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Prolongation of 24% duty for export of non-ferrous metal threatens Ukraine with WTO members’ retaliatory measures

Kyiv. December 22, 2010

Prolongation of export duty for scrap non-ferrous metal transactions run counter to a number of provisions of World Trade Organization (WTO) agreements and can trigger retaliatory measures on the part of WTO members, believes Associate from Volkov and Partners Law Firm, Tatiana Kheruvimova.
“It is appropriate to assume that, owing to the prolongation, countries infringed on their interests may apply countermeasures to Ukraine, for instance, considering practices of other countries, by suspending concessions on certain kinds of goods imported from Ukraine,” said Ms. Kheruvimova to the Interfax-Ukraine Agency, commenting on the Law, prescribing to keep up 24 per cent duty for non-ferrous metal export from Ukraine in 2011.
As the Associate explained, in addition to the rules of the General Agreement on Tariffs and Trade 1994 (GATT 1994), if a WTO member considers that the benefit obtained is being nullified or impaired, this member can make written representations or proposals to Ukraine or other parties concerned with regard to consulting.
“Logically, importing countries have reason to eliminate infringements of their interests, whereas an infringed balance of commitments and concessions entails loss of the expected preferences,” said Ms. Kheruvimova.
According to the expert, paragraph 230 of the Report of the Working Party on Ukraine’s Accession to the WTO acknowledges that high export duties could act as trade barriers and hence Ukraine undertook to reduce them gradually.
“The undertaken commitments have formed part of the balance of commitments and concessions,” mentioned the Associate. Thus, pursuant to 239 of the Report the failure to comply with the commitments would disturb the balance and give the right to contracting parties to take appropriate action to rebalance the concessions.
The Associate said that regardless of the mechanism taken by a contracting party, the fact of loss of expected benefit or advantage should be proved.
In addition, Ms. Kheruvimova emphasized that the actions geared at rebalancing may be in place even if one of the contracting parties has applied measures notwithstanding their contradictory nature as to the provisions of GATT 1994.
Reportedly, the Verkhovna Rada issued the Law “On Amendments into Certain Laws (Concerning Operations with Scrap Metal)” deferring for a year the reduction of export duty on non-ferrous scrap metal. The purpose was to elaborate during a year the program of the industry reorganization in the context of new realities in the tax system. The Tax Code enacted by the Parliament is coming into force on January 1, 2011.
In the meantime, the adopted in 2007 Law “On Export Duty Rates for Scrap of Ferrous and Non-Ferrous Metals and Semi-Finished Products Manufactures with their Use” contains the schedule of gradual reduction of duty in terms of WTO accession commitments undertaken by Ukraine.
For three years the rate has already been cut from 30 per cent to 24 per cent. Supposedly, in 2011 it might be reduced to 21 per cent, in 2012  – down to 18 per cent and, ultimately, in 2013 – to 15 per cent.
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