Order Code RL33460
CRS Report for Congress
Received through the CRS Web
Ukraine: Current Issues and U.S. Policy
Updated August 23, 2006
Steven Woehrel
Specialist in European Affairs
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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Ukraine: Current Issues and U.S. Policy
Summary
In January 2005, Viktor Yushchenko became Ukraine’s new President, after
massive demonstrations helped to overturn the former regime’s electoral fraud, in
what has been dubbed the “Orange Revolution,” after Yushchenko’s campaign color.
The “Orange Revolution” sparked a good deal of interest in Congress and elsewhere.
Some hope that Ukraine may finally embark on a path of comprehensive reforms and
Euro-Atlantic integration after nearly 15 years of half-measures and false starts.
However, subsequent events have led to a certain amount of disillusionment among
Yushchenko’s supporters. These include infighting within his governing coalition
and a political non-aggression pact Yushchenko made with his opponent from the
presidential election, Viktor Yanukovych. Economic reforms were hampered by
political conflict, including over an effort to reprivatize firms sold to the previous
regime’s cronies at very low prices. Economic growth slowed after the Orange
Revolution.
On March 26, 2006, Ukraine held parliamentary elections. No party won a
majority of the vote, resulting in protracted talks to form a coalition government.
Analysts interpreted the election results as a sharp rebuke to President Yushchenko
and his Our Ukraine bloc. The largest vote-getter in the elections was the Party of
Regions, headed by Yanukovych. After the failure of protracted attempts to
reconstitute the Orange Revolution coalition, the Socialist Party formed a coalition
with the Party of Regions and the Communists, which put forward Yanukovych as
its candidate for Prime Minister. President Yushchenko reluctantly appointed
Yanukovych as Prime Minister, and the Ukrainian parliament approved the new
government on August 4, 2006.
After taking office as President, Yushchenko said that Ukraine would seek
integration into the global economy and Euro-Atlantic institutions. The Ukrainian
government’s main foreign policy goal is to join the World Trade Organization
(WTO) by the end of this year. In the longer term, Ukraine’s leaders seek to join the
European Union and NATO. Ukraine is seeking to retain good ties with Russia, but
relations have been troubled since Yushchenko has taken power, particularly after
Russia cut off natural gas supplies to Ukraine in January 2006. The supplies were
quickly restored, but only after Ukraine agreed to a hefty increase in gas prices.
Yanukovych’s return to power may result in closer Ukrainian ties to Russia and less
effective Ukrainian government support for the country’s efforts to join the WTO and
make progress toward Euro-Atlantic integration.
U.S. officials supported the “Orange Revolution” in Ukraine in late 2004 and
early 2005, warning the former regime against trying to impose fraudulent election
results, and hailing Yushchenko’s ultimate victory. U.S. officials have remained
upbeat about Ukraine’s successes in some areas, such as adopting legislation needed
for WTO membership and in improving media freedom, while acknowledging
difficulties in others. Administration officials have also praised Ukraine’s efforts to
hold a free and fair parliamentary election on March 26, 2006 and have vowed to
work with the new government led by Prime Minister Yanukovych. This report will
be updated as needed.

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Contents
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Current Political Situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Economic Situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Ukraine’s Foreign Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
NATO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
European Union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Russia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
U.S. Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Congressional Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

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Ukraine: Current Issues and U.S. Policy
Background
Ukraine, comparable in size and population to France, is a large, important,
European state. The fact that it occupies the sensitive position between Russia and
new NATO member states Poland, Slovakia, Hungary, and Romania, adds to its
geostrategic significance. Many Russian politicians, as well as ordinary citizens, have
never been fully reconciled to Ukraine’s independence from the Soviet Union in
1991, and feel that the country should be in Russia’s political and economic orbit.
The U.S. and European view, especially in Central and Eastern Europe, is that a
strong, independent Ukraine is an important source of regional stability.
From the mid 1990’s until recently, Ukraine’s political scene was dominated by
President Leonid Kuchma and the oligarchic “clans” (groups of powerful politicians
and businessmen, mainly based in eastern and southern Ukraine) that supported him.
Kuchma was elected President in 1994, and re-elected in 1999. He could not run for
a third term under the Ukrainian constitution. His rule was characterized by fitful
economic reform (albeit with solid economic growth in recent years), widespread
corruption, and a deteriorating human rights record.
Ukraine held presidential elections on October 31, November 21, and December
26, 2004. The oligarchs chose Prime Minister Viktor Yanukovych as their candidate
to succeed Kuchma as President. The chief opposition candidate, former Prime
Minister Viktor Yushchenko, was a pro-reform, pro-Western figure. International
observers criticized the election campaign and the first and second rounds of the
election as not free and fair, citing such factors as government-run media bias in
favor of Yanukovych, abuse of absentee ballots, barring of opposition representatives
from electoral commissions, and inaccurate voter lists. Nevertheless, Yushchenko
topped the first round of the vote on October 31 by a razor-thin margin over
Yanukovych. Other candidates finished far behind.
After the November 21 runoff between the two top candidates, Ukraine’s
Central Election Commission proclaimed Yanukovych the winner. Yushchenko’s
supporters charged that massive fraud had been committed. Hundreds of thousands
of Ukrainians took to the streets, in what came to be known as the “Orange
Revolution,” after Yushchenko’s chosen campaign color. They blockaded
government offices in Kiev and appealed to the Ukrainian Supreme Court to
invalidate the vote. The court invalidated the runoff election on December 3, and set
a repeat runoff vote on December 26. Yushchenko won the December 26 re-vote,
with 51.99% of the vote to Yanukovych’s 44.19%. After court challenges by
Yanukovych were rejected, Yushchenko was inaugurated as President of Ukraine on
January 23, 2005. On February 4, 2005, the Ukrainian parliament approved President
Yushchenko’s appointment of Yulia Tymoshenko as Prime Minister of Ukraine by

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CRS-2
a vote of 373-0. Tymoshenko is a charismatic, populist leader with a sometimes
combative political style who campaigned effectively on Yushchenko’s behalf. She
is a controversial figure due in part to her alleged involvement in corrupt schemes as
a businesswoman and a government minister during the Kuchma regime.
The “Orange Revolution” sparked a good deal of interest in Congress and
elsewhere. Some hope that Ukraine could finally embark on a path of comprehensive
reforms and Euro-Atlantic integration after years of half-measures and false starts.
However, subsequent events led to a certain amount of disillusionment among
Orange Revolution supporters. Yushchenko’s efforts were hampered by infighting
within his governing coalition. In September 2005, Yushchenko dismissed Prime
Minister Tymoshenko’s government. The atmosphere between the two leaders was
poisoned by accusations of corruption lodged by supporters of each against the other
side’s partisans, including over the highly lucrative and non-transparent natural gas
industry. The two leaders also clashed over economic philosophy, with Tymoshenko
favoring populist and statist methods in contrast to Yushchenko’s preference for a
more orthodox free-market approach.
In order to secure support for a new government led by Yuri Yekhanurov, a
technocratic figure, Yushchenko then made a political non-aggression pact with his
opponent from the presidential election, Viktor Yanukovych, and promised not to
prosecute Yanukovych’s key supporters for electoral fraud and other crimes. Some
supporters of the Orange Revolution viewed the move as a betrayal of one of the key
principles of their movement. Some even began to question whether the new
government was better than the old regime, given ongoing government corruption
scandals and the perception that the Orange Revolution might be reduced to
squabbling over the redistribution of property among the “old” oligarchs and would-
be, new “Orange” ones.1
Current Political Situation
On March 26, 2006, Ukraine held parliamentary elections. The elections were
considered important in determining whether Ukraine will be able to move forward
with political and economic reforms, and maintain its support for Ukraine’s Euro-
atlantic integration. Analysts interpreted the results as a sharp rebuke to President
Yushchenko and his Our Ukraine bloc. The largest vote-getter in the elections was
the Party of Regions, headed by Yushchenko’s former presidential election rival
Viktor Yanukovych. It received 32.12% of the vote, and received 186 seats in the
450-seat Ukrainian parliament. The Yuliya Tymoshenko Bloc received 22.27% and
129 seats. The Our Ukraine Bloc, backed by Yushchenko, won only 13.94% of the
vote and 81 seats. The Socialist Party won 5.67% and 33 seats. The Communist
Party was the only other party to surmount the 3% minimum vote requirement
needed to receive seats in the parliament. It won 3.66% of the vote and 21 seats.
1 Jamestown Foundation, Eurasia Daily Monitor, September 9, 2005; RFE/RL Belarus,
Ukraine, Moldova Report, September 16, 2005.

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CRS-3
Observers have noted that the
Ukraine’s Main Political Groups
voting, as in the presidential elec-
tion, was heavily polarized along
Party of Regions: The largest party in
regional lines. Yushchenko and
Ukraine’s parliament and the leading party in
Tymoshenko are unpopular in east-
Ukraine’s government. It draws its support
ern and southern Ukraine, where
from eastern Ukraine, where suspicion of
most ethnic Russians live and most
Ukrainian nationalism is high and support for
Ukrainians speak Russian almost
close ties with Russia is strong. It defends the
exclusively. People in these regions
economic interests of powerful oligarchic
tend to favor very close ties with
groups in eastern Ukraine.
Russia. The Party of Regions won
crushing victories in southern and
Yulia Tymoshenko Bloc: Mainly a vehicle for
the ambitions of the charismatic Tymoshenko,
eastern Ukraine, for example gain-
it has little ideological cohesion of its own. It
ing 73.63% in Donetsk, its eastern
is the second largest group in the Ukrainian
Ukraine power base. It did very
parliament largely because many Ukrainians
poorly in the center and west of the
see Tymoshenko as the most stalwart defender
country, winning only 3% of the
of the populist, anti-corruption ideals of the
vote in the nationalist stronghold of
Orange Revolution. It is the largest opposition
Lviv in western Ukraine.
group in the Ukrainian parliament.
Yushchenko and Tymoshenko
Our Ukraine bloc: The main political group
draw their support from western
supporting President Yushchenko. Our
Ukraine favors free market economic reforms
and central Ukraine, which have
and a pro-Western foreign policy. It draws its
more Ukrainian-speakers and where
main support from western Ukraine, where
support for a Western orientation
Ukranian nationalism is strong. It suffered a
for Ukraine is higher. The Yuliya
serious defeat in the March 2006 parliamentary
Tymoshenko Bloc and Our Ukraine
elections, due to Yushchenko’s sharply
split the vote in western and central
declining popularity.
Ukraine. However, the Tymoshenko
Bloc easily bested Our Ukraine in
Socialist Party: Once part of the Orange
central Ukraine and the capital
Revolution coalition, this rurally-based party
Kiev, and even made deep inroads
took a strong stand against the corruption of
into Our Ukraine’s core electorate
the Kuchma regime. After the March 2006
parliamentary elections, the Socialists
in western Ukraine. This may have
switched their support to the Party of Regions-
been due to feelings of betrayal
dominated government. The Socialists are
among in these regions (which were
skeptical of free market policies and, like the
the strongholds of the Orange Revo-
Party of Regions, oppose NATO membership
lution) over Yushchenko’s dis-
for Ukraine.
missal of Tymoshenko and rap-
prochement with the Party of Re-
Communist Party: Now a shadow of its
gions. Both blocs did very poorly
former self, overtaken by the Party of Regions
in eastern and southern Ukraine.
in its eastern Ukraine strongholds and faced
For example, the Tymoshenko Bloc
with an aging electorate. It strongly opposes
market economics and favors strong ties to
won only 2.45% in Donetsk, and
Russia. It has two ministers in the current
Our Ukraine only 1.4%. The So-
Ukrainian government.
cialist Party’s appeal was concen-

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CRS-4
trated in rural areas of central Ukraine, while the Communists did best in southern
and eastern Ukraine.2
After the failure of protracted attempts to reconstitute the Orange Revolution
coalition, the Socialists, formerly part of it, changed sides and formed a coalition
with the Party of Regions and the Communists, which put forward Yanukovych as
its candidate for Prime Minister. President Yushchenko considered the possibility
of dissolving the parliament and calling new elections but rejected it, perhaps in part
because opinion polls showed Our Ukraine faring even worse than it had during the
March vote. Yushchenko appointed Yanukovych as Prime Minister, and the
Ukrainian parliament approved the new government on August 4, 2006.
The new government is dominated by figures from the previous Yanukovych
government, during the Kuchma era. Some observers are concerned that the
government could return to the anti-democratic ways of the former regime. Others
assert that Ukrainian democracy has matured as a result of the Orange Revolution,
making such a reversal unlikely or impossible, due in part to greater civic
involvement and media freedom. The government will also face a well-organized
and vociferous opposition, led by Yuliya Tymoshenko.
It is also possible that President Yushchenko could play a watchdog role over
the government, although it should be noted that constitutional reforms that entered
into force with the new government have reduced the powers of the presidency and
increased those of the prime minister and the parliament. Moreover, Yushchenko
showed little inclination or ability to guide the government’s actions even when it
was filled with his supporters and he had greater formal powers. It is therefore open
to question whether he can do so when it is controlled by his former adversaries, with
his power reduced and his personal popularity in steep decline.

Under the constitutional reforms, President Yushchenko appoints the foreign
and defense ministers. The President also chooses the Prosecutor General and the
head of the SBU, Ukraine’s security agency, but can dismiss them only with the
permission of the parliament. Yushchenko also successfully pushed Yanukovych to
appoint Yuri Lutsenko as Interior Minister. Lutsenko, who served in the same post
in the Orange coalition government, has vowed to continue to fight corruption.
After taking power, Yanukovych downplayed prior statements by Regions of
Ukraine leaders calling for Russian to become an official language in Ukraine and
for a federal system for Ukraine’s government (which Ukrainian nationalists view as
a code-word for secession of eastern Ukraine), saying that they were provoked by the
emotional atmosphere in eastern Ukraine after the Orange Revolution. However, he
has called for local government powers to be increased and for ensuring that Russian-
speakers are not discriminated against.
2 Central Election Commission of Ukraine website, [http://www.cvk.gov.ua/vnd2006/
w6p001.html].

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CRS-5
Economic Situation
After taking office, President Yushchenko vowed to accelerate economic
reforms in Ukraine. However, policy disagreements within the government and a
balky parliament hampered progress. A government initiative to reprivatize key
firms sold to the old regime’s cronies at cut-rate prices was mired in conflicting
policy statements from Ukrainian leaders (Prime Minister Tymoshenko favored a
much larger reprivatization effort than Yushchenko) and court challenges from the
current owners. The parliamentary election campaign further delayed some reforms.
Economic growth declined sharply after the victory of the Orange Revolution.
Growth in Gross Domestic Product (GDP) was 12.1% in 2004 and only 2.6% in
2005. Yanukovych (who was Prime Minister in 2004) and his supporters pointed to
the figures as proof of the failure of the Orange Revolution. Yushchenko’s
supporters claim that the previous regime “cooked” the 2004 figures to boost its
electoral chances. Experts also cite a fall in exports, especially steel, due to
decreased international demand and the strength of Ukraine’s currency, the hryvnya.
The Ukrainian central bank has informally pegged the hryvnya to the U.S. dollar.
High steel prices and increased domestic demand led to a revival in 2006, with real
GDP growth from January to July at 5.5%, on a year-on-year basis. Ukraine’s
current account surplus has dwindled from 10.5% of GDP in 2004 to a deficit of
2.1% of GDP in the first half of 2006.3 On the other hand, foreign direct investment
has increased rapidly in 2005 and the first half of 2006.
Ukraine’s consumer price inflation rate is currently under control; it was a
relatively modest 6.8% in June 2006, year-on-year. However, Ukrainian government
officials warn that further steep price increases for Russian natural gas supplies to
Ukraine will have a devastating impact on Ukraine’s economy. They say they plan
to put in place policies to encourage energy conservation and to stimulate domestic
oil and natural gas exploration.
Ukranian wages are increasing rapidly, as they did before the Orange
Revolution. Average monthly wages were up by 23% in real terms in February 2006,
as compared to February in the previous year. Domestic demand has been strong,
fueling an increase in imports. However, most Ukrainians remain poor; the average
Ukrainian wage is only about $5 per day, which is about half that of Russia’s.4
Prime Minister Yanukovych has vowed to restore the economic growth that
Ukraine enjoyed under his previous tenure. However, there are concerns that he
could also bring back the rampant corruption and cronyism that marked it as well.
First Deputy Prime Minister Mykola Azarov has vowed to restore the “free economic
zones” that many economists viewed as little more than tax dodging schemes for
favored firms. The presence of the Communists in the government could have a
negative impact on reform, especially given that they control the agriculture ministry
in the new government.
3 Global Insight Report: Ukraine, May 2004.
4 Economist Intelligence Unit Country Report: Ukraine, August 2006.

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CRS-6
Ukraine’s Foreign Policy
Until Yushchenko’s election in 2005, Ukrainian foreign policy was
characterized by an effort to balance ties with Russia with those with the United
States and Western countries. President Kuchma and his supporters gave lip service
to joining NATO and the European Union, but did little to meet the standards set by
these organizations. On the other hand, Ukrainian leaders also promised closer ties
with Russia in exchange for Russian energy at subsidized prices, but balked at
implementing agreements with Russia that would seriously compromise Ukraine’s
sovereignty, such as ceding control over Ukraine’s energy infrastructure to Moscow.

After taking office as President, Yushchenko put integration into the global
economy and Euro-Atlantic institutions at the center of Ukraine’s foreign policy. In
the short term, the Ukrainian government’s main foreign policy goal is to join the
World Trade Organization (WTO). Ukraine has signed bilateral market access
market agreements with the United States and other WTO countries and has passed
important legislation needed to comply with WTO standards. However, market
access agreements with a few other countries, additional legislation, and a protocol
of accession are needed before Ukraine can join the WTO. In the longer term,
Yushchenko wants Ukraine to join the European Union and NATO. Ukraine has
sought to retain good ties with Russia, but relations have been troubled after
Yushchenko took power.
The emergence of the Yanukovych government in August 2006 has cast
Ukraine’s foreign policy course into doubt. The foreign and defense ministers are
Yushchenko appointees, and President Yushchenko retains the main constitutional
role in setting Ukraine’s foreign and defense policies. On the other hand,
Yanukovych and most of the government’s other ministers are hostile to NATO
membership. They are leery of making economic concessions to join the WTO, let
alone hypothetical EU membership. Yanukovych has said that WTO membership
might have to wait until next year and that proposed WTO legislation would be
reexamined to see if it is in the interest of Ukrainian manufacturers. The new
government also includes strong supporters of closer relations with Russia,
particularly in the economic sphere. Some experts are concerned that if coordination
between Yushchenko and Yanukovych is poor, Ukraine’s foreign policy could be
marked by conflict and incoherence. Ukraine could pursue a course similar to that
of President Kuchma before the Orange Revolution: balancing pro-Western and pro-
Russian rhetoric with little concrete action taken.
NATO
Before the March 2006 parliamentary elections, Ukrainian officials said that
they wanted Ukraine to join NATO as early as 2008, after they made progress in
military reform and have built public support for the move within Ukraine. NATO
officials have declined to suggest a timetable for Ukraine’s possible entry, stating
only that Ukraine needs to make further efforts to professionalize its armed forces,
reform its security sector, and fight corruption in order to improve its membership
chances. Ukraine currently has an “Intensified Dialogue” with NATO, but has sought
a Membership Action Plan (MAP), a key stepping-stone to joining the Alliance. The

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CRS-7
MAP gives detailed guidance on what a country needs to do to qualify for
membership.
President Yushchenko and other pro-NATO leaders face serious domestic
political obstacles to NATO membership. The parliament has a majority opposed to
NATO membership. Prime Minister Yanukovych and most of the ministers of the
Ukrainian government are opposed to NATO membership, except Yushchenko
appointees at the foreign and defense ministries. Public opinion polls have shown
that NATO membership lacks majority support in Ukraine. In August 2006, the new
Ukrainian government postponed making a formal request for a MAP, saying that
more time was needed to educate the Ukrainian public about NATO and for Ukraine
and NATO to improve cooperation under existing agreements. In an effort to mollify
critics, President Yushchenko has also said that Ukraine will hold a referendum on
NATO membership before joining the Alliance.
European Union
Ukraine seeks to open talks on an Association Agreement with the European
Union. Association Agreements are aimed at preparing a country for eventual EU
membership. Many countries in the EU have been cool to Ukraine’s possible
membership, perhaps because of the huge burden a large, poor country like Ukraine
could place on already-strained EU coffers. Indeed, EU officials have tried to
dissuade Ukraine from even raising the issue. However, not all EU states are
reluctant to consider Ukraine’s eventual membership. Poland and the Baltic states
have advocated Ukraine’s joining the EU, in part because they see a stable, secure
Ukraine as a bulwark against Russia. However, even supporters of Ukraine’s EU
membership acknowledge that it could be a decade or more before Kiev is ready to
join, but believe that formal EU recognition of Ukraine’s candidacy could speed the
reform process in Ukraine.
Ukraine currently has a Partnership and Cooperation Agreement with the EU,
as well as a Ukraine-EU Action Plan within the context of the EU’s European
Neighborhood policy. These agreements envisage EU designation of Ukraine as a
market economy, assistance for Ukraine’s WTO candidacy, a feasibility study for an
EU-Ukraine free trade area, and other forms of assistance. At an EU-Ukraine summit
in December 2005, the EU announced that it would grant Ukraine market economy
status. The move should make it easier for Ukrainian firms to export to the EU
without facing antidumping duties.
Russia
Ukraine’s most difficult and complex relationship is with Russia. President
Putin strongly backed Yanukovych’s fraudulent “victory” during the 2004
presidential election campaign and reacted angrily at the success of the Orange
Revolution. Russian observers with close ties to the Kremlin charged that the
Orange Revolution was in fact a plot engineered by the United States and other

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CRS-8
Western countries. For his part, President Yushchenko offered an olive branch to
Moscow, calling Russia a “permanent strategic partner” of Ukraine.5
Nevertheless, relations have been rocky. Russia has been irked by Yushchenko’s
efforts to support greater democratization in the region and impose tighter border
controls on Transnistria, a pro-Moscow, separatist enclave within neighboring
Moldova. Russia has been troubled by Ukraine’s efforts to strengthen the role of the
GUAM group, which is an acronym of its four members — Georgia, Ukraine,
Azerbaijan, and Moldova. These countries, which have in common a desire to avoid
domination by Russia, are working on a number of projects, particularly efforts to
diversify energy resources. Ukraine has sought to have the group play a larger role
in regional democratization. In May 2006, the group’s name was changed to
“Organization for Democracy and Economic Development — GUAM,” reflecting
this goal. The United States has backed Ukraine’s efforts to strengthen GUAM.
However, wishing to avoid offending Moscow, Yushchenko has refrained from
calling for Ukraine to leave the Russian-dominated Commonwealth of Independent
States, despite his dissatisfaction with the organization.6
Ethnic Russians make up 17.3% of Ukraine’s population, concentrated in the
southern and eastern parts of the country. Moreover, ethnic Ukrainians in these same
regions tend to be Russian-speaking, are suspicious of Ukrainian nationalism, and
support close ties with Russia. Russian officials have tried to play on these regional
and ethnic ties, not always successfully, as demonstrated by the 2004 Ukrainian
presidential election.
The most severe crisis in Russian-Ukrainian relations in recent years occurred
in January 2006. In 2005, the Russian government-controlled natural gas monopoly
Gazprom insisted on a more than fourfold increase in the price that it charges
Ukraine for natural gas. When Ukraine balked at the demand, Russia cut off natural
gas supplies to Ukraine on December 31, leading also to cuts in gas supplies to
Western Europe. The gas supplies were restored two days later after a new gas
supply agreement was signed.
Western observers have expressed concern that Moscow may be using the “gas
weapon” to try to secure foreign policy or economic concessions from Yushchenko.
Putin may also hope to achieve Russia’s long-standing goal of ownership of
Ukraine’s natural gas pipelines and storage facilities. Another issue is the
involvement of a shadowy company, RosUkrEnergo, as the nominal supplier of
Russian natural gas to Ukraine. Some analysts are concerned about possible
involvement of organized crime groups in the company, as well as corrupt links with
Russian and Ukrainian officials. The U.S. Justice Department is reportedly
investigating the firm.7
5 Jamestown Foundation, Eurasia Daily Monitor, January 25, 2005.
6 RFE/RL Belarus, Ukraine, and Moldova Report, June 2, 2006.
7 Glenn R. Simpson and David Crawford, “Supplier of Russian Gas Draws Investigation,”
Wall Street Journal, April 21, 2006, 1. For background on the gas crisis, see CRS Report
(continued...)

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One of the key foreign policy goals of the Yanukovych government is to
improve relations with Russia, in part in hopes of avoiding future sharp price
increases for Russian energy supplies. As the new government includes ministers
with close ties to RosUkrEnergo, it is unlikely that it will be removed as a middleman
from the Ukrainian natural gas market. Despite the fact that most of the members of
the new government have close ties to Moscow, it is unclear whether Ukraine will
be able to avoid sharp energy price increases next year and thereafter without making
further concessions to Moscow. However, Yanukovych has ruled out ceding
effective control of Ukraine’s gas pipelines and other installations to Russia, a long-
standing Russian demand.
Yanukovych also faces pressure from Moscow to join the Single Economic
Space (SES) and the Eurasian Economic Community, Russian-led projects aimed at
integrating the economies of former Soviet countries, with the ultimate goal of
forming a common market similar to the European Union. Since taking office,
Yanukovych has supported the SES in vague terms, saying that Ukraine could
participate to the extent that it corresponded with its national interests. President
Yushchenko has been more cautious about the SES, supporting the idea of a free
trade area, but opposing deeper integration, such as a customs union, which could
negatively affect his goal of EU membership.
U.S. Policy
U.S. officials supported the “Orange Revolution” in Ukraine in late 2004 and
early 2005, warning the former regime against trying to impose fraudulent election
results, and hailing Yushchenko’s ultimate victory. President Yushchenko visited the
United States from April 4-7, 2005 and had meetings with President Bush and
Secretary of State Rice. Yushchenko’s address to a joint session of Congress on April
6 was interrupted by several standing ovations. U.S. officials have remained upbeat
about Ukraine’s successes in some areas, such as adopting legislation needed for
WTO membership and in improving media freedom, while acknowledging
difficulties in others. Administration officials also praised Ukraine’s efforts to hold
a free and fair parliamentary election on March 26, 2006. However, protracted
wrangling over forming the new government forced President Bush to cancel a
proposed visit to Ukraine in June 2006.
President Yushchenko withdrew Ukraine’s troops from Iraq in December 2005,
in fulfillment of a campaign pledge, but promised to continue participation in Iraqi
troop training efforts. Ukraine has not contributed troops to Afghanistan, at least in
part due to bad public memories of the Soviet occupation of Afghanistan in the
1980s.
In recent months, the United States has taken several steps to upgrade its
economic relations with Ukraine. On January 23, 2006, the United States reinstated
7 (...continued)
RS22378, Russia’s Cutoff of Natural Gas to Ukraine: Context and Implications, by Bernard
Gelb, Jim Nichol, and Steven Woehrel.

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tariff preferences for Ukraine under the Generalized System of Preferences (GSP).
Ukraine lost GSP benefits in 2001 for failing to protect U.S. intellectual property,
particularly CD and DVD piracy. U.S. officials hailed Ukraine’s efforts in the past
year to improve its record on this issue.
On March 6, 2006, the United States and Ukraine signed a bilateral agreement
on market access issues, a key step in Ukraine’s effort to join the WTO. U.S.
officials said that Ukraine committed itself to eventual duty-free entry of U.S.
information technology and aircraft products, as well as very low or zero duty on
chemical products. U.S. firms will also receive more open access in such areas as
energy services, banking and insurance, telecommunications, and other areas. The
bilateral agreement also addressed other key concerns such as protection of
undisclosed information for pharmaceuticals and agricultural chemicals, imports of
information technology products with encryption, the operation of state owned firms
based on commercial considerations, and reduction of export duties on non-ferrous
and steel scrap.
The Administration has approached the issue of NATO membership for Ukraine
with some caution. During an April 4, 2005 press conference with Yushchenko,
President Bush said, “I’m a supporter of Ukraine becoming a member of NATO. I
think it’s important.” But he warned that Ukraine’s NATO membership “is not a
given,” noting that Ukraine has to make reforms before it can join the Alliance.8
U.S. officials say no invitations for new countries to join NATO are likely before
2008, at the earliest. U.S. officials are backing Ukraine’s request to join the
Alliance’s Membership Action Plan program in the future. If the United States
decides to strongly advocate Ukraine’s NATO membership in the near future, it
would likely have to cope with Moscow’s strident opposition, as well as tension with
several European NATO allies more eager to accommodate Moscow on the issue.
The Administration was sharply critical of Russia’s behavior during the January
2006 natural gas standoff between Russia and Ukraine. State Department spokesman
Sean McCormack criticized Russia for using “energy for political purposes.” He
stressed that while the Administration supported a gradual increase in prices to
market levels, it disagreed with a “precipitous” increase and cutoff. Secretary of
State Condoleezza Rice likewise on January 5 stated that Russia had made
“politically motivated efforts to constrain energy supply to Ukraine.”9 In May 2006,
Vice President Dick Cheney characterized Russia’s energy policy toward vulnerable
countries as “blackmail” and intimidation.”10 The United States has favored helping
Ukraine and other countries reduce their dependence on Russian energy supplies.
The United States advocates the building of multiple means of supplying energy from
8 Transcript of President Bush’s press conference with President Yushchenko, April 4, 2005,
from the White House website, [http://www.whitehouse.gov].
9 The State Department. Statement, January 1, 2006; Daily Press Briefing, January 3, 2006;
Secretary Condoleezza Rice, Remarks at the State Department Correspondents Association’s
Breakfast, January 5, 2006.
10 “Vice President’s Remarks at the Vilnius Conference,” May 4, 2006, from the White
House website [http://www.whitehouse.gov].

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Central Asia and Azerbaijan to Europe, including a pipeline from the Ukrainian oil
terminal at the port of Odesa to Brody, on the border with Poland.
The Administration has responded positively to the formation of the
Yanukovych government in August 2006. After Yanukovych took office, a State
Department spokesman said that the United States would work with the new
government, given that it came to power in a democratic way. Nevertheless, analysts
believe that the United States will be watching the new government closely to see if
it will try to reverse progress in democratization and other areas made during the
previous government.
Congressional Response
During the Ukranian presidential election campaign and during the ensuing
electoral crisis, the 108th Congress approved legislation calling for free and fair
elections in Ukraine and urged the Administration to warn Ukraine of possible
negative consequences for Ukraine’s leaders and for U.S.-Ukraine ties in the case of
electoral fraud. The 109th Congress passed resolutions after President Yushchenko
was inaugurated. On January 25, 2005, the House passed H.Con.Res. 16 and the
Senate passed S.Con.Res. 7 on the 26th. The identical resolutions included clauses
congratulating Ukraine for its commitment to democracy and its resolution of its
political crisis in a peaceful manner; congratulating Yushchenko on his victory;
applauding the candidates, the EU and other European organizations and the U.S.
Government for helping to find that peaceful solution; and pledging U.S. help for
Ukraine’s efforts to develop democracy, a free market economy, and integrate into
the international community of democracies.
Congress has also dealt with the issue of U.S. aid to Ukraine. The FY2005 Iraq-
Afghanistan supplemental appropriations bill (P.L. 109-13) provided $60 million in
aid to help the new government in the run-up to the March 2006 parliamentary
election. Including funds appropriated in FY2005 foreign operations appropriations
legislation, Ukraine received $156 million in U.S. assistance in FY2005.
The FY2006 foreign operations appropriations legislation (P.L. 109-102)
allocated $84 million in Freedom Support Act (FSA) funds to promote reforms in
Ukraine. Five million of that amount was earmarked for nuclear safety initiatives and
$1 million for mine safety programs in Ukraine. Total FY2006 U.S aid to Ukraine
is expected amount to $106.5 million. In addition to Freedom Support Act funds,
Ukraine is expected to receive $2.18 million in Child Safety and Health (CSH) funds;
$10.89 million in Foreign Military Financing (FMF); $1.68 million in IMET military
training funds; $3.53 million in NADR funding to fight terrorism and proliferation;
and $5.08 in Peace Corps funding.
The committee report of the House-passed version of the FY2007 foreign
operations bill (H.R. 5522) recommends $80 million in FSA funding for Ukraine,
with no breakdown listed for other accounts. The committee report of the version of
the bill approved by the Senate Appropriations Committee recommended $58.292
million in FSA funding, $25 million in Development Assistance, $10 million in
FMF, $1.725 million in IMET, $1.36 million in the NADR account, and $5.132 for
the Peace Corps, for a total of $111.756 million. The House report highlighted the

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need for democracy aid in Ukraine, while the Senate report expressed concern about
corruption in Ukraine’s energy sector.
U.S. aid to Ukraine is also focused on anti-corruption and rule of law efforts,
fighting trafficking in persons, media and NGO development, and election
monitoring and other democracy-building programs. The United States also seeks to
increase exchange programs between the two countries. Other programs include
efforts to help Ukraine prepare for WTO membership, encourage the growth of small
business, strengthen export and border controls, assist defense reform and
interoperability with U.S. and NATO forces, and building a “sarcophagus” around
the damaged Chernobyl nuclear reactor.11 In 2005, the Millennium Challenge
Corporation (MCC) selected Ukraine for Millennium Challenge Account (MCA)
Threshold status.
Congress has dealt with a long-standing stumbling block in U.S.-Ukrainian
relations by passing legislation to terminate the application of the Jackson-Vanik
amendment to Ukraine, granting the country permanent Normal Trade Relations
Status. On March 8, 2006, the House passed H.R. 1053 by a vote of 417-2. It was
approved by the Senate by unanimous consent on March 9, and was signed by the
President on March 23.12
11 FY2007 Congressional Budget Justification for Foreign Operations, from the State
Department website, [http://www.state.gov].
12 CRS Report RS22114, Permanent Normal Trade Relations (PNTR) Status for Ukraine
and U.S.-Ukrainian Economic Ties, by William H. Cooper.

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