Negative reaction of the West quickly followed. Thus, WTO spokesman Keith Rockwell declared that the revision might hit overall imports worth more than $4.6 billion, not $2 billion declared by the Cabinet. "If such actions create a precedent or result into mass obliteration of the commitments by other WTO members, the consequences may be worse," the specialist fears. Indeed, overall market squeeze forces producers to fight for every market outlet, even secondary one. Moreover, Ukrainian market is an important trading stabilizer and helps EU to survive in crisis. More than 30 WTO members initiated the revision of import duties in the past, though the list has never been so wide. "Let's see how it meets our regulations. Every government has a right to renegotiate the tariffs. I am sure WTO members will closely follow the situation," Rockwell adds.
Commissioner for Trade Karel De Gucht also expressed concerns. "Kyiv is trying to re-negotiate its deal with WTO, using Article 28 of the General Agreement on Tariffs and Trade (GATT). This article is normally used when a country wants to raise tariffs, against compensations with another tariff positions. But according to the Ukrainian proposal this is not possible, because Kyiv wants to raise all the important sectors’ tariff positions." However, the country may decrease export duties, and Europe and other developed regions may be interested in expanding supplies of various raw materials.
The US ambassador to the WTO Michael Punke declared that Ukraine tariff plans may have an impact on the global trading system, as experts fear that Ukraine has found a way to get around a fundamental check on protectionism that was put into place when the WTO was created in 1995. WTO Director General Pascal Lamy said in mid-October that the decision on tariffs revision would depend on Cabinet's readiness to make mutual concessions. "If you want to raise the tariff ceiling on one product, you normally should offer to reduce the limit on another to keep its economic openness unchanged overall," Lamy said.
Analysts inform that the list of goods for tariff revision includes meat, fruits and vegetables, flowers, etc. As for heavy industry production, the raise of tariffs may influence domestic markets of cars and agricultural machinery, economist and political scientist Vitaly Kulik believes. According to him, "as for the car market, importers felt threatened already a year ago. Indeed, many consumers prefer foreign cars, but from now on such purchase will be more expensive, and domestic car producers will take advantage of this situation, as their production will be cheaper."
Thus, Ukrainain car producers have chance to strengthen their business and "this is important for the whole national heavy industry. The matter concerns not only "Lanos", but also modern models of trucks and other cars, being assembled in Ukraine for years. In 2008 the share of Ukrainain car producers on the domestic market made about 50%, but recently it has dropped to 18% - now it is more profitable to import than produce," head of the supervisory council "Evrocar" Oleh Boyarin told ForUm in a comment. Being protected from import, Ukrainian car plants will produce popular models within the country, selling them cheaper and forcing importers to decrease prices.
Speaking about agricultural machinery, the raise of import tariffs may cause the price rise for consumers at first. However, within the time this effect will go down proportionally to the growth rate of domestic production of similar models.
The raise of tariffs may also lead to active import substitution on several types of chemical, textile and food products. Domestic production of these goods can expand pretty fast.
We are bound to be successful
Kulik believes, Kyiv must first think about its own interests. "Trade protectionism expands worldwide regardless of any WTO or others. Every state wants to set new barriers for import or to strengthen the old ones. Yes, such policy is bad for the global trade, but we have what we have," the specialist underlines. There are more than 500 new trade limits worldwide, and only this year another 100 have been introduced.
In its turn, the Cabinet of Ukraine insists the application for tariff raise does not violate any obligations before WTO. Ukraine’s deputy Prime Minister Valerij Khoroshkovskyi confirmed recently that "Europe was concerned over this issue, as any protectionist measure causes fear. However, he added that Commissioner Karel De Gucht admitted Ukraine was not violating any terms and was acting within the norms of Article 28."
By the end of October the Cabinet declared that Kyiv's proposition on import duties was supported by 110 WTO country-members, thus no amendments would be introduced in the document. Government's commissioner on European integration Valery Pyatnitski notes that "As of today there are 27 EU countries and other 20 WTO members have expressed concern over the proposition, the rest have expressed support. Many countries have already started negotiations with us." The expert reminds that Ukraine is an emerging economy, and having followed the liberalization of access to its markets Ukraine has already made a considerable contribution to the global trading system. According to him, our country does not challenge the system traditions, but the system itself has enough room and potential to accept certain corrections of domestic trade policy.
Analysts, however, fear that one of the main risks of tariff raise is counter measures of leading world countries. The EU, US and other strong players are not happy to make concessions to Ukrainian import. The only exception is recent reduction of anti-dumping measures in import of weldless steel tubes of "Interpipe" group. Moreover, a year ago Prime Minister Mykola Azarov voiced a reservation: propositions on tariff raise will not concern issues on free trade area with the EU.
Thus, the revision of tariffs brings a number of positive moments, like growth of budget revenues and strengthening of the national currency. At the same time, we have to take measures to neutralize possible risks of counter measures from interested countries.
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