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06KYIV4531, 12/8 UKRAINE WTO UPDATE

December 8, 2006

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Reference ID Created Released Classification Origin
06KYIV4531 2006-12-08 16:33 2011-08-30 01:44 CONFIDENTIAL Embassy Kyiv

VZCZCXRO0528
PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHKV #4531/01 3421633
ZNY CCCCC ZZH
P 081633Z DEC 06
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC PRIORITY 0673
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHGV/USMISSION GENEVA 0022

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

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