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News and analysis on the global poultry
and animal feed industries.
on October 28, 2008

Ukraine bans advance payments for imports

Exports of poultry to Ukraine were made more difficult earlier this month by that country’s ban on advance payments for imports.

Facing a possible meltdown of the its banking system, the National Bank of Ukraine (NBU) adopted measures to lessen pressure on the Ukrainian currency “Hryvna” (UAH) and the currency reserves of the NBU, itself. In addition to placing severe limitations on the extension of new loans for commercial banks, a ban was placed on foreign currency sales to purchase imports without proof that the imports were delivered to Ukraine.

The decree was designed in part to stem the speculative demand for U.S. dollars from “fake importers” buying currency for virtual import contracts in hopes of selling later at better rate. Ukrainian legislation permits advanced payments abroad within 180 days prior to the delivery of imported commodity. This rule was abused by the currency speculators wiring purchased foreign currency abroad.

In most import contracts, the first payment is made when the vessel with product leaves port and the final payment is made when commodity reaches the Ukrainian port (typical CIF contract). Due to extremely complicated import rules and corruption, exporters usually prefer to stay away from transactions inside the country.

In order to be paid, exporters would have to transfer ownership right to the Ukrainian importer, allow for custom clearance and duty payments, wait for currency exchange and hope to receive payment after that. All this would be in violation of the existing export contract terms. Significant risk not to be paid at all puts the entire import-export operations in danger.

The decree puts all suppliers having their products “en route” or in Ukrainian ports in a very difficult situation. Ukrainian suppliers could refuse to pay on agreed terms using “force majeure” clauses of the contracts.

Exporters are urged to be cautious when signing contracts with Ukrainian counterparts in the near future. The situation is subject to daily changes, so exporters are encouraged to check with their respective governments for the latest updates.
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