Read the original text at eurointegration.com.ua.
In the nearest future, relations between Ukraine and the EU might suffer significant crisis.
The cause is the last week approved bill №6382. This document provides a correction of the final provisions of the law "On amendments to some laws of Ukraine on reduction the deficit of scrap in the domestic market."
In other words, 260 deputies voted for the extension of the increased export duty on scrap metal by two years. For two years this fee will be not 10, but 30 euros per tonne.
The application of the EU Delegation in Ukraine, announced on the eve of the vote, did not stop the MPs. They stressed that such a move would violate the agreement with the EU on abolition of these taxes, and expressed hope that the Member of Parliament would respect those international commitments publicly taken by Ukraine, "and would avoid another bilateral trade dispute with the EU."
As of one of the authors of the bill described the initiative, the chairman of the Parliamentary Committee on Industrial Policy and Entrepreneurship Victor Halasyuk, raising taxes would increase revenue at about $ 1 billion a year to give weapons to Ukrainian army, supply Ukrainian steelmakers with raw materials , to create workplaces for Ukrainians.
Characteristically, when discussing the draft, Cabinet's position on this issue was not mentioned - representatives of the Ministry of Economic Development have not been delegated to this discussion. Moreover, if a year ago, the ministry described the increase in duties on scrap metal as a gross violation of the Association Agreement with the EU, now the Ministry decided simply "not to see" it.
Instead, the only person who mentioned the violation of the Association Agreement with the EU and WTO rules, was a member of the Parliamentary Committee on European Integration Maria Ionova. In her estimation, "adoption of the bill at this stage without consultations took place due to the risk of new trade disputes and irritants in relations with the EU and WTO members."
Finally, when discussing the deputies went to some manipulation. The gist of it was that the implementation of Ukraine's international obligations considered only in the context of WTO rules. In this regard, Viktor Halasyuk argued that raising tariffs is consistent with the principles of world trade, within the scope of Article XXI General Agreement on Tariffs and Trade, the WTO "Security Exceptions".
Corresponding analysis commissioned by the authors of the bill has been conducted by Van Bael & Bellis (Brussels). According to its findings, the use of art. XXI GATT has very few precedents, and therefore we cannot speak on violation. But the debate completely ignored violations of the Association Agreement with the EU! And despite the fact that the increase in fees is contrary to the basic principles of this agreement, the parties have performed only liberalization of their bilateral trade conditions.
But why the EU reacted so sharply?
The issue of duties on scrap metal does not become a problem between Ukraine and the EU for the first time. In April 2016, the Council first raised the export duty on ferrous scrap from 10 to 30 euros per tonne for three years. This initiative actively lobbied by the Ukrainian metallurgists who claimed that the export of scrap significantly increases the cost of steelmaking in Ukraine and, consequently, reduces the competitiveness of Ukrainian steel on the world market.
The EU perceived this initiative negatively, saying that it violates the "spirit" of the Association Agreement. Finally, the law was vetoed by the President Petro Poroshenko. He offered to present a bill to another edition, agreed with the EU.
A year ago, sources in the European Commission assured that they received clear guarantees directly from Poroshenko that the duties would not be extended.
"We agreed on the introduction of temporary duty to let Ukrainian industry better adapt to new conditions. However, there was clear agreement - increased fees only for one year," say now the European officials. According to them, the European Commission would appeal to Poroshenko to veto the law.
What if it is not vetoed and comes into force? What can the EU do in this situation?
First of all, to challenge those duties. This appeal can take place both in the WTO and through dispute resolution mechanisms under the Association Agreement with the EU.
The second option is much more dangerous for Ukraine. Consideration of the conflict within the WTO takes 1.5-2 years. It is possible that in this case the decision will be made after the expiration of the increased duties. Ukraine-EU Committee must act much more quickly.
Finally, the EU has many extra tools of influence.
In particular, granting Ukraine the new autonomous preferences might be frozen – additional export quotas, the adoption of which is at the final stage. Adoption of these preferences, according to the Agriculture Ministry, will help Ukrainian agricultural producers to save $ 180 million a year.
But most importantly - Ukraine has once again appeared as unreliable partner that violates its commitments, waiting for the permanent concessions from the EU.
It is worth recalling another problematic point in the relations with the EU - a moratorium on the export of raw timber (by the way, when discussing raising taxes this moratorium was mentioned as an example of the protection of national interests). Ukraine introduced it to support domestic producers, but the EU constantly justifies its ecological considerations.
Finally, the positive effects of the moratorium was lower than expected. But despite previous statements, the EU agreed to give Ukraine the second tranche of macro-financial assistance without lifting the moratorium.
However, the possibility "to deceive the EU" can play a cruel joke with Ukraine. In this case, Ukraine losses might be greater than the promised additional revenue from the higher taxes.
And finally, speaking about the support the domestic industry, in this case - metallurgy. Indeed, the problem of scrap export abroad is a sensitive topic for the domestic industry. Without the use of scrap the cost of Ukrainian metal increases significantly. Accordingly - its competitiveness drops. This is a real problem. But what was done for the sake of overcoming it? In particular, during the last 12 months?
Ukrainian authorities made arrangements for this year transition period as a compromise, to have some time to solve this problem. If this period is not enough, then what is the guarantee that the problem will be solved in the next two years?
And most importantly - if the problem was more acute because there is a need to increase this transitional period, why the government did not go for such consultations with the EU? Perhaps because no work has been conducted?