrate devotion to
strengthening of democratic improvements, which had become an achievement

of the Ukrainian people and the basis for determining the US attitude towards
the new Ukrainian government.

In this context, to reiterate readiness to improve cooperation on a number
of issues concerning Ukraine’s domestic development, primarily in terms of
reforming the judiciary, combating corruption, continuing political reforms
aimed at strengthening the role and status of local governments, development
of democracy, human rights, ensuring energy independence of the state and
facilitating the flow of American investment into Ukraine’s economy,
particularly in the hi-tech sector.

Priority effort to be given to reiterating the irreversible nature of
Ukraine’s foreign policy course towards European integration with the future
goal of membership in the European Union and the development of mutually
beneficial cooperation with NATO in accordance with the law of Ukraine “On
the fundamentals of national security of Ukraine” (the version current at
the time of signing of the declaration of national unity), which stipulates
that the issue of NATO membership will be decided by a referendum to be held
after Ukraine completes all the necessary steps.

With that, to make an effort to secure reassurance from senior US officials
in support of the aforementioned course of Ukraine and their readiness to
facilitate further improvement of mutually beneficial cooperation through
implementation of concrete projects by NATO and Ukraine within the framework
of existing cooperation mechanisms (Intensified Dialogue and the
Ukraine-NATO Action Plan), as well as partnership in resolving other
problems of Ukraine’s national security, including the problem of
diversification of energy sources and introduction of new energy-producing
and energy-saving technologies.

To strengthen Ukraine’s position as an active contributor to the
international community’s effort to combat international terrorism, other
threats and challenges. In particular, to express Ukraine’s support for the
global initiative to combat nuclear terrorism, proposed by the presidents of
USA and Russia in 2006.

To inform the American side about Ukraine’s work regarding this country’s
involvement in this initiative.

To direct efforts towards strengthening Ukraine’s authority and influence as
an active and responsible participant in international relations, which has
grounds to claim the role of a regional leader and is prepared to make a
significant contribution to improving regional security and stability, to
facilitate resolution of the so-called “frozen” conflicts on the post-Soviet
territories based on the principles of territorial integrity of the states
and security of state borders, with active involvement of the UN, OSCE, EU
and USA.

To take consistent steps towards securing assurances from the American side
concerning active support of Ukraine’s effort to fulfill its regional
obligations, primarily concerning the encouragement of the USA’s European
partners to actively resolve regional problems.
                                     ECONOMIC ISSUES
During meetings with senior officials from the Department of Commerce, the
Office of Trade Representative, the Department of Energy and the Overseas
Private Investment Corporation to provide information and explain the
Ukrainian government’s priorities in its economic, budgeting and monetary
policies with the emphasis on facilitating free competition, transparency
and clear economic and trade rules on the Ukrainian markets, to reiterate
intentions to complete the process of Ukraine’s accession to the WTO as soon
as possible – projected for February 2007 – to maintain a clear position on
the issues of privatization and private property, including land ownership,
creation of favourable climate for foreign investment, tax reform and
deregulation of commercial activity.

To continue the process of expanding the economic component of
Ukrainian-American relations at the present time.

To stimulate interest of leading American companies and business structures
in increasing the volumes of trade, investment cooperation, financial
services and cooperation in the energy sector.

To make an effort to ensure more active cooperation with international
financial organizations, primarily for the purpose of receiving active
institutional and financial-credit support for the most vital infrastructure
projects in Ukraine.

To inform representatives of American financial and business circles about
the current state of Ukraine’s economic development, investment climate and
opportunities for greater involvement of American companies and enterprises
in implementing specific investment and privatization projects, first of
all, in the energy and hi-tech sectors.

To ensure continued bilateral cooperation in the fields of science and
technology, take steps towards signing an agreement between the governments
of Ukraine and USA on cooperation in the fields of science and technology.

During the visit, to sign a Threshold Programme with the Millennium
Challenge Corporation, which will clear the path for the development next
year of a full-scale cooperation programme – Compact.

During the prime minister’s meetings with officials and the State Department
and the management of the Corporation, to reiterate the Ukrainian
government’s political will to work on the aforementioned programmes.
During meetings with representatives of the Congress and Jewish-American
organizations, to reiterate Ukraine’s course towards ensuring interethnic
peace, religious tolerance and condemning instances of xenophobia and
anti-Semitism in Ukraine.

To express gratitude to the president and Congress of the USA for passing
legislation on allocating the Ukrainian government a land plot in Washington
for the construction of a monument commemorating the victims of the 1932-33
During the prime minister’s participation in image-making and public events,
to emphasize the irreversible nature of democratic changes in Ukraine, which
led to a dramatic shift in public conscience; the transition to democratic
and transparent basis of government work, political structure of parliament
and society; putting in place safety mechanisms against attempts to return
to authoritarian rule, such as free media, freedom of speech, free,
transparent and honest elections which meet European polling standards.

To emphasize the irreversible nature of Ukraine’s foreign policy priorities,
which include European integration and multilateral development of friendly
relations with neighbouring countries.

In this context, to stress the important role played by the USA in
facilitating the processes of combating terrorism and maintaining the regime
of non-proliferation of weapons of mass destruction, improving the regional
and global stability and spreading common democratic values.

During meetings at the Centre for Strategic and International Studies with
representatives of the Ukrainian and international media, to use political
information means to improve the positive image of Ukraine in the world.

To facilitate the establishment of public opinion in support of decisive
enactment of socioeconomic changes and market reforms, making Ukraine

more attractive for investment and accession to European and Euro-Atlantic
institutions following the results of a referendum, which will be conducted
after Ukraine completes all the necessary procedures.             -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]
          Weekly says Ukrainian premier failed to impress during US visit

Zerkalo Nedeli, Kiev, Ukraine, in Russian 9 Dec 06; p 2
BBC Monitoring Service, UK, Saturday, December 9, 2006

Ukrainian Prime Minister Viktor Yanukovych duly carried out his visit to the
USA, saying the right things and meeting the right people, but the visit
yielded little of substance and he failed to win over the American political
elite, the US public or the Ukrainian community in the country, a weekly
newspaper has opined.

Yanukovych says different things in Washington and Moscow and he reminds
former Ukrainian President Leonid Kuchma with his multi-vector policy, the
paper said.

Washington has no choice but to cooperate with Yanukovych, but how closely
this will be will depend on how he is able to handle issues at home and his
relations with Europe and NATO.

The following is the text of the report by Yevhen Kostenko entitled “I am
not the person I was before”, published in the Ukrainian newspaper Zerkalo
Nedeli on 9 December; subheadings have been inserted editorially:
The Ukrainian prime minister’s adviser on international issues, Kostyantyn
Hryshchenko, and his PR consultant, Paul Manafort, can take their record
books to Viktor Yanukovych and receive his mark of “excellent”. Viktor
Yanukovych himself has also done a good job by getting through his required
programme in the USA very smoothly.

He said the right things about the WTO, the European Union and the fight
against corruption, promised to be a democrat, smiled for the photographers
and, at least in his public appearances, did not retreat from the Ukrainian
president’s clearly sculptured directives.

The prime minister’s entourage proudly reports that the influential Senator
[Richard] Lugar, after meeting Yanukovych, described the prime minister as
“his friend”.

However, bearing in mind the senator’s contacts with the PR company hired by
the Ukrainian prime minister, he might also have called Mr Yanukovych his

In the USA Mr Yanukovych more than once repeated the main messages

he had brought with him, the

[1] first being that “for the first time a parliamentary coalition and a
coalition government have been created in Ukraine and for the first time the
redistribution of powers between the president and the government allows
this system to work effectively and responsibly. Now stable forces capable
of ensuring this have come to power”.

[2] Second, Yanukovych gave the assurance that “the revolution goes on”,
because “the people have been given almost none of the things they dreamed

[3] Third, the prime minister did everything to stress that he has no
differences with the president over the country’s strategic prospects for
the next 20-25 years and that all questions are mainly about tactics.

These messages, on the one hand, did not help Yanukovych to win over the
diaspora who demonstratively ignored the Ukrainian prime minister’s visit,
and on the other hand, they angered [radical left-winger] Nataliya
Mykhaylivna Vitrenko who, it seems, is already prepared to banish
Yanukovych, together with [President Viktor] Yushchenko and [opposition
leader Yuliya] Tymoshenko, not to the Ukrainian uranium mines, but to the
American cotton plantations.

One suspects that Viktor Yanukovych did not notice either the former or the
latter. In this sense, what is more significant is that neither [US
Secretary of State] Condoleezza Rice nor [Vice-President] Dick Cheney
thought it necessary to comment publicly on the results of their meetings
with the Ukrainian prime minister. There were no statements, no joint news
conference and no comments at regular briefings of the US State Department.

The two dozen or so journalists who accompanied the prime minister found

out about the subject matter of the meetings and talks exclusively from the
Ukrainian side.

One can only guess what the Americans, who kept silent, wanted to say:
perhaps this was their way of showing a restrained attitude towards a
politician who is associated with vote-rigging at the 2004 elections, and it
may be that Washington has still not made up its mind regarding its total
perspective of what is happening in Ukraine and its attitude towards it.

According to the meagre information available, the main meetings with the
prime minister focused on questions of Ukraine’s energy security, the need
for reform in various spheres and American interest in the irreversibility
of the democratic processes in our country.

One would expect that the Americans, who at one time were quite critical of
the Tymoshenko government for its non-market methods, would have expressed
their opinion as regards the increasing element of personal control in the
Ukrainian economy. And grain issues, which directly affect the interests of
American business, were examined in precisely this context.

However, on the last point one may already say it has “passed”, since Viktor
Yanukovych said the government had no intention at least until the end of
December of lifting the quotas on grain exports.

By this statement the prime minister was giving a passing dig at the
president, who the day before spoke about the need to lift the quotas. This
once again vividly demonstrated the level of “accord” and “stability” in
relations between the Ukrainian powers that be.
“Export theses” are nothing new in Ukrainian foreign policy. However, there
is one distinctive feature: the more materially-minded the interests of the
administration are, the more their messages are adapted to suit the ears of
their foreign counterparts. There are some theses for the Kremlin, and
others for the White House.

This approach has come to be called multi-vector politics. Indeed, one
cannot even imagine that when he is in Moscow Viktor Yanukovych talks about
NATO, democracy and even Belarus as he does in Washington, and when he

is in Washington about gas, the European Economic Space and methods of
conducting business as he does in Moscow.

A multi-vector type of policy in Ukrainian history becomes single-vector
only in two instances: either when a politician becomes a hostage of one of
the capitals, or when the country in fact decides on its course.

At the moment Yanukovych is tending to stick to [former Ukrainian President
Leonid] Kuchma’s tactic of the period “before the tape scandal” [recordings
made by a former guard implicating Kuchma in serious crimes], tactics which
allowed the head of the Ukrainian state to keep both Russia and the United
States at a distance, enabling Kuchma to feel boss of his own territory.
That is what the Ukrainian prime minister seems to be aiming for.

The fact is not a single Ukrainian prime minister has been able to make a
significant or breakthrough visit to the USA, and in terms of real substance
Yanukovych’s visit was no exception.

Some very impressive documents were signed in Washington: an agreement in
the sphere of science and technology and also an agreement on the fight
against corruption in Ukraine, according to which our country will receive
45bn dollars [as received], and should they capitalize, they can count on
receiving half a billion dollars worth of grants for projects in various
spheres of the economy.

These documents had been drawn up and coordinated long before Viktor
Yanukovych became prime minister. As it was clearly not in order to sign
both agreements that Yanukovych flew to the USA, what tasks did he set
[1] First, that the right articles should be printed in the right American
publications designed to convince society and the elite in the USA that the
“enemy of the Orange Revolution is now a different person”.

[2] Second, that the prime minister had a truly understandable desire to
visit a country which is an exporter of felt boots as a winner [felt boots
were one of the symbols of the Orange Revolution].

[3] Third, that Yanukovych endeavoured to portray himself “not as a
philosopher, but as a man of action”, who understands the pragmatic

language of figures, contracts and projects.

[4] Fourth, that the prime minister intended to explain in Washington just
who is the central figure in the current Ukrainian administration.

[5] Fifth, his task was to convince Washington that he and his team had come
in earnest and intended to stay for a long time, according to Yanukovych
himself, for five to 10 years, making it clear who would be making the
strategic and tactical decisions.

It is difficult to say if Mr Yanukovych succeeded in carrying out his tasks.
Yes, Viktor Yushchenko has disappointed the Americans. [US President

George] Bush, who counted on seeing Ukraine as a model of the effectiveness
of democratic revolutions, clearly did not get an example to which he could
draw the attention of other countries.

On the other hand, authoritarian and totalitarian states, first and foremost
in the CIS, have come up trumps in disputes on the subject of “coloured”
revolutions. The opportunity for rapid changes has been lost: the
large-scale, qualitative and irreversible changes in Ukraine have not

To date Prime Minister Yanukovych has not given any clear cause to be seen
as a suppressor of rights and freedoms.

The White House, which has the habit of noticing not trends, but obvious
things, has probably not been focusing on such “trifles” as the agreements
which have begun to take effect between the prime minister and some of the
media, such as the adoption of a non-transparent budget and the domination
in Yanukovych’s circle of the party of war aimed at concentration of power.
However, there are certain “trifles” which have not escaped the attention of
American experts.

For example, the former US ambassador to Ukraine Steven Pifer, in an
interview for Radio Liberty, pointed out that the actions of the Ukrainian
government in recent months cast doubt on Yanukovych’s statements in
Washington about his intention to fight corruption and to create a
favourable investment climate.

In particular, the former diplomat mentioned the introduction of export
quotas on grain and a return by Ukrainian tax officials to a “policy of
favouritism”. Pifer was not convinced by the Ukrainian prime minister’s
explanations about the RosUkrEnergo company [which sells natural gas to
Despite its sceptical attitude towards Yushchenko, the USA believes that
Viktor Yanukovych has not taken steps which would have clearly justified the
image he is trying to create that he has become another person.

The [Party of Regions] MP, Anna Herman, speaking about the satisfaction

over Yanukovych’s visit in the prime minister’s circle, noted that “it will now
be much more difficult for Viktor Yushchenko to persuade the Americans to
support the actions against the government and the ruling coalition (for
example, revoking political reform or the early dissolution of parliament),
and Washington will abandon its gambling on one Viktor”.

The whole caricature and stereotype of the perception of American policy
from Kiev and its interpretation exclusively in black and white is
encapsulated in this quotation. Washington has never taken to Yushchenko
and, what is more, it never will.

But the attitude towards Yanukovych on the banks of the Potomac will always
be specific because of his too negative background. If the USA does
eventually want to “gamble” on somebody, it is scarcely likely to be one of
the two Viktors.

But today Washington simply has no great choice: it is obliged to work with
the one who bears the responsibility and who has the most influence in the
country. Nobody there will ever love Yanukovych. But they will begin to work
with him as a “prime minister who came to power by democratic means”. But
how actively will depend on a number of things.

[1] First it will depend on whether Yanukovych will preserve the democratic
freedoms gained by the Maidan [Independence Square in Kiev, scene of
opposition demonstrations during the Orange Revolution], and whether he will
be able to refrain from using administrative resources in the legal and
economic spheres;

[2] second, on how successfully Yanukovych is able to manoeuvre between the
business interests of the representatives of American and Russian capital in
the energy sphere, and more precisely, in questions of developing mineral
resources in the earth and at sea;

[3] third, on whether Yanukovych will be able to avoid the alluring
temptations of gas schemes and turn Ukraine into a real factor of providing
European energy security;

[4] fourth, on whether Yanukovych will become a prime minister who reacts
sensitively to NATO’s proposals to take part in its operations, and to
conduct, as promised, an effective campaign to inform the Ukrainian people
about the alliance, to give its approval to joining the Membership Action
Plan and whether the government will achieve real progress in relations with
the European Union after Ukraine joins the WTO.

Probably all this could have been fulfilled if the heat of the confrontation
between the branches of Ukrainian power and state institutions had not
increased daily, if the representatives of the Party of Regions had not made
personal and narrow corporative, instead of state interests paramount, if
anti-NATO and anti-American minded Socialists and Communists had not formed
a ruling coalition with the Regions [of Yanukovych], if under the threat of
early parliamentary elections Yanukovych had not been forced to stick to
pre-election ideological dogma and if the Ukrainian prime minister had not
had all the time looked back apprehensively at Moscow… [ellipsis as
published]                                              -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

UT1, Kiev, in Ukrainian 1100 gmt 14 Dec 06
BBC Monitoring Service, United Kingdom, Thursday, Dec 14, 2006

KYIV – Ukrainian President Viktor Yushchenko has said that the investigation
of his poisoning ahead of the 2004 presidential election has reached the
stage where there is sufficient evidence to arrest suspects, some of whom
are out of the country.

Speaking at a news conference broadcast live by state TV on 14 December,
Yushchenko said, “I believe today that it is not as difficult to come up
with the proof as it appeared a year ago.

Today there is enough knowledge to go with handcuffs and pick people up,
some of whom are not in Ukraine. The final facts have been established as to
who laid what dishes on the table, where the threat existed of putting the
poison in the food.”

Yushchenko said that the completion of the investigation depends on the will
of prosecutors. “Do these people have the courage to do this? Today they are
very close to this point. I will do everything by very correct methods to
force this institution to do what it is obliged to do by law.”

Yushchenko said that the investigation had established that the dioxin with
which he was poisoned could not have originated in Ukrainian laboratories.
“This dioxin could only have been brought into Ukraine. The investigation
continued. Where could it have come from? There are three laboratories – I
think that I have already said more than enough.”

Yushchenko’s press conference lasted two hours and will be processed as

an excerpt by 2100 gmt on 14 December.                   -30-
[return to index] [Action Ukraine Report (AUR) Monitoring Service]

UT1, Kiev, in Ukrainian 1900 gmt 12 Dec 06
BBC Monitoring Service, United Kingdom, Wed, Dec 13, 2006

KYIV – [Presenter] A scandal with allegedly stolen babies in a Kharkiv
maternity hospital has gained international echo. A Ukrainian woman

provided the BBC and the Council of Europe with video footage of
babies’ corpses which missed organs.

It is assumed they were used as transplants. Ukrainian doctors call it a
provocation and insist such difficult operations cannot be carried out in
standard maternity hospitals.

[Correspondent] A dismembered body of a one-month baby and 29 more

embryos without inner organs were on the video that Kharkiv resident
Tetyana Isayeva handed over to the BBC and the Council of Europe. She
says she made it during an exhumation.

The corpses were buried by Kharkiv’s maternity hospital No 6. Tetyana
Isayeva is confident these babies were killed deliberately in order to
harvest stem cells and organs for transplantation.

[Tetyana Isayeva, captioned as head of the all-Ukrainian federation of
families with many children, in Russian] There is an official expert
conclusion that confirms that this baby’s post-mortem was carried out by a
highly professional expert using an extremely sharp object along the correct
anatomic lines. This means it was done by professional transplant surgeons.

[Correspondent] BBC correspondents have already described Ukraine as

stem cell capital of the world. But in the maternity hospital it is described as
provocation. Phones have been ringing there from the very morning as
journalists want comments.

Its chief doctor, Larysa Nazarenko, said that a month ago they were visited
by a man who introduced himself as a BBC employee. He asked the same
questions and the answer was the only one.

[Larysa Nazarenko, in Russian] Over the time of its operation, the maternity
hospital No 6 has never worked with stem cells. Neither the staff, nor
members of the research department working in the maternity hospital have
anything to do with such research topics.

[Correspondent] There is no reason to harvest stem cells from babies, cell
therapists say. It is much easier to plant them from aborted fetuses and
umbilical blood. Baby stem cells can only be used to treat a baby. The
Health Ministry confirms it, adding that even if such operation was
possible, this could not have been carried out in Kharkiv’s maternity

[Nadiya Zhylka, captioned as head of the department for health of children
and mothers under the Health Ministry] It is absolutely impossible to
imagine that this could happen in Kharkiv’s maternity hospital No 6, which
does not even have the capacity to keep embryos or stem cells. These are
very high technologies.

[Correspondent] Last year the chief doctor of the maternity hospital No 6,
Larysa Nazarenko, sent three inquiries to the Prosecutor-General’s Office,
asking to clarify the situation. It was after her third attempt that she
received a reply on a standard form saying that tests and other
investigative measures are under way, specific information will be available

The press service of the Prosecutor-General’s Office did not give any
detail, referring to the secret of investigation. The maternity hospital no
longer pins hopes to the Prosecutor-General’s Office, being confident that
the case must be investigated by the state security bodies, because the
scandal heavily vilifies Ukraine’s image.                    -30-

[return to index] [Action Ukraine Report (AUR) Monitoring Service]

Art Daily, New York, NY, Thursday, December 7, 2006

NEW YORK.- The Ukrainian Museum in New York City is proud to present
an exhibition that includes many objects from the private collection of the
President of Ukraine Viktor Yushchenko.

Entitled ‘Ukrainian Sculpture and Icons; A History of Their Rescue,’ the
exhibition features icons and religious sculptures, previously unseen in the
United States, that had been rescued from destruction and preserved in
private collections.

The exhibition will open on December 13, 2006, and run through February
28, 2007, in the Museum’s new facility at 222 East 6th Street.

Presented in the exhibition are fifty-seven objects from the private
collection of the President of Ukraine, Viktor Yushchenko, as well as from
the collections of Petro Honchar, Ihor Hryniv, Volodymyr Koziuk, Vasyl
Vovkun and Lidia Lykhach.

The exhibition is a cooperative endeavor between The Ukrainian Museum in
New York City and the Ivan Honchar Museum, Rodovid Gallery, and V-Art
in Ukraine.

The objects on exhibit date from the end of the 17th to the early 20th
centuries and, for the most part, were created by folk artists. Among the
objects are sculptures on religious themes such as depictions of the
crucified Christ, angels, and saints.

The elaborately decorated three-pronged candelabra known as triitsi are part
of this show as well. The exhibition features icons that were produced in
varied styles during this 200-year period in Ukrainian art history.

As President Yushchenko explains, “The works of iconography and sculpture
presented in this exhibition are not just elements of sacral ritual: they
are fundamental components of their historical context, of the social and
economic changes occurring at that time, as well as the spiritual expression
of the interplay of various cultures.”

An important component of the exhibition is its accompanying 160-page,
bilingual, illustrated catalogue in which art historians Oleh Sydor and
Mykola Mozdyr discuss Ukrainian iconography and religious sculpture.

Also in the catalogue is a revealing historical survey by Serhii Bilokin,
Ph.D., describing the devastating systematic destruction of Ukraine’s
cultural heritage by the Soviet regime during the better part of the 20th

Since Ukraine proclaimed its independence in 1991, the country has
experienced a revival of interest in its cultural heritage. Restorations of
historical landmarks and public monuments are on the rise, as are the
renovation of old churches and the building of new ones. Museums are
reclaiming their prominence, and cultural patronage is finding acceptance
once again.
Several of the icons on exhibit come from monastery or church-supported
icon workshops and were used in church applications. Others icons were
painted by non-professional village painters and were executed on wooden
boards or homespun cloth.

These types of icons were an integral part of village home life and had
religious functions that were performed in the home and the community, thus
playing a significant role in the lives of villagers.

For example, a newborn would receive an icon as a gift, newlyweds were
blessed with icons, and icons were placed in the coffins of the deceased.
People prayed to icons before a long journey or during a difficult time in

The art of iconography is more than one thousand years old in Ukraine, and
the art of religious and Christian painting during that time span formed
unique characteristics that reflected a national cultural identity.

This is evident in the massive number of icons that survived through the
centuries, withstanding the turbulence of geopolitical changes on Ukrainian
territory, which, due to its location, was subject to the influences of
various cultures and the worlds major religions.

Most ancient icons were preserved in churches and villages farthest from the
main trade routes and large cities. Although it was the custom to
periodically refurbish, renew, or even replace icons and, in fact, entire
iconostasis, many such artworks remained intact by being stored in church
attics or bell towers.
                                    WOOD SCULPTURE
In Ukrainian folk culture, religious wood sculpture was most prevalent in
the Halychyna and Podillia regions of the country. This art form stems from
two sources. One source consisted of folk craftsmen trained in cities or
villages. For the most part, these craftsmen imitated professionals,
adhering to their compositions and styles.

The second source consisted of untrained folk craftsmen, whose work
displays features of primitivism. It is unfortunate that very little
primitive sculpture remains today; and one of the prime reasons is that,
for a very long time, primitive art was not considered an accepted art form.
Its preservation therefore received very little attention until modern

The themes and functions of folk wood sculptures were, in effect,
ritualistic and carried with them the power of protection. An identifying
characteristic of these sculptures is the personification of saints with
features of simple people. An earthly quality was therefore projected in
these works.

Although some folk sculptures were displayed in churches, for the most part
they were found in chapels, in cemeteries, and at roadsides.

The physical personification of saints was always a reflection of how people
envisioned them. This is very clearly seen in another popular sculptural
figure – that of an angel.

Because there was no developed iconographic blueprint for angels (nor were
angels a developed image in folk culture), artists portrayed them as boys or
girls, with wings or without, and dressed in various attires.

Their faces, however, presented a unified vision they were soft and round,
with clear eyes. They also had luxuriant heads of hair.
                        AND PRESERVATION IN UKRAINE
Museums in Ukraine and the practice of collecting artworks both trace their
origins to churches, monasteries, and royal treasuries, which had
accumulated remarkable wealth during the first three centuries of
Christianity in Ukraine (the 10th – 13th centuries).

In later centuries the collections of the Cossack elite and those of the
affluent merchant class served as stellar examples of collecting.

In the 19th century the first museums were established in Ukraine, motivated
by interests in antiquities and archaeology and based on very extensive
private collections. In the 20th century, the Soviet policy of annihilation
of Ukrainians cultural heritage created a foundation of destruction, upon
which the newly independent Ukraine is now attempting to rebuild and heal

The exhibition Ukrainian Sculpture and Icons; A History of Their Rescue
is a telling example of the vital resurgence of Ukraine’s national cultural
identity. It is also indicative of the importance of private collectors in
the preservation of cultural treasures and in the building of museum

The Ukrainian Museum greatly respects and values private collectors, since
its own collections have been built, for the most part, with gifts from
private collections.

The mission of The Ukrainian Museum is to share the Ukrainian experience
with the public through its exhibitions and educational programming. The
Museum was founded in 1976 and is celebrating its 30th anniversary this
year, in its new, modern facility, which opened in 2005.

The exhibition Ukrainian Sculpture and Icons: A History of Their Rescue is
the second show from Ukraine presented in the new Ukrainian Museum building.
Its current exhibition, Crossroads: Modernism in Ukraine 1910 -1930, opened
to critical acclaim in November 2006. It is scheduled to be on view through
March 11, 2007.                                            -30-

FOOTNOTE: The AUR has a copy of the book that was published
about this exhibition. It is an excellent book. AUR EDITOR
BOOK: “Ukrainian Sculpture And Icons, A History of Their Rescue”
Exhibition Catalogue from the collection of the President of Ukraine,
Viktor Yushchenko, and the collections of Petro Honchar, Ihor Hryniv,
Volodymyr Koziuk, Vasyl Vovkun, and Lidia Lykhach.
Copyright by Rodovid Press, Lidia Lykhach, Kyiv, Ukraine, 2006
IN KYIV: vul. Sakasahans’koho 35, kv. 54; Kyiv 01033 Ukraine;

tel./fax (+380-44) 289-4829 or (+380-44) 234-2537; rodovid@ln.ua
IN THE USA: 18000 S. Mullen Road, Belton, MO 64012
USA; Fax (+816) 322-4228; E-mail: Rodovid2@aol.com
To purchase books go to Rodovid website : http://www.rodovid.net/.
[return to index] Action Ukraine Report (AUR) Monitoring Service]
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18.                     JAMES MACE: CANDLE OF MEMORY

Ihor Siundiukov, The Day Weekly Digest, Kyiv, Ukraine, Tue, Nov 28, 2006

The historian James Ernest Mace (Feb. 18, 1952- March 3, 2004), an
Oklahoma-born American from the Cherokee tribe, devoted his life to the
thorough study of the Ukrainian Apocalypse of 1932-33.

He examined its background, course, the totalitarian strategy of Stalin’s
regime, and the disastrous consequences of this unprecedented crime for
future generations of Ukrainians.

James Mace was the first person in the world to substantiate and prove the
genocidal character of the Holodomor. And had he done only this – he was
also an activist in Ukraine, staff writer for The Day from January 1998
until the last days of his life, and a professor at Kyiv-Mohyla Academy –
even then he would deserve the indisputable right to be remembered forever
by the Ukrainian people.

The ceremony of unveiling and blessing Volodymyr Korin’s monument to Mace
was held at his gravesite on Nov. 18. Quite a few people gathered in a far
corner of Baikove Cemetery: James’s relatives and close friends, colleagues,
scholars, journalists, representatives of the Presidential Secretariat, and
members of the public.

Expressing their sincere condolences to Mace’s widow, the writer Natalia
Dziubenko-Mace, for whom time has not eased the pain of her irretrievable
loss, the participants of the meeting in Mace’s memory said that the candle
of sorrow, lit by him, is still burning in our hearts.

The Day’s editor in chief Larysa Ivshyna called on the participants to
reflect on the question: “Why did this son of far-away Oklahoma become so
inspired by the Ukrainian land’s pain?” “Because he had a heart of gold and
an acute sense of injustice, abhorrence of evil, and a restless conscience,”
Ivshyna declared.

“When James joined The Day, I had a feeling that a mighty “second front”

had just been opened. It is still continuing, although James left us two and a
half years ago.

“In my opinion, one of Mace’s most important lessons was that we must

not be afraid of pain and not forget that when millions and millions of our
brothers and sisters were dying a terrible excruciating death in Ukrainian
villages, many urban residents were eating their sandwiches.

“This was another attempt to disunite us. Let us not forget this – for every
sin must be expiated…Only then will deep unification come. Thank you to
James for the lesson of truth that he taught us!”

Stanislav Kulchytsky, a leading Ukrainian historian of the Holodomor, who
was closely acquainted with Mace, said that more and more James is

becoming a kind of symbol of purification.

The unveiling of a monument on his gravesite also had great symbolic meaning
because to this day there is only one official monument to the victims of
the Holodomor – the cross on Mykhailivska Square.

We have no right to forget, Kulchytsky said, that the Holodomor tragedy,
which had been concealed for roughly six decades, was revealed first of all
thanks to Mace’s efforts as the executive director of the US Congressional
Commission on the Holodomor.

But to a great extent our society still does not understand what occurred in
1932-33. So it is our duty to convey this terrible truth to everyone; Mace’s
short life was devoted namely to this.

Among the other speakers were:
[1] Professor Natalia Shulha of Kyiv-Mohyla Academy, who noted bitterly

that the world’s academic community still does not know the whole truth
about the Holodomor tragedy, and said this about Mace: “He was a man
with a poet’s soul, and ‘the world’s fissure,’ to quote Heine, pierced his heart”;
[2] the outstanding Ukrainian poet Ivan Drach, who shared his recollections
of his meetings with James, their visits to Telizhyntsi, Drach’s native
village, half of whose population starved to death during the famine;
[3] Natalia Sukhodolska, executive director of the Association of
Holodomor Researchers;
[4] the writers Lesia Stepovychka and Anatolii Kachan; and
[5] Professor Mykhailo Naienko of Taras Shevchenko Kyiv State
University, who said that James Mace’s cause is not over yet.

We still have to learn one more terrible truth: why did such an
unprecedented terror as the Holodomor happen? Was it not because the
totalitarian regime foisted its antihuman values on society? Has this legacy
been overcome?

On Nov. 17, 2006, the Verkhovna Rada refused to consider the question of
recognizing the Holodomor of 1932-33 as genocide against the Ukrainian

Not everyone present knew that James was very fond of the famous Ukrainian
folksong (and one of the saddest) “Za bairakom bairak” (A Ravine beyond the
Ravine), which contains the following words: “Here three hundred of us
perished like glass…”

The song was performed by kobza player Stepan Shcherbak. Afterwards,
everyone silently remembered Jim and gazed at the monument on which a
fragment of a poem by Natalia Dziubenko-Mace is engraved:

Adieu! And forgive us, my beloved,
Like a tear to you I will fly…
Ukraine, light the candle,
A widow’s, an orphan’s imperishable light
Ukraine, light the world!
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