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Trade Ballast

Date of publication: 5 October 2021

Ms. Olena Omelchenko, Partner of Ilyashev & Partners Law Firm, Head of International Trade Practice, spoke about the Ukrainian practice of restrictive measures in international trade, practice-creating cases and the role of legal advisers, as well as the challenges in the activities of the Interdepartmental Commission on International Trade (ICIT, Commission).

What is the reason for the growing demand for trade investigations in Ukraine?

— There are several reasons. First of all, Ukrainian manufacturers really need protection. The introduction of restrictive measures is, in fact, the only mechanism that can protect the domestic market from cheap imports of goods. After all, market surveillance in Ukraine does not actually work, and non-tariff barriers do not work either.

Second, the law firms themselves become the driver of market development by pushing clients to initiate trade investigations. The international trade practice, up until recently boutique and luxury, becomes more common, – many lawyers, who previously specialized in practices the popularity of which in the market is objectively declining, refocused to it. I can confidently say that our firm is a practice creator in the field of trade defense in Ukraine – we have started all the largest and most complex processes in Ukraine in the last two years, thus providing work for other law firms that oppose us in cases on the other side.

The third reason, in my opinion, is the political factor, the shift of emphasis in the field of international trade. Russia used to be our main trading partner – even if certain investigations were launched, they ended without restrictive measures due to political pressure. Currently, according to statistics, most measures are introduced for products originating from Russia, Belarus and China.

What projects from your recent practice can you attribute to practicecreating?

— All without exception, our projects are practice-creating.

For example, last year we achieved the application of special measures for polymeric materials and PVC (polyvinyl chloride). It was a very interesting and difficult case. First of all, because of its political component – the measures were directed against goods from the EU and the US. In addition, the measures affected the interests of a large number of consumers in Ukraine. Despite this, we were able to initiate an investigation very quickly, and it was carried out promptly. For the first time in 10 years, preliminary measures have been taken in this case, which has shown that a national manufacturer can be protected without waiting for a final decision.

Most recently, a decision was published in two more of our cases – on the application of anti-dumping duties on imports of cement from Turkey and special duties on cable and wire products, regardless of the country of origin.

A special investigation into the imports of cable and wire products to Ukraine, regardless of the country of origin and export, was launched at the request of two of our clients: Odessa Cable Plant Odeskabel PJSC and PJSC Yuzhcable Works. It lasted nine months. There were more than forty proper parties which opposed us, and a powerful lobby was involved. Despite this, we managed to complete the investigation in favour of domestic manufacturers, to achieve the application of a special duty for three years. It is remarkable that the decision was made on April 23, this year, and published only in September. According to our calculations, during the time when the decision was not published, the budget received less than about 38 million US dollars due. And such delays in the publication of ICIT decisions – and they take effect 30 days after publication – can be a major problem for the entire trade investigations practice. However, this was not the end of the case: the decision had not yet entered into force, and the Commission, at the initiative of the Ministry of Digital Transformation of Ukraine, raised the issue of reviewing measures to abolish customs duties early.

As regards the case concerning the import of Turkish cement, we represented four applicants in it. And it is their unification in one process, the disclosure of confidential information which was a great challenge. The investigation could have been completed in spring – the Ministry of Economy of Ukraine calculated the duties and offered to the Commission to take measures in early spring. However, due to personnel changes in the Ministry of Economy and in the composition of the Commission, the decision was made only at the end of August. During this time, some Turkish manufacturers, that actively participated in the investigation admitted that they were dumping, made voluntary price undertakings. Our task was to prevent the assumption of voluntary price undertakings which would, in effect, offset anti-dumping measures.

The peculiarity of this case is also that in parallel, the Antimonopoly Committee of Ukraine (AMCU) began a study of the cement market, during which it recommended that Ukrainian cement manufacturers refrain from unjustified price increases. However, to date no one can reply the question of whether the dumping margin is a reasonable level. Currently we have a situation where one authority speaks of distortion of competition and applies sanctions in the form of anti-dumping duties. It logically follows that the national manufacturer has the right to increase prices taking into account the conclusions by the Ministry of Economy. The AMCU believes that the decision by ICIT may in some way distort competition in the domestic market. We hope that in the nearest future regulators can find a balance in this matter. And we can but watch how the practice will develop.

Among the ongoing cases are the anti-dumping investigation of Belarusian mineral wool and wood particle board, as well as the anti-dumping investigation into the import of galvanized steel from China, in which we oppose all major Ukrainian law firms that link their activities to international trade practice.

The special investigation into PVC profiles against all countries which we have recently launched is expected to be very high-profile and precedent-setting.

What are the features of defense in trade investigations? What, in terms of the process, needs improvement?

— First of all, the system of access to materials should be made transparent and smart. All developed countries have appropriate electronic services that give proper parties access to case materials. In Ukraine, such access is quite difficult, some documents are provided late, some we may not see at all. Therefore, the issue of transparency and systematization remains relevant.

The appropriate department should also be strengthened – there are a lot of cases and disproportionately few employees involved.

It is necessary to create new methods of calculating the duties. They need to be approved so that they become available to all proper parties, so that everyone would understand what awaits them. Now these methods are not approved by anything, it is exclusively the practice of the Ministry of Economy. Many importers and exporters are at least surprised by this.

Another important issue subject to settlement is price commitments. There is no single approach in Ukraine, there is no method of establishing price adequacy. Should it be sufficient to eliminate dumping or sufficient not to inflict harm? Different issue is the adjustment of prices and their revision depending on market conditions during the measures efficiency.

How often are ICIT decisions litigated in court?

— Very often. The vast majority of decisions are litigated. By the way, the Commission’s decisions have been litigated twice in the Dispute Settlement Body of the World Trade Organization (WTO), and not only in the national court.

If we limit ourselves to case law, the most significant court case of 2021 is the litigation of the Commission’s decision to apply a special duty of 35 % on motor vehicles from the Republic of Belarus. The precedent is that no action has ever been taken in connection with discriminatory or unfriendly actions by other countries or economic groups. I should remind that Ukraine applied a 35 % duty on motor vehicles in violation of the Free Trade Agreement dated 18 October 2011, which led to countermeasures by the Republic of Belarus – blocking Ukrainian exports by 110 million US dollars on the Belarusian market. The decision by the court may allow the parties to return to the legal framework of international trade relations.

Does Ukraine manage to maintain a balance between the interests of domestic manufacturers and importers?

— The situation differs depending on the market and the specific product. However, in many cases the Ukrainian manufacturer has a worse position. In Ukraine, there is very little support from the country, the Export Credit Agency does not work properly, in fact, there is no tariff shelter of the market, and non-tariff shelter should not be counted on. The domestic market is very open, so it is difficult for Ukrainian manufacturers to compete in it. Moreover, it is difficult to compete in foreign markets which are much better protected by tariff and non-tariff barriers. Let’s take, for example, the EU market: according to the Association Agreement, Ukrainian exporters can export only a small amount of goods within quotas, and then pay duties, as well as third countries-members of the WTO. At the same time, EU goods are imported to Ukraine without paying duties.

In general, how do you assess the Ukrainian practice of applying restrictive measures in international trade? Which prevails: economic, legal or political component?

— The Ministry of Economy traditionally insists that the economy prevails. First of all, economic justification is important for them.

For us, the lawyers, and for the client, the legal side is also important. After all, the future prospects of winning the case in court depend on the legal position.

And the political factors are probably more important for the Commission – we should remember that it consists of representatives of different government agencies with different competencies and different departmental priorities. Thus, for the Ministry of Foreign Affairs of Ukraine, the political component will probably be more important than economic and legal arguments.

The question is not easy, and the answer cannot be simple either – the application of restrictive measures in international trade is possible only if all three components are combined. If the economy “falls out”, if the law “falls out” – probably, there will be no measures, too, or they will be successfully litigated in court. The “fallout” of politics and lobbying will also create huge problems. One way or another, all measures are related to interstate relations.

Interviewed by Oleksiy NASADYUK, Yurydychna Praktyka