Date of publication: 2 April 2024
Olena Omelchenko, Attorney at Law, Partner, Head of International Trade Practice
Source: Client’s Choice 2023: TOP-100 Lawyers of Ukraine
The landscape of international trade in Ukraine has experienced significant changes in the aftermath of russia’s full-scale invasion. With the focus now on political rather than legal decisions, the Interdepartmental Commission on International Trade struggled to address processes initiated prior to 24 February 2022, often in violation of legally stipulated terms. Furthermore, the European Union reinstated unilateral trade preferences for Ukraine, reigniting tensions at the Ukrainian-Polish border. What developments can we anticipate in 2024?
The Ukrainian-Polish trade conflict
The Ukrainian-Polish trade conflict undoubtedly remains a focal point in international trade practice this year. While inherently political, resolving this issue must adhere to legal frameworks. Imposing trade bans or restrictions constitutes a clear violation of the provisions outlined in the Association Agreement between Ukraine and the EU, as well as the agreements of the World Trade Organization (WTO).
During the negotiation of the Association Agreement between Ukraine and the EU, Ukraine proposed the inclusion of an article on “Bilateral Protective Measures”. This provision would have allowed for the application of temporary protective measures if bilateral trade liberalization resulted in an unforeseen surge in imports, causing damage or posing a threat to national producers. In such instances, either party could apply quotas or temporary safeguard duties in bilateral trade, reverting to pre-agreement levels. However, the European Commission rejected this proposal, leaving the agreement to contain only provisions on the application of global safeguards applicable to all countries, referencing the General Agreement on Tariffs and Trade and the WTO Agreement on Safeguards.
Hence, while Polish manufacturers grappling with the surge in imports from Ukraine have the option to launch a protective investigation, they have refrained from pursuing this route due to its intricate legal nature. Such investigations necessitate EU industry association and compelling evidence to justify protective restrictions on imported goods. Instead, Polish farmers have opted for political pressure on authorities and the European Commission to safeguard their interests, urging the revocation of unilateral preferences. This maneuver is expected to wield influence on negotiations concerning Ukraine’s accession to the EU.
In response, the Ukrainian Government has initiated three cases in the WTO Dispute Settlement Body against Poland, Hungary, and Slovakia. Presently, these cases are in the consultation phase, and Ukraine has yet to convene a panel of arbitrators to adjudicate the matter, although it retains the option to do so at any time.
However, recent pronouncements from Ukrainian government officials suggesting the possibility of retaliatory measures, such as applying reciprocal restrictions on Polish imports, indicate a greater inclination toward a political resolution of the trade conflict rather than pursuing legal recourse within the framework of the WTO mechanism.
In this context, it is important to highlight that the Ukrainian government lacks the legal mandate to impose prohibitions or restrictions in response to unfriendly or discriminatory actions by Poland. The authority to apply retaliatory measures is typically reserved for aggressor nations and those outside the purview of the WTO, as stipulated by agreements within the organization.
However, it’s conceivable that Ukraine may resort to alternative mechanisms to curtail imports from Poland this year, though these methods would likely constitute a drastic and politically driven decision rather than a strictly legal one.
Negotiations with the EU
The events unfolding at the Ukrainian-Polish border unmistakably signal Poland’s readiness to engage in negotiations regarding Ukraine’s accession to the EU.
Crucially, Ukraine’s position benefits from the support of the European Commission. It is essential to recognize that Ukraine gained unprecedented access to the EU market without formal negotiations, transitional periods, or ratification by EU member states, including Poland. Although this access is temporary, it is voluntary and unilateral. The EU reserves the right to extend, revoke, or restrict it to the level outlined in the Association Agreement between Ukraine and the EU. Poland acknowledges that Ukraine could pose significant competition in the EU domestic market and international markets in the future.
It is imperative to recognize that the opening of the EU market not only bestowed upon Ukraine a significant economic advantage over other prospective EU members but also afforded it the opportunity for early integration into this expansive market. This early integration has substantially bolstered Ukraine’s position in negotiations regarding EU accession. Presently, the European Commission is formulating its negotiation stance with Ukraine, while Poland is vigorously safeguarding its own interests, employing somewhat aggressive tactics. This dynamic reflects a multifaceted struggle for dominance in the realms of goods, services, and labor markets.
In April of this year, the Ukrainian government anticipates receiving a negotiation framework from the European Commission regarding Ukraine’s EU accession. This framework will delineate the directions in which the negotiation process will unfold.
Anti-dumping, anti-subsidy and protective measures
The recent unveiling of the all-Ukrainian economic platform “Made in Ukraine” underscores the government’s commitment to prioritizing Ukrainian manufacturers for the national economy.
However, the practical implementation during 2023 and the beginning of 2024 reveals a different reality, particularly concerning the protection of domestic producers from dumping, subsidized, or escalating imports. It’s worth noting that these challenges represent the only mechanisms sanctioned by WTO agreements. Yet, following russia’s full-scale invasion of Ukraine, the Ministry of Economy and the Interdepartmental Commission on International Trade (hereinafter – “the Commission”) have refrained from initiating any new investigations.
The reasons behind this are quite evident. There is currently no political momentum to launch new proceedings against imports from the EU, Great Britain, and the USA, given that these nations are key partners providing essential military aid to Ukraine.
Nevertheless, the lack of protective measures for Ukrainian manufacturers against dumping and subsidized imports, especially from countries like China, India, Pakistan, Malaysia, and Uzbekistan, remains perplexing.
In our assessment, there are numerous challenges in this area.
First and foremost is the evident lack of political will and concrete directives from the head of the Commission signaling the state’s readiness to safeguard Ukrainian manufacturers through this instrument. Compounding this issue are internal bureaucratic hurdles within the Ministry of Economy, which detrimentally impact business operations and protection, often resulting in repeated breaches of legally stipulated deadlines.
Secondly, there appears to be a reluctance to evolve practices aimed at shielding against subsidies and the circumvention of protective measures.
Thirdly, there’s a pressing need for legislative improvements to address existing shortcomings.
Fourth challenge is a political accord with the EU regarding the abstention from implementing trade-restrictive measures, which has stymied the initiation of new special investigations. Consequently, measures are universally applied to all nations, including those within the EU.
As such, in 2024, the initiation of new anti-dumping processes remains contingent upon the presence of political resolve within the leadership of the Ministry of Economy. However, prospects for protection against subsidized and burgeoning imports appear bleak.
