A STRATEGY TO PERSUADE UKRAINE TO
RECOGNIZE INTERNATIONAL AGRIBUSINESS CERTIFICATES

Courtenay Carr
Commercial Diplomacy
Master's Project

Spring 1999

Advisor: William Monning, J.D.

This paper was researched and written to fulfill the M.A. project requirement for the Monterey Institute of International Studies' Master of Arts in Commercial Diplomacy. For more information about the Commercial Diplomacy program and the M.A. project requirement, please visit www.commercialdiplomacy.org.

 

CONTENTS

SCENARIO

For the purpose of this project, I assume the fictitious role of vice president of government relations for Selco Machinery International (SMI).

SMI already holds a majority of the U.S. share of the Ukrainian agricultural machinery market. However, the total U.S. share is only five percent, and the Ukrainian market offers tremendous growth potential.

Accordingly, SMI's marketing division has decided that the company should attempt to increase its market share in Ukraine. The marketing division has also noted that Ukraine's product certification requirements will be a major obstacle to meeting this goal.

I have been tasked to figure out how to facilitate the export of Selco's products into Ukraine, specifically how to persuade Ukraine to liberalize its standards and certification system.

The attached proposal will be presented to Selco Machinery's Board of Directors for approval.

EXECUTIVE SUMMARY

A Strategy to Persuade Ukraine to Recognize International
Agribusiness Certificates

Ukraine does not recognize international agribusiness certificates. To enter the Ukrainian market, all products must be re-certified under Ukrainian national standards. This re-certification process is expensive and time-consuming; it acts as a non-tariff trade barrier and impedes Selco's ability to increase its market share in the country. On its tractor line alone, Selco would save $60,000 each year by not having to pay the high cost of Ukrainian re-certification.

To facilitate Selco's ability to increase its market share and profitability in Ukraine, the Ukrainian Parliament must be persuaded to recognize international agribusiness certificates (including machinery, seed, and agrochemicals). The following paper lays out a comprehensive strategy, involving the United States, Ukraine, and other countries, for pushing the Ukrainian Parliament toward this goal.

Background

Many of Ukraine's standards are outdated and do not meet international standards; others are remarkably similar to international standards. In general, they are overly complex, often in ways that do not contribute to public safety. Nonetheless, Derstandart (Ukraine's State Committee for Standardization, Metrology, and Certification - DSTU) requires all products to be re-certified with a Ukrainian "stamp of conformity."

Ukraine's deviation from international standards and certification norms not only makes it difficult for foreign investors to do business in Ukraine but also hurts the Ukrainian manufacturing base by protecting companies that are not equipped to compete in international markets.

Ukraine's standards and certification regime has impeded exports and imports for years. The collapse of the Soviet Union and subsequent increase in foreign businesses in Ukraine have only magnified the problems associated with Ukraine's standards and certification system. As Ukraine continues its integration into world markets, difficulties will only worsen. Ukraine's acceptance of international standards will only help the country attract investment and sell its own products abroad.

Commercial Interest

Ukraine's agribusiness sector is one of the fastest growing sectors in the country. As a result, there is enormous demand for dependable farm machinery, which the country's unreliable manufacturing base can not fulfill. The potential to increase Selco's market share is immense.

SMI has already made significant contributions to the growth of the Ukrainian agribusiness sector. In 1996, Selco made one of the largest combine sales in Ukrainian history. In 1998, SMI sold $80 million of agricultural machinery in Ukraine.

If Selco is successful in persuading Ukraine to accept international standards, it will save close to $150,000 per year in re-certification fees. It will also save time and company resources-resources that now must be committed to jumping through the hoops of the re-certification process but could be re-channeled into increasing sales in Ukraine.

Strategy

To mobilize support and build consensus in the Ukrainian Parliament for recognizing international certifications, SMI should follow a dual-track strategy, forming the Ukrainian Agribusiness Coalition (UAC) in the Ukraine and the American Agribusiness Coalition (AAC) in the United States.

The American Agribusiness Coalition. The AAC will work to ensure that the U.S. government pushes the Ukrainian Parliament toward recognizing international certifications. It will be comprised of American companies that do business in Ukraine, selected American agribusiness associations, and U.S. labor unions. The AAC will concentrate its efforts on pressuring the U.S. government to support the AAC's and the UAC's efforts in Ukraine. Proposed actions for the AAC are:

· Lobby the U.S. Congress to:

1. Put pressure on the Gore/Kuchma Commission to address the certification issue.
2. Create a standards working group in Ukraine.
3. Allocate USAID money to educate and train officials and businesspeople in Ukraine on international standards and certification issues.
4. Introduce and pass a formal resolution in Congress in support of future work in the area of certification.

· Convince the U.S. Department of Commerce, the U.S. Trade Representative, the U.S. State Department, the U.S. Department of Agriculture, and the U.S. Congress to address the issue.

The Ukrainian Agribusiness Coalition. The UAC, made up of foreign agribusiness companies operating in Ukraine, Ukrainian businesses, and other Ukrainian officials and organizations, will mobilize to educate the Ukrainian public and government of the benefits and importance of a liberalized certification system. The UAC will be responsible for proposing the certification decree to the Ukrainian Parliament and developing a strategy to get the decree passed through the Parliament (see Appendix A). Proposed actions for the UAC are:

· Build support in the Ukrainian Parliament (Vakhovna Rada) by identifying and lobbying key members who will support recognition of international certificates. These supportive members will also be encouraged to champion the issue with members who currently do not support such recognition.

· Educate Ukrainian businesses and the community (through media, seminars, conferences, trade shows) on international certification and its benefits and these constituents to put pressure on VR deputies.

· Devise a plan to include Derstandard, Ukraine's certification agency, in the UAC's efforts in an attempt to convince the organization to support these efforts.

· Mobilize support among all Ukrainian allies that currently support international standards and certification (e.g., President Kuchma and the State Committee for Entrepreneurs).

ANALYSIS OF THE ISSUE

Since the collapse of the Soviet Union, Ukraine has slowly begun liberalizing its trade regime. In 1992, Western governments began offering consultation and aid money to facilitate the liberalization process and help Ukraine conform to international trade rules.

· The United States, through the U.S. Agency for International Development (U.S. AID), is funding a number of different programs designed to support liberalizing efforts in the Ukrainian government.
· The United States created the Gore/Kuchma Trade Commission in an attempt to negotiate trade and economic reforms.
· The U.S. National Institute of Standards and Technology (NIST) is negotiating with Ukraine to liberalize its telecommunications and medical devices sectors.
· The American Chamber of Commerce in Kyiv is also doing work to promote a liberalized standards and certification regime.
· The European Union (EU) has given aid money to DSTU to begin the process of assisting Ukraine in harmonizing its standards with those of the EU.
· The EU's Technical Assistance for the Commonwealth of Independent States (TACIS) is working in Ukraine and offering assistance in the area of economic and trade reform.

Despite this assistance, the Ukrainian system of standards and certification has changed very little over the past eight years. Certification reforms are often met with contempt; they are seen as Western ideas that threaten the Ukrainian way of life and an income source for the country.

The frustration the West faces as it tries to promote reform in Ukraine can be attributed, at least in part, to the country's experiences under Soviet rule. It has only known authoritarian, dictatorial forms of government, and the importance of protecting the "Motherland" along with a strong sense of nationalism has been engrained in its citizens. Moreover, because Ukraine, like other former Soviet countries, was isolated from the West for hundreds of years, there exists a mistrust and suspicion of western ideas and intentions. Ukrainians tend to look at life in the short-run. Many never had to plan for the future because it was already decided for them. Even since the breakup of the Soviet Union, many still continue to focus only on the present and how they will survive; they tend to look for quick fixes.

These characteristics foster a suspicious sentiment towards reform. Other reasons for protecting the certification regime include:

· A desire to protect the Ukrainian market from an influx of cheap imports that could put Ukrainian companies out of business.
· A distrust of international standards and their quality.
· A desire to protect the current flow of revenue that comes from the certification regime.
· The country's lack of a cohesive economic and foreign policy goal/objective.

These arguments can be countered in a strategy to persuade the Ukrainian government and the Ukrainian public to recognize international certification as follows:

· International certificates are based on the highest safety and quality standards.
· The cost of high certification fees in Ukraine is benefiting a few and costing consumers a great deal.
· Some of Ukraine's national standards are similar to the international standard; it should not be necessary for importers to re-certify a product a second time under the same standard.
· Countries that liberalize their trading regime, including their certification and standards systems, have higher GDPs, lower unemployment, and are typically more successful than those with closed systems.
· Ukraine benefits from foreign business and investment growth because foreign businesses employ a large number of Ukrainians. The current certification system, however, makes it difficult for these companies to continue to grow.
· Opening markets will also benefit Ukrainian businesses that need to improve their standards in order to export.

Convincing the Ukrainian government to recognize international agribusiness certificates will be difficult, but not impossible. Ukraine does have some incentive to liberalize its trading regime.

· Ukraine wants to continue to receive USAID money. (The United States gave $119 million dollars in USAID money to Ukraine in 1998.)
· Ukraine wants to receive IMF loans.
· Certain factions of the Ukrainian government want Ukraine to join the WTO, which will require recognition of international certifications.
· Certain factions of the Ukrainian government want to join the European Union, and this, in turn, requires WTO membership.

BACKGROUND PAPER:
U.S., UKRAINE, AND INTERNATIONAL CERTIFICATION

I. Introduction

International standards and certifications ensure that all products meet high, harmonized standards, and they facilitate world trade by enabling products to move more freely across borders. The World Trade Organization seeks harmonization of all standards and certification procedures in order to promote safe products and eliminate unnecessary trade barriers.

The world's certification and standards regimes are complicated and constantly changing as countries join international standards bodies and as new international certification organizations and standards are created.

Ukraine has its own standards and procedures of certification and does not recognize international certificates. Therefore all goods coming into Ukraine must be certified under Ukrainian national standards.

II. Standards and Certification Vocabulary

The following terms are used to describe international standards and certification regimes:

Standards - documented agreements containing technical specifications or other precise criteria to be used consistently as rules, guidelines, or definitions of characteristics, to ensure that materials, products, processes and services are fit for their purpose.

Standards Body - a body that researches, develops, and writes standards. Such bodies usually have worldwide membership.

Regulatory Body - a governmental body authorized to enforce standards, regulations, or other legislation.

Certification Body - a body that audits and certifies whether a product or an environmental or quality system conforms to a standard.

Certificate - a document issued by a certification body that states a product has passed all testing and meets a particular standard.

Standards Institute - a country's own standards and certification body. Often this is a private body but both domestic and foreign governments recognize it. Such institutes are members of international standards bodies; they represent their country's interests in these international bodies and have the authority to decide whether to recognize a particular international standard. (The American National Standards Institute represents the United States.)

Testing Laboratories and Auditing Bodies (third party) - bodies that offer independent conformity assessment services to verify that products, services, or systems measure up to a particular standard. These bodies may perform these services under a mandate to a regulatory authority or as a commercial activity.

III. International Standards and Certification

International standards bodies create international standards. These bodies are made up of members from many different countries, and all members participate in the formulation of any given standard. Certification bodies use these standards to certify products and issue a certification document. Some standards bodies may also issue certification documents.

Acceptance of international certificates facilitates the movement of products across borders by eliminating the need to re-certify a product in each country to which it is exported. Many countries that recognize international standards and certificates simply require proof of the international certification when a product enters the county.

Agribusiness companies use international certifications to facilitate the import of products to countries all over the world. Selco uses many international and highly recognized certifications. Selco follows the highest standards in order to supply a high quality product.

A number of international standards bodies create standards. Three of the most widely recognized in the world arena are the International Standardization Organization (ISO), the International Electrotechnical Commission (IEC), and the International Telecommunications Union (ITU). ISO, the main body, is discussed below. The ITU and the IEC follow similar structural frameworks.

International Organization for Standardization (ISO)

The International Organization for Standardization (ISO) consists of one standards body from each of its 130 member countries. ISO is the largest source of voluntary technical standards; it develops international standards over almost the entire range of technology.

ISO is a non-governmental organization that was established in 1947. Its mission is to promote the development of standards and related activities in the world with goals of facilitating the international exchange of goods and services and developing cooperation in the spheres of intellectual, scientific, technological, and economic activity.

ISO standards are developed according to the following principles:

· Consensus - The views of all interests are taken into account including manufacturers, vendors, users, consumer groups, testing laboratories, governments, engineering professions and research organizations. The goal is to develop solutions that satisfy industries and customers around the world.

· Voluntary - International standardization is market-driven and therefore based on voluntary involvement of all interests in the marketplace.

ISO's work results in international agreements that are published as international standards. ISO is a non-governmental organization, and the standards it develops are voluntary. However, a certain percentage of its standards - mainly those concerned with health, safety and the environment - have been adopted in some countries as part of their regulatory framework.

The need for a standard is usually identified by an industry sector that communicates this need to a national member body. The latter proposes the new work item to ISO as a whole. Once the need for an international standard has been recognized and formally agreed, there are three main phases in the ISO standards development process:

· The first phase involves definition of the technical scope of the future standard. This phase is usually carried out in working groups that comprise technical experts from countries interested in the subject matter.
· During a second phase, countries negotiate the detailed specifications for the standard. This is the consensus-building phase.
· The final phase comprises the formal approval of a draft international standard (the acceptance criteria stipulate approval by two-thirds of the ISO members that have participated actively in the standards development process, and approval by 75 percent of all members that vote), following which the agreed text is published as an ISO international standard.

ISO's work has resulted in over 11,500 international standards (see ISO web site).

Other International Standards Bodies

ISO identifies a number of international standards bodies that specialize in specific fields. Their focus is issue, sector, or product-specific. For example, the International Electrotechnical Commission develops international electrotechnical standards, and the World Health Organization develops health-related standards.

Standards bodies research, develop, and write standards-they do not certify the product. "Certifying bodies" are responsible for issuing a certification document. There are many certifying bodies located around the world.

International standards are developed in technical committees or commissions comprised of experts representing governments, industrial and professional associations, trade unions, consumers and research bodies.

All of these standards bodies have accepted the Code of Good Practice which follows the rules of preparation, adoption, and application of standards according to the "Technical Barriers to Trade Agreement " (see Appendix B) in the World Trade Organization (WTO). These bodies respect the principle of non-discrimination; standards must not create any unnecessary barriers to international trade. International certification bodies that certify agribusiness products include:

· The Organization for Economic Cooperation and Development (OECD), which develops standards for chemical testing, good laboratory practices, seeds, and tractor testing;
· The Collaborative International Pesticides Analytical Council, Ltd. (CIPAC), which develops standard analytical methods for pesticides formulation; and
· The International Seed Trade Association (ISTA), which develops standards for seed certification processes.

Many companies use the ISO 9000 family of standards. These are management system standards, not product standards. Facility processes are inspected for quality and then can receive certification. ISO 9000 categories include, for example:

· ISO 9001: 1994 Quality systems - Model for quality assurance in design, development, production, installation, and servicing.
· ISO 9002: 1994 Quality systems - Model for quality assurance in production, installation, and servicing.

IV. The U.S. Standards and Certification System

A number of agencies within the United States regulate standards and certification. The United States requires certification for products that affect health and safety (e.g., electrical products, food, and pharmaceuticals). All other products do not require certification, although adherence to voluntary standards can help a manufacturer differentiate its products in the market.

A product that requires mandatory certification is certified by the appropriate agency. For example, the Food and Drug Administration certifies food products and pharmaceuticals.

As a member of many international certification organizations, the United States participates in the creation of numerous international standards and certification processes.

American National Standards Institute (ANSI)

The American National Standards Institute (ANSI) serves as administrator and coordinator for private sector voluntary standardization systems. Founded in 1918 by five engineering societies and three government agencies, the Institute remains a private, nonprofit membership organization supported by a diverse constituency of private and public sector organizations.

ANSI's primary goal is to enhance the global competitiveness of U.S. business and the American quality of life by promoting and facilitating voluntary consensus standards and conformity assessment systems and promoting their integrity. The Institute represents the interests of its nearly 1,400 members (companies, organizations, government agencies, and institutions) through its headquarters in New York City and its satellite office in Washington, D.C.

ANSI does not itself develop American National Standards. It facilitates development by establishing consensus among qualified groups. The Institute ensures that its guiding principles, consensus, due process, and openness are followed by the more than 175 distinct entities currently accredited under one of ANSI's three methods of accreditation (organization, committee or canvass). ANSI-accredited developers are committed to supporting the development of national and, in many cases, international standards that address the critical trends of technological innovation, marketplace globalization and regulatory reform.

National Institute of Standards and Technology (NIST)

The National Institute of Standards and Technology (NIST), formerly the National Bureau of Standards (NBS), was established by Congress in 1901 to support industry, commerce, scientific institutions, and all branches of government. For nearly 100 years the NIST/NBS laboratories have worked with industry and government to advance measurement science and develop standards.

An agency of the U.S. Department of Commerce's Technology Administration, NIST's primary mission is to promote U.S. economic growth by working with industry to develop and apply technology, measurements, and standards.

NIST has four major programs designed to help U.S. companies succeed. Each one provides appropriate assistance or incentives for overcoming obstacles that can undermine industrial competitiveness. The programs are:

· measurement and standards laboratories that provide technical leadership and help U.S. industries to continually improve their products and services;
· the highly competitive Advanced Technology Program that provides cost-shared awards to industry for development of high-risk, enabling technologies with broad economic potential;
· the grassroots Manufacturing Extension Partnership that has a nationwide network of local centers offering technical and business assistance to smaller manufacturers; and
· a highly visible quality outreach program associated with the Malcolm Baldrige National Quality Award that recognizes continuous improvements in quality management by U.S. manufacturers and service companies.

V. The Ukrainian Standards and Certification System - Derstandard (DSTU)

Derstandard (The State Committee for Standardization, Metrology, and Certification - DSTU) governs Ukraine's standardization and certification processes. DSTU was established in 1991 after the breakup of the Soviet Union. It evolved from the USSR State Committee of Standards. Derstandard (DSTU) requires that the majority of all products be certified under Ukrainian national standards.

Key DSTU officials include:
· Tatiana Kisalova, Head
· Yuriy Ruban, 1st Deputy
· Evgeniy Vereshaga, Deputy
· Oleg Velichko, Deputy
· Leonid Vitki, Head of System Analysis & Coordination Board
· Tetyana Zakharyugina, Head of International Cooperation Department
· Boris Ugarov, Director, Ukrainian Institute of Standardization, Certification, and Information
· Mikhail Bukharovskiy, Ukrainian Center for Standardization, Metrology and Certification
· Volodymir Eremenko, Head of Department
· Oleg Andrievsky, Head of Department
· Tetyana Mashovets, Head of the Standardization and Certification Department: Information Technology, Communication and Classification

Derstandard's organizational structure is shown in Appendix C.

Despite DSTU officials' claims that DSTU is committed to recognizing international standards and using standards the European Union recognizes, there have been few changes in the system since its creation in 1991.

Most of DSTU's documents, regulations, and publications can be found in one small, discreet bookstore. The procedure for getting information or publications in this store is time consuming and confusing. Getting help from a bookstore employee is near impossible, and nothing is automated or computerized.

According to outside sources, the certification of foreign goods in Ukraine accounts for the majority of income derived from certifications. DSTU receives 80 percent of total certification proceeds. The remaining 20 percent goes to the government.

DSTU has received assistance from a number of international institutions. The EU's Technical Assistance to the Commonwealth of Independent States (TACIS) worked with DSTU in 1994 to translate standards and certification texts into Ukrainian and provided training for DSTU officials on the EU's certification regime (CEN/CENELEC).

While DSTU is exploring various international standards commitments, i.e., implementing European standards, signing agreements with the United States, Mongolia, Austria, Chile, and joining the European accreditation organization (EAL & EAC), it has yet to make any serious commitments.

Certification Process in Ukraine

According to the Department of Commerce, a 1994 Ukrainian governmental decree imposed compulsory certification requirements for goods imported into Ukraine. The decree specifies a list of goods subject to certification and regulates certification procedures. Certificates may be one of two types: (a) a Certificate of Acceptance of a foreign certification issued by a Ukrainian certifying agency, or (b) a Conformance Certificate issued by a Ukrainian agency upon certification of goods.

This decree states that certificates issued by foreign certification authorities are to be recognized in Ukraine only to the extent provided in international treaties to which Ukraine is party, and Ukraine and the United States have not signed any intergovernmental agreements on product certification. In May 1994, the Ukrainian State Committee on Standards, Certification, and Metrology (Derstandard) signed a Memorandum of Understanding with the U.S. Department of Commerce's National Institute of Standards and Technology. This is simply part of the U.S. Government's overall effort to harmonize the Ukrainian standards/certification regime with its own, thereby potentially increasing U.S. companies' competitive advantages in the Ukrainian market. NIST is currently participating in work to negotiate bilaterally with Ukraine in the medical devices, telecommunications, and oil and gas equipment sectors.

To apply for certification, the following documents must be submitted to the Ukrainian-certifying agency:

· An application stating that the company wishes to certify imported products
· A certificate of conformance
· Standards (technical conditions) of production and the procedures for certification
· A certificate of accreditation from the testing laboratory
· A protocol/summary of test results
· A certificate of quality control
· A certificate of origin (manufacturing)

Derstandard has created a network of 93 certifying bodies and testing laboratories (centers), located throughout Ukraine. Each center is responsible for testing a particular item. For example, only the Lviv-based Electroncert Center issues certificates for TV sets and VCR's, while certificates for radio communication equipment must be obtained from a center in Sevastopol. However, companies seeking testing must first contact Derstandard, as they make the ultimate determination on certification.

On July 1, 1996, Derstandard adopted as the Ukrainian national standard the ISO-9000 series for production systems certification. Based on these standards, Ukrainian certification bodies can evaluate the quality of a production system rather than the quality of a single product. DSTU does not recognize other ISO-9000 certificates at this time. Only DSTU can certify a plant.

STRATEGY PAPER

Selco Machinery International (SMI) has formulated a dual track strategy to help push Ukraine toward recognizing international agribusiness certifications. The U.S. strategy will be carried out by the American Agribusiness Coalition (AAC), and the Ukrainian strategy will be carried out by the Ukrainian Agribusiness Coalition (UAC).

· The American Agribusiness Coalition (AAC), comprised of all American agribusiness companies doing business in Ukraine, a select number of American agribusiness associations, and U.S. labor unions will build support in the United States. Specifically, AAC will target the U.S. Congress, State Department (USSD), Department of Commerce (DOC), Trade Representative (USTR), and Department of Agriculture (USDA).

· The Ukrainian Agribusiness Coalition (UAC) will build support throughout Ukraine, specifically in the Ukrainian Parliament (Vakhovna Rada), for legislation that recognizes international agribusiness certificates.

It will be essential to build broad, diverse coalitions that address the full range of political and commercial interests involved in this issue (see Appendix D). American companies should not isolate themselves and attempt to build the coalitions themselves. Ukraine is a very nationalistic country with many fears about the West trying to take advantage of it. The more people and organizations involved in the coalitions, the more powerful they will be. The more diverse the coalitions, the more legitimate the cause will be in Ukrainian eyes.

A limited number of foreign agricultural machinery companies operate in Ukraine. Accordingly, the coalitions will benefit from the support of companies outside this sector, including seed companies, agrochemical companies, agriculture associations, and international agriculture organizations.
I. U.S. Domestic Strategy - The AAC

AAC Logistics

The AAC will be comprised of the following members:

U.S. Company Members U.S. Associations U.S. Labor Unions
SMI Agricultural Chemical Producers AFL-CIO
Company A Agribusiness Coalition UAW
Company C American Seed Trade Association
Company M American Association for
Company P Manufacturing Engineers
Company CC
Company GG
Company N

Core Members

Eight U.S. companies will be the core members of the AAC in the United States. Their dues will support efforts of both the AAC and the UAC. A steering committee will be responsible for guiding the coalition and will take a leadership role in lobbying congressional representatives, participating in a lobby day in Washington, participating in AAC meetings, and supplying the AAC with updated information on its progress in Washington.

Supporting Members

American agribusiness associations and labor unions will be asked to testify before Congress, provide workers to hold a demonstration or picket in Washington, provide research and analysis of Ukraine's agricultural markets, and make telephone calls and write letters in an effort to lobby members of congress.

Staff

The AAC will hire one full-time staff person for approximately one year (may possibly be extended) to coordinate the efforts of the coalition. This staff person will be responsible for organizing AAC meetings, writing a monthly AAC newsletter to update members on the coalition's progress, coordinating the work of all U.S. companies, and acting as a liaison between the AAC and the UAC.

Dues

The core members will pay dues to the AAC. All expenses will be shared and will come from one account. The dues will be paid initially on the creation of the AAC.
The American Agribusiness Coalition (AAC) will carry out a legislative and media strategy in the United States designed to urge the U.S. government to put pressure on Ukraine to recognize international agribusiness certifications. The AAC must convince the U.S. government that Ukraine is a symbolic case-that convincing Ukraine to reduce trade barriers will help pave the way for other former Soviet Republics, including Russia, to do the same.

The AAC will apply to the United States Agency for International Development for funding for its work in Ukraine. These initial funds will be used to create educational materials for the lobbying effort. The AAC will also ask the U.S. Congress to appropriate funds for a program to educate Ukrainians about international certification.

AAC Legislative Strategy

The legislative strategy is designed to convince the U.S. Congress and Administration that promoting reform of Ukraine's standards and certification regime should be given top priority; it is vital to American business interests in Ukraine and the future of Ukraine's economy.

The AAC, with the help of the international coalition, will prepare the following documentation to present to the U.S. Congress, United States Trade Representative, State Department, Department of Agriculture, Department of Commerce, and other U.S. government agencies:

· Lobbying packet that includes a white paper and dear colleague letter (see Appendix F and E).
· Macroeconomic report on the current situation in Ukraine.
· Market share report on the benefits of convincing Ukraine to recognize international certification, including how such recognition will effect American business in Ukraine and American jobs in the U.S.

Lobbying the Congress

1st Approach: All domestic coalition members will participate in lobbying their congressional representatives (see Appendix G). Lobbying activities will include:

· Meeting with members of Congress and their staffs to set out the AAC's goals
· Writing letters and making telephone calls to the members of Congress and their staff
· Giving testimony before Congress, CEOs of companies, and union and association presidents (Appendix H)
· Convincing members of Congress to write a "Dear Colleague" letter to other members
· Identifying members of Congress who might be willing to introduce a resolution stating that the U.S. government will prioritize the standards and certification issue in Ukraine and back it financially

2nd Approach: Each coalition member will also be responsible for lobbying the following influential congressional committee members:

HOUSE
· Tom Bliley - Chairman, House Committee on Commerce
· W.J. Tauzin - Chairman, House Subcommittee on Telecommunications, Trade, and Consumer Protection
· Bill Archer - Chairman, House Committee on Ways and Means
· Philip Crane - Chairman, House Subcommittee on Trade
· C.W. Bill Young - Chairman, House Committee on Appropriations
· Harold Rogers - Chairman, House Subcommittee on Commerce, Justice, State, and the Judiciary
· Sonny Callahan - Chairman, House Subcommittee on Foreign Operations, Export Financing, and Related Programs
· Larry Combest - Chairman, House Committee on Agriculture
· Benjamin Gilman, Chairman, House International Relations Committee
· Ileana Ros-Lehtinen - Chairman, House Subcommittee on International Economic Policy and Trade
· Dennis Hastert - Chairman, House Government Reform and Oversight Subcommittee on National Security, International Affairs, and Criminal Justice

SENATE
· Judd Gregg - Chairman, Senate Appropriations Committee - Subcommittee on Commerce, Justice, State, and Judiciary
· Jesse Helms - Chairman, Senate Foreign Relations Committee

3rd Approach: The coalition will work together as a group to lobby in Washington. The AAC will plan a lobby day in Washington for each coalition member to meet with 15 members of Congress and leave a lobbying packet with each member.

Lobbying USTR, USSD, DOC, and the USDA

1st Approach: Coalition members will work together as a group to lobby USTR, the USSD, the USDA, the DOC, and other mentioned agencies by presenting the above mentioned reports and making phone calls and visits to the following people:

USTR- Executive Office of the President, Charlene Barshevsky, Trade Representative, William Daley, Jr., Liaison, Ukraine Desk, Jim Sanford or Kathy Novelli
DOC- Ukraine Desk, Christine Lucyk, Market Access and Compliance, Frank Vargo, Assistant Secretary
USDA- Ukraine Desk, Susan Philips
USSD- Coordinator for Business Affairs, Marshal Adair, Senior Coordinator
Economic and Business Affairs, Alan Larson, Assistant Secretary
Economic, Business, and Agriculture, Stuart Eizenstat, Under Secretary
Trade Policy and Reforms, David Marchik
USTDA- J. Joseph Grandmaison, Director

2nd Approach: Coalition members can lobby the above listed agencies by sending letters, meeting with officials, or phoning. (The 1st approach is recommended.)

Lobbying Goals

The overall goal of lobbying is to convince members of congress and the administration to do the following:

· Put pressure on the Gore/Kuchma Commission to prioritize certification and negotiate an agreement with Kuchma to support recognition of international agribusiness certificates.
· Convince the Gore/Kuchma Commission to form a Standards Working Group, similar to the one in Russia, to deal specifically with standards and certification reform.
· Introduce and pass a formal resolution in Congress in support of future work in the area of certification in Ukraine.
· Increase USAID money to support training and education in international certification issues. Education efforts will include:
- organizing conferences and meetings in Ukraine on international certification issues
- preparing training material for conferences and meetings
- inviting certification experts to meet with Ukrainian officials in Ukraine
- sending Ukrainian officials to seminars and conferences abroad, (Europe, U.S.)
- providing translation of all important documentation in Ukrainian
- researching and following progress of reform in the certification area

AAC Media Strategy

The media strategy will support and help carry out the goals of the legislative strategy. It focuses on gaining attention on Capitol Hill. The issue of certification in Ukraine will not be very interesting to the American public, but it can become interesting if it is linked to American jobs.

1st Approach: The coalition will be responsible for doing the following:

Fee Media Coverage
· Meet with newspaper editorial boards to give information about Ukraine's restrictive market and what the U.S. should do about it.
· Write op-ed piece for the New York Times, Washington Post, and Financial Times.
· Hold press conferences to report that the United States gave $119 million in USAID money to Ukraine in 1998, but is not demanding that simple reform measures be implemented.

Paid Media Coverage
· Write a New York Times op-ed page advertisement

2nd Approach: The coalition should seek national media coverage of the link between the certification problem in Ukraine and American jobs. The story should:

· Show how Ukraine's antiquated certification system limits U.S. companies' abilities to export to Ukraine and how, in turn, this limit both the number of units produced in the United States and the number of workers needed and hired in American plants.
· Show how American aid (provided by U.S. tax dollars) sits at the Ukrainian border for months because of the country's corrupt certification system.

The story should be presented at a press conference/demonstration in front of the Ukrainian Embassy in Washington that includes union workers, other company employees, and association members.

II. Ukrainian Strategy - The UAC

UAC Logistics

The Ukrainian Agribusiness Coalition (UAC) will be comprised of the following members:

American Companies
(The eight companies listed in the domestic strategy)

Foreign Companies
Company H Norway
Company Z Czechoslovakia
Company R German
Company F Hungary
Company U Italy
Company X German
Company Y Italy
Company Q Swiss
Company E France
Company I Hungary
Company W Germany
Company T Yugoslavia
Company V United Kingdom

American Organizations in Ukraine
Citizen's Network for Foreign Affairs
Alliance for Enterprise Development
American Chamber of Commerce

American Government Offices
United States Department of Commerce Foreign Commercial Service
United States Trade and Development Agency
United States Agency for International Development

Possible Ukrainian Coalition Members
Agencies - National Agency of Ukraine for Development and European Integration, Director
Businesses - Entrepreneurs, business owners
Associations - Ukrainian Chamber of Commerce, Ukrainian Farmer's Association, Ukrainian Grain Association, Ukrainian League of Entrepreneurs
Academicians - Universities, researchers, economists

Core Members

American, foreign, and Ukrainian companies will all participate as core members of the UAC. However, it will be crucial to ensure that the Ukrainian members be solid, equal participants in the coalition's work.

Ukrainians are extremely nationalistic and very suspicious of Western companies' intentions in their country. A strong Ukrainian contingent in the coalition will help counterbalance these sentiments and help legitimize the efforts of the UAC. The foreign and American members will play a large role in the behind-the-scenes planning and organization of efforts, but the Ukrainians will have to be the public spokesmen for the UAC.

Core members will be dues paying members. The fee schedule for paying dues will slide according to each company's worth, and core members will lead the UAC steering committee.

Ukrainian Supporting Members

These members will be the voice and the face of the coalition. Ukrainian members should take a large role in building the coalition and planning and organizing its efforts. These supporting members will offer in-kind services to the coalition. They will attend meetings with officials, lead training seminars, and lobby the VR. Again, it is important to include influential Ukrainian businesspeople, officials, and academicians in the UAC.

American Supporting Members

American supporting members will be the American organizations and American government offices in Ukraine. These members will provide in-kind services to the UAC including but not limited to fax, email and phones access. American supporting members will also provide research and analysis of the Ukrainian market and participate as needed in training and education programs for the Ukrainian public.

Staff

The UAC will hire one full-time Ukrainian staff person to organize the efforts of the UAC. This person will coordinate all work between the coalition members, write a monthly newsletter on the progress of the coalition, and coordinate all meetings, training sessions, dinners, and travel arrangements.

UAC Legislative Strategy

The Ukrainian Agribusiness Coalition (UAC) will carry out a legislative, media, and negotiating strategy in Ukraine. The coalition's goal will be to persuade the Ukrainian government to recognize international agribusiness certificates.

The UAC will have to overcome four obstacles in order to achieve its goal:

· Ukraine's desire to protect its market from an influx of imports that may put Ukrainian companies out of business.
· Suspicion and lack of trust of the West.
· Ukrainian doubt concerning the quality of international standards.
· Ukraine's desire to protect the current flow of revenue provided by the certification regime.

These obstacles will be countered with arguments that convey the following messages:

· International certificates are of the highest safety and quality standards.
· The cost of high certification fees in Ukraine is benefiting a few and costing consumers a great deal.
· Some of Ukraine's national standards are already similar to international standards, so adopting the international standard should pose no safety threat to Ukrainian consumers.
· Countries that liberalize their trade regimes, including their certification and standards systems, have higher GDPs, lower unemployment, and are typically more successful than those that have closed systems.
· Ukraine's agricultural sector employs a large number of Ukrainians, and the current certification system makes it difficult for this sector to continue to grow.
· Import competition also benefits Ukrainian businesses that wish to export abroad.

The UAC will prepare the following documentation to support its cause:

· A report on the current macroeconomic situation in Ukraine.
· A report showing the macroeconomic benefits of trade liberalization, including the benefits of recognizing international certificates. This will include an analysis of the benefits other countries have derived from opening their markets (e.g. Poland, Estonia, Latvia, Romania, Slovakia, Moldavia, etc.).
· Informational materials articulating the high quality of international standards and certification.
· A price analysis of how much redundant certification costs Ukrainian consumers.

The coalition will focus its efforts around the four obstacles listed above and will work on five different levels: the VR, the Ukrainian business community, members of the State Committee of Entrepreneurs, Derstandard officials, and President Kuchma.

Level 1: Parliament. Coalition members will need first to identify key influential members of Parliament. Three parties that have promoted Western reforms in the past are the Reform and Order Party, the People's Democratic Party, and the Rukh Party. Coalition members will then:

· Meet with VR officials.
· Phone VR officials.
· Write letters to VR officials (See Appendix J).
· Invite officials to receptions and dinners.
· Send key officials to training/conference sessions in Kyiv.
· Hold a meeting in Europe to discuss international certification (Geneva, Brussels).
· Send Ukrainian representatives to international standards bodies to show them that international certification procedures are sound and reliable.
· Send key officials to train and meet with officials in the U.S.
· Hold events, meetings, and seminars in Crimea.

Level 2: The Business Community. The coalition will work to educate Ukrainian business leaders concerning the benefits international certification. Coalition members will:

· Target key, influential business people in Ukraine, as well as Ukrainian buyers and distributors.
· Target key opponents and attempt to include them in the UAC's efforts.
· Hold conferences/training seminars in Kyiv
· Send business community representatives to visit international standards bodies.
· Lobby for support from the Ukrainian business community.
· Hold meetings with these key business players.
· Write letters to key players.
· Hold receptions for officials in Kyiv.
· Organize an agribusiness trade show to advertise high quality, foreign products.

Level 3: The State Committee of Entrepreneurs (SCE). To assist the SCE in its efforts toward gaining Ukrainian acceptance of international certifications, the coalition will:

· Convince the SCE to introduce the certification decree to the VR.
· Help the SCE research and produce translated international certification training materials.
· Aid Kushel, SCE's head, in building her popularity in Ukraine by helping her hold her own weekly press conferences, publish articles in journals and newspapers, and present herself well in radio interviews.
· Encourage Kushel to use her position to educate the public on the benefits of international certification.

Level 4: Derstandard. The coalition will attempt to lobby its main opponent, the DSTU. In order to convince Derstandard to accept international standards, it will:

· Conduct training seminars for the staff, showing how open trade will also benefit them.
· Send a group of Derstandard employees to Geneva, Brussels, and the United States to learn more about international certification.
· Send Ukrainian representatives to international standardization bodies to see how certification is carried out.
· Investigate and write a complete study of what other incentives might help convince Derstandard, Kisalova, and other key DSTU figures to accept international certifications for agribusiness products. This research should answer the following questions:

1. What is DSTU's/Kisalova's power based on?
2. What is the history of DSTU's/Kisalova's power?
3. Is there anyone else supporting DSTU's/Kisalova's? Who are their allies?
4. What elite, influential supporters does DSTU/Kisalova have?
5. How do they keep these allies satisfied?
6. Who are their enemies?
7. What is DSTU's/Kisalova's relationship with Kuchma and the VR?
8. How is the system financially structured?
9. How much money does DSTU/Kisalova make?
10. Why is this system good for Kisalova and her supporters?
11. What are Kisalova's strengths and weaknesses?
12. What do Kisalova and her colleagues see in the future of DSTU?

Level 5: The President. In order to gain support from President Leonid Kuchma, the coalition will:

· Provide Kuchma with evidence of the benefits to be derived from opening Ukraine's markets and recognizing international certifications.
· Build a coalition of influential Ukrainian business people to support Kuchma's efforts. Such support will make it easy for Kuchma to come out in favor of international certifications because Ukrainians need to see that this is a Ukrainian rather than a foreign or American issue.

UAC Media Strategy

The media strategy is designed to create a climate in which the legislative strategy can work. Ukrainians read newspapers and magazines, watch television, and listen to the radio very often; it is easy to reach most of the public. Moreover, the certification issue affects all Ukrainians, so the general public is likely to show at least some interest in it.

The media strategy will attack two of the obstacles facing the UAC: the concerns about increased consumer costs and the safety and quality of international standards. The strategy will focus on showing how consumers will save money if international certifications are recognized. It will also drive home the fact that international standards are reliable and safe; they are often more stringent than Ukrainian national standards.

Specifically, the coalition will:

· Hold weekly press conferences with Alexandra Kushel leading discussions on economic and trade reform issues, including standardization and certification issues.
· Publish and discuss macroeconomic research reports in journals and newspapers showing how liberalized trade benefits countries' GDP, etc.
· Publish articles on the current certification system that reveal how many of the Ukrainian national standards are less stringent than or similar to international standards (see Appendix K).
· Publish reports showing how double certification requirements increase consumer costs.
· Book radio interviews for Kushel and other leading officials on the issue of certification and the benefits of open trade and a liberalized certification system.
· Get television news coverage of relevant meetings, press conferences, etc.
· Bring agriculture workers to the VR to demonstrate in favor of international standards.

Negotiating Strategy

There will be three distinct occasions for negotiation: 1) the Gore/Kuchma Trade Commission negotiation, 2) negotiations with potential Ukrainian coalition members, and 3) negotiations with VR members.

A. Gore/Kuchma Trade Commission Negotiation

One of the key goals of the AAC in the United States will be to convince Vice President Gore and the Department of Commerce to give the certification issue priority in the Gore/Kuchma Commission talks. Gore visits Ukraine once or twice a year to discuss trade and economic reforms in Ukraine. The issue of certification has been on the agenda for over two years. The AAC and UAC want certification to take top priority in Gore/Kuchma negotiations. The AAC and UAC can give Gore support in negotiating with Kuchma on this issue by providing him with the following information.

Preferred Outcome: Persuade Kuchma to agree to a timeline on the reform of the certification system.

Interests: In the upcoming negotiation, Gore will have to put additional pressure on Kuchma to not just sign a memorandum of understanding, but also sign a binding agreement that obliges Ukraine to recognize international certificates. This means Kuchma will have to put pressure on the VR to support this agreement. Kuchma has already tried and failed to introduce a decree recognizing international standards. Gore will ask him to reorganize and build support in the VR to accept a new decree. Gore can use the attached interest charts to display his knowledge of Ukrainian interests and to promote options that address these interests.

Talking Points: In negotiating with Kuchma, Gore should make the following points:

· International certificates represent the highest safety and quality standards.
· The cost of high certification fees in Ukraine is benefiting a few and costing consumers a great deal. It currently costs about $60,000 to recertify a tractor every year. It is consumers who ultimately pay for this unnecessary burden.
· Some of Ukraine's national standards are already similar to international standards. It should not be necessary for importers to recertify a product twice under the same standard.
· Countries that liberalize their trading regime, including their certification and standards systems, have higher GDPs, lower unemployment, and are typically more successful than those which maintain closed systems.
· Ukraine benefits from the growth of foreign business and investment. Foreign businesses employ a large number of Ukrainians. Unfortunately, the current certification system is making it difficult for these companies to continue to grow.

Negotiation Tactics: Gore can use the following tactics if Kuchma will not agree to set a timeline for recognizing international certificates:

· In 1998, the United States gave $119 million U.S. AID dollars to Ukraine to assist in developing the country's economic and trade system. Ukraine cannot expect to keep receiving money if it is not making positive changes.
· Ukraine must implement progressive economic and trade reform policies in order to receive an IMF loan. Currently, the IMF is considering not granting a loan to Ukraine because Ukraine has not implemented promised reform policies. Ukraine must facilitate the reform process, and liberalization of the certification and standards regime would be a good place to start.
· Ukraine will have to bring its certification system in line with international standards if it is to become a WTO member.
· Membership in the WTO is a prerequisite to becoming a member of the EU. The EU also requires that all members harmonize their certification and standardization regimes with those of the EU.

B. Negotiating with Potential Ukrainian Coalition Members

Founding members of the UAC members will need to recruit others to join the coalition. This will involve convincing business people, associations, and academicians that Ukraine will benefit from liberalizing its certification regime.

C. UAC Members Negotiating with VR Members

Coalition members will negotiate with members of Parliament to persuade them to recognize international certification of agribusiness certificates.

Preferred Outcome: Persuade Parliament to pass the certification decree that the State Committee of Entrepreneurs will introduce.

Interests, Talking Points, and Negotiating Tactics: The interest, talking points, and negotiation tactics are similar for both negotiations. The attached charts lay out details of the negotiations.

TIMELINE FOR AAC AND UAC ACTIONS

Note:  The following dates are estimated and will be refined if Selco decides to proceed with the proposed strategy.

BUDGET

Selco’s goal is to keep the coalition membership dues low.  Selco understands that many companies doing business in Ukraine are spending a large amount to locate in Ukraine, many are not receiving payment for their goods, and others are simply losing money. The AAC is hopeful that a substantial amount of its budget will come from a U.S. AID grant.

The budget is been broken into two parts, a domestic AAC budget, and a
Ukrainian UAC budget.
 

top

continued