#6 - 7021
Center for Strategic and International Studies
Russia and Eurasia Program Working Group on Ukraine
Washington DC
www.csis.org
U.S. Ambassador to Ukraine Carlos Pascual [on Ukraine and US-Ukraine Relations] transcript
January 9, 2002

Celeste Wallander: Let me first of all welcome everyone. Several of you I recognize from our seminar on Monday when I was admiring our participants for having braved the after-effects of the snowstorm. So, now I find myself thanking you for being willing to devote some time today, and I know what the attraction is and why you are here. Thank you for joining us when you could be doing something else in wonderful sixty-degree weather. I think that that is a statement about the importance of the topic we are going to talk about today, and the fact that we have been able to host two events this week on the topic of Ukraine and American policy towards Ukraine says something about its importance. To be able to bring together such a distinguished group for our discussion today is really gratifying. So, thank you for joining us.

My name is Celeste Wallander. I am the Director of the Russia and Eurasia Program here at CSIS. As you well know, but let me do this properly by saying that we are very honored to have as our speaker Ambassador Carlos Pascual, the American ambassador to Ukraine. During Washington meetings, he's made time to join us to talk about the issues on the agenda. His remarks today are for attribution, on the record, which is also very generous of you and very welcome at this time. Ambassador Pascual was sworn in as the American ambassador to Ukraine in October 2000. Prior to this distinguished service, he had served as Director and then Senior Director for Russia, Ukraine and Eurasia on the National Security Council. Prior to that, his service in government was in USAID, a long, distinguished service, including serving as Deputy Assistant Administrator for Europe and the Newly Independent States [NIS]. He has a degree from Stanford University; not a bad place to study Soviet and Post-Soviet Affairs, and then had the good vision to make sure that he got his credentials on the other coast and received his master's in public policy at the Kennedy School of Government at Harvard University. So, we would like to welcome you, Ambassador Pascual, and thank you so much for joining us today.

Carlos Pascual: Thank you, Celeste. We'll take the sixty-degree weather as a sign of a transcendental change in the US-Ukraine relationship. Only sunshine to come. Let me, first, just thank you, and CSIS, and Dick Murphy, who's been a long-time partner in sustaining attention on issues on Ukraine and its transformation to becoming a democratic and market-oriented state. This institution has focused a tremendous amount of time on that. I think it has been extremely helpful to facilitate and stimulate that dialogue. So, thanks.

Let me also just say at the beginning: Many of you, people here, have commented on the speech, which I gave at the European University in Kyiv on December 12. I am going to try not to repeat the same things I said in that speech. But if anybody is interested, the embassy web site is [www.] usembassy.kiev., unfortunately, K-i-e-v, not K-y-i-v, so please forgive me for that, .ua [www.usembassy.kiev.ua], and you can pick it up there.

I think that Ukraine right now presents one of, if not the biggest, unsolved security challenges in Europe. Over the past couple of months, we've seen NATO invite seven new members. We've seen the European Union invite ten new members. We expect they would finish the process of joining those institutions in 2004. Russia has developed a new relationship with the European Union, with NATO, with the United States. And here lies Ukraine. It is clearly in our strategic interests. It has a direct impact on the eastern and southern security of Europe. It has some of the most sophisticated technologies in the world. Indeed, Ukraine had the brains of the Soviet missile industry. Economically, it's crucial to Europe. It has fifty million people, the size of France and Germany. It has, I think, probably the best agricultural land in Europe; if nothing else, Ukraine at some point will destroy the European Common Agricultural Policy. And it has a phenomenally well-educated people.

And so, the question one asks is: Should Ukraine belong in the Euro-Atlantic community? I think the answer is yes. Whether it will depends on Ukraine. And while there are many, many factors that will affect the outcome of this question, I think three sets of issues are particularly important.

The first is the quality of Ukraine's democracy: Whether its elections are free and fair and transparent and reflect the will of the people; whether its media is independent and allows a reflection of what is happening in society to be transmitted back to the people; whether civil society is allowed to grow, and whether that society is allowed to hold its leaders accountable.

Second is non-proliferation and export controls. The so-called "Kolchuga affair" has unfortunately shone quite a bright light on this issue. But it has raised, again, the importance of maintaining controls over technologies, especially in countries that have such sensitive ones.

And the third is how Ukraine presents itself as a partner on strategic issues as such the global war on terrorism, Iraq, and protection of some of its technologies.

If Ukraine is serious about positively answering the question of Euro-Atlantic integration, it is going to require, I think, a radical change in dynamics.

Over the past year, Ukraine's international reputation has certainly been sullied. It has been a factor of the "Kolchuga affair", but there have been a number of other issues. It has been a lost year in terms of policy. First, there was the run-up to the parliamentary elections, and then the holding of the parliamentary elections, and then the selection of the leadership in the parliament, and then whether there is going to be a majority, and then a change in the government. In effect, it was all the way until the end of December before any significant legislation and policy action was taken. But what made this even more poignant was that it came at a time when all the countries around Ukraine were busy trying to demonstrate that they were worthy of becoming members of NATO and the European Union. So, as everybody was charging in this direction, the best-case scenario is that Ukraine was standing still. And, if you look at the internal political dynamics, some could argue, and would argue, that perhaps there were steps backwards. One of those concerns is how the internal political dynamics have evolved in the last six months or so.

I think anybody who has been seriously involved in Ukraine over this period has expressed concern over the treatment of the media by public authorities. During the time that I have been in Ukraine, these have been some of the most worrisome actions that have occurred: the extent to which public authorities have begun to influence and direct the way that the media operates, trying to indicate what should be covered, what shouldn't be covered, in some cases providing specific film clips, in other cases telling managers of media organizations not to cover certain events, in other cases telling them not to show interviews on television. It is an extremely negative sign, and it is, in fact, contrary to Ukraine's own commitments to international law. Ukraine has ratified the Council of Europe Convention on Human Rights and Fundamental Freedoms, where Article 10 very specifically says that the standard that Ukraine has accepted as its own is to allow for the independence of the media without interference by public authorities. That key phrase -- "without interference" -- has definitely been violated.

It has also been a difficult period with the opposition. December 17th was a very sad day in the Ukrainian parliament where a vote was taken that was clearly in violation of the parliament's own internal procedures, and resulted temporarily in the disenfranchisement of the opposition. Fortunately, there was a serious negotiation period that took place afterwards, and compromises were reached, and legislation was passed. And a real question will be: Can these understandings be sustained? And can the positive environment in the parliament be maintained?

In this context, there are two things that I want to try to do in this talk. The first is to give you a sense for how we reached the current point in our relations with Ukraine. And the second is to make suggestions on how we can move forward.

I would characterize the relationship between the United States and Ukraine as perhaps the most difficult since independence. Trust has been eroded. There have been missed opportunities. And, in some cases, there are radically conflicting perspectives on the relationship. Let me try to give you a sense of how some of this has evolved from a US standpoint, and, while I can't represent a Ukrainian standpoint, at least highlight some of the important issues on the Ukrainian side.

Since 2003, throughout my tenure in Ukraine as ambassador and throughout the entire period of the Bush Administration, there has been a series of events that have complicated the relationship. One was the murder of Georgiy Gongadze. Second was the tape scandal that began on November 28, 2000 when Mr. Moroz released in parliament a recording that potentially implicated the involvement of the President and senior officials in Gongadze's murder. There has been instability in government; first Yushchenko, then Kinakh, now Yanukovych.

There have been conflicting views on handling on arms transfers to Macedonia. Putting aside whether or not those arms transfers were or were not a good thing, one of the things which happened was that President Kuchma assured Condoleezza Rice, George Robertson, and Javier Solana that Ukraine would not transfer heavy arms to Macedonia during a period of time when there were negotiations on a peace settlement. Within one month of these assurances, there were transfers of heavy arms to Macedonia, which was a tremendous breach of trust.

There was the downing of the Siberian Airlines flight in October 2001. Again, we had provided information to Ukraine very, very quickly, indicating that this almost had to be a Ukrainian missile. And, in a very complex international environment, it still took another three weeks before Ukraine was willing to come forward and indicate that this was a Ukrainian missile that downed this airplane.

There was the handling of the March parliamentary elections this year. While, on the one hand, there was an improvement on previous parliamentary elections, the authorities showed an extraordinary willingness to use the administrative resources available to the executive branch to distort the environment. The worst, I think, was probably Donetsk. I visited Donetsk just before the parliamentary elections and heard numerous stories: from mine workers who were told that if they did not distribute pamphlets for the pro-presidential parties, they would be fired from the mines where they were working; and from teachers saying that if their teachers union did not support the pro-presidential parties, these teachers would not be given teaching time the following year and, therefore, not get paid.

As a result of these developments, there was a sequential erosion of trust. During this period, there were three specific times, in July-August of 2001, in February of 2002, and, again, June-July of this year, when the U.S. side and the Ukrainian side said the path that we are on is not working. We need to try to do things that can begin to create new realities and create trust. And, so, we developed checklists of possible actions that could be taken that would be constructive. Unfortunately, in each of these circumstances, within several months afterwards virtually no action was taken, which again further eroded trust because an effort was made to re-build it, and no action occurred afterwards.

It is in this kind of an environment that the "Kolchuga affair" developed. And the reason I have gone through this is to give you a sense for the added complexity of handling the whole Kolchuga affair, because it was not just simply on a neutral playing field; it occurred in an environment that had become extremely complicated and tense.

Now, why were we so concerned about this? The Kolchuga is a passive detection system. It means that an airplane can be tracked without using radar. Without using radar means that our planes that fly over Iraq cannot detect when they are being tracked. So, they potentially find out that they have been spotted when they find a missile coming at them in their radar system. So, it increases the risk to our pilots. We first found out about the potential transfer of the Kolchuga system when we saw a transcript in March of 2002 of a conversation between President Kuchma and Mr. Malev. In April, we decided that we would seek the original recording and recording device from Mr. Melnychenko. We purposefully waited until April to do this, because we did not want this issue to play into the parliamentary elections at the end of March. In June, we obtained the recordings. Toward the end of August, we received a completed analysis that indicated that the recording was authentic. We actually held on to that for a period of time, because there were plans in Ukraine for demonstrations on September 16, and we wanted to mitigate, to the extent possible, the allegations that we were using this as a way to play into those demonstrations. On September 19, we told the Ukrainian government about it, and we told our allies, and very quickly the press became aware of the information.

We sent in October a team of experts jointly with the United Kingdom to look at whether we could demonstrate, as the Ukrainian government had requested us to do, that a transfer did not take place. Our conclusion was that we could not tell the government what it wanted, which was that the transfer did not take place. And there are several reasons for that. One is that the team had been promised full access to information, including classified information. And there were certain reports that they could not get access to: investigations that were done by the SBU [Security Service of Ukraine], the National Security and Defense Council, and the Procurator General's Office. The reason that was important is that we had a team of fifteento twenty people. They could spend time interviewing a number of people. These Ukrainian organizations have hundreds of individuals with law enforcement capabilities who could interview thousands of individuals and come up with a much more detailed case. And so, for us, to be able to effectively do our work, we needed to have access to the reports that had been completed so that we could understand what had been investigated, where the weaknesses might be, and then to effectively proceed. Not having access to that information was a major hindrance. But it was also disappointing that even the night before the team left, I was getting phone calls from the Presidential Administration saying that the team would have access to this information, and they then were not able to get it.

Another serious problem that we found was a basic flaw in the export control system. The Ukrainians themselves told us that a Jordanian had approached Ukrspetsexport, which is the arms export agency in Ukraine, and that he had proposed a purchase of the Kolchuga system, and that this had been investigated by the SBU. The SBU determined that this individual was a front for Iraq, and that, therefore, the transaction was denied. Ok. We asked for all of the records of that investigation so that we can then assess what had actually occurred. And what we were told is that there were no records because this did not go through the formal export control system, that the arms export agency had spoken only with the SBU, and the SBU maintained no records of any of these investigations, or discussions, or transactions. Frankly, this is hard to believe. But, in and of itself, this is a violation of Ukraine's own export control system: when you consider the possibility of a transaction with a state of concern, you go to the export control service, and you get it registered.

As a result of these issues, the team ended up having to come away saying that the possibility of a transfer was still an open question: We did not know if the transfer had taken place, and we could not provide Ukraine a clean bill of health. One of the impacts that this had, of course, was a downgrading of the NATO-Ukraine meeting at Prague, from a summit level to a ministerial level. The positive news is that the members of NATO recognize the importance of Ukraine, and they were still willing to have a meeting. And they were willing to have a meeting to approve a NATO-Ukraine Action Plan that creates a framework that over time can make Ukraine a credible candidate for membership. One of the questions I want to come back to in a minute is how to move forward with implementation of that plan.

Let me say a few words from a Ukrainian perspective, again, with the limitations of being an American ambassador trying to represent this. But some of this I can say with a certain amount of authority, because I feel some of the pinch of it on the day-to-day basis.

There are many Ukrainians who really believe that the United States is seeking to undermine President Kuchma and replace him with Victor Yushchenko or another member of the opposition. That is wrong. The United States is not trying to influence or seek to affect a change in Ukrainian politics. What our goal and our hope is, is to promote a free and fair and open electoral process that allows the Ukrainian people to decide who they want as their leadership. But making those decisions about leadership is not in our hands.

Now, this issue became much, much more complicated after the United States decided to give refugee status to Major Melnychenko, the individual who had made recordings in President's office. In a Ukrainian context, it is impossible to conceive of a decision being made where a country would give refugee status to an individual in these circumstances if it was not directly approved by the President of the country. And so, the way this has been translated back into the Ukrainian mind-frame is that this decision had to be approved at the highest levels of the American government. And it is extremely difficult for people to believe that this was decided by an INS officer who looked at the case on its merits and made a decision based on what he or she thought was the right decision to make.

The relationship from the Ukrainian standpoint, I think, was further complicated because of Ukraine's positive success between June and October of 2001. During this period, Ukraine passed as much reform-oriented legislation, including a full land code, and budget code, and other critical pieces, as they had in any other period of time in its young history. And the economy performed superbly. As many of you remember, the economy grew at 9.1% in 2001. And President Kuchma was looking for a reward, and part of that reward was a meeting - direct engagement with the leadership of the United States. We recognized that, and it was one of the reasons why we had laid out the kinds of benchmarks that I mentioned earlier that could have resulted in meeting. When that meeting did not take place for a number of reasons, including the Macedonian arms transfers, it was taken on the Ukrainian side as a rejection, as a rebuff, as a lack of appreciation for the difficult measures that they had taken to try to improve their economic situation.

I think another important point for Ukraine took place on May 23, 2002, when Ukraine declared that it had established as an eventual goal full membership in the Euro-Atlantic community, i.e. that it eventually wanted to become a member of NATO. If one puts that in a context of the 1980s, that's an incredible statement, and one would think that you would automatically jump and say this is an absolute positive development for NATO. But given what had just happened in the relationship between NATO and Ukraine, particularly on Macedonian arms transfers, there was, to say the least, a tremendous amount of skepticism on the part of many NATO members.If it had not been for the United States and the Poles, I think it would have been extraordinarily difficult to make any progress on this issue. There were also difficulties after the March parliamentary elections, because the basic question that so many NATO members asked was: Does Ukraine share the values that are fundamental to NATO's success? If NATO is an organization that operates by consensus, and is successful in operating by consensus because it has those shared values - democracy, and market reform, and respect for human dignity - does Ukraine stand in that category? And so, rather than automatically get a warm welcome, what Ukraine got was a statement of appreciation for its goals, and a welcome to prove itself, and to prove itself through actions.

Now, that is not necessarily a bad thing, because NATO is a pretty predictable organization. If you engage with NATO on its programs, and you dogmatically follow them step-by-step, it is pretty clear where you can end up. But, again, for Ukraine, it was taken as a rejection.

The cumulative effect of this has been that there have evolved on both sides, between the United States and Ukraine, radically different outlooks. The United States is looking at Ukraine as a country of tremendous potential, a country which should be in the Euro-Atlantic community, yet a country which is not reliable, where there has not been trust, a country which is not sure of its own goals and objectives. I stress this because if you look, by contrast, at Poland or Hungary or the Czech Republic, they knew where they wanted to go, and they dogmatically pursued it. Ukraine needs to know what it wants, because, in the end, nobody can define that for Ukraine. It has to make those decisions for itself.

On the Ukrainian side, there's been a perception that they have been unrewarded and unappreciated. They've had quite successful economic performance three years in a row growing at 6%, 9.1%, and, even with the difficulties in 2002, growing at over 4%.

One of the things that these different perspectives has done is create a greater Ukrainian dependence on Russia. In many ways, President Kuchma has needed President Putin. He has been, aside from President Kwasniewski, the single international leader who has met with him on a consistent basis. It has been, at least, once a month, and, in some cases, every three weeks - an extraordinarily intense relationship.

The risk of Ukraine's dependence have changed significantly from the early to mid-1990s when Dr. Brzezinski was writing about Ukraine as a wall on the expansionist tendencies of the Russian empire. That has changed because of the change in Russia's relationships. I mean, who could have imagined in 1994 that Russia would have gone along with NATO's enlargement to the Baltics. It is a radically different world. But what is happening in Ukraine now, I believe, is that political dependence is being used to create economic opportunities for Russian companies. If you look at the official investment figures, Russian companies are probably third or fourth on the list with maybe about 400 million dollars in official foreign direct investment. Anybody who has traveled in Ukraine knows that is not right. It can't be true. You can't see the level of Russian investment in this economy and say that it is only 400 million dollars, and it is less than the United States, and the Netherlands, and Cyprus.

And, so, what is happening? One would think that Russian companies are perhaps getting an opportunity to invest without paying the full value of the assets that they are investing in, which is not good for Ukraine. And it is not that I am against Russian investment. I've seen Russian investments which are particularly good: the Lukoil investment in the refinery in Odessa is a good example. They put money into it. They've trained staff. They've given them pensions. They've increased their wages. It is a good project.

But there are a couple of examples recently that, I think, are to Ukraine's strategic disadvantage, particularly in the gas and oil sector. In the recent agreement that was signed between Gazprom and Naftogaz on the development of an international consortium. That agreement, which initially was secret and has been distributed now around more widely -- that agreement specifically states that those two companies together must decide on any management proposals for an international consortium to control Ukraine's international gas transit system. In other words, Gazprom has a veto over what Ukraine wants to do in the management of its gas transit system. Gazprom cannot be happier: This has been one of the things that they have been seeking to get since 1992.

On the oil side, recently, there was an agreement that provided for the reversal of the Adria pipeline in Croatia so that it links into the Druzhba pipeline, and now the Druzhba pipeline can be one flow coming out of Russia, through Ukraine, through a number of other countries, eventually going to Omisalj. Why is it important? It gives Russia another deep-water port where it can fill tankers of 300,000 metric tons that can go into the Atlantic. Ukraine participated in these negotiations and conceded all the rights on transit through its territory to Transneft. So, Transneft now has the ability to determine which companies will be able to put oil through that pipeline. And this could potentially be the death knell to the Odessa-Brody pipeline, because the Odessa-Brody pipeline only makes sense if you can link it into Central Europe, and to link it into Central Europe, you've got to go through the Druzhba system. And if you can't get access to the Druzhba system, it is just not going to work.

And, so, in the past three months, Ukraine has made some radical concessions that tremendously strengthen Russia's hand over Ukraine in the oil and gas debate, and potentially take away from Ukraine its strongest bid for a new source of oil out of the Caspian that is not dependent on Russia.

Now, what is the way forward?

The goals in the relationship between the United States and Ukraine remain the same. They are the same as they were when the Ambassador Popadiuk was there, Ambassador Miller was there, Ambassador Pifer was there, and from the time that I started. We support a democratic and market-oriented Ukraine that is integrated with Europe. It is good for Ukraine. It is good for Europe. It is good for the United States. And we have to be driven by those goals. And we have to keep remembering that, and reminding ourselves of that. I purposefully re-state them for myself in speeches that I give, because if we are not driven by long-term goals, and if we are driven by every short-term crisis, then we will have a bad policy. And so we have to keep focused on the long term.

Another reality is that it is extremely difficult to draw a path from where we are today to the ideal relationship that we would want to see between the United States and Ukraine. If you asked me to draw that path from here to there, I could never do it and get it cleared by an inter-agency community in the United States. For those of you who have worked in the government, you know exactly what I mean. What that means is that we need to have a policy that I call a policy of incremental possibilities where we keep doors open, we try to allow those open doors to create new realities, we hope that those new realities could then lead to additional doors that are open, and over time, that trust is built, and that new forms of engagement can take place. That is not very clear, it is not precise. It means that you know what the tools are in your basket, and that you're going to have to adjust them as you go along. But the alternative to that policy right now is shutting the doors. And that simply is unacceptable.

A major question on this is how Ukraine will respond to these open doors, because we can try to handle one side of it, but it does not work unless both sides have a willingness to proceed. It was not clear to us how Ukraine would respond, but recently there were positive signals. In fact, before I left Kiev, I had several meetings with senior level people that indicated that there is an increasing recognition on Ukraine's side that isolation is not an option, that being left in a neighborhood with Belarus and Moldova as strategic partners is not a positive long-term prospect for Ukraine, and that they need to get themselves back on the European track. Now we need to see if we can take this goodwill -- good will on both sides -- and turn it into a more positive relationship that can help us overcome or get beyond this two-year history that I was describing.

Let me suggest five steps that I think are important. There has been a policy review which has been continuing within the United States government. It is not completed yet, so I don't pretend that this is final, and I don't pretend that it is comprehensive. In fact, I will state at the beginning that it is not comprehensive. There are certain issues that I am not going to deal with here, on economics and on business. And they are clearly a fundamental and important part of the relationship, and we will continue to pursue those.

First, there has been an inevitable cost to the Kolchuga affair. There may not be a way to find a common understanding. We are going to maintain our perspective, and Ukraine may very well maintain its. And it is very difficult because it is not just abstract. It is focused very much on an individual who happens to be the president of the country. But there is a constructive way in which to use the energy which has been focused on this question, and that is to help Ukraine reform its export control system. I have had discussions about this with very senior levels of the Ukrainian government. And I have been very explicit about the importance of breaking the link between the SBU and Ukraine's arms export agency, because if these two entities can collaborate and determine what information goes into the official export control system, they can strongly influence the outcome of potentially illicit deals. Let me put it this way. One individual told me that it is easier for him to tell me who is not in the SBU within the arms export agency, than to say who is in the SBU. If you have collaboration between the export agency and the SBU with common interests, they can even develop the analyses that are fed into the export control system in a way that leads to positive conclusions within the export control system where they maybe should not be. And so that link has to broken. And I think what has been positive to me is, in speaking about it very frankly with individuals at senior levels, is that there is a recognition that the problem exists. Now we need to move from private conversations to something which is constructive and concrete.

The second measure is that we need to engage broadly with the Ukrainian government. This includes the formal structures that we have created in the past - the foreign policy committee, the defense committee, the economics committee. It means continued engagement with ministries. We had Minister Shkidchenko here in October. We expect Deputy Prime Minister Azarov to be here at the end of month as well as Minister Khoroshkovsky for our meeting of our economics committee. We are open to this form of high-level engagement, even if there are difficulties at the top.

We also want to encourage relations between our parliaments. And while we believe firmly in the separation of powers, we will obviously encourage the U.S. Congress to stay engaged with the Rada [Verkhovnda Rada]. Marcy Kaptur and Bob Schaffer have done that extraordinarily well in the past. Schaffer has now left, Kaptur is looking for a new partner, but I think that that will continue.

Another piece of engagement is the trilateral relationship with Poland. It has been extraordinarily helpful, and I can't over-emphasize the importance of the role that President Kwasniewski and senior Polish officials have played in this relationship. They have the ability to talk honestly with the Ukrainians and to talk from their own experience to express what they found necessary to make the successful transition to Euro-Atlantic integration.In many cases it carries much more weight than what we could ever say. When we've had these formal trilateral meetings, with officials from all three countries around the table, it has been extraordinarily positive because -- not because anything that is said is any different from what we might have said otherwise, but when you have a formal dialogue when the Poles are repeating things or saying things, and initiating issues on their own because of their experience, it has much greater credibility. And so we will continue this form of engagement.

A third area is to support a more democratic environment and stronger civil society. There are steps that Ukraine can take. One is to continue to recognize the importance of a role for the opposition and to encourage it and facilitate it. Second, is to respect an independent media, in particular to respect Article 10 of the Council of Europe Convention on Human Rights and Fundamental Freedom and to withdraw pressures from the press. Recently, there have been arguments that Ukraine has raised that if you look at the world of publications in Ukraine, that you will find newspapers and television programs that criticize the President or other members of the government. That is fine, but it is not the standard. The standard is non-interference. And if there is still a prevailing situation when television stations, or radio stations, or newspapers are being told what to cover and not to cover, how to cover it, that is a violation of Ukraine's international commitment, and indeed Ukraine's own law, because Ukraine has ratified this convention. Indeed it actually takes precedence over Ukraine's law-its international treaties actually take precedence over its domestic law.

Third is to complete the registration of projects with the International Republican Institute, the National Democratic Institute, and the Institute for Sustainable Communities. Anybody from Washington obviously would say, how can you not register projects with NDI and IRI, when you alienate the entire spectrum of the American political system. Ukraine has done that, and it is now sinking in; in the past few weeks we have had indications from the Ministry of Economy that they are prepared to address this issue. I hope so. We have had positive signals in the past and it has not been resolved. More broadly than that, is the importance of developing a mechanism for allowing assistance projects to move forward to support civil society. I will give you one example of a non-governmental program that we are supporting to tackle grassroots anti-corruption issues. Based on Ukraine's current regulations, they name a government counterpart that has a right to look at any project or program that is being undertaken with the assistance provider. In this anti-corruption program, the Ukrainian government named as the government beneficiary the SBU. So here is an organization that is seeking to work at a grassroots level to help develop NGOs to tackle corruption, and the organization that is overseeing what they are doing is the intelligence service. It is a bad signal. It does not work. So if we can find a donor mechanism to streamline this process, that would be a tremendous step forward.

There are extremely important things that can be done in the media sector. There are four large-size projects that we're looking at, not necessarily for grant funding. The Soros Foundation and the Media Development Loan Fund is one of the key institutions that could be a financer and contributor.Among these four projects are an independent news agency, an independent daily newspaper, strengthening of public radio, andworking on developing local programming that can be used by regional television stations that have a little bit more independence. There are smaller-scale projects that can be done. We have a media development fund that funds projects up to $24,000 and a democracy commission program. Things like strengthening the spread of the Internet, providing funding for documentaries that tackle specific substantive issues, newspaper supplements that tackle specific substantive issues, helping the Ukrainians develop a real trade union for independent journalists. In addition to these activities, I have seen some people here from NDI and IRI, the work that you have been doing on political party development; I see people from Development Associates, work that you have done with the Central Election Commission should continue; and hopefully the program that we have with the Institute for Sustainable Communities will be registered, because that is really our flagship for supporting NGO programs. NED is here and they have been playing a very important role as well, and I strongly encourage you to continue it.

The fourth area is continuing to develop our military-to-military ties. Ukraine started out with a military of about 700,000. It is now down to about 295,000-that is a huge transition, and it is probably still twice as big as it should be. It is painful. Ukraine has a strategy for streamlining and making its military, over time, inter-operable with NATO. The strategy is premised on the development of rapid reaction forces, where it takes its best units and puts them into these rapid reaction forces, using that as the criterion for what to cut out. We have been very engaged with Ukraine in doing this, so has NATO. We have funded an internal defense review. Ukraine has been participating in NATO's Program Analysis and Review Process. We annually have dozens and dozens of activities and exercises with Ukraine, like Peace Shield, Sea Breeze, Rough and Ready. The Ukrainian-Polish Battalion has been perhaps the best military money that we have spent, because it is a practical, on-the-ground activity where they are seeing what works and what does not work and increasingly, to Ukraine's credit, they are taking the lessons from this, and including them in their National Defense Academy. I give great credit to Nick Krawciw of the Department of Defense, who has been working very much on strengthening their educational capabilities.

And finally, fifth, I would say that it is extraordinarily important for us to help Ukraine join international and regional institutions such as NATO and WTO. The EU is important, but I am not going to talk about because we are not part of it. In fact, I am principally going to talk about NATO for a few moments. The NATO-Ukraine Action Plan is modeled on the membership action plan. It has a political and economic component, a defense component, a security component, a legal component. Ukraine has developed a target plan which goes with this action plan on things that it looks to accomplish on an annual basis. It is now looking at how to organize itself, and there is preliminary talk of forming a state commission on the NATO-Ukraine Action Plan, which would have responsibility for coordinating with other ministries. In May, there will be a foreign ministers meeting of NATO, and by that point, our hope is that Ukraine has some progress to show, and that there has been some public dialogue on these issues. Because if in fact it is serious about implementing this action plan, it is a real opportunity to build credibility and put itself in the position to be a credible candidate for membership at a future date.

Now, am I optimistic about this? To me, it all really hinges on one word, which is "accountability." In Ukraine, politics have always been based on power. There is a reason for that, because of the Soviet tradition from which they came. I would not pretend that power is not an important part of politics anywhere. But at some point, there needs to be a recognition that politics must have accountability, that accountability requires responsiveness to constituents, and in particular it means that you encourage constituencies to develop and strengthen, so that they can hold government accountable, and in the end government can produce results that lead to a more prosperous nation. It is encouraging to me that I see Ukrainian people who want to change. If you look at the March parliamentary elections, despite the difficulties that occurred, when it came time to go to the ballot box, on the party list the Ukrainian people voted their hearts, they did not vote what they were told to vote. When you look at the development of NGOs throughout the society, it has been a phenomenal development and a wellspring of activity that is different from what we saw five or six years ago. If you even look at the difficulties with the media in the past few months, what has been encouraging is that journalists did not just sit back and take it. They said that we have to stand up for our rights, because if we do not, we are sacrificing our country. And they expressed their concerns, and over 450 journalists signed a political document saying that the steps that are being taken to suppress the media are unacceptable. Those are all signs of encouragement and change.

When we look at Ukraine, what we see is a country of potential, and we want to see that potential realized. When we look at history, what we also see is that values matter. That freedom, and human dignity, and openness, and competition in society are not just mere words, but they are fundamental to prosperity. And what we do want to see is a Ukraine which is obviously independent and sovereign, but one which is also free and which is prosperous. There is no side-door to membership in the Euro-Atlantic community, but there is a front door, The position that we have taken is that the front door is open, and we hope that Ukraine will take the steps that will allow it to walk through. Thank you.

Celeste Wallander: Thank you, Ambassador Pascual. I am very happy I haven't established the precedent of asking the first question, because I think you have given us such an array of issues and laid them out so well, and dealt with each of them with such insight that I am incapable of posing a question at this moment. I so liked what you had to say.

Ambassador Pascual: There is a member of the press at the back, the press always asks a question.

Question: I am Elaine Monahan from the Times of London. I had one question for you. Is the United States happy with Ukraine's record since you launched this policy review in terms of counselors to Iraq. Have you noticed anything happening since then?

Ambassador Pascual: Elaine, I think there has been mixed performance. The policy review was started in September. Over that three-month period, a lot has happened in Ukraine. On the Kolchuga issue itself, there have been some positive developments, including the fact that Ukrainians invited a team to come in and to conduct an investigation. There have been negative things which have happened; the team was not given full access as I described earlier. There have been positive things that have happened in the political system, where despite the pressures in the press that I mentioned earlier, there was agreement to go forward with parliamentary hearings on the media, which were broadcast on national television, and which has sparked a tremendous amount of debate. But, in and of itself, it is still negative that there has been a period of time when there have been these so-called "temniki" that have been issued instructing the media on what to cover and how to cover issues. In the parliament, there have been negative issues, where, as I mentioned earlier, on December 17, the parliament came to a standstill. There was a literal fight, because of the violations of voting procedures, yet afterwards we saw a compromise in which there was a recognition that the opposition has a legitimate role, and some positive legislation was passed. So we have seen both-we have seen negative and we have seen positive. And I think the question that we are putting forward at this stage is that we want to hold open the prospect for a better and a deeper relationship. We want to see progress on issues related to democracy, to nonproliferation, to strategic cooperation, and is Ukraine serious and determined about moving down that path? And is it something that we will see demonstrated in actions over a sustained period of time? We are going to keep working on it, and what we need to see is what Ukraine is willing to do for itself.

Question: [Inaudible follow-up question regarding new developments in weapons transfers.]

Ambassador Pascual: I actually cannot comment on that because commenting on issues like that, one way or another, would get me going into what we know about intelligence questions, and I simply just cannot go there. Sorry.

Question: [Inaudible]

Ambassador Pascual: I am happy to do it on the record. It is quite fascinating to see what has happened with the political constellation in Ukraine, and it has changed quite extensively, even in the last month and a half. In many ways, President Kuchma re-wrote the political playing field when he changed the government in November. Previously, the political story in Ukraine was the great power that was being accumulated by the President's Chief of Staff, Mr. Medvedchuk. When he changed the government, that was unbalanced completely. We now have one power group with Mr. Medvedchuk. You have another power group - and this is within the pro-presidential block - you have another power-group with Prime Minister Yanukovich. You have another group with Deputy Prime Minister Azarov, who also comes from Donetsk but is not quite in the same place as Yanukovich. You have another group with now-governor of the central bank Tihipko and Mr. Pinchuk, the President's son-in-law. And you have yet another group with Mr. Litvin in the parliament. And in effect what President Kuchma has done within the pro-presidential camp, is put them in competition with one another, not dissimilar to things that my good friend Jim Collins saw happen in Russia on more than one occasion. And, who will come out ahead in that, who knows? On the side of the opposition, it is a complex story. There are four groups to talk about: Our Ukraine, the Yulia Tymoshenko block, the socialists, and the communists. Tymoshenko, the socialists, and the communists have on many issues been willing to work together. Yushchenko has been in and out of there at different times. The one time when the four of them worked constructively and in a very unified way as a block was after December 17, because they all felt that their interests were being eroded as a result of what happened in the parliament. Yushchenko - it is a fascinating story to look at because his ratings have stayed between 25 and 28 percent, yet he has lost every political battle that he has engaged in since the parliamentary elections, including battles for leadership in parliament and to be in the government, and he does not have a clear position of leadership in the opposition. In part that is also a negative statement for the pro-presidential authorities that, without a clear strategy, Yushchenko retains that much of a rating. When you look at the pro-presidential side, President Kuchma's ratings have been between five and eight percent, Yanukovich's have been under five, Litvin's have been under three, Medvedchuk's have been about five, there is nobody in the pro-presidential camp that has a strong resonance with the broad population. So, it is very difficult to predict how the political landscape is going to evolve. Yushchenko is still, by far, the most popular politician in the country, but he is a popular politician without a strong political organization, and without a media base, which is not insignificant. So, it will be interesting to see how it develops over the next two years. I honestly cannot predict.

Question: Rose Gottemoeller, from the Carnegie Endowment. I was very glad, Carlos, to see that the non-proliferation set of issues is first on your list. I would agree that they are extraordinarily important. I was wondering though, when you look at reform of the export control system, you tended to point to government-to-government kinds of cooperation. And there have, in my understanding, been some Ukrainian companies who have actually made their way to Western markets. And is there any possibility in your mind that they could in fact represent a strong interest group that might push the government toward sounder export control policies? That is the first part of my question. And the second part of my question, given the strong cooperation you point to between Russian and Ukrainian companies, is it beyond the realm of imagination that Russian companies would play something beyond a mischievous role in this regard? That in fact, given the strong kind of influence we are trying to exert on Russia to improve its export-control behavior, that Russian-Ukrainian companies might find themselves working together in a more positive partnership in this regard?

Ambasador Pascual: Actually, Rose, your first point on Ukrainian companies that would have self-interest in a sound export-control system because it would help them is a very good one. I do not know those companies. If you have some suggestions for me, and there are a number of my colleagues from the government here, if you folks can take up this suggestion, and if there are particular companies that you know of that we can pursue and follow up with, it is a good idea and we should try to link them in. On the Russia side, I am not sure. Unfortunately, most of the arms relationships between Russia and Ukraine have not been the best. And there is, ironically, a new organization, almost a lobby firm, that has been created of former intelligence officials in Ukraine and Russia that is intended to help companies lobby to get contracts on arms contracts. I am not sure that that is exactly going to be the most promising thing either, so I am a little skeptical of the second.

Question: Georgeta Pourchot, CSIS. Mr. Ambassador, you mentioned the role of Poland and the trilateral relationship, and the fact that the Poles tend to have a better credibility for the Ukrainians when they tell the Ukrainians pretty much what the US is telling them, only it comes from a different direction. In that same spirit, is there a role for Central European neighbors of Ukraine that have been invited to join, particularly Slovakia and Hungary? They are all informally ready to cooperate with Ukraine more and have more exchanges. Is there some more room for further increased ... stressing the message of values, democracy, media, etc? Thank you.

Ambassador Pascual: Absolutely. I think all of the Central European countries can in fact play a constructive role. One country which has been particularly proactive has been Estonia. And Estonia is especially engaged with the foreign ministry and advising the ministry on internal restructuring. The Hungarians have been extraordinarily helpful in discussions in Kyiv and, by the way, thank you for the conference that you hosted at the beginning of December there. Unfortunately, I was here when you were there, and I did not get the chance to participate. But the Hungarians have been extraordinarily effective and impressive within Ukraine and speaking with leadership and government in non-governmental fora about their own experience with integration with NATO and with the European Union. Both in that kind of public dialogue, as well as in their official contacts, they've been helpful. I think Slovakia can also play an important role. Of the central European countries Slovakia has the reputation for having undertaken the most effective public relations campaign on NATO and what being a NATO member means, and spreading this out through an NGO network throughout the country. Sharing that kind of experience I think would be very helpful. So, I do not see this as a role that is monopolized by Poland. I am just simply frank in giving Poland credit for something which it has done with foresight and done effectively and actively, and I think others are recognizing that this is in their interest as well and need to become more engaged.

Question: In President Kuchma's Independence Day speech this last year, he announced that there was going to be a change from a presidential-parliamentary system to a parliamentary-presidential system. Now, at the time there really was not much comment about that, but if you think through the implications of that, it really would mean a very different presidential race next year. Have you heard any more discussions about that? This is also very important for the pro-presidential candidates who may be running as well as the opposition types.

Ambassador Pascual: Yes, toward the end of December, if I remember correctly, a decree came out announcing the creation of a commission that is headed by Mr. Moroz, and - I honestly cannot remember who the other person is, one of the pro-presidential parties - and it has participation from pretty much all the political parties, and this group is supposed to lead the process of formulating these proposals for amending the constitution and shifting the balance of power from president to parliament. The other important issue related to that which is extremely important to watch is the discussion on changing the parliamentary election law. There is a general consensus to move toward strictly a proportional system and eliminate the single mandates. However, some of the proposals that have been put on the table in effect recreate the single mandate system within the proportional system, and I cannot even begin to try to explain it. We would be here for a long time and you would still never understand what I said. But the reason I am highlighting it is that if some of these proposals were actually taken up, it would be worse than what exists right now. And so it is important to watch that carefully as well.

Question: [Inaudible.]

Ambassador Pascual: Kempton, you are right that, on individual actions, that some things in the overall scheme may be small. Some individual actions are very symbolic, and they matter a great deal. I am going to partly cop out on this answer and say that the policy review process is not over, and so therefore I am not going to attempt to prioritize and preempt that, which people much more senior and much smarter than I will pronounce on. But, I will go back to the three themes that I began with: democracy, nonproliferation, and strategic cooperation. These are fundamentals. I would not try to prioritize among those three. I think right now that all three of them have to go together and that if we are going to play an effective role in being an advocate for Ukraine in integrating with the Euro-Atlantic community, we have to convince the other Allies that Ukraine is serious about those issues. We can convince our Allies that Ukraine is a good partner on the global war on terrorism, but if they see a fundamentally non-democratic state, they are not going to be happy, because a non-democratic state in NATO is a non-starter. And so all three of those issues have to be addressed, I think, right now at the same time.

Question: (Dick Murphy) Carlos, the recent changes in the national bank of Ukraine-what are the prospects for continued independence of the national bank?

Carlos Pascual: I do not know. The positive side is that Serhiy Tihipko is a responsible individual; he has experience as a banker. Many of us have known him for a long time from our engagement on the economics committee. He is a market-oriented individual and that is positive. It is extremely negative by any account when the governor of the central bank is included as part of a political deal on how parties are dividing up the seats of power within government. You do not do that with central bank positions. You do not make decisions on that basis. The governor of the central bank has to be independent and has to be outside politics, and that is an extraordinarily negative sign that Ukraine has sent. I do not need to say that-the IMF has said it, the World Bank has said it, and it is more important that they say it than I say it. Now, how is it going to proceed? I do not know. Tihipko up until now has said the right things, has talked about his independence, has made statements indicating that he has long-term ambitions to remain as the governor of the central bank. If he were here, I would tease him about it, because I think Serhiy Tihipko wants to be the next president of Ukraine. But, anyway, all that aside, certain actions have been taken, they have not been the most positive ones, to affirm the independence of the central bank. I hope that Tihipko runs his operation in a way that rebuilds some of that trust.

Celeste Wallander: Thank you. I want to thank you, Ambassador Pascual, for a wonderful presentation and a terrific discussion. This is a challenging time for the American ambassador to Ukraine, but we are very grateful and relieved that you are the one who holds it because it is clearly in good hands.

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