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END NOTE: KYIV TIGHTENS CUSTOMS CONTROLS ON TRANSDNIESTER xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

U.S. HOUSE LIFTS JACKSON-VANIK RESTRICTIONS ON UKRAINE. The U.S. House of Representatives on March 8 passed a bill permanently exempting Ukraine from trade restrictions imposed under the 1974 Jackson-Vanik amendment, which ties trade status to the rights of Jews to emigrate, RFE/RL's Washington correspondent reported. "President [Viktor] Yuschenko has continuously called for this action that we take today and certainly the timing is appropriate because in several weeks Ukraine will elect a new [Verkhovna] Rada. This sends a signal that Ukraine now has the full and equal respect of the government and of the people of the United States," Congressman Curt Weldon (R-Pennsylvania) noted on the floor of the House. Ukraine has benefited from a series of annual waivers of Jackson-Vanik, but its permanent graduation from the trade restrictions will make it possible for the U.S.-Ukraine bilateral agreement on mutual access to goods and services markets of March 6 (see "RFE/RL Newsline," March 7, 2006) to take effect. The bill will still need to pass the Senate and be signed by U.S. President George W. Bush in order to become law. JM

WASHINGTON SAYS HUMAN RIGHTS SITUATION IN UKRAINE IMPROVED IN 2005, BUT REMAINS POOR. The U.S. State Department said on March 8 in its annual report on human rights worldwide that while Ukraine's human rights performance significantly improved in important areas in 2005, in a number of respects it remained poor. The report says that the improvements followed the Orange Revolution. Accountability by police officers and prison conditions have become better after the change of power. The mass media became much more independent, and restrictions on freedom of assembly largely ceased. There are no reports of political prisoners in Ukraine. However, the report points to arbitrary or unlawful deprivation of life, politically motivated disappearances, and hazing in the Ukrainian army. The report also notes that corruption remained a serious problem in the executive, legislative, and judicial branches of the government, including the armed services. VM/JM


On March 3, Ukraine introduced new customs rules along the Transdniestrian stretch of its border with Moldova. The new rules make illegal the shipment of any goods from the Russian-speaking separatist Transdniester region that have not been cleared by Moldovan customs. The Ukrainian move has effectively imposed a ban on exports by Tiraspol to Russia, its main trade partner.

Transdniestrian leader Igor Smirnov said the move is tantamount to an economic blockade and threatened to withdraw from multilateral talks on the settlement of Transdniester's conflict with Moldova. Will the tightened Ukrainian-Moldovan border controls make the unrecognized Transdniestrian Republic more pliant in reunification talks with Moldova or just bring more chill to the "frozen conflict"?

Ukrainian Prime Minister Yuriy Yekhanurov declared in Kyiv on March 6 that Ukrainian customs officers will now grant free passage across Ukraine only to those Transdniestrian shipments that have a stamp from Moldovan customs.

The rules had been enacted three days earlier, and Yekhanurov noted that Ukraine had given Transdniester notice of the change in February. Still, he acknowledged with some surprise and disappointment, Tiraspol's response to date had been "illadvised."

Moldovan Prime Minister Vasile Tarlev has likewise commented on the new customs rules. Speaking on March 6 in Chisinau, Tarlev said the regulations are intended to make Transdniestrian business entities register according to Moldovan law and legalize their external trade activities.

At the same time, Tarlev denied Tiraspol's assertion that the Ukrainian move is an economic blockade of Transdniester that was planned in collusion with Moldova.

"There was no economic blockade of the Transdniester region. There was not, is not, and will not be [a blockade]," Tarlev said. "The Moldovan government is not interested in an economic blockade of its citizens, and we want to live in peace and prosperity together with our brothers and fellow citizens from this region."

Moscow -- whose political and economic support is critical to Transdniester's survival -- seems to take a similar view to Tiraspol with regard to the situation on the Ukrainian-Transdniestrian border.

Russian Foreign Minister Sergei Lavrov suggested as much on March 6, during his official visit to Canada, saying: "What is taking place there, according to our information, looks like an economic blockade. If this really is the case, urgent measures are needed, of course, to stop this blockade."

Moscow has, however, apparently not yet made any decision regarding Transdniester. On March 7 it sent an expert group to Tiraspol to study the situation.

The European Union, by contrast, welcomed the new customs rules. EU foreign policy chief Javier Solana praised the move on March 6, an endorsement that was echoed by Adrian Jakobovits de Szeged, the EU representative for Moldova, in an interview with RFE/RL's Romania/Moldova Service.

"We think that the implementation of the declaration of [the Ukrainian and Moldovan] prime ministers is very important for introducing order on the border, and we fully support putting this declaration into practice," de Szeged said.

Last October, following a request from Kyiv and Chisinau, the EU launched a two-year border assistance mission in Ukraine, sending some 50 experts to monitor the comings and goings on the Ukrainian-Moldovan frontier. It cannot be ruled out that Kyiv's new customs rules for Transdniester are a direct result of the mission's findings.

The international community has long been worried by speculation about weapons and drugs smuggling across the porous Ukrainian-Transdniestrian border. While such rumors have never been confirmed, there is ample evidence that smuggling of other commodities and transit-related swindles are rife there.

These practices apparently benefit not only Transdniester, but also people on the other side of the border as well. Transdniester leader Smirnov suggested as much on March 6, when he called on Kyiv to reconsider its new customs controls.

"We urge Ukraine to assess the political consequences of this decision and prevent a large-scale social and economic catastrophe, which will also affect hundreds of thousands of Ukrainian citizens," Smirnov said.

It is not clear what exactly Smirnov had in mind, but it is likely that he was referring to a trade scheme in which shipments of Ukrainian goods in the port of Odesa are declared as being bound for Transdniester and not taxed in Ukraine. Transdniestrian authorities then confirm receipt, but then often reroute the goods back to Ukraine -- a strategy that earns big profits for Ukrainian trade operators and their Transdniestrian partners.

So why has Kyiv decided to put a stop to illegal transit from Transdniester?

One of the reasons seems to be Ukrainian President Viktor Yushchenko's ambition for his country to join the World Trade Organization (WTO) as soon as this year. On March 6, his government made a significant step forward in this regard by signing a protocol on mutual access to commodity and services markets with the United States.

On March 8, Kyiv scored an additional victory when the U.S. House of Representatives passed a bill permanently exempting Ukraine from trade restrictions imposed under the 1974 Jackson-Vanik amendment, which ties trade status to the rights of Jews to emigrate.

Moldova has been a WTO member since 2001. Chisinau may have suggested to Kyiv that Moldova would give a final "yes" to Ukrainian accession to the WTO only once Yushchenko took steps to halt Transdniestrian transit to Russia.

The second reason may be the upcoming parliamentary elections in Ukraine on March 26, in which forces backing Yushchenko are facing not only his old pro-Russian rival, former Premier Viktor Yanukovych, but also his erstwhile ally, former Premier Yuliya Tymoshenko.

Tymoshenko has repeatedly slammed Yushchenko for yielding to pressure from Moscow and accepting a higher price for gas supplies in 2006. It is not unlikely that, by taking a tough stance on the Russia-backed Transdniestrian regime, Yushchenko is trying to reclaim his reputation as a firm leader and win back as many nationalist-minded voters from Tymoshenko as possible.

Whatever the real motives behind Kyiv's latest move regarding Transdniester, the new customs controls have obviously hit Tiraspol hard and taken the secessionist regime by surprise. Transdniestrian leader Smirnov could apparently find no strong threats to level in response to the move other than to announce that Transdniester will withdraw from the internationally mediated talks on the settlement of its conflict with Moldova.

"Under these conditions, all negotiations are called off," Smirnov said. "Besides, Ukraine is becoming the main tool in helping Moldova reach its political [aims]."

But as with many times in the past, it seems that it is Moscow -- and not Tiraspol or anyone else -- that will eventually decide whether Transdniester is to continue talks, and with whom.

...WHILE POLAND PREFERS NATO. Polish President Lech Kaczynski said in Berlin on March 8 that he wants the EU and NATO to conclude a joint energy pact aimed at easing many European countries' dependence on Russian gas supplies and providing security if Russia's Gazprom again withholds deliveries as a form of political or economic pressure, as it recently did in the case of Ukraine, the "Frankfurter Allgemeine Zeitung" reported (see "RFE/RL Newsline," January 20 and February 10, 2006). The daily also noted that Kaczynski found few takers for his idea in the German capital. Chancellor Angela Merkel remains firmly committed to the controversial North European Gas Pipeline (NEGP) project, which would transport Russian gas under the waters of the Baltic Sea from Vyborg to the German coast. Merkel's support comes despite opposition from Poland and the Baltic states and the Ukrainian gas crisis (see "RFE/RL Newsline," December 12, 2005 and January 4, 2006). Reflecting the views of many in the German policy community, historian Thomas Urban wrote in Munich's "Sueddeutsche Zeitung" that the new Polish government's attitude towards its neighbors is uniquely "provincial" among EU states and rooted in the past. PM


RFE/RL Belarus, Ukraine, and Moldova Report Vol. 8, No. 9, 9 March 2006

A Survey of Developments in Belarus, Ukraine, and Moldova by the Regional Specialists of RFE/RL's Newsline Team.

THE HARD ROAD AWAY FROM PRESIDENTIAL RULE. Two diverging political trends have emerged over the past five years in the Commonwealth of Independent States (CIS). In the first group of countries, comprising the five Central Asian states and Belarus, incumbent presidents already serving their second term have instigated referendums with the aim of extending their rule for one or more additional terms. Other CIS states, including Moldova, Ukraine, and Armenia, have set about curbing presidential powers through constitutional reforms. Proponents of parliamentarism emphasize its greater potential for democratization and emphasize the potentially authoritarian character of presidentialism.

Yet whatever the official justification for these democratic reforms, basically they reflected bitter power struggles among political elites. In all three cases, the bulk of the bargaining was conducted behind the scenes, with little or no effort made to explain the essence of such important constitutional changes to the public. The Armenian opposition launched a vocal campaign urging voters to boycott the November 2005 referendum on constitutional changes, arguing that the amendments did not do enough to curb the president's powers, and they subsequently rejected as rigged official claims of 65 percent turnout, with 93 percent of participants endorsing the proposed changes. President Robert Kocharian's opponents fear that he plans to use the reform to remain at the peak of Armenian politics beyond 2008, when his second presidential term expires, by assuming the post of prime minister. It is speculated that Russian President Vladimir Putin too may favor a transition to parliamentary rule in order to remain in power as the head of the cabinet after his second presidential term ends in 2008.

These constitutional changes determine the official rules of the political game, and, therefore, are vital to mitigating conflicts among ruling elites. To that end, the implementation of the new rules counts more than the debates surrounding their design. With a parliamentary republic in place since March 2001, Moldova offers an indication of how things might develop in Armenia and Ukraine.

The Moldovan parliament approved a reform bill by an overwhelming majority (98 votes to 2) in July 2000. The reform aimed at dampening the political aspirations of then President Petru Lucinschi to introduce a super-presidentialist system along the model established in Russia by Boris Yeltsin. According to Lucinschi, such magnified presidential powers were a necessary precondition for successfully carrying out enduring economic reforms.

By contrast, his most vocal opponents, including Party of Moldovan Communists (PCM) leader Vladimir Voronin, insisted parliamentary rule would distinguish Moldova from the authoritarian regimes of Central Asian and set it on a solid path toward European-style democracy. In addition, the proposed reform abolished direct presidential elections, thus significantly reducing the legitimacy of future heads of state.

But following a landslide victory in the February 2001 parliamentary elections, it was PCM chief Voronin who obtained the leverage to interpret and implement the constitutional reform. Voronin could have chosen either of the two most influential positions under the parliamentary republic -- parliamentary speaker or prime minister. Instead, he preferred to serve as president, albeit with a much more powerful mandate than his constitutionally reserved ceremonial role.

Given the popular prestige of the presidency and a lingering Soviet legacy for strong executives, Voronin's choice was not unexpected. In addition, he managed to retain his position as PCM chairman by skillfully exploiting a gap in the reform design, namely the absence of a clear constitutional ban on the president simultaneously holding two positions. A proposal floated by PCM officials in the summer of 2001 to have Voronin take over the premiership on top of his presidential function never saw the light of the day. In fact, the dual executive system was established to use the cabinet as a scapegoat for potential policy failures.

The issue of a politicized presidency rose to the top of the country's political agenda in the wake of the parliamentary elections of March 6, 2005, when in exchange for voting in favor of Voronin's reelection as president, several political parties agreed one month later to depoliticize the position of the head of state. Also, the PCM pledged to abandon its communist orthodoxy and join the mainstream of modern European leftist parties.

With a communist-majority government and a multiparty presidential coalition, Moldova's parliamentary republic continues to function as it did during the communists' first term in power (2001-05). And almost a year after the assurances given to the opposition, Voronin is still PCM chairman. Nor are there any signs that the party's name will be changed in the near future. Voronin intends to control both the process of modernizing the PCM and the timing of his resignation as party chairman in order not to jeopardize the Communists' success at the ballot box in the local and parliamentary elections due in 2007 and 2009, respectively.

But while reform of the PCM might well be an internal party affair, the depolitization of the presidency is not. It deals with the constitutional rules of the political game and affects both the government and opposition players alike. In November 2005, the leaders of the Democratic Party (PD) and Social Liberal Party (PSL), Dumitru Diakov and Oleg Serebrian, who backed Voronin's reelection, publicly accused the president of reneging on his promise to step down as party chief. The PSL leader went even further, calling for the president's impeachment.

Although the PSL lacks the institutional means to carry out this initiative (the votes of two-thirds out of the country's 101 lawmakers are required to impeach the president, while there are currently only 11 PSL and PD deputies), it is an important symbolic move from the so-called "constructivist opposition." These developments show that depoliticizing the presidency could become the most explosive political issue of the communists' second term in power.

Of course, only a constitutional amendment could bridge this legal gap. Even if such a proposal is not currently on the table, Voronin's official relinquishing of his chairmanship post might strengthen, rather than weaken, the PCM. The Moldovan president could follow the example of his Romanian counterpart, Traian Basescu. Although Basescu gave up the leadership of the Democratic Party (PD) after winning a presidential election in December 2004, he remains an influential behind-the-scenes actor in PD affairs. In addition, an unofficial role for Voronin would conform perfectly to the Byzantine character of present-day Moldovan politics.

In addition, by abandoning the post of PCM chairman, Voronin would deprive critics from within the sultanistic regime of Transdniester separatist leader Igor Smirnov of any pretext to accuse him of authoritarianism. A consolidated democracy is not only a precondition for the reunification of the country with its rebellious Transdniester region, but also for Moldova's efforts to integrate into the European Union.

Although a similar reform has been in effect for two months in Ukraine, its effects remain inconclusive. The current standoff between the Verkhovna Rada and President Viktor Yushchenko will subside after next month's parliamentary elections only if the president manages to reassemble a strong Orange coalition capable of winning a majority. Despite the procedural irregularities associated with deciding the reform's design before the critical third round of voting in December 2004, Ukrainian democracy would be better served if it is implemented without significant revision. That would make the Ukrainian political process more transparent and help make the democratic aspirations of millions of Ukrainians who unequivocally supported Yushchenko during the Orange Revolution a reality.

It is clear from the Moldovan experience that the transition to parliamentary rule is a very complicated political process. Because the rules of the political game remain fluid, politicians tailor them to promote partisan agendas, meaning that democratic advancement is often sacrificed for political stability. However, curtailing the power of a strong executive is a decisive step in the right direction. Had this process been launched after the first wave of reforms in the mid-1990s, some CIS countries, including Moldova, would be further down the path of democratic consolidation today. (Ilian Cashu)

(Ilian Cashu is a doctoral candidate in political science at Syracuse University.)

THE BELARUSIAN ECONOMIC MODEL: A 21ST CENTURY SOCIALISM? The "Belarusian economic model" seems to defy economic theory. An economy entirely consisting of the old, unreformed Soviet industrial base, manages to churn out high single digit growth in gross domestic product (GDP), provides guaranteed monthly income and full, if not always full-time, employment, even as it remains in a state of complete isolation from the modern world. It is this model that causes Belarusians to feel fearful of changes that may unleash a chaos, criminality, and suffering associated with reforms in Russia and Ukraine -- the reference countries for the average Belarusian.

The model is based on three foundations: a favorable valuation of Russian energy, efficient internal controls, and supply-side problems that beset the rest of the former USSR, where most Belarusian output is exported.

Russia charges Belarus $47 per 1,000 cubic meters of gas and $27 per barrel of oil compared to world prices of $230 and $60, respectively. For a country consuming about 20 billion cubic meters of gas per year and 250,000 barrels of oil per day this amounts to direct fiscal support of $6.6 billion annually. Besides consuming oil for its own needs, Belarus is also reselling it in the form of refined products processed at the two refineries whose capacity far exceeds the country's internal needs. Statistics confirm that the country imports about 100,000 barrels a day more than it consumes.

The overall usage of oil began to increase from 2002, the time of the first jump in oil prices, and has continued upward since. According to a study by Belarusian economic expert Leanid Zaika, in 2005 the share of Belarusian exports to Russia and the Commonwealth of Independent States was only 45 percent, compared to the stable 80 percent in the preceding decade. The main user of Belarusian exports (36 percent) is now Europe, by way of buying refined petroleum. Purchased at $27 and sold at $60, this petroleum yields 100 percent profits, or $1.3 billion a year of not even a subsidy, but pure disposable income to the state.

The total effect of the energy price discount amounts to over $7 billion a year, or 30 percent of the nation's GDP. This is a staggering proportion -- even in the United Arab Emirates this share is under 10 percent -- but is it really a subsidy? President Vladimir Putin of Russia thinks so. Marshall Goldman, a Harvard economist, quotes him as affirming the use of energy subsidies for political influence in the near abroad. President Alyaksandr Lukashenka of Belarus disagrees. "The notion that I am supported by the Kremlin is absolutely absurd," he stated earlier this year. According to him, the discount on the Russian fuel is really a barter payment for transit through Belarus, for which Russia nominally pays very little.

Simple arithmetic can check this hypothesis: the $183 per 1,000 cubic meters that Russia loses by selling gas to Belarus equals a transit charge of $18 per 1,000 cubic meters per 100 kilometers. The European average is $2.5. So, by bartering $183 away from the price they could charge, the Russians effectively pay Lukashenka seven times the European average cost of gas transportation. Figures for oil are not readily available, but it is reasonable to expect a comparable valuation.

Whether this is a fair deal is in the eyes of the beholder, but it is the valuation on which the entire Belarusian economy is based. It supports the second main feature of the Belarusian model -- its relatively effective management. Lukashenka, who portrays himself as an anticapitalist crusader, is in fact the country's chief businessman. He presides over a company that has reached the scale of a nation. Almost all Belarusians work for the state enterprise, run by the "vertical," a hierarchy of administrators appointed by the president. This state-owned corporation, Belarus Inc., is a multiline conglomerate with revenues of about $25 billion that would place it in the top segment of the Fortune 500 list. It employs over 4 million workers and controls the services, health-care, and education sectors.

While controls disintegrated in Russia and Ukraine, in Belarus they were preserved and even improved by introduction of the vertical and appointment of the personally loyal corps. As Zaika points out, for some time this created a competitive advantage -- while the dilapidated Russian competitors went through catastrophic reforms, their output fell, creating a gap in supply of low-quality, cheap goods, which Belarusian enterprises were able to fill. Exports to Russia were stable throughout most of the Lukashenka reign, helped in part by an arrangement that some payment for Russian energy comes in the form of Belarusian products.

Two significant risks threaten this model. First, is the risk of a repricing of the energy valuation if Russia gains a controlling stake in Beltranshaz, Belarus's gas-transport company. Deprived of its transit monopoly, Belarus would lose a key bargaining advantage and could be forced to pay higher rates. In practice, however, the current valuation is likely to continue, as political considerations will likely prevail as long as Belarusian policies remain in the Russian wake. Even so, Lukashenka has made statements implying that he fully understands his dependency on Russian energy and is seeking solutions with nuclear reactors and more frugal energy use.

A greater risk comes from within the system. In the 12 years of Lukashenka rule there has been no investment to modernize the 1950s asset base that is now 80 percent worn out. The oil windfall of recent years has been spent, not invested in the future. In the meantime, Russian competitors are beginning to gather fruits of the painful restructuring, and foreign competitors produce in low-cost locales. This is beginning to show in the numbers -- Zaika's study cites 2005 decreases between 10 percent and 70 percent in key Belarusian exports to Russia, and inventories of unsold products are growing. As the industrial output declines, the Belarusian GDP relies increasingly on refining Russian oil for speculation.

This opens the future for several scenarios. One could be called "Singaporization." Lee Kwan Yu ruled Singapore for 30 years as a dictator but he also opened the country up for trade, welcomed foreign investors, guaranteed their rights, and achieved the level of living that surpassed that of Britain by using a mix of market economy and state planning. The Belarusian regime is well positioned to do the same, more likely seeking partners in the East than in the West, but its insecurity about foreign investors and bad reputation may impede this scenario.

Another scenario is a complete change of power. Besides being unlikely, it also poses the danger of energy repricing, as in Ukraine. The disintegration of internal controls that scenario would provoke could mean a delayed period of chaos and potential return to populism.

Finally, conserving the current arrangement is also possible, as long as Russia does not challenge the status quo in exchange for political subservience. This would not remove the problem of the worn-out assets and obsolete technologies, but it seems to be the bet the Belarusian president is making at the moment. (Siarhej Karol)

Siarhej Karol, a chartered financial analyst, is a financial manager at American International Group (AIG), a global financial services company.

"RFE/RL Belarus, Ukraine, and Moldova Report" is prepared by Jan Maksymiuk on the basis of a variety of sources including reporting by "RFE/RL Newsline" and RFE/RL's broadcast services. It is distributed every Tuesday.