Long-standing ties exist between Canada and Russia. We share a passion for hockey perhaps unrivalled by any other two countries, a passion storied and documented over the years to provide defining moments in each others’ popular culture and history.  We maintain a common understanding on Northern issues and on natural resource development, as well as on what it means to manage the two largest countries on earth. There have also been long-established links on issues of agriculture and agricultural assistance. Finally, there has been a perception on the part of Russians that Canadians have always viewed Russia with a nuanced understanding.

With Russia presently at a major crossroad in its history, the country represents new possibilities and challenges for Canada.  The witnesses who appeared before us provided thoughtful suggestions and examples of what Canadian policy toward Russia might consist of.  They are commonsensical and offer a roadmap for future relations under which both countries stand to prosper. 

The Committee returned from its Washington fact-finding mission with the phrase “patient engagement.”  Above all else, the Committee believes that Canada should be taking a long-term view with respect to how it sees its relations with Russia.

Canada was also urged to move its orientation away from Moscow and St. Petersburg.  The advice that expert witnesses had to offer Canada was that Russia is more than Moscow, St. Petersburg and a few other industrial centres.  Lorne Cutler noted that while Moscow contains international corporate headquarters and is the country’s centre of banking and commerce, and while it contains a wide variety and quantity of shops that can compete with those of the world’s greatest cities, the rest of Russia[73] is a world away from the wealth that the capital has to offer.  Indeed, many observers have overlooked the majority of Russia owing to the extreme centralization of certain powers in the Kremlin as well as to a natural interest in the new President.

Regarding any Canadian offer of support to Russia, our country enjoys the advantage of being considered by Russia to be a relatively neutral country.  Peter Daniel observed that Canadian advice is seen as technical, not ideological or political.  Moreover, as Sergei Plekhanov noted, Canada remains well regarded by the people of Russia themselves.  However, the Committee was also informed that Canada should raise its profile in the country.  Outside of hockey, most Russians hear little about Canada and have little conception of it.  More could be done in this area. 

A. Assisting With Reforms

Since the creation of the Russian Federation in 1991, Canada and Russia have been engaged in cooperation and exchange at all levels:  intergovernmental, parliamentary, cultural, academic and within the private sector.  We have been active in promoting economic reforms in Russia, largely through the Canadian International Development Agency’s (CIDA) extensive program of technical cooperation. 

To this point, Canada has committed a total of over $130 million to more than 250 technical cooperation projects in Russia.  In the 2001-02 fiscal year alone, it was expected that $22 million would be spent on roughly fifty bilateral aid projects.  One can add to this amount funding provided through regional programs.

This cooperative effort has focused on two key economic areas:  assisting Russia’s transition to a market-based economy as well as facilitating Canadian trade and investment ties with Russia.  During the first years of the bilateral aid program, the primary objective was to support the reform process in place and to attempt to ensure a rapid period of transition.  More recently, aid efforts have been focused on helping promote reforms to the Russian tax code, dispute settlement and contract enforcement procedures, as well as developing policy frameworks for resource development. 

On the last point, CIDA has been instrumental in providing energy policy advice to Russia.  Neil McIlveen (Director of Analysis and Modelling Division, Natural Resources Canada) and Janet Keeping provided Committee members with a detailed description of the Legislative and Regulatory Initiative that they either had been (Neil McIlveen) or were involved with (Janet Keeping).  The essential objective of this technical cooperation project was to assist Russia in its quest to reform its oil and gas management regime.

Notwithstanding these important contributions, several witnesses suggested that Canada could do more to support Russia in its efforts at reform.  DFAIT officials, in their first appearance before the Committee in 2000, suggested that deeper technical cooperation could be provided in tax, banking, property and sector-by-sector reforms.  James Gillies argued that almost all of the CIDA funding to Russia should be reallocated to institutional reform/structural change, given that achieving reform is a long-term task.  This view was also shared by Sergei Plekhanov, who felt that Canada should employ its wealth of experience and practice in nation-building to help Russians rebuild their state.  He advocated a policy of “strategic engagement” with Russia, arguing that the worst thing to happen would be for that country to slide back into a state of isolation or semi-isolation. 

After providing technical support to Russia for over 10 years, CIDA has concluded that it is preferable to remove itself from short-term projects.  The agency has recognized the need to shift gears with respect to its strategy for Russia.  Peter Daniel informed the Committee that the aid agency was attempting to develop a new, more focused[74] country program framework that would be better coordinated with those of other donors and whose principal objectives would be to enhance governance and civil society within the country.  What is essentially required, he noted, is “patience and a long-term commitment to generate a sustainable reform in the way the government operates and in the development of a market economy and of an active civil society which is a full participant in the democratic process.”  The Committee, convinced of the merits of these suggestions, recommends:

Recommendation 1:

That the Government of Canada incorporate as the guiding principle of engagement with Russia a consistent, continuous, coherent, long-term (i.e., 5-10 years) view towards Russian political and economic transformation. As a key component of Canadian engagement with Russia, Canadian International Development Agency policy should be adjusted to a) meet the above principle and b) significantly boost technical assistance available to Russia from the current $22 million.

In turn, governance could be improved in two ways.  First, one should help create a positive enabling environment for an effective market economy by supporting the financial, legal and judicial systems of the country.  The second tool for enhancing governance is to devote attention to a number of key elements such as federalism, corporate governance, the restructuring of the public sector and Russia’s integration in the global economic system.

According to DFAIT officials appearing before the Committee, it is important for Canada to identify strategies that promote the rule of law within Russia.  A number of other witnesses, notably Aurel Braun, Peter Solomon and James Gillies, called on Canada to provide more technical support to assist Russians in reforming their judicial system.  This aid would be on top of CIDA’s Canada-Russia Judicial Partnership program, which provides support to all three categories of courts within Russia’s court system (the arbitrage courts, dealing with business and commercial disputes; the constitutional court; and the courts of general jurisdiction including the appeal division).  An initiative conducted through McGill University seeks to support Russia in its efforts to reform its Civil Code.  Peter Solomon also advocated Canadian legal support to help improve the operation of the Russian federal system, through the harmonization of national and regional laws.  He mentioned the possibility of providing legal training and education in Canada to Russian lawyers.  James Gillies noted that aid channelled to a reform of the legal system would be “absolutely the best money that could be spent in Russia today.”  Finally, Bohdan Harasymiv (Professor, Political Science Department, University of Calgary and Visiting Scholar, Kennan Institute, Washington, D.C.) told the Committee in Washington that Canada should support Russian efforts to draft more specific laws against crime, with considerable emphasis to be placed on law enforcement.  The Committee concurs with many of these proposals and recommends:

Recommendation 2:

That the federal government accelerate its efforts to support the reform of the Russian legal and judicial system, by supporting the training and education of Russian lawyers and judges and, where appropriate, by assisting in legislative drafting.

Many witnesses expressed the value of student exchanges.  A good example brought to the Committee’s attention was James Gillies’ Corporate Governance Program at York University, which trains potential private sector executive officers from Russia.  It will help in providing Russian companies with transparency and the sound practices investment and participation in international business require.  One should also reiterate Peter Solomon’s above-mentioned desire to train and educate Russian lawyers in Canada.

Angus Smith indicated that an important component of the RCMP’s activities are the observer attachment programme, which conducts training in management, analysis and philosophy of policing.  Our relations have primarily been in the area of training, particularly our international observer attachment program, in which Russian police officers cycle through RCMP divisions.  Training packages for the region (Eastern Europe through to Central Asia) are also in development.

As Larry Black stated, if a generation of Russians can benefit from the positive experiences that Canada has to offer, both Russia and Canada will come out ahead. Patrick Armstrong reminded the Committee that the President of Russia that Canada will someday see is being educated today.  However, such exchanges need careful screening and monitoring to ensure that the appropriate candidates are chosen solely on merit.  We also need to develop a well-trained, Russian-speaking set of Canadian experts in Russia.  To have Canadians consistently engaged in Russia is important, as Larry Black observed.

In education, Piotr Dutkiewicz gave examples of how Canada could be effective.  He cited the provision of 100,000 primary textbooks that were snapped up, as new Russian equivalents can be hard to come by.  However, Canada could do more in terms of improving educational resources in Russia.

There is no question that Russia is rich in scientific education and, to some extent, technical training.  In other fields, however, the shortage of educated professionals is more obvious.  Anxious to ameliorate this situation, and cognizant of the high value placed on sending Russian students to Canada, the Committee recommends:

Recommendation 3:

That the Government of Canada, through the Canadian International Development Agency, expand its existing program of sponsoring young Russians in all fields to come to Canada to study.  CIDA funding should be reallocated to provide an increased number of scholarships to Russian students and to incorporate the appropriate best practices from other existing Canadian international education programs. Furthermore, the Government of Canada should use existing international education programs to develop a consistent base of Canadian expertise on Russia.

Two witnesses provided suggestions on how Canada could assist Russia in improving its agricultural industry.  Senator Tunney held the strong opinion that CIDA provide funding that would go toward exploring the feasibility of introducing to Russia a modern, Canadian style dairy farm, to be used as a training centre for young Russian farmers.  He also saw a need for the establishment of marketing boards similar to those operating in Canada.  These would embody both a marketing and food distribution component.  For his part, Larry Black advocated that Canada engage in greater cooperation in agriculture, by providing Russian farmers with the technology and equipment that cannot be procured elsewhere.

The Committee, however, also heard a different view on the use of certain forms of Canadian support to the Russian agricultural sector.  Without the basic underpinnings of a market economy, CIDA considered it unwise to invest in development projects such as the previously mentioned model farm.  As Peter Daniel observed, “basic agricultural policies are not in place.  Privatization and registration of land and the ability of farmers to borrow against the land to get credit or to raise capital to improve their farms and their herds is not in place.  There is no point in having one model farm if all of the other pieces are not in place.”  The Committee, having heard the diverse views of experts on the value of agricultural sector support, recommends:

Recommendation 4:

That Canada actively support Russia’s reform of its agricultural policies and provide technology, expertise and information to Russian farmers. 

Many analysts of the Russian economy have called for action to be taken to rectify what they perceive to be a deteriorating infrastructure situation.  In his testimony to the Committee, Larry Black urged the Government of Canada to assist Russia in its rebuilding of infrastructure, roads and railroads.  However, the Committee cannot support this suggestion, given the limited funds available.  Retaining a focus on technical assistance and education appears to be a more effective solution given the financial circumstances.  

In addition, witnesses from the Kennedy Centre urged that the West remove itself from the formal task of political party and political institution building.  That policy has proved ineffective, and perhaps counter-productive if one looks at many actors in the Russian political system today.  The policies of the past 10 years are implicated heavily by their connection with the current Russian elites.

Rather, they suggest direct involvement with NGOs and communities.  This was echoed independently, by John Young, who also suggested that a direct local-to-local, regional-to-regional, approach be taken as well.  Specific communities and regions in Russia and Canada, particularly northern ones, might have much to share.  According to Mr. Young, the development of democracy through local government is perhaps best not handled through federal officials from either Canada or Russia.

This observation counters somewhat received notions of where Canada might be effective.  CIDA and several witnesses pointed to the Canadian expertise in federalism as a natural fit with Russian needs.  The Committee agrees with this, and is encouraged to see that Canada has several projects linked to the development of federalism in Russia.  However, it is unclear whether Russian federalism fits fully the Canadian model of federalism, since restoring the power vertically is the anti-thesis of a Canadian separation of jurisdictions.  Notwithstanding this last comment, the Committee is seized by the important contribution that Canada is making by assisting Russia in reforming its federal apparatus.  More needs to be done, however.  The Committee recommends:

Recommendation 5:

That Canada make available to Russia its experience in the organization of a division of power between federal and regional governments.  In consultation with the Russian government, technical assistance should be provided in such areas as constitutional law and practice, federalism and the roles of different jurisdictional levels.  Moreover, co-operation programs designed to assist in the training of municipal officers and to provide the Canadian experience on accounting procedures, administrative municipal affairs and provincial government should be offered.

B. Boosting the Canada-Russia Economic Relationship

It is no secret that the Canada-Russia economic relationship has not developed according to existing potential.  According to senior DFAIT officials, Canadian firms scaled back exports and investments in the wake of the 1998 Russian financial crisis[75] and owing to the lack of progress in the banking sector[76] and in light of the country’s deteriorating investment climate.  Current trade and investment impediments include the existence of a high bureaucratic burden, resulting corruption, and an overall negative perception of the Russian market.  On a positive note, Russia is presently undertaking to implement the necessary structural reforms that would attract and retain additional Canadian investment and trade. 

Canada’s exports to the Russian Federation remain at pre-1998 levels.  Indeed our exports registered a steep decline as a result of the above-mentioned crisis (from $379 million in 1997 to $180 million in 1999), before rising back up to the $200 million mark in the year 2000.  Canada’s top exports in 2000 included building materials, oil and gas equipment, tobacco and pork. 

The situation in 2001 was even more favourable, as exports rose to the $290 million level.  To this number one can add another 25% to 30% to cover exports transhipped through third markets such as the U.S., Finland, Latvia and other European countries.  Finally, Canadian services (e.g., infrastructure, energy, forestry, legal, mining) have also found a market in Russia, though estimates in these areas have proven difficult to obtain.  

On the other side of the ledger, imports of goods from Russia totalled $666 million in 2000, up almost 10% from 1999’s figure of $607 million.  Raw materials (e.g., crude oil, precious metals, frozen fish, steel) account for the bulk of these sales into the Canadian market.  On the other hand, 2001 numbers reveal a sizeable decline in imports to the $361 million level. 

From 1997 to 2000, Russia amassed a cumulative balance of trade surplus with Canada of over $1.6 billion.  Without a doubt, there remains considerable potential to make improvements on the export side.  Russia continues to possess a resource-based economy that is considered to be a good match and target market for Canadian resource extraction, agri-food and the housing/construction material sectors.  

The federal government is attempting to enhance access to the Russian market through three channels:  the activities of the bilateral Intergovernmental Economic Commission (IEC);[77] accession negotiations on Russia’s entry into the WTO; and negotiation of a new Foreign Investment Protection Agreement (FIPA).  Yet as Vladimir Popov argued before the Committee, the Canadian trade presence is well below its potential and still more should be done to improve bilateral trade relations.

On the investment side, the estimated value of the stock of Canadian direct investment in Russia totalled some $423 million (2000), concentrated in the mining and oil and gas sectors but also found in other activities such as food services and high technology.  While the Russian market continues to display considerable economic potential, and the encouragement of foreign investment is a stated priority of the Russian government, concerns over a lack of guarantees protecting Canadian investments in Russia have kept the total stock of investment below its potential. 

Specifically, Canadian concerns in this area have included the existence of poor corporate governance, the complexity and uncertainty concerning domestic legislation, and a lack of effective recourse through the judicial system in order to resolve investment disputes.  On the latter point, there remains great uncertainty surrounding the extent to which Russian parties and entities, especially government agencies, respect the contractual and other rights of non-Russian investors.  It bears reiterating the point that there is an urgent need for a stable, attractive investment climate in Russia. 

Several Canadian firms, active primarily in the natural resources sector, are involved in serious and expensive disputes with Russian companies that maintain ties to the Russian government or to regional governments.  For example, Norex Petroleum alleged that it was stripped of its 98% ownership of the Russian oil company Yugraneft at a disputed shareholders’ meeting to which armed gunmen were dispatched by the minority shareholder Tyumen Oil Co. to remove the foreign management team.  While this issue does not represent a conflict between governments, it is one that has become politicized and, according to the Russian company involved, should be resolved within the legal system. 

In an ownership dispute in the year 2000, Pan American Silver Corp. took a US$38 million write-down of its investment in a mining project, in the process abandoning the project.  These and other examples illustrate the lack of protection for foreign investors in Russia with respect to corporate governance and the rule of law. 

A number of important, more specific suggestions for enhancing the bilateral relationship were provided to the Committee.  On the critical issue of ameliorating investment protection, we were informed of the need to modernize the existing Foreign Investment Protection Agreement (FIPA) with Russia to include, among other things, effective enforcement mechanisms.  The existing investment agreement signed in 1989 provides limited protection for Canadian investors compared to more recent NAFTA-type ones.  Discussions on the development of an enhanced bilateral agreement for the promotion and protection of foreign investment (FIPA) continue.  The Committee, dissatisfied with the slow progress in this area, recommends:

Recommendation 6:

That the Government of Canada accelerate efforts to complete a modernized Foreign Investment Protection Agreement with Russia.  This agreement should incorporate transparent and effective enforcement mechanisms and include, but not be limited to: protection against arbitrary expropriation or expropriation without adequate compensation; certainty of title; surety of licenses; and a free cross-border transfer of funds.

Second, improving the rule of law in Russia would increase market access for Canadian firms and would enhance investment by our companies.  Organized crime demanding protection money under threat of violence has been a problem for Canadian business.  The Government of Canada has placed a lot of effort into resolving investment disputes in which Canadian projects have not been compensated for expropriation, regulatory ambiguity or outright criminal acts.  However, there is hope for improvement.  To deal with criminal matters, and thereby protect our overseas business interests, DFAIT officials urged the federal government to devote additional resources to the Royal Canadian Mounted Police (RCMP) and the Canadian Security Intelligence Service (CSIS) to tackle cases in Russia where criminal involvement was affecting our commercial interests.

Third, Ron Denom urged the federal government to create a development finance institution, perhaps as a subsidiary of the Export Development Corporation (EDC) rather than a separate Crown Corporation, to deal with the gap in existing financing at the beginning of the development of larger projects.  Such an institution could provide financing and related support on a commercial basis to private-sector ventures in developing economies.  It could provide seed equity capital to Canadian firms not currently available through either CIDA or the EDC, to cover off the period between the completion of the project feasibility study and the closing of the project financing.  These agencies tend to come in later in the development cycle.  As Mr. Denom explained, the new financial institution would be “a source of loan money, of equity, of guarantees, and management and advice at the early stages of projects in these emerging and transitional economies.  In other words, it should come in as a participant in the early studies of the projects, and to be an early investor into these projects.”

Currently, Canada is the only one of the G8 countries without such an institution; all told, there are 17 of these within the set of industrialized countries.  To rectify this shortcoming, the federal government is developing plans to create a new government-owned financial institution to aid small and medium-sized firms to export to developing countries.  If these plans are realized, a total of $300 million in initial capital could be provided for these higher-risk loans and investments.  The new institution could be independent or an arm of either the EDC[78] or CIDA. 

While the EDC remains interested in the Russian market and engaged in a thorough review of the Russian economy, it continues to exercise caution.  However, it has now reopened its lending window to the Russian government and is considering providing loans to major profitable companies, principally in the natural resources sector, displaying favourable export earnings.

Both DFAIT and Ron Denom expressed a desire for greater EDC involvement in Russia.  However, EDC works on a bank-to-bank basis so there may be a need to wait in order to first see an improvement in the banking system.  The agency is quite concerned about the lack of reforms in this sector and is only considering dealing with certain state-owned banks and those primarily owned by Western banks.

Another key EDC concern expressed to the Committee is the high risk attached to foreign investment in Russia.  The agency increasingly views the country as comprising two distinct markets:  a relatively low-risk market for Canadian exports and a more risky investment market.  To minimize the latter risk, it is deemed appropriate for foreign companies to invest on their own.  This approach would eliminate opportunities for Russian investment partners to attempt to take over foreign investment. 

To enhance trade representation in the key but often neglected Russian Far East, Aurel Braun pointed out the need to open up a new consulate in Vladivostok to deal with the interests of Western Canada in Pacific Russia.  This need to establish consulates in the outlying regions was supported by the witnesses from DFAIT.  The idea of establishing honorary consuls in the various regions of the vast Russian territory was also broached during the hearings.  There is already an Honorary Consulship in Vladivostok that has been quite effective at minimum cost.  Vladivostok is the natural gateway to Pacific and Far Eastern Russia and is connected by direct air transport to the Pacific Northwest.  Even if hard-working, the Honorary Consulate is limited in its scope of operations (e.g., it cannot issue visas). Despite being almost contiguous, Western Canadians and Eastern Russians must rely on government services provided from Moscow, which is ten time zones removed.

The Committee is in agreement with suggestions to raise the Canadian trade representation in the regions of Russia, especially in Pacific Russia, and thus recommends:  

Recommendation 7:

That Canada broaden its regional diplomatic representation in Russia through the establishment of additional consulates.  In particular there should be an upgrade of the consulate in Vladivostok to full consulate status, through which the economic and other interests of Canadians operating in Pacific and Far Eastern Russia can be supported.

Finally, the Committee heard a number of other potential recommendations for Canadian action.  These are listed as follows, with the sponsoring witness identified in brackets: 

·                    Provide Russians with the tools required to learn about the market economy (Sergei Plekhanov) and offer training in business management techniques (Patrick Armstrong and Amy Knight);

·                    Help facilitate Russia’s admission to the WTO (Larry Black);

·                    Facilitate the rescheduling of Russia’s considerable debt (Larry Black);

·                    Hesitate before imposing anti-dumping action against Russia (Larry Black); and

·                    Ensure that CIDA, with its current focus on civil society and environmental issues, still maintain an interface with business (Alex Rotzang).

These are all valid suggestions, most of which are being considered or acted on, or are incorporated in previous recommendations within this report.  One important supplement to this list is the valuable role played by business organizations and business-to-business contacts. The value of organizations such as the Russian-American Chamber of Commerce was impressed upon the Committee while it was in Washington. In Canada, there is the Canadian-Russian Business Forum in Toronto, as well as similar associations in Calgary and Vancouver.  In Russia, there is the Moscow-based Canadian Business Association of Russia (CBAR).  Recognizing that business development between Russia and Canada needs eventually to move from the government toward industry, the Committee recommends:

Recommendation 8:

That the Government of Canada encourage Canadian and Canada-Russia business-to-business organizations to develop into effective, visible and active vehicles for business promotion.  Furthermore, in conjunction with the sentiments expressed in Recommendation 3 (on education), the Government of Canada should promote the twinning of business schools between Canada and Russia.

C. Security Issues

Three security issues of prominence were raised during Committee hearings: Ballistic Missile Defence (BMD), NATO and the Chechnya situation. Russia recognizes Canada’s significant, historical relationship with the United States as well as Canada’s importance as a multilateral actor.

Canadian involvement in the BMD is critical to American defence planning.  Canada’s official position is that this country is waiting for formal American proposals on BMD, at which point it will be in a position to comment on the issue.  In essence, the federal government remains open to seeing what the Americans will propose and will assess such a proposal on its merits.  Nonetheless, Canada is a key supporter of multilateralism and of the international treaty systems that provide a framework for the control of the use and proliferation of nuclear weapons.  We are a member of NATO, of the UN, of the Francophonie, of the Commonwealth and of the Summit of the Americas.  For Russia, appeals to Canada for an understanding of the Russian position on the ABM treaty and other issues also represents an appeal to the many other countries with which Canada is engaged.

The Committee heard no recommendations in the difficult areas of NATO expansion and Chechnya.  The Committee has already expressed its opinion concerning NATO in the NATO Report.  The new NATO-Russia agreement of May 2002 is welcomed by the Committee as being line with our stated desire to have NATO engage more fully with Russia.

On Chechnya, as elsewhere in the world, Canadian policy is to balance a respect for the sovereign and internal affairs of other countries with the need to affirm universal values of human dignity and security.  Canadian policy on Chechnya is a matter of record and has been reiterated in multilateral fora such as the Organization for Security and Co-Operation in Europe (OSCE).

Larry Black and Sergei Plekhanov both stressed the need to be forcefully engaged with Russia over its foreign and domestic policy activities.  Russian security and stability has an intrinsic value.  However, as with any country, Russia must strike a balance between its security needs and the rights of the people within its borders.  Canada has the potential to play a role in encouraging Russia to arrive at and maintain such a balance, and therefore assist in incorporating Russia into a partnership of democracies.

D. Northern Development

Northern issues are familiar ground in Russia-Canadian relations.  We share a common arctic and a common geography, and Canada and Russia have a long record of co-operation in international, multilateral and bilateral regimes and initiatives.  Although Russian and Canadian positions on issues ranging from indigenous peoples to environmental concerns to questions of custodianship of a special place in the globe are well known, the profile of Arctic and northern issues is an issue for which awareness needs to be generated and sustained. 

It is worth noting that Larry Black informed the Committee of an alternate future, nipped in the bud many years ago.  At the moment of the Russian Revolution of 1917, a Canadian Pacific official was in St. Petersburg to sign a treaty that would have linked Russia’s railway and telegraph system to Canada’s thereby effectively encircling the globe in one seamless transportation and communications network.  The potential for such an effective partnership of the North remains.

Therefore the Committee recommends that:

Recommendation 9:

The Government of Canada take measures to assign a higher priority to, and elevate the public profile of, northern development issues that are of common interest to Russia and Canada.

E. Immigration

The Committee also heard of the need to augment Canada’s ability to process immigration requests at its Russian diplomatic posts.  Vladimir Popov suggested that an additional two immigration officers be located in the Canadian embassy in Moscow for this purpose.  Several witnesses also commented that the issuing and processing of visas constituted a hindrance to investment and business dealings with their Russian counterparts. The Committee has heard that in the wake of the Winter 2002 Team Canada visit to Russia the federal government has taken steps (e.g., by increasing resources and by streamlining procedures) in order to ameliorate this situation. 

The Committee is also cognizant of the difficulties surrounding international travel and movements of peoples in the wake of the attack on the World Trade Centre and the associated challenges facing the federal government. However, in light of the importance of the issue of visas and immigration, the Committee recommends:

Recommendation 10:

That the Government of Canada ensure that necessary steps and procedures be taken to establish an effective capacity in Russia to process expeditiously immigration and visa demands.

PART 2 – UKRAINE

INTRODUCTION

The Committee undertook to examine Ukraine in this study for a complex blend of reasons.  Ukraine is for the first time a state as well as a nation.  Previously it comprised a crucial part of the Soviet Union and, before that, Imperial Russia and the Austro-Hungarian Empire.  Ukraine was the agricultural powerhouse and an industrial basin for the Russian and Soviet economies. 

With the collapse of the Soviet Union, the unravelling of the intense and highly integrated infrastructure, institutions, and political systems that existed in Russia and Ukraine leaves a number of key questions to consider.  How will Ukraine fit into a broader Europe?  How will Russia relate to Ukraine or how will it influence Ukraine?  How will Ukraine’s foreign policy towards Russia evolve?  

These are all important questions for this Committee to ponder as it assesses Ukraine and the Ukrainian-Canadian relationship. The Committee recognizes that there are no real precedents for transitions such as those being made by Ukraine and other countries from former Soviet rule.  Transition does not equate readily with accepted strategies of development or adjustment.  As Orest Subtelny reminded the Committee, Ukraine is already a modernized country; it has just modernized in a different manner. Ukraine is learning how to deal with transition and Canada is learning to respond and help as both go forward. 

Ukraine also continues to occupy a key geopolitical position, situated as it is between Russia and its European neighbours.  Its relationship to NATO, as well as that of Russia, is worthy of Committee consideration. 

Finally, Ukraine has close family ties with Canada.  Canada’s involvement in Ukraine in modern times dates back to Canada’s recruitment of immigrants from that country to settle and develop Canada’s West.  From the 1890s, these immigrants contributed greatly to Canada’s development.  The place within Canada of over one million Ukrainian-Canadians provides ample justification for any discussion of this region to rightfully include Ukraine.  

UKRAINE POLITICS

The Committee heard testimony on two important areas of Ukrainian domestic politics:  culture, history and citizenship; and the evolving political situation.

A. Culture, History and Citizenship

The Committee heard testimony that a core concern for the new Ukrainian state was nation building.  Not only is Ukraine engaging in economic and political transition, but it is also building a nation-state for the first time.  Ukrainian identity has existed for centuries, but post-soviet Ukraine represents a first statehood for Ukraine as a modern, industrial state.[79]  Witnesses specifically pointed out that at the start of independence, Ukraine lacked the components of a sovereign state as all of these, including personnel, had been centralized or created in Moscow during the Soviet era.  For most of its recent history, Ukraine had been divided between Poland (then Austria-Hungary) and Russia, with the Dnieper River forming the line between eastern (and southern) Ukraine and western Ukraine.

Witnesses informed the committee that western Ukraine – Galicia[80] – has traditions that are “European” – a legacy from its membership in the Austro-Hungarian Empire.  As Paul Magosci informed the Committee, there were Ukrainian members of parliament in the Austro-Hungarian legislature, and there were Ukrainian schools and university departments.  All of these promoted Ukrainian nationalism in a 19^th–century, liberal mould. 

The Eastern part of today’s Ukraine was subsumed into the Russian Empire (which did not recognize Ukraine as a separate entity, culture or nation) and then to the Soviet Union, which dealt with nationalism only through the lens of Soviet ideology.[81]  This reality was compounded by Tsarist and Soviet political legacies that were not favourable to developing independent or democratic political expression.  The industrial development of eastern and southern Ukraine in the 19^th and 20^th centuries also meant the migration of a large Russian population to this area.  Soviet Premier Khrushchev added a final complexity to the Ukrainian jigsaw.  He “gave” Crimea, which had been Russian in name, to the Ukrainian Republic (Ukraine SSR) of the Soviet Union.

Bohdan Klid commented that in comparison with other post-Soviet states, Ukraine has managed excellently with regard to ethnic and regional tensions.  Moreover, as David Marples and Bohdan Harsymiv told the Committee, tensions between east and west, between ethnic Russians and Ukrainians, have to all intents and purposes not arrived.  Ethnic Russians in Ukraine identify themselves as Ukrainian citizens.  According to Dr. Magosci, this is in part because they are indigenous to the region and have been so for at least a hundred years.  Crimea, while causing some issues regarding disposition of the Black Sea fleet as well as demands for some form of autonomy, has played out as a regional issue, not an ethnic one.

B. The Current Political Situation

Ukraine, as more than one witness noted, is undergoing a difficult triple-transition. Prior to 1991 it had no significant history as an independent state.  It is currently engaged in state–building at the same time as it is undergoing post-Soviet economic and political reforms.  Most institutions did not initially have in 1991 the procedures or wherewithal to function effectively.  According to James Jacuta (Director of Ukrainian Studies, Canadian Institute of Canadian Studies, University of Alberta), precedence, practice and procedure were absent when the newly independent legislatures sat down for the first time.

Orest Subtelny (Professor of History, York University) noted that it is important to understand that a Ukrainian elite that is “new and not-so-new” currently runs Ukraine.  Despite his optimism for Ukraine, Mr. Subtelny stated that members of the new elite used their position in the previous regime to privatize Ukraine to their advantage.  The Ukrainian state is therefore viewed by some Ukrainians not as a mechanism for serving society but as a tool for this elite to jump from one ship to another.  In Ukrainian politics this has created, unfortunately, a “we/they” mentality among the electorate. 

The Committee is concerned about political developments in Ukraine: at a certain point, relative comparisons of democratization with other post-Soviet states that might be faring worse than Ukraine should encompass a recognition that developing democracies also require a dedication to transparency and accountability.  That being said, the Committee also heard testimony on the lively and positive nature of Ukrainian civil society.  Testimony was given on the actions of many ordinary Ukrainians to further democracy and development, and the desire of most in Ukraine to move towards a normalized liberal democracy.  According to some witnesses, the basis exists in Ukraine for the development of a proper, grass roots democracy based on a middle class with its own set of interests and the desire to hold the government accountable for its actions.

Ukraine, since 1999, has been in a state of political flux and economic uncertainty.  While some witnesses expressed that opportunities do exist for Canadian business in Ukraine, others did not foresee doing much business there at the present time. 

The complexity of Ukrainian politics cannot be overestimated.  The parliament – the Verkhovna Rada – is split by economic, ideological, and regional cleavages.  The Committee was informed that President Kuchma has attempted a delicate balance between orienting Ukraine to the West without alienating Russia, and towards reforming the economy without alienating the key energy and heavy industry sectors on which his political base is founded.

Political party development remains with much to be done, and some politicians and bureaucrats have been implicated in behaviours ranging from conflict of interest to cronyism, bribery, corruption, and organized crime.  In testimony and in some media in Ukraine and elsewhere, reference has been made to organized crime and corruption going to the highest levels of politics in Ukraine.  Furthermore, as Peter Solomon pointed out, Ukraine is well behind Russia in the reform of the legal system and development of its laws.

Ukraine’s poor economic performance was an issue that helped the formation of a loose centre-right coalition in the Rada in 1999 headed by Viktor Yushchenko and supported by President Kuchma.  However, differences between the President and Cabinet members have appeared, with the former deflecting attempts to reform the energy and heavy industry sectors located in Dnipropetrovsk, his political base.[82]  Moreover, Yulia Timoshenko,[83] the Deputy Prime Minister in charge of Energy, was arrested in February 2001.[84]

In January 2000, President Kuchma proposed and won a referendum limiting the powers of the Rada to the benefit of the Presidency.  This development was ostensibly to allow the President to push through economic reforms in order to restructure and invigorate Ukraine’s economy.  However, a political crisis began with a controversial referendum in April 2001, which gave the President powers to dissolve the Parliament.  It was not ratified by the legislature.

Prime Minister Yushchenko was removed by a new coalition formed between the Communists and those supported by the oligarchs.  Neither political group wants eastern Ukraine reformed, albeit for different reasons.[85]  The government of Prime Minister Yushchenko had also lost support from rural Ukraine with the reform of agriculture.  The Committee was told that Ukrainian oligarchs now seek closer ties with their Russian counterparts rather than look to the West, and that eastern Ukraine’s economic development will be closely tied to Russia.[86]

Of concern to observers of Ukrainian politics has been the role of the Gongadze affair in all this.  There has been increasing control of the state over the media, including harassment of editors, the closure of opposition newspapers and persecution of individuals who have spoken out against the government.

President Kuchma and the government found themselves under scrutiny and attack as a result of the disappearance and probable murder of Ukrainian journalist Georgi[87] Gongadze in September 2000.[88]  Gongadze was investigating stories of corruption involving the President.    The investigation of Gongadze’s murder has progressed in what some might characterize as a slow, haphazard and contradictory manner.

There are a few possible inferences from the last two years of Ukrainian politics.  First, the emergence of the 2001 coalition capable of blocking reforms may not augur well for the future of economic reform in the eastern, industrial sector of Ukraine or for breaking the apparent stranglehold Dnipropetrovsk politics has on Ukraine’s national stage.  It might also create issues for Western foreign investment and economic development projects through the increased presence of Russian investment. On the other hand, it also seems to indicate no desire for Ukraine to return to a state-controlled economy.  Furthermore, the centre-right coalition has been energized by the Gongadze affair and by political support in the streets.  The coalition was a temporary negative one, according to David Marples.

Second, one should note there still remains some effective power in the Verhovna Rada.  As David Marples informed the Committee, it is doubtful whether any other post-Soviet legislature, excluding the Baltic States, could have removed the Prime Minister.  The balance between Rada and Presidency remains intact.[89]

Third, President Kuchma’s ambitions to bridge Ukraine across East and West may have been compromised.  With oligarchs holding the upper hand, their interests in dealing with their Russian counterparts seem strong.  There may be repercussions for Ukraine’s foreign policy.  Others, however, pointed out that Ukraine’s foreign policy, driven by fuel needs, inevitably moves East in the winter and then shifts to the West in the spring.

C. Postscript:  March 2002 Elections to the Verkhovna Rada

Over the course of this study, testimony on the state of democracy in Ukraine has concerned the Committee.  The latest round of parliamentary elections was overshadowed by the continuation of a difficult presidential–parliamentary relationship. The election was closely watched by outside observers, since the previous parliamentary and presidential elections (1998 and 1999 respectively) fell short of OSCE standards and international commitments.

The Rada and the President agreed to a new electoral law in October 2001 after considerable wrangling and the deployment of five presidential vetoes. A key component of the law was the creation of District (constituency-level) and Polling Station Election Commissions, including proportional distribution of leadership positions to participating parties.[90]  Witnesses to the Committee commented favourably on the ability of political parties to have access to these commissions because they in effect created 3,500 scrutineers where there were none before.  Each scrutineer will have their own party interest, but each will also be watching everybody else.

Unfortunately, problems did affect the elections.  These were a replication of the issues that concerned the Committee over the course of its hearings: freedom of information – particularly media freedoms – and administrative abuses.  The new law did nothing to clear up several inconsistencies in the old codes or related legislation, nor did it make amendments to the Administrative Code.  As a result, violations of electoral rights such as abuses of administrative resources, the distribution of free goods and the interference of state officials could not be prosecuted effectively.[91]

The International Election Observer Mission (IEOM) noted a “general atmosphere of distrust” deriving from the points above. The campaign was furthermore marred by poor debate on the real issues facing Ukraine, illegal interference by public authorities in the electoral process, the murder of a prominent politician on the eve of the elections, other isolated incidents of violence, and allegations of intimidation and harassment against opposition contestants, activists and voters.[92] 

More positively, Orest Subtelny noted that there was a much more concerted effort by political parties in this election to convince people to vote.  Television and public relations were being deployed and the opposition was getting access - even if in some places minimal access - to television, which is a significant factor in the visibility of political choices.

The results of the election were as follows. 

The implications of the election remain undetermined at the time of writing, in that political coalitions are still being formed in the Rada.  However, according to the Economist Intelligence Unit (EIU), a few observations are discernible. It is the first sharp reduction of the numbers of the left in the Rada since Ukrainian independence.  The size of the vote for Our Ukraine, led by former Prime Minister Viktor Yushchenko, is a large vote in favour of stability and reform for Ukraine. However, the almost equal balance of reformist and pro-presidential parties will have implications for stability in the new Rada. The significant representation of oligarchic business interests from Donetsk and Dnipropetrovsk should, according to the EIU, insulate President Kuchma from impeachment attempts, leaving aspects of Ukraine’s politics still in a deadlock.

UKRAINE’S ECONOMY:  CURRENT SITUATION AND THE STRUGGLE WITH REFORM 

A. The Existing Economic Situation

Ukraine possesses a number of important advantages compared to other countries.  Its population is well educated and highly proficient in important subjects such as mathematics and science, as well as in certain technical areas.  It contains bountiful mineral resources, although it is under-endowed in important energy commodities such as oil, gas and coal.  It must import these vital inputs to its heavy industries, largely from Russia.  Ukraine is also blessed with superb farmland.  However, owing to more than fifty years of communal agriculture, Ukraine is not equipped to capitalize on this resource in the global economy, owing to outdated machinery together with no real transportation or distribution systems.

On balance, the country continues to display considerable long-term economic potential.  However, this potential remains, for the most part, unfulfilled.  Ukraine has seen its officially recorded economy shrink by roughly two-thirds since independence, with the slow pace of structural reforms and otherwise poor policy-making having contributed to an erosion of living standards.  Per capita incomes have fallen considerably since 1991, with the result that a significant percentage of the population is now experiencing poverty. 

Despite the overall negative economic indicators since independence, Ukraine’s economic performance has registered an improvement since 1999.  In 2001, GDP growth of 9.0% was reported, and the annual rate of inflation had declined to 6.1%.  Two additional positive developments were observed in 2001:  the broadening of industrial growth away from the leading metals sector (although much of the recovery is still taking place in the heavy industrial and energy-intensive sectors of the economy), and the bumper grain harvest experienced in July and August.

It is clear, therefore, that Ukraine’s economic growth has improved substantially.  Much of the credit, however, should go to the activation of idle economic capacity instead of the major micro-economic restructuring that needs to occur.  Sustaining the recovery will prove an easier task if solutions can be found to a host of the country’s underlying problems.  These include:  the lack of a legal system that can enforce contracts; the need for fair and transparent rules; the inadequacies of Ukraine’s banking sector; the presence of an inequitable and unpredictable taxation system; the presence of bureaucratic hurdles; and a less than optimal attitude to foreign investment. 

A number of these deficiencies will be covered in the section that follows.  On the question of foreign investment, though, DFAIT officials informed the Committee in June 2000 that Ukraine had been able to attract only roughly US$2.5 billion in foreign direct investment since 1991.  Recently, however, the country has experienced a surge in direct investment by Russian companies keen on acquiring newly privatized corporate assets.  This infusion of capital, coming on the heels of additional steps by the country’s leadership to reintegrate with Russia, has raised concerns over sovereignty in Ukraine.  

Corporate concentration remains high, with a small number of Ukrainian oligarchs (business tycoons) influential in the corridors of power and very skilled in investing their fortunes elsewhere. 

Moreover, Ukraine is ranked 83^rd on Transparency International’s list of 91 most corrupt countries.  The cost of corruption in the country is high; for example, it is certainly a major obstacle to legal reform and investment.  The hope is that systemic improvement in the economic structure of the country will be of some help in easing the problem.

As well, the country has borrowed extensively, amassing a total debt of some US$12 billion in just over a decade.  Foreign creditors’ willingness to continue to bail out the country has already been tested and debt defaults barely avoided.  The International Monetary Fund only recently decided to resume lending. 

A final point to emphasize is that developments in Ukraine’s trade policy, such as arbitrary increases in tariff rates, discriminatory treatment of certain imports, and quantitative restrictions placed on key imports, have rankled the country’s trading partners.  These concerns have been addressed to Ukrainian officials through the World Trade Organization’s (WTO) process of accession negotiations. 

B. Implementing Reforms:  Combating Policy Inertia

Much of Ukraine’s future success will depend on the establishment of an appropriate and effective economic, legal, and institutional framework for development.  There is a fundamental need in Ukraine to strengthen the country’s institutional underpinnings such as democracy and the rule of law. 

However, structural reforms have been slow to materialize.  Even in instances where legislation has been passed, the laws and regulations deriving from the legislation have seldom been fully implemented.  Senior DFAIT officials told the Committee that the international community has become uneasy regarding the pace of reforms in Ukraine. 

While President Leonid Kuchma has pledged to undertake these reforms since as far back as 1994, he has encountered opposition from both the country’s Parliament and from interests in the agricultural and state-owned industrial sectors.  The Government of Ukraine’s inability (in certain cases, lack of commitment) to undertake serious economic reforms has been at odds with its quest to participate in Europe’s integration process. 

Major reforms are indeed required in a number of key areas.  For example, it is generally recognized that a reformed legal and judicial system would greatly enhance the country’s economic development and attract needed investment.  In the case of Ukraine, the legal and judicial system had to be developed from scratch. 

The Committee wishes to note that while judicial reform will be a long process, recent changes in Ukraine could have a significant impact on the country’s courts and hence the creation of a functioning independent judiciary.  First, Civil and Criminal Codes and Codes of Procedure have been worked on.  Moreover, adoption of the Law on the Courts in March 2002 should provide for the organization of the courts, the creation of a State Court Administration Agency, an Academy of judges of Ukraine and the creation of a judicial self-governing body.  These moves are essential for the establishment of an independent judiciary.  All efforts should be made to ensure that there is follow through on these major initiatives as they will go a long way in developing the appropriate legal climate in Ukraine. 

Second, the pace of tax reforms has been sluggish at best, with draft tax legislation languishing in parliament.  Additional progress on tax reform is viewed as important in reinvigorating the business climate and reducing the size of Ukraine’s underground economy.  Requests have also been made for the country’s State Tax Administration (STA) to be reformed in a way that enhances transparency and curbs the aggressiveness displayed by the organization’s collectors and inspectors.  The STA appears to be one of Ukraine’s least preferred institutions.

Third, the Ukrainian government bureaucracy continues to function in much the same way as it did in the Soviet era.  Steps must be taken, for example, to reduce the number of officials required to register and run a business.

Fourth, a key challenge for policy-makers is to diversify the economy away from heavy industry.  Regrettably, industrial restructuring continues to be restricted by vested bureaucratic and economic interests and by the inability of political and business leaders to reach consensus on the need for change.

Fifth, Ukraine’s banking system continues to be at a relatively embryonic stage of development.  It is undercapitalized and weak, and does not meet the most basic needs of Ukrainian citizens.  The weaknesses in the system tend to hamper the raising of new investment capital, slow down the pace of privatization and restrict foreign investment.  Effective legislation is needed urgently to enable the central bank to deal with problem banks and to implement any necessary recovery plans.

Finally, Ukraine possesses incredibly rich soil for agricultural production, as well as a generally well-experienced farming population.  A key problem, apart from the drying up of certain export markets and shortages of fuel, equipment and fertilizers, has been that agricultural reforms have been virtually non-existent.  The Government of Ukraine is only now beginning to reform its agricultural sector, with plans to reform land ownership, improve the distribution of land titles and develop market institutions. 

Ukraine’s foreign policy direction might best be described as westward-looking and eastern-bounded.  There are a number of strong influences pulling Ukraine westward.  These include Ukrainian national sentiment in combination with concerns over Russian domination, Ukraine’s Galician heritage, a significant Ukrainian Diaspora concentrated largely in the new world states of Canada, the United States and Australia, a strong interest in attracting Western investment, and a desire to join its European neighbours. 

Looking eastward, mention must also be made of the links that Eastern Ukraine has with Russia’s economic infrastructure.  Historically, the two countries were an integrated economy for many years and close economic linkages continue to this day. 

Occasionally, statements have been issued that point out the difficulties and challenges facing Ukraine.  These include its geopolitical position with Russia, its large neighbour on its eastern flank; its two uncertain neighbours Moldova and Belarus and its European neighbours.  As Ukraine manages its internal politics, restructuring and identity, it is also cautiously identifying its foreign policy direction.  Simply stated, Ukraine is charting its course carefully between these, at times, competing interests. The Committee notes the comments of Andrew Witer who, referring to President Kuchma’s statement on Ukraine’s foreign policy direction, told us:  The strategic course for Ukraine is determined by its geopolitical position, its historical and cultural traditions.  And they clearly identify our state as a European one.” 

A May 2002 Ukraine announcement on its future relationship with NATO also bears noting.  After a number of years of demonstrating cooperation and a partnership with NATO, Ukraine’s Council of National Security and Defense (chaired by President Kuchma) made public the country’s intention to develop a long-term strategy to join NATO.  This announcement, no doubt following on that of the NATO Russia Council and Russia’s cooperative stance towards NATO, is the first time that such a definitive statement about NATO and Ukraine security has been given by the President.  While time will tell how precisely this will all play out, the announcement appears to indicate a slight shift to the West in Ukraine’s foreign and security policy.   

A.  Ukraine–Russia Relations

In general foreign policy and security matters, Ukraine and Russia have more recently had a pragmatic, fruitful relationship.  Ukraine relinquished its nuclear arsenal in exchange for security guarantees from Russia.  As well, the issues of Crimea and the Black Sea fleet no longer fester as they did before.  Presidents Kravchuk and Kuchma enjoyed good personal and formal relations with Boris Yeltsin, setting the tone for the current relationship between presidents Kuchma and Putin.  As noted above when discussing Russian foreign policy in the region, Soviet integration also forced post-Soviet Russia to take a lead role in managing CIS affairs.

President Putin has sought a closer relationship with Kiev including a February 2001 summit between the two leaders.[93]  Significantly, much of the meeting was about reconnecting the economic infrastructure of the two countries.  The leaders pledged closer economic and technical co-operation, including joint production in aerospace, arms and energy.  Ukraine also agreed to reconnect to Russia’s energy grid.

Energy is a key factor.  Ukraine is heavily, if not almost completely, dependent on Russian energy – particularly natural gas – for both consumer and producer use.  Ukraine’s role as a conduit and purchaser of Russian energy cannot be overstated.  According to Larry Black, Ukraine buys Russian energy that Russia would like to export to the West at world prices.  Lorne Cutler indicated that Ukraine has not paid a significant portion of its gas bills.[94]  The Russian potential to bypass Ukraine and go through Poland gives Russia considerable leverage as well, according to Sergei Plekhanov.

The Committee was informed that Russian and Ukrainian oligarchs have a mutual interest in bilateral relations.  Russian companies are investing heavily in Ukraine’s energy and industrial sectors.  The appointment of Viktor Chernomyrdin as Ambassador to Ukraine symbolizes the nature, importance and depth of the relationship.  Ambassador Chernomyrdin is President of Gazprom – the giant Russian gas monopoly – and a former Prime Minister of Russia.

Witnesses disagree strongly on Russia’s ultimate objectives with respect to Ukraine.  According to Bohdan Klid, Russia desires to create in Ukraine a client state as a near-term solution.  Ukraine’s politicians would consequently be reliant on Moscow for the approbation of their policies, with the long-term prospect being eventual reunion.  Certainly, for a state that has finally achieved independence, the prospect of significantly losing aspects of sovereignty to its larger neighbour is alarming.

There are elements in both countries that see a “gathering” of the Slavic lands:  a re-unification of the Slavic republics of the Soviet Union:  Russia, Ukraine, Moldova, Belarus and possibly Kazakhstan.  However, this is not a majority opinion among elites or masses, save possibly in Belarus, and as Larry Black noted, those in favour of Pan-Slavism are not known for their logical capacity.  The idea has gained credence from time to time as individual politicians have used Pan-Slavic structures to insulate themselves from domestic politics.[95]

Gene Fischel of the U.S. Department of State echoed some of these concerns and in particular singled out the appointment of Mr. Chernomyrdin as indicative of Russia’s interest in controlling Ukraine.  Other witnesses read less into Russian intentions.  David Marples informed the Committee that Russia’s attitude toward Ukraine is not predatory.  Russia’s interest in Ukraine is natural, given security and economic realities and the internal dynamics of contemporary Russian politics.  Fergal O’Reilly commented that Russia’s interests are born of a calculation made on commercial interests.

Finally, according to Sergei Plekhanov, it is not the depth or strength of the relationship that matters, but the basis: 

If Russia and Ukraine become closer on the basis of authoritarian politics, it will not be a good situation.  The two great Slavic nations should be friends as democratic countries.  Whether closer relations between Russia and Ukraine will be conducive to the development of democracy and a stronger market economy remains to be seen.

It is not good that the Ukrainian President, beleaguered as he was in recent months, has found salvation in the Kremlin’s embrace.  Many democratic forces in Ukraine did not like to see Russia coming to the aid of a leader who has apparently made significant errors.  This type of development should be a cause for concern.

B. Ukraine and the West: Security Perspectives

In security matters, Ukraine is a signatory to the Partnership for Peace (PfP) program with NATO and the two also have a Charter on a Distinctive Partnership.  Canada plays a lead role in this partnership in all areas and councils of NATO.  While Ukrainian public opinion is not fixed and at times has shifted away from NATO to greater cooperation with Russia and the CIS, Ukraine’s engagement with  NATO appears to have shifted.  

 It remains to be seen how this will affect both the public opinion in Ukraine and the long-term security arrangements that Ukraine will foster.  Suffice it to say that Ukraine’s formal military requirements as stated by David Marples are relatively small at this point.  Indeed, Ukraine’s military security concerns are minimal in the post cold war era. 

Rather, Ukraine has contributed in the multilateral arena by providing peacekeepers, participating in military manoeuvres with NATO, and through the Partnership for Peace programme. Ukraine continues to cooperate with Russia on mutual defence issues.  Certainly the events of 11 September 2001, the need to cooperate on terrorism strategies, the shift in Russia’s defence policy and thinking and the expected expansion of NATO eastward appear to provide more opportunities for Ukraine to develop a more stable and coherent defence and security policy.  It would be an opportune time for Canada to take a leadership role in ensuring that as NATO appears ready for expansion and a new relationship with Russia that Ukraine’s geopolitical position be taken into account.

While NATO has historically been viewed ambivalently by Ukrainians, the role of Europe and its relationship to Ukraine appears to be seen more consistently in a positive manner.  However, the European Union (EU) has alienated Ukraine, especially as the EU moves to an internal clock and to internal rules that accord no flexibility for Ukrainian needs.  Access to the European market, let alone joining the European Community Law (acquis communautaire), requires allowing competitive European imports in, and also dealing with the complexity of European regulations and subsidized exports.  In the meantime, Ukrainian migrant workers and Ukraine’s trade with other Central European states that are, or will be, EU members have been affected.  On human rights, Bohdan Klid suggested that Ukraine sees the European Union and the Council of Europe as hypocritical, treating Ukraine far more harshly than other post-Soviet states.

C.  Ukraine’s Other Option: GUUAM

Ukraine has tried to balance its interests.  Considerable effort has already been invested in the GUUAM (Georgia, Ukraine, Uzbekistan, Azerbaijan and Moldova) group.  At its heart is developing regional co-operation through transportation – read oil pipeline – corridors.  GUUAM has proposed a pipeline project that would transport natural gas across Ukraine and Poland to Western Europe.  It aspires to build a region connected and integral to Europe and to Asia, rather than having the region become a forgotten zone.

For Ukraine, the concern is not only about economic development and regional infrastructure but also about being a European link to Eurasia.  Bohdan Klid argued that Ukraine offers Central and Eastern Europe the best option for oil and natural gas.  Ukraine completed a major oil pipeline in 1999 that could connect to Central Asia through Georgia.  He felt the West should support this option over the Turkish–Black Sea transit route.  Ukraine has negotiated with Poland to become an exit point to Europe for natural gas as well. Other witnesses also pointed out the potential of GUUAM for Western energy needs.

CANADA’S FOREIGN POLICY OBJECTIVES 

There is a long established relationship between Canada and Ukraine based on commonalities and on family ties. Western Canada and Ukraine have both been breadbaskets to the world.  This commonality was a constant through the Soviet era as Canadian agricultural assistance and agricultural connections were in the main directed to the Ukraine SSR (Soviet Socialist Republic). In the post-Soviet period, this issue remains one of great potential. Another commonality, more prevalent today, is that we each share a need to deal with a globally powerful neighbour. Such a position can lead to a common worldview in seeking solutions to affairs between states in a rules-based international system and through a mix of multilateral and bilateral negotiations and structures. Finally, we share family. There are a million Canadians of Ukrainian descent. For many Canadians, Ukraine is a homeland: Ukrainians are cousins, uncles and aunts, grandparents, sisters and brothers. Many policies between the two countries reflect Canada’s desire over the years to ensure that families are not disconnected by the affairs of state.

In 1991, as Canada celebrated the 100^th anniversary of the settlements of Ukrainians in Canada, the Government of Canada became the first western nation to formally recognize Ukraine as an independent country.  Since that time, Canadian policy has been to encourage and support the reformist attitudes towards a new and democratic state as indicated by Mr. Eugene Czolij, President of the Ukrainian Canadian Congress, in a joint declaration on continuing development of the special partnership between Canada and Ukraine signed 5 December 2001. The declaration states: “that the secure existence and territorial integrity of an independent, prosperous and sovereign Ukraine is in the fundamental interest of Canada and the entire international community”.  

Mr. Czolij went on to declare that a reiteration of support for this principal by the Senate of “such a statement would not be simply a complacent affirmation but would shed further light on the benefits all Canadians derive from Canada’s international involvement.  Indeed, this Committee has the opportunity to explain to Canadians that Canada’s assistance to Ukraine should not be perceived as a mere handout but rather as a strategic investment in its own future”.

The Committee is in agreement that this strategic approach in assisting Ukraine is of fundamental interest to Canada, as a secure and stable Ukraine would not only contribute to peace and stability but would also create a positive environment for trade and investment. This approach is in accordance with Canada’s generally stated foreign policy priorities. Therefore, the Committee recommends:

Recommendation 12:  

That Canada continue to support efforts to realise a sovereign, prosperous,  democratic, and reform driven Ukraine through Canada’s involvement in multilateral institutions and in its bilateral relationship with Ukraine.

A. Aiding the Reform Effort

Canada continues to support Ukraine’s development.  Since Ukraine’s independence in 1991, Canada has provided $228 million in technical assistance designed to support the country’s transition to a market economy, to promote democratic development and good governance there, and to augment our bilateral trade and investment.  This year, Canada has committed $19 million in the form of Canadian International Development Agency (CIDA) technical assistance funding.  This level of support is the largest of all of the programs in place for Central and Eastern Europe.

The Committee heard from several witnesses on how Canadian involvement in Ukraine could be optimized. James Jacuta elaborated several priorities for Ukraine’s development: enhance efficiency and governance in public administration; consolidate bureaucratic and administrative structures at all levels; modernize the legal environment without upsetting any present stability; guarantee property rights and develop citizen input in NGOs; and develop open and transparent mechanisms for civil society.

Bohdan Klid informed the Committee that Canada should employ a coherent, co-ordinated assistance strategy involving long-term commitments.  This strategy should focus support on economic reform and assistance for the country’s nation-building and state-building efforts. 

CIDA would probably argue that it has now headed down this path. Mr. Daniel informed the Committee that CIDA’s focus is planted squarely on a number of key features of the reform process:  the continued transition from a command economy to a market one; the development of effective political institutions; and the emergence of a strong civil society.  The agency is particularly active in its efforts to combat corruption, improve public administration, reform the judiciary and establish an enabling environment for the emergence of a market economy. 

Some witnesses indicated, however, that they were concerned with the consistency of CIDA programming. Ostap Hawaleshka indicated that CIDA’s changes to program structures and management priorities had led to several start-stop cycles with projects in Ukraine. He cited in apposition a program he felt was “a premier shining light of aid projects,” the Science and Technology Centre of Ukraine. Mr. Hawaleshka believed that because it was a multi-country project in which Canada was just one partner, even if a key partner, the project was not subject to unilateral changes in management decisions and therefore was able to flourish. 

Canada has shown its capability and willing hand to assist Ukraine in its transition.  In continuing to establish a firm basis of trust and influence, one to the other, Canada must take every opportunity to lead in developing opportunities to assist in Ukraine’s reformation.  In so doing it should acknowledge that this support must be provided in  a long-term and consistent manner. The Committee thus recommends:

Recommendation 13:

That the Government of Canada employ a coherent, co-ordinated assistance strategy for Ukraine, incorporating long-term commitments focussing on economic reform as well as assistance for Ukrainian nation- and state-building.

Turning to specific initiatives, the Committee notes the useful work of CIDA and the Office of the Commissioner of Federal and Judicial Affairs in Canada on legal and judicial reform in Ukraine.  This bilateral aid effort should be renewed since it meshes well with the Committee’s stated opinion that consistent long-term infrastructure support is required to strengthen institutions.  The Committee therefore recommends:

Recommendation 14:

That the federal government continue and expand Canada’s role in supporting Ukraine’s undertaking of legal and judicial reform. 

Canada is also involved in an important program to reduce corruption among Ukrainian officials.  DFAIT officials informed the Committee that CIDA had joined the World Bank in a $2-million project to improve the overall quality of governance.  The Committee was also told that much could be accomplished in this area through the WTO accession process to develop a framework of laws.

Other important aid contributions have included support for scientists as well as assistance and advice in the area of agriculture.  With respect to farming, Canadian businesspeople have been active in attempting to promote Canadian agricultural practices in Ukraine and encouraging the privatization of the farm sector. Given the testimony presented to the Committee on the important role the scientific sector occupies in Ukraine and the vital opportunities Ukraine offers Canada in scientific and technological co-operation, the Committee recommends:

Recommendation 15:

That Canada strengthen its role in providing technical assistance to Ukraine, by directing more attention to long-term bilateral partnerships that take advantage of Ukraine’s scientific and technological potential.

Finally, support for energy, environment and nuclear safety has been a key ingredient of the aid effort.  Most important, Canada has been one of the driving forces within the G-8 to reinforce the shelter surrounding the remains of the destroyed unit 4 at the Chernobyl nuclear power site.  This “Shelter Implementation Plan” (SIP) is administered by the European Bank for Reconstruction and Development and is funded by donors both within and outside the G-87.  Canada has promised to provide $50 million for this project, which is to be finished by 2008.

B. Canada–Ukraine Economic Links

The economic relationship between Canada and Ukraine can perhaps be best described as underdeveloped when compared with the vast potential that exists.  In 2001, Canada–Ukraine bilateral trade totalled a mere $81 million, down from the $148 million of the previous year. Ukraine has definitely registered a surplus in the trade balance, with its exports to Canada dominated by steel.  Canadian businesses have been understandably cautious in seizing commercial opportunities within the Ukrainian market.

Canada’s stock of investment in Ukraine stood at $80 million in 2000, and was concentrated in the oil and gas sector and in glass.  Corporate examples include Northland Power’s involvement in the Darnitsia power project and Nadra Resources’ development of Ukrainian oil and gas potential.  More could be achieved if the foreign investment climate was improved and a legal system more effective in enforcing business contracts was developed.

Mr. Petryshyn reminded the Committee that, despite its problems, Ukraine remained at the forefront of important, leading-edge technologies: aerospace and ceramics, for example. There exist in Ukraine considerable human and infrastructural resources that could readily be developed to mutual advantage.

The Government of Canada is attempting to enhance access to the Ukrainian market and broaden the bilateral economic relationship both through WTO accession negotiations and the Canada–Ukraine Intergovernmental Economic Commission (IEC).  Canada, being a member of the WTO Working Party on Ukraine’s application for membership, is continuing to pursue a number of relevant issues:  market access; customs procedures; standards and other technical barriers to trade; and the protection of intellectual property.  The aim is to identify specific government policies in that country whose removal could stimulate additional bilateral trade and investment.  Canada will also continue to seek increased transparency in Ukrainian policy-making through the WTO accession process. 

The WTO process also includes bilateral market access negotiations.  Within these negotiations, Canada is seeking lower tariffs and the elimination of non-tariff barriers on products holding export promise.  Canada is also seeking commitments from Ukraine in key services areas, such as telecommunications and financial services.

For its part, the IEC is designed to enable the federal government and Canadian businesspeople to identify specific Ukrainian government measures that inhibit economic relations, and to bring forward Canadian concerns to senior Ukrainian ministers and to Ukrainian business representatives.  Included among the principal issues for review are taxation, standards and the discretionary application of regulations.

Finally, the Export Development Corporation (EDC), despite its best efforts and a US$20 million line of credit, has not been able to finalize any lending to Ukraine over the past five years.  The lending roadblock appears to be Ukraine’s internal procedures for using the credit.  The Committee recommends:

Recommendation 16:

That the Government of Canada immediately enter into discussions with the Government of Ukraine to identify the precise impediments to the use of Export Development Corporation’s line of credit for Ukraine, and subsequently establish a mechanism to alleviate these impediments. 

C.  Canada And Ukraine: The Special Relationship

During the course of the Committee’s hearings on Ukraine, a number of witnesses provided insights into the “special relationship”. The existence of this special relationship has many roots.  First, as was previously noted, the emigration of Ukrainians to Canada beginning in the 1890s has created a community in Canada that comprises some one million Canadians of Ukrainian origin.  Contact with Ukraine continues to be significant. According to testimony received, the Ukrainian embassy in Canada issued some 40-50,000 visas to Canadians in 2001. 

The role of agriculture in both societies has created a special affinity and contacts including those that date from Soviet times.  Canada’s reputation and leadership in building a new society incorporating many cultures is well known in Ukraine.  Finally, Canada’s ability to be a significant player on the international scene is also a fact of which people in Ukraine are well aware. 

The Committee asked representatives of the Ukrainian-Canadian community to elaborate on the bilateral relationship.  One crucial aspect of this relationship is the role played by numerous non-governmental and unofficial contacts extending from interactions between civil groups – farmers, for example – to family meetings, to small business investments. When Ukrainians meet Canadians of Ukrainian origin, one of the most important lessons they learn is that of success. 

Today, when visitors come to Canada from Ukraine they are hosted very well.  They see the success stories.  Everyone is getting a better education.  They are able to send their children to higher education.  They can take their place in government in a country like Canada.  There are Ukrainians in the Senate and in other governments.  They are premiers of our provinces.  That is an inspiration to Ukrainians in Ukraine. (Walter Makowecki)

The second aspect of this relationship, pointed out by Andrew Witer, is that “Ukrainians trust Canadians.” This trust translates into a capacity for Canadians to lend a hand and to design and implement effective projects.  Such effectiveness is perhaps displayed in the priority goals of education, public administration and technical assistance: the governance and civil society “basket” of Canadian programming. Ukrainians are well educated and proud, it was noted, but advice from someone perceived as close is easier to take than from others:

Every society has certain things that it values.  One of Ukraine’s highest values happens to be knowledge. … (Education) is engrained into the Ukrainian psyche.  It is something that Canadians have.  It is something that I think Canadians can transfer to Ukrainians, because it is not always easy to provide that to Ukraine, who are very proud people.  The Americans have had a problem with this because of their attitude, whereas Canadians have not.  (Andrew Witer)

Given the emphasis placed within Ukraine on education’s role in society and in development, given the special access and role Canada has in assisting Ukraine in educational programs, given the role education plays in identified priorities of nation-building and in science and technology, the Committee recommends:

Recommendation 17:

That Canada spearhead an effective knowledge transfer program incorporating student exchanges, scholarships and work programs.

The third aspect of this relationship is that it may introduce an extra, perhaps a spoiler, element into official calculations.  There may be considerable investment and interaction between Canada and Ukraine that is not showing up in those calculations:

Investments were measured in large investments and large companies and large dollar amounts, but we do not remember the virtually millions of dollars that are pouring into Ukraine by relatives of Ukrainians from all around the world.  I am not talking about getting money out.  I am talking about people that start a hardware store, an ice cream factory, a confectionery store or whatever.  Virtually thousands of these kinds of businesses are starting up, and the funding is coming from Ukrainians in Canada and United States and Europe and other parts of the world.  There is no record of this investment.  Perhaps that is why we see a 13 per cent increase in small business in Ukraine, whereas in Russia last year there was a 2 per cent decrease in the start‑up of small businesses.  Perhaps one of the reasons is that these are things that are not recorded. (Andrew Witer)

These aspects of the Canadian–Ukrainian relationship hold implications for the tracking and development of programming to Ukraine. Concerns such as these have led to a demand for information by Ukrainian Canadians and presumably others involved in Canada–Ukraine affairs – information for the purposes of co-ordination, proper targeting of programs and effective harnessing of existing contacts and past experiences. To that end, the Committee recommends:

Recommendation No. 18:

That three databases be developed and then be made available on the Internet and accessible to anyone interested:

·                    A database of Ukrainian‑Canadian expertise that could be brought to bear on Canadian aid to Ukraine. 

·                    A database of aid projects presently under way between Canada and Ukraine.  These would involve government, NGOs, private organizations and individuals.

·                    A database of Ukrainian‑Canadian organizations that could be involved in assistance projects to Ukraine. 

While much was said about how the special relationship benefited to Ukraine, less was spoken of the direct benefit to Canada.  Certainly, by implication, testimony suggested that Canada’s favourable position should help individual Canadians and Canadian corporations seeking to do business in Ukraine. However, as the Committee also heard, many others (e.g., Europeans) are present in large numbers in the Ukraine and bring other advantages to the table, such as the carrot of EU membership and significant potential aid and investment money (Ostap Hawaleshka). We have concluded that goodwill needs be partnered with more tangible Canadian assets.

Canada’s ability to assist effectively in technical programs supports the Canadian priorities of democratization and economic reform in Ukraine.  It benefits us indirectly in helping stabilize Ukraine as a strategic part of the world and a neighbour to both Russia and NATO. 

Yet another consideration worthy of the Committee’s attention is the question of immigration.  Information was received from witnesses and other sources to indicate that Canada should re-examine its current immigration and visa practices with respect to Ukraine. 

The comments made previously on Canadian immigration policy in the chapter on Russia also apply to Ukraine.  With a high concentration of Canadians of Ukrainian decent who were deprived of family reunification or access to Ukraine during the Soviet period, it would be opportune and desirable to ensure that this segment of the Canadian population has the same opportunities and access as others in Canada have had.  Therefore, the Committee recommends: 

Recommendation 19:

That the federal government take the necessary steps and procedures to ensure that an effective capacity in Ukraine be established to handle expeditiously immigration and visa requests.  Particular attention should be devoted to address family reunification issues.

However, some members of the Committee were concerned that the sum total of Canadian–Ukrainian relations not be based solely on the strength of Canadians of Ukrainian descent.  To truly support and create a full relationship with Ukraine, the relationship should be based on, as some witnesses expressed, a more developed Ukraine that has a common interest in bilateral and multilateral fora and in international institutions such as the United Nations, NATO, WTO, and the Council of Europe.  Therefore, the Committee recommends :

Recommendation 20:

That while noting that the special relationship between Canada and Ukraine remains important, Canada broaden its foreign policy approach to take into account all of Ukraine’s aspects and potential.