Business asks not to create manual regulation of the agricultural sector

10/ 04/ 2024

The control measures in a country should be appropriate to the riskiness of a particular transaction. Currently, according to what the European Business Association hears from companies, such compliance is not always the case. In particular, this applies to foreign economic operations involving the export of certain goods, in particular, grains and oilseeds. Thus, the issue is that the supply control measures implemented by world-renowned companies with long experience in the Ukrainian market should be different from those applied to companies that can be attributed to a more risky inspection profile. Therefore, clear criteria should be established to determine the potential riskiness of transactions based on the characteristics of the parties involved. It should also be noted that due to the importance of agricultural exports, some companies have been granted the status of critical to the functioning of the economy and the livelihoods of the population during a special period, in accordance with the procedure established by law. Therefore, the effective performance of their functions by such companies should be a priority when implementing the above control measures. At the same time, two draft laws - No. 10168-2 and No. 10169-2, which were adopted by the Verkhovna Rada as a basis with revised provisions on November 21, 2023, and proposed by the Verkhovna Rada Committee on Financial, Tax and Customs Policy on April 4, 2024 for consideration in the second reading - are likely to create corruption risks due to the possible establishment of a manual regime for regulating agricultural exports. The community has already expressed its comments and concerns about these documents, but questions still remain. Thus, according to business representatives, there is a high probability that the draft law No. 10168-2 will contain provisions on the possibility of blocking export tax invoices before the second reading. It is worth noting that blocking a tax invoice in the context of this mechanism will mean blocking the physical export of goods (unlike the current mechanism of blocking tax invoices within the country, when such blocking does not cause a stop in the movement of goods, but only results in the buyer not receiving a tax credit). Therefore, experts of the EBA Grain and Oilseeds Committee warn that physical blocking of exports may result in the collapse of the entire system of Ukrainian seaports. Additionally, it will significantly reduce the inflow of foreign exchange earnings into Ukraines economy, which is unacceptable at this time. In addition, business representatives express concern about the possible establishment of the authority of tax authorities to block exports by recognizing real trade transactions as fictitious. Another provision not supported by the business community is the procedure for setting minimum export prices. Thus, the minimum export prices will be set once a month, which is insufficient and in many cases may not reflect the real price level on the agricultural market at a given time. The consequence of such a mechanism would be that it would be impossible to conclude or fulfill contracts at prices that are actually market prices, and the minimum prices set by the state would be outdated. It was also found that both draft laws contain provisions that would prohibit the blending of wheat to achieve the required export specifications, which is critical for the agricultural sector. At the same time, according to the text of both draft laws, the minimum export prices for wheat will be formed by class, as they have information on the domestic market of Ukraine, and then it becomes unclear which class the State Customs Service of Ukraine should compare the price of the export contract for mixed wheat with. Taking into account the above, the European Business Association asks for a balanced and deliberate approach to the process of legislative changes in the field of agricultural exports. The EBA appeals to Ruslan Stefanchuk, Chairman of the Verkhovna Rada, Prime Minister of Ukraine Denys Shmyhal, and asks not to adopt these risky legislative initiatives for the market and the state.

The control measures in a country should be appropriate to the riskiness of a particular transaction.

Currently, according to what the European Business Association hears from companies, such compliance is not always the case. In particular, this applies to foreign economic operations involving the export of certain goods, in particular, grains and oilseeds.

Thus, the issue is that the supply control measures implemented by world-renowned companies with long experience in the Ukrainian market should be different from those applied to companies that can be attributed to a more risky inspection profile. Therefore, clear criteria should be established to determine the potential riskiness of transactions based on the characteristics of the parties involved.

It should also be noted that due to the importance of agricultural exports, some companies have been granted the status of critical to the functioning of the economy and the livelihoods of the population during a special period, in accordance with the procedure established by law. Therefore, the effective performance of their functions by such companies should be a priority when implementing the above control measures.

At the same time, two draft laws – No. 10168-2 and No. 10169-2, which were adopted by the Verkhovna Rada as a basis with revised provisions on November 21, 2023, and proposed by the Verkhovna Rada Committee on Financial, Tax and Customs Policy on April 4, 2024 for consideration in the second reading – are likely to create corruption risks due to the possible establishment of a manual regime for regulating agricultural exports.

The community has already expressed its comments and concerns about these documents, but questions still remain. Thus, according to business representatives, there is a high probability that the draft law No. 10168-2 will contain provisions on the possibility of blocking export tax invoices before the second reading. It is worth noting that blocking a tax invoice in the context of this mechanism will mean blocking the physical export of goods (unlike the current mechanism of blocking tax invoices within the country, when such blocking does not cause a stop in the movement of goods, but only results in the buyer not receiving a tax credit). Therefore, experts of the EBA Grain and Oilseeds Committee warn that physical blocking of exports may result in the collapse of the entire system of Ukrainian seaports. Additionally, it will significantly reduce the inflow of foreign exchange earnings into Ukraine’s economy, which is unacceptable at this time. In addition, business representatives express concern about the possible establishment of the authority of tax authorities to block exports by recognizing real trade transactions as fictitious.

Another provision not supported by the business community is the procedure for setting minimum export prices. Thus, the minimum export prices will be set once a month, which is insufficient and in many cases may not reflect the real price level on the agricultural market at a given time. The consequence of such a mechanism would be that it would be impossible to conclude or fulfill contracts at prices that are actually market prices, and the minimum prices set by the state would be outdated.

It was also found that both draft laws contain provisions that would prohibit the blending of wheat to achieve the required export specifications, which is critical for the agricultural sector.

At the same time, according to the text of both draft laws, the minimum export prices for wheat will be formed by class, as they have information on the domestic market of Ukraine, and then it becomes unclear which class the State Customs Service of Ukraine should compare the price of the export contract for mixed wheat with.

Taking into account the above, the European Business Association asks for a balanced and deliberate approach to the process of legislative changes in the field of agricultural exports. The EBA appeals to Ruslan Stefanchuk, Chairman of the Verkhovna Rada, Prime Minister of Ukraine Denys Shmyhal, and asks not to adopt these risky legislative initiatives for the market and the state.