The GBD members' lunch last Friday, March 28, was devoted to a discussion of Trade & The Crisis in Ukraine. The discussion was as rich as the developments on Russia's western border are troubling, and we hope to share some other elements of it later. Today's quote is from the opening presentation by
Terence Stewart, who is the managing partner at the law firm of Stewart and Stewart. Mr. Stewart spoke to a PowerPoint presentation he had prepared on
TRADE ISSUES FROM THE UKRAINE CRISIS, which took the audience from the deterioration in Ukraine's trade balance over the last several years to the sanctions and IMF package of these last few days.
His comments were detailed and informative, but Mr. Stewart is clearly not looking to the WTO for a solution to the current crisis. As he put it, "The organization [wasn't] created to be the referee in this type of situation."
Accession, Renegotiations, and a Dispute. Mr. Stewart's PowerPoint begins with the observation that "Since WTO accession in 2008, Ukraine's trade deficit has ballooned." In 2002, Ukraine had a trade surplus in goods and by 2012 was running a deficit of $15.9 billion.
His impression of the accession process was that Ukraine was in over its head. The U.S., for example, wanted Ukraine in the WTO system, but that did not translate into a kid-gloves approach to negotiations on the part of the other WTO members. Mr. Stewart quoted a negotiator from one country taking a tough stance saying, "If they're not ready, they shouldn't be here."
Here's how Mr. Stewart described the accession process for the Ukraine: "You had a government that was new to the game, had no idea what they were agreeing to, and were being pushed very hard to accept commitments that they probably weren't in a position to accept. And that is, in my view, the large reason why Dot 2 is up there."
Dot 2 was the bullet point on Mr. Stewart's third slide. It was a reference to Ukraine's later effort in the WTO to renegotiate some 371 tariff lines, an effort which was both novel and very unwelcome for Ukraine's trading partners.
Safeguards. Separately, Ukraine has instituted a safeguard action on car imports. Japan is now challenging that in the WTO. Referring to Japan's challenge and its second panel request last week at the DSB, Mr. Stewart expressed some surprise that Japan "has not taken its foot off the gas despite the crisis."
Tobacco. "Ukraine has joined a club of selling their national rights to bring WTO cases to the highest bidder, in this case, the plain-package tobacco cases," Mr. Stewart said. "They are one of four or five countries that basically have let the tobacco industry bring cases under their name."
An Energy Note. Here is just some of what Mr. Stewart said about the critical role of energy in Ukraine's relationship with Russia:
"The biggest part of [Ukraine's] imports are energy. Close to 100 percent of their natural gas comes from Russia. And so, if all else fails, you [Ukraine] look to see, well, Can I cut a deal with my former friends to get a special price? And a lot of the pressure on the system has been there. If you look at what has happened in Ukraine, Russia has basically used the energy deficit year after year to buy off big pieces of Ukrainian national assets, including, before Crimea was annexed, the rights to the long-term military bases there. [Ukraine] sold off their oil refining capacity to the Russians, etc. etc."
Back to the WTO (Or Not). To return to the starting point for this entry, here is more from the paragraphs with today's featured quote:
"What's the significance of the WTO in the context of this crisis if it goes on? [What if] ... Russia takes [steps] that could adversely affect Ukraine in terms of cutting off access to energy or cutting off access to the Russian market for their exports etc.? And, you know, the answer is, yes, sure there are options that exist out there. But the WTO is, I would say, largely irrelevant in terms of how this crisis plays out. ...
"In terms of prior examples, obviously you had the same situation that happened in Georgia back in 2008. That happened prior to Russia being a WTO member, and so there were no WTO consequences for Russia. Georgia did hold up the negotiations for Russian accession. They were the last hurdle. But if you look at the accession protocol and the working party report, you will be hard pressed to find anything that Georgia got by agreeing to let Russia into the club. They were under a lot of pressure from the U.S. and from Europe and from others to withdraw their objection to Russia getting in. ...
"It is pretty clear that [in] the on-going disputes that Ukraine has with other WTO members, [those] members are not cutting them any slack in this crisis time, as seen by Japan's insisting to move the process forward on the auto case.
"Now press reports ... have indicated that from time to time Russia imposes restrictions on Ukrainian goods. They may do it on a standards basis. They may simply raise the tariffs. They may do a bunch of things which are clearly WTO inconsistent. [Yet] you have not seen any request from Ukraine for a panel in that situation. And, at the same time, since annexation, it's been reported that Ukraine has cut off electricity to the Crimea region. Obviously, [that presents] problems as well.
"We all know that if there are WTO problems between two WTO members, a WTO member can bring a case. But, you know, the life of a case runs from maybe, optimistically, two and a half to three years, if the trains all ran on time, to five, six, seven, ten years in really big cases. And, you know, [maybe] there is no Ukraine by the time that process sorts itself out. So to think that the WTO is going to be a solution to whatever may happen in this crisis, in my view, is fanciful. The organization [wasn't] created to be the referee in this type of situation."
