UKRAINE BECOMES WTO MEMBER ON MAY 16, BUT FAILS TO

UNCLAS SECTION 01 OF 02 KYIV 000915 SIPDIS SENSITIVE STATE FOR EUR/UMB, EB/TPP/BTA, EB/TPP/MTA STATE PLEASE PASS TO USTR FOR KLEIN/BURKHEAD USDOC FOR 4201/DOC/ITA/MAC/BISNIS USDOC FOR 4231/ITA/OEENIS/NISD/CLUCYK GENEVA FOR USTR E.O.: 12958: N/A TAGS: ETRD WTRO PGOV UP SUBJECT: UKRAINE BECOMES WTO MEMBER ON MAY 16, BUT FAILS TO PASS IMPORTANT LEGISLATION BEFOREHAND REFS: A. KASPER-YARNELL EMAIL OF 5/15 ¶B. KYIV 902 ¶C. KYIV 729 SENSITIVE BUT UNCLASSIFIED; NOT FOR INTERNET PUBLICATION. ¶1. (SBU) Summary: Ukraine joins the WTO on May 16, marking a major success for the country's economic reform efforts. Accession is marred, however, by Ukraine's failure, due to domestic political turmoil, to pass five laws promised as part of accession negotiations. One of the five is the law designed to lower Ukraine's tariff duties in line with its WTO commitments, a fundamental part of the accession process. Trying to avoid disaster, the government has issued orders to Customs to implement the new tariffs anyway, although the legality of such instructions might be questioned. Post will monitor whether the new tariffs do in fact come on line. Blame for this legislative failure falls squarely on the GOU and ruling coalition. End Summary. Ukraine Joins the WTO... -------------- ¶2. (U) Ukraine is set to become the 152nd member of the WTO on May 16. (Note: The WTO General Council approved Ukraine's accession on February 5. The Ukrainian Rada (parliament) ratified the protocol of accession on April 10, and the President signed it into law on April 16. End Note.) Ukraine's accession marks the end of more than 14 years of negotiations and marks a major step forward for the country's economic reform efforts. ...But with a Serious Glitch -------------- ¶3. (U) Ukraine's accession is marred, however, by the government's failure to pass the last five laws in a legislative package promised by the GOU during accession negotiations. (Note: The Rada previously passed five of the laws on April 10 (ref C). End Note.) The outstanding bills include: -- Draft Amendment to the Law "On the Customs Tariff of Ukraine" (to bring into force Ukraine's bound tariff rates according to the agreements with WTO member countries); -- Draft Amendment to the Law "On Safety and Quality of Food Products" (to bring Ukraine's inspection regime into line with WTO rules by clarifying that standards are not mandatory); �0A; -- Draft Amendment to the Law "On Veterinary Medicine" (to ensure that the production of beef with hormones, the assessment of "contaminants" and "maximum residue limits," and the regulation on the system of animal identification are in compliance with the SPS Agreement, CODEX Alimentarius, and our bilateral agreement); -- Draft Amendment to Several Laws (to eliminate the zero VAT rate for agricultural producers, and to eliminate a difference in excise duty rates for the commodity group UKTZED 220820 (spirits received from processing grape wines)); and -- Draft Amendment to the Law "On Fish, Other Water Living Resources, and Food Production from Them" (to ensure compliance with the norms of the WTO TBT and SPS Agreements) ¶4. (U) The GOU had intended for the laws to be passed during the week of May 12, after the Rada returned from a several week recess, but infighting among the ruling coalition on non-WTO issues (ref B) prevented the Rada from meeting. Speaker of Parliament Arseniy Yatsenyuk canceled the Rada session on May 15 after political negotiations failed to reach an agreement. Yatsenyuk called for the Rada to meet on May 16, although there is no indication that the political wrangling will conclude by then. Legislative Failure Leaves WTO Commitments in Doubt KYIV 00000915 002 OF 002 -------------- -------------- ¶5. (SBU) Failure to pass the five bills leaves Ukraine in violation of WTO rules and our bilateral agreement. In addition, Ukraine also has so far not completed work on implementing regulations on biotechnology and the meat trade, as agreed in our bilateral agreement. Perhaps most concerning is that the failure to pass the law lowering customs duties potentially means that Ukraine may be in breach of one of the most basic obligations of WTO members -- to lower its tariffs in accordance with agreements made during accession negotiations. Recognizing this danger, Prime Minister Yulia Tymoshenko sent instructions to the State Customs Service to apply the new, lowered tariff rates from May 16 regardless. (Note: Deputy Prime Minister Hryhoriy Nemyrya sent a letter on May 15 to WTO members, through Geneva, outlining this plan (ref A). End Note.) The GOU claims that such instructions are valid because the lower tariffs were laid out in the protocol of accession, which was ratified by the Rada. (Comment: Post believes the government's move is legally dubious without the relevant amendment to the Law "On the Customs Tariff of Ukraine," and domestic producers could try to challenge the decision in court. End Comment.) ¶6. (SBU) Post contacted the State Customs Service on May 15 for clarification. Petro Vengel, Head of Customs Tariff Division, confirmed to Econ Assistant that Customs had received the PM's instructions, and that Customs did in fact intend to implement the lower tariffs from May 16. He noted, however, that as of 16:00 the Customs Service had not yet sent the relevant instructions to regional customs offices. (Comment: Given the last-minute nature of these instructions, and their unclear legal status, Post anticipates that the new tariffs will be implemented inconsistently. End Note.) Comment: No One to Blame but Themselves -------------- ¶7. (SBU) This latest gaffe by the GOU was certainly avoidable. Ukraine had until July 4 to ratify the protocol of accession but itself chose to expedite the process, making it impossible to pass the entire legislative package in one sitting because some of the draft laws had not yet obtained Rada Committee approval. Even with ratification on April 10, President Yushchenko could have delayed signing the protocol into law, and the GOU could have held back on officially informing the WTO Secretariat, in order to give the Rada more time to pass the remaining legislation. In addition, members of the ruling coalition itself are blocking the Rada's work, even though the draft laws are ready and would likely pass without much difficulty. Post will keep an eye on the situation and monitor whether the new tariffs actually come on line as of accession on May 16, as the government promises. TAYLOR