Ministry of Economy and European Integration of Ukraine

1
Ministry of Economy and European Integration of
Ukraine
Mission of Ukraine to the European Union
Assesment of compatibility of Ukrainian economy
with market economy criteria under the EU
antidumping legislation March 2004
2
Issues under discussion

• The history of the examining the issue of market
  economy status granting to Ukraine
• Ukrainian economy current state and prospects of
  development
• The assessment of compliance of the Ukrainian
  economy with MES criteria laid down in the EU
  Basic antidumping regulation
• - there is no state interference in companies
  decisions making process and companies resources
  allocations
• - there is one clear set for basic accounting
  records and for independent audit conducting
• - the production costs and financial situation
  of firms are not subject to significant
  distortions carried over from the former
  non-market economy system
• - acting legislation on property and bankruptcy
  provides legal certainty and stability for the
  operation of firms
• - currency exchange rates are defined under
  market conditions.

3
The history of investigation concerning granting
to Ukraine market economy status
Action
Date
Ukraine is granted special MES Ukrainian
exporters got the possibility to claim for
granting market or individual treatment in
antidumping investigations
09.10.2000
Ukraine started the dialog on full MES granting
to Ukraine
26.10.2001
Ukraine supplied the EC with extended answers on
market character of the Ukrainian economy
14.05.2002
At the meeting of Mr. Romano Prodi with Mr.
Leonid Kuchma Ukrainian President was ensured
that the EC will announce its decision in six
months
02.09.2002
The European Commission sent to the Ukrainian
side preliminary assessment as to compliance of
Ukrainian economy with market conditions, having
defined the list of questions to be additionally
explained.
13.03.2003
In the course of the 4th Ukraine-EU Co-operation
Council the parties have agreed the schedule on
this issue proceeding that foresaw the taking of
final decision by September 2003
17-18.03.2003
4
Action
Date
The European Commission was provided with answers
on its additional questions
22.05.2003
Mr. Pascal Lamy emphasised on readiness to
facilitate taking decision on granting MES to
Ukraine, asking the Ukrainian side to provide the
European Commission with answers on some
previously asked questions
3.10.2003
In the course of the 6th EU-Ukraine Co-operation
Committee the answers on the ECs questions dated
03.10.2003 were provided. Besides on the working
level it was agreed to supply the EC in the near
future with more detailed information on gas and
electricity transportation tariffs structure.
Aparent dates of experts meeting were drafted
(second half of January 2004)
11.12.2003
Ukrainian side has provided the extended
materials on tariffs structure for gas and oil
trasportation
20.01.2004
Mr. Pascal Lamy indicated that the European
Commission has no need in additional information
from the Ukrainian side. As experts meeting is
concerned, they will be conducted in the case of
necessity.
3.02.2004
5
The key stages of the Ukraine-EU dialog on
granting market economy status to Ukraine
6
Ukranian economy current state and prospects of
development

• GNP has increased by 8,5 (2003 to 2002)
• Industry production has increased by 15 (2003 to
  2002)
• Real income of Consolidated budget has increased
  by 15,3 (2003 to 2002)
• 6396 objects were privatised, 24,5 of them were
  in state ownership and 74 - of municipal
  property
• Within 9 months 2003 new foreign direct
  investments amounted to USD 954,1 million

7
(No Transcript)
8
(No Transcript)
9
There is no state interference into companies
decisions making process and enterprises
resources allocations

• Basic grounds of regulation of enterprises
  operation in Ukraine
• equal rights for activity of enterprises
  regardless the form of ownership rights are
  established
• the inviolability of enterprises rights is
  guaranteed, in particular
• - in decision-making
• - in independent activity planing
• - in defining the development prospects based
  on demand for manufactured products
• - in ensuring production and social
  development
• - in profits increasing.

10
Pricing regulation by the State

• Prices are settled by the operators independently
  in accordance with market situation and
  commercial interest (share is more than 90)
• State has the right to regulate prices on
• resources that have a significant influence on
  general price level and dynamics
• products and services of great social importance
• products, goods and services of companies that
  have monopoly share on the market (electricity,
  utilities, transportation, telecommunication)
• (share is less than 10)

11
(No Transcript)
12
State Inspection for Prices Control of Ukraine

• Aim of establishing to prevent prices distortion
  by state bodies
• Main tasks
• - to monitor the prices and tariffs on goods and
  services on consumer market
• - to organise and to execute the control and
  supervision function as to following by the
  central and local executive power bodies,
  enterprises, institutions and organisations,
  which are natural monopolies, the requirements on
  regulated prices and tariffs formation,
  establishing and application

13
State Inspection for Prices Control of Ukraine

• Control and supervision functions are executed
  by
• - checking up the economic ground of prices and
  tariffs at the stage if their formation and
  adoption by the authorised executive power
  bodeis
• - checking up the compliance with the procedure
  of regulated prices and tariffs application
  directly at the enterprises

14

• Tariffs formation on transportation and utility
  services

15
(No Transcript)
16
(No Transcript)
17
(No Transcript)
18
(No Transcript)
19
(No Transcript)
20
(No Transcript)
21
(No Transcript)
22
There is one clear system for accounting records
and for independent audit conducting

• Stages of new accounting standards, developed in
  accordance with International Accounting
  Standards IAS, introducing
• January 1 December 31, 2000 transitional
  period
• from January 1, 2001 final introduction
• During the anti-dumping investigation on imports
  to the EU of urea originated, inter alia, from
  Ukraine, the Commission taking as an example some
  Ukrainian companies has recognised that their
  accounts were audited in line with international
  accounting standards

23

• The independent audit of accounting records is
  conducted
• by initiative of economy operators (including
  under the request of foreign creditors and
  investors)
• for economy operators which records are subject
  to official publishing
• for economy operators with annual turnover less
  then 250 minimal tax paying sums
• for securities issuers
• at launching the procedure of insolvency and
  bankruptcy

24
The production costs and financial situation of
firms are not subject to significant distortions
carried over from the former non-market economy
system

• Privatisation in Ukraine
• Decreasing of barter operations application to a
  negligible level

25
Privatisation process in Ukraine current
situation

• Starting from 1996 the share of private sector
  production is more than 50, in 2002 it
  constituted 65
• From 1992 till October 2003 the form of ownership
  was changed by 90039 entities of state and
  municipal enterprises, including
• - 72407 - Group ? (small privatisation)
• - 11402 - Groups B,C,D (large and medium
  enterprises)
• - 4051 - Group E (unfinished building)
• - 1018 - Group F (social sphere)
• - 1161 -Group G (shares)
• More than 11,5 thousands of medium and large
  enterprises are privatised with deepness of
  privatisation more than 70, 47 of which are
  industrial.

26

• Share of private enterprises in general volume
  of industrial production in 2002 constituted
  54,1, including
• metallurgy and metallurgy proceeding - 71,3
• non-energy materials mining - 71,1
• machinery and equipment production - 68,9

27
Dymanic of barter transactions in industry during
the period 1997 1 quoter of 2003,
28
Acting legislation on property and buncruptcy
provides legal certainty and stability for firms
activity

• Protection of property rights
• Implementation of legislation on ownership and
  bankruptcy

29
Property rights

• Equal conditions for development of all the types
  of ownership are provided
• Stability of property rights is secured
• Protection of property rights is carried out by
  common, arbitrary or economic courts
• Responsibility of state bodies for violation or
  intervention in implementation of the owners
  rights is secured

30
Implementation of bankruptcy procedures

• Legal procedures applied onto debtor
• pre-court trial readjustment
• debtors property assessment
• peace treaty
• solvency renewal
• liquidation
• Arbitrary managers institution is operating
• Transparent procedure for carrying out the
  investigations in economic courts is provided
• The peculiarities of bankruptcy procedures for
  some categories of enterprises (city-forming,
  non-safety etc.) are defined

31

• The results of bankruptcy procedures (9 months
  2003)

32
Currency exchange rate is defined under the
market conditions

• In 2001 the Mission of the IMF found Ukraine
  being fully in compliance with the Article VIII
  obligations
• At present Ukrainian Hryvna is fully convertible
  for carrying put the current payments

33
Conclusions

• Current special MES is not in compliance with
  real economy conditions in Ukraine
• After the EU antidumping legislation extension to
  the new Member States, Ukrainian enterprises will
  find themselves in less favourable conditions
  because they will have to spend time and money on
  proving the market character of their operation
• Ukrainian side calls the European Commission for
  constructive co-operation aimed at completing the
  assessment of compliance of Ukrainian economy
  with MES criteria in March in order to grant MES
  to Ukraine by the May 1, 2004