UKRAINE: NEW ECONOMY MINISTER ONBOARD FOR WTO

C O N F I D E N T I A L KYIV 000693 SIPDIS SENSITIVE SIPDIS STATE FOR EUR/UMB, EB/TPP/BTA, EB/TPP/MTA STATE PLEASE PASS TO USTR FOR KLEIN/MOLNAR USDOC FOR 4201/DOC/ITA/MAC/BISNIS USDOC FOR 4231/ITA/OEENIS/NISD/CLUCYCK E.O. 12958: DECL: 03/26/2017 TAGS: ECON PGOV EINV WTRO UP SUBJECT: UKRAINE: NEW ECONOMY MINISTER ONBOARD FOR WTO ACCESSION, OPIC/ALLIANT, OTHER BILAT PRIORITIES REF: A. STATE 37704 ¶B. KYIV 688 Classified By: Ambassador, Reasons 1.4 b) and d) ¶1. (C) Summary: At a March 23 meeting with Ambassador, new Minister of Economy Anatoliy Kinakh described Ukraine's integration with Europe as "irreversible." Ambassador encouraged Kinakh to help find a solution to the OPIC/Alliant issue, as well as a laundry list of other important bilateral issues, in time for Commerce Secretary Gutierrez's upcoming visit. Kinakh was already up to speed on most of our issues and promised his assistance on them all. Kinakh highlighted WTO accession as his most immediate goal, and asked for USG support in completing the accession process. A political heavyweight, Kinakh will likely have more clout within the government than his predecessor, and we intend to enlist his support in solving our key issues. End Summary. ¶2. (SBU) Ambassador met on March 23 with new Minister of Economy Anatoliy Kinakh, just two days on the job. Kinakh said that his overarching goal as part of the Yanukovych government would be the "consolidation" of Ukraine's recent economic and political progress. He described the country's movement toward Europe as "irreversible," listing WTO accession and economic integration with the European Union as immediate objectives. Ambassador briefed Kinakh on the upcoming visit of Commerce Secretary Gutierrez, and asked for Kinakh's support of our list of key deliverables. OPIC Claim on the GOU -------------- ¶3. (SBU) Drawing on ref A points, Ambassador encouraged Kinakh to take a leadership role in finding a solution to the OPIC/Alliant issue. Kinakh was impressively familiar with the matter from his previous time in government. He noted that the Cabinet of Ministers had now formally tasked government bodies to find a solution, and he promised to take up the issue in earnest. ¶4. (SBU) Ambassador had also discussed OPIC/Alliant with Minister of Industrial Policy Anatoliy Holovko on March 20 and with former Minister of Economy Volodymyr Makukha earlier on March 23. Holovko said the GOU was looking for an appropriate compensation mechanism, and promised to present a solution at their next meeting. Ambassador pressed to set a firm timeline, but Holovko was unwilling to do so. Makukha said that the GOU's initial concept of using the Luhansk Cartridge Factory to compensate OPIC had proven unworkable, in part because the company is privately-owned. He said the GOU is now working on a similar mechanism involving UkrOboronService, a state-owned subsidiary of UkrSpetsEksport that handles foreign trade of arms and munitions. (Note: UkrOboronService was the putative Ukrainian partner to the Swedish firm Nammo, which in 2003/04 without success attempted to set up a compensation mechanism for the OPIC/Alliant claim.) Vanco PSA -------------- ¶5. (SBU) Kinakh told Ambassador that he was intimately familiar with the Vanco oil production sharing agreement (PSA),and reaffirmed the GOU's interest in the project. He promised to follow up with Deputy PM Andriy Kluyev and Energy Minister Yuriy Boiko to resolve any outstanding problems. High Tech Cooperation -------------- ¶6. (SBU) Kinakh said he supported the idea of a joint statement on high technology cooperation, as one of his goals as Minister would be to push the economy away from raw material supply and into more high-value sectors. He said that cooperation with Boeing would likely be in Ukraine's interests, as a deal held great potential for Ukrainian producers of short-range aircraft and could help replace some of Ukrainian commercial carriers' aging fleet. VAT Arrears -------------- ¶7. (SBU) Kinakh recognized that the GOU's failure to provide VAT reimbursements promptly had hurt the country's investment climate, and said he had promised to provide the World Bank with detailed information on the arrears. He said the GOU needs to improve VAT legislation and administration in order to create transparent procedures and ensure that all economic entities are treated equally. Kinakh told Ambassador that there has been some progress of late and said he was "confident" the issue could be fully resolved soon. WTO --- ¶8. (SBU) Kinakh affirmed his full commitment to pursuing WTO accession as soon as possible (ref B). Ambassador told Kinakh that the USG continues to support strongly Ukraine's accession, and outlined a few key issues, such as grain export restrictions, a legal framework for products of biotechnology, and beef/pork imports, that the GOU needs to work on. ¶9. (SBU) Kinakh commented that the grain export restrictions had not been implemented "in an elegant way" and that the government, of which he was not a member when the policy was initiated, unfortunately felt it had no other options at the time. The situation is now improving, said Kinakh, and the GOU would seek to develop a better relationship with relevant parties in the agricultural sector to prevent a recurrence in the future. He lamented that the restrictions had served to undercut the sector's export potential. Regarding a biotechnology framework, Kinakh reported that the GOU is actively working on a draft law, which he said could be ready for Rada consideration in June or July. To ensure the free flow of U.S. beef and pork imports, Kinakh asked that we send as much information as possible from importers so that his Ministry could identify and fix any problems quickly. Comment: A Big Fish -------------- ¶10. (C) Kinakh, who has a long resume including Prime Minister, Deputy Prime Minister (twice) and Secretary of the National Security and Defense Council, leader of the Party of Industrialists and Entrepreneurs as well as Ukraine's primary employers association, has long been a heavyweight within business-government circles. He remained very formal throughout the introductory meeting, in contrast to his predecessor, a career diplomat who spoke English, and was accustomed to working with foreigners. Kinakh's status, however, could afford him political clout unmatched by his predecessor. Although an outsider to the core group around Yanukovych, Kinakh could conceivably emerge as more of an equal, rather than a subordinate, of Deputy Prime Minister and "Economy and Finance Tsar" Mykola Azarov. We hope to enlist his support in solving several key bilateral issues. Taylor