[Senate Hearing 112-471]
[From the U.S. Government Printing Office]


                                                        S. Hrg. 112-471
 
   UKRAINE AT A CROSSROADS: WHAT'S AT STAKE FOR THE U.S. AND EUROPE?

=======================================================================

                                HEARING

                               BEFORE THE

                    SUBCOMMITTEE ON EUROPEAN AFFAIRS

                                 OF THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                            FEBRUARY 1, 2012

                               __________

       Printed for the use of the Committee on Foreign Relations


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                COMMITTEE ON FOREIGN RELATIONS         

             JOHN F. KERRY, Massachusetts, Chairman        
BARBARA BOXER, California            RICHARD G. LUGAR, Indiana
ROBERT MENENDEZ, New Jersey          BOB CORKER, Tennessee
BENJAMIN L. CARDIN, Maryland         JAMES E. RISCH, Idaho
ROBERT P. CASEY, Jr., Pennsylvania   MARCO RUBIO, Florida
JIM WEBB, Virginia                   JAMES M. INHOFE, Oklahoma
JEANNE SHAHEEN, New Hampshire        JIM DeMINT, South Carolina
CHRISTOPHER A. COONS, Delaware       JOHNNY ISAKSON, Georgia
RICHARD J. DURBIN, Illinois          JOHN BARRASSO, Wyoming
TOM UDALL, New Mexico                MIKE LEE, Utah
               William C. Danvers, Staff Director        
        Kenneth A. Myers, Jr., Republican Staff Director        

                         ------------          

                SUBCOMMITTEE ON EUROPEAN AFFAIRS        

            JEANNE SHAHEEN, New Hampshire, Chairman        

BENJAMIN L. CARDIN, Maryland         JOHN BARRASSO, Wyoming
ROBERT P. CASEY, Jr., Pennsylvania   JAMES E. RISCH, Idaho
JIM WEBB, Virginia                   BOB CORKER, Tennessee
RICHARD J. DURBIN, Illinois          JIM DeMINT, South Carolina

                              (ii)        




                            C O N T E N T S

                              ----------                              
                                                                   Page

Barrasso, Hon. John, U.S. from Wyoming, opening statement........     3
Tymoshenko Carr, Eugenia, Kiev, Ukraine..........................    34
    Prepared statement...........................................    38
Chow, Edward C., senior fellow, Energy and National Security 
  Program, Center for Strategic and International Studies, 
  Washington, DC.................................................    18
    Prepared statement...........................................    21
Piper, Hon. Steven, senior fellow, Foreign Policy, Center on 
  United States and Europe, Brookings Institution, Washington, DC     4
    Prepared statement...........................................     6
Shaheen, Hon. Jeanne, U.S. Senator from New Hampshire, opening 
  statement......................................................     1
Wilson, Damon M., executive vice president, Atlantic Council, 
  Washington, DC.................................................    12
    Prepared statement...........................................    15

              Additional Material Submitted for the Record

Johns Hopkins Center for Transatlantic Relations Report ``Towards 
  an Open Ukraine: Policy Recommendations''......................    44
Letter from Ambassador Alexander Motsyk, Embassy of Ukraine, 
  Washington, DC.................................................    53

                                 (iii)



   UKRAINE AT A CROSSROADS: WHAT'S AT STAKE FOR THE U.S. AND EUROPE?

                              ----------                              


                      WEDNESDAY, FEBRUARY 1, 2012

                               U.S. Senate,
                  Subcommittee on European Affairs,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:35 p.m., in 
room SD-419, Dirksen Senate Office Building, Hon. Jeanne 
Shaheen (chairman of the subcommittee) presiding.
    Present: Senators Shaheen, Menendez, Barrasso, and Risch.

           OPENING STATEMENT OF HON. JEANNE SHAHEEN,
                U.S. SENATOR FROM NEW HAMPSHIRE

    Senator Shaheen. Good afternoon, everyone. Thank you for 
joining us.
    The Senate Foreign Relations Subcommittee on Europe meets 
today to examine the current situation in Ukraine and to 
evaluate what is at stake for the United States and our 
transatlantic allies.
    I want to thank the witnesses who are here to help us sort 
through these difficult issues. We look forward to your 
testimony today.
    I am pleased to be joined by the subcommittee's ranking 
member, Senator John Barrasso from Wyoming.
    As one of the largest and most strategically located 
countries in Europe, Ukraine literally and figuratively lies at 
the crossroads between Europe and Russia. Its importance as an 
energy transit state and as a force in the vital Black Sea 
region has made the country a unique and critical player in 
Euro-Atlantic economic, energy, and security considerations. In 
addition, the country's ongoing transition from a Soviet 
Republic to a market-based democratic system makes Ukraine an 
important test case for reform in this part of the world.
    Obviously the people of Ukraine will have the final say on 
the future of their country; however, we are here today because 
the path Ukraine ultimately chooses is important to the United 
States and our European allies. As a result, the United States 
and Europe must play a more aggressive role in encouraging 
Ukraine to continue down the path to reform.
    Last year marked the 20th anniversary of Ukraine's 
independence from the Soviet Union, and over the course of the 
last two decades, we have seen some important progress in 
Ukraine.
    On the security front, Ukraine made a courageous decision 
to voluntarily give up its nuclear arsenal in 1996, and today 
it continues to lead in nonproliferation efforts around the 
globe, committing to eliminate all of its highly enriched 
uranium by the spring of 2012. In addition, the United States 
relationship with Ukraine has evolved positively since 1991, 
culminating in a strategic partnership initiated in 2008. We 
have seen progress on political reforms and democratization in 
some areas, including open elections and free media.
    Unfortunately, despite some movement forward, Ukraine is 
severely lagging on a number of its own initiatives, and it 
continues to slip backward on its democratic and economic 
reform agenda.
    It has been 2 years since Viktor Yanukovych returned to 
power following the 2010 Presidential campaign in Ukraine. 
Elected in what was considered by outside observers to be a 
relatively free and fair election, Yanukovych had the 
legitimacy and mandate to continue moving Ukraine toward a 
modern, independent, and market-oriented future. However, 
Ukraine under Mr. Yanukovych has seen a significant slide on 
critical issues, including democratic reform, media 
independence, election standards, rule of law, and economic 
issues.
    According to the Wall Street Journal, Ukraine ranks 163rd 
out of 179 countries in terms of economic freedom. That puts 
them dead last in Europe behind Belarus and Russia. Last year's 
annual Freedom House Report found that Ukraine suffered the 
steepest decline in democracy of any major nation in the last 2 
years. That report cited antidemocratic tactics, politicized 
courts, a media crackdown, and the illegitimate use of force in 
the country.
    Perhaps of most concern for the international community is 
the case of former Prime Minister Yulia Tymoshenko. Her 
continued imprisonment on dubious, politically motivated 
charges is unacceptable and antithetical to a free and open 
system. The decision to move her to a prison outside of Kiev 
and her continued lack of appropriate medical care adds to our 
concerns.
    Her case shows the pervasive lack of rule of law, a 
corrupted judicial process, and selective persecution of 
political opposition leaders. Politically motivated trials and 
further abuses will isolate Ukraine, undermine its independence 
from Russia, make it difficult to attract outside investment, 
and will further hurt the country's struggling economy. We have 
already seen a major free trade agreement with the European 
Union held up over the Tymoshenko case.
    So let us be clear, or let me be clear at least. It will be 
difficult, if not impossible, for Ukraine to deepen relations 
with the West while Ms. Tymoshenko remains behind bars. She 
should be released.
    Today the people of Ukraine and its leadership face a 
critical choice about its future path. We all share an interest 
in an open, independent, and successful Ukraine that is 
accountable to its people, and we all have a responsibility to 
help the country reach that important goal. I look forward to 
hearing from our witnesses today and to learn their ideas and 
suggestions for accomplishing this important objective.
    I am going to turn it over to Senator Barrasso before I 
introduce our witnesses.

            OPENING STATEMENT OF HON. JOHN BARRASSO,
                   U.S. SENATOR FROM WYOMING

    Senator Barrasso. Thank you very much, Madam Chairman, and 
I want to thank you for holding this hearing today.
    I would like to also welcome all of our witnesses. We 
appreciate you appearing here today before this subcommittee to 
evaluate the current political and economic environment in 
Ukraine.
    It is important for Congress to carefully examine what is 
happening in Ukraine and understand the implications that it 
has on our strategic policy objectives. Ukraine is a large 
nation both in its size and in its population. It is located in 
a geographically important area between Russia and the 
countries in the European Union.
    In August of last year, Ukraine celebrated its 20th 
anniversary of independence. The United States has worked 
closely with Ukraine over the years on a variety of important 
issues. Our Nation wants to see Ukraine become an example for 
the region, as a strong, thriving, and democratic nation.
    During the last 20 years, there has been a lot of progress 
taking place in Ukraine. However, recent events have raised 
serious concerns about the future of democracy and the rule of 
law in Ukraine. I am concerned about the conviction of the 
former Prime Minister. The Government of Ukraine has been 
engaging in what many people view as selective prosecution 
against opposition party figures. I believe that politically 
motivated prosecutions significantly undercut the values of 
democracy. The United States believes it is the fundamental 
importance of democracy. Our Nation has also been a strong 
advocate for rule of law and an independent judiciary.
    I hope the Government of Ukraine takes action to prevent 
the backsliding and the erosion of democracy currently taking 
place in Ukraine. With parliamentary elections occurring in 
October, the international community is going to be carefully 
watching to assess the country's true commitment to a fair, 
open, and transparent election process. The actions and 
policies of the Government of Ukraine have a significant impact 
on the relationship between our two countries. Ukraine needs to 
support the values of democracy. The government should work on 
tackling corruption and providing conditions for a flourishing 
market economy. I also hope Ukraine continues to pursue 
meaningful steps toward European integration.
    I look forward to hearing the testimony of our witnesses on 
these important issues.
    And with that, thank you very much again, Madam Chairman.
    Senator Shaheen. Thank you, Senator Barrasso.
    We have two panels this afternoon. On our first panel, we 
have Ambassador Steven Pifer who is currently a senior fellow 
for Foreign Policy at the Brookings Center on the United States 
and Europe and a former U.S. Ambassador to the Ukraine. Thank 
you for being here.
    Next we have Damon Wilson, who is the executive vice 
president of the Atlantic Council and a senior advisor to the 
U.S.-Ukraine Business Council. Welcome.
    And we have Edward Chow, a senior fellow of Energy and 
National Security at the Center for Strategic and International 
Studies.
    We are delighted to have all of you here. And let me just 
recognize the final witness who will be on the second panel 
today. I want to take this opportunity to recognize Ms. Eugenia 
Tymoshenko, and I will reserve your introduction for the second 
panel. Thank you.
    And I believe we also have the Ukrainian Ambassador here, 
though I am not sure where he is. Thank you. Welcome.
    So, Ambassador Pifer, if you would like to begin.

STATEMENT OF HON. STEVEN PIFER, SENIOR FELLOW, FOREIGN POLICY, 
  CENTER ON UNITED STATES AND EUROPE, BROOKINGS INSTITUTION, 
                         WASHINGTON, DC

    Ambassador Pifer. Thank you. Madam Chairwoman, Senator 
Barrasso, thank you for the opportunity to appear today to talk 
about developments in Ukraine and the implications for U.S. 
policy and U.S. policy goals in Europe.
    With your permission, I will submit a written statement for 
the record.
    The 2 years since Viktor Yanukovych became President of 
Ukraine have meant significant changes for the country's 
foreign and domestic policies. President Yanukovych made the 
first foreign policy priority repairing what he regarded as 
Ukraine's badly frayed relationship with Russia. He quickly 
agreed to extend 
the presence of the Black Sea fleet in Crimea in return for a 
reduction in the price that Ukraine paid Russia for natural 
gas. He ended a number of other policies pursued by his 
predecessor Viktor Yushchenko that had angered Moscow.
    At the same time, the Yanukovych government indicated that 
Ukraine would seek a balance between its relationship with the 
West, particularly the European Union, and that with Russia. 
This seemed a sensible course for Ukraine in its current 
circumstances. Kiev began serious work to complete an 
association agreement and free trade arrangement with the 
European Union.
    Regrettably, however, the first 2 years of the Yanukovych 
Presidency have also seen a significant regression in 
democratic practices in Ukraine. This includes inappropriate 
activities by the Security Service of Ukraine, a questionable 
constitutional change by the constitutional court that 
increased the power of the Presidency, flawed nationwide local 
elections, and the arrest and trial of opposition figures, 
including former Prime Minister Tymoshenko, on what appear to 
be politically motivated charges. This democratic regression is 
unfortunate for the Ukrainian people and for their ability to 
enjoy a full and open democracy. It also hinders President 
Yanukovych's professed goal of achieving a balanced foreign 
policy as it has resulted in a cooling of Ukraine's relations 
with the European Union and the United States. EU officials 
have indicated, for example, that signature and ratification of 
an EU-Ukraine association agreement, which is now complete, 
depends on Ms. Tymoshenko's situation. This undermines 
Ukraine's relations with the West, and it will leave Kiev in a 
weaker position vis-a-vis Russia.
    This raises the question of what Washington should do. It 
remains in the United States interest that Ukraine develop as 
a stable, independent, democratic state with a market economy, 
increasingly integrated into Europe and institutions such as 
the European Union. That kind of Ukraine promotes the United 
States objective of a wider, more stable, and secure Europe. 
Democratic regression within Ukraine, however, takes Ukraine in 
the wrong direction.
    The United States and Europe cannot ignore this. The U.S. 
Government's priority with Ukraine now should be to encourage 
the Ukrainian Government to make the right choices regarding 
the country's democratic development. This means releasing Ms. 
Tymoshenko and allowing her to return to normal political life. 
It also means that the Ukrainian Government should end its 
manipulation of the judicial system against other members of 
the opposition. It should rein in agencies such as the Security 
Service of Ukraine, and it should work with a broad political 
spectrum to ensure that the upcoming parliamentary elections 
this autumn are free, fair, and competitive.
    To promote this objective, the U.S. Government should, 
first of all, continue to underscore to Kiev U.S. concern about 
democratic regression and continue to remind the Ukrainian 
leadership that its internal political policies have a negative 
impact on its relationships with the United States and the 
West. U.S. officials should reiterate these points at every 
opportunity, including when Senate and congressional 
delegations visit Ukraine.
    Second, the United States should keep the door open for a 
more positive relationship with Ukraine should Kiev heed the 
message on democracy. A Ukraine that returns to the democratic 
path should be fully welcome in the European and transatlantic 
communities.
    Third, the U.S. Government should coordinate closely with 
the European Union so as to maximize the impact of Western 
policy on decisions by Mr. Yanukovych and the Ukrainian 
leadership. It is especially useful for Washington to 
coordinate with the European Union now as the European Union 
may be better placed to influence thinking in Kiev.
    What do these policies mean in practice? As one example, 
Mr. Yanukovych would dearly appreciate an invitation to the 
White House or an opportunity to host President Obama in 
Ukraine. The U.S. Government and European Union should continue 
what appears to be a de facto policy of minimizing high-level 
meetings with Mr. Yanukovych. U.S. officials should make clear 
to their Ukrainian counterparts that as long as Kiev imprisons 
opposition leaders and regresses on democracy, no meetings at 
the highest level will be possible.
    This approach does not mean freezing ties across the board. 
Normal diplomatic interaction should continue at most levels. 
The U.S. Government should carefully consider the assistance 
funding priorities it has. United States programs should aim to 
sustain civil society in Ukraine, which has made dramatic gains 
over the past 20 years. In this context, exchange programs that 
bring Ukrainians to the United States and Europe can play a 
major role.
    It may be time for the United States and the European Union 
to consult as to whether it is appropriate to consider lists of 
Ukrainians who would be denied visas to visit the United States 
and EU member states. Even the threat of this could have a 
powerful effect on Mr. Yanukovych and the elite around him.
    Some Ukrainian officials likely will warn that this kind of 
approach by the United States and the European Union will cause 
Ukraine's leadership to turn toward Russia. Western officials 
should not be taken in by this. If Ukraine truly wants to join 
Europe, then its leadership must accept the democratic values 
that prevail in Europe. If the leadership is not prepared to 
accept such values, then how can Europe and the West integrate 
Ukraine?
    Moreover, Kiev does not wish to fall too closely into 
Moscow's orbit. President Yanukovych does not want to 
compromise Ukraine's sovereignty. He wants to be the leader of 
a fully independent state. The Ukrainian elite and public 
likewise overwhelmingly support an independent and sovereign 
Ukraine.
    Madam Chairwoman, the overall goal of U.S. and EU policy 
now should be to crystallize in Mr. Yanukovych's mind the 
following choice. He can have a more authoritarian political 
system, more difficult relations with the West and a greatly 
weakened position when he deals with Moscow, or he can return 
to a more democratic approach and have a stronger relationship 
with the West and a balanced foreign policy. In the end, I 
believe Mr. Yanukovych has reasons to opt for the latter 
course. The West should face him with that choice as clearly as 
possible.
    Thank you for your attention.
    [The prepared statement of Ambassador Pifer follows:

                   Prepared Statement of Steven Pifer

                              introduction
    Madam Chairwoman, Senator Barrasso, distinguished members of the 
committee, thank you for the opportunity to appear today to testify on 
developments in Ukraine and the implications for U.S. policy and U.S. 
policy goals in Europe.
    When Victor Yanukovych became President of Ukraine in February 
2010, his first foreign policy priority was to repair what he regarded 
to be Ukraine's badly frayed relationship with Russia. At the same 
time, his government indicated that Ukraine would seek a balance 
between its relationship with the West--particularly the European 
Union--and that with Russia. This seemed a sensible course for Ukraine 
in its current circumstances.
    Regrettably, the first 2 years of President Yanukovych's tenure in 
office have seen a significant regression in democratic practices 
within Ukraine. That is unfortunate for the Ukrainian people, and it is 
blocking the strengthening of Ukraine's relations with the European 
Union and the United States. EU officials have made clear, for example, 
that the signature of an EU association agreement with Ukraine depends 
on Kyiv taking certain steps, such as releasing former Prime Minister 
Tymoshenko from prison.
    Mr. Yanukovych's domestic policies are seriously undermining his 
ability to balance Ukraine's relationships between the West and Russia. 
That will complicate Ukrainian foreign policy, leaving it less 
connected to Europe and in a weaker position to deal with Russia on 
issues where Ukrainian and Russian interests do not coincide.
    It remains in the U.S. interest that Ukraine develop as a stable, 
independent, democratic, market-oriented state increasingly integrated 
into Europe and institutions such as the European Union. That kind of 
Ukraine promotes the U.S. objective of a wider, more stable and secure 
Europe. Democratic regression within Ukraine, however, impedes that 
country's ability to draw closer to the West.
    The U.S. Government should continue to underscore to Kyiv U.S. 
concerns about democratic backsliding and remind the Ukrainian 
leadership that its internal political policies have a significant 
impact on its relationships with the United States and Europe; keep the 
door open for a more positive relationship with Ukraine should Kyiv 
heed the message on democracy; and coordinate closely with the European 
Union to maximize the impact of Western policy on decisions by Mr. 
Yanukovych and the Ukrainian leadership.
    While engaging Ukraine at most diplomatic levels, the United States 
and European Union should continue what appears to be a de facto policy 
of minimizing high-level contact with Mr. Yanukovych until he alters 
his internal political policies. The West should seek to crystallize in 
Mr. Yanukovych's mind the choice between a more authoritarian political 
system and a strong relationship with the West, and make clear that he 
cannot have both.
             ukraine's foreign policy--a history of balance
    Developing an independent foreign policy has posed one of the key 
challenges for Kyiv since the collapse of the Soviet Union in 1991. 
Ukrainian Presidents have generally sought a balance in their foreign 
policy relationships between the West and Russia. Europe and the West 
are attractive to many Ukrainians. Ukraine ought to be able to develop 
stronger relations with the European and trans-Atlantic communities 
without rupturing relations with Russia, which are also important to 
many in Ukraine.
    Given the large space that Russia occupies on Ukraine's border, the 
long, complex history between the two countries, cultural links between 
Ukrainians and Russians, and economic ties that have continued since 
the end of the Soviet era, it is natural that Ukraine seek a stable 
relationship with Russia. At the same time, Russia is not the easiest 
of neighbors. Ukrainian Presidents thus have sought to develop 
relationships with the United States, Europe and institutions such as 
NATO and the European Union. Ukraine's leaders have been motivated in 
part by a desire to gain greater freedom of maneuver vis-a-vis Russia.
    For example, Ukraine's first President, Leonid Kravchuk, moved 
immediately after Ukraine regained independence to build strong 
relationships with the West. When he could not reach agreement with 
Moscow on the terms for the elimination of the strategic nuclear 
weapons on Ukrainian territory, he involved the United States. The 
resulting trilateral process successfully brokered a deal in early 
1994.
    President Leonid Kuchma, who took office in July 1994, established 
a strategic partnership with the United States, concluded a partnership 
and cooperation agreement with the European Union, and agreed to a 
distinctive partnership with NATO. As Ukraine's relations with the West 
strengthened, Moscow softened its approach toward Kyiv. In May 1997, 
Ukraine and Russia resolved the longstanding issue of basing rights for 
the Russian Black Sea Fleet in Crimea on terms acceptable to Kyiv, and 
signed a bilateral treaty that incorporated a clear and unambiguous 
recognition of Ukraine's sovereignty and territorial integrity--
something Ukrainian officials had sought since 1991.
    President Victor Yushchenko assumed office in 2005 following the 
Orange Revolution. While seeking stable relations with Moscow, he made 
no secret of his desire to integrate Ukraine fully into institutions 
such as the European Union and NATO. Kyiv opened negotiation of an 
association agreement with the European Union and asked for a NATO 
membership action plan. Other Yushchenko policies--including expanded 
use of the Ukrainian language, seeking to have the Holodomor recognized 
as genocide, and support for Georgian President Saakashvili--plus 
disputes over gas purchase contracts further angered Moscow. Relations 
between the two countries hit a low point in 2009. But the President 
failed to build elite or public support for his course; many Ukrainians 
grew concerned over the downturn in relations with Russia.
                    mr. yanukovych's foreign policy
    Victor Yanukovych became Ukraine's fourth President in February 
2010. He believed that ``normalizing'' relations with Russia should be 
his first foreign policy priority.
    President Yanukovych met with Russian President Medvedev in Kharkiv 
less than 2 months after taking office. At the meeting, the Ukrainians 
agreed to extend the Black Sea Fleet's basing lease for an additional 
25 years. In return, Russia's Gazprom agreed to reduce the price that 
it charged Ukraine for natural gas by $100 per thousand cubic meters 
for the remainder of the multiyear gas contract signed in 2009. Mr. 
Yanukovych and other Ukrainian officials praised the arrangement for 
significantly reducing Ukraine's energy costs, though independent 
energy experts question whether Kyiv might not have negotiated a better 
deal, perhaps without having to extend the Black Sea Fleet's lease. The 
government rammed the agreement through the Rada (Parliament) within 
just a few days of signature and with no substantial parliamentary 
discussion, despite opposition by the Rada's foreign affairs, European 
integration and national security committees.
    At the same time, Kyiv dropped other policies that had generated 
Russian complaints: It downgraded the program to promote use of the 
Ukrainian language, ended the campaign to get the Holodomor recognized 
as genocide, and toned down relations with Georgia. While expressing 
interest in maintaining cooperative relations with NATO, the Yanukovych 
government made clear that it sought neither membership nor a 
membership action plan. With these policies, Kyiv swept the bilateral 
agenda with Moscow clear of most issues that the Russians had 
considered problematic.
    Even before the Kharkiv meeting, however, Ukrainian officials 
indicated that, while their first foreign policy priority was repairing 
the relationship with Russia, Kyiv planned to do so in the context of 
an overall policy that pursued balance between Ukraine's relationship 
with the West and that with Russia. Senior Ukrainian officials made 
clear that Ukraine remained very interested in concluding an 
association agreement, which would include a deep and comprehensive 
free trade arrangement (FTA), and a visa facilitation agreement with 
the European Union as the vehicles to strengthen Ukraine's integration 
into Europe.
    Ukrainian officials also indicated that they wanted a robust 
relationship with the United States. By all accounts, President 
Yanukovych was delighted with the opportunity that he had for a 
bilateral meeting with President Obama on the margins of the April 2010 
nuclear security summit in Washington.
    One could see Kyiv's outreach to the West and effort to strike a 
balanced foreign policy in several developments in May and June 2010. 
The Rada voted overwhelmingly to approve the annual plan for military 
exercises on Ukrainian territory, most of which involved NATO forces. 
Ukrainian officials ruled out the possibility of joining a customs 
union with Russia, Belarus, and Kazakhstan, as that would be 
incompatible with an FTA with the European Union. Kyiv declined to join 
the Russian-led Collective Security Treaty Organization, which Moscow 
billed as a Eurasian counterpart to NATO.
    Western diplomats in 2010 also reported that the Ukrainian 
Government was doing its homework to prepare an association agreement 
and FTA with the European Union in a more serious manner than had been 
the case during the Yushchenko Presidency. A number of Western 
diplomats expressed the view that President Yanukovych wanted to be 
seen as the one who ``brought Ukraine into Europe.''
    Other reports suggested that senior Ukrainian officials were 
becoming unhappy with Russia's policies. For example, Ukrainian 
officials questioned why Moscow continued to pursue the South Stream 
gas pipeline, which would run along the Black Sea bottom and circumvent 
Ukraine, when the Ukrainian gas transit system had considerable excess 
capacity. As the Russians had no new gas to flow into South Stream, the 
pipeline, if constructed, would only divert gas from pipelines through 
Ukraine.
    Kyiv's frustrations grew in 2011 as senior Ukrainian officials 
asserted that the price for Russian gas--even with the Kharkiv discount 
of $100 per thousand cubic meters--was too high and ``unfair.'' Gazprom 
showed no sign of budging. Ukrainian complaints increased at the end of 
the year, and Kyiv informed Gazprom that it would import only 27 
billion cubic meters of gas in 2012. Gazprom officials responded that 
Ukraine had a ``take or pay'' contract and was obligated to take--or in 
any case pay for--41.6 billion cubic meters. These issues are currently 
unresolved. Press reports in December suggested that the Ukrainians 
were considering plans that would give Gazprom significant control of 
the Ukrainian gas pipeline system. Gazprom has long coveted Ukraine's 
gas transit infrastructure, but there likely would be significant 
resistance in Kyiv to ceding control.
                         democratic regression
    Mr. Yanukovych was elected President in 2010 as the result of a 
process that domestic and international observers found to be free, 
fair, and competitive. Ms. Tymoshenko, who lost in the runoff round by 
about 3 percent of the vote, briefly challenged the result but offered 
no compelling evidence of major fraud. Western governments quickly 
recognized the result, which was Ukraine's fifth consecutive nationwide 
election following the Orange Revolution to win plaudits from election 
observers.
    Unfortunately, questions soon arose about the Yanukovych 
government's commitment to democratic principles and practices. Over 
the course of 2010 and 2011, concern grew about the government's 
authoritarian tendencies. Some of the most troubling examples:

   Widespread reports began to emerge in spring 2010 of 
        inappropriate activities by the Security Service of Ukraine 
        (SBU), including approaching university officials for 
        information and reporting on students who had taken part in 
        antigovernment protests. SBU officers also reportedly 
        approached nongovernmental organizations to seek information on 
        their activities.
   On September 30, 2010, the Constitutional Court of Ukraine 
        invalidated the changes to the Constitution approved by the 
        Rada in December 2004, after the replacement of four judges who 
        opposed the decision by four new judges who supported it. The 
        result was to revert to the Constitution that had been in 
        effect prior to the Orange Revolution, which gave the President 
        significantly stronger powers and weakened the authority of the 
        Rada. The European Commission for Democracy through Law (Venice 
        Commission) issued a report the following December which raised 
        numerous questions about the Constitutional Court's action. The 
        report noted ``it is clear that a change of the political 
        system of a country based on a ruling of a constitutional court 
        does not enjoy the legitimacy which only the regular 
        constitutional procedure for constitutional amendment and 
        preceding open and inclusive public debate can bring.''
   Ukraine held nationwide local elections in October 2010. 
        Observers found significant flaws, and both the European Union 
        and U.S. Government expressed concern. The Congress of Local 
        and Regional Authorities of the Council of Europe observer 
        group issued a report in March 2011 noting concern over ``a 
        newly adopted local election law which created politically 
        unbalanced electoral commissions, discretionary registration of 
        candidates and overly complicated voting and counting 
        procedures.'' The report concluded with the assessment that 
        ``overall, the local elections of 31 October 2010 in Ukraine 
        met neither the standards that it wished to see, nor the 
        standards set by the Presidential elections [in Ukraine] in 
        January and February 2010.'' The conduct of these elections 
        raises concern about the Rada elections to be held in autumn 
        2012.
   Attracting the most attention, former officials who served 
        in the Cabinet under Ms. Tymoshenko have been arrested on 
        charges that appear, to most observers, to be politically 
        motivated. Among those arrested have been former Interior 
        Minister Lutsenko, former First Deputy Justice Minister 
        Korniychuk, former Acting Minister of Defense Ivashchenko, 
        former First Deputy Chairman of Naftogaz Ukrainy Didenko, 
        former Head of the State Customs Service of Ukraine Makarenko 
        and former Economy Minister Danylyshyn (Mr. Danylyshyn sought 
        and received political asylum in the Czech Republic). Then 
        there is the case of Ms. Tymoshenko herself. She was charged in 
        December 2010 with abuse of state power stemming from her 
        conclusion of the 2009 gas purchase contract with Russia. Her 
        trial began in June 2011, and she was jailed in August for 
        disrupting courtroom proceedings. In October, she was convicted 
        and sentenced to 7 years in prison--a verdict immediately 
        condemned by the United States, European Union, most major EU 
        member states and Russia. The Parliamentary Assembly of the 
        Council of Europe, in a report issued in January, criticized 
        the charges against former government officials as amounting to 
        ``post facto criminalization of normal political 
        decisionmaking.'' Although Ukrainian officials maintain that 
        these arrests were legitimate and do not represent selective 
        prosecutions, no comparable members of the current government 
        have been arrested or charged, despite the general view that 
        corruption has increased significantly under Mr. Yanukovych.

    In 2006 Freedom House rated Ukraine as the first post-Soviet state 
other than a Baltic nation to achieve a ``free'' ranking. In January 
2011, given the democratic problems within Ukraine, it became the first 
post-Soviet state to lose the ``free'' ranking when it was found to be 
only ``partly free.'' Freedom House reaffirmed that ranking last month.
      democratic regression and ukraine's relations with the west
    The authoritarian tendencies within Ukraine have affected Kyiv's 
relations with the West. European and U.S. officials have long 
expressed concern about democratic regression, including warning senior 
Ukrainian officials as early as January 2011 not to carry forward the 
charges against Ms. Tymoshenko, whose case has come to epitomize the 
problem of selective application of the law within Ukraine.
    Following her jailing in August, some deputies in EU member-state 
Parliaments stated that they would oppose ratification of the 
association agreement and FTA with Ukraine unless Ms. Tymoshenko was 
released. This is no surprise. The European Union has long regarded 
commitment to democratic principles as an important element of the 
association agreement process. In September 2011, Swedish Foreign 
Minister Bildt, EU Commissioner for Enlargement Fuele and European 
Parliament member Brok had a lengthy meeting with President Yanukovych 
and warned him of the damage that the Tymoshenko case was doing to EU-
Ukrainian relations.
    The Rada passed up an opportunity to end the case in October when 
it examined the Criminal Code. Despite suggestions that it might annul 
the article on which the charge against Ms. Tymoshenko was based, it 
did not. Days later, the court convicted her. The European Union 
responded by postponing a planned Yanukovych visit to Brussels.
    EU officials continued to state that Ms. Tymoshenko should be 
released and allowed to return to normal political life. In November 
meetings with President Yanukovych, Lithuanian President Grybauskaite, 
and Polish President Komorowski reiterated warnings that Ms. 
Tymoshenko's imprisonment would damage EU-Ukraine relations and prevent 
signature of the (now completed) association agreement and FTA at the 
planned December EU-Ukraine summit in Kyiv.
    Although a number of European countries reportedly favored 
canceling the summit, EU President Van Rompuy and EU Commission Head 
Barrosso went to Kyiv and held a short meeting with President 
Yanukovych. They signed no agreements and made clear that signature 
would depend on Ms. Tymoshenko's situation.
    Thus, at the beginning of 2012, EU-Ukraine relations are at a 
standstill. It is not clear what will happen with the association 
agreement and FTA, which were to provide the basis for a new stage in 
the relationship between Brussels and Kyiv.
    U.S.-Ukrainian relations are at a quiet point. Washington has few 
major issues on its bilateral agenda with Kyiv, reflecting the fact 
that many of the problems that troubled the relationship earlier have 
been resolved. More broadly, given everything else on the foreign 
policy agenda, Ukraine barely registers on the radar. Ukrainian 
officials have over the past 18 months actively sought to arrange 
meetings for President Yanukovych with President Obama or Vice 
President Biden, but without success. The lack of enthusiasm to meet 
with Mr. Yanukovych undoubtedly reflects the U.S. Government's critical 
attitude toward the democratic developments that have taken place the 
past 2 years in Ukraine.
                            the risk to kyiv
    Democratic regression most destructively sets back the ability of 
the Ukrainian people to have a free, fair, robust and competitive 
political system. It also has a destructive impact on Mr. Yanukovych's 
professed foreign policy.
    Democratic backsliding puts at risk Ukraine's relations with the 
West, in particular with the European Union. As the EU President has 
indicated, the European Union does not intend to proceed with signature 
of the association agreement and FTA until political circumstances 
within Ukraine change. Even were it prepared to do so, the association 
agreement and FTA must be approved by all 27 EU member states, and a 
number of deputies in EU member-state parliaments have already stated 
that they would oppose ratification so long as Ms. Tymoshenko remains 
in jail.
    Moreover, given the current difficulties within the European Union, 
such as the eurozone crisis, a number of member states believe that the 
EU's attention should be focused internally and that the European Union 
should slow the pace of its engagement with neighboring states, 
particularly those which say they aspire to become EU members. For 
those EU member states, democratic regression within Ukraine offers a 
handy reason to justify slowing down the pace of EU relations with 
Kyiv. Even Kyiv's traditional advocates within the European Union--such 
as Poland, Lithuania, and Sweden--appear to be flagging in their 
support for Ukraine.
    Mr. Yanukovych's internal policies not only pose a major impediment 
to his goal of drawing closer to the European Union, they also endanger 
his goal of having a balance between Ukraine's relations with the West 
and with Russia. Although Kyiv sought to repair its relations with 
Moscow in 2010, the two countries' interests simply diverge on some 
issues. Take natural gas: a lower price for Ukraine means less revenue 
for Gazprom. Likewise, construction and operation of the South Stream 
pipeline would reduce the flow of gas through Ukrainian pipelines. 
Russian Prime Minister and presumptive President Putin has called for 
creation of a Eurasian Union to serve as a counterpart to the European 
Union. It is not exactly clear what the Eurasian Union might be in 
practice--and few other post-Soviet states have expressed enthusiasm 
for the idea--but it is almost certain that one of Mr. Putin's goals is 
to increase Russian influence in the post-Soviet space.
    With weaker relations with the West, Kyiv will find that is has 
less room for maneuver in its dealings with Moscow. Tough negotiations 
will likely become even more difficult. Mr. Yanukovych only has to look 
north to Belarus and what happened to President Lukashenko once he had 
burned his bridges with the European Union and the United States 
following the December 2010 crackdown on opposition leaders and 
demonstrators. Facing a dire economic situation and with no hope for 
help from the West, Mr. Lukashenko struck a deal with Moscow that 
secured a lower price for gas and a loan from Russia--at the price of 
surrendering control of the Belarusian gas pipeline system to Gazprom.
    It is not clear why Mr. Yanukovych is putting himself and Ukraine 
in this position. He has regularly expressed a desire for closer 
relations with the European Union and a balanced foreign policy. He may 
be allowing personal hostility toward Ms. Tymoshenko and a desire to 
sideline her politically to dominate his decisions. Ironically, over 
the past year, the government's actions against Ms. Tymoshenko have 
focused public attention on her, and her poll ratings and those of her 
party have increased significantly.
    Mr. Yanukovych may also calculate that the European Union and the 
United States will overlook his democratic regression and accept 
Ukraine without his having to adjust his domestic policies, believing 
that the West does not want to see Ukraine drift closer to Moscow's 
orbit. That would reflect a fair measure of wishful thinking and 
overestimate the geopolitical importance that the West currently 
attaches to Ukraine.
                     u.s. interests and u.s. policy
    Since the early 1990s, the United States has supported Ukraine's 
development as a stable, independent, democratic state, with a robust 
market economy and growing links to the European and trans-Atlantic 
communities. Such a Ukraine is in the U.S. interest as it would 
contribute to the goal of a wider, more stable and secure Europe. It 
could be--and has been--an important partner in addressing critical 
questions such as proliferation challenges. The nuclear question, which 
dominated U.S.-Ukrainian relations in the early 1990s, has been 
resolved as the nuclear weapons systems that were in Ukraine have been 
eliminated and Kyiv has agreed to transfer its small stock of highly 
enriched uranium.
    Over the past two decades, the United States has provided several 
billion dollars in assistance to Ukraine to promote democratization, 
economic reform and the elimination of the strategic nuclear systems 
and infrastructure that Kyiv inherited following the end of the Soviet 
Union. The United States has led in shaping a strong partnership 
between NATO and Ukraine and has encouraged the European Union to 
deepen its relations with Ukraine.
    The U.S. interest has not changed. However, the circumstances 
within Ukraine have, and the Ukrainian Government is moving in the 
wrong direction. On democracy, it is walking back the gains that the 
Ukrainian people have made over the past 20 years, particularly in the 
period of 2005-2009. The West cannot and should not ignore that.
    The U.S. Government's priority with regard to Ukraine now should be 
to encourage the Ukrainian Government to make the right choices 
regarding the country's democratic development. This means releasing 
Ms. Tymoshenko and allowing her to return to normal political life. But 
it does not end with Ms. Tymoshenko. The Ukrainian Government needs to 
end its manipulation of the judicial system for political purposes 
against other members of the opposition. It should rein in agencies 
such as the Security Service of Ukraine. And it should work with the 
broad political spectrum to ensure that the upcoming autumn Rada 
elections are free, fair, and competitive.
    To promote this objective, the U.S. Government should, first of 
all, continue to underscore to Kyiv U.S. concerns about democratic 
regression and continue to remind the Ukrainian leadership that its 
internal political policies have a negative impact on its relationships 
with the United States and the West. Ambassador John Tefft and the U.S. 
Embassy in Kyiv are working hard to convey this message. Washington 
should reiterate it as often as possible, including when Senate and 
congressional delegations visit Ukraine.
    Second, the United States should keep the door open for a more 
positive relationship with Ukraine should Kyiv heed the message on 
democracy. A Ukraine that returns to the democratic path should be 
fully welcome in the European and trans-Atlantic communities.
    Third, the United States should coordinate closely with the 
European Union so as to maximize the impact of Western policy on 
decisions by Mr. Yanukovych and the Ukrainian leadership. The joint 
letter sent to President Yanukovych last September by Secretary of 
State Clinton and EU High Representative for Foreign Affairs and 
Security Policy Ashton provides just such an example of coordination 
between Washington and Brussels. It is especially useful for Washington 
to coordinate with the European Union now, as the European Union may be 
better placed to influence thinking in Kyiv.
    What do these policies mean in practice? As one example, the 
Ukrainian leadership greatly desires high-level contact with 
Washington, which gives it a degree of political legitimacy. Mr. 
Yanukovych would dearly appreciate an invitation to the White House or 
the chance to host President Obama in Kyiv. The U.S. Government should 
continue what appears to be a de facto policy of minimizing high-level 
meetings with Mr. Yanukovych. U.S. officials should inform Ukrainian 
officials that, as long as Kyiv imprisons opposition leaders and 
regresses on democracy, no meetings at the highest level will be 
possible.
    As a second example, Ukraine's credit line with the International 
Monetary Fund is currently suspended, because Kyiv has failed to meet 
the conditions of the IMF loan. In the past, the U.S. Government has on 
occasion weighed in with the IMF to support a more lenient approach 
with Ukraine. Given the democratic regression in Ukraine, now would not 
be the time for Washington to take such an approach with the IMF.
    This approach does not mean freezing ties across the board. Normal 
diplomatic interaction should continue at most levels. The target 
should be the most senior leadership in Kyiv, those who are responsible 
for Ukraine's democratic regression.
    As for assistance programs, the U.S. Government should carefully 
consider its priorities, especially as budget resources for Ukraine 
will be limited. U.S. assistance should aim to sustain civil society in 
Ukraine, which has made dramatic gains over the past 20 years. In this 
context, exchange programs that bring Ukrainians to the United States 
and Europe can play a major role. The U.S. Government should also 
continue assistance programs to promote energy security, so that 
Ukraine can become less dependent on imported energy.
    It may be time for U.S. and EU officials to consult as to whether 
it is appropriate to consider lists of Ukrainian individuals who would 
be denied visas to visit the United States and EU member states. Even 
the threat of this could send a forceful message to Kyiv and have a 
powerful effect on President Yanukovych and the elite around him.
    This is not a call for the type of isolation that the West has 
applied to Belarus. Ukraine has not yet regressed to that point. But 
the United States and European Union should seek effective ways to 
disabuse Mr. Yanukovych of the notion that he can pursue a more 
authoritarian course at home without repercussions for Kyiv's relations 
with the West.
                         crystallizing a choice
    Some Ukrainian officials likely will warn that this kind of 
approach by the United States and European Union will cause Ukraine's 
leadership to turn toward Russia. Western officials should not be taken 
in by this. If Ukraine truly wants to join Europe, then its leadership 
must accept the democratic values that prevail in Europe. If the 
leadership is not prepared to adopt such values, then how can Europe 
and the West integrate Ukraine?
    Moreover, Kyiv does not wish to fall too closely into Moscow's 
orbit. Mr. Yanukovych does not want to compromise Ukrainian 
sovereignty; he wants to be the leader of a fully independent state. 
The Ukrainian elite and public likewise overwhelmingly support an 
independent and sovereign Ukrainian state. For the Ukrainian 
oligarchs--who control so much of the Ukrainian economy--the Russian 
model holds little appeal.
    The overall goal of U.S. and European Union policy thus should be 
to crystallize in Mr. Yanukovych's mind the following choice. He can 
have a more authoritarian political system, more difficult relations 
with the West, and a greatly weakened hand in dealing with Russia, or 
he can return to a more democratic approach and have a stronger 
relationship with the West and a balanced foreign policy. In the end, 
Mr. Yanukovych has reasons to opt for the latter course. The West 
should face him with the choice as clearly as possible.

    Senator Shaheen. Thank you very much.
    Mr. Wilson.

    STATEMENT OF DAMON M. WILSON, EXECUTIVE VICE PRESIDENT, 
                ATLANTIC COUNCIL, WASHINGTON, DC

    Mr. Wilson. Madam Chairman, Ranking Member, I am honored to 
speak before your committee on the situation in Ukraine.
    Ukrainian democrats and their supporters share a vision of 
an independent, sovereign Ukraine with strong democratic 
institutions, rule of law, and a prosperous free market, 
embedded in Europe, a partner of the United States, and at 
peace with Russia.
    Yet, 20 years after independence, Ukraine's young 
democracy, its cultural identity, and weak institutions face 
political manipulation and its fragile economy is subject to 
massive distortions from widespread, top-down corruption. In 
short, Ukraine's sovereignty is not guaranteed, its democracy 
is not inevitable, and its market is not free.
    Today Ukraine teeters between Eurasian malaise and an 
ambivalent Europe. Indeed, Ukraine's future is in play. 
Decisions taken now and in the coming year by President 
Yanukovych and his government, the Ukrainian political 
opposition, civil society, media, youth, as well as the United 
States and the European Union, will determine whether Ukraine 
evolves into a European democracy or descends into a post-
Soviet authoritarian kleptocracy.
    Indeed, Ukraine is at a crossroads. And there is much at 
stake for transatlantic interests.
    President Viktor Yanukovych and the Ukrainian Government 
are pursuing contradictory policies: they seek to integrate 
Ukraine into Europe while emasculating their domestic 
opposition. In their first 2 years in office, they have made 
progress on both, eliminating his key challenger from politics 
and negotiating a landmark deal with the European Union. Yet, 
ultimately, they must choose.
    The choice is not between Russia and the West. In many 
respects, this is a false choice. The choice is whether Ukraine 
sees its future in the European mainstream or relegated to the 
borderlands. The outcome rests on whether Yanukovych and his 
government decide their political preservation is more 
important than anchoring Ukraine to the institutions of Europe.
    Ukraine's difficult situation today is a result of the 
failure of political leadership in the wake of the Orange 
Revolution. Orange leaders, while allowing political pluralism 
to thrive, disappointed the Ukrainian people by failing to 
govern effectively. Their infighting opened the door to 
Yanukovych's rehabilitation and election in 2010 as President 
in free and fair elections.
    When President Yanukovych came to power, he began to 
centralize authority. His advisors offer a compelling 
explanation. After years of political chaos and economic 
mismanagement, Ukraine's new leaders consolidated power in 
order to be able to govern more effectively and to implement 
long-needed reforms. And in many cases, the government has 
pursued difficult economic reforms necessitated by the global 
financial crisis including, for example, raising the retirement 
age.
    At the same time, under Yanukovych, Ukraine has been a 
responsible international actor, advancing practical 
negotiations with the European Union, agreeing with the United 
States to eliminate highly enriched uranium, and managing more 
normal relations with Russia.
    However, President Yanukovych's first 2 years in office 
provide a sufficient record to sound the alarm on the state of 
democracy. We have witnessed selective prosecutions of 
opposition figures, a more restrictive media environment, 
disturbing involvement of the security service in domestic 
politics, seriously flawed local elections in October 2010, 
pressure on civil society, an erosion of free speech, 
consolidation of executive influence over the judiciary, 
manipulation of the electoral code in advance of parliamentary 
elections this fall, and continued rampant corruption. In 
essence, the ruling Party of Regions has centralized authority, 
governing all of Ukraine much as it governed its stronghold 
oblasts like Donetsk, weakening Ukrainian society's checks and 
balances.
    The vision of a democratic European Ukraine, however, is 
not lost.
    As we look forward, Ukraine faces three key tests: its 
handling of political prosecutions, the October elections, and 
its energy security.
    Despite protests to the contrary, Ukrainian authorities 
have pursued selective prosecutions against political 
opponents, most notably former Prime Minister Yulia Tymoshenko. 
She is not an isolated incident but is illustrative of a 
disturbing pattern that is corrosive to democracy. If those in 
power believe that the price of losing an election is prison, 
they are unlikely to ever relinquish power. Through its own 
actions, the Party of Regions has set this dangerous dynamic in 
play. After months of various officials telling many in the 
West that the President would find a way within the law to end 
the prosecution of Tymoshenko, she has been sentenced to 7 
years in prison and is now facing a set of new charges. 
Ukraine's leaders seem to have calculated that the threat she 
poses politically outweighs the cost of international 
opprobrium.
    American and European officials have spoken out forcefully 
regarding her case, and the EU has delayed signing an 
association agreement over the issue. Both the United States 
and European partners should keep this issue at the top of 
their agenda with Ukraine, not allowing the passing of time to 
diminish the Ukrainians' calculations of the costs of their 
actions. Washington and Brussels should also consider taking 
additional measures to raise those costs.
    Second, the most critical test is whether Ukraine is able 
to conduct free and fair parliamentary elections in October. I 
have serious concerns already about the Ukrainian authorities' 
actions to tilt the scales in their favor through changes to 
the electoral code and influence over the judiciary.
    Nonetheless, these elections are in play. Recent polling 
indicates that while the opposition remains weak, the ruling 
Party of Regions has lost tremendous support throughout 
Ukraine, including in its political base in the east. Given 
there is a genuine possibility for competitive elections, 
authorities may be tempted to take extraordinary measures 
beyond administrative means to maintain their majority in 
Parliament.
    Therefore, now is precisely the time to shine a spotlight 
on Ukraine. The U.S. and EU members need to work together 
closely to help ensure a level playing field through support 
for measures that can counteract fraud. This includes helping 
independent civil society to observe elections, monitor media, 
conduct exit polls and parallel vote counts.
    Furthermore, the European Union can make clear that 
ratification of any deep and comprehensive free trade agreement 
depends not only on the issue of political prosecutions, but 
also the conduct of these elections.
    As we judge Ukraine's performance on these tests, United 
States and European objectives should be clear.
    First, in the near term, transatlantic policies should aim 
to check democratic backsliding and help Ukrainians demand a 
free and fair election this fall. As a first step, this 
requires that the sham trials against Tymoshenko end and that 
she be released.
    Second, we should continue to promote Ukraine's genuine 
European integration by fostering societal level contacts while 
government-to-government negotiations stall.
    Third, we should continue to help Ukraine increasingly 
integrate its market into the global economy, reorienting its 
economy away from Soviet-era patterns of trade.
    And finally, the United States and our transatlantic 
partners should continue to support Ukraine's sovereignty and 
independence.
    Holding Ukraine to account on democracy will not send 
Ukraine into Russia's arms. Whether it is Ukrainians in the 
west of the country whose reference is Poland rather than 
Russia, Ukrainian oligarchs who fear economic domination by 
their Russian counterparts, or Ukraine's political elites who 
have grown accustomed to managing their own nation, Ukrainians 
will play the lead role in preserving their sovereignty.
    So as Members of Congress, you have much on your plate. It 
is important to remember that Ukraine's success or failure as a 
free market democracy will reverberate far beyond its borders. 
Ukraine can help anchor a region plagued by uncertainty, moving 
the region closer to European norms, advancing the vision of a 
Europe whole and free, or alternatively, it will set back 
reform in the broader region and undermine the goal of 
completing Europe.
    Madam Chairman, Ukraine is indeed at a crossroads. Its 
democracy is in play. Its place in Europe is in play. And its 
reliability as a partner of the United States is in play. 
Western policy can sharpen the choices facing Ukrainian leaders 
today.
    Thank you, Madam Chairman and Ranking Member. I look 
forward to your questions.
    [The prepared statement of Mr. Wilson follows:]

                 Prepared Statement of Damon M. Wilson

    Madam Chairman, ranking member, members of the committee, I am 
honored to speak before your committee on the situation in Ukraine.
    Ukrainian democrats and their supporters share a vision of an 
independent, sovereign Ukraine with strong democratic institutions, 
rule of law, and a prosperous free market, embedded in Europe, a 
partner of the United States, and at peace with Russia.
    Yet 20 years after independence, Ukraine's young democracy, 
cultural identity, and weak institutions face political manipulation 
and its fragile economy is subject to massive distortions from 
widespread, top-down corruption. In short, Ukraine's sovereignty is not 
guaranteed, its democracy is not inevitable, and its market is not 
free.
    Today, Ukraine teeters between Eurasian malaise and an ambivalent 
Europe. Indeed, Ukraine's future is in play. Decisions taken now and in 
the coming year by President Yanukovych and his government, the 
Ukrainian political opposition, civil society, media, and youth--as 
well as the United States and European Union--will determine whether 
Ukraine evolves into a European democracy or descends into a post-
Soviet authoritarian kleptocracy.
    Indeed, Ukraine is at a crossroads. And there is much at stake for 
transatlantic interests.
    President Viktor Yanukovych and the Ukrainian Government are 
pursuing contradictory policies: They seek to integrate Ukraine into 
Europe, while emasculating their domestic opposition. In their first 2 
years in office, they have made progress on both, eliminating his key 
challenger from politics and negotiating a landmark deal with the 
European Union. Yet ultimately, they must choose.
    The choice is not between Russia and the West. In many respects, 
this is a false choice. The choice is whether Ukraine sees its future 
in the European mainstream or relegated to the borderlands. The outcome 
rests on whether Yanukovych and his government decide their political 
preservation is more important than anchoring Ukraine to the 
institutions of Europe.
    Ukraine's difficult situation today is a direct result of the 
failure of political leadership in the wake of the Orange Revolution. 
Orange leaders, while allowing political pluralism to thrive, 
disappointed the Ukrainian people by failing to govern effectively. 
Their infighting opened the door to Yanukovych's rehabilitation and 
election in 2010 as President in free and fair elections, Ukraine's 
fourth set of free elections in a row at the time.
    When President Yanukovych came to power, he began to centralize 
authority. His advisors offer a compelling explanation: After years of 
political chaos and economic mismanagement, Ukraine's new leaders 
consolidated power in order to be able to govern more effectively and 
to implement long-needed reforms. And in many cases, the government has 
pursued difficult economic reforms necessitated by the global financial 
crisis, including for example raising the retirement age.
    At the same time, under Yanukovych, Ukraine has been a responsible 
international actor, advancing practical negotiations with the European 
Union, agreeing with the United States to eliminate highly enriched 
uranium, and managing more normal relations with Russia.
    However, President Yanukovych's first 2 years in office provide a 
sufficient record to sound the alarm on the state of democracy. We have 
witnessed selective prosecutions of opposition figures, a more 
restrictive media environment, disturbing involvement of the security 
service (SBU) in domestic politics, seriously flawed local elections in 
October 2010, pressure on civil society, an erosion of speech, 
consolidation of executive influence over the judiciary, manipulation 
of the electoral code in advance of parliamentary elections this fall, 
and continued rampant corruption. In essence, the ruling Party of 
Regions has centralized authority, governing all of Ukraine much as it 
governed its stronghold oblasts like Donetsk, while weakening Ukrainian 
society's checks and balances.
    The vision of a democratic, European Ukraine is not lost however. 
Ukraine's political and cultural diversity is a bulwark against any one 
force dominating the political landscape. As we look forward, Ukraine 
faces three key tests: Its handling of political prosecutions, the 
October parliamentary elections, and its energy security.
    First, despite protests to the contrary, Ukrainian authorities have 
pursued selective prosecutions against political opponents, most 
notably former Prime Minister Yuliya Tymoshenko. She is not an isolated 
incident, but is illustrative of a disturbing pattern that is corrosive 
to democracy. If those in power believe that the price of losing an 
election is prison, they are unlikely to ever relinquish power. Through 
its own actions, the Party of Regions has set this dangerous dynamic in 
play. After months of various officials telling many in the West that 
the President would find a way within the law to end the prosecution of 
Tymoshenko, she has been sentenced to 7 years in prison and is now 
facing a set of new charges. Ukraine's leaders seem to have calculated 
that threat she poses politically outweighs the cost of the 
international opprobrium.
    American and European officials have spoken out forcefully 
regarding her case, and the European Union has delayed signing an 
association agreement over this issue. Both the United States and its 
European partners should keep this issue at the top of their agenda 
with Ukraine, not allowing the passing of time to diminish the 
Ukrainians' calculations of the costs of their actions. Washington and 
Brussels should also consider additional measures to raise those costs.
    Second, the most critical test is whether Ukraine is able to 
conduct free and fair parliamentary elections in October. I already 
have serious concerns about Ukrainian authorities' actions to tilt the 
scales in their favor through changes to the electoral code and 
influence over the judiciary. After free and fair parliamentary 
elections in 2006 and 2007, there was no compelling need to revise the 
electoral code in advance of these elections. The ruling party's 
singular focus to do so raises concerns about those in power changing 
the rules of the game to their advantage.
    Nonetheless, these elections are in play. Recent polling indicates 
that, while the opposition remains weak, the ruling Party of Regions 
has lost tremendous support throughout Ukraine, including in its 
political base in the east. Given there is a genuine possibility for 
competitive elections, authorities may be tempted to take extraordinary 
measures beyond administrative means to maintain their majority in 
Parliament.
    Therefore, now is precisely the time to shine a spotlight on 
Ukraine. The United States and European Union members need to work 
together closely to help ensure a level playing field through support 
for measures that can counteract fraud. This includes helping 
independent civil society to observe elections, monitor media, and 
conduct exit polls and parallel vote counts.
    Furthermore, the European Union can make clear that ratification of 
any Deep and Comprehensive Free Trade Agreement depends not only on the 
issue of political prosecutions, but also on the conduct of these 
elections. Similarly, the United States should make clear that the 
conduct of these elections will determine the possibilities in our 
bilateral relationship.
    Ukraine has been a valued partner given its commitment to hand over 
all of its highly enriched uranium as part of President Obama's nuclear 
security initiative. The risk, however, is that the Ukrainians will 
perceive they can cooperate on this strategic priority, and in return 
earn a pass on democracy issues. Washington needs to continue to send 
clear, consistent messages to Kyiv about the costs of poor elections in 
October.
    A third key test for Ukraine is how it handles its dismal record on 
energy security. The energy sector in Ukraine is opaque and corrupt. 
More importantly, the government's management of energy is corrosive to 
Ukraine's democracy and sovereignty. The scale of corruption in the 
energy sector threatens to undermine Ukraine's democracy, as it 
provides an incentive for those in power to perpetuate their rule both 
for personal enrichment and to avoid prosecution once out of power. 
Corruption in the energy sector is also a national security threat as 
it allows unscrupulous interests to manipulate Ukrainian officials and 
policy. The best way to strengthen Ukraine's sovereignty, and to 
mitigate Ukraine's dependency on Russia for natural gas, would be to 
pursue an aggressive energy efficiency program and to liberalize its 
antiquated energy sector inviting in investors and promoting 
transparency.
    As we judge Ukraine's performance on these three tests, U.S. and 
European objectives should be clear.
    First, in the near term, transatlantic policy should aim to check 
democratic backsliding and help Ukrainians demand a free and fair 
election this fall. As a first step, this requires that the sham trials 
against Yuliya Tymoshenko end and that she be released.
    Second, we should continue to promote Ukraine's genuine European 
integration by fostering societal level contacts while government-to-
government negotiations stall. While some European nations seek to 
tether Ukraine to the European Union, many would prefer that Ukraine 
have no future home in Europe. U.S. policy should state that a 
democratic Ukraine that pursues reforms can earn its place in Europe's 
institutions.
    Third, we should continue to help Ukraine increasingly integrate 
its markets into the global economy, reorienting its economy away from 
Soviet era patterns of trade. As Ukraine's economic interests 
increasingly value their credibility in Western markets, these forces 
will support rule of law at home and some will value Ukraine's 
democratic credentials abroad.
    Finally, the United States and our transatlantic partners should 
continue to support Ukraine's sovereignty and independence. As Vladimir 
Putin plans his return to the Russian Presidency, we are likely to hear 
more ideas along the lines of his proposal for a Eurasian Union. While 
cooperative, constructive relations between Ukraine and Russia are 
healthy, Russian efforts to exert a sphere of influence, if unchecked, 
will lead to greater demands and ultimately greater instability over 
time. Our engagement with Ukraine through good times and bad will 
bolster Kyiv's ability to determine its own future.
    Holding Ukraine to account on democracy, however, will not send 
Ukraine into Russia's arms. Whether it is Ukrainians in the west of the 
country whose reference is Poland rather than Russia, Ukrainian 
oligarchs who fear economic domination by their Russian counterparts, 
or Ukraine's political elites who have grown accustomed to managing 
their own nation, Ukrainians will play the lead role in preserving 
their sovereignty.
    As Members of Congress, you have much on your plate. The United 
States interests are global. So why should U.S. policymakers concern 
themselves with Ukraine. I would offer three reasons.
    First, as a nation with almost as many people as Spain and as much 
land as France, and with shared borders with the European Union, NATO, 
and Russia, Ukraine is a major actor and of significant importance to 
Euro-Atlantic security and prosperity. Much of the history of conflict 
in Europe is about insecurity in the land between Germany and Russia; 
as long as Ukraine's future remains uncertain, there is a risk of 
instability.
    Second, Ukraine's success or failure as a free market democracy 
will reverber-
ate far beyond its borders. Ukraine can help anchor a region plagued by 
uncertainty, moving the region closer to European norms, and advancing 
the vision of a Europe whole, free, and at peace. Alternatively, its 
failure will set back reform in the broader region and undermine the 
goal of ``completing Europe.''
    Third, change in Ukraine may be among the best hopes for change in 
Russia. Most analysts think about how developments in Russia will 
impact Ukraine. I tend to believe that developments in Ukraine can 
influence Russia. First, failure in Ukraine would validate Vladimir 
Putin's narrative to the Russian people that experimentation with 
democracy in the former Soviet Union leads to political chaos and 
economic instability; ``democracy is dangerous.'' However, Ukraine's 
success as a market-oriented European democracy would challenge those 
assumptions. For so many in Russia who have been taught to think of 
Ukrainians as their backward cousins, progress in Ukraine would 
underscore the viability of progress in Russia.
    Madam Chairman, Ukraine is indeed at a crossroads. Its democracy is 
in play. Its place in Europe is in play. And its reliability as a 
partner of the United States is in play. Western policy can help 
sharpen the choices facing Ukrainian leaders.
    A President Yanukovych who ceases political prosecutions and 
releases Tymoshenko, presides over fair parliamentary elections, 
combats corruption, achieves a ratified association agreement with the 
European Union, and advances a top U.S. nonproliferation objective has 
the opportunity to remake his image in the world and in his own nation. 
The choice is his.
    Thank you Madam Chairman, ranking member, and members of the 
committee. I look forward to answering your questions.

    Senator Shaheen. Thank you very much.
    Mr. Chow.

STATEMENT OF EDWARD C. CHOW, SENIOR FELLOW, ENERGY AND NATIONAL 
   SECURITY PROGRAM, CENTER FOR STRATEGIC AND INTERNATIONAL 
                    STUDIES, WASHINGTON, DC

    Mr. Chow. Madam Chair, it is my distinct honor to testify 
before your subcommittee. Unlike my fellow panelists who served 
with distinction at the Department of State and White House, I 
come to you as a simple oil and gas analyst and practitioner in 
the international petroleum industry for more than 30 years. In 
the past dozen years, I have observed the Ukrainian energy 
sector, sometimes up close, and written on the subject. I had 
the occasion to advise four separate Cabinets of Ministers of 
Ukraine on energy, including those led by then-Prime Ministers 
Yanukovych and Tymoshenko. It is this experience and knowledge 
that informed me for today's testimony.
    I would start off by saying, with all due respect to the 
title of this hearing, that as far as energy is concerned, 
Ukraine, a country which seems perpetually at crossroads, is no 
longer in that position. It may have been at crossroads in 2005 
right after the Orange Revolution when there was a tremendous 
opportunity to shed its Soviet legacy and incomplete economic 
transition and to embark on the path of energy reform that 
could have greatly enhanced its domestic energy condition and 
improved energy security for both itself and Europe. However, 
infighting among the Orange political forces, including over 
energy rents, and secondarily insufficient attention and 
engagement by the West extinguished these hopes.
    Since then, Ukraine has been on a dangerous path toward 
energy insecurity which has accelerated in the last 2 years. 
All the pity as Ukraine has enormous potential as an energy 
producer, efficient consumer, and key transit partner for 
Russia/Central Asia and Europe.
    Until the discovery and development of major West Siberian 
gas fields in the 1970s, Ukraine was an exporter of gas to the 
Soviet Republic of Russia. Ukrainian gas production peaked at 
69 billion cubic meters in 1975, more than its current annual 
consumption. Today Ukraine's domestic gas production has 
stagnated below 20 billion cubic meters and it is two-thirds 
dependent on gas imports from Russia.
    I have not met a single Ukrainian or Western geologist who 
does not believe that Ukraine has the geologic prospects to 
greatly increase its domestic oil and gas production. If proper 
policies and investment conditions were in place, domestic gas 
production can easily increase by 50 percent in a few short 
years. Together with energy efficiency improvements, Ukraine 
can be more than 50 percent self-sufficient in gas. Currently 
Ukraine is the third-largest gas consumer in continental 
Europe. It consumes two-thirds as much gas as Germany does, 
while its GDP is less than 5 percent of Germany's.
    Ukraine's oil and gas sector is operated in a totally 
dysfunctional manner. This, as they say in this part of the 
world, is not an accident. Various state energy assets have 
been hijacked by rent seekers for their private gain. 
Regulation and pricing are left deliberately murky in order to 
benefit private interests. This is not a particular indictment 
of the current Government of Ukraine. In fact, these conditions 
of Ukraine's incomplete transition from its Soviet command 
economy have remained through the terms of four different 
Presidents and many more Prime Ministers and Cabinets of 
Ministers in the 20 years of independence. Franchises on 
control of energy assets may shift, but the business model 
never changed.
    In fact, if you were to design an energy system that is 
optimized for corruption, it might look very much like 
Ukraine's. You would start with a wholly state-owned monopoly 
that is not accountable to anyone except the head of the 
country who appoints the management of this company. It would 
operate nontransparently without being held accountable by 
shareholders or capital markets since its chronic indebtedness 
is periodically repaid by the state treasury.
    Domestic production would be priced artificially low, 
ostensibly for social welfare reasons, leading to a gray market 
in gas supply that is allocated by privileged access rather 
than by price. Low prices suppress domestic production and 
energy efficiency improvement, thereby requiring import of 
large volumes of gas which coincidentally is controlled by the 
same state monopoly or its chosen middleman company. The opaque 
middleman is frequently paid handsomely in kind rather than in 
cash, which allows him to re-export the gas or to resell to 
high-value domestic customers, leaving the state company with 
the import debt and social obligations.
    Ukraine has also eroded its significant advantages as a 
major oil and gas transit country between Russia/Central Asia 
and European markets by virtue of its geographic location and 
Soviet legacy pipeline infrastructure. Ukraine inherited Soviet 
gas transit pipelines, which had a nameplate capacity of 175 
billion cubic meters per year, as well as abundant and ideally 
located gas storage.
    Yet, today Russian gas transit amounts to less than 100 
billion cubic meters from a post-Soviet average of 120 billion 
cubic meters, and Russia is busy building and planning 
pipelines that bypass Ukraine, namely Nord Stream and 
especially South Stream. If Russia proceeds next year with 
South Stream at 63 billion cubic meters, then by 2016 it would 
have bypassed pipeline capacity that completely replaces 
current gas transit through Ukraine, which represented about 80 
percent of the gas Russia sells to Europe or 20 percent of 
European gas demand.
    This developed because Ukraine has proven itself as an 
unreliable transit partner for both Russia and Europe. 
Successive Ukrainian governments have tried to use its transit 
leverage to extract below-market gas prices from Russia. This 
persisted even though conditions that facilitated the barter of 
cheap gas for transit, namely low-price Central Asian gas, 
disappeared about 5 years ago. Even when gas prices were low, 
Naftogaz is chronically indebted to Gazprom, leading to 
contract disputes, regular brinksmanship, and occasional gas 
cutoffs.
    The gas crisis of January 2006 and 2009 seriously affected 
gas supply for Europe at the height of winter and underscored 
that Ukraine is a transit liability. Frequently Europe acts as 
if it is an innocent victim of pipeline disputes between Russia 
and Ukraine. EU blindly embraces every deal the two come up 
with no matter how fatally flawed the terms are or, therefore, 
how ephemeral their compliance is.
    The root causes of Ukraine's energy insecurity are well 
known, as are their remedies. They are well documented in the 
Energy Policy Review of Ukraine conducted by the International 
Energy Agency and published in 2006. Repeated attempts have 
been made by international institutions, including the 
International Monetary Fund, World Bank, European Union, and 
U.S. Government to persuade and support Ukrainian authorities 
to enact serious energy sector reforms. They have been met 
generally by lip service even as fundamental conditions 
continue to deteriorate in the country.
    The recommendations basically come down to modernizing the 
business practice of this large and nontransparent sector of 
the Ukrainian economy which has served as an exclusive 
playground for Ukrainian leaders for the past 20 years. This 
means the end of rent-seeking that leaks billions of dollars 
per year, transparent and fair rules of the game for investors 
that do not favor politically connected interests, and above 
all, energy pricing reform.
    Instead of fundamental reform and the immediate benefits 
that can be achieved, this Ukrainian Government would rather 
talk about fanciful projects that are 5 years or further away 
in the future, such as shale gas or other unconventional gas 
production, liquefied natural gas imports, and offshore 
exploration, none of which can possibly succeed without energy 
reform.
    At best, this is a misplacement of policy priorities. At 
worst, it is a deliberate misdirection in order to change the 
topic and to divert attention away from current and future 
mischief in the energy sector.
    For the moment, Russia and Ukraine are supposedly at an 
impasse in their gas price negotiations, after the disastrous 
decision President Yanukovych and his government made on gas 
agreement with Russia in Kharkiv in April 2010. Ironically, the 
Kharkiv agreement essentially confirmed and locked his new 
government into the terms of the agreement made by then-Prime 
Minister Yulia Tymoshenko and Prime Minister Vladimir Putin in 
January 2009, the unfairness for which she is currently accused 
and jailed.
    The most likely scenario is an agreement will be reached 
soon between Russia and Ukraine on gas that cedes partial 
control and/or ownership of Ukraine's international gas transit 
system to Gazprom in exchange for another so-called discount on 
gas pricing.
    Despite such an agreement, Russia will likely continue to 
progress the South Stream pipeline as important for its own 
interests or at least hold it in reserve. Russia may expect to 
gain full control of the gas transit system over time, as 
Ukraine continues to mismanage its energy sector and pile on 
gas debt to Russia.
    The result of this scenario is that Ukraine becomes an 
energy appendage of Russia's. What is the geopolitical 
significance for the United States and Europe of this possible 
outcome I will leave to others more expert on such subjects on 
this panel.
    I would offer one small recommendation. If the United 
States and our European allies care about Ukraine's energy 
vulnerability and its negative impact on the region, then they 
must address the policy remedies not only to Ukrainian leaders 
but also publicly to Ukrainian society. Ukraine has a vibrant 
civil society, an educated public, and relatively free press 
for post-Soviet space. Speaking privately to political leaders 
about urgently needed energy reform has proven ineffective in 
the past and may even enable their bad behavior. It is time we 
invest in a direct dialogue with the Ukrainian people if we 
believe we have a stake in the energy health of this important 
country.
    Thank you.
    [The prepared statement of Mr. Chow follows:]

                   Prepared Statement Edward C. Chow

    Madam Chair, it is my distinct honor to testify before your 
subcommittee. Unlike my fellow panelist, who served with distinction at 
the Department of State and White House, I come to you as a simple oil 
and gas analyst and practitioner in the international petroleum 
industry for more than 30 years. In the past dozen years, I have 
observed the Ukrainian energy sector, sometimes up close, and written 
on the subject. I had the occasion to advise four separate cabinets of 
ministers of Ukraine on energy, including those led by then-Prime 
Ministers Yanukovych and Tymochenko. It is this experience and 
knowledge that informed me for today's testimony.
    I would start off by saying, with all due respect, that as far as 
energy is concerned Ukraine--a country which seems perpetually at 
crossroads--is no longer in that position. It may have been at 
crossroads in 2005, right after the Orange Revolution, when there was a 
tremendous opportunity to shed its Soviet legacy and incomplete 
economic transition; and to embark on a path of energy reform that 
could have greatly enhanced its domestic energy condition and improved 
energy security for both itself and Europe. However, infighting among 
the Orange political forces, including over energy rents, and 
secondarily insufficient attention and engagement by the West 
extinguished these hopes.
    Since then, Ukraine has been on a dangerous path toward energy 
insecurity, which has accelerated in the last 2 years. All the pity as 
Ukraine has enormous potential as an energy producer, efficient 
consumer, and key transit partner for Russia/Central Asia and Europe.
    Until the discovery and development of major West Siberian gas 
fields in the 1970s, Ukraine was an exporter of gas to the Soviet 
Republic of Russia. Ukrainian gas production peaked at 69 billion cubic 
meters (bcm) in 1975, more than its current annual consumption. Today 
Ukraine's domestic gas production has stagnated below 20 bcm and it is 
two-thirds dependent on gas imports from Russia. Reliance on imports 
has diminished only because of the dismal performance of the overall 
Ukrainian economy, not because of efficiency improvements or increased 
domestic production.
    I have not met a single Ukrainian or Western geologist who does not 
believe that Ukraine has the geologic prospects to greatly increase its 
domestic oil and gas production. If proper policies and investment 
conditions were in place, domestic gas production can easily increase 
by 50 percent in a few short years. Together with energy efficiency 
improvements, Ukraine can be more than 50 percent self-sufficient in 
gas. Currently Ukraine is the third-largest gas consumer in continental 
Europe (outside of Russia). It consumes two-thirds as much gas as 
Germany does, while its GDP is less than 5 percent of Germany's.
    Ukraine's oil and gas sector is operated in a totally dysfunctional 
manner. This, as they say in this part of the world, is not an 
accident. Various state energy assets have been hijacked by rent 
seekers for their private gain. Regulation and pricing are left 
deliberately murky in order to benefit private interests. This is not a 
particular indictment of the current Government of Ukraine. In fact 
these conditions of Ukraine's incomplete transition from its Soviet 
command economy have remained through the terms of four different 
Presidents and many more Prime Ministers and Cabinets of Ministers in 
the 20 years of independence. Franchises on control of energy assets 
may shift, but the business model never changed.
    In fact, if you were to design an energy system that is optimized 
for corruption, it might look very much like Ukraine's. You would start 
with a wholly state-owned monopoly that is not accountable to anyone 
except the head of the country who appoints the management of this 
company. It would operate nontransparently without being held 
accountable by shareholders (who might demand legal rights as owners) 
or capital markets since its chronic indebtedness is periodically 
repaid by the state treasury.
    Domestic production would be priced artificially low, ostensibly 
for social welfare reasons, leading to a grey market in gas supply that 
is allocated by privileged access rather than by price. Low prices 
suppress domestic production and energy efficiency improvement, thereby 
requiring import of large volumes of gas which coincidentally is 
controlled by the same state monopoly or its chosen middleman company. 
The opaque middleman is frequently paid handsomely in-kind, rather than 
in cash, which allows him to reexport the gas or to resell to high-
value domestic customers, leaving the state company with the import 
debt and social obligations.
    Ukraine has also eroded its significant advantages as a major oil 
and gas transit country between Russia/Central Asia and European 
markets by virtue of its geographic location and Soviet legacy pipeline 
infrastructure. Ukraine inherited Soviet gas transit pipelines, which 
had a nameplate capacity of 175 bcm per year, as well as abundant and 
ideally located gas storage capacity. In addition, Ukraine's oil 
transit pipelines have a capacity of more than 1 million barrels per 
day, linking Russian and Central Asian oil production with landlocked 
markets in Central Europe.
    Yet today Russian gas transit amounts to less than 100 bcm from a 
post-Soviet average of 120 bcm and Russia is busy building and planning 
pipelines that bypass Ukraine, namely Nord Stream and especially South 
Stream. When the second line of Nord Stream is completed by the end of 
this year, it will bring capacity to 55 bcm per year. If Russia 
proceeds next year with South Stream at 63 bcm, by 2016, it would have 
bypass pipeline capacity that completely replaces current gas transit 
through Ukraine, which represented about 80 percent of the gas Russia 
sells to Europe or 20 percent of European gas demand.
    This developed because Ukraine has proven itself as an unreliable 
transit partner for both Russia and Europe. Successive Ukrainian 
governments have tried to use its transit leverage to extract below-
market gas prices from Russia. This persisted even though conditions 
that facilitated the barter of cheap gas for transit, namely low-priced 
Central Asian gas available to Russia, disappeared about 5 years ago. 
Even when gas prices were low, Naftogaz (the Ukrainian state company) 
is chronically indebted to Gazprom, leading to contract disputes, 
regular brinksmanship, and occasional gas cutoffs. Instead of 
maintaining and enhancing the reliability of the Ukrainian pipeline 
system with the transit revenue it earned in order to attract higher 
volumes, Ukraine raised serious doubts in the minds of energy producers 
and consumers.
    The gas crisis of January 2006 and 2009 seriously affected gas 
supply for Europe at the height of winter and underscored that Ukraine 
is a transit liability. Consequently, even the EU-sponsored Nabucco 
pipeline proposal is as much a diversification away from the risks of 
transit through Ukraine as a diversification from over-dependence on 
Russian gas supply. More frequently, Europe acts as if it is an 
innocent victim of pipeline disputes between Russia and Ukraine. EU 
blindly embraces every deal the two come up with, no matter how fatally 
flawed the terms are or how ephemeral their compliance, as proved to be 
the case in both 2006 and 2009.
    The root causes of Ukraine's energy insecurity are well known, as 
are their remedies. They were well documented in an ``Energy Policy 
Review of Ukraine'' conducted by the International Energy Agency and 
published in 2006. Repeated attempts have been made by international 
institutions, including the International Monetary Fund, World Bank, 
European Union, and U.S. Government to persuade and support Ukrainian 
authorities to enact serious energy sector reforms.
    These have been met generally by lip service, even as fundamental 
conditions continue to deteriorate in the country. It amused me to read 
that 2 weeks ago there was a conference in Kyiv on ``Natural Gas and 
Ukraine's Energy Future'' conducted by a well-known international 
energy consulting firm and attended by senior Ukrainian officials. I 
dare say that most Ukrainian energy experts could have written the 
policy recommendations by themselves without any foreign help--they 
have heard them so many times.
    These recommendations basically come down to modernizing the 
business practices of this large and nontransparent sector of the 
Ukrainian economy, which has served as an exclusive playground for 
Ukrainian leaders for the past 20 years. This means the end of rent-
seeking that leaks billions of dollars per year; transparent and fair 
rules of the game for investors that do not favor politically connected 
interests; and above all energy pricing reform. Assuming the right 
business conditions, Ukraine possesses sufficient conventional and 
renewable energy potential, and scientific and engineering skills to 
both increase its domestic energy production and to significantly 
improve its energy efficiency.
    Foreign investment can also help in this regard. However, to date, 
foreign investors have not been met with fair access to geologic data, 
open and transparent tender process, or internationally standard 
business terms. What small foreign operators who have ventured into oil 
and gas production and achieved minor success in Ukraine have been met 
with corporate raids, absence of rule of law, capricious regulations, 
and other hostile conditions.
    Instead of fundamental reform and the immediate benefits that can 
be achieved, this UkrainianGgovernment and its predecessors would 
rather talk about fanciful projects that are 5 years or further away in 
the future, such as shale gas or other unconventional gas production, 
liquefied natural gas imports, and offshore exploration--none of which 
can possibly succeed without energy reform.
    At best, this is a misplacement of policy priorities. At worst, it 
is deliberate misdirection in order to change the topic and to divert 
attention away from current and future mischief in the energy sector.
    For the moment, Russia and Ukraine are supposedly at an impasse in 
their gas price negotiations, after the disastrous decision President 
Yanukovych and his government made on gas agreement with Russia in 
Kharkiv in April 2010, soon after his ascendency to the Presidency. 
Ironically the Kharkiv agreement essentially confirmed and locked his 
new government into the terms of the agreement made by then-Prime 
Minister Yulia Tymoshenko and Prime Minister Vladimir Putin in January 
2009, the unfairness of which she is currently accused and jailed.
    The most likely scenario is an agreement will be reached soon 
between Russia and Ukraine on gas, perhaps before Russia's Presidential 
election in March, that cedes partial control and/or ownership of 
Ukraine's international gas transit system to Gazprom in exchange for 
another so-called discount on gas pricing. Concessions on penetration 
into Ukraine's domestic gas market may also be made to Gazprom or its 
chosen middleman company.
    Despite such an agreement, Russia will likely continue to progress 
the South Stream pipeline as important for its own interests or at 
least hold it in reserve. Russia may expect to gain full control of the 
gas transit system over time--as Ukraine continues to mismanage its 
energy sector and pile on gas debt to Russia--similar to what it has 
already accomplished in Belarus.
    The result of this scenario is that Ukraine becomes an energy 
appendage of Russia's. What is the geopolitical significance for the 
U.S. and Europe of this possible outcome I leave to others more expert 
on such subjects on this panel and to subsequent questioning by the 
committee, as I prefer to stay within my competence in energy.
    I would offer one recommendation: If the United States and our 
European allies care about Ukraine's energy vulnerability and its 
negative impact on the region, then it must address the policy remedies 
not only to Ukrainian leaders, but also publicly to Ukrainian society. 
Ukraine has a vibrant civil society, an educated public, and relatively 
free press for post-Soviet space. Speaking privately to political 
leaders about urgently needed energy reform has proven ineffective in 
the past and may even enable their bad behavior. It is time we invest 
in a direct dialogue with the Ukrainian people if we believe we have a 
stake in the energy health of this important country.

    Senator Shaheen. Thank you very much, Mr. Chow. I do not 
think anybody would describe you as a simple energy analyst.
    I want to go back to this question of the imprisonment of 
former Prime Minister Tymoshenko. I mentioned it in my opening 
statement. Ambassador Pifer, you mentioned it and Mr. Wilson 
mentioned it as well.
    I also want to point out that the subcommittee did engage 
the Ukrainian Embassy here in Washington. As I mentioned, the 
Ambassador is here, and they submitted a letter to me relative 
to some of the issues that face the United States-Ukrainian 
relationship. I appreciate their thoughts, and I want to ask 
the panelists about one of the points raised in the letter from 
the Embassy.
    The letter suggests that political issues should be 
separated from legal issues and that attempts to link the 
Tymoshenko case to Ukraine's European aspirations are 
artificial. And I would like to ask both Ambassador Pifer and 
Mr. Wilson if you think it is possible to separate the two or 
how continued integration into the EU is going to be viewed as 
long as former Prime Minister Tymoshenko remains in prison. And 
I will ask you if you would begin, Ambassador.
    Ambassador Pifer. Thank you. I think that is an excellent 
question.
    It first gets to the point--and I think you may hear a 
little bit more on the second panel about the specifics of the 
charge, but it is a charge of abuse of power for her conclusion 
in January 2009 of a contract with Russia for a gas sale. And 
the view of most outside observers is this was a political 
decision. You cannot and you should not be criminalizing those 
types of political decisions. And it opens up sort of a 
Pandora's box, as Mr. Chow said, questions about the Kharkiv 
agreement. Could somebody then look back and say, well, does 
that agreement open up the same types of questions? And I think 
it is this.
    But it is also not just the case of Ms. Tymoshenko. She is 
one of probably a dozen former senior members of the government 
under President Yushchenko and Prime Minister Tymoshenko who 
have also been arrested and charged on similar charges that do 
not appear to be well based.
    So I think this is the basis of the concern, both as 
expressed by the European Union and the U.S. Government, that 
the judicial system in Ukraine is being manipulated for 
political means in a way that we really haven't seen happen 
before in Ukraine's 20 years of independence. And I think as 
long as that continues, that will be and should be a 
significant barrier to Ukraine's effort to draw closer to 
Europe because ultimately if you want to be a full member of 
Europe and a member of the transatlantic community, you have to 
accept democratic values, and what we are seeing with regard to 
Ms. Tymoshenko and other former opposition or other former 
government leaders is not consistent with those values.
    Senator Shaheen. Thank you.
    Mr. Wilson, do you want to add to that?
    Mr. Wilson. Madam Chair, I would endorse what Ambassador 
Pifer just said, and add to that, that I think the argument of 
the need to disentangle the political from the legal is frankly 
disingenuous. What we are seeing right now is the distortion of 
the legal for political purposes, and I think that is pretty 
clear to everyone who has paid attention to this particular 
case, but also as Ambassador Pifer says, this case is 
sensational and it is a human rights issue, but it is also 
illustrative of a broader pattern that raises genuine, deep 
concerns.
    The second part of this, I think, in response to the 
comments that you conveyed, it represents on the Ukrainian side 
a fundamental misunderstanding of what it means to draw closer 
to the European Union to join Europe. At the end of the day, 
accession talks to the EU--yes, there is a long process. In 
these association agreements, there are lots of technical 
negotiations. There is a technical aspect to it. But that is 
not the purpose.
    At the end of the day, this is about moving closer to a 
community of shared values, shared norms based on democracy, 
human rights, rule of law, and democracy. And if the Ukrainian 
Government does not understand the connection between the 
values issues and the technical issues they are negotiating in 
an agreement, then there is a fundamental misunderstanding of 
what it means to become part of Europe.
    Senator Shaheen. That is my followup. Do you think the 
people around Yanukovych understand that, that really you 
cannot separate the two?
    Mr. Wilson. From their actions, it does not imply that that 
is the case. My sense, from watching the situation, is that 
there is some merit, political merit, on the part of the 
President to be seen as having made more progress in the 
negotiations with the European Union than his predecessors. And 
in the technical sense, Ukraine has advanced in those 
negotiations. But it is not clear to me--I think that that 
fuels a domestic purpose of being seen of checking the box, 
making progress with Europe, but not a fundamental 
understanding or commitment to what is behind that and what it 
represents. And I think what we are seeing play out over the 
Tymoshenko trial is at the end of the day an unwillingness to 
make that connection and to take the tough choices that are 
required to actually give meaning to many of these technical 
agreements.
    Senator Shaheen. And can you both comment on what kind of 
an impact both the imprisonment of Tymoshenko and other former 
officials has on the interest in international investment and 
business investment in the country?
    Ambassador.
    Ambassador Pifer. I think, again, to the extent that this 
raises questions about the Government of Ukraine's readiness to 
observe the rule of law, it raises questions in the minds of 
Western companies and American companies that are looking to 
invest and do business in Ukraine. And I know from my own 3 
years there back at the end of the 1990s, Ukraine at that 
time--and I think it is a bit better, but it is still not an 
easy environment. You have complex tax regulations, very 
difficult customs rules, often applied in an arbitrary manner.
    Unfortunately, the court system in Ukraine is to the point 
where I think very few Western companies have any confidence 
that if they went to court, they would actually have the chance 
of a fair outcome. And again, what we see with the manipulation 
of the judicial system now against political opponents, it only 
feeds into that disaccreditation of the judicial system in 
Ukraine. So this, I think, has a bigger impact. It is not just 
about the rule of law with regard to democracy, but it does 
raise questions in the minds of investing companies that are 
looking at Ukraine about whether that is the right place to go, 
particularly when they have lots of other opportunities around 
the world.
    Senator Shaheen. And, Mr. Chow, you talked about the many 
challenges facing the energy sector in Ukraine. Is this 
something that as companies who are interested in the energy 
sector in the Ukraine look at a potential future there? Do you 
think this is something that deters them as well?
    Mr. Chow. It certainly is a factor. I mean, oil companies 
follow geology first. But then you look at the investment 
conditions under which you might have to operate. So, for 
example, if you were to invest and hopefully be successful in 
producing gas in Ukraine, what access would you have to 
customers? What access would you have to pipelines? Would you 
be held for ransom along the way? What gas price might you be 
able to get in the domestic market, never mind the right to 
export it? All these are undetermined, deliberately murky, and 
unpredictable. So even if the geology is good, you are likely 
to discount your bid on the basis that the investment 
conditions are risky.
    So does that mean that no oil company would come knocking 
on Ukraine's door? Every time Ukraine has a new government, oil 
companies come knocking on the door, and inevitably they have 
been disappointed in the past.
    You will see there is a bid round coming up, I think, to be 
announced on February 22, very soon. There are some oil company 
interests in it, and I have spoken to some of them. But how do 
you assign a value to an opportunity when the fundamental 
investing conditions are so shaky?
    Senator Shaheen. Thank you.
    My time is up. Senator Barrasso.
    Senator Barrasso. Thank you very much, Madam Chairman.
    Both to Mr. Wilson and Mr. Chow. At the opening of the 
Nuclear Security Summit in Washington 2 years ago, about April 
2010, there was an agreement reached where Ukraine would 
eliminate its entire stock of highly enriched uranium by March 
2012. So it is coming up in the next month. With the summit 
quickly approaching, could you tell us what kind of progress 
Ukraine has made regarding the disposal of all of its highly 
enriched uranium and where we are with that and how you see 
things coming in terms of this March deadline?
    Mr. Wilson. This was very much a significant outcome of 
that Nuclear Security Summit and a major commitment on 
Ukraine's part to fully eliminate highly enriched uranium, a 
major nonproliferation objective for our country.
    There has been significant progress in implementing the 
agreement. There were some delays, but many of the interim 
markers have been met and I think they remain on track in 
theory to try to meet a March deadline.
    However, the concern I have related to that is the 
perception in Ukraine that action and movement on an issue that 
is a nonproliferation objective for the United States has the 
potential to buy them a free pass on some of these democracy 
and human rights issues. So the challenge for U.S. policy in 
managing the highly enriched uranium issue is to underscore our 
intent or commitment to try to follow through on the agreements 
the Ukrainian Government has made, but that does not remove 
Ukraine from expectations in meeting rule-of-law issues at 
home.
    Senator Barrasso. Mr. Chow and then Ambassador Pifer.
    Mr. Chow. I do not have a whole lot to add. I stipulated 
that I am a simple oil and gas guy and not really competent on 
fissile materials.
    I would add, though, that the rest of Ukraine's energy 
sector, whether you are talking nuclear power, powerplants, 
fuel supply to those powerplants, as well as the oil industry, 
are burdened with the same shadowy business practices that I 
highlighted on gas. So there is reason to seek the most 
transparent regime possible to make sure that the pledges made 
by Ukrainian authorities are actually met.
    Senator Barrasso. Mr. Ambassador, anything else to add on 
that?
    Ambassador Pifer. I would just add briefly. I think 
Ukraine, in fact, does have every incentive to meet that 
agreement because as part of the arrangement, U.S. Government 
assistance, provided mainly by the Department of Energy, is 
helping Ukraine convert its reactors so that they can operate 
on low-enriched uranium in a more modern way. So there is 
actually an advantage to Ukraine in completing that deal.
    Senator Barrasso. I want to move to the IMF. In July 2010, 
$15.5 billion stand-by loan approved by the IMF for Ukraine. 
The latest tranche of the loan is suspended. IMF is requesting 
Ukraine make some changes. Specifically they have requested 
that Ukraine address its domestic gas price. Can you explain 
any of the major concerns that are happening there and the 
impact this is having on Ukraine, and with the parliamentary 
elections coming up in the fall, do you see the political will 
needed to make the changes that the IMF may request? Mr. 
Wilson, I do not know if you want to start.
    Mr. Wilson. I would say two things in response to that.
    One, I do not see the political will in addressing sort of 
this core issue of the domestic gas price. That is what Mr. 
Chow has talked about, one of the core issues that has a whole 
ream of ramifications for corruption, sovereignty, security 
issues. I am very skeptical that the Ukrainian Government will 
be in a position to move on the domestic gas price issue.
    At the same time, I think some of their efforts to respond 
to the financial crisis previously worked on the IMF side of 
this have reinforced their political instincts because they 
have taken some difficult decisions that have not been popular 
in the public. You can point to a substantial drop of political 
support in the east because of raising the retirement age, for 
example. So in some respects, I think some of their efforts on 
the economic front have reinforced their inclination to take 
measures on the political front because they feel vulnerable 
and exposed headed into parliamentary elections.
    Senator Barrasso. Anyone want to add anything to that?
    Mr. Chow. I was a critic of the Fund--that is, IMF--in 2009 
when I thought that they were being too lenient to the then-
Tymoshenko government. If the Orange forces needed tough love 
at that time, my position is that this government needed strict 
compliance before any money is given to them. We have already 
seen the first tranche delivered by the IMF. The second tranche 
continues to be delayed for the reasons that Mr. Wilson gave, 
as well as the upcoming parliamentary elections in October. I 
am highly skeptical that any positive move would be made soon.
    Ambassador Pifer. I would agree with my two colleagues, 
because one of the primary conditions for the next tranche of 
the IMF loan is a raise in domestic gas prices which would hit 
a broad portion of the electorate. I do not see this government 
as prepared to do it in the runup to a parliamentary election.
    Senator Barrasso. Then I want to move to integration with 
the European Union and the accessment agreement with Ukraine is 
stalled. So I am curious about long-term prospects for the 
integration of Ukraine into the European Union and kind of the 
requirements and reforms that should the European Union require 
of the Ukraine. If you have any assessment of how you think the 
people of Ukraine feel about joining the European Union. Is it 
something they want, something they are concerned about? Mr. 
Wilson, if you want to start.
    Mr. Wilson. Sure. I think despite the tenor of the 
testimony that you have heard today, I am very supportive of 
the long-term prospects of Ukraine's integration into Europe, 
and I think ultimately the vast majority of the Ukrainian 
population wants to see their future as part of the European 
mainstream. That is what gives me confidence at the end of the 
day there is an element of a check to the tendency that we have 
been seeing, but that has been put completely at risk right 
now.
    So I think part of the challenge--what has played out in 
the wake of the Orange Revolution, what has played out with 
this government is an increasing sense of apathy among the 
Ukrainian population, apathy within civil society, which I 
think is a dangerous precursor to an ability to allow the 
government to take steps without some of those checks and 
balances. So I think key in this is United States policy 
beginning to be clear, including with those that are skeptical 
in Europe, that as Ukraine takes the right steps, as Ukraine 
restores its democracy and strengthens its free market, that 
really the doors in Europe should be open.
    Senator Barrasso. Mr. Ambassador.
    Ambassador Pifer. I would just add two observations.
    First, to agree with what Mr. Wilson said, polls over the 
last several years have consistently showed 55 to 65 percent of 
the Ukrainian population supports the idea of joining Europe, 
and primarily it is because of the attraction of the economic 
standard of living there.
    The second point on this points up why the democratic 
backsliding in Ukraine comes at a very bad time because within 
Europe now, I think, you have a lot of questions about how far 
it should expand. And with the eurozone crisis and the internal 
problems, there really is this tendency to look inward. And so 
the democratic backsliding that you have seen in Ukraine over 
the last 2 years is being taken by those countries who want to 
say we really cannot think much beyond our borders and to push 
Ukraine off. So it is not playing out at a good time.
    I would guess that had Poland, which held the Presidency of 
the European Union during the last part of 2011--had Poland not 
held that Presidency, I think there would have been a very good 
chance that the European Union would not have gone forward with 
a summit meeting with the Ukrainians last December. That is 
because the Poles have been one of the countries that have been 
strongly advocating for Ukraine, but I suspect even they may be 
getting a bit frustrated.
    Senator Barrasso. Thank you. Thank you, Madam Chairman.
    Senator Shaheen. Thank you.
    Senator Risch.
    Senator Risch. Thank you, Madam Chairman.
    Mr. Chow, can you tell me what percent of the electricity 
is generated in the Ukraine from nuclear energy? Do you know 
that number off the top of your head?
    Mr. Chow. I do not know that number off the top----
    Senator Risch. Is it significant?
    Mr. Chow. It is very significant. Fifty percent. I was 
going to say 40. So 40-50 percent. So it is a very significant 
part of electricity.
    Senator Risch. And what about the remainder of it? Is it 
coal, gas, combination? What is the remainder of it or do you 
know?
    Mr. Chow. Power generation by energy source in Ukraine is 
approximately as follows: 48 percent nuclear, 34 percent coal, 
11 percent gas, and 7 percent hydroelectricity.
    Senator Risch. The other question I would have for any one 
of you--I suppose, Mr. Ambassador, it is probably more in your 
line. The dismantling of the old Soviet Union missile system in 
the Ukraine. Is that completed now?
    Ambassador Pifer. Senator, in 1996, the last of the nuclear 
warheads that were in Ukraine----
    Senator Risch. I knew the warheads were gone, but what 
about the remainder of the system?
    Ambassador Pifer. All of the ICBM silos have been 
dismantled. All of the bombers have been dismantled. Probably 
the one piece that is still being worked on is the SS-24 
missiles have been separated into stages, but they are still 
working out the way to remove the fuel from those missiles. But 
it has been a very, I think, cooperative effort between the 
United States and Ukraine.
    Senator Risch. The reason I ask is, there is an Idaho 
company, I believe, that is involved in that. Thank you very 
much. I appreciate that.
    Thank you, Madam Chairman.
    Senator Shaheen. Thank you, Senator Risch.
    Ambassador Pifer, in December you wrote a very interesting 
article in the Ukrainian Weekly which argued that Mr. 
Yanukovych's pursuit of a more authoritarian agenda at home 
would cause disbalance in Ukraine's foreign policy. I am not 
quoting you exactly, but you point out that actually his 
current tactics may weaken his ability to negotiate with Moscow 
rather than improve that ability. I wonder if you could 
elaborate on this.
    Ambassador Pifer. I think when you look at Russia, Russia 
has a fairly strong set of goals it wants to achieve vis-a-vis 
Ukraine. It wants to keep Ukraine geopolitically in its orbit. 
It does not want to see Ukraine draw closer to NATO or the 
European Union. It wants to have control, including ownership, 
if possible, of the energy transit system through Ukraine. It 
wants to have Ukraine open for Russian business. And I think as 
we have seen over the last couple of years, even when relations 
between Russia and Ukraine improved after the beginning of 
2010, the Russians remained very hard-nosed negotiators. As 
early as the summer of 2010, one was hearing that Ukrainiane 
officials, including in Bankova, where the Presidential 
administration is housed, were becoming very frustrated that 
the Russians continually push for more, push for more.
    So my own estimate is that to the extent that Mr. 
Yanukovych's policies on democracy mean a weaker relationship 
with the West, he is going to find himself in a more lonely and 
more difficult position dealing with the Russians, and I think 
the Russians will use that to their advantage. That is, quite 
frankly, the hope that I have because I think Mr. Yanukovych 
can appreciate that. And my hope is--I am not as optimistic as 
I was maybe 5 months ago, but my hope remains that seeing that 
difficult position without the balance, that that will lead him 
to conclude that he has to adjust his course on democracy to 
return to the balance, which would be good both in terms of 
Ukraine's relationship with Europe but also strengthen his 
position vis-a-vis Moscow.
    Senator Shaheen. And, Mr. Wilson, do you share Ambassador 
Pifer's view that Yanukovych understands this and will respond 
to it, or do you think that is part of his political 
calculation?
    Mr. Wilson. Sort of two points.
    One, first on the Russia side of this, I think there is 
another objective that is in play from Moscow's part. Vladimir 
Putin needs the experiment of democracy, needs the experiment 
of the Orange Revolution and its aftermath to fail and to be 
seen as failing to reinforce the narrative to the Russian 
people that experimentation with democracy in the post-Soviet 
space is dangerous, leads to economic uncertainty, chaos.
    If Ukraine were to succeed, with its democratic 
experiment--the Russians have been taught to think of 
Ukrainians as their backward cousins. If that were to succeed 
inside Ukraine, it really challenges the narrative. We used to 
think that changes in Moscow would reverberate throughout the 
former Soviet space. I think today that successful change in 
Ukraine has a strong likelihood of impacting Russia. And so I 
think that is another factor in play as the Russians think 
about how all this plays out.
    At the same time, I think President Yanukovych is very 
leery of being drawn too close into Moscow's orbit and has 
tried to pursue sort of equidistance. I think he understands it 
is not in his interests to be completely under the arms of a 
returning President Putin. Speaking to many of Yanukovych's 
advisors, Prime Minister Tymoshenko when she was Prime 
Minister, having Russian leaders speak to them with street 
language Russian as a condescending sense conveys to them 
almost that they are a lower class, has inculcated across the 
Ukrainian political elite, whether from the Orange camp or 
others, a sense of pride in actually being able to be 
responsible for their own nation and not wanting to be subject 
to Russia.
    So I think that there are complicated calculations. 
President Yanukovych's No. 1 priority is to have cheap gas from 
Russia to maintain his own political support in Ukraine, but it 
gets quite complicated beyond that because they understand that 
there are real liabilities to that dependence.
    Senator Shaheen. And do the current protests in Russia 
affect those calculations at all, do you think?
    Mr. Wilson. I think they very much impact Vladimir Putin's 
calculations and reinforce the sense that success of a free 
market democracy in a post-Soviet country, particularly 
Ukraine, is a
direct threat and challenge to the narrative and the structure 
that I think has been set up in Russia.
    Senator Shaheen. And how do Ukrainians view what is going 
on in Russia? Either you or Ambassador Pifer.
    Ambassador Pifer. Probably with interest, but I think it is 
somewhat colored by the fact that for a lot of Ukrainians now, 
there is a certain degree, unfortunately, of cynicism about the 
Orange Revolution, and that was, unfortunately, in the 
aftermath of the Orange Revolution in 2005, President 
Yushchenko--and I think some of the blame also lies with Prime 
Minister Tymoshenko--is they had an opportunity there and they 
failed to take advantage of that opportunity, the result of 
which is, I think, 5 years later people then basically voted 
for Mr. Yanukovych who had, of course, been the one thrown out 
by the Orange Revolution. So my suspicion is that there is 
still a desire to be closer to Europe and have a more 
democratic society, but unfortunately, it has been colored by 
an experience that they see as really not having delivered.
    Senator Shaheen. Mr. Chow talked about the importance of 
engaging the Ukrainian public if there were any real reforms 
going to be done to the energy sector. How possible do you 
think that is to really engage the public?
    Mr. Chow. I think it is wide open honestly. I think Ukraine 
is still, in spite of its problems today, a relatively open 
society. There are organizations with people that we can speak 
directly to. The United States Government has invested 20 years 
of building up civil society organizations in Ukraine. People, 
as Ambassador Pifer alluded to, are very disappointed and 
disillusioned with this generation of political leaders, and 
they have good reason to be. But that does not mean that we 
should give up on Ukrainians and give up on talking 
particularly to younger generations of Ukrainians about the 
possibility of change and improvement in their country.
    Senator Shaheen. Thank you.
    Senator Barrasso.
    Senator Barrasso. Thank you, Madam Chairman.
    This is a followup, and they may feel that they have 
completely answered this. Due to the geographic location, the 
cultural history, the aspirations for the future of the people 
of Ukraine--I believe people will continue to search for the 
right balance in terms of its foreign policies. Is there a way 
for Ukraine to successfully balance its relationship with the 
West as well as Russia? You all alluded to that in the last 
answer. I do not know if there is something else you would like 
to add.
    Ambassador Pifer. I do not think it should be, nor does it 
have to be, for Ukraine an either/or choice. Ukraine should be 
able, on the one hand, to have a stable, constructive 
relationship with Russia, which I think most Ukrainians want. 
They do not want to have difficult relations with the Russians. 
And Ukraine also can have, I think, a strong and growing 
relationship with Europe and the transatlantic community. So it 
can do both. What is holding it back now though, is the 
decisions that President Yanukovych is making regarding 
democracy within his country, and that is preventing the 
development of the relationship with particularly the European 
Union that might be possible.
    Mr. Wilson. I would just add that part of the challenge 
here is Russia's approach is a very clear perspective on 
privileged interests, fear of influence. And in that context, 
balance does not work.
    If you look at Poland, the Baltic States, by their being 
able to join NATO and join the European Union, once they were 
safely embedded in the institutions of the transatlantic 
community, they actually had the stability, the confidence to 
be able to manage more cooperative, constructive relationships 
with Russia. Without that, the Russians were not willing to 
respect certain limits, respect certain sovereignty.
    And I think that is the challenge that Ukraine will face. 
When will Russian leaders be prepared to honestly treat and 
think of Ukraine as a sovereign, independent nation? And it 
does not just work to be equidistance or to balance. It 
requires, I think, a greater Ukrainian integration into a 
broader community of shared values, interests, and norms to be 
able to help check some of those Russian tendencies and provide 
the Ukrainians the confidence and the capability to be able to 
manage a healthy relationship with Russia. But right now, I see 
it very difficult for the Russians opening the door being 
willing to have that kind of healthy relationship.
    Senator Shaheen. Senator Risch, any other questions?
    Senator Risch. No other questions.
    Senator Shaheen. I just have one final question. Mr. 
Wilson, you pointed out that one of the tests upcoming will be 
the parliamentary elections this year. And I wonder if you all 
could--both you and the Ambassador and Mr. Chow, if you have 
any views as well--what concerns you have about seeing those 
elections go forward in a way that ensures that they are free 
and fair and what can the United States and Europe do to help 
make that happen. So, Mr. Wilson, do you want to go first?
    Mr. Wilson. Madam Chair, I do believe this is a critical 
issue on our policy agenda right now. President Yanukovych was 
elected in free and fair elections that represented the fourth 
in a series of free and fair elections in Ukraine. That is very 
significant in the post-Soviet space. The first election that 
happened under his watch, the local elections in 2010, were 
seriously flawed. There was a real regression in terms of the 
conduct of elections. This will be the first parliamentary 
elections under his Presidency, and I think, first of all, I 
already have very serious concerns because, despite two 
successful, free and fair parliamentary elections already, the 
ruling party with singular focus decided to pursue a change in 
the electoral code, one that when most analysts look at this 
mixed system which increases the number of majoritarian seats, 
it has a tendency to benefit the ruling incumbent party. So, 
one, I am already quite concerned and skeptical as to why 
Ukraine needed to go through yet another electoral code. It is 
as if the party in power continues to change the rules of the 
game to support itself each electoral cycle. There needs to be 
continuity and stability in electoral code in Ukraine.
    Second, I think by trying to keep Tymoshenko in prison is 
trying to hamstring the opposition in this effort.
    And third, I think part of the key issue right now--part of 
the United States--its support with Europe that was so valuable 
in the runup to the Orange Revolution was our support to 
Ukrainian civil society organizations that could do election 
monitoring, that could conduct exit polls, that could manage 
parallel vote counts, that were part of the fabric to do media 
monitoring. I think right now we are not as far along as I 
would like to see us. I think USAID should already be 
committing its grants, already be pushing this money out to 
help support Ukrainian civil society organizations, as well as 
IRI, NDI, other American actors, to set the right table for the 
elections this fall. The default option is that these are going 
to be dirty, they are going to be tough, and they are likely to 
be tilted. But I do think Ukrainian actors have been involved 
in checking these practices in the past, and I think United 
States and European policy needs to be doing what it can today 
to maximize their capability to check that in the fall.
    Senator Shaheen. Ambassador.
    Ambassador Pifer. Two points which really build on what Mr. 
Wilson said.
    First of all, there needs to be--and I think the United 
States and European Union are already providing this message, 
but there needs to be just a continuous message hammered home 
on Kiev of the importance of democracy within Ukraine for 
Ukraine's relationship with the West. We must leave no doubt in 
the minds of Mr. Yanukovych and the Ukrainian leadership that 
if these elections are bad elections, there will be significant 
consequences for the relationship that they hope to build with 
Europe and the United States.
    And then I would also agree with Mr. Wilson, what we have 
seen in Ukraine is actually a very heartening development in 
terms of civil society organizations. Already 10 years ago, the 
Ukrainians had organizations that were very well set up to 
monitor elections. So, for example, in preparation for their 
2002 parliamentary elections--and I was still in the 
Government. I had a chance to visit Kiev. I mean, they had one 
group that was monitoring electronic media, one group 
monitoring print media, one group that was organizing exit 
polls. So there are organizations on the ground in Ukraine that 
know how to do this, and they are going to be a lot smarter 
than American or European observers in catching fraud. So we 
ought to be directing assistance to them so that they can do 
the job that we know they can do.
    Senator Shaheen. Thank you. Yes, I was actually in Armenia 
for the parliamentary elections in 2003, and there were a 
number of Ukrainian observers there and they were very 
sophisticated.
    Mr. Chow, did you want to add anything to that?
    Mr. Chow. I will allow myself to venture beyond my 
competence.
    [Laughter.]
    I have observed, as a private citizen, a couple of 
elections in this part of the world before. And I will just 
say, to underscore what my colleagues have already mentioned, 
that the messaging from us, the West, to the authorities and to 
the Ukrainian people need to be starting now and not on 
election night. Elections are not only rigged on election 
night, as you well know. Lots of conditions, rules of the game 
are already being implemented now. By the time we object the 
day after the election, it will be too late to have an impact. 
So if we want to have an effect, then we ought to be saying 
something sooner rather than later.
    Senator Shaheen. Thank you very much. I think we all share 
that.
    As we are closing this panel, I want to just make clear for 
the record that the letter that I referenced earlier from the 
Embassy will be submitted for the record on this hearing.
    And I also have another report that I will be submitting 
called ``Open Ukraine.'' I had the opportunity in December to 
host an event for the Johns Hopkins Center for Transatlantic 
Relations called ``Open Ukraine'' that produced a policy report 
outlining some important recommendations for both the United 
States and Europe. And so I want to make sure that that report 
is also submitted for the record.
    Senator Shaheen. So thank you all very much for joining us. 
We very much appreciate your views. And I will, at this point, 
close this first panel and ask Ms. Tymoshenko if she would join 
us at the table.
    On our second panel, we have a special guest from the 
Ukraine, Ms. Eugenia Tymoshenko. Ms. Tymoshenko is a graduate 
of the London School of Economics, a businesswoman and 
restaurateur. She has previously worked for the International 
Development Fund and is the Honorary President of the Festival 
of Arts for Orphans and Disadvantaged Children in Ukraine.
    Today she is here on behalf of her mother, former Prime 
Minister Yulia Tymoshenko. Eugenia has been devoting her time 
to fighting for the release of her mother from prison. We are 
very pleased to have you here today. We look forward to your 
testimony.
    And I would just point out that I understand you have an 
important appointment shortly. And so we will try not to keep 
you too long. Thank you very much for being here.

             STATEMENT OF EUGENIA TYMOSHENKO CARR,
                         KIEV, UKRAINE

    Ms. Tymoshenko Carr. Thank you, Senator Shaheen and 
distinguished members of the committee, ladies and gentlemen. 
Thank you for granting me, a citizen of Ukraine, the privilege 
of coming here to speak to the Senate today and, through you, 
to the citizens of America. It is such an honor for me to be 
here in this hallowed place, but I know that you are truly 
honoring my country, my mother, and other political prisoners 
by inviting me here to discuss this issue in this moment of 
grave danger for Ukrainians' liberty, even for our independence 
as a nation.
    Thank you for being able at last to speak of injustice in 
these cases of political repression and to be heard and to find 
the solution.
    I am very glad to see that you are from New Hampshire, 
Senator Shaheen. My mother has always admired your State motto: 
``Live Free or Die.''
    I want to discuss what is happening in Ukraine today and 
given the daily threats of what is left of our democracy. I was 
able to witness the court proceedings and the show trial that 
happened in Ukraine during the repression where actors such as 
judges and prosecutors were acting as puppets of the President 
with no regard to the rule of law. I continue to witness this 
cynical miscarriage of justice every day following my mother's 
case and being able to see her in prison.
    I want to begin with the sad and amazing words taken from 
the Internet petition to free my mother filed by Bishop Paul 
Peter Jesep where he quoted the French thinker Montesquieu, and 
it says: ``There is no greater tyranny than that which is 
perpetrated under the shield of law and in the name of 
justice.''
    My mother has been illegally imprisoned, maltreated, and 
humiliated for 6 months by the regime which is trying to break 
her. Despite the immense psychological pressure and constant, 
unbearable pain, she did not break. Her spirits are high. I can 
say that emphatically, but her health is failing. When I see 
her, I must lift her from her bed. She can barely walk. Yet, 
she still works and not only to fight all the legal mud that is 
being thrown at her, but to unify all of Ukraine's democratic 
forces to challenge President Yanukovych and the repressive 
clan that rules with him.
    My mother went into politics and took up the great task to 
free her country of injustice, absence of rule of law, and 
corruption left from Soviet past so that we young Ukrainians 
would not need to devote our lives to do the same. One of the 
major failures was and now remains corruption. She chose to go 
against the system, refused to be part of corrupt schemes, and 
ended up facing the system alone, letting it destroy her 
business, putting her, her family, and friends behind bars on 
falsified charges.
    That happened 10 years ago when my mother was Vice Prime 
Minister for Energy, and when she managed to remove corruption 
in the energy sector and restored financial functioning in this 
sector that is still intact. When the country's leadership 
resisted her reform efforts and imprisoned her for the first 
time, she was freed and organized massive protest movements. 
These protests later grew into the Orange Revolution where she 
became an icon for democratic victory in Ukraine.
    While Prime Minister, even though she had limited control 
but big responsibilities, she fought for major reforms and 
country's well-being. Despite her transparent efforts, she was 
many times betrayed for her refusal to compromise country's 
well-being for her own. After 2009 gas negotiations with 
Russia, when she had removed the corrupt gas trading middleman, 
RosUkrEnergo, she brought the transparency back into the gas 
trade, but became enemy No. 1 to those who were trying to 
monopolize the energy market and who are in power now.
    What we are witnessing in Ukraine is such a twisting of the 
rule of law that it is not possible to distinguish illegality 
from legality. It is hard to see the line between the law and 
abuse of law.
    My mother is imprisoned under an old Soviet-era criminal 
code of 1960 that criminalizes political decisions. It is 
important to know that there was no accusation or evidence 
introduced in the court that my mother had personally gained 
from negotiating the gas deals that ended the European gas 
crisis back in January 2009.
    Politically motivated charges, of which my mother was found 
innocent by Supreme Court 6 years ago, have also been reopened 
with no legal basis. The statute of limitations is also 
ignored. They have been reopened for only one reason, to try to 
destroy her reputation in the EU and USA and to put more 
psychological pressure by prosecuting my father, my 
grandfather, her colleagues, and friends.
    Her cell in Kachanivska prison outside of Kharkiv, far from 
her family and friends, is not a dungeon, as you may be 
relieved to know. But the Yanukovych regime does not need to 
use medieval surroundings to get medieval results. Instead, 
they are using the modern techniques of sleep deprivation and 
intimidation to try to break her. This includes 24 hours lit 
room and 24-hour video surveillance. Lately they have 
introduced a close-up surveillance camera so that they can see 
what she is writing to me, to her husband, to her supporters 
around the world.
    They say it is done for her protection, but I doubt it. 
When she fell unconscious for 2 hours due to a sudden, 
mysterious loss of blood pressure, no help came, as her 
cellmate tried to revive her for 20 minutes. They waited for a 
doctor to come, and when the doctor arrived, they did not even 
call an ambulance. She could have died that night. But we only 
found out about this incident 3 days later from her and her 
cellmate. Later, they say they would lose the video archive. It 
is clear why she stopped trusting the ministry doctors and why 
she refuses to see them and to make their false diagnosis.
    Many other outrageous breaches of her rights, the rule of 
law I can mention, like illegal second arrest delivered by the 
court that took place in her cell and lasted for 12 hours when 
she was bed-ridden and in pain. It is illegal in Ukraine to 
have a court hearing in the cell and, more than that, to arrest 
the person for the second time. There was also impossibility 
for her defense to build up the strategy and to defend her in 
the proper way.
    We are told that they plan to move her now to a new cell 
with other seven people, make her to wear uniform, and work 
despite her illegal sentence and constant pain.
    I have no doubts that the verdict against my mother was 
sought and approved by President Yanukovych. She is, according 
to recent polls, his main political opponent and more popular 
than him.
    But I do not want you to think that this is only about my 
mother. It is not. Others are being repressed and unjustly 
imprisoned.
    Her former colleague, Minister of Interior Yuri Lutsenko, 
has been imprisoned for over a year on charges that would be 
laughable if they were not so tragic. He is charged with hiring 
a driver past the retirement age and of spending $2,000 over 
budget to mark Ukraine's national police day. I do not know 
American political practice very well, but I cannot imagine a 
former Cabinet Minister be jailed for over a year without a 
trial on such charges.
    And there are others. The son-in-law of Supreme Court 
chairman was arrested on the day his wife gave birth in order 
to intimidate that Justice into resigning. Former Acting 
Minister of Defense, Valery Ivashchenko, has been imprisoned 
for almost 2 years with his health severely deteriorating. They 
are all repressed and humiliated because of their political 
views. They courageously stood up to the regime and the 
injustice and fear it is sowing.
    The situation with political prisoners is just the tip of 
an iceberg, and the situation is direct evidence of a much 
graver problem, political crisis that the regime is creating by 
continuous abuse of criminal justice system. Politically 
motivated prosecutions of former government officials, civil 
society activists, and prosecutions of human rights defenders 
ignore the rule of law. The bottom line is that no law 
enforcement agency dares to make a move to prosecute the 
political opposition without the instruction of the President.
    I believe that the current situation, as described in the 
recent European Parliament and the Parliament Assembly of the 
Council of Europe resolutions, require urgent action.
    Numerous legal infringements of the European Convention of 
Human Rights were listed and explained in three reports of the 
Danish Helsinki Committee, which was commissioned by the EU, 
and found the truth behind the political so-called criminal 
cases.
    Yanukovych spent millions of U.S. dollars hiring American 
audit companies and hoping that he can find traces of her 
corruption. Hundreds of her ex-coworkers were summoned for 
questioning. They were looking hard but never found and will 
never find.
    The current government's activities are not only ruining 
the image of Ukraine and Ukraine as a united nation, but also 
the profitable sectors of the economy that become paralyzed and 
eventually abandoned when the rule of law is ignored. 
Successful people prefer to leave Ukraine and our population is 
declining.
    Indeed, not even our constitution has survived Yanukovych's 
contempt for law. To grab more power for himself, he simply 
junked it. His first breach of the constitution was signing a 
shameful Kharkov agreement with Russia which was nothing but a 
concession of Ukraine's national interests.
    I know that Ukraine must seem like a faraway place and that 
our problems must also seem distant from the concerns of 
Americans at this difficult time for America. But just as no 
man is an island unto himself, no democracy is an island. When 
one nation is allowed to be hijacked, all democracies are 
threatened.
    I am here today to answer your questions, Senator Shaheen, 
but also to plead that America do all that it can to preserve 
democracy in my country. My mother's plight has united many 
great, strong nations and amazing people, true heroes of our 
time to support political prisoners in Ukraine and fight for 
their release. It is paramount for Ukraine to have free and 
fair elections this fall, but it would be impossible without 
major opposition leaders.
    I know my mother strongly believes in democratic future of 
Ukraine and has consistently fought for it and continues to do 
so despite the risk for her life. Yanukovych wants her to write 
a letter publicly asking forgiveness and admitting her sins for 
him to pardon her. This will never happen as she never 
committed a crime, even according to the old criminal code. She 
will never let Ukraine fall back into the Soviet past. She is 
strong enough to do it and to win the elections if she is 
allowed to run. She has already succeeded in bringing 
fractioned opposition into one unified front.
    The enemies of democracy and freedom should not be welcome 
in a democratic society unless they correct their mistakes. I 
ask you to consider all possible ways to influence and to 
explain to them the consequences of their actions. But most of 
all, I ask you to speak out loudly and clearly so that the 
people of my country do not feel abandoned and lose hope.
    I want to thank you again and thank present administration, 
Secretary Clinton and President Obama for the support, but also 
mention that I really appreciate the statement made, according 
to the Associated Press, by the head of the security, by the 
head of the intelligence, Mr. Clapper, who said that democracy 
in Ukraine is under siege, and the charges against my mother 
and other political prisoners are politically motivated. And I 
just wanted to add that he is right in his statement.
    Thank you very much for your attention.
    [The prepared statement of Ms. Tymoshenko Carr follows:]

             Prepared Statement of Eugenia Tymoshenko Carr

    Thank you, Senator Shaheen. Thank you for granting me, a citizen of 
Ukraine, the privilege of coming here to speak to the Senate and 
through you, to the people of the United States. It is such an honor 
for me to be in this hallowed place, but I know that you are truly 
honoring my country and my mother by inviting me here to discuss with 
you this moment of grave danger for Ukraine's liberty, and our 
independence as a nation.
    I am very glad to see that you are from New Hampshire, Senator 
Shaheen. My mother has always admired your State motto: ``Live Free or 
Die.''
    I hardly know where to begin in discussing what is happening in 
Ukraine, given the daily threats to what is left of our democracy. 
Perhaps I ought to begin with the sad and amazing words taken from the 
Internet petition to free my mother, filed by Bishop Paul Peter Jesep, 
where he quoted the French thinker Montesquieu, and it says, ``There is 
no greater tyranny, than that which is perpetrated under the shield of 
law and in the name of justice.''
    My mother has been illegally imprisoned, maltreated, and humiliated 
for 6 months by the regime which is trying to break her. This didn't 
break her. Her spirits are high, I can say that emphatically, but her 
health is failing. When I see her I must lift her from her bed; she can 
barely walk. Yet she still works, and not only to fight all the legal 
mud that is being thrown at her, but to unify all of Ukraine's 
democratic forces to challenge President Viktor Yanukovych and the 
repressive clan that rules with him.
    My mother went into politics and put on her small shoulders the 
great task to free her country of injustice, absence of rule of law, 
and corruption left from Soviet past, so that we, young Ukrainians, 
would not need to devote our lives to do the same. She, unlike many 
young entrepreneurs in newly independent Ukraine, managed to build a 
big, successful corporation that helped restore the lost production and 
trade ties between ex-Soviet states. By doing that she uncovered most 
major failures of the old system. One of the major failures was and now 
remains--corruption. She chose to go against the system, refused to be 
part of corrupt schemes and, ended up facing the system alone, letting 
it destroy her business, putting her, her family, and friends behind 
bars and again on falsified charges.
    Ten years ago, when my mother was Vice Prime Minister for the 
Energy Sector, she managed to remove corruption in oil, electricity, 
and gas trading and restored financial functioning in this sector. When 
the country's leadership resisted her reform efforts she organized 
massive protest movements. These protests later grew into the Orange 
revolution, which she helped to lead and supported a person for 
President she believed would lead the country into democratic victory.
    While Prime Minister, even though she had limited control but big 
responsibilities, she fought for major reforms and country's well-
being. After she had removed the gas trading monopolist, RosUkrEnergo, 
she became enemy number one, to those who were trying to monopolize the 
energy market and who are in power now. She ended up illegally 
imprisoned, convicted, and tortured for not playing by the rules of 
their game, not complying with their orders that were detrimental to 
Ukraine.
    Her cell in Kachanivska prison outside of Kharkiv, far from her 
family and friends, is not a dungeon you may be relieved to know. But 
the Yanukovych regime does not need to use medieval surroundings to get 
medieval results. Instead, they are using the modern techniques of 
sleep deprivation and intimidation to try and break her. They won't 
succeed. They are able to deny her a restful night's sleep because her 
cell is kept lit and she is filmed and watched 24 hours a day. Lately, 
they have introduced a closeup surveillance camera so that they can see 
what she is writing to me, to her husband, to her supporters and to the 
world.
    They say it is done for her protection but I doubt it. When she 
fell unconscious in her cell due to a sudden mysterious loss of blood 
pressure, no help came, as her cellmate waited for 20 long minutes for 
a doctor to come in, who didn't even call an ambulance. She could've 
died that night. We found out about the incident 3 days later from her 
and her cellmate. Later, they would ``lose'' the video archive and 
would make her cellmate rewrite her witness statement.
    You will not be surprised to learn that since her incarceration and 
the constant pressure the regime has placed on her, my mother has 
developed serious health problems, which have gone untreated. The 
regime will say that this is my mother's own choice. But can anyone 
seriously expect her to trust her physical well-being to a regime that 
directs doctors to falsify their diagnoses. Her only request is to be 
examined by her own doctors, or independent doctors from abroad. That 
does not seem unreasonable. People who keep her behind bars say: ``Of 
course, yes, yes,'' then nothing happens. But no one should be 
surprised by that. As European leaders have learned all too well over 
the past year, Yanukovych can't be trusted to keep his word.
    The intimidation that my mother is enduring comes from the fact 
that the regime and its prosecutorial henchmen keep piling criminal 
charge upon criminal charge, so that my mother and her small team of 
lawyers are simply overwhelmed. Against all legal norms, she is 
interrogated in her cell, sometimes for 12 or more hours consecutively. 
She is given inadequate time to review the documents that will be used 
against her in the next court hearing. It was clear at the first trial 
and at the appeal court that my mother was convicted before the 
evidence was heard. She was even denied a closing statement and 
evidence that would have proven her innocence was not admitted. Over 
100 other motions made by the defence team were denied.
    I have no doubts that the verdict against my mother was sought and 
approved by President Yanukovych. She is, according to recent polls, 
his main political opponent and more popular than him.
    But I don't want you to think that this is only about my mother. It 
is not. Others are being repressed and unjustly imprisoned.
    Her former colleague, Minister of Interior Yuri Lutsenko, has been 
imprisoned for over a year on charges that would be laughable if they 
were not so tragic. He is charged with hiring a driver past the 
retirement age and of spending $2,000 over budget to mark Ukraine's 
national police day. I don't know American political practice very 
well, but I can't imagine a former cabinet minister be jailed for over 
a year without trial on such charges.
    And there are others. The son-in-law of a Supreme Court Chairman 
was arrested on the day his wife gave birth, in order to intimidate 
that justice into resigning. Former Acting Minister of Defence Valery 
Ivashchenko has been imprisoned for almost 2 years, with his health 
severely deteriorating. They are all repressed and humiliated because 
of their political views. They courageously stood up to the regime and 
the injustice and fear it is sowing.
    Unfortunately Ukraine turns into an authoritarian regime with 
leaders of the opposition sitting in jail.
    What we are witnessing in Ukraine is the continuous abuse of the 
criminal justice system. Politically motivated prosecutions of former 
government officials, civil society activists and prosecutions of human 
rights defenders ignore the rule of law. I believe that the current 
situation, as described in the recent European Parliament and 
Parliamentary Assembly of the Council of Europe resolutions, requires 
urgent action.
    To say that prosecution of the opposition is just a problem of the 
outdated legislation is to miss the obvious. It's really not so much 
the law at fault but how it is enforced. Ukrainian authorities 
cynically blame the law while everyone knows that the prosecution 
system and the judiciary is under the complete control of the governing 
party via the so-called High Council of Justice, which is controlled by 
President Yanukovych. No law enforcement agency dares to make a move to 
prosecute the political opposition without instruction from the 
President.
    Numerous legal infringements of the European Convention of Human 
Rights were listed and explained in three reports of the Danish 
Helsinki Committee, which was commissioned by the EU, to find the truth 
in the political, so-called ``criminal'' cases. This shows a systematic 
prosecution of the opposition or people close to it. And my mother is 
the main target.
    What we are witnessing in Ukraine is such a twisting of the rule of 
law that it is impossible to distinguish illegality from legality, hard 
to see the line between law and abuse of law. My mother is imprisoned 
under an old Soviet Era Criminal code of 1960, that criminalizes 
political decisions. Even as out-dated as they are, they have been 
applied illegally in her case. It is important to know that there was 
no accusation or evidence introduced in the court that my mother 
personally gained from negotiating the gas deals and ending the 
European gas crisis in January 2009. Two letters filed by acting 
Minister of Justice, Mr. Lavrynovich, and ex-Prosecutor General, Mr. 
Medvedko, state the same. The state gas trading company ``Naftogas'' 
has recently issued a statement, that calculation of losses that my 
mother is charged with, was done under severe pressure from the General 
Prosecutor's Office.
    Politically motivated charges of which my mother was found innocent 
a decade ago have also been reopened, with no legal basis. Past Supreme 
Court rulings are being ignored. The statute of limitations is also 
ignored, as some of the charges now being brought against my mother for 
her business activities stem from 15 and 16 years ago. They have been 
reopened for only one reason, to destroy her reputation in the EU and 
the USA.
    These new cases can take care of a few other problems for 
Yanukovych's government. She will stay in jail despite the European 
Court of Human Rights' decision, if it is in her favour. They put more 
psychological pressure on her by prosecuting and charging her husband, 
her father-in-law, and ex-colleagues.
    Yanukovych and his team are trying to do everything possible to 
charge my mother with corruption. They hope the smallest hint of 
corruption will confuse Western politicians and make them turn their 
back on Ukraine and on her. And that's what Yanukovych's administration 
is trying to achieve. They spent millions of U.S. dollars hiring 
American audit companies in hoping they can find traces of her 
corruption. Hundreds of her ex-coworkers were summoned for questioning. 
They were looking hard, but never found anything and they never will.
    The current government's activities are not only ruining the image 
of Ukraine, and Ukraine as a united nation, but also the profitable 
sectors of the economy, that become paralyzed and eventually abandoned, 
when the rule of law is ignored. Successful people prefer to leave 
Ukraine and our population is declining.
    Indeed, not even our Constitution has survived Yanukovych's 
contempt for law. To grab more power for himself, he simply junked it. 
His first breach of the Constitution, was signing a shameful Kharkov 
agreement with Russia which was nothing but a concession of Ukraine's 
national interests. The lease of Sevastopol naval base to Russia was 
supposed to give Ukraine a major discount on Russian natural gas, but 
at the end of the day Yanukovych got a price $100 higher than my mother 
did in 2009. By this standard, he and not my mother should be in prison 
if the law was applied equally.
    I know that Ukraine must seem like a faraway place, and that our 
problems must also seem distant from the concerns of Americans at this 
difficult time for America. But just as no man is an island unto 
himself, no democracy is an island. When one nation's is allowed to be 
hijacked, all democracies are threatened. Ukraine exists in a fragile 
neighbourhood, where war broke out just a few years ago across the 
Black Sea in Georgia.
    I am here today to answer your questions, Senator Shaheen, but also 
to plead that America do all that it can to preserve democracy in my 
country. My mother's plight has united many great, strong nations and 
amazing people, true heroes of our time who are trying to get her and 
other political prisoners out of jail. We are hoping for your support. 
It is paramount for Ukraine to have free and fair elections this fall, 
but it would be impossible without major opposition leaders.
    I know my mother will not let Ukraine fall back into the Soviet 
past. She is strong enough to do it and to win the elections if she is 
allowed to run. She has already succeeded in bringing fractioned 
opposition into one united front.
    The enemies of democracy and freedom should not be welcome in a 
democratic society unless they correct their mistakes. I ask you to 
consider all possible ways to influence them and to explain to them the 
consequences of their actions. But most of all, I ask you to speak out, 
loudly and clearly, so that the people of my country do not feel 
abandoned and lose hope.

    Senator Shaheen. Thank you very much for being here and for 
your eloquent testimony. You point out, as the previous panel 
did, that this is about more than just the case of your mother, 
as difficult as that is personally, but it is also about 
selective persecutions and rule of law and really moving the 
democratic process backward in Ukraine, unfortunately, rather 
than keeping it moving forward.
    Can you talk a little bit about how the public in Ukraine 
has reacted to your mother's imprisonment?
    Ms. Tymoshenko Carr. Well, of course, during the beginning 
of the court, there were many people coming, joining us and the 
family and the team outside the court. And we could see many 
supporters even throwing themselves under the prison van when 
my mother was taken, when she was arrested on the 5th of 
August. But the amount of the military forces and police forces 
accumulated there brutally stopped any kind of protests by the 
court and actually the protests after that were maybe not so 
numerous but were definitely less in number than the military 
and the police.
    A lot of statements and appeals to free her were made by 
the local elite, by the actors, intelligentsia, by the leaders 
of our civil society. I mean the support was and still remains 
unprecedented. I mean, the support is growing and she has 
become more popular now than Yanukovych and his party.
    Senator Shaheen. You talked about the statement of National 
Security Director Clapper and I talked a little bit about the 
letter from Secretary Clinton to your mother. Are there other 
actions that the United States can take to demonstrate our 
support for your mother's release and how has your mother 
responded to some of those statements?
    Ms. Tymoshenko Carr. Well, I think she only holds on 
because of the support of the democratic world now, and now we 
see that the pressure is building because the repressions are 
becoming worse in Ukraine. And of course, we are here to ask 
you to keep up this pressure because, as we see with other 
cases around the world of political prisoners, this helps. And 
the more we make sure that the regime and the people who are 
persecuting their opposition in Ukraine should know that they 
are under watch and their course of action should be changed.
    We could also ask about restrictive measures to those in 
particular who are creating this political repression and 
cynically continuing to do so despite signals from the 
democratic world. Of course, it is my mother's and Mr. 
Lutsenko's and other prisoners' concern that Ukrainian nation 
does not suffer from such actions.
    Senator Shaheen. Thank you.
    I understand that your father was recently granted 
political asylum in the Czech Republic, I understood because 
there were some concerns that he might also be arrested. Are 
you hearing that about others who have been part of the 
opposition, and are you afraid for your own safety?
    Ms. Tymoshenko Carr. Well, thank you for this question.
    The old cases that have been reopened against my mother 
actually have been reopened also against the members of my 
family and against her ex-colleagues and friends, and there is 
a tremendous pressure that these people will be put and were 
put under prosecution. And my grandfather, who is a victim of 
stroke--he can't even move--he has been put under investigation 
now with no legal basis as well.
    At least the people who are under prosecution now--and 
every day we found more and more. They are mostly members of 
the opposition like the ex-governor of Kharkov, Mr. Avakov, who 
has been recently now also put under investigation. Her house 
has been searched by people in masks without any legal basis. 
And he had to flee the country. This, I am afraid, will 
continue.
    Senator Shaheen. Thank you very much.
    Senator Menendez.
    Senator Menendez. Thank you, Madam Chair. Thank you for 
holding this hearing. I think it is incredibly important. It 
seems to me that the Ukraine is at a crossroads. It is 
backsliding on human rights. Corruption is on the rise. The 
energy sector has great potential, but it seems to be largely a 
mess right now. And I think its political leaders have to 
decide where it wants to hitch its wagon in the future: to the 
West or to Russia.
    It is of real concern to me, as someone who cares very much 
about democracy and human rights on this committee, that while 
the Orange Revolution was a success, its leaders, obviously, 
have not followed the spirit of that revolution at the end of 
the day. Freedom of the press is restricted. The 2010 local 
elections were largely a sham, and we have the present set of 
circumstances that we are talking about.
    So I really appreciate the chair's leadership in calling 
this hearing.
    Ms. Tymoshenko, I appreciate your coming before the 
committee. I personally believe your mother is a pioneering and 
incredibly strong woman who is an example for all people who 
care so much about their country that they are willing to 
endure extraordinary hardship and not just lay down the face of 
oppression. And I think having you in this panel at this 
hearing is an extraordinary way to inform the American people 
about your mother.
    I am wondering what else you think my Senate colleagues, 
who might pay some attention here, can do to make sure that 
more people learn about her situation and keep the pressure on 
the Ukrainian authorities to seek her freedom?
    Ms. Tymoshenko Carr. Thank you, Senator.
    Well, I wanted to mention the resolution that was recently 
passed in the Parliamentary Assembly of the Council of Europe, 
and it states very strong points on ways out of this political 
crisis and names a few solutions which is humanitarian release, 
but actually unfortunately now it became not as much as a 
political but humanitarian problem for the people illegally put 
behind bars because of their health and maltreatment. But also 
it is calling President Yanukovych to use all constitutional 
means to solve the situation and to release the political 
prisoners. So we wanted to urge you to act upon this resolution 
and to join in the efforts with EU to follow this up and put 
the pressure more according to the points to the Government of 
Ukraine.
    Senator Menendez. Well, I appreciate that. I am concerned 
by the trajectory in the Ukraine, as the human rights situation 
worsens it is starting to remind me of the shameful conditions 
of the Soviet era in which the yokes were broken from. I know 
your mother worked very hard to throw off the tyranny of the 
Soviet past, and to see her and other opposition leaders in 
jail is a reminder that no one is safe in today's Ukraine. And 
so I hope, Madam Chairman, that for our bilateral relationship 
the State Department is focused on changing the course of 
events.
    I am also very concerned about the growing economic 
relationship between the Ukraine and Russia, not in the context 
of a relationship that any two countries might have in a 
bilateral way, but especially as it relates to energy 
cooperation. That it is ultimately perverting the views of what 
the Ukrainian society and democracy should be about.
    I know you are here primarily to focus on your mother's 
freedom, which I fully understand. I am wondering whether you 
have a view as to how we convince President Yanukovych to look 
at Ukraine's path in the future and economic prosperity, not to 
a return to Soviet-style centralized government, but to release 
the power and the dignity of the Ukrainian people as well as 
their ingenuity and intellectual ability to make for a better 
Ukraine.
    Ms. Tymoshenko Carr. Thank you.
    I wanted to stress again that this case is not just about 
my mother. My mother is just an example of such repressions 
that happen. As you said, if it is happening, it can happen to 
leaders of opposition, the people who are popular now and enjoy 
majority support in the country, then what can happen to a 
simple citizen of Ukraine? And this is the crisis that touches 
everyone, all the Ukrainian citizens, and actually the 
surrounding countries that Ukraine is really the remaining 
democracy and had a very strong chance to restore the democracy 
if the elections in autumn will happen and will be fair and 
free. And that could only happen if the opposition leaders are 
present there.
    So when the Parliament or Assembly of the Council of Europe 
demanded for President Yanukovych to use all constitutional 
means to free political prisoners, it also urged him to amnesty 
these political prisoners and let them take the rightful parts 
in the parliamentary elections so that people of Ukraine can 
vote and choose and judge rather than the manipulated courts.
    So I think the actions of Yanukovych and his team are now 
isolating Ukraine, and their playing off the interests against 
Europe and Russia just led us to more isolation. And I think 
that in order to save democracy, the only way is to urge and 
pressure our government and Yanukovych to change his course 
even maybe by applying certain restriction measures to their 
luxuries and wealth that they allow themselves, unfortunately, 
at the moment.
    Also Transparency International recently made a statement 
of the massive corruption going on in preparation to Euro 2012, 
and there are many examples, unfortunately, of such corruption.
    Senator Menendez. Thank you.
    Thank you, Madam Chair.
    Senator Shaheen. Thank you very much, Senator Menendez.
    And thank you, Ms. Tymoshenko, for being here.
    Ms. Tymoshenko Carr. Thank you very much. It is an honor.
    Senator Shaheen. We will continue to follow what goes on in 
the Ukraine very closely.
    I appreciate all of the witnesses' testimony today.
    The record will be open until close of business on Friday.
    At this time, I would like to close the hearing.
    [Whereupon, at 4:14 p.m., the hearing was adjourned.]
                              ----------                              


                   Material Submitted for the Record


 Johns Hopkins Center for Transatlantic Relations Report ``Towards an 
                 Open Ukraine: Policy Recommendations''

    Ukraine is one of the biggest, but also the second poorest country 
in Europe after Moldova. Given its territorial size, its geographic 
position, its almost 50 million population and its role as the main 
transit state for Russian oil and gas exports to central and western 
Europe, Ukraine has been a critical strategic factor for Euro-Atlantic 
and Eurasian security in the two decades of its independence. Today, it 
stands at a critical crossroads between developing a more open society 
increasingly integrated into the European space of democracy, 
prosperity and market-based economics grounded in respect for human 
rights and the rule of law, or an increasingly autocratic system, mired 
in the economic stagnation and political instability that is 
historically characteristic of Europe's borderlands. The choice is 
straightforward: Ukraine can either join the European mainstream or 
remain in a gray zone of insecurity between Europe and Russia.
    The following recommendations outline how Ukraine could move away 
from immobility in the gray zone of domestic and international politics 
in which it finds itself, break its reform logjam and become an Open 
Ukraine--a democracy accountable to its people with a socially 
responsible market economy, governed by an administration that respects 
the rule of law, fights corruption and that can effectively implement 
needed reforms, and that is increasingly integrated into the European 
mainstream. These proposals are intended to expand the horizons of 
Ukrainian elites and opinion leaders and equip them with concrete 
reasons to move from short-term ``momentocracy'' to a more powerful 
vision that could guide their country. They also suggest ways Ukraine's 
neighbors can make the costs and benefits of Ukraine's choices clear.
                 political reforms and democratization
    Ukraine's fundamental problem has been government dysfunction with 
leaders changing the constitution and election laws to deny power to 
the opposition or maximize power for themselves after elections. For 
Ukraine to have more effective governance, it must tackle seven 
interrelated challenges: switching from a presidential to a 
parliamentary political system, which is better suited for encouraging 
democratization; parliamentary and legislative reform; administrative 
reform; strengthening the rule of law; judicial reform; eradicating 
systemic corruption; and strengthening civil society and independent 
media.

   Switch to a Parliamentary System. The scholarly and policy 
        debate has been extensive whether presidentialism or 
        parliamentrism is best suited for countries in transition. Of 
        the 27 post-Communist states, those with successful democracies 
        in Central-Eastern Europe have adopted parliamentary systems 
        while authoritarian regimes in Eurasia are primarily bult on 
        Presidential systems. Parliamentary systems have therefore been 
        successful in promoting democracy and European integration than 
        presidential systems. Over two decades Ukraine has had a 
        presidential system for a decade (1996-2005) and again since 
        2010 when the Constitutional Court ruled under pressure from 
        the executive that constitutional reforms adopted in December 
        2004 and going into effect after the March 2006 elections were 
        ``unconstitutional'' (the same Court had refused to consider 
        the same question under President Viktor Yushchenko). 
        Presidentialism in Ukraine has stifled democratic developments, 
        encouraged authoritarianism, promoted censorship of the media 
        and became a nexus of corruption and illegality. Unelected 
        regional governors, which duplicate elected local councils and 
        mayors, have traditionally been at the center of election 
        fraud, patronage and corruption. Abuses of presidentialism are 
        clearly evident under President Viktor Yanukovych who has 
        sought to maximize power at the expense of Parliament, the 
        Cabinet, regions and local councils.
   Parliamentary and Legislative Reform. A strong and 
        independent legislature is vital for jump-starting the reform 
        process in Ukraine, yet the Ukrainian parliament turned into a 
        rubber-stamp body with minimal political authority. Open 
        Ukraine requires legislation, drafted in a transparent manner 
        and be open to public deliberation, that would ensure a level 
        playing field for competing political parties and their fair 
        representation in the Parliament. The mixed system, adopted in 
        November 2011 ignoring recommendations by the Council of 
        Europe's Venice Commission, prevents this by skewing election 
        results in favor of the Party of Regions. Provisions for full 
        disclosure of candidates' funding sources and for challenging 
        election results are essential for a democracy. The law should 
        limit the ability of electoral commissions to interfere with 
        the electoral process. The parliament's role in choosing 
        candidates for Cabinet positions must be revived. It must also 
        have strong oversight powers over the executive. Internal rules 
        for coalition formation should prioritize party factions over 
        individual deputies; the majority coalition should be formed 
        based solely on parties elected to the parliament and not, as 
        has been the tradition until now, of new parties and factions 
        created after elections within the life of parliaments. There 
        should also be a strict enforcement of the rules requiring 
        deputies to vote individually (that is, a halt to the 
        widespread practice of absentee voting) and disclose their 
        personal incomes. The legislative process should be streamlined 
        to improve the quality of legislation, possibly with the 
        assistance of a Council of Foreign Advisers as was the case in 
        the first half of the 1990s.
   Administrative Reform. The executive needs to be streamlined 
        and decentralized to allow for more effective and accurate 
        application of law. Many government ministries and state 
        committees have overlapping responsibilities, duplicating 
        functions and wasting resources.
   Strengthen the Rule of Law. In Ukraine the law continues to 
        be viewed as an instrument of partisan governmental power. That 
        which is construed to be ``illegal'' is whatever the government 
        in power finds to be politically expedient. Procedural 
        safeguards that are at the heart of a rule of law legal system 
        are absent or ignored. Ukraine should fundamentally and 
        profoundly transform its legal system if it is to spread 
        European values and the rule of law. This means coming to grips 
        with the legal system's catastrophic Soviet past; reforming the 
        legal academy; and reforming the laws, procedures and 
        mechanisms that remain in place as holdovers from Ukraine's 
        totalitarian legacy. The Prosecutor's office needs to be 
        overhauled or replaced. It has become highly compromised 
        through corruption and under Yanukovych it has returned to its 
        Soviet function as a state arm of repression.
   Judicial Reform. In a system that respects the rule of law, 
        judges are professional, independent and impartial; they are 
        not ``accountable'' to prosecutors. Prosecutors, in turn, do 
        not act as the partisan political arm of the government. That 
        is not the case in Ukraine today. The court system is 
        endemically corrupt, incompetent and subject to commercial and 
        political influence. Judges are routinely bribed to secure 
        convictions or release of those charged or to alter title deeds 
        in businesses in the widespread practice of corporate raiding. 
        The President exerts political influence over the judiciary 
        through the High Council of Justice, which is dominated by 
        representatives of the ruling party and the Chairman of the 
        Security Service, a direct conflict of interest. Ukraine's 
        judicial system is in dire need of overhaul. The competence and 
        jurisdiction of differing courts must be clarified. Training 
        and selection of judges need to be made more transparent and 
        meritocratic. Courts and judges require sufficient financing so 
        as to discourage corruption. Concepts along these lines were 
        approved five years ago, but have yet to be implemented. Court 
        proceedings should be made more transparent, impartial, and 
        effective. Procedures for mediation, independent arbitration, 
        and enhanced use of notaries should be introduced. The power of 
        the High Council of Justice to select or discipline judges 
        should be transferred to a nonpartisan body comprising of 
        authoritative and experienced judges, such as the High 
        Qualifications Commission. The President's and Parliament's 
        role in appointing or removing judges should be limited to mere 
        approval of the Commission's recommendations with few clearly 
        specified exceptions.
   Eradicate Systemic Corruption. The presence or absence of 
        rule of law in a society is closely related to the level of 
        corruption. Corruption has become endemic in Ukraine and is 
        growing; it has degraded the country's governance, undermined 
        its democracy, reduced public trust in state institutions, 
        distorted the economy, discouraged foreign direct investment 
        and been exported to Europe. To reduce corruption, Ukraine 
        needs political leadership committed to and greater societal 
        awareness that corruption impedes economic development, 
        democratization and European integration. Organizations and 
        individuals committed to combating corruption need to mobilize 
        behind specific, concrete initiatives--such as draft laws 
        regarding codes of criminal procedure, professional ethics, and 
        financial declarations by public servants. There is a wealth of 
        international experience on how to reduce corruption, 
        particularly from other post-Soviet or post-socialist 
        countries; Ukraine should take advantage of such experience.
   Strengthen Civil Society and Independent Media. Media 
        censorship under Yanukovych has not yet reached the level 
        characteristic of Kuchma's presidency and is different in 
        nature. Nonetheless, even though major media outlets in Ukraine 
        have not yet fallen fully under the government's control, their 
        independence has eroded substantially due to the excessive 
        interference of owners keen to remain on good terms with the 
        executive in news coverage. Television news is dominated by 
        good media coverage of the authorities and either paints the 
        opposition in a negative light or ignores them. Only print and 
        Internet-based media still function as an instrument of 
        accountability and a source of reliable news. Further 
        international assistance to these media outlets is vital for 
        supporting media pluralism.
                   economic growth and modernization
    During the last two decades Ukraine has moved from a command 
administrative system but has still to arrive at the final destination 
of a market economy, despite recognition by the U.S. and EU in 2005-
2006 of a ``market economy'' status. Ukraine's ``partial reform 
equilibrium'' is stuck between the Soviet past and European future and 
only concerted reforms will move the economy towards a Europeanstyle 
social market economy. Ukraine was hit hard by the global economic and 
financial crisis. The combination of weaker demand from Ukraine's 
trading partners, falling export prices, rising import prices and 
reduced access to international financial markets sliced GDP by 14.8 
percent in 2009, and it will take until 2013 to recover that lost 
ground. Inflation is hovering above 9 percent and unemployment at 8 
percent. The hryvnia, Ukraine's national currency, has lost almost half 
of its value against the U.S. dollar since July 2008. Pension 
expenditures increased from 9 percent of GDP in 2003 to 17.6 percent in 
2010, one of the highest levels in the world--yet pension fund revenues 
cover only two-thirds of expenditures, the rest being covered by 
transfers from the budget. Demographic pressures will increase the 
burden on the working population even further. Ukraine's successful 
accession to the WTO in May 2008, after 15 years of negotiations, was 
an isolated foreign policy achievement of the Yushchenko presidency. 
President Yanukovych launched reforms in summer 2010, but 
implementation has been very slow due to a lack of political will, 
populist concessions ahead of parliamentary elections in 2012, and a 
deficit in government capacity to draft EU-compatible legislation. The 
refusal to implement further stages of the 2010 MF agreement, including 
raising household utility prices for a second time, has led to the 
suspension of IMF tranches. It is imperative that Ukraine return to the 
IMF agreement in order to introduce reforms and boost foreign investor 
confidence.
    The following areas are urgent on the road to an Open Ukraine:

   Pension reform has been long delayed, yet is critically 
        important for restoring Ukraine's financial sustainability. The 
        IMF demand to raise the pension age from 55 to 60, as part of 
        the July 2010 agreement for Ukraine, was adopted by parliament 
        in 2011.
   Simplified taxation and licensing, including simplified 
        accounting of revenues, should be introduced for small and 
        medium businesses. Previously introduced reform principles must 
        be made operational, such as the ``one-stop shop'' for 
        registering and licensing businesses. Any permits other than 
        those directly stipulated by the law should be abolished. 
        Remaining permits and activities subject to mandatory licensing 
        should be compiled into a single piece of legislation.
   Corporate legislation reform.  The Economic Code of Ukraine 
        is a confused mix of Soviet command economy elements and market 
        institutions. It should be abandoned. The Civil Code of Ukraine 
        should comply with EU Directives on company law. The new law on 
        joint stock companies must be amended to comply with EU 
        Directives on company law, and internationally accepted 
        principles of corporate law and corporate governance best 
        practices, by replacing the profit-extracting legal model for 
        such companies to one of investor protection. Modern legal 
        structures are needed for small and medium enterprises and 
        domestic and foreign investors via a separate limited liability 
        company law that provides for an efficient system of 
        governance, control bodies and reliable protection of minority 
        participants. The law on re-establishing solvency of a debtor 
        or declaring a debtor bankrupt must be amended to prevent 
        abuses by related-party (conflict of interest) transactions and 
        by enhancing the personal responsibility (liability) of company 
        officers and the bankruptcy commissioner.
   Agricultural Reform. The moratorium on trading agricultural 
        land should be ended and free access of citizens and 
        agricultural producers to land resources ensured. Prices for 
        agricultural land should be liberalized and work on 
        establishing a land cadastre should be continued. Consideration 
        should be given to allowing foreigners and foreign-owned 
        companies to own some agricultural land deposits (e.g. up to 10 
        percent of land in each region [oblast]). Such reforms would 
        attract more capital, help to import and disseminate modern 
        agricultural technologies, and facilitate greater access to 
        international channels of distribution of agricultural 
        products. Moreover, Ukraine has a strong interest in the 
        liberalization of global trade in foodstuffs. Administrative 
        restrictions on exports should be abandoned and delays in VAT 
        refunds to exporters urgently fixed. Targeted income support 
        measures should be introduced for poor families to compensate 
        for the rise in foodstuff prices. Social support and re-
        training programs for redundant agricultural workers need 
        strengthening. Ukrainian law on state support of agriculture 
        should be consolidated into one piece of legislation. An 
        information service for agricultural markets should be 
        established to monitor and forecast global food markets and 
        collect information on standards in other countries. Sanitary 
        and safety standards should, as a matter of high priority, be 
        aligned with international and EU norms. Establishing WTO-
        compatible free trade agreements with other non-EU trade 
        partners is in Ukrainian interests.
                   energy efficiency and independence
    Ukraine's energy sector is plagued by aging infrastructure, 
widespread corruption, political manipulation of utility rates and 
statistics, and minimal foreign direct investment. Although Ukraine has 
oil, gas and coal reserves, it is one of the most energy inefficient 
economies in the world and only able to cover 47-49 percent of its 
energy demand. Gas imports account for 7-8 percent of Ukrainian GDP and 
are clearly unsustainable. Around half of Ukraine's total energy 
consumption comes from natural gas. Although Ukraine has large 
conventional and unconventional gas resources, it will be unable to 
boost domestic gas production without deeper and comprehensive reforms 
and significant foreign direct investment. While it has coal reserves 
for another 100 years, the productivity of coal extraction is very low 
and its production costs are high. Coal mining is highly dangerous and 
Ukraine has one of the highest rates of accidents in the world, close 
to Chinese levels. Without restructuring, modernization and liberalized 
market reforms, Ukraine will be unable to cope with its energy supply 
challenges, including decreasing its extremely high energy consumption.
    Moreover, Ukraine is deeply dependent on Russia, which supplies 85-
90 percent of Ukraine's oil imports and 75-80 percent of its natural 
gas imports. In addition, in 2010 Ukraine signed agreements with Russia 
to build two nuclear reactors and to deliver only Russian fuel to all 
Ukrainian reactors until they cease operation. These arrangements have 
stunted necessary domestic reforms and weakened Ukraine's bargaining 
position vis-a-vis Russia, particularly with regard to gas imports and 
transit. Moscow uses the gas issue to exert pressure on Kyiv over 
various bilateral issues. Kyiv signed a gas agreement with Moscow 
disadvantageous to Ukrainian interests, yet Moscow insists that any 
review of that agreement would only be possible if the state gas 
company Naftohaz Ukrainy merged with Gazprom, ownership of the 
Ukrainian GTS was transferred to Gazprom, or if Ukraine joined Russia's 
Customs Union with Belarus and Kazakhstan. Yanukovych has publicly 
rejected such conditions as ``humiliating,'' and Ukrainian law prevents 
the selling, renting or leasing of critical energy infrastructures to 
foreign countries and companies. Russia is pushing for a new gas 
consortium over the GTS acquiring majority control, leaving Ukraine 
just 20 percent of its shares. Such an arrangement would question 
Ukrainian sovereignty and independence, threaten efforts at deeper 
democratic and market reforms, and pose considerable challenges to EU 
energy security and foreign policy. Giving up sovereignty over the GTS 
is seen by the Nikolai Azarov government as a better option than 
implementing unpopular IMF reforms (such as raising household uility 
prices to reduce Naftohaz Ukrainy's contribution of 2 percent to the 
budget deficit) as Russia will provide gas at a subsidized price in a 
new contract.
    An Open Ukraine requires Kyiv to boost domestic energy efficiency; 
eradicate endemic corruption in the energy sector; adopt all of the 
elements in the European Energy Community that it signed on to; and 
diversify its energy mix and strengthen its national security by 
reducing its dependence on Russia.

   Boosting Energy Efficiency. Ukraine's energy infrastructure 
        is inefficient and wasteful. The country has invested little in 
        energy efficiency, yet such efforts are critical to Ukraine's 
        energy security. A major step forward would be for Kyiv to take 
        the politically unpopular decision to raise gas prices for 
        households and utilities, which are heavily subsidized (a first 
        increase was undertaken in 2010 but the Cabinet balked at 
        taking a second increase ahead of the 2012 elections). The 
        domestic political fallout could be mitigated by compensatory 
        measures for low-income households. Artificially low gas prices 
        in the past have dampened any incentive to boost domestic gas 
        extraction or to improve efficiency and a new gas contract with 
        a return to subsidized prices will again freeze Ukraine's 
        inefficient and wasteful energy sector. These have fuelled 
        high-price gas imports from Russia, compromising Ukraine's 
        national energy security and its overall economic 
        competitiveness. Most Ukrainian energy producers have been 
        unable to finance even their replacement investments because 
        their revenues from domestic sales do not cover their costs. 
        The only real beneficiary of the artificially increased demand 
        for gas is the Russian state gas company Gazprom. In contrast, 
        the Ukrainian state gas company Naftohaz Ukrainy needs 
        budgetary support because of highly subsidized utility prices.
   Eliminate endemic corruption in the energy sector. The lack 
        of strong market reforms is linked to systemic corruption and a 
        nebulous legal and legislative framework, which have unnerved 
        the markets and scared away foreign investment. If Ukraine is 
        serious about its energy security, it will work to eradicate 
        systemic corruption and establish clear legal ground rules for 
        investments in its energy sector.
   Adopt European Standards. On February 1, 2011, Ukraine 
        became a full member of the European Energy Community (EEC), 
        which extends the EU's internal energy market to Ukraine. It is 
        strongly in Kyiv's interest to live up to the obligations such 
        membership entails, including full adherence to anticorruption 
        norms of European law and implementation of the EU's third 
        energy package of unbundling energy production from its 
        distribution in gas and electricity markets by January 2015. 
        The implications of this third package are far-reaching and 
        often not fully understood. EEC members are obliged not only to 
        revise their laws and to adopt secondary legislation but also 
        to promote fundamental changes in market structures by 
        introducing market rules and legislation. Central European 
        practice offers Ukraine a means to implement EU acquis in 
        energy despite its dense interwoven ties with Russia, whereby 
        long-term Russian contracts could enjoy temporary derogation 
        from EU regulations.
   Diversify. Energy cooperation with the EU and other foreign 
        partners could help Kyiv diversify its fossil-fuel imports and 
        its overall energy mix and reduce its dependence on Russian gas 
        and oil. Ukraine has excellent wind resources and possesses 
        significant unconventional (shale) gas deposits. Ukraine's 
        Parliament has already passed more investor-friendly 
        legislation to open its domestic natural gas market to foreign 
        shale gas and coal-bed producers. Exploitation of these 
        reserves could give buyers more leverage to renegotiate the 
        high Russian oil-indexed gas price demands that are included in 
        long-term contracts, and could drastically reduce Ukrainian 
        dependence on Russian gas. Moreover, the confluence of EU 
        energy market liberalisation, stepped-up antitrust enforcement, 
        and the emergence of unconventional gas supplies in European 
        markets may prompt Russia to increase its own efforts at energy 
        efficiency and to invest in its own unconventional gas 
        resources, which may be much cheaper than investing in the 
        extremely costly Yamal Peninsula and Shtokman projects, and 
        perhaps lead to greater reciprocity and symmetry in both 
        Ukrainian and EU energy relations with Russia. On the other 
        hand, if Ukrainian and European gas policies remain hostage to 
        long-term contracts, ``take-and-pay'' clauses and oil price 
        linkages, even though international gas markets have de-linked 
        from oil price markets prospects are dim for new and 
        sustainable integrated energy and climate policies.
     a strategy for the west: open door, straight talk, tough love
    Given Kyiv's turn to autocracy, it would be tempting for Western 
policymakers, besieged with other priorities, to turn their backs on 
Ukraine. This would be a strategic mistake. The United States and the 
EU have a strong stake in an Open Ukraine secure in its borders and 
politically stable. A more autocratic, isolated and divided Ukraine 
would be a source of continued instability in the heart of Europe. It 
would make it harder for Georgia and Moldova to pursue their pro-
Western course. It would diminish prospects for reform in Belarus. It 
would perpetuate a gray zone of borderlands on a continent that has 
until now enjoyed an historically rare moment to transcend the 
tragedies of its past divisions. Western leaders should avoid falling 
into the same short-term mindset that currently befalls Ukrainian 
elites, and adopt a broader strategic perspective.
    Ukraine is beset by regional and cultural divisions that will have 
a profound impact on the country's political evolution. As Ukrainians 
debate the norms that should guide their society, normative consistency 
by their Western partners can provide orientation and strength. This 
does not mean softening norms or conditions for effective engagement, 
but it does mean being clear about the benefits that could result from 
adherence to such norms. The West has a vested interest in ensuring 
that Ukrainian leaders understand the opportunities and consequences 
that could result from their decisions, and should be consistent in 
setting forth a coherent and coordinated framework of relations that 
can help shape those choices.
    As Ukraine struggles to find its place in 21st century Europe, 
therefore, the door to that Europe should be kept open. There is no 
consensus at present within the EU about the possibility of ultimate 
Ukrainian membership. Yet if the door to Europe is closed, the 
Ukrainian Government will have little incentive to advance political 
and economic reforms, and could either turn to alternative geopolitical 
frameworks or remain isolated in a geopolitical gray zone, generating 
instability and insecurity throughout its wider neighborhood. Clear EU 
support for the principle of the Open Door, on the other hand, can help 
Ukrainians build the courage and political will to implement tough 
reforms at home--not as a favor to others, but because they understand 
it is in their own interest to do so. have an effect on internal 
developments in Ukraine. And if Kyiv begins to implement reforms that 
promise to move Ukraine toward an open, democratic and market-based 
society, such actions can in turn affect what leaders in EU capitals 
are willing to offer Ukraine.
    Based on the continued validity of the Open Door, Western strategy 
should advance along two tracks that work together. The first track 
should demonstrate the genuine interest of North America and Europe in 
close and cooperative ties with Ukraine, and should set forth in 
concrete terms the potential benefits of more productive relations. 
They should make it very clear that Europe and the U.S. stand as 
willing partners if Ukraine decides to invest in its people, forge 
effective democratic institutions, build a more sustainable economy 
grounded in the rule of law, tackle endemic corruption, diversify and 
reform its energy economy; and build better relations with its 
neighbors. U.S. and European efforts should seek to strengthen 
democratic institutions; promote the growth of civil society, 
especially independent media; support economic reforms; provide 
technical assistance for energy reforms; and facilitate interaction 
between Ukrainian citizens and their neighbors, including visa 
liberalization, business and student exchanges. If Kyiv signals by its 
actions that it is interested in deepening its engagement with the 
West, North America and the EU should be equally ready to engage while 
pushing for more comprehensive economic and political reforms aimed at 
facilitating Ukraine's integration into Euro-Atlantic institutions.
    At the same time the U.S. and Europe should make it clear that if 
Ukraine's leadership abuses the rule of law, facilitates corruption, 
fails to advance effective reforms, and resorts to intimidation 
tactics, as is currently the case regarding the Tymoshenko conviction, 
the prospects for an open, prosperous and secure European Ukraine will 
fade. International efforts to deter Ukraine's further backsliding 
should combine the threat of costly sanctions toward the ruling elite 
with calls for unencumbered engagement of citizens in political life, 
targeted assistance to key civil society actors and specific proposals 
for reforms that could pave the way toward a more open Ukraine. Outside 
pressure on Ukrainian authorities clearly has its limits, of course, 
and the main brunt of responsibility for the evolution of Ukraine's 
political regime lies with domestic actors. However, as the Orange 
Revolution demonstrated, Western influence can restrict the range of 
options available to authorities who choose to fight their own people, 
and can help to weaken the internal legitimacy of some of the 
government's antidemocratic policies.
    In short, a proactive Western policy might be best characterized as 
Open Door, Straight Talk, and Tough Love. Such an approach requires 
persistence, patience, and consistent engagement on the following 
priorities:

   Support Civil Society. By monopolizing political space and 
        marginalizing the opposition, Ukrainian authorities undermine 
        the reform process and weaken public trust in government 
        activities. Transformative reforms of the magnitude needed in 
        Ukraine require support across the country and from political 
        forces on both sides of the major political divide. North 
        American and European governments and international 
        organizations should stress the critical importance of a free 
        and fair parliamentary campaign in October 2012 ahead of the 
        process and cast a spotlight on even minor violations of 
        democratic procedures. They should weigh in against any signs 
        of abuse of state-administrative resources or biased 
        limitations on opposition activity or campaign financing, in 
        order to prevent further emasculation of civic groups or 
        further closure of the civic space for independent political 
        action. They should encourage Kyiv to lower barriers to 
        independent media and to ensure media access to the opposition. 
        They should encourage active involvement of opposition parties 
        and leading NGOs in the process of drafting reform strategies 
        and ensuring government accountability at all levels. 
        International organizations should provide technical assistance 
        in training election observers and electoral commission members 
        representing all political parties.
   Advocate Institutional Reform. Western governments and 
        international organizations, particularly representatives of 
        post-Communist countries, should advocate targeted 
        institutional reforms aimed at establishing a legally grounded 
        balance of authority among the executive, legislative, and 
        judicial branches; increasing the government's accountability 
        to the Parliament; and strengthening oversight agencies, such 
        as an independent anticorruption bureau, accounting chamber, 
        the office of the ombudsman and the financial regulatory body. 
        They should offer concrete suggestions to depoliticize the 
        judiciary and the civil service, which are still dominated by 
        vested political and business interests.
   Support Ukrainian Efforts to Tackle Systemic Corruption. The 
        West should develop consistent medium- to long-term strategies 
        to help Ukraine fundamentally reform its legal system and to 
        reduce systemic corruption.
   Offer Technical Support for Reforms. Ukraine's Cabinet lacks 
        staff to develop draft legislation and government employees are 
        not qualified enough to develop modern economic legislation. 
        Provision of technical assistance will be crucial to Ukrainian 
        political, administrative, economic and energy reforms.
   Be Clear about the Consequences of Undemocratic Activities. 
        North America and the EU demonstrated impressive unanimity in 
        condemning the trial and conviction of Yulia Tymoshenko in 
        October 2011 and issued strong demands for her release and 
        resumption of her ability to participate in the political life 
        of the country. They should link such condemnation with 
        concrete measures that would raise the cost to Ukrainian 
        authorities of further undemocratic steps. Such measures should 
        include suspension of Ukraine's membership in the Council of 
        Europe; introducing visa bans for those officials responsible 
        for ordering the crackdown against protesters or persecution of 
        the opposition; a freeze on negotiations for an Association 
        Agreement (including the DCFTA); and limiting bilateral 
        contacts with top Ukrainian officials and state visits to Kyiv. 
        At the same time, the West must maintain its clear message that 
        the door to Europe and Euro-Atlantic institutions remains open 
        should Ukraine work to create the conditions by which it could 
        in fact walk through that door.
   Make Better Use of the Eastern Partnership. In order to 
        articulate a policy for neighbors for whom membership is a 
        distant goal, the EU launched the Eastern Partnership in 2009 
        with Armenia, Azerbaijan, Belarus, Georgia, Moldova, and 
        Ukraine. Yet instead of using the EaP to deepen engagement in 
        Ukraine and other Partnership countries, EU officials dampen 
        their own influence with rhetoric that distances themselves 
        from the prospect of a space of stability, prosperity, and 
        democracy as far across the European continent as possible. The 
        EU should be far more proactive in its use of the Eastern 
        Partnership.

        Combine Broad Visa Liberalization with Targeted 
            Restrictions. Kyiv has a strong interest in visa 
            liberalization with the EU; one in every ten Schengen visas 
            goes to a Ukrainian. The EU should calibrate its approach 
            by offering a generous broad-based approach to visa 
            liberalization for Ukrainian citizens (particularly young 
            people and students) and facilitating special possibilities 
            for study abroad and cultural, educational, business and 
            local government exchanges, so that the average man and 
            woman in the street, especially in the east and south of 
            the country, can gain personal awareness of the benefits to 
            be derived from closer relations; This strategy of 
            maintaining an Open Europe for Ukrainian citizens should be 
            combined with targeted visa bans and restrictions for 
            Ukrainian officials engaged in undemocratic or illegal 
            activities.
        Engage Ukraine Actively via a Transcarpathian Macro-
            regional Strategy. New EU macro-regional strategies, for 
            interest with the Danube states, offer a potential model 
            for engagement with Carpathian states. This special area is 
            surrounded by four EU member states, namely Poland, 
            Slovakia, Hungary, and Romania. All four are neighbors to 
            Transcarpathia and to each other by cultural, historical 
            and ethnic ties. The Transcarpathian Region could be 
            developed into a strategic Ukrainian bridgehead for 
            integration into Europe. It is already linked by broad-
            gauge railway to Hungary and Slovakia, and its special 
            location and multiethnic traditions are convenient for 
            offshore zones and assembling factories.
        Support Ukraine's democratic development. The proposed 
            European Endowment for Democracy should disburse aid to 
            Ukrainian civil society and encourage and defend Ukraine's 
            democratic development to monitor Eastern Partnership 
            policy toward Ukraine. The EU should ensure that its 
            assistance is coordinated with U.S. and Canadian efforts to 
            ensure they are complementary and not duplicative.

   Use the Association Agreement and DCFTA to Advance the 
        Broader Strategy. With neither NATO nor EU membership on the 
        horizon, the primary vehicle for keeping open the prospect for 
        Ukraine's closer ties to the European mainstream is the 
        Association Agreement and Deep Comprehensive Free Trade 
        Agreement (DCFTA) currently being negotiated between Ukraine 
        and the EU. However, the EU has frozen the final negotiations 
        slated to led to initialing of the agreement, due to concerns 
        in various EU member states about the political repression and 
        serious violations of rule of law--particularly the arrest and 
        trial of former Prime Minister Tymoshenko--that have occurred 
        since President Yanukovych took office. The DCFTA offers the EU 
        a mechanism by which it can calibrate a two-track approach to 
        Ukraine. Initial but . . . [insert language here]. The DCFTA is 
        in fact a new generation economic agreement ranging far beyond 
        a standard free trade agreement, not only liberalizing 95 
        percent of bilateral trade but aiming for deep and 
        comprehensive harmonization of economic legislation. The 
        opportunities for Ukraine are immense, given that the EU is the 
        largest single market in the world, about 130 times larger than 
        the Ukrainian domestic market and 15-20 times larger than the 
        Russian, Belarus, and Kazakhstan markets combined. The benefits 
        to all sectors of Ukrainian society of joining the DCFTA far 
        outweigh the small number of benefits from entering a free 
        trade agreement with the CIS.
   Keep NATO's Open Door while Engaging Closely. Ukrainian 
        membership in NATO has again been pushed off the international 
        agenda for the immediate future. While the door to NATO 
        membership remains open to Ukraine (and Georgia) in principle, 
        in reality there is little support in Western capitals for 
        further enlargement of the Alliance in the near term. Focusing 
        on NATO membership now will only inflame the political 
        atmosphere and make progress in other important areas more 
        difficult. The main obstacle is not Russian opposition--though 
        this is an important factor--but low public support for 
        membership in Ukraine itself. \1\ On the other hand, Ukraine 
        was the first CIS state to join the Partnership for Peace, has 
        been one of the most active participants in its exercises, and 
        the NATO-Ukraine Charter on a Distinctive Partnership gives 
        Ukraine a unique status. Rapprochement with NATO increased 
        Ukraine's freedom of maneuver and led to an improvement of ties 
        with Moscow. Ukraine contributes to nearly all U.N. and NATO 
        peacekeeping operations, in some cases more than some NATO 
        members.
---------------------------------------------------------------------------
    \1\ Popular support for NATO--22-25 percent and below 10 percent in 
the Russified areas of eastern Ukraine--is much lower in Ukraine in 
comparison to other states in Eastern Europe. See the chapter by F. 
Stephen Larrabee.
---------------------------------------------------------------------------
      Nonetheless, as long as only about a quarter of the population 
        favors membership, prospects for Ukraine being admitted to NATO 
        remain remote. In the meantime, other steps in the security 
        field could be taken to strengthen cooperation within the NATO-
        Ukraine Partnership in areas where there is mutual interest 
        while encouraging progress toward more open democratic 
        institutions. Such activities include engaging the Ukrainian 
        military in a dialogue on military reform; continuing to 
        involve Ukraine in peacekeeping operations, both within NATO 
        and bilaterally; enhancing cooperation on nuclear safety; 
        further developing their crisis consultative mechanism; and 
        further developing ties in such areas as civil-military 
        relations, democratic control of the armed forces, armaments 
        cooperation, and defense planning. Information campaigns should 
        highlight how NATO provides practical help to Ukraine in 
        emergency situations, cyber-security, security to the Euro-2012 
        football championship, orders for Ukrainian industry, and 
        support for the training of Ukrainian officers. A critical area 
        of concern, as Ukraine turns autocratic, is democratic control 
        and reform of internal security forces (Security Service, 
        Interior Ministry, border guards, customs officers, 
        Prosecutor's office) whose numbers far outweigh the armed 
        forces, are used in political repression and involved in 
        corruption.
   Engage Ukraine on Its Own Merits, Not as a Subset of Russia 
        Policy. A successful Euro-Atlantic policy of engagement toward 
        Ukraine cannot be a subset of Western policy toward Russia; it 
        must consider its own substantial interests in an open Ukraine 
        on their own merits. At the same time, the United States, 
        Canada, and European allies should send a clear message to 
        Moscow that they oppose any attempts to undermine the 
        sovereignty of Russia's neighbors, including threats to their 
        territorial integrity. Upon entering office Yanukovych acted 
        quickly to remove key irritants with Moscow, such as the 
        international campaign to recognize the Holdomor (1933 
        artificial famine) was genocide; shelving plans to join NATO; 
        and ramming through an unconstitutional measure that prolongs 
        the stationing of the Russian Black Sea Fleet in Crimea to 
        2042-2047. Russia has demanded more, however, including 
        Ukrainian membership in its CIS Customs Union or Russian 
        ownership of the Ukrainian GTS. It is clear that Russia finds 
        it very hard to respect Ukrainian sovereignty and independence. 
        Yanukovych has received little in return for his efforts at 
        appeasing Moscow, and despite his interest in closer relations 
        with Russia, he has also shown that he still prefers being the 
        leader of a sovereign country to being the governor of a 
        Russian province. Nonetheless, he faces strong and consistent 
        Russian pressure on key issues; Western policy should make the 
        implications of his choices clear. For instance, Ukraine faces 
        a choice between entering the CIS Customs Union of Russia, 
        Belarus and Kazakhstan, which is likely to block all 
        fundamental domestic market reforms; or proceeding with the 
        kinds of domestic reforms that would enable Ukraine to reap the 
        benefits of the DCFTA with the EU and closer integration with 
        the European mainstream, including visa liberalization, 
        competitiveness, transparency and accountability in Ukraine's 
        energy markets, greater investments in infrastructure and new 
        technologies, and reduced energy dependency. The first choice 
        demands far less than the second choice in terms of domestic 
        reform, but the second choice promises substantially greater 
        rewards. And joining the Eurasian Customs Union with countries 
        that are not members of the WTO (Russia may soon join, but not 
        Belarus and Kazakhstan) would require a renegotiation of 
        Ukraine's membership in the WTO and end Ukraine's hopes for an 
        Association Agreement and DCFTA.

    We have no illusions about the difficulty of realizing the vision 
of an Open Ukraine. Yet the gains, both for Ukraine and for Europe, 
would be considerable. Ukraine's choices are it's to make, but it is 
the West's responsibility to make the costs and benefits of those 
choices clear and credible to Ukraine's leaders and its citizens..
                                 ______
                                 

     Letter from Ambassador Olexander Motsyk, Embassy of Ukraine, 
                             Washington, DC