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Ukraine imposes new tariffs on car imports, risking EU ire

A woman passes by cars on sale outside an automobile dealership in Kiev, March 14, 2013.

STRINGER/REUTERS

Ukraine imposed emergency tariffs of 6.5 to 13 per cent on auto imports on Thursday, a move that is likely to irritate its trade partners in the European Union and Japan.

It said it was acting because domestic production had dropped sharply.

The government's commission on international trade said the duties would affect passenger cars with engine capacities of 1,000 to 2,200 cubic centimetres.

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The new tariffs – imposed on top of regular 10 per cent import duties – will take effect in 30 days and remain in place for three years, it said in the notice published in the government's official gazette.

The move seemed certain to worsen Ukraine's growing reputation as the new "bad boy" of the World Trade Organization, which it joined in 2008.

Ukraine raised eyebrows when it challenged Australian tobacco packaging rules despite having no interest in the Australian market and hit universal opposition with its lone veto against Yemen joining the global trading body.

More than 100 countries have also decried Kiev's plans to renegotiate 371 tariff ceilings.

Its safeguards on car imports, by contrast, are likely to be fought by a small number of car-exporting countries.

"Due to an increase in the volume of (car) imports and the conditions on which imports are made, local producers have been pushed out of the domestic market," the government notice said.

The commission said Ukraine's car output had fallen by 79 per cent between 2008 and 2010 and there had been complaints from three local producers.

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Ukraine's ZAZ produces, among others, local versions of the Chevrolet Aveo and China's Chery A13, while other firms assemble Russian-designed Ladas, Korean Hyundais and Volkswagen Skodas.

Japan, the European Union, South Korea and Turkey have all previously voiced concerns about the WTO at the likelihood of Ukraine hiking car tariffs.

Under WTO rules, countries are allowed to use emergency import restrictions, known as "safeguard measures," to prevent a particular industry being damaged by a sudden wave of imports.

However, Japan said last May that Ukraine's total car imports had actually fallen between 2008 and 2010.

According to car industry group Ukravtoprom, Ukrainians bought 237,602 new cars last year, of which 204,957, worth $3.247-billion (U.S.), were imported. The three leading exporters to Ukraine were Russia, Germany and Japan.

Car import duties are among those that Ukraine is trying to renegotiate with WTO partners, seeking to curb its growing trade deficit.

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Some WTO members are worried that the use of "safeguard measures" has become a stealthy route to protectionism, exploited by countries that have never used them in the past.

A U.S. official told a WTO meeting last October that differences over the use of the system had thus far been resolved without triggering trade disputes, but "it should not be assumed that this would continue," according to confidential minutes seen by Reuters.

The European Union, in turn, warned Ukraine on Thursday that its large-scale tariff review plan could derail the signing of a landmark free trade deal between Kiev and Brussels.

Ukraine's goods trade gap widened to $15.8-billion in 2012 from $14.2-billion in 2011.

Some economists believe that Ukraine's policy of pegging its hryvnia currency to the dollar is at least partly to blame, making locally-produced cars relatively expensive. The International Monetary Fund, in particular, has called for a more flexible exchange rate regime.

Ukraine's exports are dominated by traditionally volatile commodities – chemicals, grains, metals, minerals, and timber – making it especially vulnerable to swings in global demand.

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