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Overseas Business Risk - Ukraine

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Overseas Business Risk - Ukraine

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Political and Economic Prominent Ukrainian businessman and politician, Petro Poroshenko was elected President of Ukraine in May 2014.

His election followed the ouster of former President Yanukovych following a violent crackdown on the “Euro-Maidan” demonstrations of 2013/14. These demonstrations were triggered by Yanukovych’s decision not to sign the EU Association Agreement in November 2013, but soon broadened their focus to include challenging corruption and lack of transparency.

As a result of early parliamentary elections on 26 October 2014, pro-EU political forces formed a ruling coalition, declaring their commitment to conduct comprehensive political and economic reforms. Parliament voted to support a new government headed by Prime Minister Arseniy Yatseniuk in early December 2014. Ukrainian domestic and international electoral watchdogs including the OSCE/ODIHR observers praised Ukraine’s local elections held on 25 October 2015 for the progress towards free and fair political competition. According to the OSCE conclusions, the 2015 local elections were competitive and well organized, and showed respect for the democratic process although certain areas for improvement to enhance public confidence had been also identified.

Ukraine is currently coping with multiple challenges including military activity in the Donbas and severe economic difficulties. The current government has done more than any other in Ukraine’s history in terms of real reform. But the pace is still slow, and is suffering from protracted internal political wrangling. Combating corruption, as well as decentralisation, deregulation and de-oligarchisation remain among the key priorities for Ukraine’s government in 2016. The international donor community is to continue playing an important part in the reform process. The UK has a significant bilateral assistance programme focused on the areas of good-governance, humanitarian, defence support and energy. The British Embassy in Kyiv is also working closely with the EU, World Bank, EBRD and other IFIs and bilateral donors active in Ukraine.

On 1 January 2016, the Deep and Comprehensive Free Trade Area (DCFTA) - as part of the Association Agreement between the EU and Ukraine signed in June 2014 - was provisionally applied. (The EU had unilaterally applied year one of the DCFTA, the “Autonomous Trade Measures”, in 2015.) The rest of the Association Agreement had already been in force since November 2014. The provisional application of the DCFTA is a significant milestone in the EU-Ukraine relationship, offering new economic benefits to both sides. Ukrainian businesses receive stable and predictable preferential access to the largest market in the world with 500 million customers, while EU businesses will be able to benefit from easier access to the Ukrainian market and build new relationships with Ukrainian partners. . This will also be to the benefit of Ukrainian citizens, driving up the quality of domestic products and providing better access to high quality imports. And increased competition and the lowering of import tariffs should lead to lower prices. Through its ambitious goals of approximation to EU legislation in areas such as competition, government procurement, and protection of intellectual property rights, the agreement will contribute to the modernisation and diversification of the Ukrainian economy and will create additional incentives for reform, notably in the fight against corruption. The DCFTA thus offers an opportunity to Ukraine to improve its business climate and to attract foreign investment, helping Ukraine to further integrate with the world economy. The DCFTA is foreseen to be implemented over several years, allowing gradual alignment of legislation and tariffs and time for all affected stakeholders to adjust.

Illegal Annexation of Crimea

Russia illegally annexed Crimea in March 2014, following a ‘referendum’ on the peninsula which violated Ukrainian law. Since then there has been a severe deterioration of the human rights situation, access issues and a serious economic decline.

The UK Government’s position on Crimea

  • Russia’s annexation of Crimea in March 2014 is illegal and illegitimate. The UK along with the rest of the EU and the US does not, and will not recognise it. It is a violation of a number of Russia’s international commitments, including under the UN Charter, the OSCE Helsinki Final Act and the 1997 Partition Treaty on the Status and Conditions of the Black Sea Fleet with Ukraine.
  • The EU has imposed sanctions on individuals and entities in relation to Russia’s illegal annexation of Crimea (http://europa.eu/newsroom/highlights/special-coverage/eu_sanctions/index_en.htm).
  • Both the G7 and EU have affirmed their condemnation, and non-recognition, of Russia’s illegal annexation of Crimea and we are implementing a strict policy of non-recognition with respect to Crimea/Sevastapol, in line with UN General Assembly Resolution 68/262
  • the EU Foreign Affairs Council of 23 June decided to prohibit the import into the European Union of goods originating from Crimea and Sevastopol with the exception of those having been granted a certificate or origin by the Government of Ukraine or to provide, directly or indirectly, financing or financial assistance, as well as insurance and reinsurance, related to the import of such goods
  • the 16 July European Council agreed to impose additional measures relating to the illegal annexation of Crimea, in particular on restricting investments in Crimea, and called on the international financial institutions to refrain from financing any projects that explicitly or implicitly recognise the illegal annexation of Crimea and Sevastopol
  • EU members have agreed to continue to monitor the situation and to consider further trade measures as necessary
  • UK businesses should be mindful of these impacts for commercial operations and of the increased commercial risks created by this situation
  • the UK Government will continue to offer UK companies advice where it can but is not in a position to offer advice on the legal implications of operating in Crimea. Commercial decisions are ultimately for companies to make themselves on the basis of commercial risk, bearing in mind also the increased risk that high profile business engagement might be exploited by Russia for political reasons.

Eastern Ukraine

Pro-Russian separatists, with support from the Russian Federation, have been fomenting unrest in the east and south of Ukraine since February 2014. The Ukrainian Government launched an anti-terrorist operation to regain control of these areas. They have had some success in the south of the country, including Odesa, which is now mostly peaceful. But fighting is continuing in the east, and parts of Donetsk and Luhansk regions remain de facto under separatist control. The Minsk Package of Measures aimed at bringing an end to the crisis has been extended into 2016. More information on travel restrictions to these areas, as well as broader political risk, including political demonstrations, is available in the FCO Travel Advice.

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