Subsidies and Countervailing Measures under Ukrainian Law: FAQ - International Trade & Investment

Originally published in UJBL, September, 2008

After 14 years of negotiations, on 5 February 2008 the General Council of the World Trade Organization (the WTO) approved the package of agreements and cleared the terms of Ukraine's accession to the WTO. On 10 April 2008 the Supreme Council (Parliament) of Ukraine ratified the said package of the agreements by adopting the relevant act. On 16 April 2008 the President of Ukraine signed the latter. Thirty days after notifying the WTO Secretariat of this ratification, Ukraine became a Member of the WTO. Amongst other commitments, Ukraine undertook to bring its trade remedies legislation into compliance with WTO rules.

The international trading system established within the framework of the WTO has pursued the main objective to progressively liberalize international trade by means of lowering and/or eliminating trade barriers (both tariff and non-tariff) based on the principles of most-favored-nation, national treatment, freer trade, predictability and promotion of fair competition, etc. Even though the WTO is destined mainly to eliminate any obstacles in international trade, the WTO agreements envisage some exceptions, in particular: (a) actions against dumped imports, i.e. anti-dumping duties; (b) actions against unlawful subsidies, i.e. countervailing duties; (c) actions against surge imports, i.e. safeguard measures (quotas and duties).

This article completes our series of articles providing for legal review, in a question-and-answer format, of the trade remedies available under Ukrainian law and allowed under WTO agreements and focuses on subsidies and countervailing measures. First of all, the article provides for a very brief introduction with further overview of the WTO agreements applicable to the said measures; thereafter, the article pays special attention to the provisions of Ukrainian legislation in the field in a question-and-answer format.

First of all, it should be noted that countervailing investigations are more complex and difficult to conduct than anti-dumping or safeguard investigations. Therefore, they are conducted less frequently than other trade protection investigations. Consequently, countervailing measures are applied less frequently than other trade protection measures. For example, from 1 January 1995 to 30 June 2007 WTO member states initiated 3,097 anti-dumping investigations and 1,997 anti-dumping measures were applied ; while within the same period just 193 countervailing investigations were initiated and only 117 countervailing measures were applied.

As far as Ukraine is concerned, it shall be noted that anti-dumping and safeguard measures are frequently applied in Ukraine e.g. as of 1 March 2008 2 anti-dumping investigations and 2 safeguard investigations are being conducted; 13 anti-dumping measures and 6 safeguards measures are applied in Ukraine. As far as countervailing investigations are concerned, they have never been conducted in Ukraine.

The WTO Agreements in the Field of a Countervailing Investigation

The possibility to apply countervailing measures is provided for by Article VI of General Agreement on Tariffs and Trade 1994 (GATT 1994). Pursuant to Article VI GATT 1994 Countervailing Duties can be levied for the purposes of offsetting any bounty or subsidy bestowed, directly or indirectly, upon the manufacture, production or export of any merchandise. In addition, the said article sets out basic principles of imposition of countervailing duties e.g. countervailing duty shall not be levied (a) in excess of an amount equal to the estimated bounty or subsidy determined to have been granted on the manufacture, production or export of any merchandise; (b) unless it is determined that the effect of subsidization is such as to cause or threaten material injury to an established domestic industry, or is such as to retard materially the establishment of a domestic industry, etc.

It is worth noting that detailed rules on multilateral disciplines regulating the provision of subsidies, and the use of countervailing measures to offset injury caused by subsidized imports provided by Article VI of GATT 1994 are set out in the Agreement on Subsidies and Countervailing Measures (the SCM Agreement) that defines (a) the term "subsidy" and the concept of "specificity" of subsidies; (b) types of subsidies (i.e. prohibited, actionable and non-actionable); (c) countervailing measures to be applied as well as strict rules and conditions, subject to which such measures shall be imposed; (d) institutions to be involved in countervailing investigations and application of countervailing measures (i.e. the Committee on Subsidies and Countervailing Measures and other subsidiary bodies); (e) special rules of application of countervailing measures for developing countries, etc.

Legal Framework of a Countervailing Investigation in Ukraine

The legal act that addresses issues of subsidized import and the use of countervailing measures is the On Protection of National Producer Against Subsidized Imports Act of Ukraine (the Countervailing Measures Act) that was adopted and subsequently amended taking into account the relevant WTO requirements in the field. Additionally, the Ministry of Economy of Ukraine drafted the Guidance Manual On Drafting an Application for Initiation of Countervailing Investigation. However, such guidance is permissive rather than mandatory and concerns only preparation of an application for initiation of a countervailing investigation.

Initiation of a Countervailing Investigation

Pursuant to the Countervailing Measures Act a countervailing investigation may be initiated subject to a complaint on initiation of a countervailing investigation being filed by a national producer that provides for (a) occurrence of an illegitimate subsidy; (b) occurrence of injury to domestic industry ; (c) occurrence of a causal link between the subsidized imports and the alleged injury.

Subsidies Subject to a Countervailing Investigation

The Countervailing Measures Act sets out the same approach to the definition of a subsidy as the SCM Agreement, in particular: a subsidy shall contain the following basic elements: (a) a financial contribution; (b) such financial contribution shall be granted by or at the direction of a government or any public body; and (c) as a result, a benefit is conferred.

At the same time, pursuant to the Countervailing Measures Act the subsidized imports shall be subject to countervailing measures only if a subsidy granted is specific. The Countervailing Measures Act provides for the following types of subsidy specificity: enterprise-specificity; industry-specificity; regional specificity; subsidies contingent upon export performance and upon the use of domestic over imported products.

It is worth noting that the Countervailing Measures Act defines two basic categories of subsidies:

Illegitimate subsidies i.e.:
1. State agencies granting subsidies or legislation, based on which state agencies granting subsidies operate, limit access to subsidies only for a certain enterprise or a group of certain enterprises or a certain industry or a group of certain industries;
2. Subsidies limited to certain enterprises located within a designated geographical region within the jurisdiction of certain state agencies granting subsidies;
3. Subsidies contingent upon export performance or upon the use of domestic over imported goods; and
Legitimate subsidies i.e.:
1. Non-specific subsidies;
2. Specific subsidies granted for research conducted by enterprises or institutions of higher education or research institutions; to disadvantaged regions; in order to contribute to adaptation of equipment to new environmental requirements that result in great constraints and financial burden on firms subject to the conditions set out in the Countervailing Measures Act;
3. Subsidies in respect of state support of growers of agricultural products.

State Authorities Involved in a Countervailing Investigation

According to the Countervailing Measures Act the following state bodies are involved in a countervailing investigation:

The Interdepartmental Committee on International Trade (the Committee) is entitled to adopt a decision on (a) initiation of a countervailing investigation, (b) determination of occurrence of illegitimate subsidies and methods used for defining amount thereof, (c) determination of occurrence of injury and amount thereof, (d) establishing a causal link between the subsidized imports and injury, (e) imposition of countervailing measures etc.
The Ministry of Economy of Ukraine (the Ministry) is in charge of conducting a countervailing investigation (e.g. the Ministry collects the relevant information and evidence, holds consultations, holds hearings, prepares findings to be submitted to the Committee after a countervailing procedure, conducts inspections etc.);
The State Customs Service of Ukraine (the Customs Service) is involved in collecting customs data and in collecting countervailing duties (if any).

Stages of a Countervailing Investigation

A countervailing investigation consists of the following stages:

Conducting of a countervailing procedure by the Ministry ;
Initiation of a countervailing investigation by the Committee ;
Publication of a notice on initiation of a countervailing investigation ;
Collection of applications from parties interested in a certain countervailing investigation and registration thereof as the interested parties in the countervailing investigation;
Conducting a countervailing investigation i.e. the Ministry shall (a) collect all relevant data and evidence; (b) ensure access of the interested parties to information filed within the framework of a countervailing investigation by the interested parties; (c) collect answers to questionnaires of the interested parties; (d) hold consultations (if any); (e) hold hearings (if any);
Adoption by the Committee of a decision on application of provisional countervailing measures (if any);
Adoption by the Committee of a decision on termination of a countervailing investigation either (a) without application of any countervailing measures, or (b) with application of relevant countervailing measures;
Appeal against the final decision of the Committee before a court (if any);
Review of countervailing measures (if any).

Duration of a Countervailing Investigation

Pursuant to the Countervailing Measures Act the duration of a countervailing investigation shall not exceed 1 year from the day of adoption of a decision on initiation thereof. In special circumstances the Committee may extend the said term by up to 14 months. Please note that the SCM Agreement allows a possible extension of up to 18 months.

Language of a Countervailing Investigation

According to the Countervailing Measures Act a countervailing investigation shall be conducted in Ukrainian. All information, documents and evidence submitted to the Ministry shall be in Ukrainian or accompanied with a Ukrainian translation. Otherwise, the Ministry and the Committee are entitled to disregard such information, documents and evidence.

Interested Parties Involved in a Countervailing Investigation

According to the Countervailing Measures Act a person, who (a) notifies the Ministry of its interest in a countervailing investigation and (b) participates actively in a countervailing investigation by means of submitting information and evidence sufficient for a countervailing investigation, shall be regarded as an interested party. The following persons may be registered as interested parties:

A foreign producer, exporter or importer of products subject to a countervailing investigation, or union (association), a majority of members of which are foreign producers, exporters or importers of products subject to a countervailing investigation;
Competent authorities of an exporting country;
A national producer, manufacturer or wholesaler of similar products in Ukraine;
Union (association), a majority of members of which are producers or wholesalers of products subject to a countervailing investigation;
Trade unions of employees of producers or wholesalers of products subject to a countervailing investigation;
Executive authorities of Ukraine.

All interested parties are entitled:

To make a request for hearings and to participate in them ;
To request for consultations with an applicant or other parties with opposite interests;
To access all information and documents related to a countervailing investigation ;
To submit commentaries on information submitted to the Ministry by the interested parties within the framework of a countervailing investigation; on imposition of provisional countervailing measures etc;
To participate in consultations held by the Ministry as to undertakings and selective methods to be used within the framework of a countervailing investigation;
To issue undertakings to reconsider their prices or terminate export of products enjoying benefits from illegitimate subsidies;
To request the Ministry for its conclusions, on the basis of which provisional and/or definitive countervailing measures are imposed, etc.

Countervailing Measures

The Countervailing Measures Act provides for the following countervailing measures:

Provisional countervailing measures in the form of provisional countervailing duty shall apply provided that:
1. The countervailing procedure is initiated;
2. The countervailing investigation is initiated;
3. Notice on initiation of a countervailing investigation is published;
4. Interested parties have an opportunity to submit to the Ministry their commentaries as to a countervailing investigation as well as other relevant information and evidence;
5. The Ministry has made a preliminary review on the occurrence of illegitimate subsidies and injury caused to the national producer;
6. Application of provisional countervailing measures is in compliance with national interests.
According to the Countervailing Measures Act, provisional countervailing measures shall be applied not earlier than 60 days and not later than 9 months following the date of initiation of a countervailing investigation and shall apply for as short period as possible, but in any case shall not exceed 4 months.
Definitive countervailing measures in the form of definitive countervailing duty shall apply provided that:
1. An illegitimate subsidy occurs;
2. There is injury caused to the national producer by the subsidized imports;
3. There is a causal link between the subsidized imports and injury caused;
4. National interests require imposition of countervailing duties.
Definitive countervailing measures shall apply only for a period of time necessary to counteract subsidization which is causing injury. Notwithstanding the above, any definitive countervailing duty shall be terminated at a date not later than 5 years from its imposition or from the date of the most recent review if that review has covered both subsidization and injury, unless the Committee determines that the expiry of the duty would be likely to lead to continuation or recurrence of subsidization and injury.

Countervailing measures – both provisional and definitive – shall apply to each supplier individually (i.e. a producer, an exporter, an importer) of products identified by the Committee in a decision on application of countervailing measures. If there are a significant number of suppliers from the same country and it is impracticable to identify all of them, countervailing measures shall be applied to the exporting country on the whole.

Rate of countervailing duty – both provisional and definitive –shall be defined by the Committee for each supplier individually. However, if it is impracticable to identify all suppliers of products, the rate of countervailing duty shall be established for the exporting country on the whole. There are two possible ways to define countervailing duty rates, in particular: (a) as a percentage of the customs value of products to be calculated on CIF (Ukrainian border) delivery terms; or (b) as the difference between the minimum price and customs value of products to be calculated on CIF (Ukrainian border) delivery terms. It is worth noting that countervailing duties shall be imposed in the appropriate amounts in each case on a non-discriminatory basis on imports of such product from all sources found to be subsidized and causing injury.

Having analyzed Ukrainian legislation in the field of countervailing investigations, we belive that disregarding some differences existing between the Countervailing Measures Act and the SCM Agreement, on the whole, the Countervailing Measures Act follows the approaches provided by the SCM Agreement and complies with its requirements. Notwithstanding the fact that no countervailing investigations have been conducted yet, we believe that the Countervailing Measures Act stipulates a sufficient legislative framework for conducting of the latter and application of the countervailing measures if necessary. At the same time, it is well known that in Ukraine, despite sufficient legislative regulations the effectiveness of law-enforcement leaves much to be desired. We sincerely hope that the Ministry and the Committee, while conducting the said investigations, will follow not only the Countervailing Measures Act and the SCM Agreement, but also recent approaches applied by the WTO Dispute Settlement Body.

The On Ratification of the Protocol on Accession of Ukraine to the WTO Act of Ukraine of 10 April 2008, No. 250-VI
Please see: http://www.wto.org/english/tratop_e/adp_e/ad_init_exp_country_e.pdf
Please see: http://www.wto.org/english/tratop_e/adp_e/ad_meas_exp_country_e.pdf
Please see: http://www.wto.org/english/tratop_e/scm_e/cvd_init_exp_country_e.pdf
Please see: http://www.wto.org/english/tratop_e/scm_e/cvd_meas_exp_country_e.pdf
Please see: http://me.kmu.gov.ua/file/link/114525/file/ZVR19_03_08.doc
The On Protection of National Producer against Subsidized Imports Act of Ukraine of 22 December 1998, No. 331-XIV.
According to the Countervailing Measures Act a countervailing investigation shall be initiated on the basis of a complaint submitted by the national producer, executive authorities (provided that such executive authorities possess evidence proving occurrence of subsidization and injury) and a trade union of employees of the national producer. The application shall be considered as filed by a national producer or on behalf thereof if it is supported by Ukrainian producers, whose collective output constitutes more than 50% of the total production of the like product produced by that portion of the national producer expressing either support for or opposition to the application. A countervailing investigation shall not be initiated when collective output of producers supporting the application constitutes less than 25% of total production of the like product produced by the national producer.
According to the Countervailing Measures Act an injury shall be regarded either material injury caused to the national producer; or threat of material injury to the national producer; or material retardation of the establishment or expanding of production of a like product by the national producer.
Pursuant to the Countervailing Measures Act at this stage the Ministry shall investigate an application of the national producer in order to define whether there is sufficient evidence for initiation of a countervailing investigation (i.e. sufficient evidence of occurrence of an illegitimate subsidy, injury and causal link between the subsidized imports and injury suffered by the national producer).
Having considered the report made by the Ministry after a countervailing procedure, the Committee shall, as a rule, within 30 days following the date of submission of the application, adopt a decision on initiation of a countervailing investigation.
Pursuant to the Countervailing Measures Act a notice on initiation of a countervailing investigation shall set out, among others, terms, within which (a) parties shall inform the Ministry that they are interested in a certain countervailing investigation; (b) parties shall submit to the Ministry their commentaries as to a certain countervailing investigation and other information related thereto; (c) parties shall request the Ministry for holding hearings within a certain countervailing investigation.
These are the following types of reviews of countervailing measures: (a) due to expiry thereof; (b) intermediate review; (c) accelerated review.
Under the SCM Agreement the list of the interested parties is not exhaustive, unlike in the Countervailing Measures Act.
According to the Countervailing Measures Act the interested parties are entitled to make a request for hearings, provided that (a) such request is submitted in writing within the terms established in a notice on initiation of a countervailing investigation; (b) they have proved that they shall be regarded as the interested parties, whose interests may be affected by consequences of a countervailing investigation; (c) there are special reasons for holding hearings.
Pursuant to the Countervailing Measures Act the interested parties are entitled to request access to all information filed by other interested parties within the framework of a countervailing investigation, provided that: (a) they have submitted the respective request to the Ministry; (b) the requested information concerns protection of interests of the requesting party; (c) the requested information is non-confidential; (d) the requested information is used within the framework of a countervailing investigation; (e) the requested information does not contain internal documents of the Ministry and the Committee.
While determining whether application of countervailing measures is in compliance with national interests, all interests shall be taken into account, including interests of national producers and consumers, effect of subsidized imports on employment, on investments of national producers and consumers, on the international economic interests of Ukraine.
The Countervailing Measures Act stipulates certain rules for determining the minimum price of products.

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Ukraine: Subsidies and Countervailing Measures under Ukrainian Law: FAQ