EXPLAINING UKRAINE'S BURST OF ENERGY ON WTO

C O N F I D E N T I A L SECTION 01 OF 03 KYIV 004315

SIPDIS

SIPDIS

GENEVA FOR USTR
STATE PLEASE PASS TO USTR FOR KLEIN/MOLNAR
USDOC FOR 4201/DOC/ITA/MAC/BISNIS
USDOC FOR 4231/ITA/OEENIS/NISD/CLUCYCK
STATE FOR EUR/UMB, EB/TPP/BTA, EB/TPP/MTA

E.O. 12958: DECL: 11/19/2016
TAGS: ETRD WTRO ECON PGOV UP
SUBJECT: EXPLAINING UKRAINE'S BURST OF ENERGY ON WTO

REF: A. KYIV 4304

B. KYIV 4237

C. KYIV 4183

D. KYIV 4104

Classified By: AMBASSADOR, FOR REASONS 1.4 (B) AND (D)


1. (C) Summary: Ukraine's recent progress on WTO-related
legislation does not mark a shift in GOU policy, but rather
demonstrates that fears of the GOU's lack of commitment to
prompt WTO accession were overblown. A fortuitous alignment
of several political factors may have accelerated the
process: President Yushchenko's surprise October 20 move to
initiate the legislation helped to bring the issue front and
center, while Prime Minister Yanukovych's upcoming visit to
Washington gave the governing coalition an overriding reason
to work quickly. The GOU also successfully used a period of
public debate to show that opposition to WTO was limited, and
received strong backing on the issue from the Parliamentary
opposition. Fears that Russia could leapfrog Ukraine in
joining the WTO, especially after the recent successful
conclusion of the U.S.-Russia bilateral, and legislative
horse-trading involving the budget may also have helped.
Ukraine still faces several tall hurdles before reaching the
WTO finish line, but it now seems to be back moving in the
right direction. End Summary.


2. (C) Ukraine has made significant progress on WTO accession
during the past several weeks, adopting 12 of 21 laws
identified as required for accession and moving forward on
several others (refs A-C). Such action was to be expected if
the GOU was serious in its stated commitment to complete all
preparations for accession in 2006. Nonetheless, cautious
rhetoric and apparent stalling from PM Yanukovych and his
team after they took power in August had raised doubts about
the sincerity of that commitment. This recent progress on
WTO therefore does not mark a shift in the GOU's policy but
could have been hastened by several factors, outlined below
in what post sees as the order of relative importance to the
WTO effort.

Presidential Initiative
--------------


3. (C) The leadership of the Presidential Secretariat,
spearheaded by First Deputy Chief of Staff and former
Minister of Economy Arseniy Yatsenyuk, seems to have been a
major catalyst in speeding up passage of WTO-related
legislation. Sensing government delay in submitting the
necessary bills to Parliament, the President forced the issue
by submitting a near-complete package of legislation to the
parliament on October 20. At the time, Ministry of Economy
officials were wading through a difficult Cabinet of
Ministers clearance process, through which a wide range of
interests were pushing hard to make their own changes to the
draft laws. The President's surprise move forced the team of
Prime Minister Viktor Yanukovych, which had already promised
results on WTO, to either act on the legislation or openly
block it.

Yanukovych Visit to Washington
--------------


4. (C) While the President's initiative set the stage for WTO
progress, support by the PM's office was both necessary and
decisive. Party of Regions and Socialist MPs, who had only
weeks before spoken quite cautiously of WTO accession (ref
C),suddenly expressed their absolute support and voted in
favor of WTO-related legislation en masse. Yanukovych's
planned visit to Washington in early December likely played
an important part; it is clear that directions came from the
top to coalition members to support WTO-related legislation.
Socialist MP Ivan Bokiy noted to Econ Counselor on November
17 that the coalition government also felt responsible for
providing deliverables prior to Yanukovych's trip and WTO
legislation was one of those. The substantial progress on
legislation now allows Yanukovych to dispel worries that he
is going slow on WTO or trying to synchronize accession with
Russia (ref D). While the third member of Yanukovych's
"anti-crisis" coalition, the Communists, generally has
opposed WTO legislation, even they apparently have been
pressed not to block passage. On several occasions, the
Communists allowed bills to pass in a single reading by
simply not voting. Had they voted against, the bills would

KYIV 00004315 002 OF 003


have had to wait for a second reading.

Public Consultations Helped Lay Groundwork
--------------


5. (C) The passage of eight WTO-related laws on one day,
November 16, was not so much a surprise development as the
conclusion of a deliberative process. The Yanukovych
government had said since taking office that it would pursue
WTO accession, but that it would consult first with industry
to avoid unnecessary economic harm. As a result, during
September and October the GOU held a series of public
meetings with industry representatives in Kyiv and the
regions. Both GOU officials and American technical advisers
described these meetings as overwhelmingly positive, a
substantive "education" process that also revealed that the
chief WTO opponents consisted of only a few of the most
inefficient industries, like sugar producers.


6. (C) The government was also determined to stage WTO
"hearings" in Parliament, which took place on November 1, to
allow MPs to publicly express their determination to help
constituent industries. The hearings thereby gave MPs some
political cover. Rather than delay the accession timetable
as feared, these public meetings and hearings helped lay the
groundwork for subsequent legislative action. Following
submission by the President and GOU in October, the bills
took roughly a month to go through Parliamentary proceedings,
Committee review, and one or two rounds of voting. During
this period, Ukraine's WTO negotiating team highlighted the
tentative date of mid-December for the next WTO Working Party
meeting to pressure MPs to make immediate progress.

Opposition Remains pro-WTO
--------------


7. (C) The positive role played by the opposition, especially
Yulia Tymoshenko's bloc, has also been an important factor
allowing for progress. Given the lack of strong public
support for accession, Tymoshenko could have tried to score
political points by opposing WTO-related bills on the grounds
that they would hurt the poor and economically vulnerable.
(Comment: Most observers believe the Ukrainian public
neither strongly supports nor opposes WTO accession.)
Instead, her party joined pro-Presidential Our Ukraine to
counterbalance the Communists' opposition to WTO within the
governing coalition and to create substantial majorities in
favor of the legislation.

The Bear in the Room
--------------


8. (C) Fears that Russia could join the WTO before Ukraine
have also helped to push the GOU into action. GOU officials
have said that they do not view the Russians as "competitors"
when it comes to WTO accession (ref D),but common sense
instructs otherwise. Russia has repeatedly played hardball
in its trade relationship with Ukraine, be it with threats
over energy supply or bans on Ukrainian products such as milk
and meat. Talk of "synchronization" aside, most Ukrainians
with whom we have discussed WTO did not want to see Russia
join the WTO first, as this would allow Russia to make
demands on Ukraine as part of its accession process. The
news of the U.S.-Russian WTO bilateral seems to have
galvanized some in the GOU not to dawdle on WTO. A concerned
Socialist MP Bokiy specifically asked Econ Counselor on
November 17 whether Russia might leapfrog Ukraine after
signing its bilateral agreement with the United States. On
November 9, following news that Vietnam had completed its
accession negotiations, President Viktor Yushchenko similarly
cautioned, "There are only two large countries outside the
WTO - Russia and Ukraine. I do not want Ukraine to lag
behind."

Backroom Deal over Budget
--------------


9. (C) Press reports surfaced in early November claiming that
progress on legislation might reflect a deal between
Yanukovych and Yushchenko, whereby Yanukovych would agree to
push ahead with WTO accession in exchange for Yushchenko's
support of the government's proposed budget. Regions MP
Dmytro Sviatash hinted at such a deal to Econ Counselor on
November 8. Thus far, however, Yushchenko has remained

KYIV 00004315 003 OF 003


critical of the Yanukovych budget, and First Deputy Minister
Azarov has already given ground to the Our Ukraine position
on some procedural and substantive budget issues. These
developments undercut suspicions of a WTO-for-budget
agreement.

Mission Far From Accomplished
--------------


10. (C) Ukraine has put a real dent in the outstanding work
required for accession with its action on outstanding
legislation. Difficult issues, such as the bilateral
agreement with Kyrgyzstan and negotiations over agricultural
subsidies, remain unresolved, however. Some of the remaining
legislation affecting the agricultural sector will also face
stiffer opposition from some MPs. And there are signs that
some of the bills already adopted by Parliament may not fully
meet the expectations of Ukraine's WTO Working Party members,
perhaps necessitating further Parliamentary amendments. At
the moment, however, the GOU has given a strong signal it is
seriously committed to completing the last lap on its long
journey to the WTO.
Taylor