Ukraine’s Accession to the WTO

Ukraine began the WTO accession process in 1993, and has held nine Working Party meetings since the formation of its Working Party in 1995. Adriy Goncharuk, State Secretary for Trade at the Ministry of Economy of Ukraine, characterized the period as one of "ups and downs," but said that since 2000, Ukraine has embarked on serious and constructive steps toward accession, improving bilateral negotiations on market access with trade partners, and most significantly, undertaking important domestic reforms. Two presidential decrees, one issued in September 2001 and the other in February 2002, critically support domestic reform. The first decree raised the management level of the WTO accession process, and resulted in the appointment of Ukraine's Vice Premier to the chair of the governmental committee on WTO accession. The first decree also established measures to increase legislative cooperation between the Rada and other governmental bodies. The second decree supported reform of Ukraine's trade laws and called for a comprehensive analysis of existing legislation on the protection of intellectual property rights, customs and tariff regulations, technical barriers to trade and Ukraine's investment regime according to WTO standards.

Goncharuk said that Ukraine has entered the final stage of accession, as is evidenced by its passage of nine bilateral protocols on market access in the past 18 months, with traditional trading partners such as Slovenia, Latvia and Georgia, as well as Canada, Mexico, New Zealand, South Korea, and most recently, India. Furthermore, ninety-five percent of Ukraine's negotiated tariff lines were agreed upon, and in July 2002, Ukraine adopted a Customs Code based on WTO standards that eliminates inconsistencies in customs evaluation procedures. At the most recent meeting of the Working Party in June 2002, the party agreed to prepare a checklist of outstanding issues in Ukraine's foreign trade regime, to which Ukraine submitted its answers one month ago. Goncharuk was hopeful that the Working Party would meet again in November of this year, when it would begin drafting the accession protocol and other final documents.

Ukraine and the United States

In recent months, the solid relationship built between the US and Ukraine, primarily on the basis of the unique attention and technical support given to Ukraine's Working Party by the US during the early stages of accession, "has slightly changed." Bilateral trade negotiations between the countries have slowed considerably, largely because of two unresolved issues: intellectual property protection and poultry imports. Goncharuk noted, however, that "Ukraine has achieved real progress in 2001 and 2002" in intellectual property protection, improving its cooperation with US experts in the field, and most notably, approving laws created with these experts in January 2002. These laws will be supported by twelve regulations passed by the Cabinet of Ministers to improve enforcement of intellectual property legislation, including state inspections of intellectual property and licensing procedures of imports and exports.

"Ukraine's recent restrictions on US poultry imports…were not applied as a trade restriction," Goncharuk continued, but rather resulted from "a decision of Ukrainian veterinarian authorities [taken] to protect the health of the population." In compliance with WTO sanitary and phytosanitary (SPS) standards, Ukrainian legislation prohibits certain chemicals used in the production of poultry. Thus the dispute should be resolved not at trade policy level, but at the level of scientific discussions, with the involvement of relevant experts in both states. With regard to Ukraine's attempts to improve market access, Goncharuk said that the US has expressed its satisfaction with Ukraine's comprehensive tariff offer, and has not offered any serious technical reservations on the question of access to Ukrainian goods and services. He noted that the decision to grant market economy status was likely as much a political decision as an economic one.

Ukraine and the European Union

Ukraine has developed a "pragmatic and practical" relationship with Europe, working through WTO accession guidelines and the Partnership and Cooperation Agreement (PCA) to achieve integration into the European and world economies. The most striking evidence of this new pragmatism is Ukraine's desire to gain recognition as a market economy. Ukraine recently submitted full documentation of its compliance with EU standards for the market economy designation in an attempt to gain recognition within the next six months. To advance the standardization of its trade legislation and the predictability of its business environment, Ukraine passed three critical laws to support foreign companies in Ukraine, which if fully enforced will permit foreign companies to operate in Ukraine under common European technical procedures. Finally, Ukraine is attempting to settle the "Daewoo case" and is reviewing certification procedures for the pharmaceutical and automobile industries, among others.

Ukraine and Russia

Despite the rapid development of Ukraine's trade with the rest of the world, Russia remains at present and for the visible future Ukraine's biggest trading partner. Trade with Russia consumes 29 per cent of Ukraine's total, down from 47 per cent five years ago, while trade to Europe comprises 22 percent, and 30 percent when one adds the Baltic states. Ukraine is concerned, however, that commodity exports to Russia have recently fallen sharply. Factors negatively affecting bilateral trade include Russia's policy of import substitution and its correspondent attempts to increase foreign trade with countries outside the CIS. Furthermore, Ukraine has suffered from restrictions on pipes, metals, and sugar-based products, imposed to protect the Russian domestic market. Since 1999, Ukraine has lost $530 million on the Russian market, and an additional $107 million in exports are at risk. Goncharuk was hopeful that, as both Russia and Ukraine seek to join the WTO, the two nations could resolve any remaining trade disputes based on WTO requirements.

Gaining access to the markets made available by the WTO of particular importance to Ukraine as exports total 30 percent of Ukraine's GDP. Mr. Goncharuk's "optimistic prognosis is that if [Ukraine gets] support from the United States and world financial institutions…it will be able to complete the accession process by the end of 2003."

Discussion

Anders ?slund opened the discussion by asking which Ukrainian political parties support accession to the WTO and which are opposed. On the basis of the most recent elections, Goncharuk explained that while the leftist parties, namely the Communists, are not strongly opposed to WTO accession yet, they will become so as accession draws near. The Socialists are also against accession, mainly for political reasons, while the Agrarians could potentially support accession. Our Ukraine, the opposition party that has recently secured a majority in parliament, is in favor of accession. Goncharuk noted, however, that Ukrainian businessmen do not openly campaign for accession, as do groups from certain sectors in Russia.

Edilberto Sigura of SigmaBleyzer asked what the Ukrainian government is doing to engage the private sector in the accession process and to attract foreign investment to Ukraine. In terms of investment, Goncharuk replied, Ukraine fully complies with the Trade Related Investment Measures agreement, TRIMs, signed at the end of the Uruguay Round negotiations. Furthermore, the Ukrainian government actively cooperates with export sectors such as the metallurgy, chemical, and textile industries, and also works with small and medium sized enterprises (SMEs) from a variety of industries. This comparatively young group of Ukrainian entrepreneurs working on SMEs meet through a group co-chaired by Goncharuk and Oleksandr Zinchenko, vice-chair of the upper house of the Rada.

John Audley of the Carnegie Endowment asked Mr. Goncharuk whether he believed that the SPS provisions of the WTO were sufficiently flexible for Ukraine to use them to justify its decision to refuse US poultry imports. Audley asked if Ukraine supports its case with international scientific evidence, suggesting that the US would attempt to challenge the accuracy of Ukrainian evidence in discussions. Goncharuk replied that Ukraine uses European research, and emphasized that Ukraine bases its decision to ban US poultry not on tariff regulations, but on WTO SPS guidelines. He reiterated the opinion that experts from each country should resolve the issue using the scientific evidence each has prepared.

William Marsteller of ExIm Bank requested that Goncharuk comment on negotiations with the United States on Ukraine's status as a market economy, and also on Ukraine's attempts to diversify its narrow export base. Goncharuk and his advisor, Oleh Ryabukun, stressed that Ukraine's economy, while not perfect, deserves market economy status. The major industries in Ukraine have been privatized, and the economy operates without price controls. Furthermore, the Ukrainian economy performs similarly to those of Russia and Kazakhstan, both of which have been granted market economy status by the US. This similarity is demonstrated both by a variety of economic indicators, including the level of foreign investment per capita in each country (Russia-$71, Kazakhstan-$70, Ukraine-$90) and the private sector shares of the GDP (Russia-70%, Kazakhstan-60%, Ukraine-60%).

Kempton Jenkins of the US-Ukraine Business Council was optimistic about Ukraine's economic performance and potential for growth. While recognizing the political complexity of relations with the United States, the US-Ukraine business council encouraged its members to discuss Ukraine's market economy status with the US Department of Commerce. Jenkins identified two remaining barriers to investment: money laundering, and the lack of intellectual property protection. With substantial effort, he was confident that Our Ukraine would be able to resolve both issues, improving political relations with the United States and the investment climate in Ukraine. Jenkins recognized that Our Ukraine supports accession, but would prefer that it not come under the current executive leadership. He also noted that the poultry industry carried significant influence in the US, and urged Ukraine to quickly settle the dispute.

?slund said that while Ukraine most certainly qualifies as a market economy, its designation as such is largely a political question. With regard to WTO accession, there is a clear understanding in Washington that Ukraine will not enter before than 2005-that is, after both Russia and Kazakhstan, and also after the next presidential elections. In the meantime, as Kempton Jenkins suggested, Ukraine should focus on enacting market reform legislation, using the Our Ukraine majority to implement the dozens of changes needed to comply with WTO standards. Most importantly, Ukraine must improve the operation of its steel industry, which comprises 40 percent of the country's total exports. A critical flaw in the industry's functioning is the price of the coal used in steel production. The import price of coal currently runs at twice the domestic wholesale price, meaning that the coal industry effectively subsidizes the highly profitable steel industry. Furthermore, the steel industry benefits from substantial tax privileges that will ultimately inhibit its ability to export. Goncharuk noted that the majority of coal used in steel production comes from Russia and Poland, and stated further that in January 2002, the Ukrainian government passed a law that was created jointly with US trade representatives and the Department of Commerce that will effectively abolish the steel industry's tax privileges.

Jack Heller of Heller & Rosenblatt similarly emphasized that the functioning of Ukraine's steel industry steel makes it different from Russia and Kazakhstan, noting that the record of the US Commerce Department proceedings make clear that the standards for the industry laid out by American representatives were not met on the Ukrainian side. Kempton Jenkins suggested that Ukraine's steel industry establish a relationship with the American Iron and Steel Institute (AISI) so as to reduce miscommunication and anticipate problems during bilateral industry negotiations.