Ukrainian carmakers get a chance
Recently Verkhovna Rada passed the bill, On the Development of Ukraine’s Automobile Industry, in the first reading. This time around, common sense got the upper hand, and yet another legislative collision was avoided. Everybody stands to gain: the WTO (Ukraine’s auto industry laws have been brought into line with WTO requirements), Ukrainian carmakers (who have not lost the prospects for development under new conditions and the possibility to create new jobs), and, most importantly, Ukrainian consumers, who as before can buy new quality cars.
A major issue discussed this year within the context of Ukraine’s WTO entry is bringing Ukrainian legislation regulating various industries, the automobile industry included, into compliance with the General Agreement on Tariffs and Trade, WTO, and EU requirements. In particular, Ukraine must review the preferences granted to some industries. On the one hand, fulfilling this requirement is a precondition for Ukraine’s WTO entry. On the other hand, both international and national legislation in force prohibits aggravating investment conditions for investors already working in Ukraine. In solving this dilemma the government’s goal must remain unchanged: to ensure the most favorable conditions for manufacturers working in Ukraine in their competition with foreign carmakers.
This is especially relevant for the automobile industry, since the Ukrainian market is becoming more and more attractive for foreign carmakers, while competition between Ukrainian companies and Western automobile concerns can hardly be called equal. International automobile concerns work under conditions of a more developed business infrastructure in the form of tax and other privileges subsidies, and even grants. For example, in the past few years the EU issued grants to such pioneering carmakers as Volkswagen ($115 million), GM-Opel ($570 million), and Fiat ($1.7 billion).
Understandably, the result of a collision between any Ukrainian carmaker with an international company is quite predictable. Thousands of Ukrainians employed in the automobile industry could lose jobs, while Ukraine could be pushed to the sidelines of the world automobile industry for a long time. With this in view, the idea of granting preferences to the automobile industry remains quite relevant for Ukraine. Incidentally, this does not run counter to international norms. Thus, under Article 29 of the Agreement on Subsidies and Compensatory Measures of the GATT/WTO, within seven years since the signing of the WTO agreement transition economy countries are entitled to use programs and measures required for the transition from a planned and centralized to a market economy, including so-called forbidden subsidies.
Thus, the major task for the government, which is facing the dilemma of creating new laws that would both meet WTO requirements and reflect Ukraine’s strategic interests, is to preserve the current conditions for the enterprises that are implementing long-term investment projects and create favorable conditions for Ukrainian carmakers’ successful competition with the West. Apparently, the first step in this direction has been made. On November 20 Verkhovna Rada passed in the first reading the bill, On the Development of Ukraine’s Automobile Industry, that has become a continuation of the government’s thus far effective policy in the automobile industry. The bill proposes rescinding the previously adopted law, On Stimulating Production of Automobiles in Ukraine. However, the liquidation of preferences will not affect the enterprises implementing investment projects.
The bill envisions another mechanism of protection of the market, that is, by raising duties for imported cars. Thus, it proposes raising the duty for new passenger cars to 15%, to 20% for car parts and used cars under five years, and to 30% for cars older than five years.
Some experts have rated highly the bill in question. First, it does not run counter to international norms, in particular those relating to the partnership and cooperation between Ukraine and the EU, as well as WTO norms. Second, the bill is oriented toward increasing budget revenues, preserving and creating new jobs in the automobile industry and other branches (metallurgical, oil-processing, electronic industries), to say nothing of increasing the investment attractiveness of the country. All of the above as well as the fact that the bill was supported in the first reading by a vote of 291 to 2 gives one hope that it will pass.
