On 26 June 2015 the Panel of the WTO Dispute Settlement Body (the DSB Panel) issued a Report which upheld the complaint previously filed by Japan against Ukraine regarding the definitive safeguard measures imposed by Ukraine on the import of passenger cars. The dispute concerned the 2012 decision of Ukraine’s Inter-Departmental Commission for International Trade which made the import of passenger cars with certain engine capacities subject to additional safeguard state duties. Such measures became effective in April 2013.

Japan claimed that the measures introduced by Ukraine were inconsistent with certain provisions of the Agreement on Safeguards as well as GATT 1994. In particular, it alleged that Ukraine did not immediately notify the Committee on Safeguards, and did not provide adequate opportunity for prior consultations with WTO members. It was also stated that Ukraine applied the safeguard measures beyond the extent necessary to prevent or remedy serious injury. At one of the recent meetings of the WTO Committee on Safeguards, Japan expressed serious concerns that the measures introduced by Ukraine would cause a large-scale negative effect on Japanese auto exports.

On 26 March 2014 the DSB Panel was constituted. In its Report communicated on 26 June 2015, the DSB Panel ruled that Ukraine had acted inconsistently with provisions of GATT 1994 because the Ukrainian competent authorities did not provide in their published report a demonstration of the unforeseen developments and the effect of GATT obligations, which must be satisfied before a safeguard measure can be imposed.

The violation of the WTO Agreement on Safeguards was established as well. The Report stated that Ukraine failed to evaluate all relevant factors affecting the domestic industry, in particular because it did not properly assess the likely development of the injury factors in the very near future and their likely effects on the situation of the domestic industry, and that Ukraine therefore failed to make a proper determination regarding threat of serious injury to the domestic industry. In addition, according to the Report, Ukraine violated the provision regarding the level of concessions and other obligations (Article 8.1) as it failed to endeavour to maintain a substantially equivalent level of concessions and other obligations between it and an affected exporting Member. Based on the above, the Panel suggested that Ukraine should revoke its safeguard measures on passenger cars.

This case is the first ever Ukrainian failure in a WTO dispute since Ukraine’s accession to the WTO in 2008. Ukraine has a right to file an appeal against the Report within two months after it was officially published. However, the chances of success of such an appeal are slim as the Report was almost unanimous.  

The main question as of today is how quickly and efficiently Ukraine will comply with the Report. In particular, this case will demonstrate whether Ukraine is ready to seriously respect its obligations as a WTO member. There are positive signs suggesting that indeed Ukraine will comply with the findings of the DSB Panel and revoke the state duties in question.

The Ukrainian car manufacturers have historically enjoyed various exemptions and protective duties imposed by the Ukrainian state since mid-1990s in an effort to protect the domestic car production. This is the first time that certain protective measures imposed after Ukraine’s WTO accession have been a subject matter of international quasi-judicial review. At the same time, Ukrainian car makers are linked with certain Ukrainian state officials and therefore may pursue lobbying initiatives in order to retain the additional state duties on the import of foreign cars.