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Question at Issue

Date of publication: 3 April 2017

Olena Omelchenko, Head of International Trade Practice
Source: Yurydychna Praktyka

Certain developed countries expressed their concern over the possible lobbying by Ukraine of large tobacco companies that made a negative impact to the country’s image.

Ukraine actively uses its rights for dispute resolution at the WTO in comparison with other countries.

The country’s membership in the WTO implies not only the compliance with its obligations, but also the opportunity to use the most important instrument of protecting its interests – the WTO dispute settlement system. The importance of this institution lies in an independent process that allows countries to achieve balance, transparency and compliance with the obligations of WTO member-states, as well as restrains the countries from conducting the trade wars.

At the same time, the WTO dispute settlement system is going through a “difficult time” due to the recently drafted by the Administration of the President of the United States and sent to the Congress the 2017 Trade Policy Agenda. It clearly defines that the WTO rules do not apply to the Americans and the US will “aggressively” defend the sovereignty of its country within the slogan “America First!”. Certainly, the Agenda raises specific concerns, as this is for the first time there is a serious threat of irreparable damage to the most important world mechanism for resolving trade disputes. Many international experts argue that the consequences of implementing such a policy are difficult to predict, but it is clear that it will undoubtedly cause a similar reaction from other countries and this can lead to the chaos in international trade.

Countries’ Track Record

Conditionally, the whole process of dispute resolution can be divided into four stages: 1) intergovernmental consultations, 2) consideration of the dispute by a group of experts, 3) consideration of the dispute in the appellate body and 4) execution of the decision. The average duration of disputes amounts to 3-5 years. Therefore, the most constructive way to resolve the disputes is to reach the agreements during the consultations.

In spite of this, as of March 1, 2017, 522 cases were filed for the WTO’s consideration. Most often this mechanism is used by the US and the EU. For example, the USA acted as a plaintiff 114 times, and as a defendant – 129, as a third party – 137. The European Union acted as a plaintiff – 97, as a defendant – 84, and as a third party – 162.

Participation in such a number of disputes is largely due to the active position of governments, which monitor the violation of their foreign trade interests and promptly deal with business issues. Among other things, the legal market of these countries is quite developed, and has a number of law firms that have been practicing WTO law for a long time, which allows them to provide timely advice to business and the state when preparing for the process.

Out of the post-Soviet countries being the members of this organization the less experience possess Armenia, Kyrgyzstan, Kazakhstan and Moldova. However, the Russian Federation during its short period of membership managed to file five claims, to act as a respondent in seven proceedings and to reserve the right of a third party in 33 disputes.

Ukraine is also actively using the WTO dispute settlement mechanism, and on the whole, during the membership period, it acted as a plaintiff in five disputes, and as a respondent – in three, and as a third party – in 15 cases.

Disputes’ Summary

The first and so far the only positive experience of Ukraine in the dispute settlement within the WTO can be considered the case DS411 “Armenia – Measures Affecting the Importation and Internal Sale of Cigarettes and Alcoholic Beverages”, which ended at the level of consultations. As a result, Armenia withdrew the discriminatory internal tax.

The second attempt was to resolve the controversial issue of the recovery of the environmental charge by Moldova DS421 “Moldova – Measures Affecting the Importation and Internal Sale of Goods (Environmental Charge)”. The case did not go beyond the request to establish a panel, as Moldova filed a counterclaim against Ukraine regarding the discriminatory tax on the imported alcohol products. The dispute remained unresolved.

One of the most notorious cases in the WTO, in which Ukraine participated, is DS434 “Australia – Certain Measures Concerning Trademarks and Other Plain Packaging Requirements Applicable to Tobacco Products and Packaging”. Initially, Ukraine filed its request as a plaintiff, but in June 2015 it was forced to suspend its participation under the pressure of the anti-tobacco movement and lack of economic interest. Moreover, certain developed countries at bilateral meetings expressed their concerns about the possible lobbying by Ukraine of large tobacco companies, which adversely affected the country’s image.

In 2017 we expect the decision of the Panel concerning the case DS493 “Ukraine – Anti-Dumping Measures on Ammonium Nitrate from Russia”, in which the Russian Federation disputes the anti-dumping measures imposed on imports of ammonium nitrate. The peculiarity of the case is the adjustment of the gas price conducted by the Ministry of Economic Development and Trade of Ukraine (Ministry of Economic Development) for the first time in the framework of the anti-dumping investigation concerning the import of fertilizers from the Russian Federation. Upon the results of the investigation the Interagency Commission for International Trade applied the anti-dumping tax at the rate of 20 to 36 %. Russian Federation believes that such measures should be revised and claims that Ukraine violated a number of articles of the WTO Anti-Dumping Agreement. It cannot be ruled out that Ukraine may lose this dispute and will be forced to cancel the anti-dumping tax; just as in 2015 it canceled the protective tax imposed on the import of light motor vehicles. In case DS468 “Ukraine – Definitive Safeguard Measures On Certain Passenger Cars” Japan was able to prove a number of violations that the Ministry of Economic Development allowed in the process of investigation and application of safeguard measures. As a result, the Interagency Commission for International Trade cancelled these measures. This case is so far the only Ukraine’s defeat in the WTO.

Future Precedents

Certainly, the participation in the proceedings requires large economic, human and intellectual resources. In fact, the legal services market of Ukraine concerning the WTO law is just starting to develop. In 2016 a very important step has been taken by the Ministry of Economic Development. The Ministry initiated the adoption of the Resolution of the Cabinet of Ministers “On the Approval of the Procedures for Ensuring the Protection of Rights and Interests of Ukraine in the Trade and Economic Area within the World Trade Organization” and first time ever conducted the public procurement of the services of one of the famous international legal firms for the representation within the WTO in three new disputes with the Russian Federation. This is an important step that promotes the development of the legal services market in Ukraine and a proper protection of the country’s interests and business in the WTO.

The first dispute in which the lawyers officially advise the Ministry of Economic Development of Ukraine – DS499 “Russia – Measures Affecting the Importation of Railway Equipment and Parts thereof”. Within the framework of this dispute Ukraine states that the legal regulations of the Customs Union and the Russian Federation, and the separate decision of the RF do not comply with the articles of the Agreement on Technical Barriers to Trade and GATT 1994, and requests to bring the legislation in consistence with the obligations, providing the access to the market. Currently the dispute is under the panel’s consideration.

Most recently, Ukraine made a request for the establishment of a panel regarding the second dispute DS512 “Russia – Measures Concerning Traffic in Transit”. This dispute is extremely interesting and decisional. Ukraine argues that the restrictions on traffic in transit imposed by Russia stipulated by the implementation of the provisions of the free trade zone between Ukraine and the European Union are inconsistent with the Russian undertakings in the WTO and violate the principle of the freedom of transit. Most likely, the Russian Federation will justify its actions by the interests of national security.

The third new dispute has not even been considered at the consultations. Ukraine is studying the respective grounds, and it is expected that in the first half of this year Ukraine will make a request for consultations with Russia on a number of trade restrictions. Most likely, we will talk about non-tariff barriers in the trade of confectionery, juices and wallpapers.

Therefore, we can admit that, in comparison with other countries, Ukraine is actively using the opportunities to protect its interests in Geneva, and the legal practice on WTO law has grounds for further development in our country.