Secretary's Speech

Secretary of Commerce Carlos M. Gutierrez
Remarks at the American Chamber of Commerce
Kyiv, Ukraine

Thank you. Ambassador Taylor, thank you for your kind introduction. On the fourth day of a trip, there are very few people that can get me out at eight o’clock in the morning, so I thank you for your interest in being here and the very special interest that you’ve taken while we have been here in Ukraine. It has been a tremendous experience, and a real vital one. We can look at countries on a map, and read all kinds of things, but not until you get on the ground do you start developing a clear picture. I want to thank Jorge for putting this together and for bringing the business community together. I think that’s the role of a good leader is putting things together for a common cause and Jorge does a good job of doing that. I also want to recognize the President’s Export Council sitting over here on my left. This is a presidential advisory group for President Bush. They advise the president on matters related to exports, trade and foreign investment. This is a very important group, a very influential group, and I think it also demonstrates the importance of Ukraine in the fact that they want to be here, that they want to know more about Ukraine, more about business opportunities, so I’m thankful for your time in being here.

I understand this is the first visit by a U.S. Secretary of Commerce, and I can assure you this will not be the last. This is an area with an amazing history, rich, extraordinary, and a people whose love for liberty has persevered. What a great view throughout many centuries. The great Ukrainian poet and nationalist, Taras Shevchenko, wrote of the “great, new family of the free,” and that has been, based on my limited knowledge, a dream of Ukrainians for many, many generations. Our two nations, as President Bush said, have built our friendship on our love of liberty, and our love of freedom, and our love of independence. I’m here today to talk about expanding trade and investment as cornerstones of free and democratic societies.

I’d like to begin by thanking the American Chamber for 16 years of promoting U.S.-Ukraine commercial ties. With a membership of 600, you are a key resource for the business community, and you’re a powerful voice for the benefits of a market economy. You are living proof of what the market economy does for the population, for the country as a whole.

Today, I’d like to discuss how we can build on the momentum generated by President Bush’s recent visit to move our economic relations forward and generate an even more mutually beneficial trade and investment relationship. We believe that as much as we’ve done, and as much as we’ve achieved, that from a country to country standpoint, I think history will show that we’re just getting started. We’re just really getting started on our way to building a large and significant, strategic economic relationship.

As President Bush said, Ukraine is a friend, and it has demonstrated its commitment to democracy and to free markets. The U.S.-Ukrainian Trade and Investment Cooperation Agreement, signed in April, provides a framework for further expanding our commercial partnerships. With AmCham’s help, U.S.-Ukrainian bilateral trade and investment is strong and growing. In 2007, our two-way trade exceeded $2.5 billion, with U.S. exports up more than 77 percent, which is well above our average and at the top of the list of export growth in terms of countries. And these are not just consumer products like we saw yesterday, these are exports like agricultural machinery, high-tech machinery, machinery for construction, products that will help efficiency, productivity, it will help infrastructure, it will help the country. We’re very pleased that we get to be making contributions to the development and growth of Ukraine.

Ukraine is America’s second largest trading partner in the region, and U.S. firms have invested more than $1 billion in Ukraine. I heard yesterday that the total foreign direct investment last year was close to $9 billion. $9 billion…that’s a tremendous amount, and I think very few countries come close to that level of investment around the world. These investments play a significant role in such sectors as electricity generation, electronics, agricultural processing and consumer goods.

We believe that as Ukraine continues its progress toward openness and reform, that everything will show results, that the results will be tangible, and that it demonstrates that we are just literally, literally getting started. We believe that the key is openness, and countries that have had the will to open to ideas, open to investment, open to trade, open to foreign ownership, are the ones that are growing faster, they’re the ones that are creating more jobs, they’re the ones that have higher per capita income, they’re the ones that are creating more prosperity for their people. That is a big challenge. It is how far can we go toward openness, and will there be a will to have confidence in opening up the economy? And so far, Ukraine has demonstrated that that is a direction in which you want to go.

The U.S. supported Ukraine as a full-fledged member of the WTO. Ukraine’s membership reflects its commitment to trade based on market forces, transparency and the rule of law. I’m pleased that the Commerce Department’s Commercial Law Development Program was able to assist Ukraine in navigating the long road to WTO accession. For Ukraine to ensure complete compliance, with its accession commitments and its obligation under our bilateral agreement, there are still some pending items. We believe that it’s very important to send a signal, to send a message not just to us, but to the whole world, about how Ukraine will participate and will contribute to WTO standards and rules. We hope Ukraine will move quickly to pass the five laws that will fulfill these obligations and put it on the path to realign with the rest of the WTO members. A great opportunity to do that, just as Ukraine moves on.

We’re pleased to see movement in a number of areas:

As you know, Ukraine’s progress in improving intellectual property protection has resulted in removal from the U.S. Trade Representative’s Special 301 Priority Watch List.

We hope that Ukraine will continue to build on these successes and continue its efforts to stem production and import of pirated goods. Not too many countries that I know have gotten from the priority list to the watch list, so it’s a big, important accomplishment, and I hope that it becomes a motivation to continue down that direction. If Ukraine can develop a reputation for being a unique place for intellectual property protection, then Ukraine will have a significant advantage over its neighbors to attract investment.

We appreciate the progress Ukraine has made on clearing arrears on Value Added Tax repayments.

A more transparent and reliable system will bring in more investments, and will create more jobs and will create more flow of trade. If there is something that businesspeople look for in today’s world it’s transparency. Not all business people may like the rules, but the only thing we ask for is that we know what the rules are, and that the rules be predictable. Again, we may not like all the rules, but as long as we know how they will be applied, we know that they are predictable, that is what really attracts businesspeople and investment. So, to the extent that Ukraine can continue to make progress in transparency, in predictability, and the reliability of its system of rule of law, that will help attract more investment.

Beyond the VAT, passage of a comprehensive tax code is critically important to build a stable and predictable business environment.

We’re pleased that the Government of Ukraine and AmCham have agreed to establish a working group on customs Issues.

We’d like to help with Ukraine to find ways to boost high technology and value-added manufacturing by accelerating customs clearance for the needed parts and technologies. We also encourage Ukraine to move toward adopting international standards related to customs clearance.

We also commend Prime Minister Tymoshenko for establishing the Council of Investors and requiring them to report to her and to give her direct, candid feedback and advice as to what the government can do to create a better environment for investors and also to create more jobs, to create better jobs, and to create a better standard of living for the development of Ukraine. It’s very important that she understands that is also your vision of the future. That’s what business does. You create jobs, you develop people, you build an infrastructure, you make a better society. And that, of course, is her goal. I know that U.S. companies, including members of AmCham and the U.S.-Ukraine Business Council, are eager to work with the government to identify and resolve key business issues. We have a number of these dialogues around the world, with a number of countries. The ones that work, because not all of them work, the ones that work are the ones where decisions are made, there’s a sense that decisiveness is a key attribute of these councils, where there’s action and where there’s a joint commitment to results as opposed to perceiving that results are writing a report or having a meeting, but it’s getting things changed, it’s getting things done, it’s deciding, it’s acting, it’s being action-oriented. If you will do that, if you can make that council that type of a body, then you will be tremendously successful, and you will be able to contribute to the direction of the economy.

For Ukraine to unleash its economic potential obviously good policy decisions are critical and input from the private sector is very helpful. This is an opportunity for the private sector to be open, to be candid, to be helpful, to be cooperative and collaborative, to be part of the team, and to advise the Prime Minister on how the government should continue to create policies that move the country forward.

We believe that Ukraine has great opportunity. We believe that there are few countries that have the kind of opportunity and future that can be boasted by Ukraine, and we also believe—I don’t think this is an exaggeration—that Ukraine can become one of the most attractive economies in the world. It all depends on the policy, it all depends on what policy is chosen, what choices are made.

Here are some areas that will take the country in that direction:

• Streamlining the regulatory environment—If the regulatory environment becomes an obstacle, because it’s so cumbersome that it becomes an obstacle that will scare off business investors, and they will take their money some other place.
• Resolving inconsistencies in commercial laws—Businesspeople get very nervous when they have the perception that the law is quite different depending on circumstances, depending on specific situations.
• Passing the Joint Stock Company Law to improve corporate governance, and
• Completing the privatization process through transparent tenders.

Those are four things the government can do that will be a major leap forward in giving Ukraine the status of very, very attractive country in which to invest, not just in this region, but around the world.

In spite of the large foreign direct investment, Ukraine’s per capita foreign direct investment is low by regional standards. So that’s the main problem. In spite of the amount of money that’s coming in, Ukraine is still low on a per capita basis compared to regional standards, so there’s room to grow. Ukraine ranks 139 out of 178, according to the World Bank’s “Ease of Doing Business” Index. And I think is a reflection of the regulatory environment, the number of regulations, the amount of time it takes to start a business. The quicker it is to start a business, the easier it is to get things done, the faster the economy can grow and the more jobs that will be created.

There is a huge opportunity to create small businesses. Many countries around the world believe, and I will say wrongly, that it is all about big multi-national firms. I’ll tell you in our country, the U.S., seventy percent of our economy is driven by small- and medium-sized businesses. And I’ll give you a statistic that, every time I hear it, it tells me just how important entrepreneurship is to a thriving economy. Fifty percent of all new jobs in the U.S., fifty percent, are driven by companies less than five years old. So, it’s all about entrepreneurs with ideas that have access to capital, who are willing to take risks, and who are in a society where you’re not going to get punished if you fail, other than having lost your money, but then you can come back and try again. And that is the key, and importantly, if you succeed, you’ll also get paid money.

As you know, the Overseas Private Investment Corporation is not active in Ukraine. We’re working closely with the Ukrainian government to establish the conditions for OPIC’s return. The Ukrainian government has stated that it wants to find a solution. OPIC’s return to Ukraine will open the door to potentially hundreds of millions of dollars of U.S. investment in the medium term, and think of how important that is, given the Euro 2012 cup coming up, and how important it is in Ukraine to make that an extremely successful investment and set the goal to make it the best Euro Cup there has ever been. That will do wonders for Ukraine’s standing in Europe and throughout the world. Potential investors, I believe, will find that to be a great opportunity.

For the Government of Ukraine to attract investors, especially in those sectors vital to its energy security, it needs to make clear that it respects the sanctity of contracts and the rule of law. Every time there is a contract that is being reviewed, the whole world watches, the business community is very small. Every contract that the government gets involved with is an opportunity, an opportunity to show the world that this is a good place to invest.

I want to highlight two areas of strategic importance for the country. There is no (inaudible) the key thing is getting it done. Someone told me once that strategy isn’t what you say, strategy is what you do. So you tell me what you’ve done, and I’ll tell you what your strategy is, as opposed to the other way around. Everyone knows that energy and agriculture are absolutely critical to Ukraine’s future. The question is what is Ukraine going to do about energy and agriculture?

An efficient and transparent energy sector is important to build a dynamic market economy. There’s awareness of the need to diversify Ukraine’s sources of oil and gas, and to reduce domestic consumption through increased efficiency. I can’t think of anything more critical, or of more significant, strategic importance for Ukraine than energy security leading toward energy independence. I think everyone knows that, now it’s a matter of how to execute that strategy to make that strategy a reality.

Foreign direct investment can bring in modern technology to increase energy efficiency and help Ukraine develop its own resources, including oil and gas. Commercial cooperation is possible in several areas, including renewable energy, coal-bed methane technology, and technology for extracting oil, coal, and gas from older fields and mines. The technology is available; however, potential investors will look to successful implementation of existing agreements between international companies the energy sector.

Agriculture also holds great potential. Ukraine’s rich agricultural sector can be a strong engine for economic growth. Especially today, the rapid rise in global demand for agricultural products, along with rising prices, presents Ukraine with a unique opportunity.

This country is fortunate; the country is blessed to have over 30 million hectares of fertile land. Research suggests that Ukraine could increase its grain exports by 20 million tons within five years through new investments and improvements in yield. That’s easy to say, it’s very difficult to do but it can be done. Ukraine can tap this enormous unused potential and play a role in easing the world food crisis.

Smart policymaking could allow Ukraine to regain its place as one of the world’s great breadbaskets, as it has been in other previous periods in the past. At the same time, it would bolster its agricultural sector and help its farmers.

We encourage Ukraine’s government and private sector to join together to explore this exciting opportunity. It’s important that government limit intervention that distorts domestic markets and disadvantages producers and traders.

What we have seen, is that anything that the government can do to facilitate investment, anything, will attract it, but also, there are many things that governments around the world believe, that actually will send away investment, will actually become hostile to investment. And, several things that we would encourage Ukraine to fix that we see a lot of from a policy standpoint. One is export restrictions. As we look around the world, most of the countries that are—I’m not saying this as an expert in the subject, I’m not, I’m just telling you what I’ve seen—countries that limit export, that tends to backfire. It tends to increase domestic prices, it tends to actually limit supply and it distorts the market, and it limits investment, because many investors want to be able to export.

The other area that we have seen that really backfires is price controls. Many of the countries, and we had price controls in the 1970s, so we have also gone into this area, and I think that most countries in the world at some time in their economic lives have had price controls. And I can’t think of one instance where price controls have not led to shortages, so that should be looked at. It’s quite an irony that if you put price controls in place, you protect consumers, but the easiest way to generate shortages is to control the price. We’ve seen that time and time and time again in countries throughout the world.

And finally, the ban on land sales should be lifted. If Ukraine can open up its land, this does not give up sovereignty. It creates investment, and helps the country grow, helps the country prosper. If a country can lift a ban on land sales and allow investors to come in to own the land, to use the land for the benefit of the country, that would be a major achievement.

So, [Ukraine has a] huge opportunity, huge opportunity to become one of the great agricultural economies of the world and to achieve energy independence. But again, it’s easy to articulate strategy, tremendously difficult to implement it. It’s going to take the commitment of the private sector, the commitment of the government working together, working together give and take with the goal in mind of becoming an agricultural powerhouse and achieving energy independence. Those three things are possible, it’s just a matter of the will to execute it.

So this is, I think, a great moment for Ukraine. I believe that unlike many countries, Ukraine has had a powerful, powerful history of and struggle for and wanting, as President Bush said, liberty. The same thing we wanted in the U.S.—liberty and independence—that’s all Ukraine could ask for, and now Ukraine has it. And it comes down to taking advantage of this unique opportunity. Don’t let the opportunity slip away, because you know, as well as anyone, the value of independence and how treasured independence can be.

So let me just say on behalf of President Bush that we are proud of our relationship, we are proud of what Ukrainians have accomplished in a very short period of time, and above all, we are great believers in the future of the great country of Ukraine.

Thank you very much.