Ukraine’s grain export commitments under national legislation and WTO law
(Law Magazine) ¹1 (103) 2011
Tetiana KHERUVIMOVA, Associate with Volkov and Partners Law Firm
Iryna POLOVETS, Associate with Volkov and Partners Law Firm
Definition of “Export restraints”
Specificity of the export restraint institute, hard-to-get initial information, exporting entities trying their best to keep information on conflicts arising during their activity confidential made investigation of the legal aspects of the respective Ukrainian institute unattractive. Analysis of scientific legal literature devoted to the separate aspects of foreign economic activity restraints, showed that there is lack of publications concerning legal regulation issues as for export restrictions.
Presently, national legislation lacks determination of ‘export restraint’ term. First legal definition of this term was provided in the case on subsidies and export restrictions filed against USA. The issue of United States - Measures Treating Exports Restraints concerned conformity of the US laws with the Agreement on Subsidies and Countervailing Measures . Therefore, the term was defined by the Panel as “a border measure that takes the form of a government law or regulation which expressly limits the quantity of exports or places explicit conditions on the circumstances under which exports are permitted, or that takes the form of a government-imposed fee or tax on exports of the products calculated to limit the quantity of exports.” .
In order to define legal nature of export restrains we would like to consider separate provisions of the current laws. Under the Customs Code of Ukraine, ‘export’ “shall be understood as the customs regime, under which commodities are moved from the customs territory of Ukraine for purposes of free circulation without obligatory return of such commodities into the country and without any customs restrictions for the utilization of commodities outside the customs territory of Ukraine” . However, according to the Ukrainian Law “On Foreign Economic Activity”, the term ‘export’ was broadened and defined “as sales of goods by Ukrainian business entities in the foreign trade sphere (including such sales with payments made in other than the pecuniary form) with or without transferring these goods across the customs border of Ukraine, including re-export of goods.” .
Taking into account all aforesaid, export restraint on commodity shall mean measures introduced by the competitive government agency and directed to the quantitative restraint of commodities export from the territory of Ukraine for purposes of free circulation without obligatory return of such commodities into the country and without any customs restrictions for the utilization of commodities outside the customs territory of Ukraine.
Subject to the justification measures taken to restrain export are as follows:
- export restrictions for national security reasons;
- export restrictions for non-economic reason: life, public health, safety, and environmental reason;
- export restrictions in accordance with international or bilateral agreements or arrangements;
- export restrictions for maintenance of adequate supply of essential products .
The WTO General Council in the WTO's Trade Policy Review , part “Measures expressly influencing export” cover following export restrictive measures – export prohibition, export quotas, export licensing, minimum export prices  and export duties.
As far as national legislation is concerned, governed by the Law of Ukraine “On Foreign Economic Activity”, commodities export restrictive measures may be classified as follows: (³) the considerable disturbance of the equilibrium in respect of certain commodities being of substantial importance for the life in Ukraine on the domestic market, especially the agricultural, fish and fishery products, foods and essential industrial consumer goods, or other commodities. (ii) the need to ensure the protection of the life and health of humans, animals or plants, the environment, the public morality, the national treasures with the artistic, historical or archaeological value, or the protection of intellectual property rights, as well as in line with requirements of the state security; (iii) the export of gold and silver, except for banking metals; (iv) the need to ensure the protection of intellectual property, inter alia, patents, trademarks and the copyright; (v) the need to enforce the international treaties of Ukraine; or (vi) as protective measures. However, application of the said mechanism shall be possible only in case of compliance with Articles XI, XIX, XX and XXI of GATT 1994 and TRIPS Agreement.
Ukraine’s WTO Commitments
October 19, 2010 shall be regarded as the validation date of the CMU’s Decree No. 938 “On quotas volumes for separate types of agricultural commodities export of which shall be licensed until December 31, 2010, and approval of the Licensing Procedure for Separate Types of Agricultural Commodities Export and Quotas distribution” as of October 4, 2010. Under the Decree, customs clearing of quoted grain exports shall be performed only base on licenses issued by the Ministry of Economy of Ukraine. Despite the fact that resulting from discussion of the issue on export quotas and licensing of grain export from Ukraine , accessing the WTO Ukraine has admitted that upon sudden introduction of such measures, trade has suffered significant damage as it has been actually suspended and grain has been spoiled while idling the time away in ports, Ukraine has introduced grain export restrictions once again in October 2010.
GATT 1994 contains only one article which is directly connected with restraint of export. In this respect, Article XI of GATT 1994 reads that no prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licences or other measures, shall be instituted or maintained by any contracting party on the importation of any product of the territory of any other contracting party or on the exportation or sale for export of any product destined for the territory of any other contracting party.
According to paragraph 255 of the Report of the Working Party on the Accession of Ukraine to the World Trade Organization, Ukraine confirmed that requirements to export licensing, other export restrictions or any restrictions introduced in the future would be applied in conformity with WTO provisions, including those contained in Article XI of the GATT 1994. Ukraine obliged not to impose any prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licences or other measures … on the exportation or sale for export of any product destined for the territory of any other contracting party . Exclusions shall be prohibitions or restrictions of export applied on temporary basis to prevent or decrease critical deficiency of foods or other goods essential for exporting party.
Exactly by that the Ukrainian government justified the introduction of grain quotas, according to the notification document dated October 18, 2010 . Despite Ukraine met the requirement to early notify the WTO Agriculture Committee, we believe that the actual actions on quotas introduction – blocking the departure of merchant vessels out of the ports, in particular –were in place far in advance of Decree No. 938 enactment and contravened WTO Agreements.
Ukraine had to notify the WTO Committee on Agriculture before actual imposition of export restrictions, as according to the Decision on Notification Procedures and Article 12 of the WTO Agreement on Agriculture the country must notify about trade measures introduction as far in advance as practicable. Furthermore, Article X contains general requirement regarding the transparency principle: laws, regulations ..., made effective by any contracting party, pertaining to ... requirements, restrictions or prohibitions on imports or exports ... shall be published promptly in such a manner as to enable governments and traders to become acquainted with them.
Following the logic of the above-mentioned provisions, the Panel in Argentina – Hides and Leather stated that “the disciplines of Article XI:1 extend to restrictions of a de facto nature” . At the same time, in Japan – Trade in Semi-conductors the Panel noted that “Article XI:1, unlike other provisions of the General Agreement, did not refer to laws or regulations but more broadly to measures.
This wording indicated clearly that any measure instituted or maintained by a contracting party which restricted the exportation or sale for export of products was covered by this provision, irrespective of the legal status of the measure” .
Legislative initiatives on grain export restrictions
Admittedly, Draft Law on Amendments into the Law of Ukraine “On Foreign Economic Activity” No. 7230 was registered with the Verkhovna Rada on October 7, 2010 . On October 19, 2010, the Draft Law was not included in the agenda because, supposedly, Decree No.938 came into effect on that date. On November 2, 2010 the Draft Law was approved in principle, but due to critical remarks of the Main Scientific and Expert Division of the Verkhovna Rada Apparatus and Main Legal Division of the Verkhovna Rada Apparatus, the document was forwarded for recommitment. As of December 8, 2010 the Draft Law looks for the second reading.
According to the Explanatory Note the document was drafted to regulate the issue on sale of quotas set by the Cabinet of Ministers with the aim to replenish the State Budget by means of earnings from quotas sale. In addition, the conclusion of the Main Scientific and Expert Division of the Verkhovna Rada Apparatus says that the Draft Law is directed at entitling the Cabinet of Ministers to make decisions on export/import quotas distribution through auction sales, to establish the procedure of such sales and ensure the growth of budget earnings derived from that.
Pursuant to Article VIII of the GATT 1994, all fees and charges of whatever character (other than import and export duties and other than taxes within the purview of Article III) imposed by WTO-members on or in connection with importation or exportation shall be limited in amount to the approximate cost of services rendered and shall not represent an indirect protection to domestic products or a taxation of imports or exports for fiscal purposes. The provisions of Article VIII of the GATT 1994 shall extend to fees, charges, formalities and requirements imposed by governmental authorities in connection with importation and exportation, including those relating to quantitative restrictions and licensing.
Furthermore, the GATT Panel Report in US-Customs User Fee clearly stipulates that Article VIII “explicitly prohibits” such fees and charges for fiscal purposes .
It should also be noted that Ukraine acknowledged the necessity to reduce the quantity and range of such fees and charges, to minimize the scope and intricacy of export formalities as well as to ease down requirements for import and export documentation.
As such, provided the Draft Law is adopted we will encounter the violation of Ukraine’s commitments to refuse from introduction of auctions in view of little transparency thereof. Considering that, on December 6, 2010 the Cabinet of Ministers of Ukraine published the Draft Decree “On Amendments into Cabinet of Ministers of Ukraine’s Decree No.938 Dated October 4, 2010 and Recognition of Cabinet of Ministers of Ukraine’s Decree No.1046 Dated November 10, 2010 Such as Ceased to Be Effective” and adopted it the same day , it would be logical to suggest that such Draft Decree on Amendments was aimed to introduce a new (auction-based) mechanism for distributing additional quotas.
Another governmental initiative appeared to be the Cabinet of Ministers’ Draft Decree “On Amendments into Cabinet of Ministers of Ukraine’s Decree No.938 Dated October 4, 2010”. This document implies that the designated quotas shall not be applied to the countries which are parties to the FTAs with Ukraine and have the respective inter-governmental understandings. The majority of countries-parties to the FTAs with Ukraine are not WTO members. But, in this case Ukraine as a WTO member has to observe a commitment of the Most Favoured Nation Treatment regardless WTO membership of the said countries.
To exclude the countries-exporters which are parties to the FTAs with Ukraine (Azerbaidzhan, Belarus, Armenia, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tadzhikistan, Turkmenistan, Uzbekistan and Macedonia) from export quotas foreseen by Decree No.938, in fact, means to apply export restrictions to all other WTO members in a way that is not similar to the grain export restrictions imposed for all third countries. Therefore, Ukraine undoubtedly breaches the non-discrimination principle provided for by Article Õ²²² of the GATT 1994.
The aforesaid is illustrated by Appellate Body Report in European Communities - Regime for the Importation, Sale and Distribution of Bananas, specifying that a violation of the obligation under Article Õ²²²:1 constitutes the imposition of restrictions on imports from WTO-members, which are distinct and unidentical with the restrictions imposed for exports from third countries . Therefore, WTO members should administer export restrictions only on the basis of non-discrimination principle  and apply export restrictions in relation to WTO members similarly to export restrictions in relation to all third countries.
Potential effects of grain export quotas introduction
Lengthy storage of a lump of grain at warehouses without possibilities to export it may lead to grain spoilage, unbudgeted expenses of economic entities, breach of commitments under foreign economic contracts, and, as a result, this would adversely affect Ukraine’s image as a reliable trade partner.
In confirmation of the abovementioned, on November 18, 2010 the WTO Agriculture Committee held the meeting where the participants discussed the situation occurred on grain market as a result of Ukraine’s government actions.
Thus, the EU, Israel, Japan, the USA and Switzerland were deeply concerned about Ukraine’s actions and sought details from a governmental representative of Ukraine on compliance of measures applied by Ukraine with WTO agreements and commitments assumed by Ukraine upon the WTO accession. Also they discussed the issue on non-imposition of grain export restrictions towards the countries which are parties to the FTAs with Ukraine and have the respective inter-governmental understandings.
In its turn, Ukraine seemed willing to start negotiations with importing countries to guard against negative consequences of restrictions on exportation from Ukraine. Our opinion is that the foregoing concern is well-grounded and critical remarks are based on actual violations by Ukraine of its commitments and provisions of WTO Agreement
1. United States - Measures Treating Exports Restraints as Subsidies, Panel Report, WT/DS194/R and Corr.2, dated 23.08.2001, DSR 2001:XI, 5767.
2. Jeonhoi Kim (2010). Récent Trends in Export Restrictions, OECD Trade Policy Working Papers, No. 101, OECD Publishing. Page 5.
3. Customs code of Ukraine dd. 11.07.2002 #92-IV.
4. Law of Ukraine “On Foreign Economic Activity” dated 16.04.1991 p. ¹ 959-Õ²².
5. Jeonhoi Kim (2010). Recent Trends in Export Restrictions, OECD Trade Policy Working Papers, No. 101, OECD Publishing. Page 8.
6. WTO's Trade Policy Review // available at http://www.wto.org/english/tratop_e/ tpre/tpre.htm.
7. The fact that pursuant to para. 238 of the Report of the Working Party on the Accession of Ukraine to the World Trade Organization system of minimum indicative export prices placed the onus on the exporter to justify why products should be sold at a price that did not coincide with the applicable indicative price creates obstacles to export. In the light of mentioned, it was stressed that Ukraine should abolish minimum prices and not to set the minimal export prices upon accession in order to provide compliance with Article 4 of the Agreement on Agriculture and Article Õ²:² of the GATT 1994.
8. Report of the Working Party on the Accession of Ukraine to the World Trade Organization (WT/ACC/UKR/152) // Law of Ukraine dated 10.04.2008 ¹ 250-VI «On Ratification of the Protocol of Accession of Ukraine to the WTO”.
9. General Agreement on Tariffs and Trade (GATT 1994) dated 15.04.1994
10. Notification on export restrictions: Ukraine. G/AG/N/UKR/5 dated 28 October 2010.
11. Argentina - Measures Affecting the Export of Bovine Hides and Import of Finished Leather, Panel Report, adopted 16 February 2001, para. 11.17.
12. Japan – Trade in Semi-Conductors, GATT Panel Report, adopted 4 May 1988, para. 106.
13. Draft Law on Amendments into the Law of Ukraine “On Foreign Economic Activity” No. 7230 dated 07.10.2010
14. US-Customs User Fee, BISD 35S/245, GATT Panel Report, adopted 2 February 1988, para. 120.
15. Extension of quota, extension of arbitrary rule: // Cabinet of Ministers Regularly Breaks Law, available at http://wto.in.ua/ index.php?&page= 1 &get-3&id=1934
16.European Communities - Regime for the Importation, Sale and Distribution of Bananas, Appellate Body Report, WT/DS27/AB/R, adopted 25 September 1997, DSR 1997:11,591, paras. 183-187.
17. European Communities - Regime for the Importation, Sale and Distribution of Bananas, Appellate Body Report, WT/DS27/AB/R, adopted 25 September 1997, DSR 1997:11,591, para. 26.