12/8 UKRAINE WTO UPDATE

C O N F I D E N T I A L SECTION 01 OF 02 KYIV 004531 SIPDIS SIPDIS GENEVA FOR USTR STATE PLEASE PASS TO USTR FOR KLEIN/MOLNAR USDOC FOR 4201/DOC/ITA/MAC/BISNIS USDOC FOR 4231/ITA/OEENIS/NISD/CLUCYCK STATE FOR EUR/UMB, EB/TPP/BTA, EB/TPP/MTA E.O. 12958: DECL: 12/07/2016 TAGS: ETRD WTRO ECON PGOV UP SUBJECT: 12/8 UKRAINE WTO UPDATE REF: A. YARNELL-MOLNAR EMAIL OF 12/5 ¶B. KYIV 4415 ¶C. KYIV 4315 ¶D. KYIV 4304 ¶E. KYIV 4237 Classified By: ACTING DEPUTY CHIEF OF MISSION DOUGLAS KRAMER, FOR REASONS 1.4 (B) AND (D) ¶1. (SBU) Summary: While Prime Minister Yanukovych and Ukrainian trade negotiators held talks with USTR during a visit to Washington, Dec 4-7 Ukraine's Rada (parliament) passed one more WTO-related law. This brings the total number of laws adopted to 18 out of the proposed 21. One more law remains on the Rada's docket, while the final two are moving more slowly. Legislative experts praise the Rada impressive progress, but note that several of the adopted laws are not perfect and will likely require careful review by the Working Party. Domestic auto producers, meanwhile, continue to chip away at the GOU's commitments in the sector. The GOU hopes to sign its bilateral agreement with Taiwan on December 15, while negotiations with holdout Kyrgyzstan continue. The GOU also needs to reach agreement on domestic support for agriculture; key Rada deputies have told us they were eager to find a WTO-compliant solution. End Summary. ¶2. (U) This latest edition of a series of regular update cables regarding the status of Ukraine's WTO accession (refs B-E) covers the period December 1-8. Outstanding WTO-related Legislation: Used Car Imports -------------- -------------- ¶3. (U) The Rada adopted (in final reading) one more WTO-related law on December 6, bringing the total number of WTO-related laws adopted to 18 of the 21 pieces of legislation thought necessary for accession. The Rada passed the new law, "On the Registration of Transportation Vehicles," to address Ukraine's commitment to abolish the age restriction for imports of used cars. The text of this law as passed, however, was substantially different from previous versions. The law contains language to eliminate the ban on imports of used cars over five years old, but it also introduces registration requirements that could restrict imports. In particular, it will create a registration tax that is based on engine size and is significantly higher for older cars; in at least one category the tax is up to 100 times steeper when the vehicle is more than eight years old. Regions MP Dmitriy Svyatash, author of the law, told Econoff he believed the bill to be WTO consistent and hoped the President would sign it into law. ¶4. (SBU). One draft law -- "On the Export Duty on Scrap of Ferrous and Non-Ferrous Metals and Alloyed Steel" (to replace the export ban on scrap metals with an export duty) -- has passed only it first reading in the Rada. An additional draft law -- "On Value Added Tax (regarding taxation of agricultural enterprises)" -- has been submitted but has not gone to a vote. The bill, which would eliminate the discriminatory application of the VAT, was pulled from the Rada's agenda on November 3. One expert familiar with Ukraine's WTO accession efforts told EconOff on December 6 that this law was a "non-starter" among MPs who believed the issue can be resolved through further consultations in Geneva or a separate tax law currently under Rada consideration. Some GOU officials have pointed to a different law on VAT (Law No. 273-V, signed by the President on October 19),which actually extends the current discriminatory regime for another year. ¶5. (SBU) The promised law on biotechnology products has not yet been submitted, although the Cabinet of Ministers has tasked the Ministries of Agriculture and Health to produce a draft. The GOU does not publicly link the biotech law to WTO accession, but recognizes privately that it remains one of Ukraine's outstanding bilateral commitments to the USG. Sergiy Ryzhuk, Party of Regions MP and member of the Agricultural Committee, told Econ Counselor on December 1 he thought the prospects for passing a biotech law were significantly improved. Adopted Laws Not Perfect -------------- ¶6. (SBU) The consensus among Kyiv-based WTO experts we KYIV 00004531 002 OF 002 talked to was that, while some of the laws as passed have shortcomings that could cause concern in Geneva, on the whole the Rada refrained from meddling with the provisions. The result was, as one expert told us, "the best that could be expected." An exception to this rule could be the law on Foreign Economic Activity, signed by Yushchenko on December ¶4. The version passed is reportedly a "truncated" version of the earlier draft, and may need careful review to ensure it provides for WTO consistency. Another concern is that the Presidential Secretariat had submitted a number of drafts to the Rada before the Ministry of Economy had received U.S. comments on them. The Ministry was reportedly unable to incorporate U.S. suggestions into those drafts prior to passage. Domestic Auto Industry Still Fighting -------------- ¶7. (C) MP Svyatash cautioned EconOff on December 6 that some lawmakers continue to try to undermine Ukrainian commitments made in the automobile sector. Ukraine's largest automobile producers had fiercely opposed the Rada's March 2005 cancellation of subsidies and tax breaks to the industry. MPs connected to automobile producers have now appealed this cancellation to the Constitutional Court on legal grounds. Svyatash noted that the case is moving unusually quickly through the Court and worried that the subsidies will be restored. ¶8. (C) Comment: While Svyatash is a recent convert to the pro-WTO camp, he appears to have ulterior motives for fighting the automotive subsidies. Only the two largest automobile producers in Ukraine, ZAZ and LuAZ, would qualify for the GOU's old package of subsidies, leaving smaller producers at a comparative disadvantage. Svyatash appears to have links to Ukraine's smaller auto producers and is likely lobbying on their behalf. Meanwhile, Yulia Tymoshenko Bloc MP Tariel Vasadze, chief oligarch of the automotive industry and the Honorary President of the Ukrainian Automobile Corporation, was clear in a November 21 meeting with Econ Counselor that he was desperate to do whatever he could to protect the domestic industry (ref B). Vasadze, who has interests in ZAZ, and Our Ukraine MP Petro Poroshenko, who has interests in LuAZ, are likely the chief figures behind the push to reinstate subsidies. End Comment. Concluding Bilateral Agreements -------------- ¶9. (SBU) Ukraine has yet to sign bilateral Market Access Agreements with Kyrgyzstan and Taiwan. Post understands that the GOU hopes to sign the agreement with Taiwan on December 15 in Geneva. Post is unaware of any progress on the Kyrgyz bilat, but we understand that Minister of Economy Volodymyr Makukha plans to continue negotiations with Kyrgyz officials December 8. Concluding Negotiations on Agricultural Support -------------- -- ¶10. (SBU) Mykhailo Gladiy (BYUT) and Sergiy Ryzhuk (Regions),key members of the Rada's Agricultural Committee, told Econ Counselor on December 1 that they view agricultural support levels as the major obstacle to accession. Ryzhuk noted, however, that the Rada is prepared to accept whatever agreement the government reaches. In a sign that Ukrainian thinking on the subject is evolving, Gladiy and Ryzhuk said Ukraine needed to find new methods of support that would not violate WTO rules or distort trade. Ryzhuk said that Deputy Prime Minister Andriy Kluyev would head an informal body to develop such WTO-consistent measures. Gwaltney