Since 25 February, Ukraine has been imposing a surcharge of 5% on imports of industrial goods and 10% on imports of agricultural goods to deal with “exceptional conditions” affecting its balance of payments. This measure was notified to the WTO in January 2015.
In resuming consultations following the previous meeting in April, most members found that Ukraine’s measure was justified by its balance-of-payment situation and in conformity with the rules laid out in Article XII of the General Agreement on Tariffs and Trade (GATT) 1994 and in the Understanding on Balance-of-Payments Provisions. Members strongly encouraged Ukraine to terminate the measure no later than at the end of this year. Most members acknowledged Ukraine’s economic reform efforts in the context of the four-year US$ 17.5 billion Extended Fund Facility Programme approved by the International Monetary Fund (IMF) Board in March 2015.
One member said that several factors, including the devaluation of the hryvnia, have already improved Ukraine’s balance-of-payments situation and that WTO members should not take measures to protect a particular industry. The member urged Ukraine to remove the measure because it could not be justified under WTO balance-of-payments provisions.
Ukraine provided additional clarifications (read previous explanations) on its economic and balance-of-payments situation, including answers to members’ questions on:
- the justification and the criteria used to determine the two different tariff surcharge rates: Ukraine replied that higher rates for agricultural goods were justified in its situation. Ukraine explained that agricultural goods were mainly consumer goods and that given an adequate domestic supply, consumers could substitute imported goods with local products without hampering economic growth.
- how the measure is helping to restore Ukraine’s balance-of-payments situation: Ukraine explained that the current account balance had improved in January-April 2015 compared to the same period in 2014 mainly due to adjustments on the import side, which had been triggered largely by a sharp reduction in domestic demand. The imposition of the import surcharge had contributed to this improvement since March and, combined with reform efforts and the hryvnia devaluation, would lead to a further reduction in the current account deficit. Policy reforms would take longer to be reflected in exports, Ukraine said.
- the criteria used to determine early removal of the measure: Ukraine explained that the duration of the import surcharge was determined by assessing the capacity of its economy to adjust to external shocks. Ukraine added that they would consider lifting the measure as soon as the level of reserves exceeds the targets under the IMF programme underway and in any case by the end of 2015.
A representative from the IMF updated the Committee on Ukraine’s economic situation since the April meeting. He reported that tentative signs of stabilisation were emerging, the exchange rate had stabilised, and the drain in foreign exchange reserves had been reduced but had not stopped. The economy remained weak and inflation had risen to a yearly rate of 61% in April. The IMF supported programme for Ukraine is on track, he said.
Chairman Ambassador Bertrand de Crombrugghe De Picquendaele of Belgium concluded that, although most members considered Ukraine’s measure to be in line with WTO rules, one delegation found that it was not in conformity with WTO rules. A report by the Balance-of-Payments Restrictions Committee will reflect the diverging views expressed. WTO members will meet on 19 June to adopt the report. In July, the WTO General Council will examine the report for potential recommendations.