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21 January 2016

Agro News Digest. October – December 2015

THE TENTH WTO MINISTERIAL CONFERENCE IN NAIROBI

During the week of 15-19 December 2015, the Tenth WTO Ministerial Conference was held in Nairobi (Kenya), in the scopes of which the trade ministers reached an agreement on a series of international trade initiatives (the “Nairobi package”).

The Nairobi package includes six Ministerial Decisions, the most remarkable of which is the Decision disciplining agricultural export competition, i.e. the commitment of the WTO member states to abolish export subsidies and other types of export support instruments for farm exports. According to this Decision, export subsidies of developed countries shall be immediately eliminated. However, the subsidies on processed products, dairy products and pork can remain until 2020. The developing countries have committed to remove their export subsidies by the end of 2018 except for those countries, that made the proper export subsidy notifications in the WTO. These countries will enjoy additional time to eliminate their export subsidy entitlements – by the end of 2022. The least developed countries and net food-importing developing countries will benefit from the export subsidies until the end of 2030.

The other substantive decisions in the field of agriculture cover public stockholding for food security purposes, special safeguard mechanism (SSM) for developing countries and cotton related measures.

TRADE RELATIONS BETWEEN UKRAINE AND THE RUSSIAN FEDERATION AS OF 1 JANUARY 2016 

As of 1 January 2016, the Russian Federation suspended the implementation of the free trade area with Ukraine within the framework of the Commonwealth of Independent States Free Trade Area Agreement (the “CIS FTA Agreement”). Thus, on 16 December 2015, the President of the Russian Federation (RF) signed the Order No. 628 “On Suspension by the Russian Federation of the Agreement on Free Trade Area regarding Ukraine”, upon which Parliament of the Russian Federation adopted the Law “On Suspension by the Russian Federation of the Agreement on Free Trade Area regarding Ukraine”. The above enactments imposean import duty applicable to all Ukrainian goods equal to the rates of the of the Eurasian Economic Union Uniform Customs Tariff. Such rates apply in accordance with the MFN principle of Article I GATT.

Besides, on 13 August 2015, the Government of the Russian Federation adopted the Resolution “On Making Amendments to the Regulations of the Government of the Russian Federation dated 7 August 2014 No.778 and 31 July 2015 No. 774” No. 842 (the “Resolution No. 842”). The Resolution No. 842 introduced the ban on importation of certain food, agricultural products and raw materials, originating from Ukraine. In particular, it covers such goods as meat and meat products, fish, milk and dairy products, vegetables, fruits, nuts, some end products. The ban on Ukrainian imports came into force on 1 January 2016 and shall be effective until 5 August 2016.

Accordingly, as of 1 January 2016, two types of measures apply to Ukrainian products: (1) the import duties equal to the rates of the Eurasian Economic Union Uniform Customs Tariff with respect to all Ukrainian products and (2) the ban on certain food and agricultural products as envisaged by the Regulation No. 842.

In response to actions of the Russian Federation the Ukrainian Parliament adopted the Law No. 898-VIII “On amendments to the Law of Ukraine “On foreign economic activity” on 23 December 2015 (empowering the Government to take adequate measures of economic nature to the aggressor state”). This Law empowers the Cabinet of Ministers of Ukraine to introduce a wide range of trade restrictions (including quotas, full or partial ban, safeguard duties, licensing of foreign economic operations, termination of trade preferences) with regard to the aggressor state. Decision of the Cabinet of Ministers of Ukraine on introduction of restrictions does not require the approval of other state bodies. The Law has been signed by the President of Ukraine and will enter into force on the next day after its publication.

As a result, on 30 December 2015, the Cabinet of Ministers of Ukraine adopted two Resolutions envisaging the countermeasures in case the RF restrictive measures come into force: (1) the withdrawal of all RF goods imported into Ukraine from the free trade regime, i.e. the application of customs duties as envisaged by the Customs Tariff of Ukraine; (the Resolution No. 1146 “On tariff rated for the goods originating from the Russian Federation” dated 30 December 2015); (2) the ban on imports into the customs territory of Ukraine of some goods originating in the RF (such as meat, fish, dairy products, confectionery, bakery products, baby food, alcoholic beverages and cigarettes, number of chemicals, railway equipment etc.) (the Resolution No. 1147On the ban on import of goods originating from the Russian Federation to the customs territory of Ukraine” dated 30 December 2015). The Resolution No. 1146 entered into force on 2 January 2016 and the Resolution No. 1147–on 10 January 2016.

On 20 January 2016, the Ministry of Economic Development and Trade of Ukraine informed that the list of Russian goods prohibited from import into Ukraine and approved by the Resolution No. 1147, was extended and now covers the range of new product categories.

SUMMARY OF LEGISLATION APPLICABLE TO AGRIBUSINESS

Deregulation in Agricultural Sector

On 8 December 2015, the Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine regarding Deregulation in Agricultural Sector” was adopted (the “Law“). The Law introduces amendments to eleven legislative acts and aims to abolish or limit the effect of 20 per cent of regulatory approval procedures in the agricultural sector.

In particular, in the sphere of plant industry the Law envisages cancellation of quarantine permit for import or transit. As it is stated in the Explanatory Note to the Draft Law, given the fact that the safety of foodstuffs is guaranteed by a phytosanitary certificate of the exporting country, the quarantine permit is of no regulatory use ​​and constitutes an unnecessary barrier in import-export transactions. The Law also prescribes that veterinary documents (veterinary certificates and veterinary notes) will not be required for transportation of feeding-stuffs and feed materials of non-animal origin.

As to the animal and fishing industry, the Law abolishes a number of regulatory approval procedures inter alia: state accreditation of breeder’s; accreditation of workers providing special services related to breeding (genetic) resources; certification of breeding (genetic) resources; state accreditation (supplementary accreditation) of businesses engaged in livestock breeding; accounting and number-assigning to the cannery market players; registration and issuance of extracts from the registry on hydraulic units of the fishery water bodies regarding their technical operation and exploitation; certificate on the stability and freeboard of vessels.

In addition, the Law provides for cancellation of registration of certain fertilizers, which do not contain potentially harmful contaminants. In particular, the Law contains the list of fertilizers not requiring registration for import and admitted to free circulation without registration in the EU.

Changes in Tax Legislation

On 24 December 2015, the Parliament of Ukraine adopted amendments to the Tax Code of Ukraine (Draft Law No 3688 “On Amendments to the Tax Code of Ukraine and Certain Legislative Acts of Ukraine on Ensuring the Balance of the Budgetary Revenues in 2016”).

The new version of the Tax Code maintains the simplified taxation system of agricultural producers until 1 January 2017.

At the same time, as to the single tax payers of the fourth group, the Law increased the tax rates on one hectare, which are differentiated depending on the category (type) of the land plot and location thereof: 

 

Category (type) of the land plot

Current tax rate (%)

Previous tax rate (%)

Arable land, hay and grassland

0,81

0,45

Arable land, hay and grassland, located in mountain areas and forest localities

0,49

0,27

Arable land, hay and grassland, used for plant growing in covered soil

5,4

3

Perennial plantations

0,49

0,27

Perennial plantations in mountain areas and forest localities

0,16

0,09

Water reserve land

2,43

1,35

In addition, the taxation of agricultural producers within the special VAT regime will be differentiated depending on the type of products sold by them: one share of the VAT will be accumulated on the special accounts of the enterprises, and the other one will be transferred to the State Budget of Ukraine. 

 

Products

Share of VAT to be accumulated on the special accounts of enterprises (%)

Share of VAT to be transferred to the State Budget of Ukraine (%)

Cattle and dairy products

80

20

Grain and industrial crops

15

85

Other products

50

50

 

Extension of the Moratorium on the Sale of Agricultural Land

On 10 November 2015, the Parliament of Ukraine passed the Law of Ukraine “On Amendments to the Section X “Transitional Provisions” of the Land Code of Ukraine on the Extension of Validity of the Moratorium on Alienation of Agricultural Land” No 767-VIII (the “Law“). Therefore, the moratorium on the sale of agricultural land was extended until 1 January 2017.

The List of the State Price Regulation Objects

The Cabinet of Ministers of Ukraine adopted the Regulation “On Approval of the List of State Price Regulation Objects with the Defined Periods of such Regulation in 2015-2016” (the “Regulation”) envisaging the list of agricultural products subject to state price regulation.

State price regulation objects

Period of state price regulation

Soft wheat

from 1 November 2015 to 30 June 2016

Winter rye

-“-

Wheat flour

-“-

Rye flour

-“-

Buckwheat

-“-

Sand sugar (beat sugar)

from 1 November 2015 to 31 August 2016

SUMMARY OF DRAFT LAWS APPLICABLE TO AGRIBUSINESS

Cancellation of the Guarantee Fund for Performance of the Commitments under the Grain Warehouse Certificates

The Ministry of Agrarian Policy and Food of Ukraine developed the Draft Law “On Amendments to Certain Laws of Ukraine on the Operation of the Guarantee Fund for Performance of the Commitments under the Grain Warehouse Certificates” (the “Draft Law”). In particular, the Draft Law provides for cancellation of the Guarantee Fund for Performance of the Commitments under the Grain Warehouse Certificates as it prevents the effective functioning of the Ukrainian grain market.

Withdrawal of the State Regulation of Sugar Production and Sale thereof

The Ministry of Agrarian Policy and Food of Ukraine developed a Draft law “On Recognition to Have Ceased to Be in Force of Certain Lawof Ukraine regarding the State Regulation of Production and Sale of Sugar” (the “Draft Law“), which aims to provide the enterprises-sugar producers with an opportunity to sale their products at economically feasible prices and in accordance with the  market conditions. The Draft Law proposes to withdraw the state regulation of the following:

  • minimum prices on sugar and sugar stock;
  • sugar production and sugar beet growing;
  • sale of sugar, inter alia, determination of the quarterly and monthly volumes of sugar sales.

Reinstatement of Mandatory Quarantine Certificates for the Transportation of Grain and Oilseeds within the Territory of Ukraine

The State Veterinary and Phytosanitary Service of Ukraine has developed a Draft Regulation of the Cabinet of Ministers of Ukraine “On Amendments to the Regulation of the Cabinet of Ministers of Ukraine No 705 dated 12 May 2007” (the Draft Regulation).

The Draft Regulation provides for the following

  • amendments to the Procedure of review, examination, analysis, fumigation (Disinfection) and inspection (issue of the phytosanitary and quarantine certificates) of the controlled plants;
  • amendments to the Procedure of preparation of the quarantine certificate;
  • reinstatement of the mandatory quarantine certificates for transportation of grain and oil seeds within the territory of Ukraine.

The mandatory quarantine certificates were abolished by the Regulation of the Cabinet of Ministers of Ukraine “Certain Issues of Deregulation of the Commercial Activity” No 42 dated 28 January 2015. In particular, a voluntary principle was introduced, according to which the control of grain and oilseeds transportation within the territory of Ukraine shall be performed exclusively upon the request of the owners of the respective objects.  In July 2015, in the scopes of the governmental deregulation course, the amendments where introduced in the Law of Ukraine “On plant quarantine”, which were aimed to limit the number of cases when the quarantine certificate may be required.

Please contact Andrew Zablotskyi for more detailed information.

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