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Cablegate: Ukraine Becomes Wto Member On May 16, but Fails To

VZCZCXRO5296
OO RUEHBW RUEHIK RUEHLN RUEHPOD RUEHVK RUEHYG
DE RUEHKV #0915/01 1361600
ZNR UUUUU ZZH
O 151600Z MAY 08
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5581
INFO RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEHRC/DEPT OF AGRICULTURE WASHDC PRIORITY
RUEHGV/USMISSION GENEVA PRIORITY 0119
RUCNCIS/CIS COLLECTIVE
RUEHZG/NATO EU COLLECTIVE

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);

-- 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

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