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Publications - Grain quotas in Ukraine: further developments

Grain quotas in Ukraine: further developments

Vol. 20
November 2010

Earlier we have already covered the situation occurred to grain export quotas in Ukraine following the enactment of Decree No. 938 “On confirmation of quota volumes for separate varieties of agricultural products, which exports to be subject to licensing till December 31, 2010” (see: “Ukraine: grain export restriction and WTO rules”). The target of this article is to enlighten readers on the developments after this regulatory act has entered into force.
Particular attention should be given to the situation occurred to quotas allocation procedure. According to the said Decree No. 938 a business entity involved in foreign economic activity has the right to participate in quotas allocation only in case it has obtained a conclusion from the Ministry of Agrarian Policy of Ukraine that certifies traders’ capacity to export agricultural products. As the procedure for issuance of such conclusions originated only on October 28, 2010 that made it, thus, impossible to issue such deeds to grain traders within the period of Oct 20 - Nov 3, the Ministry of Economy announced about the recurrent acceptance of applications till November 18, 2010.

However, on November 10 Decree No. 938 was changed and, therefore, the application acceptance period was shortened tо deadline of November 12, 2010, and the Ministry of Agrarian Policy was assigned to issue conclusions on export capacity before November 12 in order to allocate quotas on the same date. The most interesting point is the resolution introducing changes was officially released just gain on November 12, i.e. on the date when it came into force. Hence, the entities expecting to obtain the Ministry’s conclusions within the further working week got to know about the shortening just on the day of quotas allocation.
The said changes not only appreciably abridged the application acceptance period (by 6 calendar days) but also coerced the designated agencies to take certain actions (i.e. to issue conclusions). Moreover, for obscure reasons the Ministry of Agrarian Policy stood idle on November 12.
Subsequently, many grain traders, among which there are such outstanding foreign companies as Cargill, Toepfer International, Louis Dreyfus and Soufflet Group, have not obtained quotas for grain export. Such actions invoked a wave of disaccord among those grain traders that were artificially deprived of the right to participate in quotas allocation due to the Ministry’s ommission.[1]
Also it is interestingly enough to look out the developments of grain export allocation in relation to certain countries. Thus, on November 30, 2010 the Cabinet of Ministers promulgated the Draft Decree “On some issues regarding exportation of certain kinds of agricultural products”. It permits to export agricultural products beyond the set quotas to the countries having free trade agreements with Ukraine. The enactment of such Decree will result in violation of Article I of GATT–1994 addressing the most-favoured-nation treatment: “any advantage, favour ...granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties”. It is obvious that free trade areas created in compliance with Article XXIV of GATT–1994 are an exception to Article I of GATT–1994, and deviation from the most-favoured-nation treatment is deemed acceptable. But, considering that Ukraine motivated its export restrictions by threat of sharp domestic deficit, it is logical to inquire about reasonableness and constituency of such moves as on the backdrop of deficit it would be hard to speak about export even to those countries that have FTA agreements with Ukraine.
It is worth highlighting that a vast majority of the countries having FTA agreements with Ukraine are not WTO members.
Granting the right to export grain to the countries having FTA agreements with Ukraine (i.e. Azerbaidzhan, Armenia, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Macedonia, Moldova, Russia, Tadzhikistan, Turkmenistan and Uzbekistan) is in violation of Article ХІІІ of GATT–1994. This Article addressed that “no prohibition or restriction shall be applied by any contracting party on ...the exportation of any product destined for the territory of any other contracting party, unless ...the exportation of the like product to all third countries is similarly prohibited or restricted”.
In light of grain export quotation it is also worth mentioning about the State Food and Grain Corporation of Ukraine established under Resolution No.764 dated August 11, 2010. This entity is a state-owned enterprise undertaking to do business in compliance with Article XVII of GATT–1994. Under Ukraine’s commitments within the WTO the state must guarantee the established undertaking adheres to the general rules of nondiscriminatory regime set forth in GATT–1994 as regards the governmental measures related to importation and exportation carried out by sole entrepreneurs. As such, the state corporation’s actions might allegedly be of monopolistic and/or supervisory nature with respect to grain exports.
Item 51 of the Report of the Working Party on the Accession of Ukraine to the World Trade Organization also stipulates Ukraine’s commitment to comply with Article XVII of GATT–1994, averting, thus, the situation where a state-owned enterprise turns into political actor[2], that is - into the object designed for realization of the state policy solely in the state’s interests.
We believe today the violation of procedural requirements is in place. In particular, Ukraine failed to comply with the WTO Secretariat notification requirement. Admittedly, the corporation was established on August 11, 2010 but no notification had been given to the WTO Secretariat. Although earlier Ukraine had already provided the notification on the establishment of “Ukrspirt” Company. And the Understanding on the Interpretation of Article XVII of GATT–1994 obligates WTO members to notify the Council for Trade in Goods about the establishment of state trade enterprises. Besides, the Decision on Notification Procedure-1994 and Annexes thereto reads “countries members must notify as far in advance as practicable”.
Reportedly, the Decree on grain export quotation and quotas allocation was enacted in violation of both national and international laws. This issue was addressed at the meeting of the WTO Agriculture Committee that was held on November 18, 2010. Thus, Ukraine has been only the second country to notify export restrictions on agricultural products (Kyrgyz Republic was the first). A number of states, i.e. the USA, EU, Israel, Switzerland and Japan, sought details from a representative of the Ministry of Economy of Ukraine on consequences of quotation for national producers and international trade counterparties. In turn, Ukraine seemed willing to start negotiations with importing countries and provide written responses to the requests. In other words, to be continued…

Iryna Polovets and Tetiana Kheruvimova are Associates with Volkov and Partners (Kyiv, Ukraine)

[1] http://www.maritimebusinessnews.com.ua/news/cargo/2010/11/22/10611.html
[2] Appellate Body Report, Canada – Measures Relating To Exports Of Wheat And Treatment Of Imported Grain, para. 141.

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