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The Second Trade Front Moldova Gets Ready to Defend Against Ukrainian Export

Date of publication: 1 April 2016

Olena Omelchenko, Partner, Attorney at Law, Head of International Trade Practice

Source: European Pravda

Following the Russian Federation, which has unilaterally suspended the Free Trade Zone Agreement, Moldova began to think about the possibility of a temporary suspension of its obligations in respect of imports of certain goods from Ukraine.

In March of the current year, the Ministry of Economy of Moldova, introduced for consideration of some departments a draft resolution, which initiates the temporary introduction of protective measures by raising import duties to the level of the WTO bound rates on Ukrainian goods classified under the UCGFEA codes 0207, 0402, 0403, 0405, 0406 1601 00, 2105 00, 2523.

In other words, the Ministry proposes to increase from 0% to 10-15% import duties on poultry meat, sausages, milk, butter, cheese, ice cream, and cement.

This decision will be discriminatory, because it is aimed only at Ukrainian goods. It will have a negative impact on medium business located in the border area and focused on the Moldovan market, and major manufacturers, including multinational companies.

In bilateral trade duty is not charged from these goods according to the CIS Free Trade Zone Agreement, and there are no legal grounds for increasing duties.

The Agreement on obligations of Moldova in the WTO clearly envisages the mechanisms, which can be used by the countries to protect the domestic market. For example, introduction of protective tariffs as a result of the investigation, in which it is necessary within nine months to prove the facts of sharply increased imports, causing damage, causal connection and calculate a protective duty on the basis of data provided by the parties concerned. Not to mention the fact that safeguard measures are not applied to a specific country, but to all countries.

However, the draft resolution, which is now being discussed, does not touch upon this procedure, and the rates of duties have already been defined – the maximum rate allowable under the conditions of the country’s membership in the WTO. It means that Moldova intends to introduce discriminatory tariffs unilaterally, roughly violating the CIS Free Trade Zone Agreement.

It is possible that such ideas comprise lobbying the interests of certain business groups. Just recently the Moldovan media reported that the dairy industry made an application for initiating investigation against Ukrainian goods. Though the procedure has not been initiated, indicating that proves insufficient evidence.

The issue was also raised at the meeting of the parliamentary committee on agriculture and food industry, where members demanded clarifications from the responsible authorities of Moldova and taking measures to exclude perishable goods from the CIS free trade zone treatment to ensure trading in local products only in the market. The application of measures to prevent free imports of animal products to Moldova by individuals is also expected.

It seems that the Moldovan party is willing to close the market very much, but can not legally substantiate its wish justifying initiatives by a difficult situation due to a large inflow of Ukrainian goods, which were put under Russian sanctions.

As reported by the State Statistics Service of Ukraine for 2015, the total turnover of Ukraine with the Republic of Moldova amounted to $565.5 mln, of which exports – $524.3 mln, imports – $41.2 mln.

According to statistics, Ukraine is more interested in trade than Moldova, but it is not the basis for introduction of protective measures by breaching the agreement.

However, it is not worth underestimating the actions of Moldova, as it has previously made discriminatory decisions by applying an import duty on goods in PET and Tetra Pak. Recall that this duty is not charged from the local Moldovan producers, which makes a significant segment of Ukrainian food products (mineral water, juices, beer, vinegar, etc.), non-competitive in comparison with the local products.

If Moldova decides to increase duties, it will certainly violate the Pacta sunt servanda principle (Latin – “agreements must be observed”) of international law, which is “bad manners” and will cause great reputational risks in the international arena. Not in vain, this principle was enshrined in the UN Charter and the Vienna Convention on the Law of Treaties.

In fact, Moldova risks losing its image as a trade partner due to $31 mln (value of imports of goods to be limited), which is about 8.5% of the total Ukrainian-Moldovan trade turnover. Trade partners of Moldova will further spend their efforts to be safe in trade relations, understanding that this country is unpredictable, not planning of its actions.

Moreover, such actions may result in unpredictable negative reaction of other parties to the agreement, including Ukraine.

After all, everyone knows that the dispute settlement mechanism under the Agreement does not work until now, so the Ukrainian business will demand an adequate response, e.g. introduction of restrictions for the Moldovan alcohol products.

In the future, these trends in trade relations of the CIS countries may result in the need for a global revision of the terms of trade between the two countries.

Therefore, we can only hope that initiatives of the Ministry of Economy of Moldova will not be supported by Government and Parliament of the country.