EBA opposes artificial regulation of foreign economic activity

25/ 06/ 2020

In May, the Verkhovna Rada registered Draft Law No. 3444 which proposes to authorize the Government to regulate foreign economic activity, including its restriction or a complete ban. Such initiatives cause great concerns to the EBA community, in particular, importing companies, which pay hundreds of millions in taxes and create thousands of jobs in Ukraine. In January-April 2020, due to the coronavirus pandemic, the import has declined by 9.3%. Given this situation, attempts to further restrict the activities of importers look inappropriate and contradict the principle of equal rules of the game in the market. The possibility of banning or restricting imports provided by the daft law undermines the basic principle of freedom of foreign economic activity, which is guaranteed by the Constitution of Ukraine and the Law of Ukraine On Foreign Economic Activity. Draft Law No.3444 does not limit the list of such sanctions that may be applied by the Government, nor does it establish clear conditions and grounds for their introduction, validity terms, a procedure for extension or cancellation. So, it is unclear at this time whether these measures will include quotas, additional duties, licensing, or any other non-tariff restrictions, to which sectors these regulations may be applied and for what reasons, etc. Moreover, companies do not have the opportunity to appeal against the Governments decision in court. All this gives the Cabinet of Ministers significant authority to influence foreign economic activity. Business representatives are also convinced that before applying any restrictions, it is necessary to analyze the potential of domestic production and the possibility of import substitution without harming other businesses. Svitlana Mykhailovska. EBA Deputy Director for Advocacy. The biggest concern about this draft law is the lack of specifics. Business does not understand exactly to what extent and for what reasons the Cabinet will be able to ban or restrict the foreign economic activity. Besides, as a member of the WTO, Ukraine is obliged to comply with the provisions of multilateral trade agreements, which provide a clear and exhaustive list of circumstances for the imposition of restrictive measures by the state. Therefore, we need to be very prudent, both in terms of our external obligations and in terms of the domestic economic situation. We should not forget about national producers who depend on certain imported products and raw materials, and about a number of foreign companies that have already built their own production facilities in Ukraine and at the same time continue importing. Therefore, ill-considered decisions to limit it can have a negative impact on the sentiment of foreign investors. The European Business Association urges MPs not to jeopardize the freedom of entrepreneurship in Ukraine and not to support Draft Law No. 3444, the implementation of which could significantly complicate the activities of importers and harm the economy of Ukraine. Meanwhile, if in the opinion of the authorities, some areas need additional regulation, the business is ready for negotiations to discuss possible options for resolving the situation provided specific analysis and data are given from the authorities. These specifics are also lacking in the draft law. At present, it is unacceptable to impose strict restrictions that do not have a solid foundation but will significantly affect the development of business in the country.

In May, the Verkhovna Rada registered Draft Law No. 3444 which proposes to authorize the Government to regulate foreign economic activity, including its restriction or a complete ban.

Such initiatives cause great concerns to the EBA community, in particular, importing companies, which pay hundreds of millions in taxes and create thousands of jobs in Ukraine. In January-April 2020, due to the coronavirus pandemic, the import has declined by 9.3%. Given this situation, attempts to further restrict the activities of importers look inappropriate and contradict the principle of equal rules of the game in the market.

The possibility of banning or restricting imports provided by the daft law undermines the basic principle of freedom of foreign economic activity, which is guaranteed by the Constitution of Ukraine and the Law of Ukraine “On Foreign Economic Activity”.

Draft Law No.3444 does not limit the list of such sanctions that may be applied by the Government, nor does it establish clear conditions and grounds for their introduction, validity terms, a procedure for extension or cancellation. So, it is unclear at this time whether these measures will include quotas, additional duties, licensing, or any other non-tariff restrictions, to which sectors these regulations may be applied and for what reasons, etc. Moreover, companies do not have the opportunity to appeal against the Government’s decision in court. All this gives the Cabinet of Ministers significant authority to influence foreign economic activity.

Business representatives are also convinced that before applying any restrictions, it is necessary to analyze the potential of domestic production and the possibility of import substitution without harming other businesses.

Svitlana Mykhailovska EBA Deputy Director for Advocacy

The biggest concern about this draft law is the lack of specifics. Business does not understand exactly to what extent and for what reasons the Cabinet will be able to ban or restrict the foreign economic activity. Besides, as a member of the WTO, Ukraine is obliged to comply with the provisions of multilateral trade agreements, which provide a clear and exhaustive list of circumstances for the imposition of restrictive measures by the state. Therefore, we need to be very prudent, both in terms of our external obligations and in terms of the domestic economic situation. We should not forget about national producers who depend on certain imported products and raw materials, and about a number of foreign companies that have already built their own production facilities in Ukraine and at the same time continue importing. Therefore, ill-considered decisions to limit it can have a negative impact on the sentiment of foreign investors.

The European Business Association urges MPs not to jeopardize the freedom of entrepreneurship in Ukraine and not to support Draft Law No. 3444, the implementation of which could significantly complicate the activities of importers and harm the economy of Ukraine. Meanwhile, if in the opinion of the authorities, some areas need additional regulation, the business is ready for negotiations to discuss possible options for resolving the situation provided specific analysis and data are given from the authorities. These specifics are also lacking in the draft law. At present, it is unacceptable to impose strict restrictions that do not have a solid foundation but will significantly affect the development of business in the country.