On May 20th, Kyiv is celebrating the Day of Europe. The event is expected to draw a record number of participants and attendants from the European Union. Diplomatic representatives are ready to help everyone learn more about European countries. Everybody will have fun and hear plenty of warm but noncommittal words about prospects for cooperation.
In reality, there is nothing to feel happy about: this month Europe’s signals to Ukraine have been anything but pleasant.
On May 11, the European Commission Antidumping Committee voted to impose antidumping duties on Ukrainian pipes. Fifteen of 25 EU countries said yea. The sanction is most likely to take effect in late June, which means serious problems for Ukrainian producers of pipes and the country as a whole. The national budget will fall short by $25M - $30M.
At present, 80% of pipes made in Ukraine are exported. Up to one-third of these are exported to Russia (with rather vague prospects) and more than 15% to EU countries. According to estimates, the duties may compel Ukrainian producers to reduce output by 10% - 15%.
In the course of the antidumping investigation, the Ukrainian side’s arguments were completely ignored. Having considered them, the European Commission reduced the duties from 27% down to … 25%! It never gave any intelligible explanations.
President Yushchenko’s letter to the Austrian Chancellor did not help much, either, although it was very explicit and argumentative. Yushchenko contended that the duty on Ukrainian pipes would “inevitably result in curtailing their export to EU countries”. According to him, the imposition of limitations on Ukrainian pipe producers would be “an extremely negative signal” to Ukraine and in contradiction to the declared course of rapprochement.
It looks like Ukraine and the EU have different signaling strategies. As we can see, there is nothing to prove Yushchenko’s conviction that “the recognition of Ukraine as a market economy … testified to the European Union’s readiness for further active cooperation in trade”. But he was right in saying that the application of the antidumping measures was “not quite in the spirit of the EU-Ukraine Partnership and Cooperation Agreement”.
The negotiations at the ministerial level have also shown clearly that Europe has different priorities. The European Commission puts across its decision to cut the duty from 38% down to 25% as a generous “gift”. At the same time, it passes over in silence the fact that the new duties apply to a twice longer list of Ukrainian pipes, giving no reasonable explanations why.
It is evident that Ukraine’s market economy status is still hollow. Ukraine has no economic levers of influence on the European Commission, no definite strategy to resolve such conflicts, and no experience in resisting individual EU countries’ political lobbying. As is known, the decision to impose severe antidumping sanctions on Ukrainian exporters was strongly supported by Germany, Italy, France, and Spain, whose companies control two-thirds of the European Union’s pipe-making industry.
Moreover, calculating the size of damage to European producers, the EC put Ukraine on par with Russia, Croatia, and Romania. As a result, Russia got substantially lower duties and Romania got off easy with a price limitation (as a prospective member of the EU). The EC disregarded the fact that Ukrainian pipes were already 20% more expensive than Russian pipes. Over three years the share of Russian supplies has increased from 5.7% to 10.5% and the share of Romanian supplies – from 2.46% to 3.65% while Ukraine’s share has decreased to 4.4%. A nice “incentive premium”, indeed!
It should be noted that Ukrainian pipes have never competed with European ones in the segment of expensive high quality production, occupying the niche where the basic criterion is the balance of price and quality. That is why the European Union’s steps to protect its producers hardly look well-reasoned as the vacated segment of inexpensive pipes is sure to be occupied by third countries like Argentina or China.
The EC ignored Ukraine’s proposal to set minimal price limits or accept self-limitations on supplies.
Foreign Minister Boris Tarasyuk stated that this year export duties for Ukrainian producers of pipes would be “considerably lower … since Ukraine enjoys market economy status…” Tarasyuk believes that “now the process of antidumping investigations is more just than before”. Oh yes, the twofold extension of the liable nomenclature is really just! (Only recently the Foreign Ministry called the innovation discriminatory.)
Tarasyuk contends that the European Commission applies the lowest possible duty (12%) to “transparent” producers and exporters, but his statement sounds somewhat strange since the enterprises subject to sanctions employ 55% of the workforce while their share of total output and taxes is 60.6% and 73.1%, respectively.
What we see is Ukraine’s shaky position. The Ukrainian delegation’s visit failed to achieve results despite optimistic statements about Ukraine’s good chances to get the duties revised.
The duties might be revised after twelve months and the revision process might take another year. That means that at least until 2008 there is nothing good to expect from the EU. And Ukrtrubprom [Ukraine Pipe Industry] Director General Leonid Ksaverchuk predicts that “we may lose markets in 25 EU countries for at least five years”, referring to the EU’s obvious reluctance to consider any alternative to the antidumping duties.
Europe traditionally makes great demands to Ukraine as a nation seeking EU membership, but every time this country demonstrates some progress, it demonstratively slams the door on its officials and producers. To all appearances, Ukraine is viewed there just as a supplier of raw materials and scrap metal.
Ukrainian pipe producers have announced an indefinite protest action against the discriminatory duties. They are going to picket the European Commission’s representation in Kyiv as well as the German, Italian, French, and Spanish embassies. They know that pickets are not the best way to improve relations with those countries, but they have no choice.
In their letter to the President of Ukraine they made their position clear. “The only one who can protect us and our jobs is our government… Our competitors enjoy support from their governments, thanks to which they managed to make the European Commission impose the duty on us. We know that political leaders of Italy, Spain, Germany, and France press on European Commission officials for preferences for their producers. And if you do not help us, they will win and leave us jobless. Pipes are not coffee. It is impossible to shift them to another market overnight. And if we are dislodged from European markets, we will have to cut our production and up to 1,500 employees will be left without jobs and salaries… We remember very well what was happening ten years ago: we got no wages and had to grow potatoes and mend our old coats…”
Will this cry move the European Commission? – Hardly. So far, such appeals have been unheeded…
… The “European Town” is opening in Kyiv on Saturday with colorful tents of EU countries demonstrating their cultures and economies and advantages they enjoy thanks to their membership.
There will be dishes of national cuisines and music. The Italians will treat everyone to spaghetti. But we already have a nice treat from the European Commission.
