The FINANCIAL — “After WTO accession Ukraine will probably not change its main trade partners,” Jorge Zukoski, President of the American Chamber of Commerce in Ukraine declared in an interview with The FINANCIAL.
Zukovski believes that there are no particular risks for investors from the United States. “American investors are facing the same risks in Ukraine as Europeans, Russians, and Georgians,” he said.
Ukraine must ratify its WTO membership deal by July 4, 2008 and then the country will become a WTO member 30 days after the ratification.
“I do not think that the structure of the export regime will be changed dramatically after WTO accession. The core issue for Ukraine is that currently it is a country that is often subject to antidumping investigations, which can negatively influence international trade relations. After WTO accession particular economic entities, not Ukraine, will be subject to such investigations, which is positive for the country. After WTO accession Ukraine will probably not change its main trade partners but relations with those partners will be more equal and transparent, benefiting all parties concerned.”
The American Chamber of Commerce in Ukraine, established in 1992, is among the most active and effective non-government non-profit business organizations operating in Ukraine.
The FINANCIAL interviewed Jorge Zukoski President of American Chamber of Commerce in Ukraine about the investment climate of Ukraine and other important issues in the country.
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Mr. Zukoski, an American citizen of Venezuelan and Polish descent, received his Master’s of Business Administration in international management from the Hankamer School of Business at Baylor University (Texas, USA). He lived and worked in Mexico City and the Cayman Islands in investment banking and private equity investments prior to arriving in Ukraine in 1996.
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Q. Which businesses can be influenced by WTO membership and how can it change the investment climate of the country?
A. Speaking about the positive aspects of Ukraine’s accession to the World Trade Organization, first of all, I would like to mention that it brings predictability and transparency to the Ukrainian market, which is a very important fact for all types of investors.
WTO membership serves as a clear signal that Ukraine is a reliable partner and investors can be successful in this country. It is not a secret that Ukraine used to have a rather complicated permit system and customs procedures, being a member of the WTO Ukraine harmonizes legislation and norms with international standards, which logically makes business processes within Ukraine easier and more transparent.
WTO, as a trade club, includes an important element of international arbitration. While the Ukrainian judicial system awaits substantive reforms we believe that the arbitration component of WTO would be positive where decisions that are taken are obligatory to enforce and recognized by Ukraine and other members of the organization. Currently, in many instances, international arbitration decisions regarding disputes between different companies or shareholders are not recognized or enforced by Ukrainian courts. WTO related arbitration decisions should be enforced in Ukraine therefore; business will be more protected by the law. It is also a positive sign for new business to come to Ukraine.
We should also keep in mind that WTO accession is a step towards the adoption of a new enhanced free trade agreement with the EU. The agreement envisages creation of a free trade zone between Ukraine and the EU. It will facilitate the further integration of Ukraine into European markets and will be beneficial for the business climate in Ukraine.
Q. The chamber reports that “As a result of joining the WTO Ukraine is not only opening its markets for world trade but is also ensuring access for internally produced products in global markets.” Which countries are in the top list of potential importers of goods from Ukraine? Does it mean that Ukraine can change the main trade partners?
A. Ukraine mainly exports its goods to the countries of CIS, the European Union and the USA. I do not think that the structure of the export regime will be changed dramatically after WTO accession. The core issue for Ukraine is that currently it is a country that is often subject to antidumping investigations, which can negatively influence international trade relations. After WTO accession particular economic entities, not Ukraine, will be subject to such investigations, which is positive for the country. After WTO accession Ukraine will probably not change its main trade partners but relations with those partners will be more equal and transparent benefiting all parties concerned.
Q. How will WTO membership influence economic AND political relationships between Ukraine and Russia?
A. The leadership of Ukraine has stated time and time again that the concept of strategic cooperation with Russia is of great importance to the country and that Ukraine, as a member of WTO, will support Russia’s accession. WTO is a panel which gives all members equal rights and possibilities, thus Ukraine-Russia relations are expected to become more transparent and predictable.
Q. How open is Ukraine to the American market?
A. Ukraine is a pretty open market but there is room for further improvement, especially in the areas of non-tariff barriers such as certification.
Q. The chamber is organizing a Toastmasters Club Meeting this week. The aim of the meeting is “developing public speaking skills and high performance leadership skills,” as it is noted on your website. How useful can the “trainings” be for AmCham members?
A. The chamber is pleased to have an active Toastmaster’s Club within the chamber where interested members of the chamber can improve their presentation and speaking skills in English utilizing a program that has been proven successful throughout the world. This is of critical importance for many employees working in a multi-national environment providing them with skills to further develop their careers and assist in the success of the companies that they work for.
Q. Russia still does not allow Georgia to import wine. What is the situation in Ukraine in regard to Georgian and Ukrainian wines?
A. Georgian and Ukrainian wines are competing in the Ukrainian markets transparently while currently Georgian wines are a bit more expensive than Ukrainian wines, but after Ukraine becomes a WTO member, customs duties for Georgian wines will be lower, which will give Georgian producers a possibility to increase market share of their wines which are very much appreciated by Ukrainian consumers.
Currently the chamber does not have wine exporters among our membership therefore this is not an issue that we have been actively engaged within.
Q. Please describe the current projects the American Chamber of Commerce in Ukraine is implementing to support the country’s economic development? What are the main benefits of these projects?
A. The American Chamber of Commerce in Ukraine defined three main directions of reform policy related activity in 2008 to support Ukraine’s economic development and they include:
Opportunities and Competitiveness of the Ukrainian Economy: Including but not limited to corporate governance, judicial reform, administrative reform, tax reform, energy security, anti-corruption policy, etc.
Preparation to EURO 2012: Including but not limited to: required legislation (concessions, leasing, land policy, etc.), infrastructure development, hotels / restaurants / retail, etc.
Advocating for implementation of transparent and consistent Land Use Rights: Including but not limited to: a real breakthrough regarding land plot allocation procedures, tender practices, leasing practice, land rights issues, etc.
Q. What fields of Ukrainian business are in the main focus of American investors?
A. FDI has been primarily channelled into quickly recoverable and high-growth sectors of the economy including banking and consumer financing, wholesale trade companies and trade intermediation, the food industry and agricultural production processing.
As the first stop for most foreign companies looking to invest in the Ukrainian market the chamber has seen continued and increased interest in:
• agricultural industry including input and equipment provision, managed farming, food processing and finished goods as well as commodity exports;
• transport and communications;
• banking and financial services;
• commercial real estate including retail / entertainment, office and warehousing and logistics centers;
• fast-moving consumer goods;
• consumer electronics and light manufacturing;
• chemical and petrochemical industry;
• construction materials;
• retail and wholesale trade.
Q. Please give us detailed information regarding the risks American investors are facing in Ukraine? Entry barriers, tax policy…
A. I would say that there are no particular risks for investors from a particular country or specific industry sector. American investors are facing the same risks as Europeans, Russians, Georgians, etc.
Recently the chamber conducted a survey the purpose of which was to give a broad picture, from a regional perspective, of the business and investment climate in the region as well as investor’s perceptions of the transport and trade facilitation regimes in the region.
According to the results of the survey, companies doing business in Ukraine indicated the top three challenges as: 1) corruption; 2) customs legislation and administration; 3) obtaining needed licenses and permits.
Q. Has it increased investments in Ukraine in 2007 versus 2006? Outlook for 2008?
A. The total amount of direct foreign investments into Ukraine, as of January 1, 2007 was USD 21 billion or USD 454 per capita, highlighting that Ukraine is underinvested and opportunities abound. The main source of investment continues to be internally generated funds from companies. Approximately two-thirds of all capital investments are made in this fashion.
There was a significant increase of foreign capital in 2006. Large sums were funnelled into the banking and financial services sector, which received a total of USD 1,273.6 million. Real estate, engineering and business services operations accounted for USD 717.3 million of FDI in 2006, industrial production for USD 834.3 million, including USD 72.0 million for extracting, and the processing industry for USD 752.5 million.
Overall, the Ukrainian economy attracted USD 3.2 billion of direct foreign investment in January-September 2006. Most of the investment is from Cyprus, the USA, the UK, the Virgin Islands, the British Isles, the Netherlands, Germany, the Russian Federation, Switzerland, Austria and Poland. These countries have contributed more than three-quarters of total direct investments into Ukraine since independence.
Q. How can Ukraine facilitate the entrance of potential new investors into the Ukrainian market?
A. The Ukrainian market is demonstrating rapid growth. It is attractive for investors, especially in the financial services sector. Nevertheless, Ukraine can facilitate the entrance of new investors by establishing consistent, transparent and predictable rules in the market.
One of the chamber’s principal activities is to facilitate the entrance of potential new investors into the Ukrainian market. We advocate to the Ukrainian government, and to the governments of the economic partners of Ukraine, on matters of trade, commerce, and economic reform. Member organizations represent many of the largest strategic and institutional investors operating in Ukraine, including investors from North America, Europe, Asia, Russia, and Ukraine. Chamber members collectively employ hundreds of thousands of Ukrainians, bringing international expertise and business knowledge to Ukraine.
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