JOINT STAFF WORKING DOCUMENT Implementation of the European Neighbourhood Policy in Ukraine Progress in 2011 and recommendations for action Accompanying the document JOINT COMMUNICATION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Delivering on a new European Neighbourhood Policy
Date: 2012-05-15
Institutions: European Commission, High Representative of the Union
Subjects: European neighbourhood policy, Moldova, Ukraine, economic policy, energy policy, environmental policy, human rights, migration policy, rule of law, settlement of disputes, social policy, trade cooperation

EUROPEAN COMMISSION 

HIGH REPRESENTATIVE OF THE
EUROPEAN UNION FOR 
FOREIGN AFFAIRS AND 
SECURITY POLICY

Brussels, 15.5.2012  
SWD(2012) 124 final 

JOINT STAFF WORKING DOCUMENT 

Implementation of the European Neighbourhood Policy in Ukraine 
Progress in 2011 and recommendations for action 

Accompanying the document 

JOINT COMMUNICATION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, 
THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE 
COMMITTEE OF THE REGIONS 

Delivering on a new European Neighbourhood Policy 

{JOIN(2012) 14 final} 
{SWD(2012) 110 final} 
{SWD(2012) 111 final} 
{SWD(2012) 112 final} 
{SWD(2012) 113 final} 
{SWD(2012) 114 final} 
{SWD(2012) 115 final} 
{SWD(2012) 116 final} 
{SWD(2012) 117 final} 
{SWD(2012) 118 final} 
{SWD(2012) 119 final} 
{SWD(2012) 120 final} 
{SWD(2012) 121 final} 
{SWD(2012) 122 final} 
{SWD(2012) 123 final} 

EN 

   EN 

 
 
 
 
  
 
 
 
 
1. 

OVERALL ASSESSMENT AND RECOMMENDATIONS 

This  document  reports  on  the  progress  made  in  implementing  the  EU-Ukraine 
Association  Agenda  between  1  January  and  31  December  2011.  Developments 
outside this reporting period are also taken into consideration where deemed relevant. 
This is not intended to be a general review of the political and economic situation in 
Ukraine. For information on regional and multilateral sector processes, readers should 
refer to the Eastern Partnership report. 

In 2011 Ukraine took positive steps to secure deeper long-term future relations with 
the  EU  by  working  intensively  to  finalise  the  negotiations  of  the  Association 
Agreement.  This  Agreement  establishes  a  comprehensive  agenda  for  political 
association and economic integration on the basis of the sharing of European values, 
increased  market  access,  approximation  with  the  EU  acquis  and  the  overall 
modernization of Ukraine’s institutions. It includes a Deep and Comprehensive Free 
Trade Area (DCFTA), and covers political and security co-operation, justice, liberty 
and  security, 
financial  co-operation  and  a  comprehensive  programme  of 
approximation  to  the  EU  acquis  across  all  sectors.  Substantive  negotiations  on  the 
Agreement were closed in December and the text was initialled on 30 March 2012.  

In  the  area  of  democracy  and  human  rights  there  was  further  deterioration.  Several 
leading  opposition  figures,  including  former  Prime  Minister  Tymoshenko,  were 
subjected to selective justice, characterized by un-transparent judicial processes. This 
attracted  substantial  criticism  both  at  home  and  abroad.  Ukraine’s  performance, 
notably in relation to respect for common values and the rule of law, will be of crucial 
importance for the speed of its political association and economic integration with the 
EU,  inter  alia  with  regard  to  conclusion  of  the  Association  Agreement  and  its 
subsequent implementation. This would also provide a new momentum to a political 
dialogue which at present is dominated by discussions on stalled reforms and the rule 
of  law.  The  adoption  of  a  new  Law  on  Public  Associations  in  March  2012  was  an 
important first step signalling a possible change from the existing trend. 

Despite  the  adoption  of  new  legislation,  corruption  perception  remains  high  and 
Ukraine  maintains  a  low  position  in  relevant  international  indices.  Conditions  for 
business and investment have further deteriorated. 

In  November  2011,  a  new  law  on  parliamentary  elections  was  approved  with  an 
overwhelming cross party majority, although it failed to take fully into account all of 
the recommendations from the Venice Commission1.  

In  the  second  part  of  the  year  Ukraine  started  a  process  of  reviewing  the  Criminal 
Procedure Code which dates from the early 1960s (the Criminal Procedural Code was 
later adopted in April 2012). This revision was carried out in close consultation with 
experts from the Council of Europe and could represent an example for pursuing other 
reforms such as revision of the Criminal Code.  

1 Subsequent to the reporting period, in April 2012, the Constitutional Court of Ukraine ruled that some 
of the provisions of the new law on parliamentary elections were unconstitutional. 

2

 
 
                                                 
In  2011,  Ukraine's  economic  recovery  continued,  with  a  strong  growth  performance 
and  inflation  largely  under  control.  However,  there  are  significant  risks  to  the  fiscal 
balance  and  the  balance  of  payments.  Moreover,  the  International  Monetary  Fund 
(IMF)  programme  is  currently  off-track,  with  an  impact  on  access  to  international 
capital markets. Ukraine has resumed talks with the IMF in February. 

Ukraine's  progress  in  achieving  important  structural  reforms  and  implementing  the 
Association  Agenda  priorities  remained  below  expectations.  Public  procurement 
legislation  was  brought  closer  to  international  standards  but  reforms  in  the  field  of 
public finance management were not adequately pursued. This had a negative impact 
on the delivery of EU financial assistance including budget support2. 

Ukraine made progress in the implementation of the first phase of the Action Plan for 
Visa Liberalisation.  

On 1 February 2011, Ukraine acceded to the Energy Community Treaty committing 
in the process to implement a number of significant structural reforms including, for 
the  gas  sector,  third  party  access  and  the  separation  of  production,  distribution  and 
transport. Further efforts by Ukraine are necessary to fulfil these commitments.  

Increased  prices for  imported  gas negatively impacted on  Ukraine’s fiscal situation: 
securing  a  new  arrangement  with  Russia  remains  a  top  priority  for  Ukrainian 
authorities.  This  needs  to  be  linked  to  long-term  energy  reform  including  the 
restructuring  of  the  state  oil  and  gas  monopolist  Naftogaz  and  improving  energy 
efficiency  and  the  use  of  renewable  energy.  The  EU  will  continue  to  offer  to  both 
Ukraine and Russia to participate in tripartite discussions on gas transit.  

In a successful pledging conference in April 2011, EUR 550 million were pledged for 
the implementation of projects to complete the permanent shelter and related facilities 
at the Chernobyl site.  

Ukraine continued to cooperate with the EU on regional and international issues. At 
the  regional  level,  Ukraine’s  agreement  with  the  Republic  of  Moldova  on  the 
demarcation  of  the  borderline  at  the  Odessa-Reni  highway  sector  at  Palanca  gave  a 
boost  to  bilateral  relations.  Cooperation  with  the  EU  on  all  questions  related  to  the 
Transnistria settlement was very constructive. 

On the basis of this year’s report, and with the view of a sustained implementation of 
the Association Agenda in 2012, Ukraine is invited to:  

•  Ensure  that  constitutional  reform  process  is  carried  out  in  an  inclusive  and 
transparent  way  and  in  close  cooperation  with  the  Council  of  Europe/Venice 
Commission. 

•  Effectively implement the Association Agenda priorities concerning therespect 

for the rule of law and democratic values.  

2  

Subsequent to the reporting period, in April 2012, Ukraine reinvigorated the Department in the 
Cabinet of Ministers following up on the European agenda. It also took initial steps towards 
the adoption of a strategy on public finance management. 

3

 
 
                                                 
 
•  Bring  legislation  on  freedom  of assembly  and  media  freedom  in  line  with 

European standards.  

•  Address  the  issue  of  politically-motivated  selective  justice,  take  steps,  more 
broadly, to ensure the independence of the judiciary and pursue reform in all 
aspects  of  the  judicial  process:  prosecution,  trial,  sentencing,  detention  and 
appeals. 

•  Further develop co-operation with Council of Europe (including on elections, 
the revision of the legislation on the Office of the Public Prosecutor and on the 
Bar,  of  the  role  of  the  High  Council  of  Justice,  of  the  Criminal  Code  and 
notably  its  articles  364  and  365  as  well  as  amendments  to  the  laws  on  the 
Judicial  System  and 
the 
recommendations made by the Venice Commission, effective implementation 
of  the  Law  on  Free  Legal  Aid  and  establishment  of  a  National  Preventive 
Mechanism to prevent ill-treatment and torture), building on the experience of 
preparing  the  new  Criminal  Procedure  Code;  address  transparently  the 
recommendations and advice received during consultations.  

the  Status  of  Judges 

in  accordance  with 

•  Take  effective  action  to  tackle  conflict  of  interest  and  corruption  as  well  as 
specific  obstacles  to  business  and  investment;  address  the  trade  and  trade-
related reforms laid down in the Association Agenda with a view to facilitate 
the implementation of the future DCFTA.  

•  Address  in  good  time  issues  raised  in  the  area  of  justice  and  home  affairs, 
notably on combating trafficking in human beings taking into account a gender 
and human rights perspective. 

•  Prepare  and  conduct  the  2012  parliamentary  elections  in  line  with  the 
standards of the Organisation for Security and Cooperation in Europe - Office 
for Democratic Institutions and Human Rights (OSCE/ODIHR), including full 
co-operation with monitoring missions. 

•  Establish  a  macroeconomic  framework,  conducive  to  the  resumption  of  IMF 
support addressing inter alia issues of fiscal sustainability in the energy sector.  

•  Address  outstanding  issues  of  transparency  and  accountability  in  public 
finance management, making use of EU technical assistance in this area. This 
is  a  condition  for  continued  EU  budget  support  and  EU  macro-financial 
assistance.  Sustained  improvements  in  public  finance  management  are  also 
essential for continued EU budget support. 

•  Bring  the  law  on  civil  service  of  November  2011  in  line  with  EU  norms, 
which  would  allow  an  EU  sector  budget  support  programme  of  EUR  70 
million to advance.  

•  Comply with the obligations of the Energy Community Treaty (as reflected in 
the  Association  Agreement  and  the  Association  Agenda)  and  pursue  reforms 
in line with the commitments taken upon accession to this treaty. 

4

 
 
•  Coordinate  better  EU  assistance  and  optimise  its  effectiveness  by  facilitating 
project and expert registration and integrating experts better in their respective 
working environment. 

2. 

POLITICAL DIALOGUE AND REFORM 

Towards Deep and Sustainable Democracy 

Ukraine’s  electoral  legislation  was  further  revised  taking  into  account  a  number  of 
the  recommendations  from  the  Council  of  Europe  Venice  Commission  or  the 
OSCE/ODIHR. However the new law on Election of People’s Deputies did not take 
into  account  those  of  the  Venice  Commission  recommendations  concerning  the 
introduction of a mixed electoral system (majoritarian and proportional), the increase 
of  the  electoral  threshold  for parties  to  participate  in  distribution  of  mandates  in  the 
“nation-wide  district”  from  3%  to  5%,  the  ban  on  electoral  blocs  and  the  proposed 
electoral limitations for convicted persons. The decision by the parliamentary majority 
of  81%  to  disregard  these  points  and  adopt  the  law    was  criticised  by  some  civil 
society  representatives.  Civil  Society  also  complained  that,  in  its  initial  phase,  the 
work on the new electoral legislation lacked transparency and inclusiveness3.  

Improved  legislation  in  the  area  of  freedom  of  association  would  allow  Ukraine’s 
lively civil society to develop further. To this end, in May 2011, a new draft law on 
public associations, elaborated in close cooperation with civil society groups, passed 
its first reading in the parliament. Subsequent to the reporting period, the Parliament 
adopted  the  new  law  in  March  2012.  It  was  positively  received  by  civil  society 
representatives.  

Authorities are increasingly hostile to public displays of discontent and on occasions 
tried  to  limit  freedom  of  assembly.  The  number  of  court  rulings  prohibiting 
gatherings  has  grown  compared  to  previous  years.  A  further  effort  is  needed  to 
encourage  courts  to  follow  European  Court  of  Human  Rights  case  law,  rather  than 
resort  to  Soviet-era  legal  acts,  when  justifying  their  decisions.  Law  enforcement 
bodies resort to various means to deter demonstrations, in particular those against the 
current government. In November, while the authorities were removing a tented camp 
to  fulfil  a  court  ruling  banning  a  rally  in  Donetsk,  a  70-year-old  protester  died.  The 
case is being investigated by the prosecutor. 

The distribution of digital broadcasting licences to companies controlled by prominent 
members and associates of the current administration raises concerns about the future 
of  media  freedom  and  the  pluralism  of  broadcast  media.  Journalists  from  the 
electronic  media  and  the  press  report  cases  of  censorship  and  harassment  from  law 
enforcement bodies. An interdepartmental working group has been established under 
the  Presidential  Administration  to  address  the  reports  of  violations  of  journalists' 
rights.  An  initiative  welcomed  by  journalists  which  are,  however,  concerned  by  the 
lack  of  follow-up  to  the  working  group’s  meetings.  The  investigations  on  the 
disappearance  of  Editor  Vasyl  Klymentyev  have  not  visibly  progressed  despite 

3  

Subsequent to the reporting period, in April 2012, the Constitutional Court of Ukraine ruled 
 that some of the provisions of the new law on parliamentary elections were unconstitutional. 

5

 
 
                                                 
 
assurances from the Prosecutor General’s Office in November that the case was being 
pursued. No effective steps were taken to establish a public service broadcaster in line 
with international standards. In June 2011, the Cabinet of Ministers finalised a draft 
law  on  public  broadcasting  which  was  submitted  to  the  Council  of  Europe  for 
assessment. The draft law was criticised by independent media experts. The issue of a 
lack of transparency in media ownership remains to be addressed.  

Important concerns remain regarding respect for the rule of law and strengthening the 
judiciary. Trials against opposition leaders and members of the former government, 
which  did  not  respect  international  standards  on  fair,  transparent  and  independent 
legal  processes,  confirmed  the  perception  that  justice  is  being  applied  selectively 
through politically motivated prosecutions.  

More  than  20  high-level  representatives  of  the  former  government  are  either  under 
investigation  or  have  been  convicted,  including  former  Prime  Minister  Yulia 
Tymoshenko.  In  October,  Tymoshenko  was  sentenced  to  seven  years  in  prison  for 
abuse  of  office,  in  relation  to  the  gas  contracts  she  signed  with  Russia  in  January 
2009. She is now serving her sentence in jail. Other high-profile cases concern former 
Minister of the Interior Yuriy Lutsenko and former Acting Defence Minister Valeriy 
Ivashchenko who were sentenced to prison subsequent to the reporting period. Apart 
from  a  high  number  of  procedural  deficiencies  serious  concerns  have  been  voiced 
regarding the lack of proper medical treatment available to detainees. According to a 
number of reports the government has exerted inappropriate pressure on the chairman 
of the Supreme Court.  

The National Commission for the Strengthening of Democracy and Rule of Law has 
worked  on  the  preparation  of  amendments  to  the  law  on  the  Judiciary  and  on  the 
Status of the Judges to address earlier recommendations by the Venice Commission. 
In July, the amendments were re-submitted to the Venice Commission. In its October 
opinion,  the  Venice  Commission  concluded  that  the  draft  amendments  include  a 
number of important improvements. It recommended, however, that the Constitution 
be  amended  to  allow  for  reform  of  the  appointments  system  and  the  removal  of 
judges. 

Regarding the fight against corruption, there was no significant progress in terms of 
results.  In  2011,  Ukraine  lost  18  places  in  the  Corruption  Perceptions  Index  of 
Transparency International, being ranked 152nd out of 187 countries. In July 2011, the 
law on the Principles of Preventing and Combating Corruption, and the law amending 
several legislative acts concerning liability for corruption offences, entered into force. 
However,  the  legislation  which  has  been  adopted  remains  incomplete,  and  in  some 
places  ambiguous,  and  does  not  fully  comply  with  the  requirements  of  the  relevant 
Council of Europe and UN instruments. There are important recommendations from 
the Council of Europe Group of States against Corruption (GRECO) to which proper 
follow-up has not yet been given. 

In  October,  a  National  Anti-Corruption  Strategy  was  adopted.  The  Strategy  gives 
general directions for further action in a number of areas but does not tackle some of 
the  key  outstanding  issues,  such  as  the  establishment  of  an  independent  anti-
corruption  body,  the  specialisation  and  clearer  distribution  of  tasks  among  law 
enforcement  agencies,  the  verification  of  asset  declarations,  and  the  conflict  of 
interests.  The  corresponding  action  plan  is  still  under  preparation.  The  institutional 

6

 
 
the 
framework  necessary 
implementation  of  anti-corruption  policies,  to  enforce  the  law,  and  to  prosecute 
violations, is not yet in place.  

repress  corruption, 

to  prevent  and 

to  monitor 

As in previous years, there was no significant progress on constitutional reform. In 
February 2011, an expert working group was established to prepare for the election of 
a  Constitutional  Assembly  and  the  Venice  Commission  provided  an  opinion  on  the 
concept paper on the establishment and functioning of a Constitutional Assembly in 
March. The Constitutional Assembly had not been established by the end of 2011. In 
January 2012, the President issued a decree on formation and organisation of activities 
of a Constitutional Assembly. It is important that this reform is carried out through an 
inclusive  process  and  that  it  aims  to  establish  a  coherent,  lasting  and  democratic 
system of checks and balances in accordance with European standards. 

Other Human rights and governance-related issues 

The Ombudsperson’s Office raised its profile by increasing the media coverage of its 
activities. An updated website allows the public to more easily access information on 
the  Ombudsperson  activities.  Despite  this  positive  development,  government  bodies 
failed to provide proper responses to a number of the Ombudsperson’s requests.  

The  implementation  of  the  judgements  of  the  European  Court  of  Human  Rights 
continues  to  be  of  concern.  The  authorities  in  Kyiv  have  not  yet  taken  measures  to 
execute  the  “pilot  judgment”  in  the  Ivanov  case,  which  concerns  the  obligation  of 
Ukraine  to  set up  an  effective domestic  remedy  in  cases  of  non-enforcement  of 
domestic  judicial  decisions.  The  implementation  of  this  pilot  judgement  is  of 
particular  relevance  because  of  its  effects  on  more  than  1000  similar  applications 
lodged with the Court. 

International  and  domestic  human  rights  organisations  continue  to  report  on  an 
increasing  number  of  complaints  of  torture  and  ill-treatment  in  penitentiary  and 
detention  facilities,  and  of  failures  to  ensure  appropriate  medical  care.  There  is  an 
excessive  use  of  pre-trial  detention  measures.  The  problem  of  overcrowding  in 
detention  facilities  has  been  reported  by  both  the  Ombudsperson  and  independent 
human  rights  defenders.  There  is  an  urgent  need  to  raise  awareness  among  judges, 
prosecutors and other law-enforcement agents on combating torture and inhuman and 
degrading punishment. In November, Ukraine agreed to the publication of the report 
by the European Committee for the Prevention of Torture and Inhuman or Degrading 
Treatment or Punishment (CPT) of the Council of Europe. In its report, the CPT notes 
some  improvement  in  the  material  conditions  of  detention  in  law  enforcement 
establishments, but expresses concern that little progress has been made in many other 
areas.  The  National  Preventive  Mechanism  under  the  Optional  Protocol  to  the 
Convention against Torture has not been established.  

Cases  of  discrimination  on  the  basis  of  nationality  or  ethnic  origin  continue  to  be 
reported. Roma and Crimean Tatar, as well as other minority groups, continue to be 
the  object  of  discrimination  and  racism.  Discrimination  on  the  grounds  of  sexual 
orientation remains common and there is a need to raise social awareness and modify 
widespread  attitudes  in  this  respect.  A  comprehensive  anti-discrimination  legislation 
to  ensure  effective  protection  against  discrimination,  as  recommended  by  UN  and 
Council  of  Europe  monitoring  bodies  is  still  missing.  Ukraine  should  revise  its 

7

 
 
national  legislation  in  the  field  of  protection  of  persons  belonging  to  national 
minorities  to  address  the  recommendations  made  by  the  European  Commission 
against Racism and Intolerance and by the Council of Europe Committee of Ministers 
on the application of the European Charter for Regional or Minority Languages.  

In the area of gender equality, the draft law on equal rights and voters lists remains to 
be adopted. Some further progress can be reported in the area of children’s rights.  

Human rights and international organisations reported a number of cases of violation 
of  the  rights  of  refugees  and  asylum-seekers,  including  instances  of  forced 
deportation, systematic lack of protection of certain nationalities, lack of protection of 
unaccompanied  minors,  widespread  corruption  in  the  asylum  system,  and  denial  of 
access to asylum seekers by representatives of the United Nations High Commissioner 
for Refugees (UNHCR). While the adoption of a Law on Asylum and Refugee Status 
is  a  positive  development,  problems  remain  with  its  implementation  and  the 
functioning of the new structures. 

The  functioning  of  local  and  regional  self-government  is  affected  by  entrenched 
centralisation  and  excessive  bureaucracy.  Shortly  after  the  reporting  period,  the 
Parliament  adopted  a  law  on  the  establishment  of  a  State  Fund  for  Regional 
Development.  Together  with  the  process  of  updating  the  National  Regional 
Development Strategy, this represents a positive development.  

Work  continued  on  public  administration  reform.  In  November,  the  Parliament 
adopted  a  new  law  on  the  Civil  Service  which  was  subsequently  endorsed  by  the 
President. The law did not take into account the core recommendations made by the 
EU  funded  SIGMA  programme,  putting  at  risk  an  EUR  70  million  support 
programme  for  public  administration  reform4.  The  President  submitted  to  the 
Parliament a draft law on administrative services, the adoption of which would help to 
define a legal framework for the relationship between state and citizens. It will need to 
be accompanied by a code of administrative procedures.  

Cooperation  on  foreign  and  security  policy,  regional  and  international  issues, 
conflict prevention and crisis management 

Ukraine  continued  to  cooperate  actively  with  the  EU  on  regional  and  international 
issues  although  its  alignment  with  EU  Common  Foreign  and  Security  Policy 
declarations continued to decrease. In 2011 Ukraine aligned itself with 36 out of 82 
declarations (44% against 89% in 2009). Ukraine cooperated very constructively with 
the EU on all questions related to the Transnistria settlement efforts and pro-actively 
engaged in the resumption of official 5+2 talks.  

In June, Ukraine and the Republic of Moldova found a negotiated solution to almost 
all their disagreements over the demarcation of the northern and southern segments of 
their  common  border.  Further  efforts  are  needed  to  find  solutions  to  the  remaining 
border issues in particular as regards the Novodnistrovsc hydroelectric power station. 

4 SIGMA is a joint initiative of the OECD and the European Union, principally financed by the EU. SIGMA supports European 
Union candidates, potential candidates and European Neighbourhood countries in their public administration reforms. 

8

 
 
                                                 
Ukraine  continued  to  participate  very  constructively  in  the  work  of  the  EU  Border 
Assistance  Mission  to  the  Republic  of  Moldova  and  Ukraine  (EUBAM).  With 
EUBAM  support,  the  Ukrainian  customs  and  border  guard  services  continued  to 
enhance their professional capacities, and to secure valuable inter-agency cooperation 
both  within  Ukraine  and  between  Ukraine  and  the  Republic  of  Moldova.  EUBAM 
continued  to  support  the  demarcation  of  the  central  segment  of  the  Ukrainian-
Moldovan  State  border  on  the  Ukrainian  side  and  coordinated  the  successful 
“Akkerman” joint border control operation. In December, the Ukrainian government 
approved  of  the  long-awaited  decision  to  authorise  joint  patrolling  of  the  border 
between  Ukraine  and  the  Republic  of  Moldova.  EUBAM  also  facilitated  talks  to 
resume  rail  cargo  traffic  through  the  Transnistrian  region.  The  EU  continued  to 
actively support the demarcation of the central (Transnistrian) segment of the border 
between Ukraine and the Republic of Moldova.  

Ukraine  indicated  its  interest  in  contributing  to  the  EU-led  naval  operation 
ATALANTA,  seconding  staff  and  opening  discussions  on  possible  participation  in 
future airborne reconnaissance activities.  

Ukraine intensified cooperation with the countries from the region and the exchange 
of  best  practices  with  the  EU  through  its  participation  in  the  EU  Programme  for 
Prevention  of,  Preparedness  for,  and  Response  to  natural  and  man-made  disasters 
(PPRD East). 

3. 

ECONOMIC AND SOCIAL REFORM 

Macroeconomic framework and functioning market economy  

Ukraine's  economy  performed  well  in  2011,  with  real  GDP  growth  reaching  5.2%, 
after 4.2% in 2010. It thus continued its recovery after the crisis in 2009, when output 
contracted  by  nearly  15%.  Growth  in  2010  and  2011  was  initially  export-led  but 
increasingly  fuelled  by  stronger  domestic  demand.  Real  growth  is  expected  to  slow 
down in 2012, with the World Bank and the IMF estimates ranging between 2.5% and 
3.5-4% respectively.  

After three years of double digit rates, year-on-year inflation in December 2010 came 
down  to  4.6%  (from  9.1%  in  December  2010)  mainly  due  to  falling  food  prices  as 
international  commodity  prices  dropped  and  the  harvest  was  better  than  expected. 
Regarding  fiscal  policy,  Ukraine  broadly  followed  the  consolidation  course  agreed 
with the IMF. However, the deficit of Naftogaz continues to represent a major risk for 
the  budget.  The  gas  tariff  increases  for  households  and  utilities  foreseen  in  the  IMF 
programme  have  yet  to  be  implemented  and  the  programme  is  off-track.  With 
Naftogaz’ deficit reaching 1.6% of GDP, the overall government deficit is at 4.3% of 
GDP in 2011, which is above the 3.5% target agreed with the IMF.  

The  public  debt  ratio  has  increased  significantly  in  recent  years,  to  approximately 
40% of GDP in 2011 from only 12% in 2007. Delays in the adjustment of gas prices 
and the expected slowdown in economic activity may threaten the fiscal consolidation 
path agreed under the IMF programme.  

9

 
 
Following  a  period  of  stabilisation  in  2010  (after  the  balance  of  payments  crisis  of 
2008-2009), the current account deficit widened again in 2011, reaching an estimated 
USD 9.3 billion (EUR 7.2 billion), or 5.9% of GDP.  

Currency reserves declined to USD 31.8 billion (EUR 24.6 billion) by end 2011. The 
EUR 610 million macro-financial assistance made available by the EU is currently on 
hold  due  to  lack  of  progress  in  negotiations  with  the  IMF  and  the  slow  pace  of 
structural  reforms  in  key  sectors  including  energy,  public  finance  management  and 
fight against corruption.  

The  implementation  of  the  ambitious  Programme  for  Economic  Reforms  for  2010-
2014  has  been  slow.  Progress  has  been  achieved  in  pension  reform  and,  to  a  lesser 
extent,  in  improving  budget  legislation.  Public  administration  and  public  finance 
management  remain  unreformed  and  non-transparent,  weakened  by  red  tape  and 
prone to corruption.  

Employment and social policy 

The official unemployment rate is at 2.1%, (2.2% in 2010). While the ILO-measured 
rate  stands  at  a  substantially  higher  level,  figures  do  not  reflect  the  high  number  of 
unregistered low-paid jobs in the shadow economy.  

Between  January  and  August  2011,  over  1.3  million  of  seekers  were  registered  as 
unemployed,  while  around  half  a  million  found  an  occupation  via  the  state 
employment  services.  The  informal  sector  (including  both  undeclared  jobs  and 
undeclared  wages)  continues  to  represent  a  substantial  share  of  employment, 
estimated at around 20%.  

In September, Ukraine declared the improvement of skills matching a key priority and 
launched several initiatives in this area with donor support. An EU-funded project on 
skills matching and migration involving social partners started in April 2011. 

In  the  area  of  social  protection,  a  law  on  pension  reform  entered  into  force  in 
October.  The  law  increased  from  five  to  15  years  and  from  25  to  35  years  the 
minimum  contribution  requirements  to  qualify  for  a  pension  and  to  receive  a  full 
pension, respectively. Pension age for women and state civil servants increased to 60 
and  62  years  respectively.  Specific  services  for  disabled  persons  and  veterans  were 
established  through  Presidential  decree  in  April  2011,  as  part  of  the  overall 
administrative reform. The Ministry of Social Policy was given responsibility for the 
delivery  of  social  allowances  and  services  for  youth  and  families.  Social  Service 
Centres are being reformed. 

There  was  no  progress  towards  the  adoption  of  the  amended  Labour  Code;  several 
laws, notably concerning wages and collective bargaining, still have to be revised so 
as  to  ensure  compliance  with  international  labour  standards.  In  February,  the 
parliament  ratified  the  1981  ILO  Convention  concerning  Occupational  Safety  and 
Health and the Working Environment, the 1993 ILO Convention on the Prevention of 
Major  Industrial  Accidents,  and  the  1995  ILO  Convention  on  Safety  and  Health  in 
Mines.  

10

 
 
An  occupational  health  and  safety  project  including  capacity-building  of  social 
partners,  occupational  security  and  health  offices  and  labour  inspectorates  started  in 
2011, as part of an ILO global project. 

4. 

TRADE-RELATED ISSUES, MARKET AND REGULATORY REFORM 

Bilateral  trade  between  the  EU  and  Ukraine  continued  growing  during  2011, 
consolidating  the  recovery  started  in  2010.  EU  imports  from  Ukraine  increased  by 
30.6%  and  were  dominated  by  iron  and  steel  (29.5%),  fuels  and  mining  products 
(25.1%), as well as agricultural products (19.4%). EU exports to Ukraine experienced 
a  growth  of  22.2%  and  consisted  mainly  of  machinery  and  transport  equipment 
(36.6%) and chemicals (18.6%). 

Economic  operators  were  affected  by  a  number  of  persistent  trade  irritants  during 
2011,  notably  difficulties  with  customs  valuation  and  classification;  growing  value 
added  tax  (VAT)  refund  arrears  despite  the  new  automatic  refund  system;  and 
perceived harassment by tax authorities. 

In December, the EU and Ukraine completed the negotiations on a DCFTA as part of 
a future Association Agreement.  

to 

the  Revised  Kyoto  Convention  on  Harmonisation  and 
Ukraine  acceded 
Simplification  of  Customs  Procedures,  which  should  contribute  to  approximation 
with EU standards. The New Customs Code, which is still under preparation, should 
take into account the provisions of the Kyoto Convention and the DCFTA objectives. 
There is a need for a more structured approach for customs modernisation allowing to 
focus on strategic objectives. Despite of some progress made in specific areas, such as 
more  streamlined  coordination  of  border  control  and  improved  communication  with 
business environment, the need for substantial reforms remains. Importers reported an 
increase from 2 to 8 days in the customs clearance time, as well as an increase in the 
rate of physical  inspections (to 41%).  Customs  valuation  remains  a  serious  concern. 
Despite some positive steps taken, the situation after a short improvement deteriorated 
again  in  the  fourth  quarter  of  the  year.  An  emerging  problem  area  is  classification 
control.  Corruption  remains  a  serious  obstacle  to  trade  and  business  operations. 
Ukraine  participated  in  the  "FIREBLADE"  joint  customs  operation  targeting 
trafficking of counterfeit goods at the EU Eastern border.  

On  free  movement  of  goods,  new  laws  on  market  surveillance  and  control  of  non-
food  products  and  on  the  safety  of  non-food  products  entered  into  force  in  July. 
Ukraine abolished the pre-market control of manufacturers. Implementing legislation 
made progress, with the adoption of nine by-laws in December, but there is still room 
for  further  development.  The  law  on  liability  for  the  damage  caused  by  defective 
products came into force in September. 

In  2011,  the  Government  submitted  to  the  Parliament  amendments  to  the  metrology 
law, which preserve the existing (non-transparent) system burdened with conflicts of 
interest. Technical regulations based on EU Directives need to be revised in order to 
become fully compliant. The EU Budget Support Programme on Technical Barriers to 
Trade  (EUR  45  million)  experienced  several  delays  due  to  the  slow  pace  of 

11

 
 
implementation  of  the  administrative  reform  programme.  As  a  result  the  second 
disbursement was postponed at the request of Ukraine. 

The  business  climate  deteriorated  in  2011.  Economic  operators  reported  that  they 
were  facing  an  unpredictable  regulatory  environment  where  rules  were  unclear  and 
inconsistently  applied,  which  had  the  effect  of  hampering  business  development. 
Pressure  and  harassment  of  businesses  by  various  authorities  (tax,  customs)  and  by 
law enforcement bodies (police, prosecutor general, security service), corruption and a 
general deficiency of rule of law enforcement were reported as the major obstacles to 
doing  business.  The  ranking  of  the  ease  of  doing  business,  produced  in  the  annual 
World  Bank's  "Doing  Business  2012"  report  showed  that  Ukraine's  rating  had 
worsened (to 152nd place in 2012, three places below its position last year). 

Ukraine continued its gradual process of approximation with EU sanitary and phyto-
sanitary (SPS) standards. It prepared the institutional reform plan required to obtain 
EU  support  under  the  Comprehensive  Institution  Building  and  an  SPS  roadmap.  It 
started to consolidate the Veterinary and Phyto-sanitary Service, established in April 
2011, and started training staff (with EU support). In November 2011, the Food and 
Veterinary  Office  (FVO)  of  the  European  Commission  carried  out  an  inspection 
mission  on  the  implementation  of  feed  safety  requirements.  The  EU  supported 
Ukraine, via a twinning project, in tightening up food safety checks. A new twinning 
on approximation of phyto-sanitary legislation and administration with EU standards 
was prepared. 

In  the  area  of  company  law,  the  law  on  Joint  Stock  Companies  was  amended  in 
February  2011.  The  aim  of  the  amendments  is  to  further  simplify  the  corporate 
governance  framework.  Hostile  take-overs  have  been  made  more  difficult.  Due 
attention  should  be  paid  to  minority  shareholders'  rights.  The  law  introducing  the 
International Financial Reporting Standards for banks, public limited companies, and 
insurance companies was approved in May.  

There  was  progress  in  the  area  of  financial  services  regulation.  In  February  the 
amended regulation on Banking Activities defined certain disclosure requirements on 
the  banks'  ultimate/beneficial  owners/controllers.  It  also  included  provisions  on 
registration and external audit procedures for banks, on strengthened creditors' rights, 
and on investment activities. Internal financial rules have been defined with the aim of 
preventing  money  laundering  activities.  Reporting  requirements  in  line  with 
International Financial Reporting Standards were also established, and provisions on 
raising the capitalisation requirements for banks were put in place. However, the issue 
of the non-performing loans has not yet been substantively addressed. The legislator 
tightened up the information disclosure requirements on securities and stock market in 
October and the law on insider dealing in April.  

A  law  introducing  the  methodology  of  consolidated  supervision  of  financial 
institutions entered into force in December. It established the consolidated supervision 
responsibilities of the various bodies. The supervision work is now entirely financed 
by the industry via a specific fee. Amendments to the laws on mortgage bonds and on 
special-purpose bonds to improve the mechanisms for the emission and circulation of 
bonds and providing the market regulator with the powers for ensuring the protection 
of the legal rights of the investors were adopted in April and June 2011 respectively. 

12

 
 
This  process  was  supported  by  an  EU  funded  twinning  project  in  order  to  reinforce 
the monitoring policy. 

There  is  no  progress  to  report  in  the  area  of  free  movement  of  capital.  The  2010 
requirement  that  non-residents  deposit  a  20%  reservation  of  funds  in  the  form  of 
credits  or  deposits  with  Ukraine's  National  Bank  for  a  period  up  to  six  months  was 
extended. The regulatory procedures for foreign exchange transactions were tightened 
in  December  2011  to  promote  the  use  of  the  national  currency  in  international 
operations and to restrict capital flight. 

Other key areas 

In the area of agriculture, the negotiations on geographical indications were finalised 
in September 2011 as part of the DCFTA negotiations. 

The new Tax Code unifying all tax legislation into a single act entered into force in 
2011.  The  absence  of  implementing  legislation  creates  serious  problems  for 
businesses  and  control  authorities.  The  State  Tax  Service  reform,  which  is  facing 
delays,  has  not  yet  reduced  burden  and  costs  for  business  operators.  Business 
operators  also  report  that  tax  controls  are  repressive  and  often  accompanied  by 
judicial intimidation. Despite efforts made by the authorities to tackle the long-lasting 
problem of VAT refunds, economic operators’ increasingly complained about delays 
in  VAT  refunds  and  pressure  to  withdraw  claims  or  pay  corporate  income  tax  in 
advance  in  order  to  receive  any  VAT  refunds.  The  automatic  refund  system 
introduced  in  March  offered  only  partial  relief,  as  the  criteria  for  such  refunds  lack 
transparency  and  few  companies  qualify.  It  is  important  that  Ukraine  adopts  and 
implements  without  delay  a  comprehensive  action  plan  with  timeframes,  bringing  a 
sustainable solution to this problem. 

Amendments made in July to the competition law and the law on the Anti-Monopoly 
Committee  of  Ukraine  (AMCU)  covered  misleading  advertising  and  increased  fines 
for infringement. The AMCU proposed an increase in the value thresholds for merger 
notifications  in  line  with  international  community  recommendations.  Budgetary 
constraints  led  to  staff  cuts  of  up  to  20%.  A  number  of  AMCU  practices  fail  to 
comply with EU standards (such as investigation of cartels based exclusively on price 
parallelism  and  assessment  of  vertical  restraints).  In  the  area  of  state  aid  EU 
assistance under the Comprehensive Institutional Building Programme was postponed 
pending the adoption of legislation in line with EU standards.  

In  2011,  the  State  Department  of  Intellectual  Property  was  replaced  by  the  State 
Intellectual Property Service of Ukraine (SIPSU). The SIPSU will be responsible for 
granting rights to intellectual property law objects, drafting legislation and providing 
information, products and services (including training) related to intellectual property 
issues. A twinning project was prepared to support this new institution. 

An  assessment  of  the  national  statistical  system  was  carried  out  in  2011  which 
resulted  in  a  number  of  recommendations  for  further  improvement.  While  progress 
has  been  made  to  implement  European  standards  in  a  number  of  statistical  domains 
(business  statistics,  national  accounts  and  others)  future  efforts  should  focus  on 
guaranteeing the professional independence of the State Statistical Service of Ukraine, 
assure  the  confidentiality  of  individual  data  as  stipulated  in  the  European  Code  of 

13

 
 
Practice and improve the coordination of the statistics system in Ukraine through the 
inclusion of all official statistics into the work programme and the statistical law.  

Public finance management (PFM) progressed little. High levels of corruption and 
widespread  conflicts  of  interest  remained  a  major  concern.  The  absence  of  a 
comprehensive  PFM  reform  programme  led  to  delays  in  the  release  of  EU  budget 
support payments; however, in December, the Government agreed to set up a working 
group  to  elaborate  the  programme.  Concerning  public  internal  financial  control 
(PIFC)  specific  procedures  for  establishing  internal  audit  units,  their  working 
procedures and a code of ethic were adopted in November. A draft law on public and 
publicly guaranteed debt was debated in Parliament and many of its provisions have 
been  incorporated  in  the  amendments  to  the  Budget  Code  of  July  2011.  The  focus 
should now be on streamlining the control systems for the budget. 

The  amendments  to  the  Public  Procurement  law  adopted  in  July  2011  introduced 
framework  agreements  and  abolished  prior  approval  for  single  source  procurements 
by  the  Ministry  of  Economy.  However  the  amendments  did  not  address two  key 
issues:  namely  the  proper  definition  of  the  concept  of  contracting  authorities  or 
entities which are bound by the law (state enterprises, in particular, are excluded from 
the scope of the law) and the exclusions under the EU procurement acquis. Technical 
assistance from the EU has helped the government in improving the new legislation.  

On external audit, the remit and technical capacity of the Supreme Audit Institution 
(the  Accounting  Chamber  of  Ukraine)  remains  insufficient  to  ensure  an  appropriate 
level  of  control  over  the  budget.  In  particular,  the  Chamber  has  no  right  to  audit 
government  revenue,  local  government,  extra-budgetary  funds  and  state-owned 
enterprises. 

The  charter  of  the  State  Inspection  of  Ukraine  for  Consumer  Rights  Protection  of 
April  2011  puts  it  in  charge  of  consumer  protection  and  the  surveillance  of 
compliance with standards.  

5. 

COOPERATION ON JUSTICE, FREEDOM AND SECURITY 

Intense  cooperation  on  matters  concerning  justice,  freedom  and  security  took  place 
between  the  EU  and  Ukraine  in  2011,  with  a  strong  focus  on  mobility.  Following 
presentation  by  the  EU  to  Ukraine  of  the  Visa  Liberalisation  Action  Plan  in 
November  2010,  a  first  Progress  Report  on  the  implementation  by  Ukraine  of  Plan 
was  issued  in  September  2011  and  a  second  Progress  Report  in  February  2012. 
Implementation of the EU-Ukraine Visa Facilitation and Readmission Agreements 
continued and was monitored at the Joint Committee meeting of May 2011. Ukraine 
and  several  EU  Member  States  launched  negotiations  on  implementing  protocols 
under the Readmission Agreement, but no protocol was concluded. The negotiations 
on  amendments  to  the  EU-Ukraine  Visa  Facilitation  Agreement  were  concluded 
in December. The text of the amending agreement was initialled in February 2012. 

Ukraine achieved progress in the area of migration and asylum, but it now needs to 
adopt additional by-laws and to finalise the National Migration Management Strategy. 
A  law  on  the  legal  status  of  foreigners  and  stateless  persons  was  adopted  in 
September. The State Migration Policy Strategy was approved in May 2011, together 

14

 
 
with  the  accompanying  Action  Plan.  An  Action Plan covering  the period until 2015 
on the Integration of Migrants in Ukraine and the Reintegration of Ukrainian Migrants 
was approved in June. After the establishment of the State Migration Service (SMS) 
in  December  2010,  a  regulation  defining  its  basic  tasks,  functions  and  organisation 
was adopted in April 2011. A major EU project in support of the SMS was prepared 
as part of the Comprehensive Institution-Building Programme. Regarding asylum, the 
law  on  Refugees  and  Persons  in  Need  of  Subsidiary  and  Temporary  Protection  was 
adopted  in  July.  Work  on  bylaws  and  other  related  legislation  is  ongoing.  Human 
rights  and  international  organisations  reported  a  number  of  cases  of  violation  of  the 
rights  of  refugees  and  asylum-seekers,  including  instances  of  refoulement  and 
denial of access to asylum seekers by UNHCR representatives.  

Ukraine  continued  implementing  the  Concept  for  Integrated  Border  Management 
and  the  related  Action  Plan,  approved  in  January  2011.  A  major  EU  project  on 
Ukraine’s border management sector policy was signed in October with the aim, inter 
alia, of contributing to Ukraine’s border demarcation activities with the Republic of 
Moldova, Belarus, and the Russian Federation. 

In  October,  Ukraine  adopted  a  strategy  on  the  fight  against  organised  crime.  The 
accompanying  Action  Plan  remains  to  be  adopted.  The  Third  Protocol  on  the  Illicit 
Manufacturing  and  Trafficking  of  Firearms,  Their  Parts,  Components  and 
Ammunition remained unsigned. 

In September, Ukraine adopted a framework law on combating trafficking in human 
beings,  articulated  on  three  main  pillars:  prevention,  prosecution  and  victim 
protection. The law introduces the function of National Coordinator on trafficking in 
human  beings  to  be  appointed  by  the  Cabinet  of  Ministers,  as  well  as  a  national 
mechanism  for  cooperation  between  all  players  involved  in  anti-trafficking  actions. 
The  accompanying  Action  Plan  remains  to  be  adopted.  It  is  essential  that  the  future 
Action Plan contains a timeframe, specific objectives, activities, results, performance 
indicators and sufficient human and financial resources. 

The  law  amending  certain  legislative  acts  on  the  responsibility  of  carriers  providing 
international passenger transportation so as to strengthen the responsibility of carriers 
was adopted by Parliament in December 2010 and entered into force in April 2011. It 
contains  relevant  measures  on  fighting  trafficking  in  human  beings,  in  line  with  the 
Council of Europe Convention on trafficking in human beings.  

Progress  was  achieved  on  combating  money  laundering  and  the  financing  of 
terrorism.  Three  new  laws  entered  into  force  in  May.  The  Financial  Action  Task 
Force (FATF) plenary meeting of October decided to take out Ukraine from the list of 
states  that  have  shortcomings  of  counteraction  to  money  laundering  systems  and 
financing terrorism. 

Concerning the fight against drugs,  a  new  National  Service  for  Drugs  Control  was 
established in April. Policy dialogue continued in September at the EU-Ukraine Drugs 
Dialogue meeting.  

Major  steps  were  taken  in  establishing  an  adequate  legal  framework  for  data 
protection.  Ukraine  ratified  the  1981  Council  of  Europe  Convention  for  the 
Protection  of  Individuals  with  regard  to  Automatic  Processing  of  Personal  Data  and 

15

 
 
its 2011 Protocol. Ukraine’s first law on data protection entered into force in January 
together  with  the  Council  of  Europe  Convention.  Sanctions  were  introduced  for  the 
violation  of  data  protection  legislation,  which  entered  into  force  in  January  2012. 
Ukraine’s  data  protection  supervisory  authority,  established  in  April,  became 
operational in July. Work started on assessing Ukraine’s new legislation with a view 
to concluding cooperation agreements with EUROPOL and EUROJUST. 

In the area of judicial cooperation, Ukraine ratified the Second Additional Protocol 
to the European Convention on Mutual Assistance in Criminal Matters in June. 

6. 

TRANSPORT,  ENERGY,  ENVIRONMENT,  THE 
RESEARCH AND DEVELOPMENT 

INFORMATION  SOCIETY, 

Ukraine started in 2011 the implementation of the comprehensive transport strategy 
until  2020  by  the  development  and  elaboration  of  transport  sub-sector  programmes. 
This is supported by the EU through a sector policy support programme launched in 
January  (EUR  65  million).  There  was  satisfactory  progress  in  road  infrastructure 
development, good progress in the railways and aviation sectors and limited progress 
in inland water transport. A road safety strategy was adopted in May 2011. In rail, due 
to little progress in the implementation of the 2009 railway reform programme, a new 
law on railway reform was drafted in 2011; its adoption is still pending. The revised 
air  code  was  finally  adopted  and  entered  into  force  in  September  2011;  its  diligent 
implementation  remains  a  challenge.  The  negotiations  with 
the  EU  on  a 
comprehensive  air  services  agreement  continued  at  a  slow  pace.  The  Law  on  Sea 
Ports  which  would  enable  partial  privatisation  of  ports  and  allowed  for  the 
introduction  of  public-private  partnerships  has  not  yet  been  adopted.  The  Ukrainian 
flag  remains  on  the  black  list  of  the  Paris  Memorandum  of  Understanding  on  Port 
State Control in the 'medium risk' category. 

In February, Ukraine joined the Energy Community. More efforts are needed in order 
to  implement  its  Community  obligations.  In  December,  the  EU  and  Ukraine  agreed 
the  sixth  progress  report  on  the  implementation  of  their  Energy  Memorandum  of 
Understanding.  Ukraine  initiated  the  update  of  its  energy  strategy.  In  November, the 
National  Commission  on  State  Regulation  in  Energy  was  established,  replacing  the 
National  Electricity  Regulatory  Commission.  After  an  initial  increase  in  gas  prices  for 
households and utilities (50% in August 2010) and electricity prices (30% in January 
2011),  Ukraine  has  not  further  increased  the  prices  in  2011  towards  cost  recovery 
levels. This is an important obstacle to sustainability of the sector. In September, the 
President asked for the development of a restructuring plan for Naftogaz, but the plan 
was not finalised according to the established timetable. Restructuring should help to 
increase transparency in the gas sector and improve the financial viability of Naftogaz5. 
In  April,  Ukraine  announced  privatisation  plans  for  the  electricity  sector.  A 
masterplan for the restructuring of the coal mining industry until 2017 was developed 
as  an  output  of  an  EU  funded  project.  The  reform  process  in  the  gas  sector  was 
facilitated through EU twinning assistance to the regulator. Ukraine had planned to join 

5  

Subsequent to the reporting period, a law including provisions which would permit 
unbundling was adopted. The follow up of this law will be closely monitored during 2012. 

16

 
 
                                                 
 
the  Extractive  Industry  Transparency  Initiative,  but  achieved  little  progress  towards 
meeting its requirements. The Sector Budget Support programme for the energy sector 
was  completed.  The  final  tranche  under  the  programme  could  however  not  yet  be 
released, pending the elaboration of a mutually agreed comprehensive reform strategy and 
action plan. 

Following-up  the  joint  2009  EU-Ukraine  conference  on  the  modernisation  of  the 
Ukrainian gas transit system, the EU financed feasibility study, and an environmental and 
social impact study progressed well. The study, together with progress to be made on 
restructuring  Naftogaz,  will  be  an  important  element  for  future  loans  from 
international  financial  institutions.  In  September,  it  initiated  a  feasibility  study  for  a 
liquefied natural gas terminal on the Black Sea coast. Work towards a Euro-Asian Oil 
Transportation  Corridor  continued.  The amendment of the law on Production Sharing 
Agreements in June constituted a first important step in improving the investment climate 
of Ukraine's upstream energy sector. Ukraine requested, together with the Republic of 
Moldova  and  Romania,  EU  financing  for  a  feasibility  study  on  synchronous 
interconnection  of  the  power  systems  of  the  countries  to  the  European  Network  of 
Transmission  System  Operators  for  Electricity  (ENTSO-E),  the  continental  European 
its  electricity  networks.  Ukraine  started 
power  system.  Ukraine  upgraded 
implementing  its  energy  efficiency  programme  2010-2015;  the  draft  law  on  energy 
efficiency has yet to be adopted. 

In  the  framework  of  the  sector  policy  support  programme  to  the  implementation  of 
Ukraine's  energy  strategy  in  the  area  of  energy  efficiency  and  renewable  sources  of 
energy, the EU released a first tranche of EUR 31 million in September. In 2011, the 
EU also provided an additional contribution to the Eastern Europe Energy Efficiency 
and Environment Partnership Fund of EUR 15 million.  

Ukraine  continued  the  safety  upgrading  of  its  nuclear  power  plants.  After  the 
Fukushima  nuclear  accident,  Ukraine  initiated  a  comprehensive  risk  and  safety 
assessment  (nuclear  stress  test)  of  its  plants,  taking  EU  standards  into  account;  and 
submitted a report to the Commission. In the context of the commemoration of the 25th 
anniversary of the Chernobyl accident, in April, donors raised additional funds to fill the 
financial  gap  for  the  completion  of  the  major  Chernobyl  projects.  Ukraine's  Nuclear 
Regulatory Authority continued contributing towards restoring the Chernobyl site to an 
environmentally safer condition.  

In  the  field  of  climate  change,  Ukraine  took  further  steps  to  prepare  legislation  on 
emission  trading,  in  line  with  its  long-term  objective  to  link  with  the  EU  emission 
trading system. 34 new Joint Implementation projects were registered at the UN level, 
bringing  the  number  of  registered  projects  to  82.  In  October,  the  United  Nation 
Framework  Convention  on  Climate  Change  (UNFCCC)  Kyoto  Protocol  compliance 
committee suspended Ukraine from trading emissions units pending the resolution of 
questions  relating  in  particular  to  transparency  of  emission  data.  Ukraine  is 
encouraged to build capacity and engage in the new carbon market mechanism to be 
developed  following  the  United  Nation  Framework  Convention  on  Climate  Change 
17 Conference of the Parties (UNFCCC COP 17). Ukraine is also encouraged to fully 
implement the Cancun and Durban agreements and in particular devise a low carbon 
development  strategy  including  update  information  on  target  or  actions  that  it  will 
implement.  The  EU  launched  two  projects  to  study  the  potential  implementation  of 
low carbon technologies and carbon sequestrations with Ukrainian partners. 

17

 
 
including  possibilities 

Ukraine adopted a national environment action plan for 2011-2015 to implement its 
environment strategy. A decree setting out the procedure for public participation with 
regard  to  decisions  that  can  affect  the  environment  was  also  approved.  New 
legislation  regulating  urban  development  activities  has  raised  concerns  about  the 
for  public 
procedure  of  environmental  assessments, 
participation and will need to be reviewed. Ukraine adopted national targets under the 
Protocol  on  Water  and  Health  to  the  Convention  on  protection  and  use  of  trans-
boundary  watercourses  and  international  lakes  of  the  United  Nations  Economic 
Commission  for  Europe  (UNECE).  Ukraine  faced  problems  with  implementing 
several  agreements  it  has  already  ratified.  In  June  and  July  respectively,  the  fifth 
Meeting of the Parties of the Espoo Convention and the fourth Meeting of the Parties 
of  the  Aarhus  Convention  issued  cautions  against  Ukraine  for  non-compliance.  The 
EU launched a sector policy support programme in the field of environment (EUR 35 
million).  A  follow-up  project  to  continue  supporting  Ukraine’s  implementation  of 
Espoo and Aarhus Conventions was also launched. 

In the field of civil protection, Ukraine intensified the cooperation with the countries 
from the region and the exchange of best practices with the EU in the field of disaster 
prevention, preparedness and response through its participation in the EU Programme 
for Prevention of, Preparedness for, and Response to natural and man-made disasters. 
The  EU  supported  the  clean  up  of  the  Gorlovka  chemical  plant  (TNT,  pesticides) 
through a contract with UNIDO. 

In the information society sector, good progress was made as Parliament has adopted 
several  important  laws,  notably  those  simplifying  market  entry  procedures  for  some 
electronic  communications  services  and  strengthening  the  regulator’s  independence. 
In  July,  the  law  facilitating  operators’  access  to  the  telecommunications  market  was 
approved.  Accordingly  legal  entities  who  wish  to  provide  services  in  the  field  of 
telecommunications  shall  apply  to  the  National  Commission  for  Communication 
Regulations  (NCCR)  to  register  as  operators  and  providers  of  telecommunications. 
Another  law  strengthened  the  independence  of  NCCR  (to  be  renamed  into  National 
Commission  for  Communication  and  Informatisation  Regulations)  and  provided  it 
with  an  additional  mandate  to  regulate  Informatisation.  The  approval  of  the 
Commission new statute and staff numbers is still pending. A twinning project for the 
NCCR was prepared. 

In  the  area  of  research  and  innovation,  the  procedures  for  the  prolongation  of  the 
EU-Ukraine  Science  and  Technology  Cooperation  Agreement  for  an  additional  four 
years,  to  2014  were  completed  in  2011.  The  first  meeting  of  the  Joint  Committee 
established  under  the  Agreement  was  held  in  Brussels  on  23  November.  Both  sides 
shared information on priorities in health, ICT and nanotechnology/materials research, 
and  it  was  agreed  to  enhance  cooperation  in  areas  of  mutual  interest  through  the 
Ukrainian  funding  programmes  and  the  EU  Framework  Programmes.  Ukraine 
continued to update and modernise the legal base and funding structure for research 
and innovation. Ukraine's participation in the 7th Framework Programme for Research 
and Technological Development (FP7) continued to be at a good level. Ukraine is the 
seventh most active international partner country participating in the programme. To 
date, 112 Ukrainian research organisations are involved in 150 FP7 projects, receiving 
an  EU  contribution  of  over  EUR  14.1  million.  Ukraine  continued  to  strengthen  the 
network  of  FP7  Contact  Points,  which  should  greatly  assist  increasing  Ukrainian 
participation in the final calls to be launched under FP7.  

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Ukraine  has  made  progress  towards  the  setting  up  of  a  regional  development  policy 
and a regional development Fund. However, there are delays in adopting the Law on 
the  State  Regional  Policy  and  the  approval  of  the  disbursement  rules  of  the  newly 
established Fund.  

Recent  analytical  work  shows  discrepancies  between  allocations  in  the  budget  2012 
and 
the  National  Regional  Development  Strategy.  Greater  continuity  and 
determination in the implementation of actions agreed in the regional policy dialogue 
with the EU will be essential to achieving results. 

An  identification  mission  took  place  in  space  cooperation  in  the  context  of  the 
European Geostationary Navigation Overlay Service (EGNOS). 

7. 

PEOPLE-TO-PEOPLE CONTACTS, EDUCATION AND HEALTH 

In  the  area  of  education  reform,  a  revised  higher  education  text  was  drafted 
following  consultation  of  stakeholders,  including  universities,  non-governmental 
organisations  and  students.  Despite  some  improvements  in  approximating  to  EU 
legislation,  the  proposed  law  does  not  grant  more  autonomy  to  the  universities,  an 
element that remains a concern to civil society in Ukraine, as well to some university 
authorities.  A  lack  of  autonomy  will  also  be  an  obstacle  to  setting  up  of 
multidisciplinary programmes, notably in the area of European studies.  

Ukraine continued to benefit substantially from its increasing participation in higher 
education  cooperation and exchanges  with the EU. Nine new university  cooperation 
projects  were  selected  under  the  Tempus  IV  programme  and  at  the  end  of  2011, 
Ukraine  was  involved  in  38  projects;  figures  also  show  a  constant  increase  in 
participation  under  the  successive  calls  of  the  programme.  Ukraine  continued  its 
active participation in the Erasmus Mundus (EM) programme in the academic year 
2011-2012 with  the  award  of  a  total of 354 scholarships  and  mobility  grants.  Seven 
new  Ukrainian  projects  were  selected  under  the  Jean  Monnet  Programme  in  2011, 
which fosters teaching and research in the field of EU integration studies.  

At  the  end  of  2011,  among  the  Eastern  Partnership  Countries,  Ukraine  was  the  first 
country  in  terms  of  number  of  institutions  (49)  and  individual  researchers  (62) 
currently  participating  in  research  collaboration  actions  under  the  Marie  Curie 
scheme.  

In  the  field  of  vocational  education  and  training  (VET),  the  European  Training 
Foundation  provided  support  to  the  Ministries  of  Education  and  Economy  in 
developing a balance between the demand and supply of qualified workforce, on the 
basis  of  the  National  VET  Development  Programme  2011-2015,  approved  by  the 
Ukrainian  Government  in  April  2011.  A  major  outcome  of  social  partners’ 
involvement is the proposal for a National Qualifications Framework which the inter-
agency expert group finalised in October.  

Preparations  began  for  the  participation  of  Ukraine  in  the  eTwinning  component  of 
the Comenius programme, the EU programme for interconnecting schools, foreseen 
for  2012,  with  the  selection  of  the  partner  support  agency  and  an  assessment  of 
potential beneficiaries/schools.  

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Very  positively,  the  number  of  young  people  and  youth  workers  benefitting  from 
exchange  opportunities  offered  by  the  Youth  in  Action  programme  increased  from 
255 projects involving 818 participants in 2010 to 289 projects and 872 participants in 
2011. 

Ukraine  developed  a  health  reform  concept  and  launched  pilot  decentralisation 
projects.  It  amended  the  law  on  health  security  and  health  care  provision  and 
established new institutions (for sanitary issues and epidemiology; quality control of 
medicines;  and  HIV/AIDS).  In  January  2011,  the  President  signed  the  law  on 
HIV/AIDS  prevention  and  social  protection,  which  also  contributes  to  fight 
tuberculosis.  Ukraine  participated  in  the  Commission’s  HIV/AIDS  think  tank.  In 
September  2011,  the  parliament  adopted  a  law  prohibiting  the  advertising, 
sponsorship and promotion of sales of tobacco. In January, the Global Fund to fight 
AIDS,  Tuberculosis  and  Malaria,  to  which  the  EU  is  one  of  the  major  contributors, 
awarded  Ukraine  a  major  grant  of  USD  305  million  (EUR  228  Million)  covering 
2012-2016 to fight HIV/AIDS.  

20