EY authors summarize recent major customs/trade developments in Ukraine.

Published in:
Journal of INTERNATIONAL TAXATION, Number 3, March 2009

Authors:
John Kay and Oleksii Manuilov

Ukraine's WTO Accession — Opportunities for Foreign Investment, Trade Expansion

Ukraine became the 152nd member country of the WTO on May 16, 2008, after 15 years of accession negotiations. WTO accession has put Ukraine in the spotlight with new opportunities for foreign investment and trade expan­sion, as already evidenced by the com­mencement of formal discussions regarding EU-Ukraine free trade agree­ment negotiations.

Also, WTO acces­sion has led to significant reforms to conform with WTO rules and commit­ments. While these reforms will lower trade barriers, they will also mean new laws, processes, and procedures for businesses.

What WTO accession means to Ukraine

Overall, Ukraine's accession to the WTO means:

• Introducing internationally recog­nized rules and norms that are applied in 151 other countries.
• Facilitating access to the majority of foreign markets.
• Improving the attractiveness of Ukraine for domestic and foreign investors, and increasing the flow ofinvestment to industries, services, and agriculture.
• Increasing competitiveness in the domestic market, and widening the assortment of goods and services, quality, and price ranges for customers.
• Reducing state support programs, which are subject to limitations under WTO regulations.
• Developing an up-to-date system of technical standards, speeding up harmonization with international standards.
• Getting the opportunity to defend the interests of Ukraine's producers according to the WTO's dispute set­tlement procedure.

With its commitments to trade based on market forces, transparency, and the rule of law, Ukraine is bringing significant reforms to its trade laws. Some reforms were already implemented before or on accession, while others are in process.

Recent reforms

On WTO acces­sion, Ukraine implemented various WTO agreements relating to the trade in goods, such as the WTO Customs Valuation Agreement and Rules of Ori­gin Agreement. Overall, most aspects of trade underwent some reform.

Import tariffs. Ukraine now uses the harmonized tariff system, replacing the Ukrainian Foreign Economic Activity Commodity Classification (UFEACC), and applies the privileged (most-favored nation or MFN) rate of import duty to all goods originating from WTO mem­ber states. In many instances, significant duty reductions have already taken place, with additional gradual reductions to follow. For instance, import duty rates on cars decreased from 25% to 10% as of the date of WTO accession. Moreover, import duties on some cars will contin­ue to gradually decrease from 10% to 5% (1 % every year for five years after acces­sion). Ukraine exporters are already benefiting from MFN duty rates for trade with WTO member states.

Quantitative import restrictions. Ukraine has committed to eliminate and not introduce, re-introduce, or apply quantitative restrictions on imports or other non-tariff measures that could not be justified under the WTO Agreement.

For example, while preparing for WTO accession in 2006, Ukraine adopted Law No. 404-V, “On the Estab­lishment of the Tariff Quota for Impor­tation into Ukraine of Raw Cane Sugar” (November 30, 2006). This legislation established an annual TRQ for raw cane sugar of 260,000 tons (subject to 2% import duty) allocated exclusively among WTO member states from the date of WTO accession. Outside the quota, the import duty on sugar remains stably high at 50%.

Export duties and restrictions. Ukraine will gradually reduce export duties across a range of goods over the next ten years (e.g., oilseeds, live cattle, animal skins, and ferrous and non-ferrous particles). Some level of export duties will remain for certain products. For instance, on accession, Ukraine eliminated export bans on non-ferrous scrap metal and substituted it with export duties.

Ukraine has also removed export restrictions on grains, as well as those on precious metals and stones other than gold, silver, and diamonds. Ukraine has removed export restrictions on steel products exported to EU countries.

Going forward

The customs envi­ronment in Ukraine is transitioning quickly. Ukraine importers and exporters need to adjust to this new environment and proactively prepare for further changes.

Below are some addi­tional reforms to expect going forward:

• More simplified procedures for customs clearance and declaration of good. A recent reform implemented the first stage of electronic customs filings that allows eligible traders to submit preliminary customs declarations
  electronically to the customs author­ities; further stages will be imple­mented to expand these types of simplification measures.

• Increased use of post-entry customs audits. Rather than delaying goods at the border to perform controls, the customs authorities will conduct more reviews after customs clear­ance of the goods.

• More focus on the accuracy of customs val­ue. The customs authorities have implemented control procedures to verify the accuracy of the declared customs value under the new WTO-con­sistent rules. To this effect, Ukraine will eliminate mandatory minimum prices on imported and exported goods.

• More effective protection of intellectual property rights at the border. Ukraine will implement its commitments under the TRIPS Agreement¹ to per­mit action against acts of infringe­ment of intellectual property rights.

• Further reductions to mandatory third-party certifications. Ukraine will har­monize its national certification standards with international and European standards by 2012.

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1 The Agreement on Trade Related Aspects of Intellec­tual Property Rights (TRIPS) is Annex 1C of the Marrakesh Agreement Establishing the WTO, It was effec­tive January 1, 1995. See www.wto.org/ english/ tratop_e/TRIPS_e/i ntel2_e.htm.