Historically, Ukraine has been among the world's ten biggest arms exporting nations. And the country is not about to give up its hard-gained bridgeheads on the weapons market. In 2003, Ukrainian exports of defense products and related services increased by close to 30 percentage points from the previous year. In the defense export structure, a trend had become visible towards a sustainable growth in the share of newly-made high-tech products at the cost of so called "surplus" weapons from the Defense Ministry arsenals. In an interview with Defense Express military publication, Yuri Prokofyev, the head of the presidential Committee on Military-Technical Cooperation and Export Control Policies, is speaking on specific features of Ukraine's strategy for managing that highly sensitive business:

Q: How does the Committee assess the results of 2003 with regard to defense exports? Which of Ukraine's export deals could be rated among the most successful?

A: The results of 2003 with respect to defense exports reveal a trend towards a growth in both revenues earned by Ukraine from military-technological cooperation deals with foreign players on the market for defense commodities and related services, and towards an intensification of promising lines of activities, which allows us to see into the future with a high degree of optimism. The qualitative growth in Ukrainian special item exporters' accomplishments suggests that the domestic military-industrial complex has embarked on the innovative path of development, and that its products are highly-competitive and matching the highest world standards. For that matter it should be pointed out that defense exports increased 23 percentage points as compared to the previous year. This is a good testament that certain difficulties that Ukrainian special item exporters encountered on the global weapons market in 2002 have been overcome. Ukraine's overall strategic approach to cooperation in military technology could be condensed to exporting as much as possible under tough control of the exports by the government, and expanding the location of such cooperation. It is precisely that, in our opinion, which will foster further development of the national military-industrial complex (MIC), the enhancement of its scientific-research and production bases, and the advancement of up-to-date promising technologies.

Apparently, rated among the most successful military-technological cooperation (MTC) deals should be the supplies of special products to the Russian Federation, in particular, the sale of aircraft engines, ship power plants and gas-turbine generators, as well as a great deal of related parts and assemblies to Russian defense factories. Highly important as well were export supplies of high technology products - among them electronic warfare and air-launched weapons, combat armored vehicles and tanks, and ship gas-turbine engines - to fellow CIS countries, as well as states in South Asia and Southeast Asia.

Q: Which of the Ukrainian weapons are in the greatest demand on the global market? Which countries does Ukraine regard as its key partners, and what regions does it treat as strategically important?

A: Among Ukrainian weapons in the greatest demand are high technology weapons for aircraft and tanks, electronic warfare systems and equipment, and the most recent types of precision- guided weapons. Ukraine's key MTC partners today are the CIS states, and countries in northern Africa and the Asian-Pacific region. The latter is developing at particularly rapid rates. This trend provides great potentialities for the Ukrainian defense industry in the Asian-Pacific region, which, however, still remain largely untapped. We do hope that this will no longer be the case very soon. In that context it should be emphasized that we do not consider the expansion of geographical frameworks of cooperation by tapping new partner nations for that cooperation to be an end in itself. In forging international contacts in that highly specific area we should proceed in the first place from the need for a thorough investigation into each of the potential partners, notably their compliance with international regulations for the trade in weapons, as well as from tough requirements made by the international community on export controls.

In conclusion, I should note that last year Ukraine did retain its positions with respect to the number of its MTC partner nations.

Q: How would you characterize MTC with the Russian Federation? What is the approach like to coordinating price-making policies with the Russian Federation for that market?

A: The overall status of MTC between Ukraine and Russia could be assessed as satisfactory. Economic indicators of that cooperation are rising with every passing year. Last year, Russia accounted for close to a third of overall Ukrainian exports of defense and dual-capability commodities, which far exceeds respective figures for other countries. Concurrently, the bulk of defense exports come to Ukraine from Russia. MTC with Russia also remains the most diversified. This applies both to ready-made products and parts and assemblies, spare parts, services, technologies etc.

Apart from economic and military aspects of Ukrainian-Russian MTC, account also should be taken of its socio-political significance. Because nowadays it involves a few hundred defense enterprises and research

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institutions in Ukraine and Russia employing hundreds of thousands of people of the two countries.

Pretty productive is the performance of the sub-commission for MTC of the mixed Ukrainian- Russian Cooperation Commission for the coordination of efforts in the manufacture and upgrade of weapons and military equipment. A new element in our relationships is bilateral collaboration on global weapons markets. A start to this was given by last year's signature of a government-to- government agreement on collaboration in the export of military commodities to third counties. This collaboration - apart from the conduct of joint marketing and patent- and license-related studies, cooperation in the repair on weapons and military technologies designed for the export to third countries, consultations on issues involved with the signature of associated foreign trade contracts - also implies the holding of consultations aimed at coordinating export prices and rates for military commodity supplies to third countries.

It is significant that, if we are to further expand MTC between our two countries, there should be talk of not only accomplishments but also adverse sides to this sphere, which, sadly, still are there. This applies, among other things, to issues involved in the completion of the joint project for the development and manufacture of the Antonov An-70 military transport aircraft, the supply of the aircraft to the military forces of the two states, and the coming with that plane to foreign markets. I do hope that the newly-appointed Russian Cabinet and the new makeup of the mixed Ukrainian-Russian Commission on Cooperation will be in a position to resolve as early as possible the identified and more issues that are stalling our cooperation in military technology.

EFFICIENT SYSTEM OF CHECKS AND BALANCES

Q: What kind of measures have been taken to enhance the place of the Committee on MTC and Export Control Policies under the President of Ukraine?

A: Last year, the Law on State Export Control of International Transfers of Military and Dual- Capability Commodities is known to have taken effect in Ukraine. Along with that, President Leonid Kuchma has signed into law the Concept 2010 for MTC between Ukraine and Foreign States. To this end the head of state this year in February expanded substantially the list of the tasks and duties assigned to the Committee on MTC and Export Control Policies.

One of the prime duties assigned to that body is drafting proposals specifying conceptual fundamentals and priorities for enhancing the efficiency of MTC and export controls, methods to promote domestically-made defense commodities to foreign markets, and measures in support for Ukrainian manufacturers and exporters of weapons and military equipment. To add to this, we are set to the task of more dedicatedly addressing issues related to improving government control, maintaining state monopoly and enhancing government protection in the areas associated with MTC and export control.

The Committee also will give a greater emphasis to issues involved with coordinating actions by government agencies and special item exporters for the implementation of state policies for MTC and export controls, preventing competition between domestic special item exporters, optimizing price-making policy in the manufacture and export of defense commodities, as well as monitoring the efficient use of public funds and extra-budget resources allocated to this end.

Concurrently, the President of Ukraine has given new powers to the Committee concerned with the monitoring of performance of Ukrainian MTC players with the aim of preventing possible violations of related national legislation and Ukraine's international commitments. At that, high priority also will be given to the monitoring of activities by air and sea cargo forwarders and other companies involved with forwarding military and dual-purpose commodities.

The President of Ukraine has enlarged the Committee by incorporating into it one more representative of the Ministry of Foreign Affairs and a representative of the National Space Agency of Ukraine. On top of that, procedures for issuing licenses to special item exporters for the export of military and dual-use goods under specific contracts have been brought in line with generally-accepted international practices. With the new procedures in place, one of members of the Committee-the director general of the government-authorized arms dealer UkrSpetsExport that is known to have been one of the country's biggest arms exporters - has been stripped of his right to take part in decision-making.

Q: What is the decision-making system like today for MTC and export control issues? What kind of instruments are there to further optimize that system?

A: Fundamental decisions on issues related to establishing or ending, or resuming MTC relations with foreign states, as well as procedures for regulating international transfers of military commodities are made by the President of Ukraine based on rec-

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ommendations from the Committee on MTC and Export Control Policies.

The system, or - to put it more precisely - procedures for decision-making on other kinds of specific issues largely depend on the types of MTC activities to which the decisions relate. Thus, for instance, decision-making on the conduct of negotiations and the signing of interstate and government-to-government accords on MTC is carried out in accordance with procedures as specified by the Law of Ukraine on International Agreements of Ukraine. Those decisions are made, respectively, by the President and the government of Ukraine based on proposals from the Ministry of Foreign Affairs and other ministries and departments concerned. On its part the Committee, after considering texts of related draft agreements, submits its suggestions to the head of state. In cases specified by the identified legislation, draft agreements are submitted for ratification by Parliament, the Verkhovna Rada, which thereby is involved in decision-making on those issues. Using a different procedure, established by Ukrainian Cabinet resolution No 422 issued on June 17, 1994, decisions are adopted and put into effect on holding negotiations and signing international MTC-related agreements of interdepartmental proportions.

It is significant that the availability of that kind of agreements allows it to simplify considerably the procedures for export control and customs clearing of military commodities and to lighten the work of special item exporters. Thus, for example, in line with the Ukrainian-Russian government-to-government agreement on production and research-and-technological cooperation between the two countries' defense companies, decision-making with regard to over 90 Ukrainian companies on export/import of their products to and from Russia is the exclusive domain of the State Export Control Service of Ukraine, which uses simplified procedures to this end.

However, the bulk of the common types of MTC activities, such as transfers of military and dual-use products, are presently carried out by our special item exporters through the signing of individual contracts rather than within the framework of the identified international agreements. At that, procedures for decision-making on the issue of licenses for holding pre-contract negotiations the subsequent transfers of commodities under the contracts hinge on a number of factors.

Among them are in the first place types of the commodities to be exported (either military or dual-capability commodities) and their categories (so called "lethal" weapons, or services or spare parts for the weapons, or a military commodity for peace support missions, or commodities that can potentially be used for military, terrorist or civilian applications, or commodities needed for the manufacture and use of weapons of mass destruction, or weapons delivery systems and so forth). To add to this, of principal importance is to what specific country some or other commodities are to be exported. In so doing, due account should be taken of Ukraine's international commitments concerned with the ban or limitations on international transfers of the identified types and categories of commodities to regions of the world and countries specified by resolutions of the United Nations and Organization for Security and Cooperation in Europe, imposed by non-proliferation and export control international regimes (such as the Wassenaar Agreement Organization, Missile Technology Control Regime and more).

Hardly it is possible to elaborate within the framework of this interview on each of the decision- making procedures for the identified issues. Therefore, I would only confine myself to principal two of them. The first is relatively simple. It is used, among other things, in decision-making on the issue of licenses for the export of dual-capability commodities for end-use for non-military applications by a state not covered by UN- or OSCE-imposed restrictions on international transfers of commodities. In this case, the State Export Control Service of Ukraine (SECSU) takes decision to issue an appropriate license to a special item exporter.

The second and more complex procedure is used in the consideration of matters related to the issue of licenses for the export of fully completed types of weapons subject to account under UN and OSCE resolutions as well as international export control regimes and Ukraine's international commitments on transfers of military and dual-use technologies and dual-capability commodities for military applications. In this

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instance the issue has to move up the government approval chain until the SECSU outlines and submits its proposals on that issue to the presidential Committee on MTC and Export Control Policies. The Committee makes some or other decision at its session and forwards it to the SECSU for approval. If the decision is positive, SECSU issues a requested license to special item exporter, but if the decision is negative the Service officially notifies the exporter of the denial of such a license. A detailed report on resolutions taken by the Committee is forwarded to the head of state for approval.

The identified decision-making procedure has been successfully used for a few years now. It has proven efficient even in the new conditions in which war on terror and proliferation of weapons of mass destruction is stepping up, and international regimes for non-proliferation and export controls are expanding and becoming tougher. Last year, with the aim of making decision- making procedures still simpler, decision was made to disband the Working Council that was part of the SECSU and took part in decision making on certain issues. That done, the issue of optimizing decision-making procedures has been removed from the agenda.

At the same time, the Committee continues work to further reduce the duration of decision making. On a parallel track, as internal export control systems are being created within individual special item exporting companies, practices for the issue of so called "general" and "open-ended" licenses will be used more widely. Those multi-year licenses would allow the companies to act independently in holding pre-contract negotiations, signing contracts and transferring military and dual-capability commodities. Though, general and open-ended licenses do not apply to the countries covered by related restrictions.

Q: How would you assess the performance of the companies authorized to independently carry out foreign trade activities involving defense products? Does the list of such companies need to be expanded, or, conversely, reduced?

A: The results of the work by companies holding Cabinet of Ministers' licenses for international transfers of military and dual-use commodities are on the whole positive. True enough, it is not forever that direct relationship is there between the availability of such a license and a growth in exports. This to a certain extent is due to the lack of expertise in marketing activities, not excepting price-making policy, strategy and tactics for holding negotiations etc. For that matter it is worth noting that, for instance, the state company UkrSpetsExport is working in those areas more competently, and thanks to this has reached greater results.

Issues of expanding or reducing the list of special item exporters we consider very thoroughly on a case-by-case basis. Because an increase in the number of special item exporters trading in approximately the same assortment of military and dual-use commodities routinely brings about unnecessary competition between them on weapons markets, and inevitably makes them resort to dumping practices. Lack of coordination between special item exporters inevitably results in the loss of contract competitions, loss of contracts, financial losses and a degradation of reputation of the manufacturer state of such commodities. On the other hand, monopoly of a single exporter is fraught with adverse consequences.

In drafting recommendations as to whether to give some or other company the right to executing international transfers of military and dual-use commodities, the Committee first of all takes into account, among other things, the company's international prestige, competitive ability of its products and potential volumes of export of those products, the efficiency of the company's marketing activities and internal export control system.

Meanwhile, the Committee encourages in every possible way the issue of licenses for international transfers of commodities to companies manufacturing so to say "exclusive" military and dual-capability commodities, on condition that those commodities are well selling on foreign markets. One such is a last year's decision to issue such a license to the research-and-production corporation Zorya-Mashproekt, Mykolayiv, southeastern Ukraine, that puts out unique gas- turbine engines for naval ships.

Q: Ukraine has cut exports of surplus weapons from the Defense Ministry arsenals. Until recently that reserve had been considered well spent, since the remaining equipment that potentially could be sold out is too expensive to repair it combat ready, which would make its potential sale obviously disadvantageous. What's the situation is like today, given that plans are there to reduce considerably the Ukrainian military forces, and, consequently, withdraw from their armory a variety of weapons systems. What kind of approaches to deciding the fate of that equipment could be the best suitable?

A: True, as Ukrainian armed forces are being downsized, a considerable amount of obsolete weapons will have to be replaced or modified to modern standards. This, in turn, will take substantial appropriations from government coffers during a pretty long period of time.

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As for approaches to the sale of outdated weapons and military equipment on foreign markets, an optimum solution to that multifaceted issue may not exist. Decision-making processes hinge on too many factors: economic (maximum possible profits, minimizing the cost of pre-sale preparations), political (compliance with international commitments and bilateral accords), technical (bringing the quality of weapons and military technology in line with customers' demands), factors of organizational character etc.

Our position concerning that issue is on the whole the following: Surplus weapons and military equipment will be offered for sale. A fraction of the equipment that would be feasible and practicable to upgrade or repair for getting its free-market price increased will be sold out after appropriate pre-sale works. By the way, repair on and upgrade of weapons and military equipment in line with customers' requirements could well be used in the best interests of the Ukrainian Ministry of Defense. On the one hand, this could provide additional contracts for Defense Ministry's repair factories that for well-known reasons are operating at half their capacity. On the other hand, this would enable special item exporters to tap their circulating assets to upgrade military equipment for the Ukrainian armed forces.

The technology that does not fall into the identified categories could be supplied to foreign countries free of charge, which in the future could be contributing to the establishment of mutually beneficial cooperative ties with those countries. In this case our special item exporters will be enabled to provide spare parts for the weapons and equipment supplied, and conditions will be set for training maintenance personnel for the equipment at military schools here. And, finally, the equipment that will not find its buyers will be scrapped.

TECHNOLOGICAL JUMPING-OFF PLACE FOR THE DEFENSE INDUSTRY

Q: How much is the Ukrainian Euro-integration factor influencing the advancement of MTC with foreign states? How far successful is MTC with European states?

A: In my opinion, for the time being there is no ground whatsoever for placing on record that the factor of Ukrainian Euroatlantic integration has direct and strong influence on the development of MTC with foreign states. First of all, because Ukraine's Euroatlantic integration is at the initial stage. However, in the military field, processes involved with the reform, military downsizing and adjustment of our armed forces [to NATO standards], as well as the development of defense cooperation with NATO member states are proceeding pretty intensively and successfully. This so far is not true for equivalent processes in the military-industrial and military-political areas, where those processes have a tough going. And such a gap has objective reasons behind. You know, the military-industrial complex in general and its individual companies in particular are being reformed, restructured and adjusted within the framework of overall free-market reforms carried out in the country's industry and economy to bring it closer to integration with the European Union and the World Trade Organization.

The identified processes also are influenced, among other things, by the defense industry's and its leadership's innate conservatism and their tough dependence upon government funding.

There can be no talk thus far of successful MTC with European countries, as reminiscence about the An-70 project's failure in Europe is still heartsick. On the other hand, with recent adoption by NATO of six Eastern European states that formerly were members of the Warsaw Pact and whose militaries are fitted with Soviet-made weapons and military technology, the basis will be broadened and potentials enhanced for Ukraine's MTC cooperation with that alliance. Whereas last year NATO countries accounted for 11 percentage points of Ukraine's overall defense exports, for this year we can expect a considerable growth in that figure.

Q: In which way does the Committee partake in the effort to create a state system for military and dual-capability technology transfers? How Ukraine's performance on that most complex segment of the market could be assessed?

A: The transfer of military and dual-use technologies, notably those that could be rated among critical, is a high-promising line in the development of MTC between Ukraine and foreign states, since Ukraine holds pretty powerful scientific and technological potentials. And the place of Ukraine in international political, military and economic systems will largely depend on how far successful we will be in building up and making good use of those potentials.

In this context the Committee on MTC and Export Control Policies under

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the president of Ukraine is giving high priority to issues of government support for research-and- technological activities in areas concerned with the development and putting new technologies into production, fostering the development of the internal market for technologies and intensification of innovation processes in the national MIC, taking target-oriented measures for the promotion of special Ukrainian technologies to foreign markets for weapons and military technology and so forth. To this end, the Committee is putting a great emphasis on measures to improve legal environment and agreements concerning, among other things, safeguarding intellectual property rights and government secrets in the technology transfer process.

Of much importance also is the taking of a complex of technical-organizational measures associated with the need for the collection and systematization (the creation of database) of information on the availability of technologies and the amount of work needed to convert them into commodities, as well as the creation of a marketing support system for the work by domestic technology developers on foreign markets. In keeping with a presidential decree, an information and analysis center has recently been set up within the Committee's structure, which is now unfolding its activities for the implementation of the identified tasks.

In my opinion, in this segment of MTC Ukraine is at the introductory stage. This enables us to take a better account of related experience accumulated by other countries. As an example I would cite the following: It is not forever that industrialized western countries, among them the US, are ready to transfer the most advanced "sensitive" technologies for military applications. They mostly offer for export yesterday's technologies, having a reserve enough for rapidly replacing those technologies with more advanced ones. In the meanwhile, some Ukrainian developers, largely for economic reasons, are sometimes forced to agree to the transfer of their most recent technological designs. But revenues from the transfers routinely have to pay for next technological moves rather than setting conditions for a qualitative leap.

Therefore, in decision-making on matters involved with the issue of export licenses for military technologies, the Committee first of all proceeds from Ukraine's national interests in this area. Also account is taken of the interests of manufacturer companies, for whom - in a situation where the domestic market is ever shrinking -technology transfer provides one of few means of preserving and enhancing their own technical-scientific and technological potentials. In so doing high priority is given to issues concerned with guarding secret information, safeguarding intellectual property rights, as well as scrupulous compliance with related Ukraine's international obligations with respect to export controls.

Q: MTC is known to imply not only the sale to weapons and military equipment. Does Ukraine have plans for the purchase of foreign technologies, joint research-and-development works with foreign countries, and setting up joint production partnerships with foreign states in the context of enhancing the country's defense capabilities and development of its armed forces?

A: The Committee, acting within its powers, is monitoring companies' foreign trade activities and the latter's compliance with Ukraine's national interests, and determines fundamentals, priorities and methods for marketing Ukrainian military commodities in foreign countries and enhancing the export potential of Ukrainian defense companies. In that context, technology transfers provide for Ukrainian companies the basis for innovation activities and an instrument for active economic development.

Ukraine has a sufficient technological potential that could be attractive to foreign customers. Thisfirst of all applies to industries manufacturing rockets, ships, aircraft, tanks and engines, as well as materials science and a number of other areas. Examples of efficient innovation activities could be provided by [Ukraine's] part in the Sea Launch project, the creation of new satellites, start to the manufacture of the innovative aircraft An-140, and the creation of a series of new engines by the public corporation Motor Sich, Zaporizhya.

Ukraine does not set for itself the task of creating national development and production cycles for the entire range of weapons and military equipment. This would be economically unfeasible, and hardly practicable. In this connection, considering high technical-scientific and production- and-technological potentials of individual industries, it would make sense to cooperate with other countries in conducting research-and-development for new technologies. In this process, the exchange of technologies on terms and conditions acceptable for both sides looks a fairly practicable task.

Q: Are there any alternative refunding plans to those proposed by the government for the most promising weapons and military equipment designs? I mean private investments or investments from foreign MTC partners etc?

A: There is no alternative to government funding for the development and manufacture of future types of weapons and military hardware. Instead, there is the need today to use additional monetary resources through the tapping of circulating capital of national foreign trade entities, monetary resources of domestic banks, external investments from foreign customers, contract execution using offset and leasing schemes, and venture capital of privately-owned firms. Nothing new should be invented there, since those schemes have long been tested and widely used in other countries. But for the time being, those issues have to be addressed legislatively.

INFORMATION DUELS ON THE WEAPONS MARKET

Q: What could you say of the information-related component of MTC? Is any action being taken in Ukraine to cut the number of allegations accusing it of breaching international arms trade regulations?

A: Accusations of acting in breach of international arms trade regulations being brought against Ukrainian special item exporters are in their many aspects associated with the aggravation of competition on global weapons markets. The bulk of so called "accusations" laid against Ukraine are initiated artificially, and are aimed at "eliminating" unwanted potential rival, or have behind them purely mercenary considerations of bringing strong political pressure to bear on our country.

Look. Firms from, for instance, many NATO countries are working on global weapons markets, including in so called "problem" countries and regions - and no accusations whatsoever against them. When once Ukraine emerges in a

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new market or country, or region, or weapons industry where it was not present before, or offers a potential customer the most recent types of military equipment manufactured by its own defense firms, and, most importantly, on beneficial terms and at reasonable rates, there they are as large as life - sensation-loving rivals in whose way we stand preventing them from doing their business on markets they consider theirs.

This is what makes the Ukrainian leadership give high priority to that issue to make export control regulations for arms supplies from Ukraine as tough as possible and to counteract destructive information campaigns that are often conducted by "information warfare" rules. A great emphasis also is put on freight forwarding transactions by air, sea or land, not excepting freights in transit.

I do not rule out the possibility that individual elements of so called "black PR ploys" spearheaded against Ukraine will continue in the future, which will signify only one thing: our products are highly competitive and deserve being demonstrated on global markets for weapons.

Q: How far beneficial to Ukraine is participation in [non-proliferation] regimes and international organizations, considering that many of the global arms market players aim to use rostrums in such organizations for bringing pressure to bear on other countries, Ukraine included?

A: For that matter I would like to point out that reliable control of the export and subsequent use of commodities fit for the production of weapons of mass destruction and delivery vehicles such as missiles has been adopted as national non-proliferation strategy by the bulk of the world's leading nations. And guiding principles for monitoring international transfers of military and dual-capability commodities have been agreed upon by those nations.

The international organizations that formulate guiding principles for control over that kind of transfers, as well as for non-proliferation of the commodities that potentially could be used for the manufacture of weapons of mass destruction and means of delivery such as missiles, are the following: the international verification regime Wassenaar Agreement Organization, Nuclear Suppliers Group, Missile Technology Control Regime and the Australian Group.

Ukraine's membership in each of the above organizations is highly beneficial to Ukraine. In effect, if Ukraine were not among members of those regimes, its MTC with the world's leading nations would have been under a big question mark. This is akin to a football game for the Champions' League - we have a kind of a league of civilized countries that have agreed to play by common rules.

Certainly, some players try and act in their own best interests there, and it would not be in reason to expect them to act otherwise. However, decision-making procedures used by those organizations in the shape of consensus prevent one member from achieving its own objectives to the detriment of others. Moreover, all the decisions made by those organizations are in the character of recommendation. True enough, countries, with few exceptions, act contrary to those decisions. It is essential to be serious about work being done for those organizations. It is necessary to make thorough preparations for consultations, and only tap the top-class experts for this. By the way, the Committee gives high priority to that issue. During our meetings we consider and approve instructions for Ukrainian teams to those organizations and regimes' forums, and hear their accounts on the work done there. By the way, our country's delegation to the last year's Wassenaar Agreement Organization's convention was led by the Committee head.

Q: How are issues being handled in Ukraine concerned with certification (marking) of the weapons and military equipment designed for export?

A: It is worth noting that terms "certification" and "marking" are far from being identical. This most likely is about the creation of an export products quality control system and the marking of Ukrainian weapons (in the first place light and small arms), which would allow it to follow their movements and prove, if the need arouse, the groundlessness of accusations of illegitimate arms export transactions on the global market, should they be brought against Ukraine.

Ukraine, well realizing the threats posed by unregulated circulation and buildup of small weapons, unswervingly adheres to international accords imposing limitations on the use of such weapons, and pursues a consistent state policy in this field. A good testament to this is the signing by Ukraine of related documents within the framework of the OSCE (2000) and UN (2001), as well as the work being done jointly with NATO and EU on projects to dispose of 1.5 million surplus small arms.

The [weapons] marking system adopted by Ukraine complies with the principal standards specified by a related OSCE document. Practical work on issues about the possibility of branding Ukrainian-made weapons with their distinctive marks would not be feasible to start before appropriate decisions on distinctive marks for each individual country are made at the international

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level. Branding weapons with additional marks will take quite a time and substantial appropriations.

CHALLENGES OF TODAY: MODERNIZATION, RESTRUCTURING, PRIVATIZATION

Q: What's the thinking like towards giving additional powers to the national institution of designers general for Soviet-made weapons upgrade?

A: For objective, and sometimes subjective reasons, not too much upgrade works have been done in the past 12 years on military technologies made in the former Soviet Union. Designers general and manufacturers of the bulk of that military equipment were outside Ukraine. The best suitable option for modernizing Soviet-made weapons would be doing so under the supervision and with direct involvement of the weapon's designers general, and with mutually beneficial work-sharing plans, which in the end would make the upgrade much cheaper.

Sadly, the latter is seldom the case. Time passes, but we are so far unsuccessful in reaching reasonable work-sharing decisions with the other side. An example is the status of projects for the modernization of MiG-29 fighter jets and air defense systems.

But this situation must no longer continue. If we failed to reach a mutually beneficial agreement with the designer general in the nearest future, we will have to rely for that job on Ukrainian business entities and organizations capable of doing the modernization and assuming responsibility for their job.

At the gathering of the Government Committee on Defense, MIC and Law Enforcement Agencies in late 2003, under discussion came issues about organizing the work by the Council of Designers General for the creation of technologies to meet the state's defense and security needs. In the obtaining situation, it would be appropriate to give the designers general additional powers for life-update works and upgrade of basic types of weapons designed and manufactured in the former Soviet Union, and to get the powers legislatively sealed. This, in the first place, is about the designers general assuming responsibility for executing the entire cycle of modernization works and subsequent operation of the military equipment.

It would make sense to seal provisions to this effect in the Ukrainian government standards now under development. That kind of attempts already have been made, for instance, in the development of a national standard for air-launched weapons, notably its aspects concerning prolonging expected service life and storage of the items, as well as control systems for the weapons. In this context I should emphasize that it is necessary to create a single system of standards (patterned after the Soviet Union's nation-wide standard for the development and putting into production of types of weapons and military equipment), rather than to get scattered developing standards for each individual category of weapons and military hardware.

Q: Is the Committee involved in any way in the effort to get Ukrainian business entities prepared for the creation of transnational military-industrial corporations and defense company privatization?

A: Issues related to national company privatization and the creation of transnational production corporations, production-financial corporations and other entities are known to be covered by terms of reference of the Verkhovna Rada of Ukraine, the Cabinet of Ministers and national government bodies concerned. This fully applies to MIC companies, among others. However, when issues about the creation of transnational associations for the development, manufacture and marketing of weapons and military equipment are dealt with, the Committee outlines related recommendations and suggestions, and hands them over to the Cabinet and ministries and departments concerned. Because the creation and operation of that kind of associations makes one of MTC priorities of Ukraine.

Such effort is currently underway. A number of domestic companies expressed willingness to enter one of the Russia-Belarus financial-industrial groups involved with the development, manufacture and marketing of weapons and military equipment. And that issue, in particular, its aspects such as international-legal, legislative, military-technological, military-industrial and financial-economic ones, are now being thoroughly analyzed by departments concerned. In so doing emphasis it put, among other things, on instruments to safeguard Ukraine's national interests and protect domestic defense companies' intellectual property rights once the transnational entity comes to be, as well as on aspects concerning Ukraine's compliance with its international obligations related to international transfers of defense and dual-use commodities.

Here I would like to say a few words about outlooks for defense company privatization. That issue in the past 12 years has been an object of particular attention on the part of the government. On the one hand, the need is there for industry restructuring and easing the load on the national budget on the part of unprofitable production entities. On the other hand, the need exists for maintaining reserve mobilization facilities for the manufacture of weapons and military equipment in special periods [at times of war], handling adverse social consequences of company collapses and massive layoffs etc.

Presently, the bulk of MIC companies and organizations involved with the development and manufacture of weapons and military hardware have the status as state-owned. A number of business entities being tapped for the development of types of weapons and related assembly units have changed their patterns of ownership. Along with that, issues have to be thoroughly analyzed and fixed concerned with upgrading the management of corporate rights, government- owned stocks in companies, and safeguarding intellectual property rights of dual-use commodity developing and manufacturing companies of all ownership statuses.

Changes of company ownership statuses and giving over MIC companies to private hands are becoming objective reality. But that process has to proceed in stages, with due regard for economic feasibility and under tough control on the government's part to ensure that the defense company after changing its ownership status retains its basic lines of business and does not change them without sufficient ground. It is our belief that government protection should only be given to economically viable and highly-promising players on the domestic and foreign markets for weapons, dual-use commodities and special technologies. Also a new approach should be taken to the use of state corporate rights with respect to the military-industrial complex.

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