Proposal for a COUNCIL DECISION to refer the dispute regarding the procedure of state registration (renewal of registration) of medicinal products and related fees in Ukraine to the Co-operation Council and to determine the position to be adopted by the Community in the Co-operation Council to settle the dispute

(presented by the Commission)

EXPLANATORY MEMORANDUM

1. A Resolution of the Cabinet of Ministers of Ukraine (N° 1666 of 11 September 1999 amending Resolution N° 569 of 27 April 1998) and an Order of the State Scientific and Expert Centre of medicinal products of the Ministry of Health of Ukraine of 7 May 1999 established additional specialised expertise fees for foreign medicinal products up to the amount of 10.000 $ for one product. This regulation was introduced shortly after a similar one had been removed following an EC request and to comply with the EU macro-financial assistance conditionality. (Cabinet of Ministers of Ukraine's Resolution N° 569 of 27th April 1998 increasing registration charges for imported pharmaceutical products, providing for discriminatory registration fees for foreign companies in Ukraine : one hundred times difference, was removed on 22 February 99 by resolution N°241 of 22 February 1999).

2. The European Commission has identified in the above-mentioned Ukrainian regulations a number of violations of the Partnership and Co-operation Agreement and/or elements incompatible with two rules. In particular these regulations are contrary to Art. 15 paragraph 1 and 2 of the PCA, according to which discrimination of European products whether related to charges or to procedures is prohibited, as well as to Article 16 paragraph 2 of the PCA referring to GATT Article VIII, according to which fees and charges of whatever character connected with importation must be limited to the cost of the services rendered. Fees requested are even higher this time than under the previous legislation (raised from 8500 $ to 10.000 $ compared to 8,5 $ for a Ukrainian product). Nor does it comply with EU directives according to Government decree N°244 of March 1997 regarding "the gradual introduction in Ukraine of EU directives". Ukraine ignores the EU system of marketing authorisation (i.e. : meaning import licence).

Moreover this current regulation is extremely confusing : "Registration" is only one out of five separate procedures related to different administrations that govern the import of pharmaceutical products in Ukraine. This compounds with other separate procedures for the distribution of pharmaceutical products. Moreover the level of fees for foreign products is not published. The Commission could only base its assessment on data provided by companies operating in Ukraine.

3. The Commission's position :

The Commission considers that such measures aimed at driving competition out of the Ukrainian market, are not only contrary to agreements signed by Ukraine and the policy of Ukraine to join WTO, but also run contrary to the general objective of Community assistance to Ukraine of supporting the integration of this country into the world economic order. Moreover, this policy sends a very negative message to other potential foreign investors and accounts for the low level of foreign investment recorded so far in Ukraine.

The Commission considers that this matter needs to be pursued principally for the following reasons :

- Attention needs to be drawn to Ukraine's commitments under the Partnership and Co-operation Agreement. Ukraine takes insufficient notice of its international obligations, leading to a number of violations of the PCA. Ukraine even reneges previous commitments as was the case in this issue or fails to implement them.

- This tends to become normal practice : due to the lack of economic and industrial restructuring in Ukraine, non-competitive state industries cannot stand up to world market competition, and therefore put pressure on the government to introduce discriminatory advantages or trade restrictions protecting them from foreign competition. Over the past months, several trade obstacles have been added, with the acknowledged aim of protecting ailing industries and employment. Another dispute settlement procedure is currently pending between the EC and Ukraine, regarding the law of Ukraine on the stimulation of automobile production and related regulations regarding the second hand car market.

Accession to the WTO will be very difficult unless the violations of WTO rules under this Law are removed. In particular, the internal taxation privileges and probably also the import duty privileges will need to be extended unconditionally to all like products from all WTO member countries.

- The Trade impact for the EC is substantial, therefore action is needed to eliminate the harm caused to the exports of EC-manufactured products to the Ukrainian market. This is one of the EC main export items in Ukraine : 93.2 m EUR in 1998 (2,7% of total EC exports). The volume of EC exports was dramatically reduced in 1998 following the economic crisis as well as the introduction of the new legislation (from 128.2 m EUR in 1997 = 4% of total EC exports).

4. Consultations were held in accordance with Art. 97 of the Partnership and Co-operation Agreement in March 99 and followed with the removal of the discrimination. As this progress was put in question in June 1999 (new additional specialised expertise fees for foreign medicinal products), on 2 July 1999, Commissioner van den Broek addressed a letter to Vice Prime Minister Tigipko and Minister Goncharuk to reverse urgently the above-mentioned measures. The Commission declared at the meeting of the Co-operation Committee of July 28, 1999 that if the Ukrainian Government failed to resolve the issue of the discriminatory fees within two months after the meeting of the Co-operation Committee, the EC and its Member States would be forced to refer the dispute to the Co-operation Council in accordance with Article 96 of the PCA. The Commission requested to hold new consultations. A round of consultations agreed for October 1999 was postponed sine die by the Ukrainian authorities. The Commission reminded the Ukrainian authorities in a letter of 18.10.99 that if no initiative is taken by Ukraine the dispute should be referred to the Co-operation Council in accordance with Art. 96 of the PCA and as agreed at the meeting of the Co-operation Committee.

The draft position to be adopted by the Community in the Co-operation Council to settle the dispute sets out the measures Ukraine should take, so as to put its legislation in conformity with commitments agreed in the Partnership and Co-operation Agreement, and with WTO rules in the framework of Ukraine's accession procedure to the WTO : registration charges should be levied on a non-discriminatory basis. The Ukrainian government should reverse urgently on the latest measures.

The Council is therefore requested :

- to adopt the proposed decision to refer the dispute regarding the procedure of state registration (renewal of registration) of medicinal products and related fees in Ukraine to the Co-operation Council and to determine the position to be adopted by the Community in the Co-operation Council to settle the dispute,

- to sign the draft letter in annex I to the President of the Co-operation Council, referring the dispute to the Co-operation Council.

2000/0027 (ACC)

Proposal for a COUNCIL DECISION to refer the dispute regarding the procedure of state registration (renewal of registration) of medicinal products and related fees in Ukraine to the Co-operation Council and to determine the position to be adopted by the Community in the Co-operation Council to settle the dispute

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty, and in particular Article 133 in conjunction with Article 300, paragraph 2 first sentence and paragraph 3, first sentence thereof,

Having regard to the Council and Commission Decision of 26 January 1998 on the conclusion of the Partnership and Co-operation Agreement between the European Communities and their Member states and Ukraine and in particular Article 2.1 thereof [1],

[1] OJ L 49 of 19.2.1998

Having regard to the Commission's proposal [2],

[2] OJ C, , p.

(1) Whereas Article 96 of the Partnership and Co-operation Agreement provides for the settlement of disputes,

(2) Whereas the following regulations of Ukraine violate the Partnership and Co-operation Agreement and consultations under Article 97 of the PCA remained unsuccessful, for which reason it is now appropriate to refer the dispute to the Co-operation Council :

- Resolution of the Cabinet of Ministers of Ukraine N° 1666 of 11 September 1999 on the introduction of the changes to the procedure of state registration (renewal of registration) of medicinal products and amount of fees for state registration (renewal of registration) of medicinal products, amending Resolution of the Cabinet of Ministers of Ukraine N° 569 of 27 April 1998 on the approval of the procedure of state registration (renewal of registration) of medicinal products and amount of the fees for state registration (renewal of registration) of medicinal products,

- Order of the State Scientific and Expert Centre of medicinal products of the Ministry of Health of Ukraine of 7 May 1999 establishing additional specialised expertise fees for foreign medicinal products

HAS DECIDED AS FOLLOWS:

Sole Article

1. The Community shall refer the dispute to the Co-operation Council, by means of the letter attached in annex I, co-signed by the Commission and the Council and addressed to the President of the Co-operation Council.

2. The position to be adopted by the Community as regards this dispute shall be in accordance with the draft recommendation attached in annex II, to be proposed to the Co-operation Council for its adoption with a view to settle the dispute.

Done at Brussels,

For the Council

The President

ANNEX 1

Draft letter from the Community to the President of the Co-operation Council with Ukraine

Mr President,

Following a discussion regarding discriminatory fees for the expertise of imported pharmaceutical products at the 26 April 1999 meeting of the Co-operation Council between the EU and Ukraine, the 28 July meeting of the Co-operation Committee was informed of the situation that ensued from the Order of the State Scientific and Expert Centre of medicinal products of the Ministry of Health of Ukraine of 7 May 1999 establishing (again) additional specialised expertise fees for foreign medicinal products.

This compounds with Resolution of the Cabinet of Ministers of Ukraine N° 1666 of 11 September 1999 on the introduction of changes to the procedure of state registration (renewal of registration) of medicinal products and amount of fees for state registration (renewal of registration) of medicinal products, amending the Resolution of the Cabinet of Ministers of Ukraine N° 569 of 27 April 1998.

The Commission emphasised that these regulations are contrary to Art. 15 paragraph 1 and 2 of the PCA, according to which discrimination of European products whether related to charges or to procedures is prohibited, as well as to Article 16 paragraph 2 of the PCA referring to GATT Article VIII, according to which fees and charges of whatever character connected with importation must be limited to the cost of the services rendered.

Formal consultations (under Article 97 of the PCA) requested by the Commission were held in March 99 and followed with the removal of the discrimination. As this progress was put in question in May 1999 (new additional specialised expertise fees for foreign medicinal products), on 2 July 1999, Commissioner van den Broek addressed a letter to Vice Prime Minister Tigipko and Minister Goncharuk, asking them to reverse urgently the above-mentioned measures. The Commission declared at the meeting of the Co-operation Committee of July 28, 1999 that if the Ukrainian Government failed to resolve the issue of the discriminatory fees within two months after the meeting of the Co-operation Committee, the EC and its Member States would be forced to refer the dispute to the Co-operation Council in accordance with Article 96 of the PCA. The Commission requested to hold new consultations. A round of consultations agreed for October 1999 was postponed sine die by the Ukrainian authorities. The Commission reminded the Ukrainian authorities in a letter of 18.10.99 that if no initiative is taken by Ukraine the dispute should be referred to the Co-operation Council in accordance with Art. 96 of the PCA and as agreed at the meeting of the Co-operation Committee.

No compromise acceptable to the Community and its Member states was agreed with the Ukrainian authorities.

Therefore in agreement with the above-mentioned decision, I have the honour to refer this dispute to the Co-operation Council. I enclose a draft recommendation that the Co-operation Council could adopt pursuant to Article 96 paragraph 2 of the PCA so as to settle the dispute.

I would be grateful if you could transmit this letter as well as the annexed recommendation to members of the Co-operation Council as foreseen under Article 6 of the Rules of Procedure.

For the Council of the EU For the Commission

ANNEX II

Draft recommendation by the Co-operation Council regarding the procedure of state registration (renewal of registration) of medicinal products and related fees in Ukraine

The Co-operation Council,

Having regard to the Partnership and Co-operation Agreement between the European Communities and their Member states and Ukraine, signed in Luxembourg on 14 June 1994 and in particular to Art. 96 thereof,

Having taken due account of the consultations undertaken by the parties under Article 97 of the PCA,

Whereas the commitments provided for in the Partnership and Co-operation Agreement between the European Communities and their Member states and Ukraine, in particular Art. 15 paragraph 1 and 2 of the PCA, according to which discrimination of European products whether related to charges or to procedures is prohibited, as well as to Article 16 paragraph 2 of the PCA referring to GATT Article VIII, according to which fees and charges of whatever character connected with importation must be limited to the cost of the services rendered, appear incompatible with some elements of the current regulations regarding the procedure of state registration (renewal of registration) of medicinal products and related fees in Ukraine, in particular as regards the following points :

discriminatory fees for foreign products,

fees non-proportional to the service rendered,

discriminatory registration procedures for foreign products.

Recommends that :

1. Ukraine should adapt the current legislation according to the above mentioned elements, namely :

- cancel the Resolution of the Cabinet of Ministers of Ukraine N° 1666 of 11 September 1999 "on the introduction of the changes to the procedure of state registration (renewal of registration) of medicinal products and amount of fees for the state registration (renewal of registration) of medicinal products", the Resolution of the Cabinet of Ministers of Ukraine N° 569 of 27 April 1998 "on the introduction of the procedure of state registration (renewal of registration) of medicinal products and amount of the fees for state registration (renewal of registration) of medicinal products" and the Resolution of the Cabinet of Ministers of Ukraine N° 241 of 22 February 1999 "on the introduction of the changes to the procedure of state registration (renewal of registration) of medicinal products and amount of fees for state registration (renewal of registration) of medicinal products";

- cancel the Order of the State Scientific and Expert Centre of medicinal products of the Ministry of Health of Ukraine of 7 May 1999 establishing additional specialised expertise fees for foreign medicinal products.

2. Ukraine should simplify its procedures regarding the import of medicinal products, in particular : subordinate to the National Agency on quality control and safety of food, medicinal and medical use products of the Ministry of health all the authorities performing the state registration and licensing of medical products in Ukraine;

3. Ukraine should ensure that procedures are similar for Ukrainian and European products (in conformity with Art. 15.2 of the PCA), and publish the amount of the fees requested from economic operators,

4. Ukraine will report to the next meeting of the Co-operation Council on the steps it has taken to implement this recommendation.

Done at Brussels,

For the Council The President