Proceedings of the Standing Senate Committee on
Foreign Affairs

Issue 10 - Evidence

OTTAWA, Wednesday, June 7, 2000

The Standing Senate Committee on Foreign Affairs met this day at 3:30 p.m. to examine and report on emerging political, social, economic and security developments in Russia and Ukraine, taking into account Canada's policy and interests in the region, and other related matters.

Senator Peter A. Stollery (Chairman) in the Chair.


The Chairman: Honourable senators, this is the second meeting on our new mandate. Today's meeting is on Ukraine, and I would like to extend our welcome to the ambassador of Ukraine, who has come to hear our proceedings today.

I should like to call on Mr. James Wright, who is well known to us on the committee. Please proceed.

Mr. James Wright, Director General, Central, East and Southern Europe Bureau, Department of Foreign Affairs and International Trade: Mr. Chairman, the last time I had the honour to appear before this committee, I spoke about Russia. Today I have the opportunity to speak about Ukraine. While some people still tend to look at Ukraine through the prism of Russia, the problems and challenges that this country of 50 million people face are uniquely Ukrainian, as are many of the solutions. It is a fully independent state, struggling with new-found autonomy, trying to achieve its European ambitions and trying to balance its future with its past.


There are many experts on Ukraine, and all of them, Ukrainians included, are frustrated by the slow pace of transition to a pluralistic society and a market economy.


We need to keep a perspective, however. On the eve of independence in 1991, Ukrainians had no single view of themselves and their place in the world. The west of the country spoke Ukrainian and looked to the West. The east and south, and the major cities, tended to speak Russian and looked to Moscow. Even now, over half the country and over half the capital of Kiev considers Russian its mother tongue.

On the eve of independence in 1991, there was no history of democracy in Ukraine. It spent 70 years under the yoke of communism, and most of the preceding millennium as part of the Russian, Polish and/or Austro-Hungarian empires. None of these empires had a functioning democracy, none were interested in the views from the colonies, and certainly none had much interest in Ukraine beyond what they could take.

On the eve of independence in 1991, Ukraine had virtually no government. The state structures inherited from the Soviet Union served to administer Moscow's orders. They had no capacity to develop policies or to assess policy options, and they had none of the machinery needed to manage a modern economy -- things we take for granted. Ukraine had to learn the basic skills from the ground floor.


It is essential to take into account Ukraine's inheritance. Unlike Poland, often used as a stalking-horse to measure Ukraine's progress, Ukraine was inside the Soviet Union, it was collectivized with negative consequences, and it had no history of private markets. Its industry was shaped to supply Soviet factories, and its agriculture was developed to feed the other Soviet republics. Where Poland often had only to restore what was lost, Ukraine had to create new structures.


At independence in 1991, Ukraine struck out on its own to build a new state. The clear priorities in building independence were to establish a constitution, to develop good relations with its neighbours, and to find a peaceful solution to the difficult problem of the division of the Black Sea fleet and the basing of the Russian elements.

These priorities made good sense from Ukraine's perspective. By 1994, power was passed peacefully from one elected leader to another elected leader, something that had never happened before in Ukraine. On June 28, 1996, Ukraine adopted a new constitution. By 1998, Ukrainian leaders had worked out agreements with their neighbours to secure their external borders, including a compromise on the thorny issue of the Black Sea fleet.


Progress in other areas has been disappointing. In 1991, Ukraine embraced independence and declared a commitment to democracy and the creation of a market economy. Canada and others welcomed this choice and committed time, money and effort to help Ukraine attain their self-professed goals. Ukraine's ambitions remain unchanged, but the delays in introducing a meaningful reform has hurt Ukraine, and by extension the people of Ukraine.


The Ukranian economy provides ample evidence of the problem. It collapsed in 1991 and it endured nine straight years of contraction that has brought the economy to one-third of its pre-independence level. Its industry has faltered and agriculture has failed. Once the bread basket of the world, Ukraine is today a net importer of food and pools of investment capital have gone elsewhere. Since 1991, Ukraine has been able to attract some U.S. $2.5 billion in foreign direct investment. This compares to approximately U.S. $15 billion in Poland and U.S. $16.5 billion in Hungary.

The reasons for Ukraine's economic malaise are well known, and we have made repeated interventions with the Ukrainian leadership on the list of key problems. Ukraine needs fair and transparent rules, an equitable and predictable tax system, a legal system that can enforce contracts, and the creation of a culture that welcomes foreign businesses as partners.

It is important to remind ourselves that the Ukranian leadership have repeatedly committed themselves to the reform program and have developed plans and programs for reform; however, they have not always delivered on their priorities.

The consequence is the extreme difficulty that Ukraine has experienced with the IMF and, to a lesser extent, with other financial institutions. Although Ukraine signed an extended fund facility with the IMF in August 1998, this has been suspended since September 1999 over concerns about Ukraine's performance in reaching key benchmarks.

More recently, concerns over how Ukraine handled IMF funds have delayed a resumption of support. We hope, of course, that these delays are temporary and will be overcome soon. In turn, commercial banks and official credit agencies such as the EDC are cautious on their lending to Ukranians. Despite best efforts and a U.S. $20 million line of credit, the EDC has been unable to bring to a conclusion any lending for the past five years. Ukraine's internal procedures for utilizing the credit have been the main reason.


Another consequence of the economic malaise is that Ukraine's relations with Russia have become increasingly more complex and difficult. Ukraine's mounting energy debts in particular give Russia leverage that is would not otherwise enjoy, while the unfriendly investment climate makes it improbable for Ukraine to resist Russian commercial interest. This relationship bears careful attention in the future.


Despite the difficulties of the economy, Ukraine has made genuine progress on its "multivectored foreign policy." Ukraine is a nuclear-weapons-free state, having voluntarily surrendered the nuclear weapons inherited from the Soviet Union, an accomplishment that does not always gets the recognition it deserves.

Ukraine is seeking an equilibrium between strategic relations with neighbour Russia, its partner the United States, and what it hopes will be its future home, the European Union. The principal milestones on this road include an historic agreement with Russia recognizing Ukraine's independence and territorial boundaries, a partnership and cooperation agreement with the European Union, and a distinctive relationship with NATO. Ukraine is currently a member of the UN Security Council for the term 2000-2001 and a signatory of the Ottawa treaty banning antipersonnel land mines.

We look forward to early ratification of the Ottawa treaty by Kiev.


Ukraine remains an important partner for Canada, and we have made extensive efforts to support Ukraine in its efforts to build independence and make the transition to a market-based democracy. We were the first Western country to recognize Ukraine. Senators will recall the G-7 Conference on Ukraine's Economic Future that Canada organized and hosted in Winnipeg during our presidency of the G-7.

This was President Kuchma's very first trip abroad as Head of State. And senators will recall that in January 1999, the Prime Minister along with then International Trade Minister Marchi visited Ukraine with a business delegation of some 150 companies.

The Prime Minister delivered a very clear message: Ukraine's future is tied to reform of its economy. While Canadians want to help Ukraine prosper, only through reform can Ukraine create an environment that will attract and keep investors and business people.


These are the high points in a very extensive program of high-level visits that have built a strong bond between our two countries. Next week, Minister Axworthy is hosting Ukrainian Foreign Minister Borys Tarasiuk on an official visit to Winnipeg and Ottawa.

Senator, you have agreed to meet with Mr. Tarasiuk, and I understand committee members are invited to join you for that session.

Canada has sought to help Ukraine in more tangible ways, as well. At more than $20 million a year, our technical assistance program seeks to build the key competencies in Ukraine to sustain reform and democracy. To date, more than $200 million has been expended on programs aimed at core objectives. These include supporting the transition to a market economy, promoting democratic development and increasing Canadian trade and investment.

Allow me to give several examples of the many ways in which our technical expertise has assisted Ukraine. Canada has made significant contributions to improving nuclear safety in Ukraine, both at Chernobyl and more generally.


Through our support for the Science and Technology Centre in Ukraine, we have worked to refocus scientists previously engaged in designing weapons of mass destruction away from the military and towards civilian projects.


Agriculture is central to the essence of Ukraine, and strengthening and improving this sector is critical to the future of the country. Canada has been able to find areas where we can help out. For example, the Saskatchewan Trade and Economic Partnership, STEP, are doing good work in cattle forage and seed production. In partnership with the International Finance Corporation, an agency of the World Bank, we are working on the critical issue of privatization of agricultural land. Through the Policy Advice for Reform project, or PAR, practical advice on food inspection, community pastures and other issues has been delivered.

There are other initiatives as well. Ukraine is the largest recipient of support from Canada's Military Technical Assistance Program, MTAP, building language skills, peacekeeping abilities and civilian control of the military. We are partners with Ukraine, for example, in our peacekeeping efforts in both Bosnia and Kosovo.


Canada provided over U.S. $50 million to Ukraine early in their independence through Canada Account Export Financing.


The Legislative Cooperation Project has contributed to the development of the Ukrainian Parliament, the Rada, as an effective legislature. Senator Andreychuk has been particularly active in supporting this program.

Likewise, we have played a leadership role in training Ukrainian judges based on our own judicial system.


Canada has taken on a special role in the G-7/G-8 and other international fora on Ukraine's behalf, and has provided extensive assistance for the after-effects of the Chernobyl disaster.


We have served as the NATO contact mission in Kiev to encourage and support the development of Ukraine's distinctive relationship with the alliance.


Canadian security policy rests heavily on the maintenance of peace and stability in Europe, and accepts as a given that an independent, politically and economically stable Ukraine is key to stability in Europe. We strongly support Ukraine's integration into the Euro-Atlantic security structures, especially the OSCE, and the development of Ukraine's distinctive relationship with NATO.

Canadian economic policy rests heavily on creating jobs and prosperity through international business. Ukraine has tremendous needs for goods and services, technology and investment to rebuild itself. Canadian businesses were quick to enter Ukraine to pursue these opportunities. These companies are more realistic today about the challenges of doing business in Ukraine. They nevertheless remain active seeking to make their various business ventures successful.


Canadian foreign policy also seeks to promote Canadian values abroad and to generate awareness of Canada and what we stand for. Ukraine has been a willing audience for these messages, in part because of the favourable impression of Canada as a home to more than 1 million people who trace their roots to Ukraine. Ukraine's choice of democracy within a market economy reflects Canadian core values.

We have created two specific bodies to help us in some of our work on Ukraine. Minister Axworthy's advisory council was established in 1996 to provide advice to the minister on Ukraine. The Ukrainian Canadian Congress coordinates the community representation.

On commercial files, we have established the Intergovernmental Economic Commission, which meets yearly to discuss business issues and problems. This has proven effective in coordinating Canadian business input on the various economic files. The next meeting of the IEC will be in Ottawa on October 23 of this year.

The re-election of President Kuchma in November and the appointment of Prime Minister Yuschenko in December offered hope for meaningful economic reform. We were impressed by the changes in President Kuchma's inauguration speech, as well as in the Yuschenko government's action program. We strongly supported Prime Minister Yuschenko, the most reform-minded prime minister Ukraine has had for many years. We look forward to early progress in translating these important promises into real achievement.

As a first priority since returning to office, President Kuchma has led his country into a debate on constitutional reform, in an effort to address his long-standing concerns over difficulty in working with the Ukrainian parliament. In our view, this comes with some costs, such as delays to the economic reform package, something which we think Ukraine cannot afford.


We believe that the key to Ukraine's prosperity, its integration in the world economy, and its ability to obtain credits from international financial institutions and to attract foreign investments lies in carrying out serious economic reforms going beyond, in some cases, those already announced by the government. They should include:

- a transparent system of privatisation capable of attracting strategic investors;

- a reorganization of the energy sector so as to put an end to monopolies and make possible its privatization and economic viability;

- a genuinely balanced budget, a reform of the tax code so as to make the system of taxes transparent and free from political pressure;

- the introduction of a commercial code;

- further simplification of the regulatory structure.


Private land ownership remains a key reform objective, notably by fully putting into practice the right to private farms as set out in the presidential decree of last December. A moderation of tight restrictions on foreign investment and foreign trade would represent positive steps toward Ukraine's accession to the World Trade Organization, the WTO, an ambition Canada fully supports, including through our technical assistance program.

The government of Prime Minister Yuschenko is working on many of these reform initiatives, and he is to be credited for that. A new tax code is expected to be considered by the Rada before its summer recess at the end of July. There have been extensive efforts to abolish collective farms and to privatize land. Encouraging efforts are underway to reduce the size of government, streamline approvals, and Ukraine is making positive signals about its intentions to meet WTO membership criteria -- all steps in the right direction.

Clearer progress on this front would make possible closer commercial ties between our two countries. At present, in spite of our efforts, the business between our two countries remains fairly modest. Last year, we exported $29 million to Ukraine and imported something in the order of $59 million. Canadian investment in Ukraine is in the order of about U.S. $50 million. Our investment program has focused on agriculture, construction and energy, and we have enjoyed some limited success on these files.

Northland Power of Toronto has been instrumental in the renovation of the Darnitsia power plant, supplying electricity and heat to eastern Kiev. Nadra Resources of Calgary reports commercial success in extracting oil and gas in the Poltava region of Ukraine. There are other stories as well.

We had high hopes for Ukraine in 1991. Canada put forward significant effort to help Ukraine obtain these ambitions. While the road has proven to be more difficult than anticipated, the goal of Canadian policy remains unchanged -- to support Ukrainian independence and economic growth. We believe that the reasons behind Canadian engagement in Ukraine remain valid. Our commitment to assisting Ukraine along its chosen path remains strong and undiminished.


Over the next year, the Canadian government will be paying particular attention to the following issues:

- structural reforms in the economy, such as taxation, privatization, land reform and energy reform;

- management of Ukraine's debt, both to the international financial institutions and to Russia;


- the evolving relationship between the Ukrainian parliament, the presidential administration and the government;

- Russia's ambitions with Ukraine and the "near abroad" in the context of the evolution of Ukraine's foreign policy trying to balance relations with Russia and Euro-Atlantic partners;

- the nuclear safety files and, in particular, Ukraine's commitment to the G-7 to close Chernobyl.

In this respect, we are particularly encouraged by the announcement of President Kuchma of this week to shut down the Chernobyl facility on December 15 of this year.

Finally, there are the business development efforts and hopes of Canadian enterprises.

The initiative of this committee to review Canada's relations with Ukraine is therefore most welcome and timely. How Ukraine develops and evolves is of great significance for Canada. You will have the opportunity to hear from Canadian businesses, NGOs, academics and a large and dynamic Ukrainian Canadian diaspora about their views of the problems and their ideas on how Canadian policy and effort should change and evolve to match the new challenges. We look forward to hearing your findings.

Mr. Chairman, at the last hearing, a number of individual senators raised a variety of questions pertaining to Russia, in particular with respect to trade relations, relations with Russia's regions, the whole issue of federalism, the Arctic bridge and telecommunications. We have put together some background material that we will make available to the committee clerk. I think it will answer some of the questions that honourable senators asked at that hearing.

Senator Grafstein: Canada was the first Western country to recognize the independence of Ukraine, which was based on a long and historic tie with the immigrants who came from Ukraine to help develop this country. We are delighted, Mr. Wright, with you and your unit.

I do not want to spend much time reviewing the history of Ukraine before 1991. However, I might take a more generous approach to the history of Ukraine. Throughout the ages, Ukraine has always maintained a strong national identity. The Ukrainians have maintained their language. They have a strong culture, a strong poetic sense and strong governance of a different kind.

I hope that the ambassador, as he listens to this testimony, will understand that this committee, hopefully, will delve into some of these matters because the way Ukraine does business today, to a large measure, depends on its cultural roots.

It may not seem that it is decision making in our terms, but there certainly is a democratic form of decision making that is somewhat different. When we hear from the ambassador or from other people, I hope that we will be able to delve into that history more thoroughly.

Having said that, I wish to go forward for a moment. The purpose of our exercise is to foster, if we can, better economic and cultural relations with Ukraine because of our existing ties and because of our economic and national interest. Let me start with some facts that were not mentioned.

I have been to Ukraine on several occasions. I was surprised by the high level of literacy in the country. Can you give us any information about the literacy in the country? My understanding is that the literacy rate in Ukraine is higher than in Canada. About 18 per cent of our population is illiterate.

Mr. Wright: You may well be right. It is a highly and well-educated society.

Senator Grafstein: I am trying to put the country into some sort of perspective.

Second, as to its primary education system, again my take on it was a pleasant surprise, namely, that the youth and the population of Ukraine had a high level of knowledge of the basic sciences -- math, biology, and so on -- again on a par with, if not higher than, Canada. I am talking about the primary and secondary level, not at the post-secondary level. Is that accurate? That is my anecdotal take on the situation. Does that reflect your deeper analysis?

Mr. Wright: Your anecdotal take is very accurate. They have a highly developed primary and secondary education system focused on the sciences. In fact, one of the challenges that faces Ukraine today is how to use that expertise effectively. When Ukraine was a member of the Soviet Union, a lot of that expertise had been directed toward the military-industrial complex, so the transition, at the demise of the Soviet Union, to a market-based economy has been a difficult one, in part because of that prevailing set of circumstances.

Senator Grafstein: You anticipated my next question. Again, my anecdotal observation from visiting Ukraine was that when it was part of the Soviet Union, it possessed a high degree of technological skill in heavy aircraft, in very complicated and state-of-the-art military equipment, as well as in biology and cybernetics, perhaps not as advanced as Microsoft, but well in advance, in many respects, of Mother Russia itself.

Mr. Wright: Yes.

Senator Grafstein: The test is this: How do we assist a country with which we have close relations to make the transition into a more modern, technologically advanced state? That is one of our challenges.

Mr. Wright: You have put it effectively. One of the programs to which CIDA attaches high priority deals specifically with this area. It is the Science and Technology Centre of Ukraine. There is in Ukraine a repository of highly skilled and highly educated scientists who had been involved in the military-industrial complex -- aircraft, tanks, guns, missiles, some of the best technology in the world. The question is how to go ahead now and take that expertise and turn it toward civilian use.

Senator Grafstein: Swords into ploughshares.

Mr. Wright: Yes. This scientific centre in Ukraine is a project that involves support from a number of key countries: the United States, Sweden, Japan and the European Union. It is an area that the international community recognizes is needed to help Ukraine make this transition. We have to help them in this swords-into-ploughshares exercise.

Senator Grafstein: I was also interested, when I was in Ukraine, in their agricultural system, which had many faults -- not so much the faults of Ukraine but certainly the faults of the Soviet imposition of styles and methodology, particularly in the horrid period of the thirties. I came across an interesting statistic, namely, that in 1914, Ukraine, with Russia, outstripped Canada in agricultural output on a per capita basis. That was a sketchy fact, but I found it curious that pre-revolutionary Russia, or at least Ukraine and the western portions of Russia, on a per capita basis, outstripped Canada in agricultural output.

Mr. Wright: Your anecdotal information is much deeper than mine on that particular period of history. However, it would not surprise me if that was correct.

Senator Grafstein: Thank you, Mr. Chairman, for indulging me on that. It has been helpful for me to refocus my mind on this material.

Mr. Wright: I take the senator's point with respect to the very rich history, culture and language of Ukraine. The comments that we made at the outset were not intended to denigrate that very rich history, tradition and culture, which does guide that culture and that society today. It is a different system of governance than what we were referring to in our opening statement.

The Chairman: Before I turn the floor over to Senator Taylor, I should like to remind everyone that Senator Andreychuk is travelling today and cannot be with us. She wanted to attend this meeting particularly but could not get here. We all know she is most interested in this subject.

I have one question, because I do not understand something that was given to me.

Some members of the committee follow the activities of the Council of Europe. I gather that there has been a difficulty at the Council of Europe with Ukraine. I do not understand the difficulty, so I am not trying to be provocative. I should like other members of the committee to understand it as well. There seems to be a controversy over a referendum to change the constitution. From the information that I am looking at, it seems that they have been threatened with suspension of their membership on the Council of Europe. Could you fill us in on that, please?

Mr. Wright: Mr. Chairman, I will ask Mr. Brooks to answer that question in two respects: What is going on right now in the Council of Europe, and more generally on the question of the referendum.

Mr. Robert Brooks, Deputy Director, Eastern Europe Division (Belarus, Central Asia, Moldova, Ukraine), Department of Foreign Affairs and International Trade: Indeed, at the last meeting of the Parliamentary Assembly of the Council of Europe, there was long and detailed debate on the issue of the Ukrainian referendum.

The referendum was undertaken by the president following the last election. It was held on April 16. The difficulty that the Council of Europe <#0107> and others <#0107> had with it is that the questions were designed in a way so as to put limits on the Rada. I will not go into detail on the questions, but they were putting limits on the Rada.

The Chairman: Is the Rada the parliament of Ukraine?

Mr. Brooks: The Rada is their parliament, yes.

Many members of the Council of Europe had a great deal of concern about the relationship between the presidency and the Rada and voted to consider suspension of Ukraine from the Council of Europe if the results of the referendum were unconstitutionally implemented. That would also mean that if the referendum were unconstitutional and unfair, and if they went ahead with these measures which would severely limit the power of the Rada, then the Council of Europe would come back and take a look and actually go ahead with the suspension. Thus, it is a threat of suspension against the possibility of an unconstitutional adoption of the measures.

There are two bills before the Rada at the moment, one from the presidency and one from the Rada dealing with the implementation of those measures as they came out of the referendum.

Ms Ann Collins, Director, Eastern Europe Division, Department of Foreign Affairs and International Trade: The Parliamentary Assembly of the Council of Europe, the PACE, made the recommendation on suspension. I say that to distinguish between PACE, the parliamentary assembly, and the Council of Europe.

The Chairman: Is the issue finished?

Mr. Wright: The issue is pending.

Senator Taylor: For a number of years, I represented the most Ukrainian rural area in Canada, in northeast Alberta. It is called Smokey Lake. A farmer exchange was started there. They seemed to have a great deal of trouble with the Canadian government in letting young farmers come over from Ukraine to train and work with Ukrainian-speaking farmers in northern Alberta. It is one of those long bureaucratic things that goes on and on. A few farmers came over here, were married and wanted to stay in Canada. The Department of Immigration becomes hyper when they see a Ukrainian farmer who asks to have a relative come over here or if someone from Ukraine asks to come over here. Yet, the agricultural economy has lagged in terms of productivity per unit, although as Senator Grafstein mentioned, they come from a wealthy food basket. However, on a per capita basis, their use of machinery and, in particular, livestock, is quite different from our system. For instance, we have learned to winter our cattle outside, which means that we can handle 10 to 15 times as many cattle per hectare as they do. They insist on handling their cattle inside. Doing it inside brings about a lot of disease because of poor ventilation, and so on. I am citing that as an agricultural example.

We have progressed in a great many areas. Yet, it is still extremely difficult for the department to permit young farmers from Ukraine to cross-pollinate with ours. Would you like to reply to that?

Mr. Wright: That is a good question. I am not sure "exchange" is the right word in the sense that the movement is only one way.

Senator Taylor: We were giving information and they were sending the people.

Mr. Wright: For a period of time, Grant MacEwan College in Alberta was hosting a program that brought agricultural workers to Canada. It was in an effort to introduce them to Canadian techniques, which are quite different. We have a much more mechanized system of agriculture than is available in Ukraine. We use different techniques.

There are a couple of problems. First, the Canadian host, Grant MacEwan College, dropped out of the program some years ago. I do not fully recall the background as to why they felt as though it was not worth pursuing. Part of the problem related to the fact that there were instances where individuals were staying beyond the time their permits allowed under this program. They were claiming refugee status. Concerns were raised by the Department of Immigration as well.

We have a fairly active technical assistance program on the agricultural side. Although there may not be farmers coming over here to work in Canadian fields, there are opportunities for us to go ahead and promote Canadian practices in Ukraine. A number of Canadian businessmen are over there in the agricultural sector trying to promote Canadian practices and encourage privatization. It is a slow process, but we are trying to communicate our way of doing agriculture to those in Ukraine, where they have a less successful system.

We recognize that this is a temporary problem. Ukraine possesses some of the richest, if not the richest, agricultural land in the world, and it is only a matter of time before Ukraine comes back like gangbusters. We are trying to help them along the way.

Senator Taylor: You touched on the fact that hosting was the problem. The Department of Immigration would not even recognize a co-op of farmers who wanted to act as hosts. They were asking the Government of Alberta if they could do it. I do not see why one or two Canadian farmers cannot bring over one or two Ukrainian farmers. Being an old farmer myself, there is nothing like going out there and seeing the cattle survive in 40-below weather, rather than having a professor from Canada tell you, "Don't worry, they live in 40-below weather." Farmers want to see the proof in the pudding.

I know we mean well when we send over these experts, but I ask you to consider the situation in reverse. Let us say someone with a Ph.D. came here from Madras and tried to tell you how to grow canola -- you would be a little skeptical. Agriculture is very complex.

I would ask you to ask the immigration people to be more tolerant. The Alberta government does not want to sponsor Ukrainian farmers because then they will have to sponsor other people. Why cannot the Ukrainian farmers, on a free enterprise basis, sponsor their own people?

Mr. Wright: There is another dimension, namely, trade policy, that has arisen in the past in relation to what I believe is called the migrant workers' program for Mexican and Caribbean workers who come principally to southern Ontario to help out at harvest time. In respect to these two programs, there was a requirement of the federal government to go ahead and seek a special derogation from the GATT in Geneva, the World Trade Organization, to allow us to continue this program.

I understand your comment, senator. We will certainly pass it along to our colleagues at the Department of Citizenship and Immigration.

There is an additional dimension. I do not know what numbers people have in mind, but if a temporary workers' program takes shape, then concerns from a trade policy perspective would have to be taken into account as well.

Senator Taylor: We have migrant workers who come into Alberta. A migrant worker is not one solitary Ukrainian coming in to help a farmer who has four sections of land. You can hardly call that a mass importation of labour. We are not talking about any more than 50 at the maximum. They would be jumping for joy and feasting you with Ukrainian dances if you allowed 50 into the country rather than the one or two as you now do.

My last question concerns energy. Ukraine pays an exorbitant price for energy because they are hijacked by the Russians for their gas and oil. They are not self-sufficient yet. I personally think they could be; but they are not because of their own mismanagement. There is the issue of Chernobyl and our own CANDU reactor, which is considerably safer and better than anything the Russians have left with the Ukrainians. It seems to me that we could fill a market for our own CANDU and at the same time cut their dependence on Russian energy. That seems to be blocked by bureaucratic do-gooders. Every time you replace a Chernobyl-type reactor with a CANDU reactor, you do two things. There is trade here in Canada and there is pollution-free energy over there. You stop their haemorrhaging energy prices. Why are we not doing that?

Mr. Wright: AECL would be delighted that you are such a good salesman on their behalf.

First, you are right to flag the fact that, at the present time, Ukraine is unnecessarily held hostage to its energy dependence on Russia. It is a mistake. They know that and we know that. I think the international community is doing everything it can and Canada is doing what we can to help out.

Second, we have used our technical assistance program and our commercial relationship to see whether we can improve self-sufficiency within Ukraine. I mentioned in my opening remarks Northland Power's involvement in the Darnitsia power project. Nadra Resources, and a number of other good Canadian companies, have been active in terms of developing oil and gas potential within Ukraine.

You made reference to bureaucratic mismanagement. There is a problem there. There is a problem in terms of regulations, overregulation and taxation. The investment environment is not what it should be. There are lots of Canadian companies interested in investing in Ukraine that have not done so up until now. They have not lost hope yet, but they have not been willing to put their dollars down because the climate is not there.

Third, the issue of energy reform in Ukraine, especially electricity pricing, is a serious problem. Not only is the pricing structure inadequate to pay for the costs of producing electricity in Ukraine, but the collection mechanism does not work. Fees are not properly collected. Significant reform is necessary in Ukraine. The Ukrainian prime minister and the president know this. They are working to see if they can address it; but, we are 10 years into independence in Ukraine, and the problem has not yet been tackled sufficiently. Over those 10 years, the dependence on Russia has been a factor that, frankly, has hurt Ukraine. This needs to be dealt with.

In terms of the marketability of CANDU reactors in Ukraine, the short answer is that it could happen down the road. However, given an economy in serious transition with lots of challenges in terms of its relations with international financial institutions, it would be a hard sell for Ukraine to convince the IMF, the World Bank and the European Bank for Reconstruction and Development -- to whom they owe lots of money already -- that they need to buy a CANDU nuclear reactor, which does not come cheap. Down the road, we remain hopeful. Canada is very active in terms of promoting CANDU technology in central and eastern Europe. We are looking for opportunities. Perhaps the day will come in Ukraine, but I suspect it is probably a bit premature right now.

Senator Bolduc: I want to talk about the political structure of the country. I see that they have a president and a prime minister. Is it the same type of political structure as the French Republic? How would you compare Ukraine with the president and the prime minister of France?

Mr. Brooks: It is almost an exact replica of the Russian system. The president and the presidential administration form one base of power. The prime minister and his cabinet form a second base of power. By constitution, none of the members of the cabinet can be a member of the legislature. The legislature forms the third base of power.

Senator Bolduc: Do they have a multitude of parties?

Mr. Brooks: They have a number of parties. We have produced a fact sheet giving you the current standings of the parties. It keeps changing because they do not have formal parties. They have what are more properly described as factions, which are loose alliances that change over time.

The Rada only recognizes parties with more than 14 members. This has forced out a large number of the smaller parties and is forcing some coalescence of these political groupings within the Rada.

Senator Bolduc: Is there no relationship with the government?

Mr. Brooks: None whatever.

Senator Bolduc: It is like Italy, then, is it?

Mr. Brooks: Yes. Having said that, one of the major achievements of Prime Minister Yuschenko and President Kuchma since the elections last fall has been to cobble together a coalition within the Rada that is supportive of the reform program. In the Rada this is known as the majority, a workable majority or an ideological majority.

There is no formal relationship, as there is in the Canadian Parliament, to support the government, but there is a broad-based undertaking to support the government's reform program by the majority in the Rada. Their Speaker is a representative of that majority.

Senator Bolduc: That is the formal structure of power. As I understand it, the informal structure of power is gathered by a few big businessmen who are connecting more or less with the government to receive some preference.

Mr. Brooks: Informally, the presidency is the most important structure in the country. The president has a large degree of influence. He does not have the constitutional authority of a Russian or a French president, but he has a great deal of non-constitutional authority that puts the presidency in the centre of political life.

The influence of important businessmen, in particular energy oligarchs, is a topic for a great deal of speculation and debate. At this distance, it is difficult to measure how truly strong they are. One would have to expect that, indeed, the informal power exercised through a number of these oligarchs is considerable.

Senator Bolduc: Am I right in saying that the privatization program involves about one half of the manufacturing sector?

Mr. Brooks: The privatization program broke down between small and large enterprises. They have privatized most of the small enterprises. It is important to remember that these were largely unprofitable enterprises that did not have much in the way of resources. The large, strategic profitable or potentially profitable enterprises are still in government hands. How they are privatized will be the key.

The Ukrainian government is looking forward to receiving in their budget revenues something in excess of U.S. $1 billion per year from the privatization of these enterprises. Whether or not that can be realized is a serious question.

Senator Bolduc: If the major corporations are government corporations and they have conflicts with individuals or between themselves, are the courts really independent?

Mr. Brooks: The courts have proven to be ineffective on behalf of Canadian businessmen who have sought redress. A large number of Canadian businessmen are owed money from business deals, or whatever. The courts have been ineffective in supporting the efforts of Canadians to collect their money. Despite the fact that many of them have judgments, they still have not been able to collect that money.

Concerning the independence of the courts, at a macro level there might be some question of that when we talk about individual commercial activities. I think the courts are fair.

Senator Bolduc: But enforcement is not there.

Mr. Brooks: The question of enforcement has been the problem.

Senator Prud'homme: Senator Grafstein told us about the high degree of education obtained by the Ukrainian people. As a result of communist paranoia, we cut ourselves off from an immense pool of immigration in Canada. In Canada, we have a great pool of people who were originally from Eastern Europe. Now that we are back to normal and are looking for good immigrants from around the world, do we have immigrants coming from Ukraine?

A new citizenship act will be discussed in the Senate. I will be a strong participant in the debate because that is where I started my political career 37 years ago. The language requirement will be a great plus. I happen to disagree with this language limitation when there is an extraordinarily good pool of possible new immigrants who are highly motivated, highly capable and intelligent. Canada needs them, but they may be stopped from coming here because of language. I know how Canada was built, so I will not give you my speech on Canada.

Do we make a special effort to help these people immigrate to Canada? Do we understand that the language may not be so important if they are otherwise occupied? Imagine what would happen in Western Canada. In Montreal, Ukrainian churches, Hungarian churches and Russian churches are dying out. It is sad because they have all the institutions ready. They have churches, credit unions and other organizations, but the void has not been filled with younger immigrants. These people would probably help.

Do we have Ukrainian people immigrating to Canada? If yes, how many? Do we make a special effort to help them immigrate, without being accused of all the sins of the world? They could fit well within the communities that we already have established in Canada.

Mr. Wright: We would argue that the program is enormously successful. However, my colleague, the Ukrainian ambassador, might turn around and tell you that our program is too successful because there is a concern on the part of Ukraine that a lot of their best and brightest are going to countries like Canada. This is a concern within Ukraine on the question of the brain-drain.

The Ukraine is an important source of well-trained applicants in a range of fields. That would include the computer science engineering and heavy engineering trades.

Language is an issue. I am not an expert on immigration matters, but over time this is becoming less of an issue, especially with the younger generation of applicants who are applying, where English as a third language, probably in the case of Ukraine, is increasingly becoming a fact of life.

A significant visa program is run by the embassy in Kiev. In terms of visitor visas, four years ago we were processing close to 6,000. That is up to about 8,000 now -- an increase of 43 per cent over the last four years.

On the immigration side, the application rate averaged about 1,100 in recent years. It climbed to about 1,330 in 1999 and is holding at about the same level right now. It is a busy program. The Department of Immigration has tried to put more resources into our small embassy in Kiev, but we are not always able to process applications as quickly as we would like to process them. We try to offer same-day service as often as we can, but the process is complicated because of fraudulent applications, which are significantly on the increase. There is a problem, as in many countries, where their economy is in transition. There are concerns in Canada on the issue of organized crime, and that requires special processing in some instances.

If Ms Caplan were here, she would say that this is a priority market for Canada's immigration program, and it is being treated accordingly by the Department of Citizenship and Immigration.

Senator Roche: As you mentioned, Mr. Wright, it has now been announced that the Chernobyl plant will be closed down. That raises two questions. First, there is the continuing radioactive fallout and the subsequent contamination of adults and, in particular, children. Am I correct that there is a program in existence whereby Canadians help the children of Chernobyl? If there is such a program, could that program be expanded? Who runs it? What can we do to express our humanitarian concern for the contamination problem, which will get worse even though the plant is now closed?

My second question is on the energy side. With respect to filling in the energy void, you were a little hesitant to advance nuclear power via the CANDU reactor in the immediate, and for understandable reasons. Is Canada working on alternate sources of energy to help advance either regular or alternate sources of energy that would be non-nuclear in an effort to express its concern about the need for electricity and power in Ukraine today?

Mr. Wright: I would be happy to answer both those questions.

Yes, there is a program in Canada. I think it is referred to as "Help us Help the Children." It is an NGO organization. It is supported by the Canadian government through CIDA, but it is run largely by volunteers. I think the main beneficiary has been Belarus and not Ukraine because the downwind contamination was much more serious and had much more of an impact there than in Ukraine. Ukraine was certainly affected, but the prevailing winds from Chernobyl had a more dramatic impact on the people of Belarus.

While there may be beneficiaries from both countries, the majority of the children have come from Belarus. It is a good program and it is continuing. It enjoys some support from the Canadian government through CIDA.

In terms of helping Ukraine identify other sources of energy, yes, we are trying to do what we can. Thermal energy is important and one example is the Northland Power project. A number of companies are trying to develop oil and gas, principally in the Crimea region.

Canadian companies may also play a part in the array of pipeline projects on the drawing boards right now with respect to Caspian oil and gas development. This project has a longer term of life. No immediate pipelines are being built. One of the pipeline proposals coming out of the Caspian basin would involve a pipeline that goes from Odessa to Brody and over to Gdansk. The idea is that while some of this energy would be going to western European markets, obviously the other market would be Ukraine. The project is meant to diversify energy supplies for Ukraine so that it would rely less on Russia as the principal supplier of oil and gas.

Canadian companies have been on the ground from the outset. When the Prime Minister was in Ukraine with Trade Minister Marchi in January 1999, a good percentage of the Canadian business delegation that was there, including representatives from TransCanada Pipelines Limited, were there to look at opportunities to improve efficiency. TransCanada Pipelines was looking to upgrade compressor stations in order that gas could be sent more efficiently through pipelines and that less would be lost through leakage, because that is a real problem right now. We are doing what we can.

Senator Di Nino: How much aid does Canada give Ukraine? Do we have any figures?

Mr. Wright: We do have those figures. Canada provides $20 million a year in technical assistance. That works out to about $200 million in technical assistance since we started the program. That does not include the U.S. $20 million that we have given thus far for the sarcophagus implementation program for Chernobyl. That money was pledged and provided about four years ago at the G-8 summit in Denver. A second pledging conference is scheduled for Berlin, in July, for the next phase of the sarcophagus implementation program for Chernobyl. The Canadian government will be pledging a further important contribution at that time as well. The extent of the assistance to date has been significant.

In relation to programs that we administer with CIDA in central and eastern Europe, Ukraine is the largest that we run. It is the same size as the program that we run with Russia.

Senator Di Nino: Is the CIDA program over and above what you just mentioned?

Mr. Wright: No, that is the program administered by CIDA.

Senator Di Nino: That is the $20 million per year.

Mr. Wright: It is $20 million a year. If that money is accumulated over the 10 years of the program, it is essentially $200 million, plus U.S. $20 million that we have given for the Chernobyl sarcophagus implementation program. It is approximately $230 million over 10 years.

Senator Di Nino: What about the European Bank for Reconstruction and Development? Is it separate and apart from our contribution? How much are they contributing? Do you have any idea?

Mr. Wright: Mr. Brooks may be able to offer more details on that. My understanding is that the role of the EBRD is project-related.

Mr. Brooks: EBRD is a development bank much like the African Development Bank or the World Bank. The one difference is that it is the only development bank that will take an equity position or will finance equity, unlike the others. It works on private sector as opposed to public sector projects. There is no aid component in any EBRD activities.

Mr. Wright: It is not a donor organization.

Senator Di Nino: They are getting some benefit from the EBRD.

Senator De Bané: We have contributed to the capital of that bank. How much have we contributed?

The Chairman: About 3.5 per cent.

Senator Di Nino: Given our historical relationship with Ukraine and the relationship that we have had historically with Ukrainian immigrants in this country, it does not strike me as if the Canadian contribution of $230 million over 10 years is a particularly large sum. I beg to disagree with your statement, although I am not here to take exception with what you are saying.

Does the Canadian government have a strong commitment to try to help Ukraine? You have given us aid and immigration figures that are rather paltry in comparison to immigration from other parts of the country.

I fully appreciate the need to be cognizant of the problems that immigration creates for our country, but I question whether the Canadian government has made a full and strong commitment to helping Ukrainians at a time when they are trying to get rid of the Russian yoke that they have been under for some years.

Mr. Wright: I respect your position, senator, but I would take a contrary view. The technical assistance program that we have in place is significant. It is the largest one in place for central and eastern Europe.

Unlike the work that CIDA does in other parts of the developing world, where they have what they would call aid projects and humanitarian assistance, technical assistance is a different type of program. CIDA had a program along these lines until the Soviet Union disbanded in 1971. We had to create a vehicle to go ahead and make technical assistance available to countries like Ukraine.

I would argue that our significant technical assistance program has been praised highly by the Ukrainian president and prime minister, by parliamentarians, by judges, by the scientific community who are struggling with the transition in their economy, and by legislators. It has had a real impact in terms of facilitating the transition. I would argue that the immigration program that is in place is an ambitious one. In relation to other immigration programs that Canada has around the world, it is an extremely important source of immigration to Canada.

I do not want to argue from the corner of the Ukrainian ambassador, but there is another side to the story. As much as I know that the Ukrainian-Canadian community and the Canadian government welcomes highly educated people to Canada to contribute to our society, we must ask ourselves this question: Are we doing Ukraine any favours by taking their best and brightest? You will have an opportunity to speak to the Ukrainian foreign minister informally next week. That is a question you can put to him.

In terms of our own leadership on the international stage, in addition to hosting the Winnipeg conference in 1995, which dealt with the Ukrainian economy within the G-7, we have taken a leadership role within NATO to help Ukraine form its distinctive relationship with NATO. This is an extremely important component. We are doing what we can to get the Canadian business community to pay attention to Ukraine. We took our Prime Minister, our trade minister and 150 Canadian businessmen over there. Many skeptics said, "What are you doing in Ukraine in January?" We surprised a great many people by the amount of business we were able to generate.

From the perspective of Canadian defence, foreign, economic and social policy, we have been highly responsible and concerned. We remain so. We have good resources dedicated to a vital program within the Foreign Affairs Department.

This is a file, which is enormously close to Mr. Axworthy's heart. He watches over our shoulder every step of the way. He is very proud of the fact that he, and we, were able to get Ukraine to go ahead and sign the Ottawa convention on land mines. Land mines are a huge problem for Ukraine from a different perspective. They do not have land mines buried throughout the countryside like we see in Bosnia or Kosovo. What Ukraine has is what Belarus, Russia and Moldova have, namely, huge stockpiles of deteriorating land mines that need to be addressed as a matter of high priority. This is a key issue that the Canadian government and the Foreign Affairs Department has been engaging Ukraine on for quite some time. Mr. Axworthy would take an enormous amount of pride in talking about the efforts that we have made to date.

Senator Di Nino: I thank you for that answer. It is reassuring. I also applaud you for your strong defence of our position. It certainly sheds a lot of light on the issue. Some of us are not in agreement that we are doing enough to help that country.

Senator Corbin: I have a simple and direct question. You alluded to a couple of items concerning Ukraine-Russia relations. I do not take this paper to be inclusive. What other tensions, flashpoints or developing issues exist between Ukraine and Russia?

Mr. Wright: That is an important question. President Putin of Russia recently visited Ukraine. They are neighbours. Russia is watching Ukraine's foreign policy direction. It is watching the way in which Ukraine is trying to develop its strategic relationship with the OSCE, more particularly with the European Union and NATO. Russia wants to ensure that it understands the nature of that evolving relationship.

Obviously, from an economic perspective, Russia and Ukraine are important economic and trading partners. Ukraine, to its credit, is trying hard to diversify its markets, to reduce its current dependence on Russia as a trading partner, most particularly in the area of energy. That is complicated by virtue of the fact that Ukraine owes Russia enormous amounts of money in terms of outstanding energy debts that have not been paid. They total in the billions. How that process plays out in the course of the next few years will be extremely important. Will economic and political compromises need to be made to go ahead and respond to these questions of debt?

The question of Russian debt also comes at a time when Ukraine is having difficulty meeting its obligations for structural adjustment to international financial institutions, such as the IMF. We are all saying to Ukraine, "You have to do it better."

There are a lot of pressure points on Ukraine at the present time, some of which relate to Russia. Within Ukraine, a large community of people speak Russian and their relatives are just across the border. There is the issue of Crimea, which many Russians still look at as being part of Russia. They do not accept the fact that this is part of an independent Ukraine. There is no question about the fact that there are pressure points.

President Kuchma had a good personal working relationship with President Yeltsin. They were able to work through important issues concerning the recognition of Ukraine's independence, territorial integrity, the borders and also solving the Black Sea fleet problem. President Putin is new. We do not know him well; we know him a bit. We will have to see how the Russians manage that relationship with Ukraine and how Ukraine manages that dynamic with Russia.

This is an important issue. It is one to which I hope the committee, in its deliberations over the course of the next year, pays some attention.

Senator De Bané: I wonder if this meeting with experts from Foreign Affairs would not have been more fruitful if it had been held in camera. As polished diplomats, they couch their assessments and opinions in ways that are in contradiction with the background documents that we were given about Ukraine. The main point that comes to mind after reading those documents is that here is a country that has missed its opportunity in the last 10 years.

I see you nodding. Our stenographers cannot take note of such things.

Here is a country with immense potential and which, for all sorts of reasons, has not fulfilled its immense potential. Do you agree with that?

Mr. Wright: I do. Frankly, if you asked the ambassador, I think he would agree with you as well. As to having missed an opportunity, I suppose it depends on which side of the issue you are looking at. From the Ukrainian perspective, they felt that they were doing what was critical at that moment in time, which was securing their independence, borders and relations with neighbours, which were problematic, and getting a constitution up and running. However, they paid a price for that.

I know it is not fair to compare Ukraine with Poland or Hungary because their historical evolution was quite different. However, if you look at what has happened in those two countries in the course of that same period of time, it is like night and day. You would have to acknowledge that fact.

Senator De Bané: Surely, you cannot always put down to historical background the fact that the oligarchy in Ukraine is made up of people who invest all their money outside Ukraine instead of looking to develop their own country, or that they are putting undue pressures on their politicians to steal even more from their country. There is so much that you can put down under historical factors that are beyond their reach.

You mentioned Poland and Hungary. I am heartened when I meet Canadian businessmen who tell me, "I went to Poland and Hungary five or 10 years ago. When I go today, I do not recognize those countries because they have changed so much. They were such drab countries, but today they are dynamic."

At the beginning of the 20th century, Ukraine was one of the countries that produced more grain than either the U.S. or Canada. A great Greek historian once said that a country's peoples are not defeated; they commit suicide before. When I look at a country like that, with its immense potential, and read all the background documents that were given to us, I think to myself, "I hope they get their act together."

While I recognize that Canada and other countries are helping them, you and I both know that, ultimately, the solution lies within them. It will not come from outside. After 10 years, they still do not understand what the word "private sector" means because the state holds all the strategic levers. Time is of the essence. They not only have to go from point A to point B; they must arrive there first.

You are more knowledgeable than are we about the different factors that influence that country, but I suspect their elites are letting them down.

Mr. Wright: I appreciate those observations. We have not had the benefit of the background information that you have read. I do not think we would disagree with your concerns. Sometimes our Prime Minister is wont to say that nothing moves faster than $1 million looking for a good investment. Many Canadian businessmen have sincerely wanted to make investments in Ukraine, but the investments have not happened. However, it was not for wont of trying.

We have not closed the book, and we will not do so. I think Ukraine is at a crossroad. I think opportunities have been missed, and the solutions definitely lie within. Ultimately, we can preach as much as we want in terms of best practices, reforms and structural change, but if it does not happen, then these are political choices taken by the leadership of that country and the international community will react accordingly.

We are trying to encourage Ukraine to take the difficult decisions. Perhaps the one aspect that was missing in your preamble was how difficult these choices have been and will continue to be for Ukraine, given their inheritance. Not all of the problems relate to the inheritance. Some of them relate very directly to the political choices that have been made by the leadership of that independent country since 1991. We are trying to help them to help themselves. Canada is a friend and a strong ally of Ukraine. Given that Ukraine is so crucial in terms of European stability, especially central European stability, it is in all our interests to make sure that they get it right. We cannot afford to let it go wrong.

Having said that, capital flight, mattress money, oligarchs, organized crime, lack of transparency, over-regulation, over-taxation, lack of standardization and lack of a friendly investor climate are all factors that Ukraine knows perfectly well it must overcome. I think there are people in the Ukrainian leadership who are very dedicated to trying to bring that difficult change about. It is also fair to say that there are some in that society who, sadly, benefit from the current system. They are making a lot of money on the backs of a lot of people. It is not an enormous number of people who are benefiting from the current set of circumstances, but, sadly, they are in positions of influence. That is a fact of life in economies in transition. It is up to us to encourage the good governance and best business practices that we hope will eventually bring about change. You are right in acknowledging that there have been missed opportunities and that it is reaching decision time.

In terms of an in camera session, we would be able to get into more detail on some of these issues in that type of situation.

Senator Grafstein: Is it possible, Mr. Wright, to give us a brief background paper, perhaps from one of the learned periodicals, about the Ukrainian legal system and the private property question? My understanding is that one of the inhibitions to investment by foreigners is the lack of a private property system that allows one to own property, have title, put a mortgage on it, and, in default of those documents, be able to enforce the contractual obligation and retain the property. This is a huge and complex barrier that is mixed into different parts of the country. Could you give us some information on that issue? I think that is a major barrier to foreign investment.

Mr. Wright: We would be happy to do so.

Senator Grafstein: Rather than taking the time of the witnesses, it might be better to do it that way.

You touched on the strategic and military position of Ukraine. You know, Mr. Wright, that some of us have had some doubts with respect to the expansion of NATO because we felt that it might cause a reaction not only with respect to Russia but would put Ukraine in an invidious position of having to choose.

Can you start by telling us about the standing military force of Ukraine today? In a sentence or two, could you tell us the status of their modernization?

Could you also give us an update of its creative relationship with NATO and how that is seen by Belarus and Russia? Others have touched on this, but it is important to touch on this subject ever so briefly.

Mr. Wright: I am not sure I know the precise answer to the first question in terms of the science of the standing military force. I am guessing that it is something in the order of 300,000 to 400,000. The ambassador is nodding his head, so it is in that vicinity.

In terms of modernization, Ukraine is having to deal with that issue right now. It has been an element that we have had to take into account to a certain extent in some of the joint peacekeeping operations that we have embarked upon with Ukraine, both in Bosnia and in Kosovo.

I am not sure I could give you a detailed rendition in terms of what the state of the armed forces is in Ukraine. My suspicion is that I am not sure the armed forces in Ukraine are doing much better than their colleagues in Russia, which means a difficult set of circumstances right now.

Senator Grafstein: To save time, a current paper on the status of their armed forces would be acceptable.

Mr. Wright: We will see if we can provide honourable senators with that documentation.

In terms of the economic social union that Russia and Belarus are talking about, at this point, Ukraine has taken a fairly conscious political decision not to look at that type of arrangement.

Ukraine, to the best of my knowledge, is not a country that invests a significant amount of time in the post-Soviet institution called the confederation of independent states. It is not a high priority for Ukraine.

The three pillars of Ukrainian foreign policy are, first, relations with the European Union and developing those linkages. Ukraine's ambition, clearly, will eventually be toward membership, but it is very much a long-term project. Second are relations with North America, with the United States, and I would include in that the distinctive relationship that they enjoy with NATO in the very early stages. We are still mapping out where we can help the Ukrainian forces modernize, not only in terms of the nature of their forces but in the way in which they are managed. At present, they are largely managed by defence forces as opposed to civilian authorities. Ukraine will have to come to grips with that issue. The third strategic pillar for Ukraine, of course, is its relationship with Russia.

Senator Taylor: What was the solution to the Russian navy in the Black Sea? You said they worked out a unique solution.

Mr. Brooks: Basically, the fleet was divided -- three quarters for Russia and one quarter for Ukraine. The uniqueness of the solution was that the Ukrainian constitution prohibits the basing of foreign militaries in Ukraine. However, in the Black Sea basin, in Sebastopol, there were four piers and Russia was using three. How they resolved amicably basing the Russian fleet in Sebastopol was the most creative of the entire puzzle.

Senator Taylor: The question of investment is raised all the time. I know that in former communist countries, if property has been taken from someone or mismanaged, the courts can make a decision, but no one can collect.

The Export Development Bank gives credits if someone exports -- my phrase is "buy and sell" -- machinery to Ukraine. In other words, I can get money back if I export to Ukraine. If I export capital to Ukraine or Russia and go through the whole process, I have often wondered why we would not help these emerging economies by having a form of insurance. In other words, an investor could do it along with the government. The Canadian government would consider it foreign aid and would insure the investor. The investor would only pay any lost capital that the courts of the land decided it should.

I know an immediate answer would be that the courts would decide to give everything back to the investor. Perhaps the country receiving the capital could pay part of the loss. I am thinking of an insurance scheme. We are able to solve problems of this sort for things that we can put our arms around and carry away, but we are not able to solve similar problems for investors. A huge problem in the modern world today is getting private capital to invest in a market economy where the legal system does not allow for proper redress. I am not speaking about losing your shirt because of a stupid investment.

Mr. Brooks: EDC does provide political risk insurance for Ukraine. Also, they would be willing to entertain other types of insurance. The big difficulty in Ukraine has been finding creditworthy banks. The EDC and all export agencies work bank to bank on these sorts of activities, and the Ukrainian banking system has yet to mature to a point where there are large pools of creditworthy banks. That has been the single biggest limitation on EDC's insurance in that respect. They do provide investor insurance in many countries of the world, but there must be the capacity of being able to attach assets at some level. Once the banking system improves, EDC would be in a different situation.

Senator Taylor: This is a chicken-and-the-egg story. If you do not need the money, the bank will lend it to you. That is not the problem here.

Senator Corbin: Organized crime and corruption is obviously endemic in Russia and Ukraine. Some of it, according to the information I have, has seeped into a region or two of Canada. Is there a collaborative plan between the two countries to cure this ill in any way, shape or form? Would we in Canada be part of that plan? Apparently, according to this official source, these problems are ever increasing and are very detrimental to everyone concerned. What can you tell us publicly about the situation?

Mr. Wright: There is some discussion between relevant Canadian agencies and their Ukrainian counterparts to see whether we can help each other out on the issue of organized crime. There is a similar dialogue between Canadian agencies and their Russian counterparts as well simply because it is an endemic problem. It is a fact of life in Russian business relationships that you must be aware of whom your partners are, and the same holds true for Ukraine. Thus, the short answer is that there is dialogue. I am not sure it is as well developed.

Senator Corbin: What does the word "dialogue" mean in diplomatic terms?

Mr. Wright: It means that organizations like the RCMP and CSIS from time to time do try to engage their Ukrainian counterparts to tackle ongoing cases where there may be questions of criminal intent.

Are we doing everything that we could on this front? I am not sure we have been able to throw as many resources at this as perhaps we would like to.

Senator Corbin: Is there any collaboration between Russia and Ukraine to counter this underground activity of mammoth proportions?

Mr. Wright: The short answer is that we would like to see both countries doing more to tackle this question. Independently and together, we would like to see them do a significant amount more than is being done right now.

Senator Di Nino: In that vein, if a potential corporation or business person wishes to invest in those countries, and we are talking about Ukraine in particular, can they avail themselves of information from our government about potential association with criminal entities?

Mr. Wright: To the best of our ability, if concerns come to our attention, we try to draw them to the attention of the Canadian investor.

The Chairman: On behalf of the members of the committee, I wish to thank our witnesses for their testimony today.

The committee adjourned.