Date of publication: 21 November 2019
Olena Omelchenko, Partner, Attorney at Law, Head of International Trade Practice
Source: Who’s Who Legal 2019
Over the past year, Ukraine has repeatedly found itself at the centre of events that have shaped international trade and market protection policies.
For the first time ever, Ukraine and the EU amended the Association Agreement, revising the terms of the trade of chicken meat, while Israel and Ukraine entered into a free-trade area (FTA) agreement. The US also recently reopened access for Ukrainian goods to its market as part of its generalised system of preferences (GSP). Progress made by Ukraine in enforcing IP rights has contributed to the removal of trade restrictions.
Ukraine and the EU amended the Association Agreement, and held consultations as part of the bilateral dispute resolution procedure under this Agreement. Ukraine has failed to win the cases brought before the WTO Dispute Settlement Body (DSB) – one of which has fundamental significance for the entire international trade system – and a WTO panel has made significant interpretations concerning the application of article 21 of the General Agreement on Tariffs and Trade (GATT). The past year also saw a fair number of interesting cases relating to the application of anti-dumping measures, and a further expansion of the embargo in Russian-Ukrainian trade.
Of all the possible trade protection measures, anti-dumping duties and safeguards remain the most easily available instruments in Ukraine, despite the rising global trend for the application of non-tariff barriers.
Political issues continue to shape international trade and the application of trade restrictions. For instance, almost all trade between Ukraine and Russia is blocked by embargoes or anti-dumping measures.
The latest statistics show that Ukraine actively imposes trade restrictions against imports from Russia and China, and is extremely careful with imports from the EU.
Fourteen investigations are in progress, and 26 measures have been implemented in Ukraine so far. This is the largest number of measures over the past decade; all of them have their own specific characteristics.
Ukrainian producers are increasingly requesting better protection of the domestic market against dumping and subsidised imports from Belarus. The need for this grows as the majority of state-owned Belarusian exporters are increasing exports of their goods at dumping prices. Belarusian enterprises seek to secure foreign-currency revenues; these are needed to repay loans received from Chinese companies, which are secured with Belarusian state guarantees. The FTA agreement of 18 October 2011 provides for customs-exempt bilateral trade between Ukraine and Belarus, excepting any anti-dumping/anti-subsidy measures and safeguards that may be applied under GATT procedures. In practice, however, all investigations concerning imports from Belarus are influenced by high-level political negotiations at ministry level. It substantially complicates the process of protection of Ukrainian manufacturers’ interests.
Nevertheless, following the anti-dumping investigation concerning imports of Portland cement and clinker into Ukraine, initiated by Ilyashev & Partners, anti-dumping duties – which were at an unprecedented level for Ukraine – were imposed: 57.03 per cent on imports from Belarus; 94.46 per cent on imports from Moldova; and 114.95 per cent on imports from Russia. At the same time, two anti-dumping investigations were launched concerning the imports of, respectively, aerated concrete blocks produced using Portland cement, and matches from Belarus.
After the loss in the case DS493: Ukraine — Anti-Dumping Measures on Ammonium Nitrate, national producers initiated two safeguard investigations concerning specific types of fertilisers. The initiation of these investigations was unexpected, as earlier in the year the Interdepartmental Commission on International Trade rejected the application, finding no grounds for launching the investigation. These investigations will have implications affecting the interests of many countries, such as EU member states, Belarus, Kazakhstan, Russia and Turkey. If measures are implemented, these countries will be entitled to request adequate means of trade compensation, and will reserve the right to invoke them.
Last year attempts were made to protect the market against vehicle imports from Uzbekistan by applying anti-subsidy measures. However, shortly after the anti-subsidy investigation began, Uzbekistan completely blocked the imports of all goods from Ukraine. Uzbekistan lifted the restrictions only after negotiations between governments, and after the anti-subsidy investigation ended prematurely without any measures imposed.
For the first time ever, Ukraine prolonged the safeguards for three years following a full review under the Agreement on Safeguards. That opens up opportunities for future reviews. The fact of the matter is that the Law of Ukraine on Safeguards does not regulate the procedure for this review, which is why safeguards had not been previously prolonged or had been prolonged automatically without the involvement of the interested parties, creating concern among WTO members. Meanwhile, the Supreme Court of Ukraine recently upheld the legitimacy of safeguards against imports of foam polyurethane, irrespective of the source.
The metals industry has been hit the hardest among foreign markets. The safeguards applied by the US and the EU have substantially affected the interests of all Ukrainian metal-industry enterprises.
An interesting precedent has taken place in the Eurasian Economic Union (EEU), involving the application of measures against Ukrainian goods made by the Interpipe Group. A second anti-dumping investigation was initiated in June 2019, on behalf of consumers from Belarus and Kazakhstan. In July 2019, the board of the Eurasian Economic Commission (EEC) passed a decision to temporarily lift anti-dumping measures against all rolled-steel wheels originating from Ukraine, due to national interests. The rationale is that the EEU producers were unable to meet demand. This is a very important precedent for Ukrainian producers, who are currently facing multiple investigations and numerous restrictions in the EEU, mostly driven by Russian businesses.
The dispute concerning the application of anti-dumping measures to steel pipes originating from Ukraine is still unresolved. Following a further anti-dumping investigation, the EEC’s department for internal market defence concluded that anti-dumping duties for Ukrainian goods must be lowered; however, the EEC board has kept the duty level unchanged. In this context, Ukraine has requested consultations with:
- Kazakhstan (DS530: Kazakhstan — anti-dumping measures on steel pipes);
- Kyrgyzstan (DS570: Kyrgyzstan — anti-dumping measures on steel pipes); and
- Armenia (DS569: Armenia — anti-dumping measures on steel pipes).
The cases are at the consultation stage. No consultations with Russia have been requested yet.
This year, Ukraine and Russia have already exchanged trade bans in response to unfriendly actions.
Ukraine has repeatedly extended the list of goods from Russia that are prohibited for importation into its customs territory. In turn, Russia has significantly expanded the list of banned goods and revised the wording of its legal rationale for the restrictions. Restrictive measures had been previously applied against several jurisdictions at once, including the United States, the EU, Canada, Australia, Norway, Albania, Montenegro, Iceland, Lichtenstein and Ukraine, “with the objective of ensuring Russia’s security”. The most recent ban, however, was imposed on Ukraine alone, and is imposed “taking into account the unfriendly actions that contravene international law”. Since the application of a single list to multiple countries significantly complicates the process of expanding or revising measures imposed against a sole country, the Russian authorities have enacted a new specialised federal law on measures (and countermeasures) in response to the unfriendly actions of the United States and other foreign countries.
As a result, at the end of 2019, the parties have found themselves in a situation where the large-scale bilateral trade ban has encompassed almost the entire trade of goods.
It is unlikely that such measures of the parties would be contested before the WTO DSB. This development is due to the outcome of the case DS512: Russia — Measures Concerning Traffic in Transit.
This is the first case in WTO’s history where a dispute over restrictions imposed out of national security was not settled by the states through negotiations, but received a full review by the DSB’s panel. Interpreting the article, the panel has found that the application of this provision requires, first, the existence of an emergency situation in international relations that is objective in its nature (associated with the interests of defence or public order in a specific territory); and second, that the time frame for the application of measures must coincide with the duration of the emergency. In this case, the concept of “material interests of national security” applies only to defence of the population and the territory against an external threat, or to the maintenance of law and order, although its applicability in a specific case depends on the circumstances. An essential principle for the party applying this provision is good faith, meaning that the measures should be aimed at protecting the interests of security and not at avoiding trade obligations. The panel also introduced a minimum-causation criterion between measures and their goal. On the one hand, the group recognised the right of the parties to independently determine the list of measures to be applied; on the other hand, the parties bear the burden of proving this causation.
An analysis of the circumstances of the matter enabled the group to establish that:
- the emergency situation that has arisen between Ukraine and Russia is close to the very essence of a war or armed conflict;
- the emergency situation is long-term in nature; and
- there is sufficient connection between the parties’ measures and the objective of maintaining security at the Russian-Ukrainian border.
All of the above mentioned conclusions can also be applied to Ukraine’s countermeasures. This makes any efforts to contest the decisions of the parties a futile matter.
At present, Ukraine and Russia can exchange trade restrictions quite freely. This means that we should expect a prolongation of the measures next year.
Apart from these cases involving Ukraine, the WTO DSB also examined case DS499: Russia — Measures affecting the importation of railway equipment and parts thereof. The DSB panel’s decision was not in Ukraine’s favour.
In 2019, Ukraine and the EU held the first consultation as part of the bilateral dispute settlement procedure under the Association Agreement concerning Ukraine’s export ban on sawn wood and timber. The European Commission submitted a request to set up an arbitration panel (pursuant to article 306 of the Association Agreement between Ukraine and the EU). The parties are currently working on forming this arbitration panel.
It can be concluded that the past year has been important for Ukraine, primarily in terms of new WTO dispute resolution developments and domestic market protection measures.