Commission staff working document accompanying the Communication from the Commission to the European Parliament and the Council - Implementation of the European Neighbourhood Policy in 2008 - Progress Report Ukraine {COM(2009) 188 final} {SEC(2009) 511} {SEC(2009) 512} {SEC(2009) 513} {SEC(2009) 514} {SEC(2009) 516} {SEC(2009) 517} {SEC(2009) 518} {SEC(2009) 519} {SEC(2009) 520} {SEC(2009) 521} {SEC(2009) 522} {SEC(2009) 523}
Date: 2009-04-23
Institutions: European Commission
Subjects: European neighbourhood policy, Ukraine, impact study, the EU's international role

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 23.4.2009 
SEC(2009) 515 

COMMISSION STAFF WORKING DOCUMENT 

Accompanying the 

COMMUNICATION FROM THE COMMISSION  
TO THE EUROPEAN PARLIAMENT AND THE COUNCIL 

Implementation of the European Neighbourhood Policy in 2008 

Progress Report Ukraine 

{COM(2009) 188 final} 
{SEC(2009) 511} 
{SEC(2009) 512} 
{SEC(2009) 513} 
{SEC(2009) 514} 
{SEC(2009) 516} 
{SEC(2009) 517} 
{SEC(2009) 518} 
{SEC(2009) 519} 
{SEC(2009) 520} 
{SEC(2009) 521} 
{SEC(2009) 522} 
{SEC(2009) 523} 

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1. 

BACKGROUND AND OVERALL ASSESSMENT 

Ukraine and the EU first established contractual relations in 1994 with the signing of the EU- 
Ukraine  Partnership  and  Cooperation  Agreement,  which  entered  into  force  in  1998.  On  this 
basis, the EU-Ukraine Action Plan was adopted in February 2005 for a period of three years. 
Since  then,  implementation  has  been  guided  and  monitored  on  the  basis  of  annual 
implementation  tools,  which  set  out  comprehensive  yearly  sets  of  priorities  and  timelines, 
based  on  the  priorities  agreed  jointly  by  the  EU  and  Ukraine.  A  first  progress  report  was 
adopted in December 2006 and a second one in April 2008.  

Intensive  cooperation  through  the  EU-Ukraine  Summit,  the  EU–Ukraine  Cooperation 
Council,  the  EU–Ukraine  Cooperation  Committee,  and  seven  subcommittees,  has  enabled 
both sides to progress with the implementation of the Action Plan.  

Negotiations  on  an  Association  Agreement  which  is  to  replace  the  Partnership  and 
Cooperation Agreement started in Brussels in March 2007. In the course of 2008 four rounds 
of  negotiations  took  place  on  the  Association  Agreement  and  three  on  the  Free  Trade  Area 
aspects of the Agreement. In December 2008 negotiations were launched on a “New Practical 
Instrument”  to  replace  the  current  Action  Plan  and  prepare  for  and  facilitate  the 
implementation of the new EU-Ukraine Association Agreement once it enters into force. 

This document reports on overall progress made on the implementation of the EU – Ukraine 
Action Plan between 1 January and 31 December 2008, although developments outside this 
period  are  also  considered  when  deemed  relevant.  It  is  not  a  general  review  of  the  political 
and economic situation in Ukraine. 

Ukraine made progress in several areas covered by the EU-Ukraine Action Plan in the course 
of  2008  and  continued  to  come  closer  to  the  EU  through  negotiations  on  an  Association 
Agreement.  Nonetheless  the  continuing  political  instability  was  not  conducive  to  reform. 
Furthermore,  there  was  a  slowing in  the  pace  of  reform  in  the second  part  of  the  year,  as  a 
consequence  of  the  deepening  global  financial  and  economic  crisis.  There  is  a  continuing 
need to address the country’s problems with unity and leadership. 

Relations  in  the  energy  field  were  tested  just  after  the  reporting  period,  in  January  2009, 
following a conflict between the Russian Federation and Ukraine concerning gas. As a result 
of  this  dispute  there  was  a  temporary  cut  of  Russian  transit  supplies  to  Europe  via  Ukraine 
resulting in emergency situations in several EU Member States and some neighbouring states. 
The European Commission facilitated the resolution of the gas crisis inter alia by the dispatch 
of a team to Russia and Ukraine to monitor gas transit flows.  

Major achievements during the reporting period were Ukraine’s accession to the World Trade 
Organisation in May 2008, the good progress in negotiations on the EU-Ukraine Association 
Agreement including those aspects related to a deep and comprehensive Free Trade Area, the 
launch of a visa dialogue in October with the aim of establishing a visa free regime as a long 
term perspective and continuing positive cooperation with the EU Border Assistance Mission 
(EUBAM).  Ukraine  continued  to  contribute  to  the  settlement  of  the  Transnistria  conflict  in 
particular in its capacity as a member of the 5+2 settlement process. Co-operation on CFSP 
matters  was  also  positive  with  Ukraine  aligning  to  nearly  all  CFSP  positions  open  for 
alignment. In December 2008 Ukraine and the European Commission services signed a new 

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administrative arrangement on closer cooperation in the field of civil protection. In November 
2008 negotiations were launched on the country’s accession to the Energy Community Treaty. 

However  Ukraine  made  no  or  only  limited  progress  in  the  implementation  of  some  key 
political  reform  measures  including  constitutional  and  judicial  reform  and  efforts  to  combat 
corruption. On the macroeconomic side, the securing of a stand-by arrangement with the IMF 
of USD 16.4 billion (about EUR 12.9 billion) under a comprehensive economic stabilisation 
programme was critical in addressing the sharply deteriorating economic and fiscal situation 
in  the  second  half  of  2008.  These  reforms  are  key  to  future  political  stabilisation  and  to 
progress in implementing the wider reform agenda. 

2. 

POLITICAL DIALOGUE AND REFORM 

The EU and Ukraine maintained regular political dialogue during the year, notably at the EU-
Ukraine  Summit,  the  Cooperation  Committee  and  the  Cooperation  Council.  In  addition, 
consultations took place between the Ukrainian government and the EU Political and Security 
Committee, the Council Working Group on Eastern Europe and Central Asia and the Political 
Directors’  Troika.  The  EU-Ukraine  Parliamentary  Cooperation  Committee  met  in  both 
Brussels and Kyiv. 

Democracy and rule of law 

Objectives  in  this  area  include:  Strengthen  the  stability  and  effectiveness  of  institutions 
guaranteeing democracy, the rule of law and the fight against corruption 

Ukraine  has  not  implemented  the  recommendations  made  by  the  OSCE/ODIHR  on  the 
drafting  of  the  Election  Code.  The  setting  up  of  a  centralised  electronic  voters’  register  is 
progressing both as regards software and hardware. 

Little headway was made in reform of the Ukrainian Constitution in the course of the year. 
The  National  Constitutional  Council,  established  by  the  President  in  2007,  met  on  only  one 
occasion.  Thereafter  representatives  from  the  Party  of  the  Regions  and  the  Bloc  of  Yulia 
Tymoshenko  withdrew  from  the  Council  and  formulated  each  their  own  proposals  for 
constitutional reform. 

Draft  proposals  to  reform  the  judiciary  were  not  implemented.  In  autumn  2008,  the 
independence  of  the  judiciary  was  compromised  when  judges  were  drawn  into  a  dispute 
between the President and supporters of the Prime Minister regarding the President’s decision 
to call pre-term elections. Progress is required to ensure the fairness of legal proceedings. 

In  the  area  of  criminal  justice  reform,  the  Cabinet  of  Ministers  of  Ukraine  issued  an 
instruction  “On  Approval  of  the  Action  Plan  for  the  Implementation  of  the  Concept  of 
Criminal Justice Reform in Ukraine”. The instruction aims to improve pre-trial investigation 
procedures,  strengthen  the  protection  of  victims’  rights,  improve  the  conditions  and 
procedures for punishment and address corruption in the judicial process. 

In April 2008 a “Concept on the Reform of the Office of Prosecutor” was introduced, in line 
with the recommendations of the Council of Europe. In September 2008, the Verkhovna Rada 
(the  Parliament)  adopted  a  law  “On  Amendments  to  the  Law  of  Ukraine  on  the  Procuracy” 
which brought the existing law into line with the Constitution by requiring the consent of the 
Rada to the dismissal of the General Prosecutor. 

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In  the  course  of  the  year  measures  were  introduced  to  strengthen  the  fight  against 
corruption,  as  a  result  of  some  25  recommendations  addressed  by  GRECO  to  Ukraine  in 
2007.  The  measures  include,  inter  alia,  the  creation  of  an  Interagency  Working  Group  on 
Anti-Corruption Issues, and the decision to establish the post of Government Agent for Anti-
Corruption Policy. At the same time draft legislation on the ratification of Council of Europe 
Criminal Law Convention on Corruption awaits a second reading in the Rada before adoption. 
The  same  applies  to  the  United  Nations  Convention  against  Corruption,  although  Ukraine 
already participates in the Conference of State Parties. Ukraine is a member of GRECO since 
2006  and  will  be  assessed  by  this  body in  May  2009  in  respect  of its  compliance  with  the 
above-mentioned GRECO recommendations. 

Public  perceptions  of  corruption  in  Ukraine  deteriorated  in  2008,  continuing  a  trend  from 
2007. Consequently Ukraine dropped from 118 to 134th place in Transparency International’s 
Perceptions of Corruption Index. 

Human rights and fundamental freedoms  

Objectives in this area include: ensuring respect of human rights and fundamental freedoms, 
in line with international and European standards; fostering the development of civil society; 
ensuring respect for the freedom of the media and expression; ensuring respect for rights of 
persons  belonging  to  national  minorities;  prevention  of  ill-treatment  and  torture;  ensuring 
equal  treatment;  ensuring  respect  of  children’s  rights;  ensuring  respect  for  trade  unions’ 
rights and core labour standards; and ensuring international justice. 

Ukraine complied with all its reporting obligations under the UN human rights conventions 
to  which  it  is  Party  and  agreed  to  a  wide  range  of  recommendations  in  the  course  of  its 
screening under the Universal Periodic Review in May 2008. Ukraine signed the Convention 
on the Rights of Persons with Disabilities and its Optional Protocol in September 2008. 

Torture  and  ill-treatment  in  police  detention  continued  to  be  widely  reported,  albeit  on  a 
slightly  lesser  scale  than  in  the  past.  Other  concerns  remain,  notably  poor  conditions  of 
detention,  in  particular  for  persons  on  remand,  impunity  of  law  enforcement  officers,  the 
ineffectiveness  of  legal  safeguards  against  ill-treatment  in  police  detention  and  of 
investigations into torture or ill-treatment. The transfer of responsibilities of prison facilities 
to the Ministry of Justice from the Ministry of Interior, to improve civilian control over the 
penitentiary system, was not completed.  

Notwithstanding the fact that Ukrainian citizens generally enjoy pluralism in both electronic 
and  print  media,  incidents  of  threats  to  journalists  critical  of  officials,  businessmen  or 
prominent  figures  have  occurred.  The  reported  increase  in  the  incidence  of  paid  for  “news” 
articles and reports in the press, is of concern. The issue of a lack of transparency in media 
ownership  remains  to  be  addressed  as  it  can  constitute  a  more  subtle  form  of  pressure  on 
journalists. No progress with regard to the establishment of a public service broadcaster was 
made during the reporting period, but a draft law was submitted to the Rada in March 2009. 
Those responsible for ordering the killing of the journalist Georgiy Gongazde have yet to be 
brought to trial. In May 2008, the Cabinet of Ministers approved the first one year action plan 
for the implementation of the concept of civil society development in Ukraine.  

Discrimination  of  national  minorities  is  reported  in  a  number  of  sectors  including 
employment, housing, the provision of healthcare and policing (in particular for the Roma and 
Crimean Tartar communities). Discrimination is also reported against vulnerable groups such 

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as people with HIV and AIDS and sexual minorities. Although the Ukrainian authorities do 
not  keep  official  statistics  on  the  number  of reported  racist  incidents  nor  on  convictions  for 
racially  motivated  crimes,  monitoring  carried  out  by  the  press  and  international  and  non-
governmental  organisations  indicate  a  significant  rise  in  violent  attacks  on  individuals  from 
various minorities (particularly in the first quarter of 2008). An inter-ministerial commission 
was  created  in  April  2008  and  elaborated  a  two-year  Action  Plan  to  combat  Xenophobia, 
which was adopted in August 2008. 

In April 2008, the Parliament adopted amendments to several laws regarding gender equality 
which,  in  particular,  enable  the  Ombudsman  to  oversee  gender  equality  in  Ukraine.  A 
dedicated meeting on gender issues took place in December 2008 gathering representatives of 
Parliament,  the  Government  and  the  UN  programme  in  support  of  gender  equality. 
Prosecution and courts are not fully engaged in preventing and addressing domestic violence 
which remains widespread in Ukraine. The proportion of women in the labour force is high 
(49%) but they still suffer from a gender pay gap (approximately 32%). 

A  number  of  recommendations  made  by  the  UN  Committee  on  the  Rights  of  the  Child  in 
their  Concluding  Observations  of  2002  have  still  not  been  addressed.  The  finalisation  of  a 
draft National Programme for the development of juvenile justice by the Ministry of Justice is 
a  positive  step.  Similarly  some  significant  changes  in  Ukrainian  legislation  regarding 
juveniles were made, including the reduction of the maximum sentence for juvenile offenders 
and the removal of the power for administrative bodies to confine children involved in minor 
crimes.  A  positive  contribution  has  also  been  made  by  the  Juvenile  Consultative  Council 
under the Parliamentary Institute of Legislation as regards advocacy and policy coordination 
in this sector. In May 2008 a Presidential decree was adopted with the aim of increasing the 
protection of orphans in the context of adoption. 

As regards trade union rights and core labour standards, the National Tripartite Council 
on  Social  and  Economic  issues  and  the  European  Economic  and  Social  Committee  (EESC) 
agreed  in  February  2008  to  cooperate.  A  tripartite  agreement  to  strengthen  social  dialogue 
was  concluded  in  April  2008.  The  Ukrainian  Economic  and  Social  Committee  resumed  its 
work in May 2008.  

Regional and international issues, cooperation on foreign and security policy  

Ukraine actively cooperated with the EU on regional and international issues and continued to 
align itself with nearly all CFSP declarations open for alignment. Ukraine played a positive 
role in the Transnistria settlement process and participated in all informal meetings in the so-
called  5+2  format.  In  March  2008  the  Verkhovna  Rada  ratified  the  EU-Ukraine  Agreement 
establishing  a  framework  for  the  participation  of  Ukraine  in  EU  crisis  management 
operations.  In  September  2008  the  Rada  approved  an  amendment  to  the  Convention  on 
Nuclear  Physical  Protection  thereby  strengthening  rules  on  the  fight  against  trafficking  of 
nuclear materials. 

Ukraine did not ratify the Rome Statute of the International Criminal Court.  

EU Border Assistance Mission to Moldova and Ukraine (EUBAM) 

Ukraine continues to be fully committed to, and participate constructively in, the work of the 
EU Border Assistance Mission to Moldova and Ukraine (EUBAM). With EUBAM support, 
the  professional  capacities  of  the  customs  and  border  guard  services  were  enhanced  as  was 

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inter-agency cooperation within Ukraine and between Ukraine and the Republic of Moldova, 
(hereafter referred to as Moldova), such as the joint operation of a new pre-arrival information 
exchange system. In December 2008, the 7th Trilateral Meeting on Border Issues took place in 
Brussels. All sides confirmed the progress made in border security at the Ukrainian-Moldovan 
border and emphasised that cross-border cooperation has improved significantly.  

Ukraine has indicated its desire to see the mandate of the EUBAM mission extended beyond 
November 2009.  

3. 

ECONOMIC AND SOCIAL REFORM  

Macroeconomic framework and functioning market economy 

Ukraine  experienced  a  sharp  economic  downturn  in  late  2008:  trade  conditions  with  the 
decline  in  export  prices  of  steel  and  the  global  financial  crisis  exposed  the  banking  and 
corporate  sectors'  vulnerability  in  the  face  of  a  cut  off  from  external  financing.  Real  GDP 
decreased  by  11.7%  year-on-year  in  October-December  2008  (estimate),  bringing  overall 
economic  growth  down  to  2.5%  for  the  whole  year.  The  IMF  and  the  Ukrainian  authorities 
agreed  rapidly  on  a  stand-by  arrangement  of  USD  16.4  billion  under  a  comprehensive 
economic stabilisation programme. An important element of the macroeconomic adjustment 
is  exchange  rate  flexibility  and  Ukraine  relaxed  the  de  facto  peg  of  the  hryvnia  to  the  US 
dollar. Linked to other measures of economic governance, this should support the adjustment 
of  domestic  and  external  demand  so  as  to  reduce  the  current  account  deficit  in  2009  from 
about 6.1% of GDP estimated for 2008.  

Inflation averaged 25.2% in 2008 (12.8% in 2007) largely because of high global food prices. 
Adjustments in energy and utility prices are needed to bring tariffs to cost-recovery levels.  

By  the  end  of  2008,  the  fiscal  balance  was  estimated  to  have  run  a  deficit  of  about  1%  of 
GDP,  despite  stronger-than-projected  tax  revenues  before  the  onset  of  the  economic  crisis. 
Some  underlying  expenditure  pressures  have  not  been  addressed,  however,  including  rapid 
growth  in  public  pensions  to  an  estimated  16%  of  GDP  in  2008.  The  opportunity  for  pro-
growth  expenditure  in  infrastructure  was  naturally  constrained  by  such  expansionary  public 
incomes policy. In particular, a medium term fiscal framework is still missing to put tax and 
expenditure policies on a more sustainable and growth enhancing footing.  

Ukraine's public and publicly guaranteed debt was at a sustainable level equivalent to about 
11% of GDP during 2008 (public external debt about 15% of GDP). The main concern is the 
refinancing  of  banking  and  corporate  short-term  external  debt  although  the  state-owned 
companies' short-term external liabilities are also significant in some cases.  

The  legal  framework  to  resolve  the  banks’  difficulties  was  amended  under  the  anti-crisis 
legislation of November 2008 and its implementation is a main priority for the authorities in 
2009  so  that  viable  banks  can  continue  lending  and  thereby  support  the  resumption  of 
economic growth on a healthier basis.  

Finally, Ukraine had agreed to strengthen the independence of the National Bank of Ukraine 
under the Action Plan. No measures were taken in this respect in 2008, but under the IMF-
supported economic programme Ukraine has committed itself to several concrete measures by 
mid-2009.  

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Employment and social policy 

As regards social development and the fight against poverty, according to official estimates 
27.3% of the population lived below the poverty line in 2007 (latest figures available). During 
the reporting period, Ukraine set out plans for improving the standard of living of its citizens 
also  by  actively  combating  poverty  and  enforcing  the  mandatory  insurance  for  employees. 
These  plans  have  not  yet  been  implemented  and  poverty  remains  an  issue  of  concern.  Two 
memoranda were signed in April 2008 with retailers and food producers in order to stabilise 
prices on the domestic market. They foresaw a  maximum retail trade margin of 10% of the 
producer  price  for  socially  important  goods  from  April  2008  until  the  end  of  the  year.  A 
similar memorandum was signed with oil traders in October 2008 and prices were reduced by 
December  2008.  The  Government  committed  not  to  raise  taxes  and  excise  duties  for  the 
domestic oil traders and to follow the schedule for VAT refunds.  

The unemployment rate remained stable in 2008 at around 6.4% in average for the first half 
of  the  year  but  the  labour  market  deteriorated  in  the  second  half  of  the  year  due  to  the 
economic  crisis.  The  total  official  number  of  unemployed  currently  stands  at  1.4  million 
whilst Ukraine is also confronted with a lack of qualified workers due to a mismatch of skills 
and  jobs,  and  with  a  strong  informal  sector.  The  economic  crisis  underlined  the  need  for 
modern  employment  policies,  active  labour  market  measures  and  the  promotion  of  decent 
work.  The  Ministry  of  Economy  and  the  State  Statistics  Committee  estimated  that  shadow 
economy represented 32% of official GDP in 2007. According to the Ministry of Labour and 
Social  Policy,  the  average  salary  rate  increased  within  the  period  January-March  2008  by 
39.4%  compared  with  the  same  period  in  2007.  Also,  the  Law  on  the  State  Budget  2008 
introduced a gradual increase of the minimum  wage level from EUR 68 in January 2008 to 
EUR 80 in December 2008.  

However,  the  combination  of  rising  consumer  prices  and  the  financial  crisis  is  having  a 
negative effect on the living standards of families. The fall in industrial production resulted in 
rising  unemployment,  a  reduction  in  wages  and  increase  in  wage  arrears.  As  of  November 
2008, wage arrears totalled EUR 139 million. More than 290,000 workers were not paid their 
wages in September 2008, up by more than 100,000 compared to August. 

As regards social dialogue, a general tripartite agreement between the Cabinet of Ministers, 
the  All-Ukrainian  Association  of  Employers  and  trade  unions  was  signed  in  April  2008. 
Parties agreed to  concentrate efforts on human capital development,  to increase the level of 
employment and to facilitate social dialogue. The draft labour code, prepared with the support 
of experts from the International Labour Organisation, was submitted to Parliament in May, 
and  is  still  pending  approval.  In  September,  the  Parliament  passed  in  first  reading  the  draft 
law on social dialogue. Ukraine’s first national report on the implementation of the European 
Social Charter in Ukraine was registered with the Council of Europe just after the reporting 
period, in January 2009. The “decent work” country programme for the years 2008-2011 was 
signed  in  June  2008.  It  aims  at  reforming  labour  inspectorates  and  modernising  the  labour 
law. Bipartite social dialogue is weak as there are very few collective agreements at branch 
level. 

In  2008,  Ukraine  introduced  a  set  of  significant  changes  to  the  parameters  of  the  pension 
system.  They  include  among  others  an  immediate  increase  in  the  accrual  rate  from  1%  to 
1.35%  in  October  2008  for  all  current  and  future  pensioners  as  well  as  the  recalculation  of 
current pension benefits. This policy is expected to increase the average pension level by 43% 
(from  EUR  75  to  EUR  110).  With  the  explosion  of  pension  expenditures,  additional  strong 

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measures,  such  as  accrual  rate  reduction,  increase  of  retirement  age,  and  reduction  of 
privileged  pension  benefits  may  be  needed  to  restore  the  sustainability  of  the  system. 
Introducing  clear  and  transparent  indexation  rules  would  preserve  the  purchasing  power  of 
benefits and allow for a multi-pillar system.  

As  regards sustainable  development, no  significant  progress  was  achieved,  as  the  Ministry 
of  Environmental  Protection is still preparing a National Environment Strategy (which  will 
serve also as the Strategy for Sustainable Development). Its  draft has been  already proposed 
to the Rada, but no concrete steps have followed yet. 

4. 

TRADE-RELATED ISSUES, MARKET AND REGULATORY REFORM 

EU-Ukraine trade has been growing at a steady two-digit rate in recent years and amounted 
to EUR 39.5 billion in 2008. Ukrainian exports to the EU in 2008 increased by 15.7%; while 
imports from the EU increased by 12.4%. The EU share in Ukraine's overall external trade in 
goods  in  2007  was  39%,  ahead  of  Russia.  Ukrainian  exports  to  the  EU  consist  mainly  of 
manufactured  goods  and  basic  commodities,  such  as  metals,  minerals,  energy,  agricultural 
products  and  chemicals.  The  most  important  EU  exports  to  the  Ukraine  remain  machinery, 
vehicles  and  transport  equipment,  manufactured  goods  and  chemicals.  A  significant 
proportion of Ukrainian goods entering the EU market benefits from EU Generalised Special 
Preferences.  There  are  still  concerns  regarding  the  transparency  of  the  domestic  market  of 
grain. Since October 2006 Ukraine has been applying a regime of export quotas on grain. In 
May  2008  the  government  abolished  export  quotas  for  wheat,  barley  and  rye  and  cancelled 
licensing  for  the  export  of  maize.  Also  in  May,  the  President  suspended  by  decree  the 
government resolutions on the Establishment of Quotas for Sunflower Oil and Seeds Export 
and on the order governing licenses issuance. From the beginning of the reporting period until 
July 2008 those measures had allowed exports of 300,000 tonnes of sunflower oil and 1,000 
tonnes of sunflower seeds which were at that time subject to licensing.  

Ukraine  formally  became  a  member  of  the  WTO  in  May  2008.  Along  with  the  Accession 
Protocol, Ukraine committed to pass 10 WTO-related pieces of legislation, of which only six 
were adopted in the reporting period. 

The  law  setting  up  the  necessary  mechanisms  for  the  harmonisation  of  import  duties  rates 
according  to  the  “Schedule  of  Tariff  Obligations  of  Ukraine  to  the  WTO”  was  not  adopted 
during  the  reporting  period.  In  fact,  from  the  legal  point  of  view,  Ukraine  is  yet  to  comply 
with  its  WTO  obligations  as  regards  import  duties  implementation  as  the  only  legal  ground 
for  the  application  of  WTO-bound  tariffs  in  Ukraine  in  force  in  2008  was  the  Interim 
Government Instruction to the Customs Service issued in May 2008. Particular attention will 
have  to  be  paid  to  this  issue,  also  considering  that  the  possibility  to  raise  import  duties  for 
some  products  in  order  to  improve  the  country’s  worsening  external  trade  balance  in  the 
context of the financial crisis was evoked both by the Government and Parliament Members. 

Regarding  the  future  of  Ukraine’s  trade  relations  with  the  EU,  negotiations  for  a  deep  and 
comprehensive free trade area were officially launched in February 2008. The responsible 
negotiating teams were formed and three negotiations rounds were held namely in April, June 
and October 2008. 

Limited  progress  was  made  in  the  implementation  of  the  customs  part  of  the  Action  Plan. 
Efforts were continued to align customs legislation with the provisions of the Revised Kyoto 

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Convention  on  Simplification  and  Harmonisation  of  Customs  Procedures,  although  the  said 
Convention has not been ratified yet. The draft of the new customs code was presented to the 
Parliament  but  was  not  approved  during  the  reporting  period.  Legislation  introducing  the 
Single Administrative Document (SAD) entered into force in January 2008 and Ukraine has 
been  using  the  ATA  carnet  for  temporary  imports  since  March  2008.  Work  for  the 
introduction  of  the  2007  version  of  the  Harmonised  System  (HS)  was  not  finalised. 
Concerning  administrative  and  operational  capacities,  the  State  Customs  Service  continued 
improving  its  relations  with  economic  operators,  reinforced  security  and  enforcement  and 
improved its system of risk-based customs control. Further efforts are necessary in areas such 
customs  valuation,  integrity,  IPR  protection  at  the  border,  risk  management,  simplifications 
and trade facilitation. 

On the free movement of goods and technical regulations, progress towards an Agreement 
on  Conformity  Assessment  and  Acceptance  of  Industrial  Products  (ACAA)  remained  very 
limited,  even  within  the  3  priority  sectors  identified  by  Ukraine  in  2006/2007  (machinery, 
electrical  equipment  and  simple  pressure  vessels).  There  are  two  draft  laws  on  market 
surveillance.  The  transposition  of  sectoral  legislation  and  international/EU  standards  in  the 
priority sectors progressed slowly in 2008. No significant progress was achieved in reform of 
the  institutions  responsible  for  the  regulation  of  the  quality  of  industrial  products.  In  April 
2008,  Parliament  adopted  amendments  to  the  law  on  standards,  technical  regulations  and 
conformity  assessment  procedures”.  The  amended  law  refers  to  the  “central  executive 
conformity  assessment  authority”  without  specifying  which  organisation  will 
take 
responsibility.  It  specifies  the  notification  procedure  in  Ukraine  and  the  procedure  for 
recognition of conformity assessment results by foreign bodies. In June 2008, the Cabinet of 
Ministers  approved  a  “Concept  for  the  Development  of  the  State  Metrological  System  of 
Ukraine 2008 – 2015”. However the Concept does not envisage changes in the organisational 
structure of the metrology system, which is highly problematic because of the unclear division 
of responsibilities between several institutions involved. So far, accreditation remains the only 
quality infrastructure function separated from DSSU, the Ukrainian standardisation body but 
Compulsory certification is still widespread. A technical assistance project will focus on the 
reform of the quality infrastructure as a priority. 

Ukraine  took  further  steps  towards  gradual  convergence  with  EU  sanitary  and  phyto-
sanitary standards. In May 2008 the Parliament approved in first reading amendments to the 
law “On Veterinary Medicine” containing, inter alia, provisions on  an animal identification 
system. The Government prepared a National Plan for monitoring residues and contaminants 
in  live  animals  and  animal  products  2008-2013  and  submitted  it  to  the  Parliament.  Ukraine 
continued strengthening laboratories including by working towards a reference laboratory for 
avian  influenza.  Hygiene  rules  based  on  the  hazard  analysis  critical  control  point  system 
(HACCP)  were  further  introduced  in  some  establishments.  In  July  2008,  the  European 
Commission’s  Food  and  Veterinary  Office  (FVO)  carried  out  an  inspection  visit  on  dairy 
products and recommended that Ukraine address certain deficiencies. Following the discovery 
of  sunflower  oil  contaminated with  mineral  oil,  Ukraine  implemented  a  new  control  system 
which  allowed  exports  to  the  EU  of  sunflower  oil  to  continue.  In  September  2008,  FVO 
carried out a mission to assess the new control system. Ukraine should continue to investigate 
the source of contamination. In September 2008, the EU added Ukraine to the list of countries 
with approved residue monitoring plans for poultry (including geese), aquaculture finfish and 
equidae.  Ukraine  aims  to  further  expand  this  list,  which  already  includes  milk,  honey  and 
eggs, to other areas. Listing is an important step towards the authorisation of exports to the 
EU. Currently, Ukraine is authorised to export various animal products to the EU for animal 

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feeding  and  for  technical  purposes.  In  November  2008,  Ukraine  participated,  together  with 
Belarus and the Russian Federation, in a European Commission Task Force meeting in Riga 
on  rabies  eradication.  Ukraine  also  participated  in  workshops  under  the  European 
Commission’s “Better Training for Safer Food” programme. 

In terms of business climate, the "Investors' Council" started to work in March 2008. It aims 
at  creating  favourable  conditions  for  doing  business,  improving  the  existing  legislative  base 
and reducing corruption. 

In the area of establishment of companies, the Government has maintained a dialogue with 
the  European  Business  Association  on  improving  the  investment  climate  and  as  regards  the 
streamlining of regulatory and administrative procedures. 

In the area of company law, the practice of company registration is quite transparent but there 
are problems as regards liquidation of companies. The draft law “on joint stock companies” 
was adopted by Parliament in September 2008 and approved by the President in October. The 
Law  aims  at  defining  conditions  that  rule  joint  stock  company  activity  as  well  as  the  legal 
status and the mechanisms to protect shareholders. The establishment of a modern company 
law  framework  is  essential  to  creating  a  sound  business  and  investment  climate.  Finally, 
Ukraine  took  initial  steps  in  the  field  of  accounting  to  impose  International  Financial 
Reporting Standards on the banking sector. 

Negotiations  on  services  continued  in  the  context  of  the  overall  Free  Trade  Agreement 
negotiations.  

As regards financial services, the Draft Law “On changes to the laws of Ukraine on banking 
regulation”  has  been  before  Parliament  since  November  2007.  The  draft  law  foresees 
amendments to a number of legal acts in the banking sector. Banking supervision remains a 
challenge  due  to  the  opaque  ownership  structures  of  some  banks  and  related  industrial 
establishments. A joint Working Group, composed of the National Bank of Ukraine, the State 
Commission for Securities and Stock Market, and the State Commission for Regulation of the 
Financial  Services  Market  has  prepared  draft  amendments  to  several  laws  concerning  the 
regulation of financial services markets which were submitted to the Parliament in September 
2008  but  have  not  been  adopted  yet.  The  draft  amendments  aim  to  strengthen  corporate 
governance,  disclosure  of  information  and  supervision  in  financial  services  markets.  In  the 
field  of  capital  markets,  in  February  2008,  the  All  Ukraine  Securities  Depository  was 
established  by  private  market  participants  and  the  National  Bank  of  Ukraine.  There  are 
currently  two  drafts  of  law  on  insurance  under  consideration;  one  before  the  cabinet  of 
ministers and one before the parliament. 

A number of legislative acts were prepared during the reporting period in areas related to the 
free  movement  of  capital.  These  acts  aim  at  improving  the  legislation  on  the  unified  state 
currency  policy,  streamlining  legislation  in  the  sphere  of  foreign  investment  and  improving 
the system of information exchange between public bodies that carry out controls in the area 
of foreign trade. Notwithstanding possible justification under the safeguard clause, measures taken 
by Ukraine in the context of the financial crisis may have an impact on the standstill provision 
concerning foreign exchange rules. 

Other key areas 

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Reform  of  the  tax  system  is  still  pending.  A  ‘Draft  Strategy  for  Tax  System  Reform  in 
Ukraine’  was  prepared  by  the  Ministry  of  Finance  in  August  2008  and  submitted  to  the 
Cabinet of Ministers of Ukraine. Objectives include the gradual reduction of the tax burden on 
the economy, increased fiscal efficiency of taxes by means of a broadened tax base, improved 
administration  system,  and  renewed  efforts  to  combat  corruption  in  the  administration  of 
VAT, and curbing tax evasion. A special tax regime for agriculture, forestry and fisheries to 
avoid  the  negative  consequences  of  the  financial  crisis  was  approved  in  October  2008  and 
entered into force on 1 January 2009. It includes a special mechanism of VAT handling that is 
designed  to  maintain  special  treatment  and  indirect  support  to  agricultural  producers  in  line 
with WTO obligations. The VAT arrears are a problem that would require a systemic change 
of the VAT administration, which has so far not taken place. 

Amendments  to  the  law  on  the  protection  of  economic  competition  were  discussed  in 
Parliament in December 2008. An assessment of Ukraine's competition policy was presented 
at  the  OECD  Global  Competition  Forum  in  February  2008.  The  report  concluded  that 
“Ukraine has a comprehensive and well-designed competition law enforced by an effectively 
managed and well-regarded agency.” The report also notes that there are some deficiencies in 
the  administration  which  result  in  heavy  demands  on  the  resources  of  the  Anti-Monopoly 
Committee  and  some  weaknesses  in  its  statutory  authority  and  independence  (e.g. 
appointment by the government) as well as some operating policies. Improving transparency 
is essential. The report makes many detailed proposals for changes in Ukrainian competition 
legislation  and  practice.  An  Inter-Ministerial  Working  Group  on  State  Aid  was  created  in 
August 2008. 

Ukraine continued to revise its legislative framework on intellectual property rights with the 
adoption,  in  April  2008,  of  the  law  “On  Amendments  to  several  Laws  of  Ukraine  on 
Intellectual  Property  Rights”  due  to  its  accession  to  the  WTO.  It  further  aligns  with  TRIPS 
norms as regards geographical indications in particular. A number of key legislative acts, such 
as the revised Copyright law and new laws on Industrial Property Rights, are in the pipeline. 
The State Department for Intellectual Property took measures to strengthen IP dialogue with 
right-holders  and  the  business  community.  In  October  2008  Ukraine  signed  a  cooperation 
agreement  for  the  years  2008-2009  with  the  European  Patent  Office.  The  National 
Coordination Council in charge of enforcement activities is still not established. There is still 
a  high  level  of  piracy,  including  internet  piracy,  and  counterfeiting  in  Ukraine.  Border 
measures  remain  inefficient,  which  makes  it  easy  to  smuggle  counterfeited  goods  into 
Ukraine. 

In March 2008 the Ukrainian Parliament adopted an amendment to the public procurement 
law. It abolishes the relevant parts of the legislation in force since 2006 which were not in line 
with EU practices and which undermined fair competition. A draft law was presented in April 
2008 to simplify public tenders and abolish costs of tender and publication. The Government 
plans to draft a strategy and an action plan on public procurement in order to further align and 
review  the  new  draft  law  of  April  2008  before  it  is  adopted  by  Parliament.  Overall,  very 
limited progress took place in reforming the public procurement system which is not yet up to 
international standards. 

In  November  2008  Ukraine  approved  a  mid-term  strategy  (2009-2012)  concerning  the 
development of state statistics. Its general objective is to compile and disseminate qualitative 
statistical information harmonised with international requirements. The Ukrainian authorities 
are working on an action plan to tackle the high level of discrepancies in trade statistics. In 

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May  2008  the  State  Statistics  Committee  of  Ukraine  organised  an  International  Conference 
"Strategy to Develop the State Statistics of Ukraine for the period until 2012”. 

With  regard  to  external  audit,  the  Accounting  Chamber  developed  a  twinning  request  in 
November  2008  to  bring  its  external  audit  processes  and  methodologies  in  line  with 
international  standards.  Cooperation  between  ministries  and  state  agencies  to  prevent  fraud 
and other irregularities needs attention in this respect. 

On public internal financial control (PIFC), the Cabinet of Ministers approved in October 
2008  a  revised  version  of  the  Concept  of  Development  of  Public  Internal  Financial  Control 
for the period up to 2015  as well as an  action plan for its implementation. It provides for a 
series  of  draft  laws  on  internal  audit  and  PIFC,  as  well  as  by-laws  on  internal  control  and 
internal  audit  standards  and  a  draft  Code  of  Ethics.  The  timing  of  the  tabling  of  these  draft 
laws  is  however  unclear.  A  twinning  project  to  develop  financial  management  and  control 
systems as well as internal audit functions in the Control and Audit Department (KRU) of the 
Ministry of Finance is in the course of being implemented.  

Ukraine  made  some  progress  in  enterprise  policy  dialogue  through  the  adoption  of  the 
European Charter for Small Enterprises. In July 2008, a Presidential Decree and a Resolution 
of  the  Cabinet  of  Ministers  “On  Implementation  of  the  European  Charter  for  Small 
Enterprises Principles in Ukraine” were adopted. In September 2008, the Cabinet of Ministers 
adopted a decree on an action plan for the implementation of the Charter 2008-2009. There 
was only limited progress made on business to business dialogue during the reporting period.  

5. 

COOPERATION ON JUSTICE, FREEDOM AND SECURITY 

In  the  area  of  border  management,  reform  of  the  State  Border  Guard  Service  (SBGS) 
continued  in  line  with  the  targets  of  the  2015  plan  in  the  area  of  upgrading  of  legislation, 
infrastructure and personnel training. It is currently developing a risk analysis model based on 
the  Common  Integrated  Risk  Analysis  Models.  Practical  cooperation  between  SBGS  and 
FRONTEX1 focused on joint operations covering the total length of the EU’s external border 
with  Ukraine,  for  instance  through  the  ‘Five  Borders’  joint-pilot  project.  No  progress  was 
made on border demarcation with Belarus2. Progress was made at the border with Moldova, 
except  for  the  Transnistrian  section  and  a  few  areas  in  the  Northern  and  Southern  border. 
Delimitation  negotiations  are  on-going  with  the  Russian  Federation;  however  they  have  not 
been  finalised  due  to  the  lack  of  agreement  on  the  maritime  border  in  the  Kerch  Strait. 
Cooperation  between  SBGS  and  the  Customs  service  should  be  significantly  enhanced  in 
order to improve integrated border management and information exchange at all operational 
levels.  

Despite multiple reforms, Ukraine still lacks a clear migration policy and a unified, efficient 
migration  service.  Detention  conditions  for  migrants  remain  poor  in  many  facilities  and 
fundamental  rights  such  as  respect  of  non-refoulement  principle,  access  to  legal  and  health 
protection  are  not  always  respected.  Conditions  for  the  detention  of  irregular  migrants 
improved  in  some  regions  in  2008  with  the  opening  of  two  modern  custody  centres 
(Zhuravychi  and  Rozsudiv)  and  the  closing  of  a  special  holding  centre  in  Pavshino.  In 

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2 

the  European Agency  for  the  Management  of Operational  Cooperation at  the  External  Borders  of  the 
Member States of the European Union (FRONTEX) 
The Belarusian Parliament continued refusing to ratify the delimitation treaty. 

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addition the State Border Guard Service opened five modern temporary holding facilities in 
Shatsk,  Malniv,  Mostyska,  Chernivtsi  and  Izmail.  However,  further  improvements  are 
required,  in  particular  through  the  creation  of  additional  modern  migrant  custody  centres  as 
well  as recruitment  of  skilled  personnel  and  enhanced  training.  Ukraine  continues  to  deny 
asylum seekers protection and migrants face deportation back to countries where they are at 
risk of torture or ill-treatment. In the case of Soldatenko v Ukraine and Novik v Ukraine) the 
European Court of Human Rights observed that Ukrainian legislation “does not provide for a 
procedure that is sufficiently accessible, precise and foreseeable in its application to avoid the 
risk of arbitrary detention pending extradition”.  

The visa facilitation and readmission agreements between Ukraine and the EC entered into 
force in January 2008. At the Paris EU-Ukraine Summit in September 2008, it was agreed to 
launch  a  visa  dialogue  with  the  long-term  perspective  of  establishing  a  visa  free  regime 
between the  EU  and  Ukraine. The  visa  dialogue  was  opened  in  October  2008.  It  focuses  on 
four  thematic  blocks:  document  security  including  biometrics,  illegal  immigration  including 
readmission, public order and security, and external relations. A first series of technical expert 
meetings was launched in December 2008 focusing on document security.  

With  regard  to  the  fight  against  organised  crime,  Ukraine  has  still  not  signed  the  Third 
Protocol against the Illicit Manufacturing and Trafficking of Firearms of the UN Convention 
against Transnational Organized Crime.  

As regards trafficking in human beings, Ukraine has bilateral cooperation agreements in this 
area  with  all  EU  Member  States  except  Malta,  Cyprus,  Ireland  and  Slovenia,  focusing  on 
information,  technical  and  personnel  exchanges.  The  Council  of  Europe  Convention  on 
Action  against  Trafficking  in  Human  Beings  although  signed,  has  still  not  been  ratified. 
Further  attention  is  needed  to  combat  trafficking  and  to  develop  prevention,  protection  and 
rehabilitation measures in an integrated manner.  

Responsibility  for  the  fight  against  drugs  lies  with  the  National  Security  Service  and  the 
Ministry of the Interior, which registered an increase in drugs seizures. Ukraine plays a major 
role  in  combating  the  opium  trade  to  the  EU  and  actively  participates  in  the  BUMAD 
programme  at  regional  level.  In  the  area  of  prevention  and  harm  reduction,  methadone 
substitution treatment started as of May 2008. Currently treatment is provided to some 3000 
patients.  Reductions  in  demand  would  be  assisted  through  structured  cooperation  with  civil 
society  groups  in  the  context  of  an  overall  integrated  approach.  Ukraine  continues  to 
implement the 1988 United Nations Convention against the Illicit Traffic in Narcotic Drugs 
and Psychotropic Substances and is a member of the United Nations Commission on Narcotic 
Drugs.  

In September 2008, the Verkhovna Rada adopted amendments at a first reading to the current 
legal  framework  on  money  laundering  and  financing  of  terrorism.  These  amendments  are 
necessary  with  regard  to  the  ratification  of  the  Council  of  Europe  Convention  on  the 
Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and the Financing 
of  Terrorism.  They  also  respond  to  the  49  Financial  Action  Task  Force  (FATF) 
Recommendations  and  the  essential  elements  of  current  EC  standards.  Furthermore  it  is 
intended  that  these  amendments  will  complete  the  implementation  of  the  UN  International 
Convention for the Suppression of the Financing of Terrorism, ratified already in 2002. Final 
passage of these amendments is awaited while serious inroads into the prosecution of money 
laundering cases have yet to be made.  

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In the area of police and judicial cooperation, draft legislation on personal data protection 
was presented to Parliament and the President in April 2008 to enable prompt ratification of 
the  Council  of  Europe  Convention  for  the  Protection  of  Individuals  with  regard  to  the 
Automatic Processing of Personal Data. However, the President withheld his signature, which 
led  to  further  postponement.  In  October  2008,  a  first  meeting  took  place  with  Europol  to 
negotiate  a  future  Ukraine-Europol  Agreement  while  the  signature  of  the  Cooperation 
Agreement between the Public Prosecutor’s Office and Eurojust remains suspended due to the 
non-ratification of the above Convention. Failure to move to its ratification will also impede 
further  development  of  cooperation  with  Europol  and  in  the  area  of  document  security  and 
border management.  

6. 

TRANSPORT, ENERGY, THE ENVIRONMENT, THE INFORMATION SOCIETY, RESEARCH 
AND DEVELOPMENT 

Ukraine  is  currently  developing  a  comprehensive  transport  sector  development  strategy  in 
order  to  fully  implement  its  national  sustainable  transport  policy  for  2007-2013.  Ukraine 
concentrated  on  developing those infrastructures that have been identified as needed  for  the 
2012  European  football  championship.  In  this  context  a  draft  law  on  public  private 
partnership (concessions) in the road sector is also being prepared.  

As regards road transport, a law is currently being discussed in the Rada, on the regulation of 
driving times and rest periods which should also lead to the use of tachographs for domestic 
operations.  Ukraine  is  preparing  a  road  safety  action  plan  (with  support  of  the  twinning 
project  on  road  safety,  which  started  in  September  2008).  Overall  road  safety  in  Ukraine  is 
poor and getting worse (mortality rate is double the EU average, although traffic volumes are 
significantly  lower).  As  regards  passenger  transport,  Ukraine  has  still  not  adhered  to  the 
Interbus Agreement although it has planned to do so for several years.  

Ukraine is implementing a railway reform programme that foresees a three-staged reform of 
the  national  railway  company:  first  the  separation  of  the  regulatory  from  the  operational 
functions,  secondly  the  conversion  of  the  railway  company  into  a  joint-stock  company  and 
finally  the  creation  of  separate  entities  for  distinct  operations  (passenger,  freight, 
infrastructure, auxiliary business).  

Negotiations on a comprehensive aviation agreement between the EU and Ukraine progressed 
only  very  slowly  during  2008,  also  reflecting  the  many  problems  Ukraine  faces  as  regards 
oversight  of  safety  and  the  implementation  of  the  relevant  safety  standards.  Ukraine  should 
accelerate  the  adoption  of  the  new  framework  aviation  code  that  was  finally  submitted  to 
Parliament in June 2008. Negotiations on working arrangements with the European Aviation 
Safety  Agency  were  also  started  at  the  end  of  2008.  There  is  a  clear  need  for  substantial 
strengthening  of  the  overall  aviation  safety  oversight  and  enforcement,  including  more 
aviation  inspectors  and  higher  fines  for  breaches  of  aviation  regulations  in  Ukraine.  The 
Concept on the development of Ukrainian airports by 2020, as adopted by the Government in 
March 2008, suggests that the Ukrainian airports will be returned to state ownership. 

As regards the reform of the state-owned port sector (separating operational and commercial 
functions), July 2008 saw the adoption of the State Marine Doctrine "Development Strategy 
of Ukrainian Sea Ports for the Period up to 2015". The Strategy provides for a reform of the 
management  system  of  commercial  sea  ports  and  aims  to  reorganize  state  enterprises 
(commercial  sea  ports)  into  state  port  administrations  and  sea  port  administrations.  Port 

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infrastructure will be transferred to the state port administration. New organisational forms of 
interaction  with  private  capital  will  be  allowed,  which  will  include  "management  contracts, 
concessions,  lease  contracts,  etc".  Although  Ukraine  had  managed  in  2007  to  be  removed 
from the black list of the Paris Memorandum of Understanding on port state control, its poor 
performance led it to being blacklisted once more in 2008. In the area of inland waterways, 
Ukraine adopted a fleet renewal programme.  

The EU and Ukraine - a key transit country for the European Union - further enhanced energy 
cooperation during the reporting period. In September 2008, the EU-Ukraine Summit adopted 
the third progress report in the context of the Memorandum of Understanding on Energy.  

Ukraine started preparations for a  master  plan  on  the  rehabilitation  of  the  gas  transit  system, 
and,  together  with  the  European  Commission,  started  work  on  a  conference,  designed  to 
support investment in the rehabilitation of the gas transit network. A smooth reform of the gas 
sector,  including  a  legal  separation  and  corporatisation  of  the  gas  transmission  operator, 
giving  it  control  over  the  income  from  the  gas  transmission  revenues,  will  facilitate  the 
needed  investment,  estimated  at  EUR  2.5  billion.  Ukraine  prepared  a  draft  law  on  the 
principles  of  the  natural  gas  market  functioning  on  which  the  European  Commission  provided 
comments. Ukraine pursued its search for enhanced domestic production and for new suppliers 
and  supply  routes  including  from  the  Caspian  region  and  North  Africa.  Ukraine  launched, 
together with companies from Azerbaijan, Georgia, Lithuania and Poland a new study on the 
extension of the Odessa-Brody oil pipeline to Gdansk in Poland. Ukraine contributed to the 
further  development  of  the  Boyarka  Natural  Gas  Metrology  Centre,  established  with 
European Commission assistance.  

In  November  2008,  Ukraine  and  the  European  Commission  opened  negotiations  on  the 
country’s  accession  to  the  Energy  Community  Treaty,  which  includes  commitments  for 
gradual convergence with EU internal energy market rules. It participated as observer in the 
work  of  the  Energy  Community.  The  draft  law  on  the  national  electricity  regulatory 
commission  is  still  to  be  adopted.  Ukraine  further  adapted  energy  prices  gradually  towards 
cost recovery levels, but more needs to be done to remove distortions.  

The  UCTE  (Interconnected  Electricity  Networks  of  Continental  Europe)  took  preparatory 
steps  regarding  a  study  on  the  legal,  technical  and  practical  conditions  for  Ukraine’s  and 
Moldova’s future joint accession to the UCTE. Ukraine pursued work towards an emergency 
oil  stocks  law.  In  May  2008,  it  adopted  a  concept  of  the  coal  sector  reform  focusing  on 
privatisation and modernisation. More is required in this sector to achieve Ukraine’s goal of 
further improving mine safety. In March 2008, in the context of the MoU on Energy, the EU 
and  Ukraine  signed  a  roadmap  on  energy  efficiency,  renewable  energy  sources  and  climate 
change. It further prepared a draft law on energy efficiency in housing.  

Ukraine benefited from a substantial allocation from the Neighbourhood Investment Facility 
(under the European Neighbourhood and Partnership Instrument) for efficiency improvements 
in the electricity infrastructure and the development of renewable energy policies. 

Regarding  nuclear  energy,  the  European  Commission  and  Ukraine  further  implemented  a 
joint  project,  with  the  involvement  of  the  International  Atomic  Energy  Agency,  on  the 
evaluation of the safety of Ukraine’s nuclear power plants. Ukraine pursued the upgrading of 
its  nuclear  power  plants.  In  October  2008,  the  European  Commission  disbursed  the  second 
tranche  of  the  EURATOM  loan  for  the  upgrading  of  the  Khmelnitsky-2  Rivne-4  nuclear 
reactors.  Ukraine  continued  strengthening  the  Nuclear  Regulatory  Authority,  with  EU 

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support.  In  September  2008,  the  Parliament  approved  an  amendment  to  the  Convention  on 
Physical  Protection  and  the  law  on  the  management  of  radioactive  waste  treatment  and  the 
financing of decommissioning. Ukraine also adopted regulations on nuclear safety standards 
and on a new nuclear power plant site selection. In Chornobyl, continued progress was noted 
in the decommissioning work and the project on the industrial complex for solid radioactive 
waste  management  is  close  to  completion  and  should  be  commissioned  in  2009.  After  the 
signature of a contract regarding the interim spent fuel storage facility, the design phase was 
initiated.  The  project  to  construct  a  new  safe  confinement  started,  although  with  additional 
delays.  

At  a  regional  level,  Ukraine  continued  participation  in  the  “Baku  Initiative”  for  EU-Black 
Sea/Caspian energy cooperation.  

In  the  field  of  climate  change,  Ukraine  published  a  greenhouse  gas  (GHG)  emissions 
inventory for 1990 – 2006 and took preliminary steps to prepare an inventory for 2007. The 
establishment of a domestic emissions trading scheme, preparation of a third communication, 
as well as studies on vulnerability and on emissions reduction potential, and the development 
of  mitigation  and  adaptation  measures  are  now  planned.  Legislation  was  adopted  on  Green 
Investment  Scheme  projects,  Ukraine’s  climate  commitments,  Joint  Implementation  (JI) 
procedures,  register  of  anthropogenic  emissions  and  absorption  of  GHGs.  Regulations  on 
emissions and absorption of GHGs and on accreditation of independent expert organisations 
are under preparation. The National Environmental Investment Agency became operational as 
Ukraine’s  designated  focal  point.  Having  met  the  relevant  eligibility  criteria,  Ukraine  also 
benefits from faster procedures for approval of JI projects. Eight of the 129 projects have been 
registered  at  the  UN  level.  The  European  Commission  continued  to  support  Ukraine  in 
implementing the Kyoto Protocol. The EU-Ukraine Working Group on Climate Change met 
in  October  2008.  Ukraine  continued  to  support  the  EU  initiative  to  reach  a  global  and 
comprehensive post-2012 agreement by 2009. Ukraine is considering adopting proposals for 
its post-2012 reduction targets.  

Ukraine prepared a draft national environment strategy for 2009 - 2020 and a draft national 
environment action plan for 2009-2012 to implement the strategy. The legislative framework 
continues  to  require  further  development,  in  particular  as  regards  implementing  legislation. 
Legislation  was  adopted  on  extending  the  areas  for  national  parks,  and  on  monitoring  of 
obsolete pesticides. New legislation on modifications to land use and protection, as well as on 
enforcement of the use, protection and restoration of water resources, incineration of waste, 
packaging,  bathing  water  and  groundwater  is  also  under  preparation.  Work  is  continuing  to 
develop  and  implement  existing  strategies  and  plans,  but  continued  attention  is  required. 
Efforts  are  also  needed  to  enhance  monitoring  as  well  as  enforcement.  The  Ministry  of 
Environmental  Protection  prepared  a  draft  concept  on  the  reform  of  the  environmental 
permitting system. 

Further  strengthening  of  administrative  capacity  at  all  levels  of  the  country  is  still  a  major 
challenge. Coordination between the authorities requires particular attention. Some activities 
took  place  to  integrate  environment  considerations  into  other  policy  sectors  such  as  energy. 
Ukraine  published  a  state-of-the  environment  report  covering  the  year  2006,  and  also 
continued to consult with stakeholders on regular basis. Concerning access to information and 
public  participation,  the  Aarhus  Convention  issued  in  June  2008  a  conditional  caution  for 
non-compliance to Ukraine, to become applicable in May 2009. In an attempt to remedy this, 
Ukraine  adopted  an  Aarhus  Action  Plan  in  December  2008.  Procedures  for  environmental 
impact  assessment,  including  consultation  of  the  public,  also  continue  to  require  attention. 

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Some  steps  were  undertaken  to  promote  implementation  of  strategic  environmental 
assessment. In December 2008, a Presidential Decree was issued to establish an Academy of 
Ecological  Sciences.  In  2008,  discussions  started  between  the  European  Commission  and 
Ukraine  on  a  revised  Charter  and  Founding  Agreement  to  re-establish  the  Regional 
Environmental Centre (REC) in Ukraine. 

Ukraine  did  not  make  significant  progress  in  the  ratification  of  the  remaining  relevant 
UNECE  protocols3.  Moreover,  the  implementation  of  several  already  ratified  agreements 
requires  particular  attention.  Initial  steps  were  taken  to  prepare  a  Danube  Delta  Analysis 
Report. Preparations for signing the Dnister (Dniester) River agreement with Moldova are still 
on-going.  Ukraine  participated  in  the  Danube  -  Black  Sea  Task  Force  (DABLAS),  within 
which  a  state  guarantee  for  water  supply  and  wastewater  treatment  in  Mykolaev  was 
discussed.  A  national  policy  dialogue  was  started  under  the  EU  Water  Initiative.  An 
implementation  plan  for  sustainable  water  management,  drinking  water  and  adequate 
sanitation  was  adopted.  Ukraine  also  participated  in  the  International  Commission  for  the 
Protection  of  the  Danube  River  and  in  the  Commission  on  the  Protection  of  the  Black  Sea 
against Pollution. Ukraine continued its support to the objective of the European Community 
to accede to the Convention on the Protection of the Black Sea against Pollution. Cooperation 
and  information  exchange  took  place  between  the  European  Commission  and  Ukraine, 
including on multilateral conventions, environment strategy, water quality, integrated coastal 
zone management, forestry, waste management and environmental data. Other topics, such as 
air quality, were identified for possible closer cooperation. 

As  regards  the  Bystre  Deep  Water  Canal,  Ukraine  received  a  conditional  caution  for  non-
compliance in May 2008. It consequently repealed its final decision on Phase II of the project 
and  suspended  works  until  it  fully  complies  with  the  Espoo  Convention  on  Environmental 
Impact  Assessment  in  a  Transboundary  Context.  Ukraine  also  took  steps  to  promote  better 
compliance  with  the  relevant  Conventions,  including  a  meeting  with  the  affected  Party,  as 
well as the establishment of an inter-ministerial council on the implementation of the project. 
Ukraine  will  need  to  continue  on  this  path  towards  compliance  with  all  the  relevant 
conventions, including on an environmental impact assessment on both phases of the project, 
and  reporting  on  steps  taken  to  comply  with  any  further  works  related  to  Phase  I.  An 
independent review of the legal and administrative situation is envisaged.  

Ukraine and the European Commission services signed a new administrative arrangement on 
closer  co-operation  in  the  field  of  civil  protection.  The  Community  Civil  Protection 
Mechanism was mobilised in August 2008 to help Ukraine to assess six regions in Western 
Ukraine  affected  as  a  result  of  the  flooding  of  the  Dnister  (Dniester)  and  Prut  Rivers.  The 
Post-disaster Damage Needs Assessment on the accident in the Kerch Strait was completed in 
November 2008 on the basis of good co-operation with the Ukrainian authorities. 

As  regards  the  information  society,  the  National  Commission  for  Communications 
Regulation (NCCR) was appointed by decision of the Constitutional Court, which restored the 
responsibility  of  the  Cabinet  of  Ministers  for  this  appointment.  During  2008  the  NCCR 
approved price caps, interconnection regulations and licensing conditions for public electronic 
communications  services  and  adopted  rules  on  frequency  management.  The  NCCR  also 

3 

the  Protocol  on  Strategic  Environmental  Assessment  to  the  UNECE  Convention  on  Environmental  Impact  Assessment  in  a 
Transboundary  Context  and  the  following  protocols  of  the  UNECE  Convention  on  Long-Range  Transboundary  Air  Pollution: 
Protocol  on  Persistent  Organic  Pollutants;  Protocol  on  Heavy  Metals;  Protocol  on  Further  Reduction  of  Sulphur  Emissions; 
Protocol concerning the Control of Emissions of Volatile Organic Compounds or their Trans-boundary Fluxes 

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issued  a  new  numbering  plan  for  public  electronic  communications  networks,  including  the 
introduction  of  the  emergency  call  number  “112”.  Other  regulatory  instruments  are  under 
preparation, such as the identification of operators with significant market power, based on an 
analysis of 17 communications markets, as are regulations on Universal Service Obligations, 
network  access  conditions  and  the  reinforcement  of  consumer  protection.  The  Ministry  of 
Transport and Communications prepared a new radio spectrum plan including the conversion 
of spectrum from military to civilian use and a frequency plan for digital TV.  

Regarding audiovisual policy, the Ukrainian Parliament ratified the European Convention on 
Transfrontier  Television  in  December  2008.  The  OSCE  helped  to  align  Ukrainian  media 
legislation with European standards through a project that ended in the spring of 2008. Since 
autumn  2008  efforts  to  align  have  continued  through  an  EC  project  implemented  by  the 
Council of Europe.  

Ukraine continues to update its research and innovation policy with more direct sustainable 
economic  development  objectives.  The  first  results  of  Ukraine’s  participation  in  the  7th 
Research Framework Programme (FP7) are encouraging with a marked increase in both the 
quantity  and  the  quantity  of  proposals  compared  to  the  FP6.  There  are  plans  to  renew  the 
existing S&T cooperation agreement and to explore further steps for a possible association of 
Ukraine  to  the  Framework  Programme.  As  a  result  of  the  first  BILAT4  call,  a  BILAT-Ukr 
project  was  one  of  13  projects  selected  for  funding,  and  it  has  been  launched  in  September 
2008.  As  a  result  of  the  first  INCO-NET  call,  IncoNet  EECA  (The  S&T  International 
Cooperation  Network  for  Eastern  European  and  Central  Asian  countries)  was  launched  in 
January 2008 for four years. The total budget is approximately EUR 3.5 million. To ensure 
the international character of this project, a large consortium of 23 institutes from 21 EU and 
EECA countries, including Ukraine, was formed.  

7. 

PEOPLE-TO-PEOPLE CONTACTS, EDUCATION AND HEALTH 

Adherence to the principles of the Bologna process and convergence with EU standards are 
the  main  vectors  for  higher  education  reform  in  Ukraine.  In  this  regard,  reform  of  the 
regulatory  framework  and  a  national  university  rating  system  are  proposed  alongside 
rationalisation  of  state  and  private  universities  to  encourage  integration  of  services  and 
educational and research provision. In the context of on-going discussions on sector reform in 
September  2008,  Ukraine  along  with  Moldova  participated  in  a  conference  on  higher 
education qualifications frameworks,  hosted by Armenia  in cooperation  with  the Council of 
Europe.  It  also  participated  in  a  Council  of  Europe  Bologna  regional  conference  on  self 
certification of national qualification frameworks in Georgia in November 2008.  

Ukraine continued to substantially benefit from its active participation in Tempus, with a total 
of  12  projects  selected  under  the  first  call  for  proposals  for  Tempus  IV  in  the  areas  of 
curricula development, governance and e-learning. Greater efforts would need to be made in 
ensuring dissemination of good practice gained from current and earlier Tempus projects as 
well  as  encouraging  balanced  participation  across  all  regions  beyond  major  urban  centres. 
Ukraine did not establish an independent National Tempus Office (NTO) as planned, but after 

4 

Under  the  FP7  Specific  Programme  'Capacities'  -  Horizontal  actions  and  measures  in  support  of 
international  cooperation  -  the  Commission  has  launched  a  number  of  so-called  “BILAT”  calls 
supporting  the  development  of  S&T  Partnerships  based  on  bilateral  dialogues  and  coordination  of 
policy initiatives in jointly defined priority areas.  

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an  open  call  for  applications  late  in  2008,  a  newly  appointed  NTO  became  operational  in 
Ukraine in March 2009. 

A total of 33 Ukrainian students and nine scholars benefited from scholarships under Erasmus 
Mundus  during  the  academic  year  2008-2009.  Student  and  academic  mobility  to  the  EU 
continued  to  develop  through  the  participation  in  Erasmus  Mundus  External  Cooperation 
Window. Ukrainian universities participated in the Jean Monnet Programme. In addition, 18 
Ukrainian students received scholarships in European integration studies at masters level for 
students from the ENPI region under a special pilot project for the academic year 2008-2009.  

in 

line  with 

international  comparative 

Greater student involvement in higher education governance is being facilitated in the context 
of  quality  enhancement  and  the  democratisation  of  universities.  However,  more  transparent 
mechanisms  for  university  entry  are  required  to  limit  and  curb  corruption.  Ukraine  is  not  a 
member  a  governmental  member  of  the  European  Quality  Assurance  Register  (EQAR). 
Improving  the  quality  of  general  education  is  also  a  priority.  Ukraine  seeks  to  improve 
the 
standards 
decentralisation  of  secondary  education  provision  including  curricula  modernisation  and 
introducing  competition  in  the  development  of  school  textbooks.  In  September  2008,  the 
Ministry  of  Education  and  Science  launched  a  national  external  assessment  of  secondary 
school graduates In November 2008, the Confederation of Employers presented a draft law on 
a  national  qualifications  framework  for  public  discussion,  prepared  in  consultation  with 
government  agencies,  social  partners  and  education  and  training  stakeholders.  Work 
continued on the development of labour-market relevant vocational training in line with EU 
best practice approaches including the participation of enterprises in the definition of training 
content in order to maximize the employment prospects of trainees. 

indicators  while  advancing 

Ukrainian  young  people,  youth  workers  and  youth  organisations  continued  benefiting  from 
the  opportunities  offered  by  the  Youth  in  Action  programme  with  participation  rates  on  the 
rise.  The  Ministry  for  Family,  Youth  and  Sport  translated  programme  information  into 
Ukrainian on its website to encourage greater interest and participation. Further efforts aimed 
at  promoting  intercultural  dialogue  as  well  as  drug  prevention  activities  through  youth 
exchanges and informal education would be welcome. 

In  the  area  of  culture,  an  inter-ministerial  committee  was  established  to  develop  a  cross-
sector approach to the management of cultural and natural heritage with a particular interest in 
cultural  policy,  cultural  tourism  and  film  production.  Measures  to  address  the  legal 
environment as well as fiscal incentives to support cultural development would also need to 
be considered in this respect. Ukraine did not proceed to ratification of the 2005 UNESCO on 
the  Protection  and  Promotion  of  the  Diversity  of  Cultural  Expressions.  However,  the 
necessary  provisions  to  cover  the  Ukrainian  future  contribution  to  the  Convention’s  Trust 
Fund were included in the draft 2009 State budget. 

Opportunities to promote civil society cooperation at local and regional levels are facilitated 
through  existing  Cross  Border  Cooperation  (CBC)  programmes  and  other  external 
cooperation  programmes.  Ukraine  participates  in  three  CBC  programmes  as  well  the  Black 
Sea  Basin  programme.  Specific  national  legislation  to  promote  cross-border  and  regional 
cooperation has yet to be developed. Furthermore, in August 2008 the Civil Expert Council of 
the  Ukrainian  side  of  the  EU-Ukraine  Cooperation  Committee  was  officially  formed  with  a 
membership  of  approximately  30  civil  society  organisations.  The  Council  subsequently 
developed  principles  concerning  its  role  and  cooperation  with  the  executive  branch  of 
government and the joint bodies established in the process of European integration.  

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Ukraine  continued  to  reform  the  health  sector  with  a  view  to  improving  quality,  financial 
sustainability and access to health services including in rural areas. Ukraine started to develop 
a  basic  health  law.  Ukraine  continued  to  fight  against  communicable  diseases  such  as 
HIV/AIDS and tuberculosis. It drafted the National HIV/AIDS prevention and treatment plan 
for  people  with  HIV/AIDS  2009–2013,  which  is  under  Parliament  scrutiny.  It  expressed 
interest in cooperating with the European Centre for Disease Prevention and Control. Ukraine 
continued to participate in the European Commission’s HIV/AIDS Think Tank.  

8. 

FINANCIAL COOPERATION – 2008 KEY FACTS AND FIGURES  

The  ENPI  financial  envelope  for  Ukraine  under  the  National  Indicative  Programme  2007-
2010 is EUR 494 million. The programme is geared towards supporting the achievement of 
key policy objectives as outlined in the ENP Action Plan and pursues three priorities: support 
for  democratic  development  and  good  governance  (public  administration  reform,  public 
finance management, rule of law and judicial reform, human rights, civil society development 
and  local  government,  education,  science  and  people-to-people  contacts);  regulatory  reform 
and administrative capacity building (trade, improving the investment climate, social reform, 
regulatory  aspects);  infrastructure  development  (energy,  transport,  environment,  border 
management). 

The  implementation  of  the  measures  covered  by  the  2007  Annual  Action  Programme  is 
underway.  The  implementation  of  the  sector  budget  support  programme  supporting  the 
Ukraine’s Energy Strategy is on track and the first EUR 23 million tranche was disbursed on 
time. However the framework for budget support operations needs to be reinforced in view of 
future  such  operations.  A  SIGMA  programme  aimed  at  further  strengthening  the  Public 
Finance  Management  System  has  started.  Efforts  are  needed  to  establish  a  medium  term 
budget forecast system, a proper monitoring structure and mechanisms to oversee and guide 
its implementation. Effective inter-ministerial co-ordination needs to be established.  

In  2008,  the  Commission  continued  to  support  the  national  reform  efforts  and  committed 
assistance for a total amount of EUR 138.6 million under the ENPI, which included additional 
funds through the Governance Facility (EUR 16.6 million) in recognition of Ukraine’s good 
performance in Governance in 2008. The 2008 Annual Action programme focussed on energy 
efficiency, technical barrier and continued technical assistance and twinning support.  

Ten  twinning  operations  are  on-going  (and  several  others  under  preparation)  in  Ukraine  in 
sectors  such  as  Civil  Aviation,  Space  Cooperation,  Public  Financial  Control  and  Electricity 
the 
Regulation.  While  ownership  has  generally 
beneficiaries  and  additional  resources  are  needed  to  enhance  effectiveness.  The  role  of  the 
coordinating  agency  should  be  strengthened  in terms of ensuring smooth  implementation of 
commitments and activities. 

improved  more  commitment  from 

Ukraine  also  benefits  from  cooperation  activities  financed  under  the  ENPI  multi-country 
(including  the  Neighbourhood  Investment  Facility)  and  regional  programmes  and  is  eligible 
under the ENPI Cross Border Cooperation component. Under the Neighbourhood Investment 
Facility (NIF) contributions for three projects in Ukraine were approved in 20085, committing 

5 

‘Technical Assistance for the Ukrenergo High Voltage Transmission networks’, ‘Technical Assistance 
Support for Ukrainian Municipalities’ and ‘Technical Assistance for Burshtyn TPP Rehabilitation and 

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EUR  6.6  million  in  technical  assistance,  expected  to  leverage  EUR  608  million  in  loans  of 
European Finance Institutions in the transport energy and social sector. Three cross-border co-
operation  programmes  to  which  Ukraine’s  participate  were  adopted  in  2008,  notably  the 
Romania-Moldavia-Ukraine EUR 126.718 million for the period 2007-13), Poland -Belarus-
Ukraine  (EUR  186,201  million  for  the  period  2007-13)  and  the  Black  Sea  CBC  Sea  basin 
programme  (EUR  17.306  million  for  the  period  2007-13).  Through  these  programmes  the 
populations of the border regions of the country concerned will receive funding for joint co-
operation projects aimed at fostering sustainable development and enhancing human contacts.  

Support in the area of nuclear safety continued amounting to EUR 48.255 million within the 
framework of the Action Plan 2008 under the Instrument for Nuclear Safety Cooperation. 

Concerning  aid  coordination,  it  is  important  to  better  calibrate  the  donor-government  co-
ordination  system  under  the  Ministry  of  Economy,  so  as  to  fully  integrate  donor  assistance 
into Ukrainian policy planning and budgeting strategies so as to support more effectively the 
policy priorities agreed in the Action Plan.  

Efficiency 
for 
http://ec.europa.eu/europeaid/where/neighbourhood/regional-cooperation/irc/investment_en.htm  

Improvement’, 

information 

more 

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see: 

   EN