RESTRICTEDWORLD TRADE
ORGANIZATIONWT/ACC/UKR/65/Add.1
19 April 2000
(00-1592)
Working Party on the
Accession of UkraineOriginal:  English
ACCESSION OF UKRAINE
Memorandum on Trade Relations of Ukraine with CIS Countries
Addendum
The following information concerning the trade relations of Ukraine with CIS countries has
been received from the Governmental Commission on Ukraine's Accession to the WTO.
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1. Trade Preferences Granted by Ukraine to ot her CIS Free Trade Area Countries on the
Basis of International Agreements
The process of improvement of free trade relations and production cooperation between
Ukraine and other CIS members is consistent with the worldwide process of regionalization and
globalization of trade and economic relations.
The Partnership and Cooperation Agreement between Ukraine and the European Union
("PCA") lays down basic rules for mutual trade preferences. In particular:
(a) Article 10, Sub-section 2, of PCA stat es that the most-favored-nation ("MFN")
treatment requirement contained in the agreement does not apply to preferences
granted in compliance with agreements on customs unions or free trade areas or
preferences resulting from the existence of such unions or free trade areas;
(b) although transitional requirements apply to Article 10, Sub-section 1, of PCA, they do
not apply to Sub-section 2 of the same ar ticle. Hence additional preferences to CIS
members comply with the PCA requirements.
Ukraine's preferences to CIS members are dealt with in Annex 1 to PCA entitled
"Approximate List of Preferences Granted by Ukraine to CIS Members In Accordance with Article
12". Although Article 12 fixes a transitional period for the application of the most-favored-nation
treatment, it does not apply to preferences granted within the free trade areas. In particular, the
agreement does not apply to the exemption of imports originating in CIS members from import duties.
Neither Agreement on the Free Trade Area, sign ed by the CIS counties, nor the protocol,
supplementing and amending the agreement, exempts such imports from VAT or sets zero VAT rates
for the products. The protocol, signed on 2 April 1999, only requires the members to harmonize VAT
collection rules with the "country of origin" principles. Only imports from the Russian Federation are
exempt from VAT. This is because raw materials and energy resources constitute 85 per cent of the
total imports from Russia.
As to the date when the free trade area preferences became effective, it must be noted that the
Agreement on the Free Trade Area was signed on 15 April 1994. In other words, the Agreement onWT/ACC/UKR/65/Add.1
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the Free Trade Area was signed by CIS members prior to the conclusion of PCA. Article 23 of the
Agreement on the Free Trade Area stipulates for its provisional enforcement by Ukraine to commence
from the date of signature. This requirement is in  full compliance with Article 25 of the Vienna
Convention on the Law of International Treaties which deals with the provisional application of
international agreements before they come into effect.
It should also be noted that the preferences for goods and services from certain countries are
in compliance with GATT Article XXIV. The latter sets exceptions from the general MFN rule for
regional economic unions.
Exceptions to the MFN treatment apply:
- to free trade areas or customs unions or interim agreements aimed at regional
economic integration;
- to all products;
- as long as such interim agreements are in effect and without any time limits.
The above demonstrates that trade preferences granted by Ukraine within the CIS free trade
area comply with PCA rules on such preferences, as well as the relevant WTO rules.
2. Agreements Creating Exceptions from the Free Trade Regime Applicable to Products of
the Russian Federation
Sources:
- Agreement between the Government of Ukraine and the Government of the Russian
Federation on Free Trade;
- referred to hereinafter as "the Agreement";
- Protocol to the Agreement Between the Government of Ukraine and the Government
of the Russian Federation on Free Trade of 24 June 1993;
- referred to hereinafter as "the Protocol to the Agreement";
- Protocol to the Agreement between the Government of Ukraine and the Government
of the Russian Federation on Free Trade of 24 June 1993, signed on
14 November 1997;
- referred to hereinafter as "the Protocol of 14 November 1997 to the Agreement".
Discussion:
Article 1 of the Agreement stipulates that "the Contracting Parties do not charge duties or
taxes or fees having the equivalent effect on exports and/or imports of products originating in a
Contracting Party destined for the customs territo ry of the other Contracting Party. Parties may
establish exceptions to this trade regime in separate documents which are integral part of the
agreement . The Contracting Parties undertake to phase out the exceptions provided for in such
documents".
The term "exception" is defined in Article 1, Section 1 of the Protocol to the Agreement
(which is an integral part of the Agreement) as "any exception applicable to products subject to
Russian legislation on export tariff or products subject to Russian legislation on licensing and quotas
of exported products (services), which is in effect  at the moment of the customs clearance of the
products if they are exported from the Russian Federation to Ukraine (upon the signing of the protocol
"the list of products" is the list approved by the Resolution of the Government of the Russian
Federation of 30 June 1992, No. 461; upon the signing of the protocol "the list of products subject to
quotas and licenses" is the list approved by the Resolution of the Government of the Russian
Federation No. 854, of 6 November 1992)".WT/ACC/UKR/65/Add.1
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Note:  The explanation in parentheses is for information purposes only as it does not mention further
legislative and government acts on export tariffs.
Also Section 2 of the same article says that "additional mutual exemptions from export duties
may be established in separate protocols". In the other words other Russian products cannot beexempted from duties unless international agreements provide for such exemptions.
Article 3, Sub-section 3, of the document purports to establish time limits for the automatic
recognition by Ukraine of Russian export duties. This Sub-section contains an important reservation
to the effect that "the Protocol loses effect when the Contracting Parties sign a new protocol envisagedin the Agreement between Ukraine and the Russian Federation on Free Trade of 24 June 1993".
Unfortunately Article 3 of the Protocol of 14 November 1997 to the Agreement provides that
"the Contracting Parties agree that the signature of this protocol does not abrogate the Protocol to the
Agreement between the Government of Ukraine the Government of the Russian Federation on FreeTrade of 24 June 1993".
In view of the above explanation, the expansion by the Russian Federation of the list of
products subject to export duties exported to Ukraine is in full compliance with the Agreement and
the Protocol to the Agreement. The same is true of the increase in the Russian export duty rates for theproducts.
Conversely, any restrictions of imports from Ukraine to Russia that are not provided for in the
above agreement and protocols would not comply with the free trade regime.
Furthermore, the Russian Federation retains the right to establish export tariffs and other
export restrictions unless Russia ratifies the agreement as amended by the Protocol of 2 April 1999.
The ratification must be preceded by a bilateral protocol on the exceptions to be phased out.
In order to clarify the legal implications of such protocol we suggest that Section 10 of the
Protocol on Supplementing and Amending the Agreement on the Free Trade Area (referred
hereinafter as "the Protocol of 2 April 1999") be analyzed. All CIS members, except Turkmenistan,signed the Protocol of 2 April 1999. The protocol stipulates that "from the moment this Protocol
comes into force no new quantitative and tariff restrictions of imports and (or) exports or measures
having the equivalent effect will be applied in addition to those provided for in prior bilateral
agreements. The exceptions from the trade regime envisaged in Sub-section 1 of this article will be
applied in accordance with the relevant bilateral instruments. The Contracting Parties must sign theinstruments within twelve months. They must stipulate in the instruments that the restrictions must be
phased out and establish the procedure therefor. The Contracting Parties must notify the Committee
and the depositary of this agreement of any such instruments signed".
The definition of "quantitative and tariff restrictions of imports and (or) exports" is contained
in section 11 of the Protocol of 2 April 1999. The latter says that "quantitative restrictions and other
administrative measures mean for the purpose of this agreement any measures creating material
impediment to or restriction of imports originating in any Contracting Party destined for the territory
of the other Contracting Party or exports originatin g in one Contracting Party destined for the territory
of the other Contracting Party. Such restrictions or similar measures include quotas, licensing, pricecontrol or other requirements to exports or imports directly or indirectly restricting the right of an
exporter or an importer as compared to the rights of any vendor or buyer of any similar product who
resides in the territory of the country of origin of the product and sells or buys it within that territory.
The article applies without prejudice to such measures and does not affect the right of any Contracting
Party to apply measures provided for in Articles 13 and 13a of the agreement. The article does notaffect measures applied by any Contracting Party in order to perform its obligations set in
international agreements". It should be noted that unlike the definition contained in the originalWT/ACC/UKR/65/Add.1
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Agreement, the definition contained in the Agreement as amended on 2 April 1999 includes not only
imports but also exports.
2.1.  Assessment of the International Agre ements Related to the Free Trade Regime
(a) Unless Russia ratifies the Agreement as amended on 2 April 1999, the bilateral
protocol on phasing out the exceptions from the free trade regime (provided for in
section 10 of the Protocol of 2 April 1999) can be drafted and signed only on the
basis of the bilateral agreements currently in force. In the other words, if Russia
insists, the export commitments will not be included in the bilateral protocol;
(b) Not later than twelve months after the ratification of the Agreement as amended on
2 April 1999 the parties must establish procedures for the phasing out of the
restrictions. The Russian Federation must not include in the document any new
restrictions of trade in addition to those previously established in bilateral
agreements.
3. Production Cooperation
To restore and promote mutually beneficial industrial cooperation between enterprises and
industries of CIS countries all CIS members signed on 23 December 1993 in Ashkhabad anAgreement on General Conditions and Mechanism of Support of Industrial Cooperation of Entities
and Industries of CIS Members.
The agreement applies to raw materials, spare parts and other intermediate products. The
agreement applies to engineering, repair services, technical maintenance, and technologicaloperations. The agreement does not apply to end products.
The preferences are given to certain enterprises located in CIS countries. The rationale for the
preferences is that in the former Soviet Union the enterprises constituted a single technological line of
production of end products. The agreement promotes  mutual cooperation by excluding the relevant
products from export and import duties, taxes, excise duties, and quantitative restrictions.
In accordance with the Ashkhabad agreement and the Procedure on the Application of VAT
and the Excise to Products (Services) Falling U nder Production Cooperation Privileges Circulated
Between Entities from Countries of the Commonw ealth of Independent States, Ukraine exempts
imports from VAT and the excise and applies zero VAT to the products.
It must be taken into consideration that the status of enterprises of CIS members engaged in
mutual supply of raw materials and spare parts is the same as the status of related international
(transnational) corporations. In other countries the import of products of such corporations is subject
to tax privileges, including permission to use customs credit documents.
Importers of products subject to Ashkhabad exemptions may pay duties by submitting such
credit documents at the moment of import as provid ed for in the "Procedure of Issue of Tax Bills On
Products Falling Under Production Cooperation Privileges and Repayment Thereof" approved by the
Resolution of the Cabinet of Ministers No. 1303, of 24 November 1997.
All end products including those falling under Ashkhabad privileges are subject to VAT and
the excise in accordance with the current legislation of Ukraine. So the Ashkhabad privileges in fact
do not exempt the relevant products from VAT and the excise. They just make it possible to pay the
tax later.WT/ACC/UKR/65/Add.1
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It should be pointed out that according to the information provided by State Committee on
Statistics, imports and exports falling within the Ashkhabad privileges constitute as little as
US$ 36.1 million or 0.44 per cent of the total trade turnover between Ukraine and other CIS countries.
Note: English-language translations of the respective agreements and protocols, referred to in this document,
although published in several compendia of international agreements, will be made available
separately. The pertinent Ukrainian legislation will also be translated into English and submitted as aseparate document
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