Twice in the market

Ukraine has been expecting the US to recognize Ukraine as a market economy since 2001. It is only after longtime concerted efforts of the government and private business, conclusions of Ukrainian and American lawyers, and the EU decision last December that the US agreed to meet Ukraine halfway and grant it market economy status. To assess “marketness,” the US adhered to the following criteria in accordance with its trade law: convertibility of the national currency, setting wages on the basis of collective bargaining between employees and employers, restrictions to foreign investments, governmental ownership of and control over the means of production, governmental control of resources distribution, price formation and the choice of businesses to produce items at their own discretion. The US confirmed last Friday that Ukraine meets these criteria and can be considered a market economy.

In what way can Ukraine benefit from this status? The notion “market economy country” is usually used during antidumping investigations and is thus of great importance for international trade relations and particularly for the countries to which Ukraine is or will be exporting its goods.

Now that Ukraine has been recognized a market economy, it may be expected that antidumping actions against our country will be more transparent. To prove the fact of dumping, a commodity’s export price is compared with its intrinsic value or the price at the exporter’s domestic market. The common perception is that market forces do not work in non-market economy: prices, distorted by governmental intervention, are not set under the law of demand and supply and, therefore, cannot be subjected to comparison. Under the US antidumping law, in the case of import from a non-market-economy country, the intrinsic value is set on the basis of a price or a construed value in a third market-economy country (the so-called analogue or surrogate country). In other words, a third country was usually chosen for Ukraine and calculations were made with reference to it. Obviously, it was next to impossible to avoid manipulations and errors during this kind of assessment. Granting a country market economy status considerably reduces opportunities for such manipulations.

The absence of manipulation opportunities will force the US industry to think twice before launching expensive antidumping investigations. This will in turn make the US market more accessible and interesting for Ukrainian exporters.

Besides, when dumping by a non-market-economy country is being investigated, the antidumping duty is assessed not individually for each exporters but for the entire country because it is considered that all producers work in the same conditions and with the same prices. When the market economy status has been granted, each exporter will have an individual duty assessed for him, which will provide a true picture of his production facilities and price formation.

Moreover, the status in question may produce a positive effect, when it comes to cutting antidumping duties owing to a more transparent process.

The market economy status will not stop antidumping investigations altogether but will help reduce their potential number as well as the antidumping duty rate.

For most manufacturers, a 10-% antidumping duty is not a serious obstacle for export, but the US antidumping duty on Ukrainian goods was at least 40% and 120% on the average up to now, which practically closed the market.

Under the US antidumping law, in case of an essential change of the circumstances, for example, granting market economy status, the exporters against whom antidumping duties are in force may request the US government to revise them.

As of today, the US is now investigating seven antidumping cases against Ukraine — mainly with respect to hot-rolled sheet metal, concrete reinforcements, silico-manganese, ammonium nitrate, carbamide, rods and wires made of high-carbon and some other varieties of carbonized steel, in one of which Ukraine has undertaken certain commitments. All exporters of these goods can plead for revising the existing duties because Ukraine has been granted market economy status and thus obtain individual, by all accounts lesser, antidumping duties.

Recognizing Ukraine a market economy also has many other economically positive effects. First, the recognition of Ukraine as a market economy by the US (as well as the recent recognition by the EU) will be a signal for many states, important trade partners of Ukraine, to make a similar decision. As of today, Brazil, Mexico, India and some other countries still consider Ukraine a non-market economy. After making this kind of decision, these countries will reduce the number of antidumping investigations, revise their existing attitudes, and, in general, make their markets more accessible. Secondly, this access to the markets of developed states will bring about reorientation of export from the countries of Asia and Africa to more economically developed countries. This will in turn boost the development and technological progress of export-oriented industries and increase employment and cost-effectiveness, which will eventually improve this country’s overall well-being. Thirdly, this will considerably improve Ukraine’s image on the arena of international trade and investments.

Market economy status is undoubtedly a positive thing. Yet this status also has a drawback: application to Ukraine of the compensation measures that are nor applicable to non-market economies (actions against the goods whose production is heavily subsidized by the state). The Ukrainian exporters that enjoy governmental support, exemptions and subsidies may well become the object of such investigations in the US. It should still be noted that in practice compensation investigations and duties in general are resorted to much more seldom than antidumping measures.