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U.S. DEPARTMENT OF STATE
UKRAINE: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES
BUREAU OF ECONOMIC AND BUSINESS AFFAIRS





                             UKRAINE

                     Key Economic Indicators 
         (Billions of karbovanets unless otherwise noted)


                                   1992       1993       1994 1/

Income, Production and Employment:

Real GDP Growth (pct.) 2/         -17.0      -14.2      -34.0
Nominal GDP (trillions kbv) 2/     4.09     153.00    1,055.0 3/
Labor Force (millions)             24.4       24.5        N/A
Unemployment (000s)                70.5       83.9      125.8
Unemployment Rate (pct.)            N/A       0.18       0.77

Money and Prices:  4/

Personal Savings Rate (pct.)       28.5       N/A         N/A
Retail Inflation (pct.)           2,100     10,300        210
Wholesale Inflation (pct.)        4,230      9,770        N/A
Consumer Price Index              2,100     10,258        N/A
Exchange Rate (KBV/USD/end of period)
  Official                          638     12,610     44,000
  Parallel                          N/A     31,970     90,000 5/

Balance of Payments and Trade:
(USD millions, unless otherwise noted)

Total Exports (USD billions) 2/    11.3       14.9        N/A
  Exports to U.S.                    75        132        295 6/
Total Imports (USD billions) 2/    11.9       16.6        N/A
  Imports from U.S.                 156        272        193 6/
Aid from U.S.                       N/A        330        700
Foreign Exchange Reserves           N/A        207 7/     N/A
Trade Balance                       N/A      510.6     -123.7
  Trade Balance with U.S.           -81       -140        102 6/


N/A--Not available.

1/ 1994 Figures are nine-month data unless otherwise marked.
2/ IMF statistics.
3/ IMF staff estimate for 12-month period.
4/ Ukrainian Ministry of Statistics, 1994.
5/ As of October 20, 1994.
6/ 1994 Figures are estimates based on January-October data.
7/ Ukrainian Ministry of Finance, 1993.



1.  General Policy Framework

    Ukraine declared independence on August 24, 1991, and the
population overwhelmingly ratified this in a national
referendum on December 1, 1991.  Ukraine is the second largest
nation of the former Soviet Union in terms of population and
economic power, and the third largest in terms of area. 
Stretching across 603,700 square kilometers, it has a
population of  52 million, of which three-quarters are ethnic
Ukrainians and one-fifth are ethnic Russians.  Ukraine's
principal resources include fertile "black earth" agricultural
land and significant coal reserves.  The nation's broad natural
resource endowment has led to the development of a diversified
economy with a strong agricultural and food processing
industry, large heavy industries, and a substantial capital
goods sector oriented toward military production.

    Despite its natural wealth, for the past three years
Ukraine has faced inflation and a declining economy.  The
decline of production in most sectors of the economy continues,
though the rate of contraction appears to have slowed in some
spheres.  In 1992 and 1993 market oriented reforms were
implemented at a slow and half-hearted pace.  Ukrainian
officials appeared determined to move towards an efficient
economy without creating social upheaval and a decline in the
standard of living, even if it included a reliance on central
administrative planning.  Unfortunately, this policy produced a
decrease in industrial production, spiralling inflation, little
privatization, and overall economic gridlock.  In 1993,
attempts at stabilizing the economy were overwhelmed by the
weight of collapsing production, ruptured trade links within
the former Soviet Union, and the lack of political will within
all levels of the national government.

    In 1994 the economic situation in Ukraine remains grim, but
the policy outlook has brightened considerably.  Country-wide
elections, which produced a new President, Parliament and every
governor and mayor in the nation, helped provide new thinking
and fresh ideas.  Ukraine has now unambiguously signaled its
determination to embark on a comprehensive economic reform
program.  President Leonid Kuchma's October 11, 1994 address to
the Ukrainian Parliament registered a welcome and drastic
change in economic policy.  Ukraine is committed to unifying
its exchange rates, reforming the tax and banking systems,
liberalizing prices, reducing inflation, eliminating subsidies,
lifting export and currency controls, attracting more foreign
investment, speeding up privatization efforts, and cutting the
budget deficit.  On October 27, 1994, the International
Monetary Fund announced the approval of a $371 million Systemic
Transformation Facility loan to help implement the first stage
of this radical economic reform program.


2.  Exchange Rate Policies

    For the past two years Ukraine has utilized a system of
multi-use, legal tender coupons as a response to two problems: 
a complete cut-off in the supply of rubles from the Russian
central bank and concern over exports of lower priced Ukrainian
goods to other newly independent states.  The coupon, or
karbovanets (KBV), became the sole legal unit of currency in
Ukrainian territory on November 12, 1992, when the Government
eliminated the ruble from use in all cash and non-cash
transactions.  The Ukrainian government considers the coupon a
transitional currency, until the new currency, the Ukrainian
hryvnia, can be introduced in 1995.

    On August 23, 1994, President Kuchma issued a decree "On 
Improvement of Currency Regulation" under which the official
exchange rate was to be brought closer to its true market value
by year-end 1994 in order to stop the sharp slide of the KBV. 
This decree also reduced the proportion of hard currency
earnings businesses must sell to the state to thirty percent,
down from fifty percent originally mandated.  On October 1,
1994, the interbank auction market for foreign exchange was
reopened.  The official rate for the surrender of foreign
exchange was abolished on October 21; in addition, the
government tender committee, which previously allocated foreign
currency, was disbanded.  The exchange rate is now unified and
the rate is determined in the inter-bank market.  The
government will obtain the foreign exchange it needs in the
auction at the unified rate.


3.  Structural Policies

    To date the Ukrainian privatization process has proceeded
unevenly, not so much due to lack of a legislative base but to
a lack of political will.  For example, in the housing sector,
23 percent of all eligible dwellings have been privatized to
date.  The privatization of small-scale enterprises continues
in several cities including Kharkiv, Zaporizhiya and Luhansk,
but most other enterprise privatization has come to a halt due
to a parliamentary review of the privatization process begun in
late summer 1994.  However, President Kuchma has outlined an
ambitious privatization strategy for 1995, including completion
of small-scale privatization throughout the country and
privatization of some 8,000 medium and large-scale
enterprises.  The Ukrainian government has approved the use of
a privatization certificate, which will be distributed free of
charge to enable all Ukrainian citizens to take part in mass
privatization beginning in 1995.

    In 1993, Ukraine's tax policies were one of the most
difficult elements in the business environment.  High tax
burdens, unclear legislation, and a multitude of different
taxes caused confusion and increased tax evasion.  In response
to heavy criticism from the business sector, both state-owned
and private, the government and parliament have agreed to a
comprehensive reform of tax policy to ensure it stimulates
investment and productivity rather than suffocates business. 
Most joint ventures are shielded from income tax by Ukrainian
legislation which offers tax holidays to qualified investments.

    Until October 1994, the Ukrainian government maintained
price controls on approximately 17 percent of production. 
However, in October 1994, the government liberalized prices for
all but a few specific items including the output of natural
monopolies.  Prices for certain communal services have
increased and further increases are expected through 1995.


4.  Debt Management Policies

    Ukraine's share of the debt and assets of the former Soviet
Union is 16.37 percent, as agreed in an inter-Republic treaty
dated December 4, 1991.  In November 1992, Ukraine and Russia
signed a protocol assigning Russia's management responsibility
for Ukraine's share of the debt, pending a bilateral agreement
to resolve outstanding issues.  The protocol was terminated on
December 31, 1992 and negotiations continue between Russia and
Ukraine on issues surrounding the division of the external
assets and debt.

    Since independence, Ukraine has incurred a modest foreign
debt with the west, but an increasingly large debt with Russia
and Turkmenistan for deliveries of oil and gas.  According to
Ukrainian statistics, the officially acknowledged debt is $2.71
billion to Russia and $855 million to Turkmenistan.  The
government established a hard currency credit committee to
consider all governmental hard currency debt obligations and
issuance of state guarantees on credits.


5.  Significant Barriers to U.S. Trade

    The single most important barrier to trade and investment
in Ukraine is the country's painful transition from a command
economy to one based on market economics.  As a result,
successful export and investment activity in Ukraine requires a
long term outlook and strategy, as well as a "frontier
mentality."

    Ukraine's shortage of hard currency earnings,
underdeveloped and inefficient banking system, poor
communications infrastructure, and lack of legal, shipping and
other key infrastructure are the most significant impediments
restricting U.S. exports to Ukraine.  These barriers are
further worsened by Ukraine's inexperience in trading in an
open market environment and its general unfamiliarity with U.S.
suppliers and their products, technology and business practices.

    Since gaining its independence, Ukraine has asserted its
right to establish and maintain its own system of standards and
product certification.  In fact, Ukraine is currently
developing a wide range of national standards and many of these
are being strongly influenced by European Union standards.  In
the interim, Ukraine's domestic production standards and
certification requirements are based on those of the former
Soviet Union and apply equally to domestically produced and
imported products.  Product testing and certification generally
relate to technical, safety and environmental standards as well
as to efficacy standards for pharmaceutical and veterinary
products.  At a minimum, imports to Ukraine are required to
meet the certification standards of the country of origin.  In
cases where Ukrainian standards are not established, country of
origin standards may prevail.

    Imported goods are not considered to have legally entered
Ukraine until they have been processed through the port of
entry and been cleared by Ukrainian customs officials.  Duties
on goods imported for resale are subject to varying ad valorem
rates and import license requirements.

    Ukrainian law allows for virtually all forms of foreign
direct investment, including wholly-owned subsidiaries.  In
fact, Ukraine has attempted to encourage foreign investment
through a "State Program for Encouraging Foreign Investment,"
which extends the length of existing tax holidays and import
duty exemptions to qualifying investors in a number of priority
sectors.  However, the depressed local market and numerous tax
disincentives weigh heavily on foreign investors.  In addition,
U.S. companies, under the Foreign Corrupt Practices Act, are
often at a significant disadvantage in the Ukrainian business
environment where bribery and corruption can be common tools of
business.

    It is important to note that the Kuchma government's new
export liberalization policies, attempts at overall financial
stabilization and proposed tax policy reforms are welcome
changes that should attract more foreign investors to Ukraine.

    A broadening of trade and investment relations with Ukraine
is a high priority of the U.S. government and a key to economic
reform and development in Ukraine.  The U.S.-Ukraine Trade
Agreement signed in June 1992 provides for reciprocal most
favored nation (MFN) status and establishes a basic framework
for broadening this relationship.  Furthermore, this agreement
provides for the establishment of the Joint Commission on Trade
and Investment (JCTI), which held its inaugural session on
November 23, 1994.  The Commission will work to reduce barriers
to trade and investment and promote expansion of commercial
relations.


6.  Export Subsidies Policies

    For the first nine months of 1994 government subsidies to
state-owned industries were an integral part of Ukraine's
economy.  These subsidies were not designed to provide direct
or indirect support for exports, but rather to maintain full
employment and production during the transition from a
centrally controlled to a market-oriented system.  However, in
October 1994, in order to reform on the macroeconomic level,
Ukraine agreed in principle to International Monetary Fund
recommendations to cut these subsidies.  As a result of these
recommendations and price liberalization measures, all
government subsidies were drastically reduced.


7.  Protection of U.S. Intellectual Property

    A new set of laws on intellectual property rights
protection was adopted by the Ukrainian Parliament in December
1993 and came into force in July 1994.  They are as follows: 
the Ukrainian Copyright Law, the Law on Inventions, the Law on
Trademarks, the Law on Industrial Patterns, and the Law on The
Protection of the Information in Automated Systems.  According
to the World Organization of Intellectual Property and the
European Patent Organization's experts, the Ukrainian
legislation in terms of industrial property rights protection
is the most market-oriented relative to other former Soviet
Union countries.

    According to the Ukrainian Patent office, there are over
300 licensing agreements, most of them concluded between local
entities.  There are no cases of compulsory licensing to local
companies of rights held by foreigners in Ukraine.  As of
October 1994, 6,000 trademarks were registered in Ukraine,
including about 1,500 trademarks of U.S. entities.

    In terms of industrial property, there is no data on the
infringement or counterfeiting of trademarks.  According to the
Ukrainian Copyright Agency, there are also no statistics on the
extent of piracy of books, records, videos, or computer
software.  Computer software and sound recordings are legally
determined as products and shall be copyrighted according to
Article 18 and 19 of the Ukrainian Copyright Law.  According to
Article 17 of the Ukrainian Law on Foreign Economic Activities,
importing and exporting products in violation of intellectual
property rights is strictly prohibited.

    Ukraine is committed legislatively to the protection of
intellectual property, though enforcement remains inadequate
and sporadic.  Two Ukrainian state agencies are working to
ensure intellectual property rights:  the State Ukrainian
Copyright Agency (literary and artistic works) and the State
Patent Office of Ukraine (intellectual property).  Ukraine is a
successor state to many of the conventions and agreements
signed by the former Soviet Union, and is a member of the World
Intellectual Property Organization (WIPO).  In fact, Valeriy
Petrov, who is the head of the Ukrainian Patent Office, is a
Deputy Head of the WIPO General Assembly.  Ukraine is a party
to the Paris Convention for Protection of Industrial Property,
the Madrid Agreement on the International Registration of
Trademarks and the Agreement on Patent Cooperation.  In March
1994, Ukraine signed the Universal Copyright Convention. 
Furthermore, the Ukrainian Parliament is considering ratifying
the Berne Copyright Convention.  In September 1994, Ukraine
became a party to the Eurasian Patent Convention which includes
ten of the New Independent States.  Adoption of this convention
facilitates exchanges of new technologies and property rights,
reduces customs duties, and provides for a unified patent valid
in these ten countries.  Ukraine has property agreements with
25 countries, including the United States, on exchanging
relevant information.


8.  Worker Rights

    a. The Right of Association

    Soviet Law, or pertinent parts of the Ukrainian
Constitution, continue to regulate the activities of trade
unions.  The Law on Citizens' Organizations passed in 1992
guarantees non-interference by public authorities in the
activities of citizens' organizations and the right of these
organizations to establish and join federations, and to
affiliate with international organizations on a voluntary
basis.  In negotiating wages with the government, all unions
are permitted to participate.  In principle, all workers and
civil servants including members of the armed forces are free
to form unions, but in practice, the government discourages
certain categories of workers (e.g., nuclear power plant
employees) from doing so.  A new Ukrainian Constitution and new
trade laws are currently being drafted and debated which will
affect the future status and activities of trade unions.

    A successor to the former official Soviet trade union known
as the Federation of Trade Unions (FTU), has begun to work
independently of the government and has been vocal in opposing
draft legislation that would restrict the right to strike.  The
FTU is considered a partner with management in the running of
state enterprises.  Although the FTU has no official or legal
relationship with any political party, the government provides
this organization with office buildings and resort properties.

    Many independent unions now provide an alternative to the
official unions in most sectors of the economy.  Some, such as
the Independent Miners' Union of Ukraine (NPGU), emerged out of
the 1989 strike committees and were instrumental in creating
the independent miners' unions of the Soviet Union.  When
Ukraine became independent, these unions followed suit and also
split from the Soviet Union.  Independent unions were also
established in the Black Sea Fleet, among the military officers
of Ukraine, and among the scientific workers of the Academy of
Sciences.  In early 1992, the NPGU, pilots, civil air
dispatchers, locomotive engineers, and aviation ground crew
unions formed the Consultative Council of Free Trade Unions, an
entity which acts independently of the FTU.

    The Law on Labor Conflict Resolution guarantees the right
to strike to all but members of the armed forces, civil and
security services, and employees of "continuing process plants"
(e.g., metallurgical factories).  This Law prohibits strikes
that "may infringe on the basic needs of the population" (e.g.,
rail and air transportation).  Furthermore, strikes based on
political demands are illegal.  However, this did not stop
miners and transportation workers from making political as well
as economic demands during their September 1993 strikes that
forced the government to hold elections at every level in
1994.  Although the government has often relied on the courts
to deal with strikes that it feels violate the law, the courts
have not always ruled in the government's favor.

    There are no official restrictions on the right of unions
to affiliate with international trade union bodies; the NPGU is
a member of the international miners' union, and independent
trade unions have not been pressured to limit their contacts
with international nongovernmental organizations.  The American
Federation of Labor - Congress of Industrial Organizations has
a permanent representative in Kiev who interacts freely with
the Consultative Council of Independent Trade Unions.

    b.  The Right to Organize and Bargain Collectively

    In accordance with the Law on Enterprises, joint
worker-management commissions should resolve issues concerning
wages, working conditions, and the rights and duties of
management at the enterprise level, but overlapping spheres of
responsibility often impede the collective bargaining process. 
Wages in each industrial sector are established by the
government in consultation and agreement with the appropriate
trade unions, and all of the trade unions are invited to
participate in negotiations.  In case a labor-management
dispute cannot be resolved at the enterprise level, the
National Mediation and Reconciliation Service, empowered by the
Law on Labor Conflict Resolution, will arbitrate the dispute. 
The President of Ukraine appoints the head of this service.

    The Collective Bargaining Law often prejudices the
bargaining process against the independent trade unions and
favors the official unions.  The Collective Bargaining Law 
provides for dues to be taken from the pay of every worker in a
collective and paid to the official union.  The social welfare
benefits received by workers, including huge pension benefit
funds, are administered for the enterprise by the unions.

    Most workers are never informed that they are not obligated
to join the official union, and joining an independent union
can be bureaucratically onerous as well.  Three steps must be
followed to direct one's dues to a independent union.  First,
the worker must submit a form to the official union stating
that the worker does not wish the official union to represent
him.  Second, the worker must submit a form to the independent
union declaring the worker's desire to join it.  Finally, a
third form must be submitted to the enterprise directing that
payroll deductions be given to the independent union instead of
the official one.  Independent unions are not given resources
to administer social welfare benefits, and enterprise directors
discourage departures from the official union by meeting with
workers to discuss the benefits of an official union membership.

    The collective bargaining law prohibits anti-union
discrimination, and the courts resolve disputes under the law. 
Unfortunately, there have been cases in which such disputes
have not been resolved in a fair and equitable manner.

    c.  Prohibition of Forced or Compulsory Labor

    The Constitution prohibits compulsory labor, and it is not
known to exist.

    d.  Minimum Age for Employment of Children

    The minimum employment age is seventeen.  However, in
certain nonhazardous industries, enterprises can negotiate with
the government to hire employees between fifteen and seventeen
years of age.  Education is compulsory up to age fifteen, and
the Ministry of Education vigorously enforces the Law on
Education.

    e.  Acceptable Conditions of Work

    In 1992, the Government established a country-wide minimum
wage.  Prior to the onset of high inflation, the minimum wage
and numerous other mandatory subsidies provided a decent income
for a family.  However, during 1994 monthly inflation rose
dramatically and seriously eroded incomes.  Officially over
half the Ukrainian population now live below the poverty level,
with further declines expected.  In theory, the Law on Wages,
Pensions, and Social Security provides for mechanisms to index
the minimum wage to inflation, but in practice, the government
has paid most salaries several months late and at pre-inflation
rates.

    The Labor Code provides for a maximum 41 hour work week and
at least 15 days of paid vacation per year, but stagnation in
some industries (e.g., defense) has significantly reduced the
work week for some categories of workers.

    The Constitution and other laws contain occupational safety
and health standards, but these are frequently ignored in
practice.  Lax safety standards enforcement was the principal
cause of many serious mine accidents resulting in over 100
deaths and injuries in 1993.  In theory, workers have the legal
right to remove themselves from dangerous work situations
without jeopardizing their employment; however, in reality,
labor experts say that continued employment would be in
question.  The Labor Ministry is currently rewriting the Mine
Safety Law and the NPGU is demanding that the Government
improve worker safety in the mines.

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