EU trade and Ukraine

Chapter 4: THE CONTENT OF DCFTA BETWEEN EU AND UKRAINE

4.4. Customs and trade facilitation, public procurement.


The chapter ‘Customs and trade facilitation’ seeks to enhance co-operation in customs and customs-related matters and to simplify customs requirements and formalities, while at the same time preventing fraud. 

Building on current cooperation on customs matters, the Protocol on mutual administrative assistance in customs matters provides a stronger legal framework for efforts to ensure the correct application of customs legislation and the fight against infringement. Both sides will supply each other with all relevant information needed to conduct investigations, including the possibility for officials of the one Party to participate in administrative enquiries in the territory of the other Party.

A competitive and diversified services sector is of huge importance for the Ukrainian economy. 

The Agreement is detailed and comprehensive in both commitments to liberalisation and reservations. The text is asymmetric, with more liberalisation and fewer reservations on the Ukrainian side, which however is consistent with the urgent need for the Ukrainian economy to be modernised. 

The Agreement makes provisions for a few services sectors to attain ‘full internal market treatment’ by the EU as a long-term objective (Emerson, 2016). 

The DCFTA contains a provision for temporary withdrawal of preferences as a safeguard in the event of insufficient cooperation. 

The main aspects of integrating Ukraine as much as possible into the EU market is presented in the chapter ‘Establishment, trade in services and electronic commerce’. Unlike classical FTAs, it provides for both the freedom of establishment in services and non-services sectors, subject to limited reservations, and the expansion of the internal market for a set of key services sectors once Ukraine effectively implements the EU-acquis. 

The agreement provides for a right of establishment (as opposed to commercial presence) in services and non-services sectors. This right is subject to a number of reservations identified in a negative list. This approach is unprecedented for the EU and guarantees automatic coverage for new services and further liberalisation not listed as exceptions. Provisions for domestic regulation, postal and courier services, financial services and telecommunication services will improve transparency and legal certainty for EU investments in Ukraine. The focus here is on "behind the border" issues. 

The DCFTA is complemented by a process of legislative approximation in financial services, telecommunications services, postal and courier services, and international maritime services. The Ukraine is committed to take over the existing and future EU-acquis in those sectors and, when it has done so, Ukrainian firms will be granted access to the EU internal market for the sectors concerned: this is an unprecedented level of integration. The approximation process will also mean that EU investors in those sectors will find the same regulatory environment in Ukraine as in the EU. 

Provisions on free movement of capital will include standard safeguards with a possibility to apply measures to ensure the stability of the financial system. 

Ukraine will, over several years, adopt current and future EU legislation on public procurement. With the exception of defence procurement, Ukrainian suppliers and service providers will have full access to EU public procurement markets, and EU suppliers and service providers will have the same to the Ukrainian procurement market. The chapter is an unprecedented example of the integration of a Non-EEA-Member into the EU Single Market (Chapter 8 of Associate Agreement). 

Ukraine’s IPR system has some gaps in relation to the best European and international practices, which raises many concerns for the US and the EU. These gaps will be addressed by forthcoming legislation. 

Ukraine is a member of the main IPR- related international organisations (WIPO) and international treaties (TRIPS). 

The main problems are: non-transparent work of collecting societies; use of illegal software by public authorities; and online and offline infringement of copyright. 

Major changes will deal with copyright and related rights, trademarks, patents and designs, geographical indications and enforcement (Emerson, 2016). 

The main aspects of provisions on particular copyright, designs (including unregistered ones), patents and geographical indications (GIs) which complement and up-date the TRIPS Agreement are presented in the Chapter 9 ‘Intellectual property’. The chapter has a strong section on enforcement of IPRs based on the EU's internal rules. 

All agricultural GIs, not only those relating to wines and spirits, will have the same high level of protection. The protection will be immediate for most EU GIs, but some names long-used by Ukrainian producers will be phased-out over different periods of time: 

There will be updates and regular consultations to add new products to the list of protected GIs. 

Chapter 10 Competition explains the Parties prohibit and sanction certain practices and transactions which could distort competition and trade. Anti-competitive practices such as cartels, abuse of a dominant position and anti-competitive mergers will be subject to effective enforcement action. 

The Parties agree to maintain effective competition laws and an appropriately equipped competition authority. Both Parties agree to respect procedural fairness and firms' rights of defence. Ukraine will align its competition law and enforcement practice to that of the EU acquis in a number of fields. Competition law will apply to state-controlled enterprises. This ensures that companies of both Parties have equal access to each other markets and there is no discrimination by monopolies. Provisions set out the main principles for consultations and cooperation between the Parties. 

The Parties agree to remedy or remove distortions of competition caused by subsidies where these affect trade, and to subject these commitments to the dispute settlement mechanism. Ukraine commits itself to adopting a system of control of state aids similar to that in the EU, including an independent authority. It will prohibit certain types of particularly distortive subsidies. Both Parties will report annually the total amount, types and the sectoral distribution of subsidies and will provide further information on subsidies or schemes on request. The rules on subsidies apply to all areas liberalised in the DCFTA except agriculture and fisheries. 

Chapter 11 ‘Trade-related energy’ includes specific provisions on trade related energy issues. The chapter takes into account that Ukraine is already a member of the Energy Community Treaty (EnCT), which imposes an obligation to implement the most relevant EU energy acquis on electricity and gas. The chapter covers electricity, crude oil and natural gas (in gaseous state or as LNG), its provisions being subject to dispute settlement procedure. 

The four pillars of the trade-related energy chapter are: 

  1. Rules on pricing of energy goods. The Parties commit themselves to let market prices prevail on the domestic gas and electricity markets and not to regulate prices for industry. Neither Party will impose prices for exporting energy products which are higher than domestic prices (prohibition of dual pricing). 
  2. Transport and transit of energy goods. The chapter reiterates obligations laid down in Article V GATT and Article 7 of the Energy Charter Treaty. Interrupting transit or taking energy goods from transit that are destined for the other party is prohibited. An Expedited (fast track) Dispute Settlement procedure will allow for quick intervention if these rules are breached. An Early Warning Mechanism lays down standards for diplomatic consultations in the event of a security of supply problem. 
  3. Parties commit themselves to setting up a legally distinct and functionally independent regulator to ensure competition and an efficient functioning of the gas and electricity markets.
  4. Rules on non-discriminatory access to the exploration and production of hydrocarbons (gas and oil). Once an area has been made available for exploration and production, non-discriminatory access and licensing should be provided to entities from both Parties. 

Chapter 12 Transparency sets out: 

Key elements of the Trade and Sustainable Development Chapter include: 

  1. Shared commitment to the core labour standards of the International Labour Organisation (ILO) and the ILO Decent Work Agenda. 
  2. Commitment to implement all multilateral environment agreements to which the EU and Ukraine are party, and to promote sustainable management of forestry and fisheries.
  3. Confirmation of the Parties' right to regulate, while aiming at a high level of environmental and labour protection, and a commitment to refrain from waiving or derogating from such standards in a manner that affects trade or investment between the parties. 
  4. Strong monitoring mechanisms, building on public scrutiny through civil society involvement. Each side will designate and convene a new or existing civil society Advisory Group, including independent organisations representing sustainable development interests. The two Advisory Groups will meet annually in an open civil society forum to discuss the implementation of the sustainable development aspects of the chapter. 

The Dispute Settlement mechanism is based on the model of the WTO Dispute Settlement Understanding, but with faster procedures. Consultation is followed, if unsuccessful, by referral to an arbitration panel composed of three experts chosen by the parties or selected by lot from an agreed list. The panel can receive amicus curiae submissions (contributions from stakeholders, such as the business community or the public at large, who are not a party to the case). Its ruling, delivered within 120 days, is binding, the party in breach having a reasonable period to bring itself into compliance. If it does not, the complainant is entitled to impose proportionate sanctions. Time- limits of the arbitration procedure are reduced in urgent cases, with further reductions for urgent energy disputes. 

A mediation mechanism allows Parties to tackle adverse effects on trade in goods. The aim is not to review a measure's legality, but to find a quick and effective solution to market access problems. 

The Parties will be assisted by a mediator they have jointly chosen or selected by lot from an agreed list. The mediator can advise and propose a non-binding solution within 60 days. Mediation does not preclude recourse to dispute settlement (EU-Ukraine, 2018). 


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