Ukrainian import tariff plan threatens EU relations, global trade

The WTO in Geneva

Ukraine has told its trading partners it wants to raise tariffs on hundreds of imported goods, a move that could unleash protectionist forces and may even pose a threat to the €14 trillion global trade system. EU sources told EURACTIV that this could raise “systemic questions” over the country’s relations with the Union.

In a document marked "secret" that was sent to members of the World Trade Organization last week and seen by Reuters, Ukraine says it intends to raise the limit on the tariffs it can legally impose on more than 350 goods.

Based on figures in the proposal, Kyiv's plan would hit overall imports worth more than €3.56 billion in 2011. For the EU alone, the imports concerned represent a volume of €2 billion.

The document, which diplomats said they received on 14 September, consists of 85 pages of annexes detailing the items affected. It says Ukraine is prepared "to enter into negotiations and consultations" with WTO members for the concessions. Ukraine says it uses an area of WTO rules known as Article 28 of the General Agreement on Tariffs and Trade (GATT).

Diplomats quoted by Reuters said Ukraine's plan to renegotiate on so many goods – cars, trucks, agricultural machinery, meat, flowers, fruit, vegetables, washing machines and even syringes – is tantamount to reopening negotiations on its membership terms.

Ukraine, a relative newcomer to the WTO whose trade deficit widened by more than 50% last year to €10.85 billion, has already threatened to block car imports and said last year it would act to improve its terms at the WTO.

"We don't know what is behind Ukraine's move," said one trade diplomat. "Maybe the financial crisis. Maybe political reasons. Maybe industrial."

European Commission finds decision 'surprising'

The United States said Ukraine's possible decision would raise "serious concerns", although WTO officials played down the move, which, though radical, is permissible under the agency's rules.

“The EU has taken note of Ukraine's request to modify its schedule of concessions with respect to a considerable number of tariff lines – which is surprising for its size alone," John Clancy, EU trade spokesman, told EURACTIV.

Clancy said the Commission’s preliminary analysis has shown that the tariff increase would affect a significant amount of trade – and in particular EU exports worth almost €2 billion.

“This means it could even prove difficult to maintain a ‘general level of reciprocal and mutually advantageous concessions not less favourable to trade’, as required by WTO rules”, Clancy said. 

The EU car sector would be particularly affected by these renegotiations, as far as 37% of the EU exports to Ukraine correspond to cars (600 million €). 

"The Commission has already raised our concerns, along with other WTO Members, in an informal WTO meeting held on 17 September," Clancy said. All WTO Members have 90 days to examine Ukraine's request and to submit their views.

Following five years on negotiations, Ukraine and the EU have agreed the texts of an Association Agreement and a Deep and Comprehensive Free Trade Agreement (DCFTA) with the EU. However, the documents have not been signed, largely due to the imprisonment of former Prime Minister Yulia Tymoshenko that Brussels sees as politically motivated (see background).

The DCFTA with Ukraine is difficult to reconcile with this latest WTO move, Clancy stressed. "The EU expects Ukraine to respect the standstill provisions of the Agreement, otherwise it would seriously put into question Ukrainian willingness to move ahead in the DCFTA process," he warned.

In addition, a Commission source who asked to remain anonymous made it plain that the EU executive rejected the view that the procedures of Article 28 of the GATT agreement could serve as a means to renegotiate the accession commitments of WTO members, in particular soon after a Member's accession, like in Ukraine’s case.

“For this reason, the Ukrainian request possibly also raises systemic questions, and we are looking into this aspect as well,” the source said.

Ukrainian First deputy Prime Minister Valeriy Khoroshkovskiy was scheduled to meet with Trade Commissioner Karel De Gucht today (24 September). Clancy confirmed that Ukraine's move would be at the centre of the discussions with Commissioner De

The December 2011 EU-Ukraine Summit failed to initial the country's Association Agreement with the Union, largely due to the imprisonment of former Prime Minister Yulia Tymoshenko that Brussels sees as politically motivated.

The five-year long negotiations over the Association Agreement were concluded, but EU leaders made it clear that the deal would not be signed until improvements are made to the "quality of democracy and rule of law"

On 30 March, the Association Agreement was initialed. Although this is only a technical step before the official signature, the Commission said the move was important for "keeping the momentum" in relations with Kyiv.

The EU wants to keep Ukraine in its orbit at a time when Russia becomes more assertive with its neighbours and invites Ukraine to join its Customs Union with Belarus and Kazakhstan, as well as the so-called Eurasian Union. However, Brussels insists that it would not compromise on "core EU values".

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