On the 1 January 2016 the Agreement on Deep and comprehensive free trade area (DCFTA) between Ukraine and the European Union came into force. Temporary application of the economic part of Chapter IV of the Agreement started on April 23, 2014, unilaterally – Ukraine had the right to use quotas on duty-free export to the EU, at the same time the EU countries supplied products under general conditions. Only on January 2016, the Agreement started to function bilaterally (Deep, 2018).
In the table 1 the content of Chapter IV Trade and trade-related mattersof Association Agreement between Ukraine and the European Union is presented.
Table 1 Content of Chapter IV of Association Agreement
Chapter |
Main sections |
|
---|---|---|
Title IV Trade and trade-related matters |
||
National treatment and market access for goods |
Elimination of customs duties, fees and other charges Non-Tariff measures Specific provisions related to goods Administrative cooperation and coordination with other countries |
|
Trade remedies |
Global safeguard measures Safeguard measures on passenger cars Non-cumulation Anti-dumping and countervailing measures Consultations Institutional provisions Dispute settlement |
|
Technical barriers to trade |
||
Sanitary and phytosanitary measures |
||
Customs and trade facilitation |
Objectives Legislation and procedures Relations with the business community Fees and charges Customs valuation Customs cooperation |
Mutual administrative assistance in customs matters Technical assistance and capacity-building Customs Sub-Committee Approximation of customs legislation |
Establishment, trade in services and electronic commerce
|
General provisions Establishment Cross-Border supply of services Temporary presence of natural persons for business purposes |
Regulatory framework Electronic commerce Exceptions |
Current payments and movement of capital |
Current payments Capital movements Safeguard measures Facilitation and further liberalization provisions |
|
Public procurement |
Objectives Scope Institutional background Basic standards regulating the award of contracts |
Planning of legislative approximation Market access Information Cooperation |
Intellectual property |
General provisions Standards concerning intellectual property rights Enforcement of intellectual property rights |
|
Competition |
Antitrust and mergers State aid |
|
Trade-Related energy |
Definitions Domestic regulated prices Prohibition of dual pricing Customs duties and quantitative restrictions Transit Transport Cooperation on infrastructure Unauthorised taking of energy goods Interruption |
Regulatory authority for electricity and gas Relationship with the Energy Community Treaty Access to and exercise of the activities of prospecting, exploring for and producing hydrocarbons Licensing and licensing conditions |
Transparency
|
Objective and scope Publication Enquiries and contact points Administrative proceedings Review and appeal |
Regulatory quality and performance and good administrative behaviour Non-discrimination |
Trade and sustainable development
|
Context and objectives Right to regulate Multilateral labour standards and agreements Multilateral environmental agreements Trade favouring sustainable development Trade in forest products Trade in fish products Upholding levels of protection |
Scientific information Review of sustainability impacts Civil society institutions Institutional and monitoring mechanisms Group of Experts Cooperation on trade and sustainable development |
Dispute settlement
|
Arbitration procedure Compliance Common provisions General provisions |
|
Mediation mechanism
|
Procedure under the mediation mechanism Implementation General provisions |
|
Protocol I – Rules of origin |
Rules of origin define the 'economic nationality' of products needed to determine the duties applicable to them when traded. In the DCFTA, the rules are based on the usual criteria. |
|
Protocol II – Mutual administrative assistance in customs matters |
It sets out a legal framework for cooperation between the Parties' competent authorities in tackling customs irregularities and fraud. |
|
Protocol III – Protocol on a Framework Agreement between the European Union and Ukraine on the General Principles for the Participation of Ukraine in Union Programmes |
It sets out core principles for Ukraine's financial contribution and participation in monitoring current and future EU programmes. |
Compiled by the authors on the basis of (Association, 2014; EU-Ukraine, 2018).
The Deep and Comprehensive Free Trade Area (DCFTA) is part of the Agreement (AA) between the EU and the Republic of Ukraine, one of EU's the most ambitious bilateral agreements yet. The DCFTA will offer Ukraine a framework for modernising its trade relations and for economic development by the opening of markets via the progressive removal of customs tariffs and quotas, and by an extensive harmonisation of laws, norms and regulations in various trade-related sectors, creating the conditions for aligning key sectors of the Ukrainian economy to EU standards (EU-Ukraine, 2018).
From October 2017 and from January 2018, 8 additional quotas for duty-free exports to the EU to honey, groats and flour, processed tomatoes, grape and apple juice, grains (oats, wheat, corn and barley) began to operate with the main quotas (Deep, 2018).
The main aims of Chapter “Market Access for Goods” is to remove customs duties on imports and exports. The vast majority of customs duties on goods will be removed as soon as the Agreement enters into force.
Defenition
'Customs duty' includes any duty or charge of any kind imposed on, or in connection with, the import or export of a good, including any form of surtax or surcharge imposed on, or in connection with, such import or export. A 'customs duty' does not include any:
(a) charge equivalent to an internal tax imposed consistently with Article 32 of this Agreement; (b) duties imposed consistently with Chapter 2 (Trade Remedies) of Title IV of this Agreement; (c) fees or other charges imposed consistently with Article 33 of this Agreement.
Overall, Ukraine and the EU will eliminate respectively 99.1% and 98.1% of duties in trade value. For industrial goods, the calendar for liberalisation foresees the immediate removal of existing tariffs on most products, with exceptions for a few for which a transition period exists, in particular for the automotive sector in the case of Ukraine.
For agricultural goods, ambitious concessions have been made taking into account specific sensitivities. Thus, duty-free tariff rate quotas been granted to the Ukraine for cereals, pork, beef, poultry and a handful of additional products, while for others the progressive elimination by the EU of the custom duties will occur over a longer transition period (generally 10 years). This means that for particularly sensitive sectors, the gives producers more time to adapt to a more competitive environment while offering consumers a wider choice of products at lower prices.
As regards non-tariff barriers (NTB) on trade in goods, the Agreement incorporates fundamental WTO rules on NTBs, such as national treatment, prohibition of import and export restrictions, disciplines on state trading etc. Export duties will be prohibited from day one, with some temporary exceptions for Ukraine on a few agricultural and metal products.
Under the DCFTA the elimination of customs duties are as follows:
- The FTA will create opportunities for trade by lowering tariffs on imports. Ukrainian exporters will save €487m annually due to reduced EU import duties. Ukraine will remove around €391m in duties on imports from the EU, with longer transition periods than the EU for certain goods.
- Ukrainian agriculture will benefit most from cuts in duties: €330m for agricultural products, and €53m for processed agricultural products. New market opportunities in the EU and higher production standards will spur investment, stimulate the modernisation of agriculture and improve labour conditions.
- Both sides will fully liberalise trade in industrial products, with Ukraine reducing duties on machinery and appliances by €75.2m. There are some exceptions for cars, but Ukraine will still cut duties on vehicles by €117.3m.
- The textiles sector will be fully liberalised from day one with Ukraine and the EU cutting duties worth €8.7m and €24.4m respectively. Special conditions will apply for five years to second-hand clothing.
- Reduced EU tariffs on chemicals will cut duties paid by Ukrainian exporters by €26.8m, while Ukraine will cut duties by €64.3m.
According to the article 29 of Associate Agreement five years after the entry into force of this Agreement, at the request of either Party, the Parties shall consult one another in order to consider accelerating and broadening the scope of the elimination of customs duties on trade between themselves. A decision of the Association Committee meeting in Trade configuration as set out in Article 465 of the Agreement (hereinafter referred to also as the "Trade Committee") on the acceleration or elimination of a customs duty on a good shall supersede any duty rate or staging category determined pursuant to their Schedules for that good.
Due to political pressure by Russia, the EU and Ukraine postponed the provisional application of the DCFTA to 1 January 2016. However, the EU liberalised access to its market in April 2014 by providing Ukraine with Autonomous Trade Measures (ATMs).
These measures have so far only had a limited impact on Ukraine’s exports to the EU due to the suspension of production in the occupied territories, logistical problems and downward price trends for world commodity markets.
However, the EU’s share in Ukrainian exports and imports has increased because of a sizeable fall in trade with Russia. The structure of exports to the EU has shifted towards machinery, fats and oils, prepared foods and animal products.
The utilisation of tariff-rate quotas for agricultural products was limited because Ukrainian producers experienced problems with food security and weak demand for its production.
Safeguards for Ukraine’s car industry constitute a major source of protection, which will help Ukrainian producers in the short run, but at the expense of their integration into competitive European supply chains, and with costs for consumers.
Joining the Pan Euro-Mediterranean system for rules of origin is an important issue for Ukraine as it will allow the country to apply diagonal cumulation among its members. Ukraine intends to join this system, but so far made no significant progress (Emerson, 2016).