Lessons of the last approaches to defense of Ukrainian enterprises during antidumping inquiries in the EU, Canada and the USA
STRATEGY OF DEFENSE
STRATEGY OF DEFENSE
Lessons of the last approaches to defense of Ukrainian
enterprises during antidumping inquiries in the EU, Canada and the USA
Managing partner of law firm Magister & Partners Oleg
Ryabokon protected interests of Ukrainian, Slovak, Latvian and Russian commodity producers
in more than twenty trade disputes in such countries as the USA, Canada, Poland, Russia,
Hungary, Chili, Venezuela, India, Indonesia, Thailand and Taiwan.
Lately, the problem of exports of Ukrainian produce is
highlighted in mass media mainly in connection with antidumping inquiries. Antidumping
inquiry is a system of clear rules and procedures. Having learnt them, Ukrainian
enterprises could have efficiently protected their interests. Along with that, there exist
certain significant limitations on Ukrainian exporters’ possibilities.
Mass media many times mentioned failures of Ukrainian
enterprises in protecting their interests during antidumping inquiries because of
non-market status of Ukraine. The first half of 2001 became a crucial point for Ukrainian
enterprises. Efforts by the Ministry of economy of Ukraine and the Committee on Industrial
Policy with financial support from and direct participation of producers resulted in
change of attitude of the EU and Canada to Ukraine.
Some political decisions aimed at change of Ukraine’s
status in antidumping inquiries were already taken two years ago. On March 20, 1999,
Andrey Goncharuk, minister for foreign economic relations and trade of Ukraine, forwarded
a letter to Sir Leon Britton, at that time acting deputy chairman of the EU Commission and
EU Commissioner on trade, with a request to reconsider non-market status of Ukraine in
compliance with EU legislation. The letter was followed by continuous consultations and
negotiations with participation of Ukraine’s Mission with the EU Commission, which
eventually resulted in approval of Decree No. 2238/2000, dated October 9, 2000, by the EU
Council. By this document, Ukraine was acknowledged as a country with market economy.
However, there was mentioned that there still remain some non-market anachronisms in
Ukraine. Ukrainian enterprises obtained an opportunity to prove that they work in market
conditions, thus becoming full-fledged participants in antidumping proceedings.
Ukrainian exporters will be considered as “market”
enterprises only provided that they can prove the following:
- decisions of enterprises as regards pricing, expenditures
for production and materials, including, for example, raw materials, cost of technologies
and work, output, sales and investments are taken on the basis of market principles, i.e.
are driven by demand and supply factors, and without significant interference of the
government. Also, expenditures for main materials are calculated on the basis of market
prices;
- enterprises have one clear accounting system, which
passes independent audit in compliance with international accounting standards, and they
use this system for all purposes;
- prime cost of the products and financial state of
enterprises shall not be misrepresented according to the practice of former non-market
system, in particular, amortization of fixed assets, other write-offs, barter and tolling
scheme operations;
- laws on bankruptcy and ownership shall be applicable to
the enterprises. These laws shall ensure juridical clarity and stability of enterprises’
operation;
- Hryvnia exchange rate is determined on the basis of
market rate.
The EU Commission strictly follows requirements, which are
provided for in the legislation. Therefore, starting from 1998 to 2001, only three
Ukrainian enterprises managed to prove their market status.
Change of status allowed Ukrainian enterprises to request
market approach in antidumping inquiry against imports of urea from Ukraine and a number
of other countries, which was launched on October 21, 2000. Three Ukrainian enterprises
(Azot of Cherkassy, Stirol and DneproAzot) took part in this inquiry held by the EU
Commission. These companies expressed their desire to acquire the status of companies
working in market conditions. The enterprises submitted detailed requests on
acknowledgement of market status to the EU Commission within 21 days, as it was provided
by the regulation on launching antidumping inquiry.
On February 6, 2001, EU Commission acknowledged operations
of the two enterprises – Azot of Cherkassy and Stirol, as corresponding to the market
principles. DneproAzot understood even earlier that it had no chances to acquire market
status after the lawyers had checked the state of affairs at the enterprise. EU Commission
refused to grant market status to DneproAzot due to the following factors, which do not
comply with the EU requirements to market enterprises:
- the State’s share in the enterprise in amount exceeding
25%, which allows the State Property Fund of Ukraine to block some decisions approved by
the general meeting of shareholders;
- presence of the state officers in supervisory board of
the company, which is regarded as a possibility of the State’s involvement in
decision-making;
- arranging for a large portion of payments by barter and
according to the tolling scheme.
The decision by the EU Commission as regards selected
criteria for acknowledgement of non-market status of DneproAzot is not indisputable. The
main criterion for the EU Commission became the share of the State in the enterprise,
which allows blocking some decisions of the shareholders’ meeting. Along with that, in
compliance with the aforementioned provisions of the EU Decree, enterprise has to prove
that its financial mechanisms are operating according to the market principles and are
based on demand and supply without considerable intervention of the State. Therefore, the
State’s share in the enterprise should not become a determinative in acknowledging of
its market status, if this enterprise is operating in compliance with market principles.
Many West European enterprises have the State among their shareholders, but this does not
make them non-market.
It is notable that the EU Commission during antidumping
inquiry studies the historical situation for the investigated period (usually this is one
year prior to launching an inquiry), but not the situation after the investigation has
commenced. Thus, if Ukrainian enterprise was completely privatized in May 2001, and right
after that an antidumping inquiry was launched against it in the EU, this does not mean
that the enterprise will be granted market status for the purposes of this investigation.
Such methodology was accepted in the EU in order to establish the fact of dumping within
the period under investigation. If an enterprise was state-owned within this period,
prices at the enterprise may have been formed under the State’s influence.
However, upon acceptance of the new approach by the EU
Commission, Ukrainian enterprises obtained an incentive to continue defending their
interests in antidumping inquiries, even though they were temporarily declared to be
non-market. It is possible to obtain individual status for such enterprise, provided that
it is proved that the State did not interfere with its export pricing. Individual status
means that there will be an individual antidumping duty defined for the enterprise, and it
will have an opportunity to submit its own request to reconsider the decision on the
duty’s imposing in a year.
Another example of successful acknowledgement of market
status of Ukrainian enterprises is inquiry against Ukrainian rebars in Canada. Antidumping
inquiry was launched by the head of Customs and Tax Service of Canada on November 3, 2000.
Krivorozhstal Iron & Steel Works decided to defend its interests in this inquiry and
submitted a request to conduct investigation using market methodology. The Ministry of
Economy of Ukraine completely supported Krivorozhstal’s request and, from its side,
provided all the necessary for the investigation information.
On May 2001, Customs and Tax Service of Canada, having
studied all the materials of the case and checked provided information in Ukraine, decided
that Ukrainian metallurgic industry is working in market conditions. During investigation,
there was defined average level of dumping for Krivorozhstal in amount of 18.6% from the
level of export prices. This decision played a favorable role for Ukrainian enterprises.
In case with Moldova, where the government refused to provide information proving the
market status, dumping margin was established in amount of 69.2%.
After this decision had been taken, all Ukrainian
metallurgic mills obtained an opportunity to effectively defend their interests during
antidumping inquiries in Canada, thus avoiding high dumping duties.
The USA, unlike the European Union and Canada, did not
change their approach to Ukrainian imports and still regard Ukraine as a non-market
country. On June 28, 2000, US Department of Trade and Commission on International Trade
obtained a complaint from American manufacturers with a request to initiate antidumping
inquiry against imports of Ukrainian rebars. Defense strategy of Ukrainian manufacturer
Krivorozhstal implied following all the requirements of US legislation and providing all
the information requested. The company hoped that such level of cooperation would be
respectively appreciated by the US Trade Department, and Ukraine would be able to retain
its position on this market by signing an Agreement on freewill limitations. But all the
efforts of Ukrainian side fell short.
On April 2, 2001, Krivorozhstal obtained a refusal with
regard to signing an Agreement on freewill limitations, which was based on the following.
US Congress did not worked out its position on such agreements yet. Consequently, US Trade
Department could not negotiate signing such agreement with Ukraine, or other countries
such as Poland, Belarus or Moldova. Further defense of Krivorozhstal’s interests in this
case became meaningless due to its non-market status. Application of non-market
methodology completely eliminates a possibility of just outcome for Ukrainian enterprises.
Thus, a company has to provide production data, such as consumption of ore, power, gas and
coke, in order to establish the cost of production of 1 tonne of rebars, starting from ore
mining to rolling and manufacture of rebars. For anyone who is acquainted with production
process, it is clear that this is a lot of data. Oftentimes this information has to be
specially collected and selected, because there is no record keeping that complies with
requirements of the US Department of Trade. It may seem that such great job should result
in a positive decision, but no. According to American methodology, the selected production
factors should be multiplied by surrogate costs, for example, prices for raw and other
materials in Indonesia, which may result in dumping margin even higher than that requested
by complainants.
Preliminary decision of the US department of Trade
published on January 30, 2001 defined dumping margin for non-market countries in amount of
41.6% (Ukraine) to 277% (Moldova). In this regard, the logical question arises: why should
one spend all these human and financial resources, if the result may only become worth?
The final decision of the US Department of Trade was
approved on April 2, 2001, and it did not change dumping margin for Ukraine, in spite of
complainants’ requests to raise it, which they submitted as soon as they saw that
Krivorozhstal stopped defending itself.
In conclusion, it is worth saying that strengthening of
market relations in Ukraine promotes Ukrainian commodities on the international markets.
This can be seen from the latest decisions of the EU and Canada. However, some countries
still have certain prejudices against Ukrainian enterprises. These prejudices must be
resolved by taking corresponding political decisions, first of all in the USA.