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5 May 2014

International Trade News. March – April 2014

I. HOT ISSUE

Status of temporarily occupied territory of Ukraine

On 26 April 2014, Acting President of Ukraine, Oleksandr Turchynov, signed the Law On Ensuring the Rights and Freedoms of Citizens and the Legal Regime of the Temporarily Occupied Territory of Ukraine|1| No. 1207-VII which entered into force on 27 April 2014.

In accordance with the Law the temporarily occupied territory is an integral part of the Ukrainian territory under the jurisdiction of the Constitution and laws of Ukraine and includes the Autonomous Republic of Crimea and the city of Sevastopol, internal waters and territorial sea of Ukraine, its bed and subsoil on which Ukraine exercises sovereignty, continental shelf and exclusive economic zone as well as the airspace over the said territory. Ukraine protects the property rights on the occupied territory in accordance with its laws: private persons and individuals retain their rights for the property, including real estate situated on the territory of the peninsula. Acquisition and cessation of property rights for real estate shall be done by public entities beyond the territory of the Crimea and in accordance with the Ukrainian legislation. The adopted Law does not prohibit any kinds of economic activity in the peninsula as it was originally proposed. However, a separate law will be adopted to regulate issues with regard to performance of economic activity on the territory of the Crimea. Notably, as of today the relevant draft law has not been adopted yet.

The EU grants unilateral trade preferences to Ukraine 

On 14 April 2014, the European Council adopted the Regulation No. 374/2014 of the European Parliament and of the Council on the Reduction or Elimination of Customs Duties on Goods Originating in Ukraine|2| granting unilateral trade preferences to Ukraine in the form of temporary reduction or elimination of customs duties in accordance with a schedule of concessions set out in an annex to the EU-Ukraine Association Agreement.|3|

The Regulation entered into force on 23 April 2014, following its publication in the EU Official Journal. It will enable Ukraine to benefit from trade preferences before the entry into force of the Deep and Comprehensive Free Trade Agreement (“DCFTA”) included in the EU-Ukraine Association Agreement (Title IV of the EU-Ukraine Association Agreement). The Regulation will apply provisionally till the DCFTA enters into force or till 1 November 2014.

Just to remind: the unilateral tariffs elimination is a part of the support package for Ukraine announced on 5 March 2014 in response to the recent developments in Ukraine aiming to support political transformation and economic recovery of Ukraine. The political part of the Association Agreement was signed on 21 March 2014. The DCFTA constituting Title IV of the Association Agreement dedicated to trade and trade related matters was signed on 27 June 2014.

II. WTO NEWS

Ukraine’s safeguard measures on certain passenger cars|4|

On 26 March 2014, at the meeting of the Dispute Settlement Body upon the second request of Japan a panel was established to examine the Ukraine’s safeguard duties imposed on certain passenger cars. The European Union, India, Korea, Russia and Turkey reserved their third-party rights to participate in the panel’s proceedings.

Moreover, on 28 March 2014 the Ministry of Economic Development and Trade of Ukraine informed that in accordance with the Decision of the Interdepartmental Commission on International TradeOn Liberalization of Safeguard Measures for Importation of Passenger Cars in Ukraine Irrespective of the Country of Origin and Exportation” No.СП-306/2014/4423-06 dated 12 February 2014, the level of duties was liberalized as it is required by Article 7.4 of the WTO Agreement oSafeguards as well as 18.4 of the Law of Ukraine “On Application of Safeguard Measures against Imports to Ukraine” № 332-XIV dated 22 December 1998. According to the Decision liberalization shall be held every 12 month after implementation of the decision by reducing the amount of duties by one third. The rates of duties for passenger cars starting from 14 April 2014 are as follows: 4,31% for cars with engine capacity from 1,000 cm3 to 1,500 cm3 and 8,63%  for cars with engine capacity from 1,500 cm3 to 2,200 cm3. During the second stage of liberalization which will start from 14 April 2015 these new amended rates will be cut twice.|5|

Just to remind: On 13 April 2013, Ukraine established safeguard duties of 6.46% on certain vehicles with engine capacities between 1,000 and 1,500 cubic centimeters, and 12.95% on cars with larger engines of up to 2,200 cubic centimeters. Later on 30 October 2013 Japan filed a request for consultations with the Government of Ukraine within the WTO framework.

Ukraine wants to protect Roshen via the WTO mechanism|6|

During the meeting of the WTO Committee on Technical Barriers to Trade (TBT Committee) held on 18-20 March 2014 Ukraine requested Russia to provide detailed explanations of reasons for the import ban on products of ROSHEN Confectionery Corporation (Roshen).

There are two reasons reported by Russia, mainly the provisions of the Law of the Russian Federation “On the Consumer Rights Protection” No. 2300-1 dated 7 February 1992 and the Technical Regulation of the Customs Union of Belarus, Kazakhstan and Russia “On Food Products and Their Labeling”.

Ukraine further requests the explanation which particular provisions of the above Law were applied in order to justify the ban. Pursuant to the Law, the violation of the respective provisions as to the labeling requirements cannot serve as a basis for an import ban because in case of such violation, an established amount of fine shall be paid.

Therefore, from Ukraine’s point of view, the measures introduced by Russia concerning Roshen products are more restrictive than necessary and discriminatory in comparison with treatment provided for like products of the Russian or third-country origin. Taking into account the frequent cases of ban of the Ukrainian products by Russia, Ukraine does not preclude the possibility of starting a dispute within the framework of the WTO.

III. REGIONAL TRADE LIBERALIZATION

The Eurasian Economic Union is to be effective from 1 January 2015

During the regular meeting of the Supreme Eurasian Economic Council held on 5 March 2014, the President of Belarus, Alexander Lukashenko, the President of Kazakhstan, Nursultan Nazarbayev, and the President of Russia, Vladimir Putin, discussed the on-going work on the draft of the Treaty on Establishment of the Eurasian Economic Union which is planned to come into force on 1 January 2015. The parties also discussed the possibility of Armenia to join the said future union.

As a result of the meeting, the Presidents agreed to finish the preparatory work on the Draft Treaty till May 2014 in order to sign all necessary documents timely and in due course.|7| Moreover, Belarus, Kazakhstan, and Russia agreed on the establishment of single monetary and currency policy in ten years. The newly created institution, similar to the European Central Bank, will be in charge of functions like a central bank of any country. The mechanism is anticipated to become effective in 2025.|8|

Just to remind: the Eurasian Economic Union is a proposed union of the post-Soviet states. On 18 November 2011, the above presidents of Belarus, Kazakhstan and Russia signed the Declaration on Eurasian Economic Integration, where they set a deadline to establish the Eurasian Economic Union by 1 January 2015. Apart from Belarus, Kazakhstan and Russia, the perspective members of the Eurasian Economic Union are Armenia, Kyrgyzstan and Tajikistan.

IV. TRADE DEFENSE REMEDIES AND TRADE BARRIERS

Sunset review of anti-dumping measures on forged steel rolls for rolling mill originating from Ukraine

On 28 February 2014, the Eurasian Economic Commission published the Notification On the Initiation of Anti-dumping Re-investigation Concerning Forged Steel Rolls for Rolling Mill Originating from Ukraine and Imported to a Single Customs Territory of the Customs Union”.|9| According to the Decision of the Customs Union Commission Concerning Forged Steel Rolls for Rolling Mill Originating from Ukraine Classified under Codes 8455 30 310 0 and 8455 30 390 0 of TN VED and Imported to a Single Customs Territory of the Customs Union No. 904 dated 9 December 2011 import of forged steel rolls for rolling mill originating from Ukraine was subject to anti-dumping duty of 26%. The initiated re-investigation is necessary to examine whether the continued imposition of the duty is necessary to offset dumping and whether the injury is likely to continue.

Ukraine imposed safeguard measures on porcelain dishes and flatware|10|

On 23 April 2014, the Interdepartmental Commission on International Trade (“the Commission”) published the Notification “On the Imposition of Safeguard Measures on Porcelain Dishes and Flatware Irrespective of the Country of Origin and Exportation|11|. The Commission decided to impose a definitive safeguard measures in the form of import duty of 35,6% with further annual liberalization (after 12 months from the date of the imposition the respective import duty will be 32%, after 24 months – 28,8%).

The relevant decision of the Commission will become effective 30 days after the day of the Notification publication. The Notification was published in Uryadovy Kuryer No. 75 on 23 April 2014.

V. CUSTOMS RELATED ISSUES

Utilization fee for recycling of imported cars was revoked

On 18 April 2014, acting President of Ukraine, Oleksandr Turchynov, signed the Law of UkraineOn Amendments to the Tax Code of Ukraine Abolishing Environmental Tax on Disposal of Discontinued Vehicles and Excise Tax on Reconstruction of Vehicles Imported Into the Customs Territory of Ukraine into Passenger Cars Which are Subject to Excise Tax” No. 1191-VII dated 8 April 2014.

The Law provides for the exemption from excise duty for reconstruction of imported into the customs territory of Ukraine vehicles into passenger cars subject to excise tax. Furthermore, the so called ‘utilization fee’ is also terminated under the Law provisions. |12|

Just to remind: The utilization fee has been introduced by the Law of Ukraine On Amending the Tax Code of Ukraine for Payment of the Environmental Tax for Utilization of Vehicles out of Operation and Improvement of Certain Tax Rules” No. 422-VI dated 4 July 2013. This kind of fee was levied on new and used imported cars and was considered as additional heavy financial burden for buyers of vehicles. The rates of the utilization fee varied based on different circumstances, including the type of car and whether it was new or used, etc. The tax rate varied from UAH 4,400 up to UAH 60,500.

The Draft Proposal for reformation of the Ukrainian customs authorities: ideas and guidelines

On 15 May 2014, the Ministry of Revenue and Duties of Ukraine published a Draft Proposal for reformation of the Ukrainian customs authorities. While reformation of public revenue sphere is widely discussed and anticipated by business entities and community of Ukraine, the Ministry lays out its own vision on the steps and actions to be done.

The Draft notes that the Agreement on Association with the European Union requires Ukraine to implement into its national legislation approximately 70-80% of provisions of the Customs Code of the EU. This outlines the policies to be kept with in reformation of the customs service. It is proposed that business community shall provide public assessment of customs bodies and keep close communication with them. Restructuring of the customs service and fighting against corruption are also priorities as well as simplification of customs procedures and automation of customs procedures.

Among the first steps to be taken are the establishment of an Advisory Board of business experts and customs officers, establishment of a Supervisory Board of the representatives of European Business Association, US Trade Chamber and other business representatives and creation of systematic working groups. Such groups will be engaged into development of draft amendments into the legislation.

VI. PHARMACEUTICALS

Ukraine introduced 7% VAT on import of medicinal products and medical products

On 27 March 2014, the Parliament of Ukraine adopted the Law of Ukraine “On Countering Financial Catastrophe and Creating Prerequisites for Economic Growth in Ukraine|13| No. 1166-VI which introduced relevant amendments into the Tax Code of Ukriane. The adoption of the Law signifies the abolishment of VAT exemption for imported medicinal and medical products that previously were included in the list of products exempted from VAT approved by the Cabinet of Ministers of Ukraine.

As a result, from 1 April 2014 the import into Ukraine and supply within the customs territory of Ukraine of medicinal products registered in Ukraine has become subject to 7% VAT. As for the medical products their import and supply is subject to the same 7% of VAT, however only if they are listed in the Resolution of the Cabinet of Ministers of Ukraine “On Adoption of a List of Medical Products which Importation into the Customs Territory of Ukraine and Supplies within the Customs Territory of Ukraine are Subject to VAT at the rate of 7%” No. 118 of 23 April 2014. 20% VAT shall apply to all medical products which are not directly indicated in the above Resolution. Discount rate of 7% is also applied to all medicinal and medical products which are intended for clinical trial in Ukraine.

New technical regulations enter into force

On 1 May 2014, the Resolutions of the Cabinet of Ministers of Ukraine dated 2 October 2013 “On Adoption of the Technical Regulation for Medical Devices”|14| No. 753, “On Adoption of the Technical Regulation for In Vitro Diagnostics Medical Devices|15| No. 754, “On Adoption of the Technical Regulation for the Active Implantable Medical Devices|16| entered into force. In accordance with the plans of actions for implementation of the aforementioned Resolutions, their compulsory application shall start from the third quarter of 2014. At the same time, on 1 July 2014 the previous technical regulations regarding medical devices will lose legal force.

The new technical regulations provide for the European procedure of compliance verification for medical devices and implementation on manufacturing enterprises of the quality management system which satisfies the requirements of the national standard DSTU ISO 13485:2005 “Medical Devices. Quality Management Systems. Regulation Requirements.”

Amendments to the procedure of government procurement in Ukraine are in force

The new version of the Law of Ukraine “On the Procedure of Government Procurement”|1| No. 1197-VII dated 10 April 2014 entered into force on 20 April 2014. According to its provisions, government procurement procedure is used when the total value of purchased goods exceeds UAH 1 mln or the amount of purchased services exceeds UAH 100 000. The list of goods and services which are exceptions from procurement procedure is shortened from 38 to 11 items. Public owned entities, procuring goods and services, are now obliged to publish information about future procurements and signed contracts on their web sites. Legal entities registered in offshore zones, which list is adopted by the Cabinet of Ministers, now may be excluded from the procedure. Another novelty is that foreign companies, participating in the procurement procedure, are now exempted from the discriminative requirement to have there own production facilities or service centers at the territory of Ukraine.

 

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