Power: “All the king’s men”
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- The problem of individuals in light of the elections
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- ON FOREIGN INVESTMENTS IN UKRAINE
- Foreign investments
Power: “All the king’s men”
In the consciousness of the masses there lives a fairly primitive (and
hence extremely viable) stereotype, which has grown up in the conditions
of post-totalitarian reality: that “democracy” equals disorder, econom ic chaos
and political impotence. This implies, of course, that for the past 2-3 years
Ukraine has been living in conditions of democracy and a new, democratic
order. This stereotype is nourished by another, the special “n o p a sa ra n !" of
real democrats who constantly issue warnings about the possibility of the
Communists returning to power. But in reality, this stereotype has little in
common with the facts of the situation. The Communists never lost real
power, so there is no sense in talking about the existence of democracy.
It is obvious that in the past 4-5 years a second echelon o f the party
n o m en k la tu ra
came to power in Ukraine, replacing the Communist top
brass discredited by the failed Moscow coup o f August 1991- There has
been no qualitative change in the powers-that-be, they have simply adapted
to new circumstances. The most obvious example of this is the figure of
President Leonid Kravchuk himself. In the past he was the ideological secre-
Dr. Heorhii K asian ov is a Senior Research Fellow at the Institute o f U krainian History o f the
A cadem y o f Sciences o f Ukraine. He is the a u th o r o ffo u r m onographs.
THE UKRAINIAN REVIEW
tary of the Central Committee of the Communist Party o f Ukraine. Under the
conditions of Gorbachev’s "démocratisation” drive, his post necessitated
communication with the opposition, which gave him invaluable information
and the chance of switching sides at the right moment. He took on board
the ideas which the opposition propounded, including their principal tenet
— the idea of an independent Ukrainian state. Kravchuk was supported by
that section o f the party n o m e n k la tu r a in place, w h ich .also saw their
chance and believed that Kravchuk as president of an independent state
would do more for them than as First Secretary of the Central Committee.
Leonid Kravchuk and his “king’s men” came to power by making use of
the fall of their superiors, the ideas of the national-democrats and national
ists and the growth of decentralising tendencies in the USSR.
This new edition of “national-Communism”, which is without any moral
content, is explained by essentially rational motives and reasons, the striving
of a certain section of the n om en klatu ra to preserve and expand the only
extremely valuable possession it had — power. The paradox lies not in the
lightning evolution of the Communists into nationalists (in the best sense of
the latter term). The paradox lies in that the national-neophytes from the party
offices were of their very nature simply incapable of making use of power
even to strengthen their position. The structure o f power and its component
parts and carriers remained as of old, but the tasks which faced and continue
to face this power-system are new. Moreover, one must not forget that the
selection of the n o m en k la tu ra in Ukraine was based on training cadres,
essentially to carry out orders and directives from the centre. As a result the
present-day power structures consist essentially of “bureaucratic robots” who
are simply incapable of producing and implementing qualitatively new ideas
(as already stated, even to preserve their power alien slogans had to be used,
against which in their time this bureaucracy had waged an implacable war).
The result was a singular stupor of the authorities, their progressive degener
ation and growing imbalance of their structures. On the surface this has become
apparent in what is termed the conflict between the “branches of power”, the
decentralisation of power structures, and an unprecedented scale of corruption.
Vertical structures of power used to work on the principle: Central Committee
— provincial committee — district committee — local committee. After the col
lapse of this system the place of the party committees was taken by councils of
people’s deputies, which were simultaneously (essentially formally) horizontal
power structures. In the conditions of single-party centralism the councils had
always played a secondary role — basically carrying out orders. Thus, in the
new conditions they likewise appeared capable only of maintaining the status
quo. Attempts by the President to repair the activities of the vertical power
structures through the institution of representatives and administrations had only
the slightest effect, and moreover met with opposition from the councils. The
result was that the power structures were paralysed, and the decisions of the
centre sabotaged and ignored at the local level. The powers that be are inca
pable of reforming themselves even in the interests of self-preservation.
In these conditions the power vacuum is filled by provincial and district
structures. This is where the real power is concentrated. At the level of the
provinces and districts function strange mutual interest groups (which the
people for a long time now have been calling the mafia), which include key
figures from the local councils, the militia, procurator’s offices, the corps of
directors, trade middlemen, people from the cooperatives, collective farm
heads, and so on. These mutual interest groups operate at present on the
principle of self-preservation and all possess the means of manipulating mate
rial values, which in today’s conditions means manipulating power. They all
play a major, if not decisive, behind-the-scenes role in the elections. They
have long since now established an organised lobby in Parliament and they
have real opportunities to preserve and even strengthen their own positions.
With them holding such positions any president and any government with the
most progressive programmes will have unbelievable difficulties in bringing
about reform. To deprive such groups of the opportunity of really influencing
socio-political life requires a substantial reform of the authorities, a new elec
toral law, and a new Constitution. As events in Russia have shown, there are
those in that country who are incapable of handing over power by peaceful,
constitutional means. Will Ukraine find her own Yeltsin?
The problem of individuals in light of the elections
The two-year tenure of Leonid Kravchuk as President has demonstrated, it
seems, three fundamental characteristics of this politician: his fantastic abili
ties to manoeuvre, a no less remarkable adherence to an undetermined
position and a lack of political will on decisive moments in the development
of events. Kravchuk had several favourable moments for starting the process
of reform: after the independence referendum of December 1991, using the
raising of public consciousness and the results of the presidential election,
he could have exploited the situation and taken the initiative in introducing
a package of radical economic and political changes; second — during the
crisis of the Fokin government (summer-autumn 1992); third — after the dis
crediting o f the Pynzenyk reforms (autumn 1993). In the first instance
Kravchuk simply was not ready morally and organisationally, in the others
— he had insufficient political will and was let down by the tactics of bal
ancing between the “party in power” and the “opposition”. One has the
impression that the era of Kravchuk-type politicians is over.
The problem here is not simply of Kravchuk’s personality. To a far greater
extent it is bound up in the lack of real choices. The circle of individuals, who
hypothetically could compete against the current President, is very narrow,
which is a programme for confusing the electorate and a corresponding passivi
ty of the voters, and which increases the danger of someone getting elected by
accident. Possible contenders in the presidential elections may be Vyacheslav
Chornovil (Rukh), Leonid Kuchma (backed by the industrial sector of southern
and eastern Ukraine), Ivan Plyushch (collective farm -directors’ lobby),
THE UKRAINIAN REVIEW
Volodymyr I Iryniov (“new wave” businessmen and New Ukraine), and Ihor
Yukhnovskyi (backed by a certain section of businessmen and technocrats). Of
course, other candidates may well emerge, but their range of variation will once
again be limited to circles close to Lhc existing power structures.
Moreover, choice is limited by the fact that the majority o f presidential
candidates will undoubtedly have very similar platforms. Hence the choice
will lie not so much between what the candidates offer, as their personali
ties. In such a situation the candidate who can rely on an existing power
structure has the better chance and far wider opportunities for publicity
which once again raises the rating of the “party in power”.
It is worth noting another characteristic of the Ukrainian electorate which
became manifest during the last elections in 1990. It may be easily observed
that among a significant proportion of the voters political figures arc espe
cially popular where personal characteristics can be summed up in the term
“substantial”. Thus, during the last presidential elections 1991, Chornovil,
thin, quick-moving, lively, sarcastic, and sometimes with a note of hysteria
was destined for defeat in comparison with the well-fed, unhurrying, ever
placid, well-dressed Kravchuk. Apart from this, greater success will go to the
candidate who bases his campaign on populist slogans, and not in the last
resort — on the mood of levelling-down which has grown considerably due
to the impoverishment of a significant section of the population and the
rapid polarisation of standards of living.
Hence these presidential elections arc merely the second act of the politi
cal tragicomedy which the “parliament” of Ukraine, in deciding on new
elections, is presenting to the world audience. The first act will be the elec
tions to the Supreme Council, where the main rivalry will be between politi
cal parties. There is no doubt that the outcome of the presidential elections
will be largely determined at this stage.
The number of political parlies which are officially registered by the slate
organs of Ukraine now totals about thirty. At least two-thirds of these parlies
have no perceptible influence in political life. The majority of them function
only at a regional level. Their material resources are meagre, membership
sometimes does not exceed one hundred, and they have no printed organs.
Thus the real struggle will lie among some ten parlies and political
groups. The course of the contest will depend to a large degree on the type
of electoral system which will determine whether these parties form elec
toral blocs or whether, on the contrary, their rivalry becomes sharper.
The political spectrum, exhibited by the current parties and citizens’ asso
cia tio n s o f U kraine is fairly b road — from o rth o d o x C om m unists
(Communist Party of Ukraine) and “moderate” Communists (Socialist Parly)
"^tionalisls (moderate — the Congress of Ukrainian Nationalists, and ultra
— the Ukrainian National Assembly and the micro-formations of the type of
the Social-National Parly). Between these poles lie the parties of a national-
dem ocratic orientation (D em ocratic Party o f Ukraine, Rukh, Ukrainian
Republican Party, etc.), and the ecological movement (the “Green” Party).
In the fight for a place in the new Supreme Council the main problem for
the parties will be to develop a clear-cut platform with the emphases on
socio-economic questions. Parties which adopt as their basic line the strength
ening of stale sovereignly will have little chance of success. It should be
observed that here the problem is not one of defining the range o f socio-eco
nomic questions and offering solutions for them, but of having in their plat
forms salient features which differ from the platforms of other parties, 'and
making them comprehensible to the voters. In a situation when a consider
able number of electoral platforms will be similar, the advantages will all be
on the side of those parties which offer simple and speedy solutions to diffi
cult problems. Support is also likely to increase for parties which advocate
state-protectionist social principles, first and foremost the Socialist Party,
which is making the greatest play with the ideas of social security for the pop
ulation, and demonstrating notable examples of political demagogy.
No less difficult for the various parties is the problem of putting their pro
grammes over to the public in the face of a growing indifference to politics
among the majority of the population of Ukraine. As numerous public opinion
polls have shown, a considerable number of voters base their views not on the
platform of the party, but on its name and its leader. The following semi-anec-
dolal incident is revealing here: in June 1993 in a public opinion poll, carried
out by the “Democratic initiatives” centre, the “Party of Order and Justice”
picked up a fairly large percentage of popular support, beating the Ukrainian
Republican Party, the Socialist Party, the Party for the Democratic Rebirth of
Ukraine, and several others. Yet the “Party of Order and Justice” did not exist
at all — but had simply been invented for the occasion by the pollsters.
Assessing the party orientation of the population in general, it becomes
noticeable that at present it is the national-democratic groups which enjoy
the greatest popularity, first and foremost due to the merger of national-state
and democratic postulates in their platforms. However, one cannot rely on
this “credit of confidence” being infinite. It is simply a symptom o f the iner
tia of processes connected with the downfall of the Communist Party and
the emergence of Ukraine into the ranks of independent states. Without a
constructive socio-economic platform it will be difficult to hold this position.
Unfortunately, the national-democrats and their allies have shown little sign
of being able to develop such a platform — and their opponents from the
camp of the left exploit this fact. The electoral campaign frequently becomes
simply an attempt to blacken the image of the Communists (demands for
the Communist Party to be put on trial, commemoration of the 60th anniver
sary o f the famine, etc.) at the time when in any case this image — in public
opinion generally — is extremely repugnant.
At the present moment, according to the sociological observations of the
Institute of Strategic Studies (in Ukraine), the most popular parties are the
THE UKRAINIAN REVIEW
economics and politics: political decisions are often taken without regard for
economic realities and which accordingly deteriorate even further.
Quite naturally parasitic economic structures flourish in these conditions
o f econom ic crisis. Middleman firms, the bureaucracy of the econom ic-
administrative structures, and racketeers get rich at fantastic speeds. The
production sector of the economy is declining and the fiscal policy of suc
cessive governments has hastened this decline. This has its own social con
sequences, particularly in the sphere of the division of labour: the cream of
the work-force and intellectuals are drifting into the non-productive spheres.
A whole social class of “get-rich-quickies” is growing up, set on putting its
fairly large capital not into increasing productivity or even the middleman
network (for which there simply are no conditions in today’s Ukraine), but
into luxury goods, real estate, or simply converts it into stable currency in
Western banks. This leads to a necrosis of the capital which should be
employed to establish market relations in Ukraine. The private sector, which
would be narrow and deformed even without this trend, is thus acquiring
even more deformities and lives for today, with no thought for the future.
This creates built-in difficulties of implementing market reforms and accord
ingly poses a threat to the democratic order in Ukraine for the future.
In general the social consequences of this lack of reform activity on the
part of the authorities are ruinous. In September 1993, for example, 70% of
those polled in Kyiv stated that they live below the officially established “aver
age” level of consumption, and this can be extrapolated to the whole popula
tion of Ukraine. It is pensioners, employees of state enterprises, and the intel
ligentsia who suffer the most from the collapse of the economy. A lumpenisa-
tion of entire social strata is taking place with the simultaneous appearance of
a small stratum of people quite wealthy even by Western standards. What we
may conveniently term the “middle class” (which would in any case be micro
scopic) is being catastrophically reduced even further. The structure of society
is being destabilised. One cannot avoid noting also the demographic conse
quences: for the third year the death rate in Ukraine exceeds the birth rate,
and there is a sharp rise in the number of divorces, which means the destruc
tion of the fundamental unit of society — the family.
Looking at these problems through the prism of the elections, it becomes
utterly obvious that the majority of voters will be drawn towards those
politicians and parties which promise first and foremost socio-economic sta
bility. Understandably, people of all political views will do that, but it is the
politicians of the socialist-Communist camp, who traditionally base their
support on the socially depressed classes, who stand to gain the most. And
the weighting of the said classes in Ukraine is steadily growing.
Ukraine in the run-up to the elections faces a difficult package of socio
economic, political, cultural and moral problems. The choice will favour
whoever can offer the best solution. And this is a matter for the political far
sightedness of politicians, their ability to adjust to a rapidly changing situa
tion, and finally their organisational skills. The future depends on us?
ON FOREIGN INVESTMENTS IN UKRAINE
The legal framework for economic activities of foreign nationals and legal
persons in Ukraine including those in the field of foreign investments is pro
vided by a number of legal instruments. These include laws and resolutions
of the Supreme Council of Ukraine, decrees adopted both by the President
of Ukraine and the Council of Ministers of Ukraine; the rules established by
the National Bank of Ukraine and international agreem ents to which
Ukraine is a party, which are in force on the territory of Ukraine. The most
important of these documents (more than 50 in all) came into force at the
beginning o f the 1990s and to a considerable extent are linked to the
process of legal reforms in the country and the consolidation of her interna
The fundamental act regarding foreign investments which is currently in force
in Ukraine is the Decree of the Cabinet of Ministers “On the Rules for Foreign
Investments”, which was drafted in close cooperation with Western experts.
This decree took effect from 20 May 1993.1 It reorganised the whole
mechanism of legal regulation in the field, reducing the volume of the rele
vant legislation. For once it came into force any legal instrument issued prior
to it remained valid only if it did not contradict the provisions of the new
decree and only insofar as it referred to matters not dealt with by the latter.
The enactment of the decree abrogated the Law on Foreign Investments
passed by the Supreme Council of Ukraine only one year earlier.2 At the
time, this law had been considered by many scholars and businessmen as a
new step forward towards modernising and liberalising the then-existing
rules on foreign investments, since it tried to meet the demands of foreign
investors as much as possible. So its abrogation was not universally wel
come, particularly since the decree repealed, inter alia, Art. 9 of the previ
ous Law which stated that “the legislation in effect at the time o f registration
o f the foreign investment shall continue to apply to the investment for a
Viktor Mouraviov, a lawyer, holds a doctorate in law from Kyiv University. He is an Assistant
Professor at Kyiv University's Ukrainian Institute of International Relations.
1 Decree on the Regime of Foreign Investments, 20 May 1993, in Holos Ukrayiny, 12 June
2 Law on Foreign Investments, 11 March 1992, in Russia a n d Comm onwealth Business Law
vol. 3, no. 3 (19921.
THE UKRAINIAN REVIEW
period o f 10 years”. Thus, the decree has encroached on the principle of
legal security which is one of the fundamental conditions for a favourable
climate for foreign economic activity in Ukraine.
However, the adoption of the decree was not simply a symptom of an
itch for lawmaking on the part o f the Ukrainian government. Rather it
reflects a trend towards a more balanced and sober approach to the regula
tion of foreign economic activity in the country.
On the one hand, the decree preserved in the main all the major privi
leges for foreign investors. On the other, it reflects an attempt to separate
the majority of foreign investors (legal and natural persons) who are keen
on long-term and mutually beneficial cooperation with the Ukrainian author
ities, from those who have invested practically nothing (from 7 to several
hundred dollars) in Ukraine but who nevertheless enjoy the existing privi
leges and guarantees for foreign investors as a whole and who try to evade
the Ukrainian tax legislation.3
This differentiation has been achieved by introducing the concept of
“qualified investment". This encom passes foreign intellectual property,
know-how, high-tech, sophisticated equipment, etc., and creates preferential
conditions for transferring them to Ukraine in comparison with the other
kinds of foreign investments discussed below.
Effective implementation of the decree is ensured by the appropriate pro
visions of the Civil Code, the Law on Free Economic Zones, the Law on
Entrepreneurship, the Law on Investment Activity, the Labour Code, the Law
on Land, the tax laws, the legal acts on currency regulations, etc.
The decree includes a fairly broad list of groups of potential foreign
investors who can benefit from the privileges it accords. These comprise
legal persons established in accordance with laws other than those of
Ukraine, physical persons who do not reside permanently on the territory of
Ukraine; foreign states; international governmental and non-governmental
organisations; other foreign entities engaged in business activity and defined
as such by Ukrainian legislation (Art. 1.1). It follows from the meaning given
to these terms that even those citizens of Ukraine who do not reside perma
nently in the country can be considered as foreign investors.
The decree defines foreign investments as all forms o f value directly
invested by foreign investors in enterprises or other forms of commercial
activity in accordance with Ukrainian legislation (Art. 1.2).
Enterprises with foreign investments are defined by the decree as any
legal form of enterprise established in compliance with Ukrainian law in
which during a given calendar year a foreign investor has a qualified foreign
investment as a share in the declared authorised capital.
The term "qualified foreign investment” encompasses several major con
cepts. First of all any such investment should amount to no less than 20 per 3
3 See Uryadovyi Kuryer (Kyiv), no. 87, 12 June 1993, p. 5.
cent of the declared authorised capital of the enterprise. At the same time
such investment should be no less than US $100,000 for banks and other
financial institutions and US $50,000 for other enterprises if it takes the form
of movable or immovable property (excluding goods intended for sale) and
any property rights assigned thereto; any form of intellectual property the
hard currency value of which is established in accordance with laws of the
country o f the investor or international commercial usages; and the right to
carry out commercial activities.
If a qualified foreign investment is in one of the other forms, mentioned in
the decree, such as foreign currency, Ukrainian currency in the case of rein
vestment stocks, bonds and other commercial instruments, monetary claims or
the right to claim against the fulfilment of contractual obligations confirmed by
an established bank and having a value in hard currency etc., it should be at
least US $1,000,000 for banks and US $500,000 for enterprises (Art 1.3).
It should be noted with respect to certain provisions of the decree that
the inclusion in the forms of foreign investments of know-how, patents,
trademarks, company names, author’s rights etc. may cause some problems
regarding repatriation of capital, due to possible complications in the assess
ment of their value within the total volume of investment.
All the above forms of investment, irrespective of whether or not they are
“qualified”, may be realised by foreign investors by means of ownership
shares in joint ventures with Ukrainian legal and physical persons; the estab
lishment of enterprises wholly owned by foreign investors; the acquisition of
property; the acquisition o f land-use rights or concessions for the exploita
tion of national resources, etc. The only restriction is that these forms and
methods of foreign investment should not be directly prohibited by the law
of Ukraine currently in force (Art. 4).
The same applies to foreign investment in Ukraine. The decree itself does
not contain any special provision for this. It may be interpreted to mean that
such activities may also include non-commercial ones such as, e.g., health
protection. At the same time there are certain areas and objects in which the
freedom of investments is restricted by other legislative acts o f Ukraine.
Thus, one cannot invest in projects which contravene environmental protec
tion standards (Art. 51 o f the Law on the P rotection o f the Natural
Environment),4 5 or in the production of goods for which special licenses
have to be obtained in advance, such as drugs, arms, etc. unless and until
such a license is granted (Art. 4 of the Law on Entrepreneurship).5
One of the most important sections of the decree is that dealing with the
various privileges and guarantees for foreign investors. Here too the decree
draws a distinction between qualified foreign investments and others.
4 Law on the Protection of Natural Environment, 25 June 1991, in United N ations E conom ic
Comm ission f o r Europe.
5 Law on Entrepreneurship, 7 February 1991, in Russia a n d Com m onwealth Business Law
vol. 2, no. 13 [19911-
THE UKRAINIAN REVIEW
According to Art. 31-4 of the decree an enterprise with qualified foreign
investment shall be exempt from income tax for 5 years. However, income
gained from organising lotteries; renting premises and leasing certain kinds of
property; auctioning certain kinds of property, gambling houses; video salons;
concerts in stadiums, sport palaces, etc. enjoy no such tax exemptions.
The other condition governing the aforesaid tax privileges states that qualified
foreign investment shall not be withdrawn from a joint venture during its amorti
sation period nor before the end of the grace period for taxation (Art. 31.3).
One important practical issue which has not yet been decided is the point
from which the grace period for exemption from income tax for an enterprise
with qualified foreign investment should be reckoned. According to the
decree it should start from the moment when qualified foreign investment is
put in (Art. 31.4). On the other hand Art. 1.3 defines an enterprise with quali
fied foreign investment as that which has qualified foreign investment as a
share in its declared authorised capital during a calendar year. The question
arises whether the starting point for a grace year includes that part of a calen
dar year before the qualified foreign investment is put in or only the part o f it
thereafter. This clearly affects the fixing of the end of the grace period.
Unfortunately, the competent Ukrainian authorities have not yet given a
clear-cut answer to this question.
In order to encourage small business activity in Ukraine some special privi
leges are granted for small enterprises if the share of the foreign investor in
the declared authorised capital lies between US $10,000 and US $50,000 (Art.
32). They enjoy the same tax privileges as enterprises with qualified foreign
investment. However the grace period lasts only one year in this case.
As far as other privileges and guarantees envisaged in the decree are con
cerned, they are granted to all enterprises with foreign investments irrespec
tive o f the share held by the foreign investor. Some exceptions are envis
aged in the decree itself, others follow from other Ukrainian legislation or
from international agreements. In the latter case, if an international agree
ment in force in Ukraine embodies rights other than those set forth in the
legislative acts of Ukraine then the provisions of the said international agree
ment take precedence.
Additional privileges may be extended to all foreign investors in key sec
tors o f the economic and social spheres of Ukraine under government pro
grammes set up to attract foreign investors (Art. 6, 7). At the present time
these include agriculture, metallurgy, electronics, mechanical engineering,
chemical industry, etc. The Ukrainian government has expressed its perfect
willingness to support by its own guarantees separate pilot-projects within
each of these sectors.
In the event o f the participation of foreign investors in large projects (for
instance, such as the reconstruction of Boryspil airport, the construction o f a
protective housing over the damaged nuclear reactor at Chornobyl, etc.) the
Ukrainian authorities are ready to enact separate legal instruments granting
additional privileges to the said investors.
All foreign investors are given guarantees against subsequent changes in
the Ukrainian legislation governing the foreign investments if such changes
have an adverse effect on foreign investment activities in Ukraine (Art. 8).
According to Art. 31-2 of the decree, if the Ukrainian legislation imposes
new taxes which did not exist at the time of the adoption of this decree,
existing enterprises with foreign investments shall be exempt from these
taxes for a 5 year period.
How much this guarantee is really worth may be called into question.
The Law on Foreign Investments included similar provisions; nevertheless
VAT was subsequently im posed on foreign investors by the previous
The decree stipulates the protection of foreign investments against nation
alisation and expropriation. There is a complete ban on the nationalisation
and confiscation of foreign invested assets. The authorities are not entitled
to requisition foreign investments, except as emergency measures. Decisions
regarding em ergency requisition and com pensation conditions may be
appealed in the courts under Art. 50 of the decree (Art. 9).
The decree likewise stipulates compensation and damages for losses
(including moral hazards) incurred by foreign investors as a result of unlaw
ful actions by Ukrainian state bodies and government officials. All expenses
and losses shall be indemnified at current market rates and/or established
values certified by independent auditors. Compensation is to be paid in the
currency in which the investment was made or in any other currency
acceptable to the investor (Art. 10).
The inclusion of the concept o f moral losses reflects a new trend in
Ukrainian legislation. This concept has appeared in the Civil Code of Ukraine
only recently. However, Ukrainian court practice is not familiar with it and has
not yet developed criteria for determining moral losses. At the present time
Ukrainian judges are uncertain what the concept of moral losses means within
the context of the decree. Under these circumstances it might be helpful for
the Ukrainian judiciary to apply the practice of countries which have already
accumulated the relevant legal experience in the form of judicial precedents.
In the event of the suspension or termination of investment activities the
investors are guaranteed compensation for their investments together with
proceeds therefrom in the form of money or commodities within the period
of 6 months from the date of termination as soon as all outstanding obliga
tions are met (Art. 11).
Remittance or repatriation o f profits is permitted under defined condi
tions. Thus, an enterprise with foreign investment is liable to 15 per cent of
the sum remitted or repatriated (Art. 12, 3D-
Revenues obtained as a result of investment activity may be reinvested in
Ukraine. The proper procedure is set forth in the Law on Investment Activity
and in this decree (Art. 13).
Additional guarantees for foreign investors may derive from international
agreements concluded by Ukraine. Hence, the decree stipulates that Ukraine
THE UKRAINIAN REVIEW
will adhere to her international obligations even if they establish certain privi
leges to foreign investors which are absent in the Ukrainian legislation (Art. 6).
It is envisaged by the Ukrainian legislation (Art. 1 o f the Law on
Entrepreneurship, Art. 22 o f the decree) that any entrepreneurship activity
on the territory of Ukraine requires government registration. In the case of
foreign investments registration is carried out by the Council of Ministers of
the Republic of Crimea, or the regional state administrations of Kyiv and
Sevastopil after the foreign investor has submitted the necessary information
in the standard format established by the Ministry of Finance of Ukraine.
Unregistered foreign investments do not entitle the investor to the privileges
envisaged by the decree (Art. 14).
A notable feature of the decree is the very short period of time within
which the responsible bodies are obliged to complete the registration: 3
working days only. The Ministry o f Finance o f Ukraine must issue the
investment certificate within 60 days after receiving the necessary informa
tion from the foreign investor (Art. 15). However, the decree does not speci
fy what will happen if these bodies violate this provision.
As far as organisational and juridical forms of enterprises with foreign
investment are concerned, the latter are to be established within the organi
sational and legal forms envisaged by the Ukrainian legislation (Art. 19).
Some problems may arise for foreign investors with regard to labour rela
tions between a foreign employer and his employees. According to the
decree all pertinent labour relations are to be governed by collective con
tracts and individual labour agreements (Art. 36). The terms o f collective
contracts are additionally specified in Art. 10-20 of the Labour Code of
Ukraine.6 The important provision is that neither a collective contract nor an
individual agreement should render the status of the employees worse than
that stipulated by the labour legislation of Ukraine currently in force. The
same applies to the citizens of foreign states working within the territory of
Ukraine. It should be noted that foreign law does not apply to issues gov
erned by the imperative norms o f the labour law o f Ukraine.
It has to be admitted that certain provisions of this decree contradict the
existing laws of Ukraine. Thus, Art. 3-3 refers to land as one of the types of
foreign investments and Art. 4.3 stipulates directly the possibility for foreign
investors to buy plots if there is no such prohibition in the Ukrainian law.
However, the Land Code of Ukraine (Art. 6) does not envisage any rights for
foreigners to buy land for individual or collective use.7 While according to
Art. 42 o f the decree the provisions of the Land Code of Ukraine are obliga
tory to everyone.
It seems that the most likely resolution of this discrepancy will be to
introduce amendments into the Land Code in order to stimulate foreign
investments in Ukraine.
6 Labour Code of Ukraine, 10 December 1971.
7 Land Code of Ukraine, 13 March 1992.
At the same time it must be borne in mind that even in some Western coun
tries land and objects o f industrial property or other objects cannot be bought
for private ownership. In this situation the possibility of long-term leasing of
land (provided for under existing Ukrainian legislation) cannot reasonably be
considered an insurmountable barrier to foreign investment activity in Ukraine.
As regards the settlement of disputes involving foreign investors, the
decree makes a distinction between disputes in which one party is the
Ukrainian government and other types of dispute.
In the former case, that is, disputes between foreign investors and the
government on issues of state regulation of foreign investment and the activ
ities of enterprises with foreign investment, they are to be examined by the
courts o f Ukraine if not otherwise specified by international agreements to
which Ukraine is a party.
All other disputes shall be examined by the courts and/or arbitration tri
bunals of Ukraine or, if agreed by the parties, by conciliation courts, includ
ing those abroad. In this way, the decree permits the involvement of foreign
courts in the settlement of disputes regarding foreign investment, thus taking
a further step forward in securing the interests of foreign physical and legal
persons in Ukraine.
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