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07KYIV113, UKRAINE: 2007 INVESTMENT CLIMATE STATEMENT

January 18, 2007

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Reference ID Created Released Classification Origin
07KYIV113 2007-01-18 12:55 2011-08-30 01:44 UNCLASSIFIED Embassy Kyiv

VZCZCXYZ0002
RR RUEHWEB

DE RUEHKV #0113/01 0181255
ZNR UUUUU ZZH
R 181255Z JAN 07
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC 0914
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUCPCIM/CIMS NTDB WASHDC

UNCLAS KYIV 000113 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB/IFD/OIA (JNHATCHER) AND EUR/UMB 
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: N/A 
TAGS: EINV ETRD KTDB OPIC USTR UP
SUBJECT: UKRAINE: 2007 INVESTMENT CLIMATE STATEMENT 
 
REF: 2006 STATE 178303 
 
1. As requested reftel, below is the 2007 Investment 
Climate Statement (ICS) for Ukraine.  Post is transmitting 
the ICS in three separate parts due to its large size. 
Post will send the ICS in Microsoft Word version to 
EB/IFD/OIA by email. 
 
Begin Text: 
 
A.1. Openness to Foreign Investment 
 
GOVERNMENT'S ATTITUDE TOWARDS FOREIGN INVESTMENT 
 
When President Viktor Yushchenko took office in January 
2005, he made improving the investment climate one of his 
top economic policy goals.  This led to a number of new 
government initiatives, such as creation a State agency for 
investment and innovation and a number of investor councils 
chaired by the President.  Additionally, there have been 
several positive steps for U.S.-Ukraine trade and 
investment relations over the past year.  Both the United 
States and the European Union granted Ukraine market 
economy status, in February 2006 and December 2005, 
respectively.  In March 2006 the United States terminated 
the application of the Jackson-Vanik amendment to the Trade 
Act of 1974 to Ukraine, providing Ukraine permanent normal 
trade relations status.  International investment companies 
rushed to take advantage of the improved mood and held 
several large-scale Ukrainian investment conferences in 
2005 and 2006, both in Ukraine and abroad.   Political 
uncertainty dampened investor enthusiasm during the run-up 
to the March 2006 parliamentary elections, and in the 
ensuing five months it took for Ukraine to form a 
government. 
 
After eight years of decline following independence, the 
Ukrainian economy has been growing since late 1999, with 
real GDP growth at about 7% in 2006.  Over the past few 
years, Ukraine has liberalized its markets, reduced 
regulation, eliminated most licensing requirements, 
eliminated most restrictions on foreign exchange and begun 
the transformation of the agricultural sector from state- 
run farms to private agriculture.  After years of 
hyperinflation and plummeting currency values, the national 
currency, the hryvnia (UAH), has been stable against the 
U.S. dollar for over five years.  The National Bank of 
Ukraine (NBU) allowed it to appreciate about 5% in early 
2005, but has maintained a nearly constant exchange rate to 
the dollar since then.  The inflation rate fell from 2004's 
12.3% to 10.3% in 2005, and was expected to be between 10% 
and 11% in 2006.  Ukraine remains in need of substantial 
reforms in order to achieve full economic liberalization. 
Ukraine's economy is still shackled by corruption, poorly 
developed rule of law, over-regulation, and excessive 
government interference in what should be private business 
decisions. 
 
Ukraine was not able to achieve its goal of entering the 
WTO in 2006, but made significant progress during the year. 
Ukraine's Verkhovna Rada (parliament) passed about 20 
pieces of legislation helping to bring its trade regime 
into consistency with WTO rules.  Ukraine also made 
progress on its bilateral market access agreements, most 
notably with the signing of a bilateral agreement with the 
United States on March 6, 2006.  Ukraine must still 
conclude its last bilateral agreement with Kyrgyzstan. 
 
Foreign investors continued to express little confidence in 
the Ukrainian court system.  In a growing number of cases, 
predatory minority shareholders have been able to procure 
dubious court decisions in an effort to wrest control of 
companies away from the majority investors.  Around a dozen 
such attacks, which targeted both Ukrainian companies and 
major foreign investors, occurred over the past year. 
Ukrainian courts have a long record of striking down or 
ignoring contractual provisions that assign legal 
responsibility for dispute resolution to a foreign court or 
arbitrator.  Many investor complaints over the years have 
involved the State Tax Administration's (STA) selective 
enforcement of tax policy.  Businesses have claimed that 
STA local and regional branches use investigative authority 
to advance favored political or business interests.  While 
the number of such complaints dropped in 2005, exporters 
have suffered from the STA's failure to refund VAT payments 
on inputs in a timely fashion. Although some improvements 
in payment of refund arrears occurred in late 2005 and 
early 2006, in August 2006, the GOU again decreased the 
pace of VAT refunds, reimbursing only 76 percent of 
verified claims, down from 87 percent refunded in 2005.  At 
year's end, several major exporters are facing large and 
continuously accumulating arrears. 
 
MAJOR LAWS/RULES AFFECTING FOREIGN INVESTMENT 
 
Ukraine's law "On the Foreign Investment Regime" (1996) 
provides for equal treatment of foreign and Ukrainian-owned 
business with some restrictions in broadcasting and weapons 
manufacturing.   Although Ukraine passed several laws in 
the 1990s that provided tax privileges to joint ventures 
with foreign participation, by 2002, these
 privileges had 
been cancelled. 
 
In early 2005, Ukraine lifted all tax and tariff exemptions 
to investors in Special Economic Zones (SEZ) in order to 
stop large-scale misuse of the zones.  Some investors 
criticized the abrupt cancellation of the privileges and 
the absence of any compensatory provisions, and they said 
these actions destabilized the investment climate.  U.S. 
investors with planned or existing investment in the SEZs 
faced substantial losses from the elimination of these 
privileges.  The new government of Prime Minister Viktor 
Yanukovych has announced its intention to re-establish some 
tax and customs privileges for investors and export 
processors located within SEZs, and stated it would develop 
a compensation mechanism for investors who suffered from 
the 2005 cancellation.  By year's end, no action was taken 
to re-establish the SEZs and the planned privileges were 
not defined. 
 
Both a new Civil Code and a competing and incompatible new 
Commercial Code went into effect on January 1, 2004. 
Lawyers and judges continue to grapple with how to 
implement the two conflicting laws, which also contradict 
some existing legislation.  In 2005, the Ukrainian 
government proposed to annul the Commercial Code, but as of 
the year's end, no corresponding new draft legislation has 
yet to be registered in the parliament. 
 
On October 25, 2001, the Ukrainian Parliament passed a Land 
Code.  It provides for private ownership of land, 
facilitating the privatization of land for agricultural 
purposes, but also provides for a moratorium on 
agricultural land sale until January 1, 2008.  Individuals 
will not be able to acquire or sell agricultural lots 
larger than 100 hectares between 2008-2015.  The Land Code 
includes a 20-year moratorium on agricultural land sales to 
foreigners, though foreigners may own land plots on which 
industrial facilities have been built.  Efforts to cancel 
the moratorium in 2007 have failed.  The Rada voted to 
override President Yushchenko's veto of the moratorium, 
citing the need to first strengthen the legal framework 
covering land sale, while Yushchenko called on the Rada to 
hasten passage of legislation necessary to end the 
moratorium.  Such restrictions may delay the development of 
a functioning land market, but the overall picture is not 
entirely negative, as there is an active market in 
agricultural land leasing. 
 
A new Customs Code went into effect January 1, 2004, 
codifying uniform procedures for all goods, and creating a 
mechanism for submitting a preliminary declaration for 
customs clearance for those who declare items on a regular 
basis.  The Code widened the powers of the State Customs 
Service (SCS), granting its staff free access to the 
companies' premises where commodities subject to customs 
clearing are stored.  It also gave the SCS the power to 
review foreign trade companies' financial and economic 
performance.  Both provisions are considered consistent 
with WTO norms.  December 2005 amendments to the Customs 
Code and Single Customs Tariff brought Ukraine's customs 
regime almost fully into compliance with the WTO Customs 
Valuation and Rules of Origin Agreements. 
 
Under the 2001 law, "On the Customs Tariff of Ukraine," 
only the Rada can introduce or change tariffs.  The import 
tariff system of Ukraine has 21 sections, encompasses 97 
groups of goods, and lists over 11,000 import duty rates. 
Between March and July 2005, the parliament passed three 
packages of amendments to the Customs Code of Ukraine to 
decrease tariff rates.  These measures brought the normal 
average tariff rate down to 6.5 percent, or more 
specifically to 13.8 percent (down from 19.7 percent) for 
agricultural goods and 4.4 percent (down from 8.3 percent) 
for industrial goods. 
 
Ukraine's anti-monopoly committee implements anti-monopoly, 
competition, and consumer protection legislation under the 
March 2002 law "On Protection of Economic Competition." 
New companies and mergers/acquisitions face strict 
controls.  Most investments, joint ventures with multiple 
partners, and share acquisitions require the committee's 
approval.  The law requires that the Committee obtain a 
court order before entering private property.  Those 
violating fair competition rules may be fined up to 10% of 
the prior year's turnover.  If unfairly gained profit 
exceeds 10% of income, up to three times the normal penalty 
can be collected.  Legal experts have expressed concern 
over restrictions on who may appeal a Committee decision. 
 
PRIVATIZATION AND FOREIGN PARTICIPATION 
 
Ukraine's privatization law provides for the cash sale of 
majority shareholdings in state enterprises, open bidding 
procedures, and the use of independent financial advisers 
to assist Ukraine's State Property Fund (SPF).  In 
practice, however, privatizations conducted between early 
2000 and 2004 were non-transparent and arbitrary -- and 
were marked by heavy behind-the-scenes political 
interference.  In 2005, the new government of President 
Yushchenko undertook a review of past privatizations with 
the professed intent of invalidating those found to have 
been corrupt reselling thQnterprises.  The government 
secured a court ruling invalidating the May 2004 
privatization of Ukraine's major steel plant, 
Kryvorizhstal, which the son in law of then-President 
Kuchma acquired for $800 million.  The GOU conducted a new 
transparent tender open to international participation and 
sold the enterprise to Mittal Steel in October 2005 for 
$4.8 billion.  The government's failure to articulate a 
clear policy regarding past privatizations other than 
Kryvorizhstal created significant uncertainty among 
business owners and prospective investors.  By early 2006, 
the government under Prime Minister Yuriy Yekhanurov 
dropped its effort to redress improper past privatizations 
and the Yanukovych government has not revisited this 
policy. 
 
There were few new privatizations of major state 
enterprises in 2006.  As of October 2006, only 15% ($64 
million) of the year's target for privatization had been 
transferred to the budget. 
 
Ukrainian law formerly limited foreign participation in 
privatization of certain "strategic" enterprises (radio, 
television, energy, and insurance).  Foreign shares of TV 
and radio broadcasting and publishing companies generally 
could not exceed 30%.  On January 12, 2006, Ukraine's 
Parliament adopted a new law "On Television and Radio 
Broadcasting" that eliminated restrictions on the share of 
foreign capital in the charter funds of television and 
radio broadcasting companies.  Foreigners are now 
prohibited from founding TV or radio stations, however. 
Ukrainian law continues to limit foreign participation in 
the privatization of a few "strategic" sectors, such as 
energy, although the Rada retains the authority to lift 
legislative restrictions on foreign ownership in specific 
instances, and has done so on occasion. 
 
PROCUREMENT 
 
Ukraine is not a signatory to the WTO Agreement on 
Government Procurement but is negotiating WTO accession.  A 
March 2000 government procurement law favors Ukrainian &#x0
00A;bidders on contracts to sell goods and services, affording 
a 10% differential to domestic bidders over foreigners in 
certain cases.  Foreign investors also complain about a 
lack of advance notice of rules and requirements for 
tenders, covert preferences in tender awards, hidden 
conditions on awards that are not defined in tender 
announcements, partiality towards domestic investors, and 
an inability to resolve grievances and disputes.  The 
American Chamber of Commerce in Kyiv has reported that many 
firms are reluctant to pursue GOU procurement opportunities 
out of concern they will be unable to collect payment. 
Foreign companies generally win only a tiny fraction of the 
total tenders (0.01 percent during the first half of 2006). 
A law "On Production Sharing Agreements" (PSA), effective 
October 1999, provides a legal framework guaranteeing that 
the terms of agreements between foreign investors and the 
GOU for natural resources development cannot be changed 
once an investment is made.  However, additional enabling 
legislation is needed in order to harmonize Ukrainian laws 
with the PSA's joint exploration and production license. 
Also needed are Cabinet of Ministers resolutions to 
establish special tax benefits envisioned by the PSA law, 
such as the amount of profit tax revenue the government 
will receive from the PSA producer.  The development of 
PSA's is being tested after the GOU awarded the U.S. 
company Vanco a tender for the Prikercheskiy block for 
offshore oil exploration in the Black Sea.  Vanco and the 
GOU are, as of the year's end, negotiating the terms of the 
PSA for this project. 
 
In December 2005 Parliament adopted amendments to the law 
"On Procurement of Goods, Works and Services Using State 
Funds" of February 22, 2000.  The amendments, which entered 
into force in March 2006, transferred the authority to 
coordinate government procurement from the Ministry of 
Economy to the Antimonopoly Committee of Ukraine.  The 
authority to oversee government procurement was distributed 
among a range of agencies, including the Antimonopoly 
Committee, the Accounting Chamber of Ukraine, and the 
quasi-governmental Tender Chamber of Ukraine.  The 
amendments have been criticized for creating an overlap in 
authority of various regulatory agencies and decreasing the 
transparency of the system.  Under Ukraine's amended law, 
the Tender Chamber has exclusive authority to review claims 
of tender participants and issue recommendations regarding 
single-supplier procurement.  The measure introduces 
burdensome and lengthy procurement procedures, and requires 
all tender proposals to be secured by collateral, limiting 
the number of tender participants and increasing the cost 
of the tender participation. 
 
Finally, the new law made it mandatory that procurement by 
state enterprises follow government procurement rules and 
procedures, rather than permitting the enterprises to make 
contracts on a commercial basis.  This feature contradicts 
accepted international practice and commitments made by 
Ukraine in WTO negotiations.  Ukraine is not currently a 
signatory to the WTO Agreement on Government Procurement 
(AGP), but will become an observer to the AGP at the time 
of WTO accession, and could start AGP negotiations by 
requesting membership one year after accession. 
 
A.2. Conversion and Transfer Policies 
 
RESTRICTIONS ON CONVERTING/TRANSFERRING FUNDS 
 
The April 1996 "Foreign Investment Law" guaranteed the 
"unhindered transfer" of profits, revenues, and other 
proceeds in foreign currency after taxes and other 
mandatory payments.  By intervening in exchange markets, 
the National Bank of Ukraine (NBU) maintains a de facto peg 
of Ukraine's currency, the hryvnia, to the dollar.  In 
2006, the hryvnia traded against the U.S. dollar at or near 
UAH 5.05 to the dollar. 
 
While foreign investors may repatriate earnings, companies 
must obtain a license from the NBU for some operations. 
For repatriation of hard currency, each transaction over 
$50,000 must be approved by the NBU.  The NBU also charges 
a fee to review the transaction.  In view of increased hard 
currency inflows, the NBU on March 31, 2005, canceled its 
1998 surrender requirement that exporters convert half of 
their hard currency revenues into hryvnias.  Foreign 
exchange is readily available at market-determined rates, 
which generally do not vary greatly from the daily official 
exchange rate.  In February 2005, the NBU lifted the 2% 
limitation on deviation of bank exchange rates from the 
official exchange rate, which had been in effect since 
October 2004.  A pension fund tax is levied on transactions 
to purchase hard currency.  A 2005 GOU decision to reduce 
that tax from 1.5% to 1.2% of the amount of the transaction 
as of January 1, 2006 was never implemented, but the State 
Budget for 2007 includes a measure reducing the rate to 
1.3%. 
 
Foreign investors have complained of cumbersome NBU 
regulations (2005 Resolutions 280 and 281) requiring them 
to open local accounts in Ukrainian banks and to use the 
services of Ukrainian brokers in order to make investments 
in Ukraine.  Past direct investors seeking to liquidate and 
repatriate their investments face stringent documentary 
requirements, though the NBU has stated its willingness to 
waive requirements if documents from the original 
transactions are no longer available. 
 
Investors convert their earnings into foreign currency 
through commercial banks, which purchase foreign currency 
on the electronic inter-bank currency market.  Commercial 
banks may trade foreign currency in electronic form with 
other banks through participation in electronic inter-bank 
currency market, regulated and operated by the NBU.  To 
purchase hard currency, companies must provide their banks 
with a copy of their foreign trade contracts.  In an 
attempt to expedite purchases of hard currency, in March, 
2005, the National Bank of Ukraine cancelled the 
requirement that companies obtain State Tax Administration 
permission to purchase hard currency.  Commercial banks 
must announce their clients' intentions to sell on inter- 
bank currency market if the transactions exceeded $500,000. 
The law "On the Circulation of Promissory Notes" provides 
an opportunity for payments in foreign currency and 
issuance and circulation of promissory notes, in accordance 
with the 1930 Geneva Convention "Providing a Uniform Law 
for Bills of Exchange and Promissory Notes."  Residents may 
transfer up to USD 600 abroad without opening a bank 
account.  Illegal trade of hard currency is not a criminal 
matter but brings administrative penalties. 
 
A.3. Expropriation and Compensation 
 
Under the 1996 law "On the Regime of Foreign Investment," a 
qualified foreign investor is provided guarantees against 
nationalization, except in cases of national emergencies, 
accidents, or epidemics.  International institutions have 
recommended that definitions of expropriation and 
nationalization in the foreign investment law and bilateral 
treaties be expanded to include indirect and creeping 
expropriation.  Courts can determine whether owners of 
privatized enterprise
s failed to pay for an enterprise or 
to implement investment commitments in a privatization 
sale.  Failure to pay or invest allows the GOU, with court 
permission, to revoke ownership and resell the property. 
 
A.4. Dispute Settlement 
 
EXTENT AND NATURE OF INVESTMENT DISPUTES 
 
The Embassy continues to provide advocacy on behalf of U.S. 
investors.  For many years, investment disputes frequently 
have involved key problems with the investment climate such 
as the lack of adequate rule of law, fair and impartial 
dispute resolution mechanisms, and enforcement of domestic 
court and international arbitration decisions.  Another 
problem is poor corporate governance (inadequate protection 
for shareholder rights, inadequate disclosure, asset- 
stripping, and voting fraud).  Dispute settlement remains 
weak.  Currently, there is no single point of contact in 
the Ukrainian government committed to helping resolve 
business and investment disputes.  Most U.S. businesses 
have little confidence in Ukrainian courts.   Commercial 
contracts may permit the parties to use international 
arbitration or specified foreign courts to settle disputes. 
Though Ukrainian legislation recognizes international 
arbitration decisions, in practice such decisions are very 
difficult to enforce in Ukraine. 
 
Corruption continues to lie at the heart of many investor 
disputes.  Laws and regulations are vague, with 
considerable room for interpretation, providing officials 
at every bureaucratic layer ample opportunities for 
corruption.  Foreign investors are often seen as 
competitors to domestic firms and their allies in the 
government. 
 
DESCRIPTION OF UKRAINE'S LEGAL SYSTEM 
 
Ukraine has a civil law system relying on codes and 
separate legislative acts.  The court system comprises the 
Constitutional Court, which interprets the Constitution and 
laws of Ukraine, and a system of courts of general 
jurisdiction.  The courts of general jurisdiction are 
further divided into general courts, which handle civil, 
criminal, and administrative matters, and specialized 
commercial courts, which review business disputes, 
bankruptcy, and anti-monopoly cases.  Both the general and 
commercial court systems feature a hierarchy of local 
and/or regional courts and appeals courts.  The Supreme 
Court of Ukraine is the highest court in the system of 
courts of general jurisdiction. 
 
The law "On the Judiciary," in force as of June 2002, 
creates four levels of courts -- local courts, courts of 
appeal, courts of cassation (higher specialized courts) and 
the Supreme Court.  This law also establishes an 
independent judicial department, the State Judicial 
Administration, to manage the court system, with the 
exception of the Supreme Court, which is self-administered. 
The law did increase the independence of the judiciary; but 
it also in some cases increased the powers of the President 
over the judiciary.  While the law envisioned the creation 
of a separate system of Administrative courts, this system 
is not yet fully set up.  The Supreme Administrative Court 
started its work only in the fall of 2005.  The 
Administrative Procedural Code, which entered into force on 
September 1, 2005, governs the organization and work of the 
administrative courts. 
 
The National Commission on Democracy and the Rule of Law 
prepared a "Concept of Improvement of the Judicial System," 
signed by President Yushchenko on May 10, 2006.  The 
document outlines a program for comprehensive judicial 
reforms, but has yet to be implemented. 
 
ENFORCEMENT OF RIGHTS 
 
Investors criticize Ukraine's legal system for its 
inefficiency, burdensome procedures, unpredictability, 
corruption, and susceptibility to political interference. 
Even when they obtain favorable decisions, investors claim 
the decisions are rarely enforced.  The enforcement 
responsibilities fall under the State Enforcement Service, 
which reports to the Ministry of Justice, but whose head is 
appointed by the Cabinet of Ministers. 
 
The procedure for recognizing and enforcing foreign court 
decisions is regulated by Section 8 of the Code of Civil 
Court Procedures of Ukraine.  In accordance with the Code, 
a foreign court decision is recognized and enforced in 
Ukraine if such recognition and enforcement is provided for 
in international treaties, the mandatory nature of which 
has been endorsed by the Rada, or based on a mutual ad-hoc 
agreement with a foreign state whose court has rendered a 
decision that is to be enforced in Ukraine. 
 
The State Enforcement Service implements decisions rendered 
by foreign courts and arbitration tribunals in accordance 
with the law "On Enforcement Proceedings."  The law "On 
Implementing Decisions and Applying Practices of the 
European Court of Human Rights" entered into force on March 
30, 2006.   Along with a subsequent Cabinet of Ministers 
implementing Resolution, the law obligates the Ministry of 
Justice to ensure implementation of the Court's decisions. 
 
COMMERCIAL LAW 
 
A new Civil Code and a competing and incompatible 
Commercial Code both went into effect on January 1, 2004. 
Lawyers and judges have since grappled with how to 
implement the two conflicting laws.  Despite heavy 
criticism of the Commercial Code by businessmen and GOU 
officials, the Rada has not yet taken action to amend or 
annul it.  The Civil Code ensures protection of the rights 
of private property, of engaging in contracts, and of 
entrepreneurial activity.  It provides a unified framework 
for economic regulations. 
 
The Civil Code is generally market-oriented and modern, but 
the Commercial Code is often contrary to market economy 
principles and directly contradicts provisions of the Civil 
Code in numerous instances.  The Commercial Code aims to 
preserve a privileged position for the public sector of the 
economy and allows for governmental interference in private 
commercial relations. Further, in both codes gaps in 
regulation exist.  The existence of these two codes creates 
uncertainty in planning and structuring transactions, and 
leaves questions surrounding transactions unanswered. 
Problems arising from these two codes also surface in the 
resolution of disputes, as courts are not able to resolve 
the conflicting provisions of the codes, or are not able to 
fill in the gaps in regulation that arise as a result of 
the missing provisions in the codes.  Finally, other 
E 
commercial laws have not been harmonized with these codes. 
 
A 1999 bankruptcy law provides for debtor-led 
reorganization, a meaningful moratorium on payment and 
collection of pre-existing debt, and a tax forgiveness 
provision.  The 1999 law provided thousands of heavily 
indebted industrial enterprises with an alternative to 
liquidation that did not exist under Ukraine's original 
1992 bankruptcy law.  Since then, many firms have reached 
amicable settlements with their creditors and established a 
workable schedule of debt forgiveness and repayment. 
Creditors protect their rights under the law by electing a 
creditors' committee, which is actively involved in the 
bankruptcy proceedings. &#
x000A; 
Most observers believe the bankruptcy laws must be amended 
to provide more protection for creditors.  Notice 
provisions, protections for the rights of minority 
shareholders, and procedures for valuation and the sale of 
assets to satisfy liabilities are undeveloped. 
 
CORPORATE GOVERNANCE 
 
Problems with corporate governance in Ukraine involve 
corporate ownership, shareholder rights, transparency, and 
disclosure.  The law "On Companies" offers scant protection 
for minority shareholders against insider dealing, asset 
stripping, profit skimming, and share dilution. Corporate 
finance is restricted.  Some examples of shareholder rights 
abuses include limited disclosure, capital restructuring 
without shareholders' consent, and shareholder voting 
fraud.  Nevertheless, a Company Register that was 
established in 2004 improved transparency.  A new Joint 
Stock Company law was first drafted in 1998 to improve the 
current law by introducing sound corporate practices that 
meet international standards.  It has failed repeatedly in 
parliament, despite increasing interest in the business 
community.  The Rada has not yet considered the most recent 
version of this law, submitted in June 2006. 
 
BINDING INTERNATIONAL ARBITRATION 
 
Ukraine enacted an international commercial arbitration law 
in February 1994, which parallels commercial arbitration 
laws set forth by the United Nations Commission on 
International Trade Law.  Ukraine is a member of the New 
York Convention of 1958 on the Recognition and Enforcement 
of Foreign Arbitration Awards.  Some investors have 
problems enforcing foreign arbitration awards in Ukraine. 
Foreign arbitral award enforcement procedures in Ukraine 
are regulated by a number of statutes and regulations, 
including the Section 8 of the Civil Procedural Code and a 
law "On Enforcement Proceedings."  In early 2000 Ukraine 
ratified the Washington Convention, providing for use of 
the International Center for Settlement of Investment 
Disputes (ICSID), an internationally recognized mechanism 
for resolving investment disputes between investors and the 
GOU.  The U.S.-Ukraine Bilateral Investment Treaty (BIT), 
signed in November 1996, recognizes arbitration of 
investment disputes before the ICSID.  One major investment 
dispute involving a U.S. company was resolved in May 2006 
through a combination of direct consultations with the 
Ukrainian government and international arbitration by 
 
ICSID. 
 
TAYLOR

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