Ukraine is forced to reduce export duties

Ukraine's postponement of the deadline for reducing the export duty on scrap non-ferrous metals caused dissatisfaction with the World Trade Organization (WTO). The organization appealed to the Ministry of Economic Development with a proposal to initiate the repeal of the relevant law. According to Kommersant's information, the ministry intends to fulfill the WTO's request and also initiate the abolition of export duties on scrap ferrous metals. This decision will cause a shortage of scrap metal on the market, which is disadvantageous for metal companies, experts say.

The WTO has asked the Ukrainian government to consider the possibility of canceling existing duties on the export of waste and scrap ferrous metals, Vasily Kharakhulakh, general director of the Metallurgprom association of metallurgical enterprises, said yesterday. This information was confirmed to Kommersant by the Ministry of Economic Development and Trade (MEDT). In addition, in a letter to Deputy Head of the Ministry of Economic Development and Trade Valery Pyatnitsky (a copy is available to Kommersant), Deputy Chairman of the Directorate General of the European Commission for Trade Peter Balazs asks for clarification of the reasons for the adoption at the end of 2010 by the Verkhovna Rada of a law that violates one of the conditions for Ukraine’s accession to the WTO. We are talking about postponing the deadline for reducing export duties on non-ferrous metal scrap.

The ban on the export of non-ferrous scrap metal was in effect before Ukraine joined the WTO. In 2008, the duty was set at 30% with an annual reduction of the rate by 3 percentage points. In 2009 it decreased to 27%, in 2010 - to 24%. But according to the law adopted by parliament, the rate will be reduced to 21% not in 2011, but only in 2014. “Now the WTO member countries whose interests are infringed by this transfer, for example the EU, have the right to begin the dispute resolution procedure within the WTO,— says Natalya Mikolskaya, senior lawyer at the law firm Vasil Kisil and Partners. “And if Ukraine refuses to comply with the decision of the dispute resolution body, sanctions will be applied to Ukrainian exports.”

As a Kommersant source in the Ministry of Economic Development and Trade noted, Ukraine will most likely have to refuse to postpone the reduction in export rates: “We can refer to the constitutional norm providing for the primacy of international treaties over national acts. That is, if our obligations to the WTO include such a schedule of reductions, we will fulfill it, and not a law that violates this obligation."

The Ministry of Economic Development and Trade also agreed to completely abolish export duties on scrap ferrous metals, Valentin Kulichenko, president of the Association of Secondary Metals, told Kommersant. According to him, yesterday a corresponding memorandum was signed between him, Vasily Kharakhulakh and Valery Pyatnitsky. “Duties may be canceled as early as this year,” said Mr. Kulichenko. From 2002 to 2006, a duty of 30 euros/t was levied on the export of scrap metal. In 2008 - the first year of Ukraine's membership in the WTO - the rate dropped to 25 euros, in 2009 - to 18 euros, in 2010 - to 16.4 euros. This year it is 14.8 euros/t. In 2012, according to the conditions of Ukraine’s accession to the WTO, the rate was supposed to decrease to 13.2 euros, and in 2013 - to 11.6 euros and in 2014 to 10 euros.

However, the complete abolition of export duties on scrap metal was opposed by its main consumers - metallurgical enterprises. “In the near future, an increase in the consumption of scrap metal in the domestic market is expected due to the commissioning of new electric furnace plants, for which scrap ferrous metals are the main raw material. And the abolition of export duties may lead to a shortage of scrap metal in the domestic market. It is precisely because of this “that significant volumes of scrap metal were exported, and a duty was introduced to protect domestic steel producers,” noted the press service of the Donetsk Electrometallurgical Plant.

In 2010, Ukraine exported 665 thousand tons of scrap metal worth $217.1 million. Its average purchase price on the domestic market was $304/t, export price - $340/t (FOB ports of Ukraine). The main exporters of raw materials are Ukrmet, Ukrvtormet and Tonmet, their share accounts for about 30% of all scrap metal exports. About 90% are exported to Turkey, the rest to the EU and Moldova.

According to the estimates of the State Enterprise "Ukrpromvneshekspertiza", in 2011 the export of ferrous metal scrap is expected in the amount of about 700 thousand tons. "Behind the abolition of export duties on scrap metal is the desire of the main exporters to solve the problem of rising prices for scrap on the market," says Ukrpromvneshekspertiza expert Yuri Dobrovolsky. “But if the duty is canceled, we do not expect a sharp increase in export growth due to the fact that many metallurgical enterprises have their own scrap collection companies.” In particular, Metinvest controls Prometheus, Interpipe controls Dnepropetrovsk Vtormet.

Alexander Chernovalov, Yuri Panchenko

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