RESTRICTED  
  
WT/BOP/R/110  
 
22 June 2015  
(15-3220)  Page: 1/15  
Committee on Balance-of -Payments Restrictions   
 
  
REPORT ON THE CONSUL TATIONS WITH UKRAINE 
1.  The Committee held consultations with Ukraine on 28 April and 11 June 2015, under the 
Chairmanship of Ambassador Bertrand de Crombru gghe de Picquendaele (Belgium), in accordance 
with the terms of reference of Article XII of  the GATT 1994 and the Understanding on the 
Balance-of-Payments Provisions of the GATT 1994. The International Monetary Fund was invited to 
participate in the consultations in accordance with Article XV:2 of GATT 1994. 
2.  The Committee had before it the following documents:  WT/BOP/S/17   Background Paper prepared by the Secretariat  WT/BOP/N/78  Notification from Ukraine 
 WT/BOP/N/78/Add.1 Notification from Ukraine 
 WT/BOP/G/21  Basic Document supplied by Ukraine  RD/BOP/1   Statement by the IMF Repr esentative at the Consultation of  
     the WTO Committee on Balance-of-Payments Restrictions,  
     28 April 2015 
 RD/BOP/3   Replies to questions submitted by Members 
MEETING ON 28 APRIL 2015 
1  OPENING STATEMENT 
3.  The opening statement by the represen tative of Ukraine is attached (Annex 1). 
2  STATEMENT BY THE IMF 
4.  The statement by the representative of the IMF is attached (Annex 2). 
3  DISCUSSION IN THE COMMITTEE 5.  Ukraine notified the WTO of the introduction of a temporary import surcharge under 
GATT Article XII, due to the serious deterioration in its balance of payments (WT/BOP/N/78 and 
WT/BOP/N/78/Add.1). The measure came into force on 25 February 2015 and consisted of a 10% import surcharge for goods classified in groups 1-24 in the Ukrainian Classification of Goods for 
Foreign Economic Activity, based on HS2012; 5% for goods classified in groups 25-97; and 10% 
for goods imported by nationals into Ukraine. The import surcharge is levied on all goods regardless of the country of origin. A few essential goods, including oil, natural gas, non-irradiated fuel elements, electrical energy, coal, gasoline , mazout, diesel fuel, and medical devices for 
hemodialysis and treatment of cancer patients are excluded from the application of the import 
surcharge.  WT/BOP/R/110 
 
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  3.1  Balance-of-payments position and pr ospects; alternative measures to restore 
equilibrium 
6.  Several Members acknowledged Ukraine's severe economic difficulties and shared the 
IMF's view of Ukraine's balance-of-payments situat ion. Factors leading to this assessment included 
the alarmingly low level of international reserves, the sharp depreciation of the currency against 
the US dollar, the substantial increase in the debt/GDP ratio, the decrease in domestic demand, the reduction in demand for Ukraine's exports, and instability due to the military conflict in eastern 
Ukraine. All were indicators that Ukraine was in economic distress. The economy was in deep and 
prolonged recession, forecasts were not encouraging and Ukraine's balance-of-payments situation remained fragile. The import surcharge taken by Ukraine was justified and was aimed at safeguarding Ukraine's external financial posi tion and improving its balance of payments.  
7.  A large number of Members commended Ukraine for its transparent implementation of the 
measure and encouraged it to proceed in a transparent manner. They welcomed Ukraine's willingness to re-evaluate the need for the surcharge in the event that its balance-of-payments 
situation improved, prior to the expiration of  the measure. The WTO's balance-of-payments 
provisions were intended to allow countries with balance-of-payments difficulties to take across-the-board, preferably price-based measures to reduce the general level of imports. For 
these Members the measure taken by Ukraine ap peared to conform to the requirements of 
GATT Article XII. They added that such provisions  were only meant to provide a temporary means 
to alleviate balance-of-payments difficulties in a manner that sought to avoid any unnecessary distortion of trade, and were not intended to be used by Members as a way to justify protectionist 
trade measures. Every balance-of-payments measure therefore deserved close scrutiny to 
determine whether it conformed to WTO rules. 
8.  One Member referred to the bilateral support it had extended to Ukraine and said that in order 
to achieve sustainable development, Ukraine needed to implement fundamental reforms and 
establish its economic system in line with the rule of law and international commitments, including the WTO Agreements. The conformity of the impo rt surcharge with GATT Article XII should be 
judged by the latest accurate factual elements and could only be justified in cases of real and 
substantial necessity.  
9.  A couple of Members pointed out that the current account deficit was decreasing, as imports 
were steadily declining faster than exports. Both in absolute terms and in relation to GDP, the level 
of international reserves was showing signs of an increase, bolstered by the IMF disbursement and 
bilateral support. They expressed concerns about the possible negative effects of the measure on investment and enquired about its economic rationale, given that it might further worsen Ukraine's 
financial account. One Member questioned the methodology behind th e measure, given the 
improvement in Ukraine's situation in 2014 compared to the previous year. Another Member asked about the economic impact of the measure, sinc e in his delegation's view, an improvement of 
US$1 billion in the current account and a revenue gain of 1% of GDP was minimal. Another 
Member wondered whether a substantial economic impact would result from the import surcharge and whether it was consistent with the structural reforms outlined in paragraph 4.6 of Ukraine's report. Creating a favourable business climate was a priority and the import surcharge needed to 
be justified. 
10.  Regarding the economic impact of the measure,  the representative of the IMF replied that it 
was estimated at about US$1 billion for the duration of the temporary surcharge. This was almost 
equal to the projected size of the current account deficit for 2015, so without the surcharge the 
current account deficit would be double what the macroeconomic framework for the IMF-supported programme projected. He emphasized that the US$1 billion would have needed to be supplied 
from somewhere, either from additional financing or further macroeconomic adjustment which 
would be detrimental to Ukraine's economy. Re garding the relation of the surcharge to the 
financial account of the balance of payments, in particular to foreign direct investment, the IMF did not anticipate a substantial negative impact on FDI as long as the surcharge was temporary, as 
had been clearly announced by Ukraine's author ities. In the IMF's view, Ukraine's first and 
foremost macroeconomic task was to achieve macroeconomic stabilization, and the surcharge, distortionary as it might be, was part of the overall macroeconomic package that the authorities 
were applying. Once macroeconomic stability had been fully restored, this would be conducive to 
an increase in FDI and growth in Ukraine. WT/BOP/R/110 
 
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  11.  One Member was of the view that the sour ce of Ukraine's BOP problem was the capital and 
financial account, not the current account, and did not agree with the calculations provided by Ukraine on the import coverage of international reserves, as Ukraine's international reserves covered at least two months of imports. He noted that no import statistics had been provided 
following the sharp depreciation of the hryvnia in February 2015, when the National Bank of 
Ukraine had switched to market determined rates. Moreover, the IMF had forecast that with sizeable international assistance, gross international reserves would be rebuilt, reaching around 
3.3 months of import coverage by the end of 2015. Thus, the same Member did not see any 
imminent threat of a serious decline in Ukraine's monetary reserves, which was one of the preconditions of GATT Article XII to justify the in troduction of import restrictions for balance-of-
payments purposes.  
12.  Regarding alternative methods to restore equilibrium, one Member welcomed the measures 
introduced by Ukraine to stabilize its macroeconomic situation, such as the abolition of the pegged exchange rate regime and the revision of the budget in line with more realistic expectations. The 
same Member encouraged Ukraine to continue implementing structural reforms, for instance those 
launched in the energy and banking sectors, as they  were expected to contribute to improving its 
balance-of-payments situation. The government  o f  U k r a i n e  w a s  t o  b e  c o m m e n d e d  f o r  i t s  
widespread and ambitious reform efforts. In particular, the same Member supported the actions 
Ukraine had taken to improve its economic situation and maintain a liberal trading regime under dire circumstances. In addition, the Member had taken note of the various other initiatives described in Ukraine's Basic Document that were being undertaken by the government of Ukraine 
to restore its balance of payments and encouraged the continuation of these efforts. 
13.  One Member was of the view that Ukraine had not taken other measures to restore its 
balance of payments, especially taking into account  that the IMF had encouraged the authorities of 
Ukraine to explore "other, less distortive, options to improve external sustainability". Ukraine had 
not taken measures to stimulate exports, in particular to diversify merchandise exports, nor to reduce the applied tariff for capital goods on inputs needed for production. For most of such 
products the applied tariff was 5%. With an impo rt surcharge of 5%, the effective rate would 
become 10%. Such trade restrictions were not a proper solution to the problem. 
14.  Another Member pointed out that Ukraine's balance-of-payments situation was not created by 
trade alone and therefore the introduction of a trade-restrictive measure might not be the first 
best option to improve its BOP situation. Indeed, the IMF had encouraged the authorities to 
introduce alternative, less trade restrictive measures. Trade restrictive measures, if frequently introduced, could undermine investor confidence and compromise the predictability of the 
multilateral trading system. The same Member hoped that Ukraine would rely upon other domestic 
policy measures such as public finance improvement and major structural reforms, as well as the import surcharge, to improve its BOP situation. 
15.  Some Members requested that Ukraine remove its import surcharge measure as assumed in 
the IMF supported programme, by December 2015, or earlier, if possible. One Member asked Ukraine to confirm that the measure would be re moved by the end of the year and whether it 
might be renewed.  
3.2  System and methods of restri ctions; effects of restrictions 
16.  Regarding system and methods of restrict ions, one Member pointed out that Ukraine's 
measure was an important part of a wider reform programme which was important for the 
country. He appreciated that overall the measure was not discriminatory, it was temporary and did 
not exceed what was needed, it was price-based and covered almost all tariff lines. These were important elements in this Member's assessment.  
17.  Another Member pointed out that Ukraine had committed upon its WTO accession to bind 
100% of its tariffs, many at very low levels. He drew Members' attention to the statement on page 16 of the Secretariat's Background Document  that, after the tariff surcharge was taken into 
account on applicable goods, Ukraine's average tariff was still a relatively moderate 10.8%, with 
an average of 8.7% on industrial goods and 19.1% on agricultural goods. WT/BOP/R/110 
 
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  18.  Another Member commended Ukraine for implementing a price-based balance-of-payments 
measure to control its general level of imports with limited exceptions for essential products and to all trading partners, including preferential partners. According to the Secretariat's Background Document, Ukraine's measure was applied to all but 379 tariff lines. The share of tariff lines 
subject to the import surcharge was 96.4% accounting for 63.4% of Ukraine's total imports in 
2014.  
19.  Another Member stated that it concurred with the IMF's assessment that a temporary import 
surcharge could alleviate the balance-of-payments situation. The measure adopted by Ukraine was 
temporary and transparent and she considered it was in line with WTO rules. Her country encouraged a timely removal of the measure. 
20.  One Member asked the IMF representative to  explain the assumptions underlying its economic 
support programme with respect to the import surcharge, in particular, whether it was assumed 
under the programme that the surcharge would be eliminated at the end of 2015. Secondly, while recognizing that it was still early in the programme 's implementation, he wondered if the IMF could 
indicate whether developments in Ukraine's economy were broadly in line with expectations. 
Would the programme be fully financed in 2015 without the surcharge?  
21.  The IMF representative confirmed that the programme assumed that the surcharge would be 
terminated at the end of 2015, as Ukraine had indicated, as the balance of payments would be 
fully financed from 2016 on without the need for th e import surcharge. Without the surcharge, the 
programme would not be fully financed in 2015, given that the surcharge was in place before the adoption of the IMF programme. The US$1 billion generated by the surcharge had been 
incorporated in the balance-of-payments projec tions for 2015. Without the surcharge there would 
be a gap of US$1 billion which would have to be financed by alternative sources which had not been available at the time of the IMF's discussions with Ukraine.  
22.  Members asked about the rationale for imposing a 5% tariff on industrial products and 10% 
on agricultural products, given the relatively small share of agricultural products in Ukraine's imports. One Member questioned why the 10% tariff surcharge was imposed on agricultural goods, 
given that Ukraine was self-sufficient in agriculture and the share of agricultural products was only 
11% in Ukraine's total imports. In his view, a higher surcharge for goods with a relatively low share in imports clearly showed the protectionist and trade-distortive nature of the measure.  
23.  One Member recalled that trade restrictive measures applied for balance-of-payments 
purposes should be applied in a way to avoid any undesirable protective effects and that GATT 
Article XII called on Members applying restrictio ns for BOP purposes to avoid unnecessary damage 
to the commercial or economic interests of any other Member. His country was seriously affected 
by Ukraine's measure. The same Member asked the Ukrainian delegation to clearly explain the 
extent to which bound rates were being exceeded by the application of the import surcharge over the applied rates. In this Member's view, this was not in line with paragraph 2 of the 
Understanding, which stated that the amount by which the measure exceeded the bound tariff 
should be indicated clearly and separately under notification procedures. The same Member was disappointed by the absence of any plans for progressi ve relaxation of the restriction, as provided 
for in GATT Article XII. In the absence of such a pl an, especially taking into account the entry into 
force of a free trade agreement with one of Ukraine's main trading partners, this Member was 
worried about a possible reintroduction of the im port surcharge after expiration of the current 
measure. In this Member's view, Ukraine's meas ure had not been applied in a manner consistent 
with the requirements set forth in GATT Article XII and the Understanding. He urged Ukraine to 
remove the measure immediately. 
24.  Members asked about the possibility for an early removal of the surcharge, whether there 
were any specific criteria for its early removal, or an assessment mechanism to review the 
condition of improvement of balance-of-payments conditions. One Member asked for a definition of the "equilibrium" level of the balance of payments, referred to in paragraph 6.3 of Ukraine's Basic Document.  
25.  With regard to the effects of the restrictio n, some Members questioned the extent to which 
the import surcharge was actually helping to improve Ukraine's current situation. Several Members expressed concern about the adverse impact of the measure on their exports. One Member WT/BOP/R/110 
 
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  enquired about Ukraine's efforts to ensure that the surcharge did not increase domestic food prices 
to the detriment of its population.  
26.  One Member pointed out that different figure s were cited for the impact of the measure on 
imports in Ukraine's Basic Document. In one instance a figure of US$0.8 billion had been 
mentioned and, in another, US$1.2 billion. He asked which figure was the right one and how it had 
been calculated. 
27.  Some Members said that their authorities were still evaluating Ukraine's Basic Document. One 
Member said that it would engage bilaterally with Ukraine, in particular in light of the systemic 
implications and the compatibility of the measure with GATT Article XII.  
4  REPLIES BY THE REPRESENTATIVE OF UKRAINE 28.  The representative of Ukraine said it was st range to hear that Ukraine's current account and 
balance of payments had improved the previous  year as there was no doubt that Ukraine's 
economy had been hit by a severe balance-of-p ayments and exchange rate crisis in 2013 which 
had continued in 2014. Since the be ginning of 2014, the currency had lost almost two thirds of its 
value against the US dollar. The current account de ficit had shrunk last year to 4% of GDP, but 
that level could not be financed in the current environment. As a consequence, reserves had fallen from US$20 billion at the beginning of 2014 to US$5.6 billion at end February 2015. Some 
Members had pointed out that in March 2015, reserves had recovered to a level of US$10 billion, 
but this was due to the disbursements of the IM F tranche under the Extended Fund Facility.  
29.  Regarding the adequacy of Ukraine's reserv es, its reserve position of US$10 billion was the 
gross international reserve amount that covered only two months of future imports, while the 
critical measure was three months. The amount  of US$10 billion covered only 36% of the 
IMF composite metric and 18% of short-term debt by remaining maturity, while 100% was considered the minimum adequate level for both measures. There was no doubt that Ukraine faced 
a severe macroeconomic crisis in large part fuelle d by military conflict an d interventions by third 
parties. Ukraine's reserves position remained weak and net international reserves were close to zero. All of these factors provided clear justification for the trade-based measure applied by 
Ukraine. 
30.  Regarding alternative measures to restore equilibrium, Ukraine had explored many options to 
overcome its situation. It continued to work with the IMF and other donors, it had agreed to implement a serious package of unprecedented internal policy reform, and was committed to 
tackling its numerous challenges, both externally and internally. The safeguard measure was a 
response to an extreme and unique situation for Ukraine and Members should keep this in mind 
when considering the measure. The measure had not been taken in order to be protective or 
prohibitive and was merely a response by Ukraine to serious imminent threats. 
31.  As regards export diversification and promotion, this was a process that would take years. 
Due to the situation in the east of Ukraine and Crimea, Ukraine's exports had fallen as its major 
industrial capacity was traditionally concentrated  in the eastern region. For example, the steel 
industry traditionally generated about 40% of Ukraine's exports. While not all Ukraine's industry was located in one region, Ukraine had lost more than 50% of its capacity in the eastern region. 
This was not just export losses, as some production capacity had been totally destroyed and 
needed to be recovered. In addition, the humanitarian situation was worsening. The economic 
impact of the situation in Crimea had had a negative impact on Ukraine's economy and had resulted in a loss of about US$1.5 billion in total exports. If the services sector was added in, and 
Crimea traditionally generated revenues in services, Ukraine's total losses amounted to 5.1% of 
total exports. 
32.  Regarding its tariff regime, Ukraine had liberalized its trade regime upon its accession to the 
WTO by binding 100% of its tariff lines. Its average tariff was very low for both agricultural and 
industrial goods. Members needed to bear in mind that Ukraine had applied and bound tariff rates of zero for practically all agricultural products, so  an import surcharge of just 10% would be added 
to them. This might be restrictive, but it was in no way prohibitive. Trade would continue to flow. 
Ukraine did not have high applied duty rates, either  for industrial or agricultural goods. Therefore, 
Members should consider Ukraine's measure against this background when assessing it.  WT/BOP/R/110 
 
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  33.  Concerning the differentiated application of  the import surcharge, Ukraine had provided 
figures to demonstrate that its share of imports of industrial and agricultural products was rather different. Ukraine was self-sufficient in agricultural production and could cover the basic needs of its population. The additional surcharge of 10% would not have much influence on the 
consumption of basic agricultural products as these could be supplied by Ukraine. Imports of 
non-essential, processed products such as tea and coffee would experience a decrease but this would not influence the overall trade situation with Ukraine's trading partners. Members could 
easily check the level of Ukraine's protection in agriculture. For many products the tariff was zero, 
5% or not more than 10%. Ukraine had developed its strategy in agriculture during the last decade, taking into account the export orientation of agriculture. Its liberal policy in agriculture had created a self-sufficient, competitive agriculture sector which was attractive for investment. 
Products which were traditionally imported were treated as non-essential at present, which was 
why a 10% import surcharge had been imposed.  
34.  In the case of industrial goods, i.e. capita l goods or production inputs, the major influence on 
them was the security situation rather than th e 5% surcharge. The measure was temporary and 
would be phased out before the end of 2015, as clearly stated in the memorandum with the IMF and in Ukraine's legislation. Regarding the exemptio n of military equipment from the application of 
the surcharge, discussion of this issue would lead the Committee in the wrong direction as the 
focus of discussion in the Committee was Ukraine's balance-of-payments difficulties.  
CONTINUATION OF THE MEETING ON 11 JUNE 2015 35.  The Statement by Ukraine is attached in Annex 1. 
36.  The representative of the IMF said that the Fund had discussed recent developments and 
policies necessary to bring the first programme review to its Executive Board during an IMF 
mission to Kiev in May. Tentative signs of stabilization were emerging. After halving in value in 
February, the hryvnia had recovered in the period  of March to May following the tightening of 
monetary policy and the administrative measures introduced by Ukraine's National Bank. In recent weeks the hryvnia had stabilized at 20.5 to 23 hryvnia/US$, broadly as projected under the 
programme. Hryvnia deposit outflows had stopped although foreign currency outflows continued 
and the budget performance had turned out better  than expected. The drain on National Bank 
reserves had been reduced but not eliminated. Delays  in official financing had kept reserves some 
US$200 million below programme projections for end-May 2015. The economy remained weak and 
inflation had risen. As the conflict in the east intensified, industrial production, construction and 
retail sales had contracted sharply in the first quarter at a higher than expected pace. Accordingly, real GDP in the first quarter had declined by 17.6%, somewhat worse than programmed. The rapid 
pass through of the large exchange rate depreciation in February and increases in regulated 
energy prices had contributed to a spike in prices of 61% in April. However, the hryvnia had recovered and stabilized, prices of some imported goods had begun to decline and, as a result, 
inflation in May had moderated to 58.4% year on year, while still remaining very high. In IMF 
staff's view, the IMF supported programme was on track. All quantitative performance criteria for end March and most of the structural benchmarks had been met or were on course to be met, albeit some with a delay. The macroeconomic framework of the programme had been updated to 
reflect the most recent developments. In particular GDP growth for 2015 had been revised to -9%, 
compared to -5% at the time of programme approval, driven by the deterioration in industrial production, tighter bank credit and scaled back  exports as supply constraints caused by the 
conflict in the east proved tighter than expe cted. Growth projections for the medium term 
remained unchanged relative to the programme approval. Inflation at end 2015 was now projected at 46% compared to 27% at the time of the programme approval. This was due to the largely one-
off pass through effects of the large exchange rate depreciation in February 2015.  Inflation was 
projected to recede in 2016 to around 12% as the one-off effects subsided and economic stabilization gradually took hold. On the balance-of-payments side, overall projections for 2015 remained unchanged. The current account deficit was expected to widen to 1.7% of GDP, a bit 
more than the 1.4% forecasted at programme appr oval. Both export and import projections were 
more compressed than initially expected, with imports less so. The wider current account deficit had been offset by a better than expected financ ial account driven mainly by lower than expected 
FX cash outflows from the banking system. Acco rdingly, the programme's projection for gross 
reserves at end 2015 remained unchanged at US$ 18.3 billion. WT/BOP/R/110 
 
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  37.  The majority of Members who took the floor shared the IMF's view that Ukraine's BOP crisis 
continued and its economy was in a fragile state. Reserves, which were low and highly dependent on official external financing, were expected to remain under pressure as capital outflows 
continued. These Members expressed appreciation  for the update provided by Ukraine, its 
responses to Members' questions, its commitment to transparency throughout the process and its 
bilateral engagement with Members. They commended Ukraine for the reforms undertaken and encouraged the authorities to continue implementing this important agenda in order to lay the 
ground for sustainable growth. One Member appreciated Ukraine's efforts to respect its 
WTO obligations, including notifying the measure before it took effect, avoiding quantitative restrictions, and its commitment to remove the measure as soon as possible. The same Member provided details of its bilateral support initiatives with Ukraine. Another Member, while recognisant 
of Ukraine's fragile BOP situation and supportive of  the BOP measure, voiced its systemic concerns 
and its preference that the measure had not been introduced. The same Member expressed appreciation for Ukraine's clarification of the benchmarks to be used for withdrawal of the 
measure.  
38.  One Member welcomed the signs of improvem ents in Ukraine's macro-economic indicators 
including those in the current account, financial a ccount and foreign reserves. Ukraine's replies and 
explanation in the meeting had substantially addresse d some of the specific concerns it had raised 
at the earlier meeting, namely that the application of GATT Article XII should be judged based on updated and accurate economic indicators and that any measure subject to Article XII was justified as long as it contributed to fundamental reform and the long term sustainable growth of the 
economy. Another Member drew attention to the negative impact on its exports to Ukraine and 
urged the removal of the measure once Ukraine's BOP problem had been adequately addressed. Another Member who had raised questions in the earlier meeting about the methodology employed 
by Ukraine and had raised concerns about the efficacy of the measure said that 
Ukraine's responses had enabled it to better understand the nature and possible effects of the measure. While its exports had fallen, that Member attributed high importance to political and 
economic stability in Ukraine and fully understood the special situation in which Ukraine found 
itself. It hoped that Ukraine would not face such difficulties in the future and thus would not have recourse to such measures. 
39.  One Member asked Ukraine to provide more information on the preliminary estimates of the 
national currency devaluation on the balance-of-payments deficit and monetary reserves. In its 
view, the combination of exchange rate policy and policy reforms, including those, which were recommended by the IMF, should lead to improvement of external imbalances.  The same Member 
asked Ukraine to provide more information on how the trade restriction would contribute to a 
reduction in the current account deficit. Taking into account Ukraine's answers she noted that  
imports into Ukraine had been decreasing since July 2014 before the import surcharge was 
introduced in February 2015, while the drop in exports had been more pronounced since March 
2015, sufficiently due to a fall in international competitiveness as a result of the import surcharge. The sharp devaluation of the currency had contribu ted to an improvement of the current account 
balance. Second, regarding the issue of the differentiated level of the surcharge, this Member 
suspected that its real objective was not to limit foreign currency demand and temporarily reduce 
imports, but to introduce a form of industrial po licy aimed at protecting national agricultural 
producers. This was contrary to what was spelled out in the 1979 Declaration, namely that 
measures should not be taken for the purpose of protecting a particular industry or sector. Trade 
restrictive measures should be applied in a way to avoid any undesirable protective effect: protecting domestic producers by restricting international trade would aggravate the difficult 
situation that the Ukrainian economy was facing. She noted that the expected reduction in trade 
due to the import surcharge would not have the desired effect of helping to restore BOP equilibrium. By introducing trade restrictive measures, Ukraine had shifted part of the burden 
of redressing its situation to the external account with clear repercussions on its trading partners 
through decreased exports. Ukraine's measure had re sulted in a sharp decrease of that Member's 
exports to Ukraine, contrary to the provisions of GATT Article XII, which called on parties applying restrictions for balance-of-payments purposes to avoid unnecessary damage to the commercial or 
economic interest of any other Member. Third, he r delegation disagreed with Ukraine's assessment 
that the impact of the import surcharge on the annual inflation rate was negligible. She pointed out that inflation might go up due to increasing import prices (in particular for agricultural products 
necessary for domestic consumption), and the decl ine in export potential. Fourth, that Member 
reiterated the absence of information on whether Ukraine was considering any progressive WT/BOP/R/110 
 
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  relaxation of restrictions. Thus, the introduction of the import surcharge could not be justified by 
the requirements of GATT Article XII and the Understanding. 
40.  The same Member added that recent statistical data showed that the volume of international 
reserves of Ukraine covered at least three months of imports. Her delegation had taken note of a 
recent law adopted by the parliament of Ukraine that would allow the government to unilaterally 
declare a debt moratorium. Ukraine claimed that this instrument would be used in order to reduce the pressure on its balance-of-payments. In conc lusion, her delegation was of the view that the 
measure could not be justified by the balance- of-payments provisions of the GATT and was not 
consistent with Ukraine's obligations under the WTO. She urged Ukraine to remove the import surcharge immediately and asked the Committee to support her delegation's position.  
41.  The representative of Ukraine thanked Member s for their constructive views and took note of 
some reservations made by some Members. As indicated in its written replies Ukraine's external 
position remained under significant pressure in the first months of 2015. The combination of exchange rate and other policy reforms and the introduction of the import surcharge would 
contribute to further narrowing of the current ac count deficit to 1.3% of GDP according to the 
National Bank's estimates. The major improvement in the current account was due to the introduction of the import surcharge and hryvnia devaluation as they had an almost instant effect 
on imports, while policy reforms would take time to  be reflected in exports. International reserves 
remained very low and covered two months of futu re imports. Regarding the differentiated level of 
the import surcharge, higher rates on agricultural products were acceptable given that consumers could decrease demand for imported commodities or substitute them with local products without 
hampering economic growth potential. Given that imported industrial goods were used for 
investment purposes or as inputs for further pr oduction, the purpose of the differentiated import 
surcharge was to minimize the negative effects on economic growth potential from an increase in 
the price of such goods. The impact of the import surcharge on annual inflation was negligible. 
Finally, Ukraine indicated that plans for the progressive relaxation of the restrictions were conditional on BOP developments and that if the level of reserves exceeded the projected targets 
under the Extended Fund Facility with the IMF, Ukraine would consider relaxing the restriction 
earlier than planned. 
5  CONCLUSIONS 42.  Members expressed appreciation for Ukraine's efforts in ensuring a timely, full and 
transparent notification to the Committee of the tariff surcharge adopted in February 2015. The 
Committee noted that the share of Ukraine's tariff lines subject to the import surcharge is 96.4%, accounting for 63.4% of Ukraine's total imports in 2014. After the imposition of the import 
surcharge, applied tariffs exceed bound levels for 83.6% of all tariff lines; 93.1% in the case of 
products falling under the WTO agriculture definition and 81% for non-agriculture products, including petroleum. Members noted that the import surcharge is temporary, price-based, is 
applied to all WTO Members and covers almost all tariff lines. 
43.  Members recognized the severe economic difficulties faced by Ukraine with regard to its 
balance-of-payments situation which had been negati vely affected by a combination of factors, and 
had led to a low level of international reserves. Others pointed out that the current account deficit 
was decreasing and the level of international reserves had recently improved, bolstered by the 
IMF disbursement under the Extended Fund Facility and by bilateral support. Some Members acknowledged that the import surcharge would alleviate Ukraine's balance-of-payments difficulties. 
Others questioned the economic rationale for the measure, its appropriateness and economic 
impact, and whether it was conducive to creating a favourable business climate. One Member considered that current economic conditions in Ukraine did not justify the measure. 
44.  Members commended Ukraine for its ambitious programme of reforms to stabilize its 
macroeconomic situation and safeguard its external financial position. Some Members pointed out that Ukraine's balance-of-payments situation was not created by trade alone and regretted that alternative, less trade-restrictive measures had not been envisaged to correct its balance-of-
payments problem. 
45.  Some Members questioned the rationale behind a differentiated application of the measure 
and the reasons for a higher surcharge on agricultural goods than on industrial products. Members WT/BOP/R/110 
 
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  recalled that trade restrictive measures applied for balance of payments purposes should be 
applied in a way as to avoid any protective effect. Several Members expressed concern about the adverse impact of the measure on their exports. 
46.  The majority of Members recognized Ukraine' s BOP difficulties and considered it had applied 
the measure consistently with WTO provisions, although they encouraged it to remove the 
surcharge as soon as possible. In this regard, the Committee noted the commitment undertaken by Ukraine to terminate the measure by the end of 2015 as agreed by Ukraine with the IMF, 
noting that IMF programme projections did not presently indicate a balance of payments need for 
the surcharge beyond 2015. The Committee also noted that Ukraine stated as its objective that the level of national reserves should reach US$18 bi llion, i.e. to cover no less than three months of 
imports, as a benchmark for its policy. One Member considered that Ukraine's measure was not 
justified by the BOP provisions of the WTO Agreement. 
47.  The Committee noted that it was not possible to reach consensus, and therefore decided to 
conclude the consultations.  
48.  While the measure described remains in force, Members reserve their rights under GATT 
1994. 
 
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  WT/BOP/R/110 
 
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  ANNEX 1 
COMMITTEE FOR BALANCE OF PAYMENTS  
Opening Statement From Ukraine 
28 April 2015 
Thank you, Mr. Chairman, 
Allow me to begin by thanking the representatives of the Members for gathering here for 
the meeting of the Balance-of-Payments Committee to hold consultations on the measure adopted 
by Ukraine.  
The delegation of Ukraine appreciates the efforts of the International Monetary Fund. We 
on our part ensured open transparent and fr uitful cooperation during its mission in 
January-February this year in Kiev, which resulted in objective evaluation of the situation in 
Ukraine, its challenges and prospects for Ukrainian economy. 
I also thank you the Secretariat for preparation of a comprehensive background 
document, which will also help the Members in regarding the situation in Ukraine. 
 
Mr. Chairman,  
In 2014 Ukraine's balance of payments was affected by a unique combination of 
extremely adverse factors, such as – unfavorable market prices for major Ukraine's export goods, 
in world market, introduction and unjustifiably and unpredictably escalated barriers and bans to 
Ukrainian exports on a traditional neighboring market, military conflict in Eastern Ukraine and 
annexation of Crimea, which led to dramatic deterioration of Ukraine's economic situation. In its 
turn led to destabilization of the banking system, devaluation of the national currency and hit hard the economy. 
In 2014 the balance of payments has been formed as negative at more than 
US$13.3 billion while in 2013 it was positive at US $2.0 billion. By the end of the year Ukraine's 
international reserves amounted to US$7.5 billion, which provided funding for 1.4 months of future 
imports, while the minimum acceptable level is considered to be at about 3 months.  
This downward trend continued in 2015, and as of 1 of March 2015 the international 
reserves decreased to US$5.6 billion, equivalent to less than a month of imports. 
Given the severity of state of the balance of payments and further threat to it, Ukraine 
introduced the temporary import measure to safeguard its external financial position and restore 
equilibrium of the balance of payments in accordance with provisions of Article XII of the GATT 1994 and Understanding on Balance-of-Payments Provisions of the GATT 1994.  
The legal basis for introduction of the measure is the Laws of Ukraine "On measures 
concerning stabilization of the balance of payments of Ukraine in compliance with Article XII of the GATT 1994" and "On Amending the Customs Code of Ukraine (concerning stabilization of the 
balance of payments)". 
These laws entered into force on 25 of Febr uary 2015 upon publication of the Cabinet of 
Ministers' Decision "On completion of consultations with international financial institutions". The measure was dully notified to the WTO . 
 
The measure is price – based, applied on a MFN basis, in the form of import surcharge at 
non-prohibitive rates of 5% for industrial and 10% for agricultural goods. Ukrainian Customs levies 
it strictly on the ad valorem basis.  
 Import surcharge is levied on goods imported to the customs territory of Ukraine 
regardless of country of origin and signed agr eements (treaties) of Ukraine on free trade. 
FTA members are not excluded from the measure. 
 In line with paragraph 4 of the Understandin g on the Balance of Payments Provisions of 
the GATT 1994, the measure regulates the total leve l of imports and does not exceed the extent 
that is necessary to resolve the balance of paym ents situation. The measure does not discriminate 
against specific products. WT/BOP/R/110 
 
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  As provided in paragraph 3 of Article XII of the GATT 1994 Ukraine the made a list of 
essential goods exempted from the application of the import surcharge such as oil, natural gas, non-irradiated fuel elements, electrical energy, coal, gasoline, medical devices for dialysis and treatment of cancer patients. 
Thus, recognizing the value and benefits of libe ralized trade, taking careful steps to avoid 
creating unnecessary obstacles to trade flows, Ukra ine introduces measures only to regulate the 
total level of imports and applies surcharge on the level which is not exceeding the extent that is 
necessary to resolve the balance of payments situation.  
I want to emphasize that the introduction of the import surcharge is one in the row of 
many national policies and reforms being undertaken by Ukraine to restore its macroeconomic and financial stability. 
The Government of Ukraine has undertaken additional measures to address 
long-standing structural weaknesses to lay foundation for sustainable growth. Specifically, the reforms aim at:  
Securing financial stability – restoring price stability, flexibility of exchange rate, 
strengthening banks' financial health 
Strengthening public finances – an expenditure-led adjustment will support fiscal 
consolidation. Together with energy sector reforms and the announced debt operation, this would 
reduce fiscal imbalances and achieve public debt sustainability 
Advancing structural reforms, which helps to revitalize the business climate, attract 
investment, and enhance Ukraine's growth potential  
Governance reforms (anti-corruption and judicial measures), deregulation and tax 
administration reforms, and reforms of state-owned enterprises (transparent privatization, international audit of public companies) and ener gy sector reforms restructuring increase energy 
efficiency. 
  At the same time, the Government of Ukraine has been cooperating closely with the IMF 
and other donors to obtain resources to stabilize the situation and give impetus to growth. In 
March 2015 Ukraine and the IMF concluded a four-year program under the Extended Fund Facility (US$17.5 billion). The extended facility will help to ensure a strong policy framework to catalyze 
further external financing from multilateral and official bilateral creditors, helping to mitigate 
financial risks.  
In March 2015, Ukraine have received US$5 billion, which increased Ukraine international 
reserves up to US$9,97 billion. But we should emphas ize it is only the first tranche of IMF's loan 
and that amount of money should be repaid as well as its interest rate.  
 Besides, to improve situation with Balance of Payments and national reserves, the 
National Bank of Ukraine maintained flexible exchange rate regime and tightened its monetary 
policy, raising its key policy rate to 30 % (from 14% at the beginning of 2015).  
The Government of Ukraine has already implem ented an unprecedented plan of austerity 
measures, pensions freeze, substantial cuts of salaries of government officials and limits for budget expenditures, etc. 
 
Why different level of rates of import surcharge 10% for agricultural and 5% for 
industrial products?  
 
Firstly, I would say that the BoP provisions do not contain any discipline that would 
strictly prescribe how to introduce surcharge rates.  
 
Secondly, we considered the structure of imports. Our liberalized at WTO tariff regime – 
tariffs in most cases are 0 (bound and applied) were the factors in determining the level of import surcharge.  
 
Different domestic conditions for agricultural and manufactured products were also 
considered. Thus, the share of imported products that are used as inputs for production of 
agricultural products is 8% overall. In industri al production as a whole, the share of imported 
products that are used as inputs is quite significant, 41.5% overall. 
 
The agricultural goods are mainly consumer  goods, and for a short period of time 
consumers may easier readjust its demand and switch to the local products without affecting economic growth potential. So higher rates are acceptable. At the same time significant part of industrial goods is used as inputs for further production. So we tried to lower the negative effects WT/BOP/R/110 
 
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  on economic growth potential from increase in the price of such type of goods by imposing a lower 
rate of surcharge. 
In our view the rates of import surcharge do  not exceed the level that is necessary to 
address the balance of payments situation, they  restrict imports but definitely they are not 
prohibitive. 
 Mr. Chair, 
I want to underline that this BOP measure is adopted and implemented in a transparent 
manner and is a short-term safeguard with a clear commitment by the government to terminate it the measure by the end of 2015. The measure ma y be terminated even earlier once we see 
improvement in the balance of payments situation.  
 
Ukraine also seeks to create conditions for the inflow of capital to improve its BoP.  
The government of Ukraine is undertaking the whole range of reforms. The IMF has 
supported this policy by a new program approved by the Executive Board on 11 of March. From a 
financing standpoint, the objective of the program is to cover Ukraine's external financing needs, 
estimated at about US$40 billion over the next four years. the program with IMF is based on 
monthly reviews and performance criteria. Ukraine expects that this positive sign is boost investor confidence and bring back the inflow of capital to Ukraine 
The Basic document contains a more detailed explanation of the information to which I 
am referring to. Moreover, in the course of these consultations we are ready to provide additional 
clarifications and information on rationale for the measure introduced by Ukraine. 
Mr. Chairman, 
Ukraine seeks understanding of Committee of the measure introduced to safeguard its 
balance of payments under exceptional conditions. We are ready to work with Members to help build consensus and call upon Members to take into consideration the most difficult times in the 
modern history of Ukraine with severe multiple unprecedented challenges to its sovereign 
economy and trade, which makes this case unique. 
Thank you, Mr Chair. 
 
11 June 2015 
Mr. Chairman, 
Allow me to begin by thanking you and the Members of the Committee for the meeting 
today on the measures adopted by Ukraine to safeguard its balance of payments. 
During our previous meeting on 28 April 2015 Ukraine explained the reasons and 
rationale for the measure, which was adopted in a transparent manner and in accordance with Article XII of the GATT 1994 and Understanding on  Balance-of-Payments Provisions of the GATT 
1994.  
We emphasized that the measure is temporary,  price-based, does not exceed the extent 
necessary to address the balance-of-payments problem.  It is applied on an MFN basis, in the form 
of import surcharge at non-prohibitive rates. It is being levied on ad valorem basis , regardless of 
country of origin. FTA members are not excluded from the measure. 
Today I want to again remind the Members and underline that the imposition of the import 
surcharge is not a single measure adopted by Ukraine. It is part of a wide package of measures and reforms by Ukraine aimed at restoring its macroeconomic and financial stability. 
 
We thank the Members for their questions, which mainly concerned with economic 
justification for the measure and its effect on the situation with balance of payments.  
Prior to this meeting Ukraine provided writte n answers to the Member’s questions. Also 
my delegation has held some bilateral meetings with interested Members to further clarify the measure.  
In order to dispel some concerns of Members as regards application of import surcharge 
we want to highlight the following.  WT/BOP/R/110 
 
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  Ukraine is monitoring on a monthly basis the BOP measure effectiveness in terms of 
improving situation with the current and financial accounts. The Government also is talking to 
businesses, which helps see the holistic picture in real-time format. 
According to the statistical data in January – April 2015 current account deficit amounted 
to USD 0.3 bln. (83% less than in the same peri od of 2014 – USD 1,5 bn.). An improvement in the 
current account balance primarily occurred on the import side, as exports remained weak.  
Deterioration of Ukraine’s export potential is a result of annexation of Crimea by the RF, 
military conflict in eastern Ukraine, Russia’s tr ade restrictions and bans on Ukrainian goods, 
depreciation of the national currency. One of the reasons is a decline in world commodity prices. In 
particular, exports of goods and services fell by 33.6% in January – April 2015 mainly on account 
of food products, metals, machinery and equipm ent, transportation and travel services.  
A significant reduction in domestic demand led to a 35.6% decline in imports of goods 
and services in January – April this year,  particularly due to lower imports of consumer goods (foods and automobiles). In March-April 2015 current account recorded a small surplus, which 
among other factors was due to the introduction of an import surcharge. 
In January – April 2015, the financial account deficit amounted to USD1.8 bln despite 
USD 0.5 bln of official financing (excluding IMF). The deficit was mainly a result of low rollover rate 
on external debt of the private sector.  
The inflow of capital was critically low due to high risks of violation of the Minsk-2 
ceasefire agreement, investors’ uncertainties related to sovereign and quasi-sovereign debt 
restructuring and the timing and degree of relaxation of temporary administrative measures 
introduced by the National Bank of Ukraine on foreign exchange and capital transactions.  
Despite the gradual narrowing of the financial account deficit, real sector arrears on 
foreign liabilities increased by USD1.7 bln in Janua ry–April 2015, indicating there is a significant 
risk of deferred capital outflows. 
Gross international reserves fell from USD20.4 bln at the beginning of 2014 to USD5.6 
bln as of the end of February 2015. Countries – members of IMF, who are as well Members of the 
WTO, have recently adopted Extended Fund Fac ility Loan for Ukraine, which is  a 4 – year 
program. Due to the first disbursement the intern ational reserves recovered to USD9.6 bln as of 
end of April 2015.  
According to our estimates, the total effect on imports is at about USD 0.8 -1.0 bln in 
2015 (starting the effective date through the rest of 2015). 
The benchmarks for termination of the measure are as follows : 
 end of 2015 year as  a commitment undertaken by Ukraine with the IMF 
 the level of national reserves should reach USD18 bln, i.e. to cover no less than 3 
months of imports 
To conclude I would like to say that Ukraine seeks understanding of the Members of the 
uniqueness of its present-day situation caused by a whole number of unprecedented adverse 
factors.  
Thank you, Mr. Chair. 
 
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 WT/BOP/R/110 
 
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  ANNEX 2 
UKRAINE—STATEMENT BY THE IMF REPRESENTATIVE AT THE CONSULTATION OF THE WTO 
COMMITTEE ON BALANCE OF PAYMENT RESTRICTIONS 
28 April 2015 
Ukraine launched ambitious reforms in 2014 supported by a Stand-By Arrangement 
(SBA) to address macroeconomic imba lances and structural weaknesses.  The SBA 
approved in April 2014 aimed to restore macroeconomic and financial stability while addressing 
long-standing structural weaknesses to lay a firm foundation for sustainable growth. Specifically, 
policies and reforms were initiated to restore external solvency and replenish international reserves by introducing a flexible exchange rate  regime, stabilize the financial system, secure 
fiscal sustainability, restructure the energy sector, and improve governance. 
However, macroeconomic shocks and geopolitic al tensions in the second half of 2014 
further deepened the crisis.  The escalation of the conflict in Eastern Ukraine in August 2014 led 
to a significant loss of confidence and resulted in a large supply shock to the industrial base, not 
least exports. This shock, along with existing vulnerabilities—high short-term external debt relative 
to reserves, high exposure of banks to foreign funding, balance sheet mismatches, and weak fiscal 
position—led to a rapid deterioration of Ukraine's economic outlook and capital flight which hit 
hard the economy and banking system. Economic acti vity is estimated to have contracted by 6.8% 
in 2014. International reserves fell to critically low levels (US$6.4 billion at end-January 2015 or 1.1 months of next year's imports and 15.3% of short-term debt) as a result of BOP outflows and FX interventions. While the current account deficit in 2014 declined substantially relative to 2013 
(to an estimated 4.8% of GDP), conflict-related  shocks limited the improvement. New financing 
needs emerged, while international debt markets re main closed. The hryvnia lost about two-thirds 
of its end-2013 value, which worsened bank balance sheets and raised public debt. 
In response to strong balance of paymen ts pressures, the authorities tightened 
macroeconomic policies and introduced temporary administrative measures.  The extent 
of outflows and delays in arranging additional ex ternal financing led to the tightening of capital 
flow management measures and other administrative measures on foreign exchange flows in the 
fall of 2014, and the introduction of a temporary import surcharge for twelve months on February 25, 2015.
1 The import surcharge of 5 and 10% covers all imported goods except 
essential goods (energy and pharmaceuticals).2 It is estimated to reduce the current account 
deficit by US$1 billion and could provide budget revenue of about 1% of GDP. While Fund staff 
encouraged the authorities to explore other, less distortive, options to improve external sustainability, the authorities were not able to  find feasible alternative measures against 
recessionary headwinds and the intense balance of payments pressures. Nevertheless, the 
authorities have indicated their intention to remove the import restrictions by end-2015. 
To address the continuing large shocks and protracted balance of payments problems, 
the authorities requested a fo ur-year, 900% of quota (abo ut US$17.5 billion), extended 
arrangement under the Extended Fund Facilit y (EFF), which was approved by the IMF's 
Executive Board in March 2015.  The EFF will be supported by considerable additional financing 
from other multilateral institutions and official bilateral creditors and contributions from the private 
sector through a public debt operation. Total financing is expected to amount to US$40 billion in 
2015–18, supporting policy adjustment and reforms necessary to restore stability and boost Ukraine's medium-term prospects. In particular, the authorities are committed to (i) maintaining a 
                                               
1 The legislation on the import surcharge was passed on December 28, 2014. As stipulated in the law, 
the import surcharge became effective upon the publication of the Cabinet of Ministers decision on completion 
of consultations with international financial organizations. 
2 In March 2009, the Ukrainian authorities imposed a 13% import surcharge on a wide range of 
commodities for balance of payments reasons that cons tituted nonobservance of the continuous performance 
criterion on the imposition of import restrictions under  the Ukraine's 2008 Stand-By Arrangement with the IMF. 
While the import surcharge was subsequently limited to two products, the Executive Board called on the 
authorities to phase out the import surcharge without further delays. WT/BOP/R/110 
 
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  tight monetary policy stance and exchange rate fl exibility to reduce pressures on the balance of 
payments; (ii) advancing fiscal adjustment and eliminating Naftogaz deficit to strengthen public finances; (iii) rehabilitating the financial sector, through bank recapitalization, unwinding of related party lending, and resolution of NPLs; and (iv) structural reforms to revitalize the business climate, 
attract investment, and enhance transparency. Towards this end, the authorities have 
implemented an ambitious set of prior actions th at include large increases in household energy 
prices, legislative measures to strengthen the anti-corruption agency, banking reforms to reduce 
related party lending, and approval of a revised budget with more sustainable fiscal measures. 
The steadfast and timely implementation of the program supported by adequate 
external financing will help the ec onomy rebound in the coming years.  GDP growth would 
bottom out in 2015, declining by 5½% before gradually recovering in 2016 and reaching 4% over 
the medium term. The current account deficit would stabilize at around 1½% of GDP over the 
medium term on the back of a gradual export recovery. External financing would support the 
gradual build-up in reserves, reaching US$18.3 billion, or 3.3 months of imports (44% of 
short-term debt) by end-2015 and further increase to 3.7 months of imports (57% of short-term 
debt) by end-2016. Adequate reserve levels would be reached by end-2017, supported by new market financing. Although these are relatively conservative projections, risks to the outlook are 
exceptionally high. Nonetheless, in line with the improved financial and exchange rate stability and 
accumulation of reserves projected under the program, staff supports the authorities' plan to eliminate the import surcharge by the end of 2015. 
 
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