Congressional Ukrainian Caucus

CONGRESSIONAL UKRAINIAN CAUCUS -- (Extensions of Remarks - April 30, 2004)

SPEECH OF
HON. MARCY KAPTUR
OF OHIO
IN THE HOUSE OF REPRESENTATIVES
FRIDAY, APRIL 30, 2004

Ms. KAPTUR. Mr. Speaker, I rise tonight to request that the following letter be inserted in the RECORD.

Congressional Ukrainian Caucus,

Washington, DC, March 26, 2004.

Hon. VIKTOR YANUKOVYCH,

Prime Minister of Ukraine.

DEAR PRIME MINISTER YANUKOVYCH: As members of the Congressional Ukrainian Caucus and long time supporters of Ukraine's independence and economic growth, we are writing to express our concern regarding an investment issue that involves U.S. taxpayer funds.

The Congress established the Western NIS Enterprise Fund (WNISEF) as a private equity fund to invest in small- and medium-sized private enterprises in Ukraine (Moldova and Belarus) in 1994. WNISEF was capitalized initially with $150 million by the U.S. Government, with the key aspect of spurring foreign investment in Ukraine. Since its foundation, the Fund has fulfilled its mission as envisioned by Congress, making cumulative investment commitments of more than $73 million in 22 companies in Ukraine, as well as $3.8 small business loans to 67 Ukrainian small businesses. The Fund has attracted additional capital to these businesses of well over the amount it has invested itself.
However, these accomplishments are now at risk of being overshadowed by an investment dispute that threatens Ukraine's foreign investment reputation and U.S.-Ukrainian economic relations.

WNISEF recently filed an arbitration case against Ukraine arising out of Ukraine's violation of the Fund's rights under the U.S.-Ukraine Bilateral Investment Treaty (BIT). it is a disturbing investment issue implicating the fundamental value of rule of law, contract and treaty obligation enforcement.

The case involves a WNISEF loan to the Ukrainian company, Sonola JSC (Kirovohrad). After Sonola defaulted on payments of the loan, WNISEF sought to collect the loan and, as in accordance with the dispute settlement language of the loan agreement, filed a claim for arbitration with the American Arbitration Association, New York, USA. The arbitrator, and subsequently the New York courts, upheld WNISEF's claim against Sonola of $3.8 million.

Unfortunately, WNISEF has been unable to enforce the international arbitration award in Ukraine's courts-twice filing a petition for recognition and enforcement of the award to the Kirovohrad Oblast Court of Appeal during 2001-2002. The Supreme Court of Ukraine has refused the Fund's appeal, casting doubts as to the fulfillment by Ukraine of its obligations under international agreements.

WNISEF has now been forced to file an action against Ukraine to the International Centre for Settlement of Investment Disputes (Washington, D.C.), alleging that the actions of the Ukrainian judiciary have violated international law, including Ukraine's obligations under two important international agreements to which Ukraine is party.
We would like to ensure that the Fund is treated fairly under the terms of the U.S.-Ukraine Bilateral Investment Treaty. If WNISEF is not provided basic protection under Ukrainian law, how can other potential foreign investors have any confidence in Ukraine's foreign investment climate?

The Fund has repeatedly expressed its willingness to resolve the dispute by way of negotiations and reaching an amicable agreement. In order to prevent the potential negative effects for Ukraine due to a hearing of this case at the International Centre for Settlement of Investment Disputes, we urge you to facilitate a prompt resolution of this dispute.
Reducing investor risk and increasing investor confidence are the keys to attracting additional foreign capital to Ukraine, which will in turn create jobs, modernize factories and bring numerous other benefits to the Ukrainian people.
It is our hope that American companies doing business in Ukraine maintain full confidence in the Ukrainian system and continue to contribute to its economic development. A prompt resolution of the WNISEF investment dispute will enhance U.S. confidence in Ukraine's commitment to foreign investment protection.

Sincerely,