2/9 UKRAINE WTO UPDATE: KYRGYZ BILAT

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E.O. 12958: DECL: 02/08/2017
TAGS: ETRD WTRO ECON PGOV UP KG
SUBJECT: 2/9 UKRAINE WTO UPDATE: KYRGYZ BILAT

REF: A. KYIV 200

B. KYIV 82

C. 2006 KYIV 4667

D. 2006 KYIV 4648

E. 2006 KYIV 4237

F. 2006 KIEV 2587

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


1. (C) Summary: Ukraine must sign one more bilateral Market
Access Agreement, with Kyrgyzstan, as part of its accession
to the WTO. Erkin Mamkulov, Kyrgyz Ambassador to Ukraine,
told us that resolution of USD 27 million worth of debt, owed
by Ukraine to Kyrgyzstan, is the critical remaining issue and
a precondition for agreement. Mamkulov emphasized that only
direct bilateral talks, outside the context of the WTO
Working Party in Geneva, could resolve the issue. He
criticized the GOU for ignoring Kyrgyz demands. The EU sides
with the Ukrainians. Meanwhile, the GOU is anxious to push
ahead with accession as quickly as possible and has
recognized that several outstanding issues -- agreement on
agricultural support levels and grain export restrictions --
require immediate attention. End Summary.


2. (U) This latest edition in a series of regular update
cables regarding the status of Ukraine's WTO accession (refs
A-D and previous) covers the period January 29 - February 9.

Kyrgyz Bilat: It's the Debt
--------------


3. (C) Econ Counselor met on February 6 with Ambassador Erkin
Mamkulov, Kyrgyz Ambassador to Ukraine, to discuss the status
of a Ukraine-Kyrgyzstan bilateral Market Access Agreement,
the last one required for Ukraine's WTO accession. (Note:
DCM had previously dealt with Mamkulov, a career diplomat,
while the latter was working at the Kyrgyz Foreign Ministry,
and found him to be competent and forthright. End Note.)


4. (C) Mamkulov said that Kyrgyzstan views the negotiations
as consisting of two discrete parts: 1) trade/market access
negotiations taking place in Geneva, in the context of the
Working Party; and 2) strictly bilateral, Kyiv-Bishkek
negotiations on outstanding debt owed by Ukraine to
Kyrgyzstan. Agreement on the debt issue must come first,
said Mamkulov, and this issue is outside the competency of
trade negotiators in Geneva.


5. (C) Mamkulov emphasized that he had spelled out the Kyrgyz
position clearly to the GOU, including to Prime Minister
Viktor Yanukovych, and expressed some frustration that
Ukrainian negotiators had talked of "bypassing" the agreement
with Kyrgyzstan through a vote in the WTO (ref E). He noted
that Ukraine and Kyrgyzstan had discussed the debt issue many
times, including most recently in 2002-3, but that the
Ukrainian side never appeared eager to solve it.


6. (C) Comment: Mamkulov was remarkably open in discussing
the Kyrgyz negotiating position. His clear differentiation
of the two elements of negotiations may help explain why
December reports from Geneva (ref D) of a breakthrough in the
talks were premature. There well may have been progress in
Geneva on trade-related specifics, such as safeguards on
Kyrgyz light bulbs, but solving the debt issue is clearly a
Kyrgyz precondition to a bilateral agreement. End Comment.

Debt Specifics
--------------


7. (C) According to Mamkulov, the issue surrounds USD 27
million worth of debt accumulated by Ukrainian entities
during Soviet days and in 1992. Ukraine's lead WTO
negotiator Valeriy Pyatnytskiy has told us repeatedly that
the GOU views the obligation as enterprise, not state, debt
that should be handled outside of government channels by the
enterprises involved (ref F). Mamkulov criticized this
position, arguing that the "economic entities" involved had
been acting under state guarantees at that time, and that
most of the Ukrainian entities involved no longer exist.
Expecting the enterprises to work out the issue themselves,
or through the courts, was simply unrealistic. "We are not
trying to be difficult," he said, "but we must protect our
national interests." Mamkulov noted that Kyrgyzstan had paid

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its own Soviet-era debts to Russia and Uzbekistan.


8. (C) Econ Counselor asked if it is imperative that Ukraine
formally recognize the debt as state debt. (Note: The
Ukrainians are concerned that doing so may open the door to
similar claims by other former Soviet republics. End Note.)
Mamkulov said no, emphasizing that actual payment of the debt
in full is the critical issue.


9. (C) Luis Manuel Portero Sanchez, head of the European
Commission's Trade and Economic Section in Kyiv, told Econoff
on February 7 that he was sympathetic to the Ukranians'
argument, given the nature of the debt in question. Portero
Sanchez said that, as he understood it, most of the debt
accrued as a result of food supplies provided by Kyrgyz
producers to Red Army troops stationed in Ukraine. To
determine the actual figure owed, he opined, would require
the impossible task of calculating the value of Kyrgyz food
products actually consumed by Ukrainian (rather than Russian
or other) soldiers stationed in Ukraine.

Way Forward
--------------


10. (SBU) The Ukrainians are sticking to their line that the
debt issue falls beyond the scope of WTO negotiations, and PM
Yanukovych stated publicly at Davos that the debt "has
nothing to do with accession to the WTO." Negotiations
continue, however, most recently with Deputy PM Mykola Azarov
leading the Ukrainian side (septel). Mamkulov said that the
GOU had in January provided a detailed proposal, which is now
being analyzed by GOK financial experts.

Ukraine Poised to Tackle Outstanding Issues
--------------


11. (SBU) Ukraine remains anxious to push ahead with
accession as quickly as possible. GOU negotiators continue
to tell us regularly they are eager to review USG comments on
the recently passed legislation. PM Yanukovych restated his
commitment to a speedy accession at Davos, noting that, in
addition to the Kyrgyz bilat, Ukraine would push ahead to
solve the agricultural support question, U.S. imports of
beef/pork, and grain export restrictions. Ukrainian
negotiators plan to meet with the Australians on February 19
to discuss agricultural support levels. The GOU believes is
has resolved the problems involving U.S. beef and pork
imports, although so far only a limited number of shipments
of U.S. product have entered Ukraine. Deputy Chief
Veterinary Inspector Volodymyr Horzheyev told the press on
February 7 that there are no longer any barriers to the
import of U.S. meat, and that the GOU is waiting for the
United States to set a date for a system audit of U.S.
facilities. The February 8 edition of the Kyiv business
daily "Kommersant" cited government sources complaining the
U.S. was holding up consideration of WTO-related legislation
at the next Working Party meeting because of differences over
meat imports and grain import quotas. The article also
printed Embassy's response that analysis of the legislation
was ongoing and our reiteration of the USG's overall support
for Ukraine's WTO accession.
Taylor