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The Market Expects a System That Would Provide for an Opportunity of Fast and Qualitative Protection

Date of publication: 14 May 2021

In 2020 the Ministry for Development of Economy, Trade and Agriculture of Ukraine received the most of applications aiming at protecting the national manufacturer. In her interview to Yurydychna Praktyka, Ms. Olena Omelchenko, Partner of Ilyashev & Partners Law Firm outlined the key trends in the sphere of trade investigations in Ukraine and the importance of high-quality legal support of the entirety of applicable processes. She also analysed the state that legal background of the international trade sphere currently finds itself in and delineated the top-priority steps to be made in order to improve the regulatory framework.

— Does the definition of “world war” keeps holding its relevance when it comes to the international trade? What “fronts” of this “war” are the theaters of operation for Ukrainian businesses and for Ukraine as a wholesome state?

— The trade and economic tensions between the USA and China have obviously affected the activities of the World Trade Organization (the WTO), which now is in the worst crisis of all times it existed. Undoubtedly, this situation refers to the entire world. On the European continent, this issue is mostly handled by the European Union (the EU), because it takes an active part in shaping the global trade policy. Ukraine follows the vector that is affiliated with the EU and this is why our nation is only engaged into this process indirectly.

Presidential elections in the USA, Joe Biden’s victory and appointment of Ngozi Okonjo-Iweala as the new Director-General of the World Trade Organization give us hope that the institutional crisis shall end in the years to come and that the WTO’s Dispute Settlement Body shall be deblocked and become fully functional again.

The politics do affect international trade. We shall soon have more opportunities of accessing the EU market, whereas the restrictions on trade with the Russian Federation, the Republic of Belarus and, probably, with China shall continue further. It is also worth getting prepared to the new “green” policy, pursued by the EU, which shall obviously have a reflection on international trade with Ukraine.

— What is the overall situation with resolution of trade disputes that involve the “Ukrainian element”?

— Currently Ukraine is not subject to any resonant cases at the WTO that would be worth dwelling on. As you may be aware, in the previous year Ukraine duly performed under the decision of the WTO’s Dispute Settlement Body in the case pertinent to imposing the antidumping measures in relation to imports of ammonium nitrate from the Russian Federation which we had, unfortunately, lost to Russia.

Besides, a case between Ukraine and the EU regarding the moratorium on export of round timber was finally resolved at the end of the previous year. Now Ukraine’s main task is to comply with decision of the arbitrators.

— What precedent cases should the Ukrainian companies pay attention to?

— In the previous year, the Interdepartmental Commission on International Trade applied a specific duty of 16.08% on import of wire rods from the Republic of Belarus in connection with discriminatory and unfriendly actions subject to applicability of a ban on export of Belorussian scrap metal. At the same time, Ukraine has imposed a similar ban on the scrap metal export. The Commission’s decision is aimed at curing the situation that Ukraine permitted in 2019 by having completed an antidumping investigation without applying any measures.

Following this precedent case, there were a few similar addresses by Ukrainian companies regarding application of the appropriate measures, but no decision has been awarded. We are aware that certain legal companies urge the businesses to apply to the Ministry of Economy and to the Commission for the purpose of enacting this mechanism. We are not the particular fans of using this instrument and are of the opinion that it may result in material aggravation of trade relations between the whole countries, because it is incompliant with the Free Trade Zone Agreement dated 18 October 2011. Besides, these measures may not apply for a prolonged period of time and this is exactly why we do not advise counting on them.

— Which instruments does Ukraine usually use in order to protect its home market? How widely spread in Ukraine is the practice of applying the non-tariff barriers in international trade?

— The global practices evidence that non-tariff barriers are more popular among the WTO Member States. Once applied, they become increasingly more difficult to challenge at the Dispute Settlement Body.

Ukraine most often uses the tariff protection as a matter of applying the antidumping and special-purpose duties. Over the course of initiating the antidumping proceedings, the clients often complain that their enterprises are forced to seek protection by reverting to the mechanism of investigations, because in such cases the cheap and low-quality products, which feature lower production costs than comparable Ukrainian goods would be imported to the territory of Ukraine. Certainly, such goods would cut down on the prices and adversely affect Ukrainian manufacturers. This occurs due to unavailability of an effective market supervision framework in Ukraine.

Another reason why manufacturers opt for this particular type of protection is availability of a transparently structured mechanism of filing applications by businesses and consecutive response algorithm followed by the competent public authorities. It is certain consistency and predictability, demonstrated by public authorities that lets businesses understand, what ultimate deliverables they may retrieve in the long run.

— What tendencies are noticeable in the sphere of trade investigations in Ukraine?

— Taking the global turbulence, caused to the international trade by the COVID-2019 pandemic, it is currently the most suitable time to apply measures. In 2020 the Ministry of Economy received the most of applications aiming at protecting the national manufacturer.

Application of an interim antidumping duty regarding the import of fittings from China and of interim special-purpose duty regarding the polymer materials regardless of the country of origin for the first time during a decade became the previous year’s breakthrough in the practice of Ukraine’s trade protection. We represented Ukrainian manufacturers in these proceedings and are able to say for sure that those were the exclusively tailored solutions that are extremely difficult to make happen again.

The increasing influence of antidumping and special-purpose duties on various industries may be clearly seen. Apart from the metallurgic and chemical industries, these instruments started to be widely used increasingly in the sphere of construction materials production. Particularly, there have been the proceedings around pertinent to import to Ukraine of cement, gas concrete blocks, rockwool, chipboard, fibreboard, plywood, cables and wires. The proceedings regarding the import of goods, intended for agro-industrial complex have also emerged.

It is not worth counting on the application of measures against the EU countries. It was agreed at the latest meeting of the Committee on trade between Ukraine and the European Commission to start the dialogue on the issues of trade protection instruments, which is taking place on the ad hoc basis by request of either party. The agenda of each meeting of this kind is subject to joint approval in advance and it would be reasonable to presume that the EU would be pressing down on Ukrainian Government, hinting on the opportunities of sovereign debt finance or pointing to the capacities of Ukrainian exporters.

Instead, the measures against import of goods from the Republic of Belarus are likely to be applied effortlessly.

— What is the role of legal advisors? What is the most difficult in the process of ensuring trade protection?

— The most difficult element of trade investigations is to actually launch the proceedings and to ultimately protect the national manufacturer of goods. Ukrainian legislation is imperfect, whereas the WTO agreements impose extremely high standards for the proceedings to be launched and for the measures to be applied. On its own part, Ukraine would never initiate the proceedings until it makes sure that the binding measures can actually be applied. This materially complicates the procedure and renders the protection of small and medium-sized businesses impracticable.

Over the course of the previous five years there have scarcely been any cases that would end up in the application of measures without the support of legal advisors. Over the course of an investigation, a legal advisor is forced to protect a client from numerous opponents, who consolidate their resources and coordinate their actions against the investigation initiator. In our practices, we have encountered various examples of how the opponents would struggle against our client’s legal position, particularly, by way of addressing the President of Ukraine with a petition, engaging public authorities of a foreign state on the top political level, including the unfolding of PR and GR campaigns, involvement of publicly recognizable politically exposed persons, filing several lawsuits at a time, applying to law enforcement authorities, etc.

In our estimates, work intensity of the “trade segment” on legal services market in Ukraine shall fade out because the Ministry of Economy, unfortunately, is unable to catch up with and adjust to the challenges of our time, while the trade decline in 2020 shall have a footprint on economic indices that are material for investigation purposes. This is evidenced with recent decisions of the Commission, whereby it refused starting several investigations.

The application of trade measures is not a purely legal and economic process, but also a political one, because it affects Ukraine’s international affairs. And it is the legal advisor’s duty to correctly structure both the legal and the economic approaches, as well as to make the client aware, in due time, of the political intricacies that may potentially influence the decision.

— How do you rate the quality of legal framework applicable to the sphere of international trade in Ukraine? What issues demand urgent improvement?

— The very first issue that demands improvement is shaping Ukraine’s trade policy and the institutional mechanism for its implementation that would be enforceable on a permanent basis. Currently there is no such mechanism, because the political power is in constant shift.

If we speak about the legislative provisions, they are imperfect and fairly outdated. The laws that set out the rules for conducting trade investigations need to be updated, the sub-law regulatory framework is entirely not there. At the end of 2020 several draft laws pertinent to conducting investigations were registered at the Parliament that would materially complicate the protection of national goods manufacturers if adopted. The draft laws in question are burdened with the abundance of details and do not provide for the improved procedure of applying the trade protection instruments, the duty calculation method, etc. At the same time, the market expects that the lawmakers create a system that would provide for an opportunity of fast and qualitative protection against the subsidized and mala fide imports that are just skyrocketing.

Apart from this, there is no legal framework for application of trade measures regarding the exceptions for security reasons and regarding general exceptions from the WTO rules. Identification procedure for the goods that originate from the Russian Federation and fall within either complete or partial ban of importing to the customs territory of Ukraine has not been formulated clearly. There is no actionable mechanism of market supervision over the products that are imported to Ukraine.

It is worth changing the approaches towards application of trade measures. The European Union is a member of the WTO, whereby the trade policy issues refer to the competence of the European Commission. Despite this, Ukraine continues applying measures against particular Member States and not against the EU as a whole.

On the other hand, Ukraine and the EU started evaluation of performance under the Association Agreement and negotiations regarding promotion of trade liberalization, which may give momentum to introducing the all-new liberal bi-lateral conditions of applying the trade protection instruments.

Interviewed by Oleksiy NASADYUK, Yurydychna Praktyka