KYIV - In April 2011, Vasil Kisil & Partners Law Firm launches monthly International Trade News. This is the first issue. If you would like to receive the news on a regular basis, please send an email with subject “INTERNATIONAL TRADE NEWS" to pr@vkp.kiev.ua.

Recent Developments in Ukrainian Agricultural Market

Regulatory developments

The Resolution of the Cabinet of Ministers of Ukraine On Certain Issues of Conducting and Registration of External Economic Contracts No. 1254 dated 13 December 2010 entered into force on 1 February 2011. The said Resolution sets forth that registration services of external economic contracts regarding export of agricultural products that are subject to governmental regulation (grain, milk, meat etc) will be carried out by the state Agricultural Exchange or Exchange certified by the latter.

The Draft Law On Amending the Law of Ukraine “On Grain and Grain Market in Ukraine" (Concerning Grain Export based on External Economic Agreements (Contracts)) No. 8163 was registered with the Parliament on 25 February 2011. The said Draft Law introduces a State Operator for Grain Exports entitled to export grain from Ukraine, as well as provides for a set of requirements to be met by agricultural producers and other companies in order to be eligible for grain’s export.

Оn 2 February 2011 the Draft Law On Amending the Law of Ukraine “On State Support of Agriculture of Ukraine" (Concerning Specifics of Exports of Products subject to State Price Control) No. 8053 had been registered with the Parliament of Ukraine and further withdrawn from the Parliament’s consideration on 7 April 2011. The said Draft Law introduced a State Agent for Exports of products subject to state price control entitled to export the said products from Ukraine, as well as sets forth a number of requirements to be complied with by agricultural producers and other companies in order to be eligible for export of such products.

Оn 7 April 2011 the Parliament adopted the Draft Law On Amending Certain Laws of Ukraine regarding Provision of State Support of Agriculture’s Development, that had been registered on 1 April 2011. Once signed by the President and officially published, the Draft Law shall enter into force amending the Laws of Ukraine “On Grain and Grain Market in Ukraine", “On State Support of Agriculture of Ukraine" and “On Foreign Economic Activities" in order to apply licensing regime to exports (imports) of grain and its processing products by means of sale of quotas at the auctions.

Temporary Duty-Free Import of Buckwheat Into Ukraine

Due to buckwheat shortages and, consequently, high buckwheat prices in the Ukrainian market on 3 March 2011 the parliament of Ukraine has adopted the Law of Ukraine “On Temporary Order of Taxation of Buckwheat Imports", that entered into force on 18 March 2011. The said law provides duty-free import of buckwheat grain (classified under 1103199000, 1104291800, 1104293000, 1104295900, and 1104298900 codes of the Ukrainian Classification of Goods of Foreign Economic Activity) until 1 June 2011.

Application of Grain Quotas Is Prolonged

On 30 March 2011 the Cabinet of Ministers of Ukraine has prolonged the application of quotas for certain agricultural products by adopting the Resolution No. 337 “On Amending the Resolution of the Cabinet of Ministers of Ukraine No. 938 of 4 October 2010" (the “Resolution"). Additionally, the said Resolution increased export quota for corn by 2 million tones.

Prior to the adoption of the Resolution, the Cabinet of Ministers of Ukraine was considering submitting to the parliament of Ukraine a draft bill introducing export tariffs for grain instead of quotas, particularly, ad valorem export tariff for wheat - 9%, barley - 14%, and corn - 12%.

Trade Remedies

Terminated Trade Investigations

The antidumping investigation related to imports into Ukraine of new pneumatic rubber tires for passenger cars originating from Belarus was terminated without application of any antidumping measures on 3 March 2011.

The safeguard investigation related to imports into Ukraine of household refrigerating and freezing appliances notwithstanding the country of origin and export initiated on 6 May 2010 was terminated without application of any safeguard measures on 6 April 2011.

Initiated Trade Investigations

On 29 January 2011, a safeguard investigation related to import into Ukraine of certain crude oil refining products (including petroleum and diesel fuel) notwithstanding the country of origin and export was initiated.

On 10 March 2011, an antidumping investigation related to import into Ukraine of corrugated asbestos-cement boards originating from Belarus was initiated.

Ukraine and WTO

Ukraine does not liberalize export tariffs on metal scraps

Ukraine has committed to decrease export tariffs on non-ferrous metal scraps by 3 per cent (from 24 per cent to 21 per cent) as of 1 January 2011 according to the provisions of the Working Party Report being a part of Ukraine’s commitments in the WTO. On 17 December 2010 the Parliament of Ukraine prolonged application of export tariffs on non-ferrous metal scraps at the rate of 24 per cent for one year by introducing amendments to the Laws of Ukraine “On Export Tariffs Concerning Ferrous and Non-ferrous Metal Scraps and Semi-finished Goods Containing Scraps". The said amendments entered into force on 1 January 2011.

Later on in mid-March the Ministry of Economic Development and Trade of Ukraine informally demonstrated an initiative to support a decrease of export duty rates on metal scraps to 21 per cent. So far no amendments were introduced to the abovementioned law.

Ukraine’s trade disputes with Moldova in the WTO

On 17 February 2011 Ukraine has started the dispute settlement procedure in the WTO claiming discriminatory application of the environmental charge in Moldova to goods in PET and Tetra Pak packages imported from Ukraine by requesting official consultations with Moldova. Moldova’s environmental charge concerns mainly beer and juice imported from Ukraine to Moldova. Ukraine claimed violation of Article III of the General Agreement on Tariffs and Trade 1994 (the “GATT 1994").

On 2 March 2011 Moldova has submitted to the WTO the request for consultations with Ukraine claiming that Ukrainian excise tax is discriminatorily applied to Moldova’s alcoholic drink divine, thus, being inconsistent with WTO rules, particularly with Article III of the GATT 1994.

On 3 March 2011 the European Union submitted the request for joining consultations between Ukraine and Moldova concerning Moldova’s environmental charge. Later on the European Union submitted а request for joining consultations between Ukraine and Moldova concerning Ukraine’s excise duty.

WTO dispute settlement news [1]

On 24 February 2011 the Dispute Settlement Body (the “DSB") adopted the Panel report in case United States — Use of Zeroing in Anti-Dumping Measures Involving Products from Korea dispute, which examined the use of zeroing in anti-dumping measures, applied to Korean products by the US. Once again the report confirmed the WTO inconsistency of US zeroing.

On 25 March 2011 the DSB adopted the Panel and Appellate Body reports in United States — Definitive Anti-Dumping and Countervailing Duties on Certain Products from China dispute. Among other issues, the said dispute concerns countervailing and anti-dumping duties simultaneously imposed by the United States on four products originating in China following concurrent countervailing duty and anti-dumping investigations [2].

The Appellate Body (the “AB") made several important findings; inter alia, the AB found that “double remedies" (circumstances in which the simultaneous application of anti-dumping and countervailing duties on the same imported products results, at least to some extent, to the offsetting of the same subsidization twice), are inconsistent with the Article 19.3 of the Agreement on Subsidies and Countervailing Measures, which provides that countervailing duties be levied in the appropriate amounts in each case [3].

Free Trade Agreements

Recent developments in Ukraine - European Union FTA talks

On 15 February 2011 the president of Ukraine issued an order for central executive bodies of Ukraine emphasizing the importance to conclude FTA talks with the European Union.

The 16th round of FTA negotiations between Ukraine and European Union took place on 4-8 April in Brussels. The parties are reported to continue negotiations on services, energy matters and tariffs and other issues.

Ratification of the FTA with EFTA is still pending

The European Free Trade Association (the “EFTA") and Ukraine launched negotiations in April 2009 and as a result of five rounds, the EFTA-Ukraine FTA (the “EFTA Agreement") was signed on 24 June 2010. The EFTA Agreement shall enter into force on the first day of the third month following the date on which Ukraine and at least one EFTA State have deposited their instruments of ratification, acceptance or approval with the depositary. Currently the EFTA Agreement is still pending ratification by the parliaments of Ukraine and the EFTA states.

Ukraine currently negotiates more comprehensive FTA within CIS countries

Due to rather outdated provisions of the Agreement on Creation of a Free Trade Area between the Commonwealth of Independent States, as of today negotiations on establishment of the extended free trade area within the CIS are being held. The CIS free trade area rules will provide for almost complete elimination of all import duties and quantitative restrictions, “freezing" export duties at the present level, enlisting all current exemptions from free trade (currently around 40 exemptions) and exact terms for their phase-out, detailed technical regulations and phytosanitary rules applicable to goods, etc. The CIS working group responsible for drafting the new agreement is expected to finalize the latter in May 2011.

Other would-be FTAs

According to the information posted on the web-site of the Ministry of Economic Development and Trade of Ukraine consultations and negotiations are currently being held as to liberalization of trade and conclusion of respective agreements with the European Union, Singapore and Turkey. Besides, the Ministry has recently initiated negotiations on FTAs with Canada, Serbia, Syria, Israel, Morocco, Mexico, Algeria, Persian Gulf countries as well as some other Asian and African countries.

Latest Developments in Customs Legislation

Two draft laws on amendments to the Customs Code of Ukraine are registered in the Parliament of Ukraine

As of today two Draft Laws on amendments to the Customs Code of Ukraine are registered in the Parliament of Ukraine: Draft law No. 8130 (registered on 18 February 2011) and Draft law No. 8130-1 (registered on 4 March 2011).

Draft law No. 8130, which was primarily prepared by the State Customs Service of Ukraine (“SCSU"), envisages substantial extension of powers of Ukrainian customs authorities. To name but a few: SCSU shall define a list of documents, required for customs clearance (including customs valuation) of imported and exported goods, customs authorities shall be entitled to hold scheduled and non-scheduled audits of financial and commercial activity of importers and exporters for 90 days (in certain cases this term may be extended), etc.

Alternatively, Draft law No. 8130-1, which is primarily prepared by the working group of the Cabinet of Ministers of Ukraine, also envisages extension of powers of Ukrainian customs authorities, but at the same time substantially simplifies customs procedures. The principal changes, laid down by the said draft law, include:
    Harmonization of customs formalities with International Convention on the simplification and harmonization of customs procedures as well as Convention on temporary admission;
    Introduction of “single window" (“yedine vikno" = one-stop) principal by shifting control functions from boarder to inland customs offices;
    Introduction of imperative time limit of customs clearance, which may not exceed 4 hours as well as penalties for customs officers for breach of such time-frames;
    Improvement of customs valuation procedures and their harmonization with international undertakings of Ukraine (e.g. defined exhaustive list of documents as well as grounds for rejecting customs value, declared by importer, introduction of consultation procedure between customs authorities and declarant, etc);
    Introduction of authorized economic operator status, which results in simplified customs procedures for its holder;
    Introduction of clear post-clearance audit procedures, risk management system, etc.

Ukraine ratified Protocol amending Kyoto convention on the simplification and harmonization of customs procedures

On 15 February 2011 Ukrainian parliament ratified the Protocol of amendment to the International convention on the simplification and harmonization of customs procedures of 1999 (the “Kyoto Convention"). Under standards and recommended practices of the Kyoto Convention and Protocol of amendment thereto the signatories undertake to achieve a high degree of harmonisation of their customs procedures, improvement of customs legislation in order to effectively develop international trade. Thus, it is great step towards the simplification of Ukrainian customs procedures.

INCOTERMS 2010

INCOTERMS 2010 became effective on 1 January 2011, however, its entry into force in Ukraine is still pending. As a result, sometimes Ukrainian traders face problems with customs clearance of goods supplied under contracts referring to INCOTERMS 2010.

Such problems are due to the established by the Ukrainian legislation procedure for entry into force of new INCOTERMS’ versions that requires its prior official publication.

The International Chamber of Commerce, as an exclusive owner of intellectual property rights to INCOTERMS 2010 is not supporting public free access to INCOTERMS 2010 in Ukraine.

Presently, Ukrainian state authorities are looking for mutually acceptable solution for INCOTERMS 2010 to enter into force in Ukraine.

Until then, to avoid any problems with customs clearance of goods, many Ukrainian merchants, still refer to INCOTERMS 2000 in their contracts. Some traders go for another option trying to diminish the abovementioned risk and make a choice in favor of foreign law to govern the contract. However, the problems with the Ukrainian customs authorities are likely to exist until INCOTERMS 2010 enter into force officially in Ukraine.
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[1] This chapter is based on the information released by the WTO Secretariat: http://www.wto.org/english/news_e/news11_e/dsb_24feb11_e.htm;
http://www.wto.org/english/news_e/news11_e/dsb_25mar11_e.htm
[2] http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds379_e.htm
[3] http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds379_e.htm 

NOTE:  Vasil Kisil & Partners is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.