Comparative analysis of the domestic regulation of a state aid in Ukraine and EU and its conformity with the principles of the WTO.

Plan:

Preamble

The ineffectiveness of budget spending has historically been one of the main flaws in Ukraine’s budgetary system, especially due to the lack of clear rules about providing state aid to commercial entities. Different estimates put the cost of such assistance at between 4 – 5 percent of GDP. Ukraine also currently lacks an oversight over the provision of state aid. This is the crucial reason for ineffectiveness of spending on state aid to various branches of the economy and individual enterprises.

Moreover, the impact of state aid on the country’s economy, in particular on competition, is not analyzed. The losses incurred from this nontransparent and inefficient state aid run to the billions of hryvnias, while the resulting distortion of competition has a very negative impact on the investment climate. The latest casualty of all this was the EU Budget Support program, which was terminated in February 2012.

Ukraine committed to approve rules for the state aid. It is one of the priorities of the Association Agenda with the EU in the sphere of competitiveness. Still, the framework law on state aid has not been approved, although several versions of a bill have already been drafted. Lack of political will and disagreement in the Government about the principles of regulation is the main reason for the delay.

To make the system more effective, a number of steps need to be taken to carry out the Concept for Reforming State Aid that has already been given a green light by the Cabinet: approving the framework law on state aid, inventorying such aid as is already being provided, and establishing which government bodies are authorized to oversee and monitor the provision of such assistance.

Moreover, this framework legislation should be based on such principles of public administration as non-interference and the independence of institutions, transparency and delimited timeframes. If these conditions are met, state aid to commercial entities might actually begin to foster economic growth with a minimum of negative impact on competitiveness. Being the most urgent problem of the Ukrainian society the state aid should be analyzed and the comparative analysis of the domestic regulation of a state aid in Ukraine and EU and its conformity with the principles of the WTO should be presented.

Moreover, the close sight should be given to a state aid, which is provided by the Government of Ukraine. Thus, with the state aid system the Ukrainian government supports economic activities in order to maintain the viability and competitiveness of domestic producers, especially those working in “strategic” sectors of the national economy.

A main goal of this study is to analyze policies and instruments used by the Ukrainian governments to support industries that typically confront growing inefficiencies, low productivity, environmental and overcapacity problems, mass redundancies and decreasing competitiveness in international markets. These are often referred to internationally as “sensitive sectors” and there is an increasing presumption that State supports in such sectors are inefficient, as free trade, competition and globalization have become increasingly prevalent in these sectors. In this regard, the study focuses primarily on the ways of how state aid is provided in Ukraine in comparison with European countries and countries WTO members.

Conclusion

Coming to conclusion we can say that the rules for providing state aid are neither clear nor transparent in Ukraine right now. Nor is there any legislation that might establish the conditions for approving such assistance and the agencies that would be responsible for inventorying and overseeing the provision of such aid. Today, state aid is completely discretionary in Ukraine.

Apart from budgetary reporting, there is no accountability for providing state aid, which is in contradiction to the principle of open public finances. Moreover, the ineffectiveness of state aid leads to considerable public cost and the lack of oversight allows it to distort competition. This, in turn, creates a poor investment climate.

Today, the Government has plans for reforming the state aid system. In particular, the Concept for Reforming State Aid envisages such steps as approval of the Law on State aid, inventory of state aid being provided, clear definition of responsibilities of authorities to conduct an oversight and monitoring. All these steps should help make the system more effective. This means that state aid to commercial entities could eventually stimulate economic growth with a minimum of negative impact on competition

Moreover, the paper gives analyze of certain areas of the approximation of Ukrainian competition law to that of the EU in accordance with the requirements of the Association Agreement.

It can be concluded on this basis that the main weakness of the Ukrainian legal system is the lack of proper enforcement levels and the need to improve the transparency of decision-making procedures, including the publication of decisions issued by the national competition authority – the Antimonopoly Committee of Ukraine. Due to the effective enforcement and implementation of prospective amendments to the competition law of Ukraine the mechanism of cooperation and coordination should be settled between national authorities.

Notwithstanding that there is no provision in the AA concerning coordination within the International Competition Authority, Art. 259 AA stressed on the necessity of co-operation and co-ordination between their respective competition authorities to further enhance effective competition law enforcement.

These forms of cooperation include the exchange of information between relevant national authorities of Ukraine, the European Union and its individual Member States. In addition, the AA focuses on the fact that such cooperation shall not prevent the authorities from taking independent decisions.

Consulting is the main instrument of an effective harmonization process and fostering mutual understanding of the parties in competition law enforcement – its implementation is foreseen in Article 260 AA.

A process of consultation will be used during the interpretation or application of competition rules. However, this rule does not represent a firm commitment but merely the expression of the intention of the parties to provide each other with non-confidential information in order to improve the consultation process. In particular, it should be noted that the scope of the feature according to the Association Agreement is that none of the parties to the Agreement may not resort to dispute settlement procedures of the questions referred to the field of competition.

The only obligation on the terms of harmonization of Ukrainian legislation in accordance with Article 256 AA may be subject to dispute settlement procedures. This means that the provisions of the Association Agreement are determined as mandatory principles of free competition in the market in terms of free trade. Prohibition of anticompetitive practices in the form of concerted actions or agreements, abuse of dominance, and the principle of concentration control are the basic elements of the implementation of free trade.

State aid may distort competition by giving an advantage to certain companies or industries. Since state aid is considered a separate branch of EU law and subject to strict controls, the Association Agreement pays special attention to the question of state aid. Harmonization is a process of convergence towards the principles of another legal system. Attention is thus paid not only to the substantive content of the rules to be assimilated, but to the complex nature of its practical application also. In this respect, the Court of Justice of the European Union is of crucial importance as it interprets and explains the features of the implementation of European Union law.

To implement these commitments, Ukraine has to, within three years of the entry into force of the Association Agreement, adapt its legislation in this area with that of the EU. It must also improve its current institutional framework under the principle of fair practice and state litigation. On the other hand, with the aim to adopt fair rules on state aid (which would be a novelty for Ukrainian legislation), a control and monitoring system of state aid should be created, including the provision of relevant statistical information.

Current practice shows that there is no direct effect of EU norms in the national competition system of the Ukraine; there are also no judgments of EU Courts (or even Commission decisions) on the extraterritorial application of EU Competition norms in the Ukraine. Still due to the intensification of the trade liberalization process, Ukrainian undertakings should be bound by EU “competition clauses” in accordance with the “effect on trade” and “effect on the internal market” rules. In general, we can observe the system of implemented norms but with the inefficient system of its enforcement. This problem has the ground of formalistic approach to protect the activity on the market instead of social welfare-oriented system of competition. The special clause in the enforcement process should be stressed as a necessity of reorientation of the object of competition law as a whole mechanism of better consumer protection.