U.S. imposes trade sanctions on Ukraine (01/27/02)

U.S. imposes trade sanctions on Ukraine

by Roman Woronowycz
Kyiv Press Bureau

KYIV - The United States imposed economic sanctions on Ukraine on January 23 in response to the country's inability to stop CD music and software piracy. The action came after Ukraine's Parliament on January 17 failed to pass an effective piece of legislation in support of CD licensing - a bill the U.S. had backed but Ukrainian lawmakers rejected in favor of their own version.

The law that was passed would require that all compact discs manufactured in Ukraine and the machinery involved in CD production receive government licensing.

Meanwhile, Ukraine instituted its own sanctions on U.S. poultry products on January 18 when the Ministry of Agriculture announced that the use of antibiotics, special chemical preservatives and growth stimulants by U.S. chicken farmers contravene Ukrainian law. Ukraine implemented a ban on the products retroactive to January 1.

It was not certain whether the Ukrainian ban on U.S. poultry was tied to economic sanctions leveled by Washington in response to Ukraine's failure to pass effective anti-piracy legislation for the compact disc industry. What was obvious, however, was that the U.S. would no longer give Ukraine second chances in the fight against commercial piracy of intellectual property rights.

"The Office of the U.S. Trade Representative (USTR) has determined that U.S. trade law mandates the imposition of sanctions on Ukraine due to Ukraine's continuing failure to terminate sound recording and optical media piracy," stated a U.S. Embassy press release dated January 23, which announced the beginning of the trade limitations.

Yaroslav Voitko, head of the economic-trade mission of Ukraine's Embassy in Washington, was straightforward in assessing the reason for the U.S. action.

"The bill recently passed by the Ukrainian Parliament does not meet the demands of the U.S. party and the International Federation of the Phonographic Industry," he explained, according to Interfax-Ukraine.

The sanctions, which could be repealed as soon as Ukraine approves anti-piracy legislation more to Washington's liking, will limit the import of about $75 million worth of Ukrainian-made products into the United States, including steel, textiles and chemical products. However, Ukrainian officials said the real cost to its economy would be closer to $470 million. U.S. officials said they would continue to cooperate with Ukraine to get the law they would like to see.

The trade sanctions on Ukrainian goods went into effect after Washington repeatedly warned Kyiv that it would have no choice but to pursue such an action if the country would not undertake serious measures to combat widespread piracy of intellectual property rights in the form of the illegal manufacture of music and software CDs. A report issued last year by the U.S. Embassy claimed that Ukrainian CD manufacturers were producing some 70 million CDs annually, far exceeding a local demand of about 5 million discs. The U.S. has worked to convince Kyiv to develop an effective anti-piracy policy for more than two years by cajoling, threatening and, now, more serious means.

The U.S. Embassy released a background paper on January 23 in which the USTR said that there is undeniable evidence that illegal CD plants in Ukraine continue to enter markets in Europe and overseas. It estimated U.S. losses at $200 million annually and emphasized that the date for sanctions was set only after repeated efforts to induce Ukraine to set anti-piracy legislation had failed, including the suspension of limited Ukrainian trade privileges in August.

The Ukrainian Parliament finally passed a bill requiring the licensing of CD products on January 17 by a vote of 233-6 after the U.S. had announced the January 23 deadline for sanctions and after the Ukrainian government had exerted pressure on the legislative branch of government to accede to Washington's demands.

While it was possible that Ukraine could have avoided the sanction after having passed any sort of anti-piracy legislation, the trade ban became automatic when the Parliament failed to make available a copy of the approved legislation for analysis by U.S. officials in the immediate days prior to the deadline. A spokesperson for the U.S. Embassy in Kyiv said on January 24 that the mission had finally received a copy only the day before, nearly a week after it was passed, and was not yet ready to comment on it.

In the January 23 press release, however, the Kyiv embassy stated that an analysis of the draft bill in its partially passed form did not meet expectations. It explained that the first reading passed by the legislature "was so weak as to be ineffective at deterring piracy."

The associated background paper issued by the embassy explained that, "because the Rada has not released a copy of [the approved] bill, USTR cannot determine whether Ukraine has fulfilled its commitment to stop piracy and thus cannot stop sanctions from taking effect."

It noted that initial reports suggested that the bill contained "many provisions that exclude certain parts of the manufacture process from control" and that "administrative and criminal penalties contained in the law are too low to effectively deter criminal piracy."

While the U.S. criticized the legislation that was passed for being too lax, Ukraine's CD manufacturers - and there are only two legal producers in Ukraine today - fiercely opposed the version supported by the U.S., claiming that it was so suffocating that it would extinguish what was left of the industry in Ukraine.

Ihor Eihenvald, head of the CD manufacturer's business association in Ukraine, said the approved legislation met the general intent of what the U.S. had requested, while leaving intact respect for the rights of Ukrainian businessmen. He explained that at issue was the right of manufacturers to protect themselves from unannounced government inspections of their facilities.

The draft bill developed by the Ukrainian government and rejected by lawmakers would have allowed for unannounced and unspecified inspections, simply requiring a search warrant from the procurator general to proceed. The legislation that was finally approved, one of six varieties the Parliament considered, limited the government action to searches based on specific allegations.

Mr. Eihenvald said that in essence no single law could solve Ukraine's piracy problems.

"If shady companies exist, they will remain in the shade," he explained, according to the Associated Press.

National Deputy Oleksander Moroz, one of the leftist lawmakers who led the successful effort to water down the legislation, said sanctions would have been implemented regardless of what the Verkhovna Rada approved because Washington was only looking for a political reason to deny Ukraine an export market for its steel.

President Leonid Kuchma said on January 22 that he would sign the bill passed by the Parliament, while voicing his dissatisfaction with U.S. pressure on Ukraine.

"None of the world's countries has the law the U.S. has required us to pass," explained Mr. Kuchma. "Is this cooperation or pressure? I regard it as pressure."

The U.S. had announced on December 20 that it would impose trade sanctions on Ukraine if it did not pass the CD licensing legislation, hours after the Verkhovna Rada had rejected a version of the bill. It was the second threat by Washington to move against Ukraine economically. Ukraine had averted sanctions once before even as the Ukrainian Parliament had given no indication it was ready to bend even slightly to accommodate U.S. wishes. On November 29 Ukrainian lawmakers had rejected another version of a CD licensing bill, after which the U.S. said it would impose sanctions on December 12. That action was postponed after discussions in Washington between Ukraine's Prime Minister Anatolii Kinakh and USTR representatives. Then on January 10 the Verkhovna Rada once again let its position on anti-piracy legislation be known when lawmakers failed to find the votes to place the latest version of the draft law on the daily agenda simply for debate.

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