After 14 years of negotiations, on February 5, 2008, the General Council of the World Trade Organization (WTO) finally approved Ukraine's membership of the organization. Thus, within six months Ukraine will be able to enjoy all the peculiarities of this international body. Membership of the WTO, as well as of any other international organization, brings some advantages to its holders. Yet, at the same time it obliges states to make some concessions. Here we examine the terms of Ukraine's accession to the WTO and how the country's membership of this international trade organization will affect the Ukrainian steel industry.
With regard to the positive aspects of WTO membership for Ukraine, it will definitely ease the access of Ukrainian steel producers to the world steel markets, entry to which is still somewhat limited due to various measures. In particular, the country's accession to the WTO will open the USA and the EU markets to Ukrainian steel products. Currently, various barriers, including antidumping duties, import tariffs, quotas and reference prices stand in the way of Ukrainian steel exports to these regions. However, according to Ukraine's accession terms, quotas and reference prices will be removed. The fact bears great significance for the country's steel exports in the sense that Ukraine will be able to sell more of its high value added products to these regions, thus starting to move away from being an exporter of mostly raw materials and semi-finished products.
In addition, open access to high value added markets will also help Ukrainian steel producers to generate additional revenues, which could be used later on in capacity modernization and expansion projects. Thus, the opening of foreign markets to Ukrainian steel products will not only lead to greater access for Ukrainian steel to the international markets, but in the long-term will generate the further development of the Ukrainian steel industry.
Moreover, entry to this international organization will provide Ukraine with an instrument to defend its exporters' interests in the international market. The WTO has a special institution for solving trading disputes between member states, and Ukraine will be able to have recourse to it after accession. In addition, Ukraine will be able to participate in the negotiations of new rules of trade once the country enters the organization. The dispute-resolving mechanism and the right to have a word in the determination of new trade rules will be very beneficial for Ukrainian steel producers, especially when one takes into account the large number of antidumping duties imposed against the country and also the share of the Ukrainian economy occupied by the steel industry. In addition, in the case of Ukraine, an increase in steel production is predicted for the country's post-WTO accession period due to improved access to new technologies and know-how.
Yet, one should not forget that by entering this international organization, a country is forced to make some sacrifices, and in the case of the Ukraine's accession to the WTO, these sacrifices may overcome the positive affects of membership. For instance, the accession to the WTO does not only open the international market for Ukraine, but also gives access to the Ukrainian domestic market to other WTO members. According to its accession terms, following the country's accession to the WTO, Ukraine will have to cancel its current practice of setting minimum prices for imported goods, which more or less has protected the Ukrainian market from cheap imports. However, once imports are given free access, Ukraine may run the risk of being overloaded with cheap imports. Indeed, in the middle of last year, several Ukrainian flat steel producers voiced concerns regarding the amounts of cheap steel imports coming from China, which started to oust local products from the market. This problem is expected to even worsen following Ukraine's accession to the WTO, once the county opens its market.
The second point of concern for the Ukrainian steel industry as regards the country's accession to the WTO is the nullification of scrap export duty. Starting from 2003, the government taxed all scrap exports from the country with €30/mt, or by 30 percent which is higher. The measure was imposed as a mechanism to guarantee supplies of this raw material to domestic steelmakers in the context of the continuous reduction in the scrap collection volume. However, once Ukraine enters the WTO, the duty will be removed, while exporters will have a broader choice as regards whether to export or supply scrap to domestic producers. The cancellation of the duty may lead to several consequences, the most severe of which include shortage of scrap in the domestic market and equalization of international and domestic scrap prices. In both cases, the primary cost of steel production could be affected in a negative way.
The last but not least issue in the country's accession to the WTO may be the unification of transportation tariffs. According to the accession terms, Ukraine has agreed not to discriminate when setting its railway tariffs. This will entail an increase in transportation costs for mining and steel producing companies, which in turn will affect end product prices. Furthermore, the increase in production costs may also damage the position of Ukrainian exporters in newly-opened markets, as their products will be less competitive.
As can be seen above, Ukraine's accession to the WTO may result in both positive and negative influences on the country's steel industry, while the industry's future development could go both ways. On the one hand, WTO membership will open greater access to international steel markets, and help Ukraine not only defend its interests in the world's market via different WTO mechanisms, but may also help the country to generate revenues for new investment projects. However, on the other hand, Ukraine will have to open its own steel market to foreign exports, which may lead to penetration of the market by cheaper products. Moreover, unification of transportation tariffs and cancellation of scrap export duties may affect the cost of steel production considerably and, thereby, lead to loss of competitiveness of Ukrainian steel products in the newly-opened markets. Furthermore, although the WTO member states are obliged to open their markets to Ukrainian steel products following the country's accession, access to these markets might be still limited via other measures allowed by WTO rules, such as anti-dumping duties; in this way short-term benefits could be replaced by long-term losses.