The EU and Ukraine discussed current bilateral trade and economic issues in Kyiv (26/07/2013)

Ukraine is the largest and most important economic partner of the European Union among the 6 Eastern Partnership countries. Thus, the EU pays particularly close attention to the development of the bilateral trade and investment relations. An important new forum for discussing the state and possible improvement of the business and investment environment has been created by setting up in February of this year the Informal Business Climate Dialogue.

This first Dialogue meeting took place on July 25 in Kyiv, co-chaired by P. Balas, Deputy Director General of DG Trade of the European Commission and I. Prasolov, Minister of Economic Development and Trade of Ukraine. The meeting provided an opportunity to exchange views about the most important aspects of the EU-Ukraine economic cooperation.   The intensive and friendly discussions, while confirming some limited improvements in the legislative area, have also shed light on an increasing number of problems in the bilateral economic relationship. The EU reiterated its serious concerns expressed earlier at high level about the deteriorating business climate in Ukraine. Experiences show that the business and investment environment has not improved in the recent months, and in some respects has even worsened.

EU bodies regularly review the state of economic relations with Ukraine. In December 2012, the EU's Foreign Affairs Council, in the context of discussing the process leading to the signing of the Association Agreement, containing a Deep and Comprehensive Free Trade Area (AA/DCFTA), has called upon Ukraine to take determined action to improve the deteriorating business and investment climate. It has also indicated the EU's expectations to solve the existing trade irritants and, in particular, to refrain from adopting new trade-restrictive measures.

During the Dialogue meeting the EU side spelt out in detail its specific concerns, urging the Ukrainian authorities to rectify those as a matter of urgency.  The problems affect a number of sectors, but there is a particular concentration of trade irritants in the automotive industry. While the EU understands the importance for the Ukrainian Government to support solving the pressing problems of the vehicle manufacturing industry, it has also repeatedly indicated that these challenges cannot be tackled by the kind of trade restrictive measures Ukraine is implementing or considering:  

  • The Government in March decided, without warning to, and consultation with, the EU, to introduce an additional import charge on imported cars as a safeguard measure, in disregard of the procedures and on grounds of unsubstantiated claims.
  • The Ukrainian Parliament in July adopted a law mirroring a similar Russian measure, introducing a so called recycling fee for vehicles. The latter is now the subject of a WTO dispute settlement complaint lodged by the EU against Russia. Introducing by Ukraine such measure would very seriously affect the bilateral economic relationship. Thus, the EU side has expressed its hope and expectation that the Ukrainian side would do its utmost to avoid the entry into force of this law.
  • Ukrainian senior officials have recently expressed the intention to provide financial incentives to consumers linked to the purchase of domestically-manufactured vehicles only. This would be another measure running against the international trade rules.

Other measures the EU considers incompatible with Ukraine's obligations under the WTO as well as with a preferential relationship under the DCFTA include:

  • The unexpected introduction by Ukraine of a total ban on imports of coke – for which the EU is traditionally Ukraine's major supplier. Later this ban was replaced by a still WTO-inconsistent quantitative restriction (quota), the size of which is much lower than would be required considering the established commercial relations. Ukraine tried to justify these measures on grounds of public and environmental health. While the EU fully agrees with the importance of following such legitimate objectives, this should not be done by selective, discriminatory steps, targeting imported products only.
  • Ukraine has also introduced legislation that imposes requirements linked to the local (Ukrainian) content of equipment used in investments in the renewable sector. This step has been taken in spite of requests for restraint by the EU, as such requirements are not compatible with international trade rules. The measure has been subject of bilateral discussions for quite some time, but so far Ukraine has shown no readiness to address the EU's concerns.  
  • The EU – together with a very substantial number of other WTO members - has repeatedly appealed to the Ukrainian authorities to withdraw their request to renegotiate a large number of tariff commitments taken at the time of Ukraine's accession to the WTO. Such an unprecedented step would fundamentally change the balance of rights and obligations between Ukraine and the rest of the WTO membership, thus creating a major negative effect on the multilateral trading system. These repeated calls have gone so far un-heeded by Ukraine.

The EU, in light of these well-known, long-standing concerns, had hoped that the Informal Business Climate Dialogue would lead to solving the existing trade irritants. However, these expectations could not be realized: the Ukrainian side was not in a position to offer complete solution to any of the EU's concerns. The maximum that was promised is that the Ukraine authorities would continue in the coming period the internal reflections about possible solutions. Once this process will be over, the Ukrainian side would send its specific proposals to the EU as a basis for further bilateral consultations.

The EU side is concerned that the only outcome of the long consultation process is just the promise of further bilateral discussions. There are increasing concerns that the time is running out to find mutually acceptable solutions. Therefore, the EU side trusts that Ukraine will speed up its internal processes and will urgently take the steps necessary to ensure that its trade policies remain within the limitations set both by the international trade rules, as well as by the expected future preferential relationship under the DCFTA. Such early actions would represent a major step towards creating in the economic area a supportive atmosphere for a positive decision about signing the AA/DCFTA. At the same time, these steps would contribute to a major transformation and modernisation of Ukraine economy as a whole.  The EU is ready to actively work with Ukraine in order to achieve these goals.