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Auction sale of grain quotas contradicts WTO rules

Kyiv. October 25, 2010

“The auction sale of grain export quotas in Ukraine is at variance with World Trade Organization (WTO) rules, and will throw the grain market into uncertainty and question fulfillment of contractual obligations by exporters,” says Associate of Volkov and Partners Law Firm Andrii Zablotskyi.
The aforementioned has been his commentary to the Interfax-Ukraine Agency on a governmental intention to introduce the sale of grain export quotas at auction with the purpose to prevent corruption, which has been recently announced by First Vice-Prime Minister Andriy Klyuyev.
“Should the Cabinet of Ministers of Ukraine adopt the procedure of quota sale at auctions, it risks breaching WTO rules. Moreover, taking into consideration that the Ministry of Economy has been accepting export license applications from October 20, the decision on introduction of sale of quotas at auctions, if adopted, will throw grain market into uncertainty and question fulfillment of contractual obligations by exporters," told Mr. Zablotskyi.
According to him, Article VIII of GATT 1994 reads that all fees and charges of whatever character imposed by contracting parties in connection with importation or exportation shall not represent a taxation of imports or exports for fiscal purposes.
Mr. Zablotkyi also said that the same objectives pointed out in the explanatory note to the bill on changes into the Law “On Foreign Economic Activity” (regarding auction sale of quotas) No.7230. Thus, if the bill is not adopted, the Cabinet of Ministers won’t be able to hold the auctions.
This document extends Cabinet of Ministers’ competences, authorizing the state higher executive body to decide "…on application of exports (imports) licensing, including, but not limited to, quotas establishment (quantitative and other restrictions), as well as an auction sale of quotas…” explained Mr. Zablotskyi.
Reportedly, according to First Vice-Premier Mr. Klyuyev, the government is going to sale grain export quotas at auctions in order to prevent corruption. He hopes that some of these days the Verkhovna Rada is to enact changes into the Law “On Foreign Economic Activity”, which will introduce the provision on the sale of grain export quotas at auctions.
The First Vice-Premier pledged that auctions will be transparent with earnings gained from quota sale to be transferred to the state budget. “We are not satisfied with the situation where quotas are distributed manually”, Mr. Klyuyev outlined.
Until December 31, 2010 Ukraine introduced quotas for the export of 2.7 million tons of grain, where wheat accounts for 0.5 million tons, barley – 0.2 million tons, corn – 2 million tons, rye and buckwheat – 1 000 tons each.
The approved procedure for quotas distribution contemplates that grain export licenses will be issued under the recommendations of the ad hoc Commission under the Ministry of Economy. Quotas are distributed on the basis of the application filed by a grain exporter within 15 calendar days upon the starting date of the applications registration that is announced on the Ministry of Economy’s official web-site. A quota bidder has to enclose to the application the Ministry of Agriculture’s opinion on whether such exporter has already had the amount of grain applied for export and is able to export in general.
On October 20, 2010, the Ministry of Economy started accepting applications to obtain licenses to export grain.
On October 23, 2010, Minister of Agriculture Mykola Prysiazhniuk announced that Ukraine will extend the grain export quotation effective until December 31, 2010 in case of threat to the state’s food safety. He emphasized that the government’s decision-making is explicitly based on the necessity to ensure the food safety of the country.
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