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2 July 2014

Deep and Comprehensive Free Trade Area was signed on June 27, 2014

The DCFTA (Deep and Comprehensive Free Trade Area) constituting Title IV of the Association Agreement dedicated to trade and trade related matters was signed on June 27, 2014. The DCFTA will, without doubt, offer Ukraine a comprehensive framework for economic development. It will also extend trade relations for Ukrainian goods and services in EU markets and stipulate extensive harmonization of laws and regulations as well as the implementation of progressive EU standards.

Negotiating history: key dates

The EU-Ukraine Association Agreement is the first of a new generation of Association Agreements with Eastern Partnership countries. Negotiations on this comprehensive, ambitious and innovative Association Agreement between the EU and Ukraine were launched in March 2007. In February 2008, following confirmation of Ukraine’s WTO membership, the EU and Ukraine launched negotiations on a core element of the Association Agreement – the DCFTA. The common understanding on the text of the Association Agreement was reached on December 19, 2011 at the 15th Ukraine-EU Summit followed by the process of initialling. The so-called political part of the Association Agreement was signed on March 21, 2014. In anticipation of the DCFTA signature, the EU introduced the autonomous trade preferences as of April 23, 2014. Eventually, the thorny signature process of the Association Agreement with the EU was completed on June 27, 2014.    

The ratification process

After the official signing, the Association Agreement shall be ratified. The Association Agreement will enter into force on the first day of the second month following the date of deposit of the last instrument of ratification or approval. Those sections whose contents fall within the EU exclusive competence (i.e., DCFTA) will come into force through the mechanism of the provisional application. Noteworthy, according to the Foreign Affairs Council conclusion adopted on June 23, 2014 the EU confirmed its support to Ukraine in proceeding with the provisional application of the Association Agreement before the receipt of instruments of ratification from 28 EU Member.

DCFTA provisions: overview

The DCFTAdeals with the main areas as trade in goods, including Technical Barriers to Trade (TBT), trade remedies, sanitary and phytosanitary measures (SPS), rules of origin, competition policy, intellectual property rights including geographical indications, trade in services, government procurement, etc. Overall, the DCFTA consists of 15 chapters, 14 Annexes and 3 Protocols.

Market access for goods

Upon creation of a free trade zone Ukraine and the EU will eliminate 99,1% and 98,1% of duties in trade value respectively. For industrial goods the elimination of existing tariffs is stipulated for most products with certain exceptions for which the transition period exists (e.g., the automotive sector in case of Ukraine). For agricultural goods the liberalization agenda is less ambitious given the sensitivity of this sector of the economy. Ukraine has been granted duty-free tariff rate quotas for cereals, pork, beef, poultry and some other products. For other agricultural products the DCFTA provides for the transition period (as a rule 10 years) to allow the producers to adjust to the EU standards and new competitive environment.

Although all existing export duties shall be eliminated within a 10-year period (except for sunflower seeds for which the transition period is 15 years), Ukraine saved some temporary exceptions for a few agricultural and metal products. In accordance with Annex I-D, Ukraine has a special protective mechanism (additional charge to import duties) if the elimination of export duties lead to certain negative consequences for Ukrainian domestic industries.

Similar trade regime already exists within autonomous trade preferences. However, with DCFTA coming into force, the certificate EUR.1 will be issued by customs offices and no longer by the Ukrainian Chamber of Commerce.

TBT and SPS measures

The EU and Ukraine reiterated their commitments under WTO (World Trade Organization) TBT and SPS Agreements as well as agreed to reduce non-tariff barriers to trade. Ukraine will progressively adapt its technical regulations and standards to those of the EU. The harmonization process should cut existing non-tariff barriers to trade almost by half. Although the transition period for the harmonization is established up to 10 years, during the first year Ukraine will have to start the process of harmonization in five areas, including product safety and security, liability for defective products, etc.

In the realm of trade in SPS-related goods (i.e. animal and plant products) Ukraine undertook the commitment to align its legislation to the EU’s. However, the DCFTA stipulates neither list of the particular EU legislation to be approximated nor any precise timeframes during which such approximation should be performed. Instead, according to the Association Agreement, during three months upon entrance into force thereof Ukraine will have to submit to the Subcommittee on SPS measures, which forms a part of the institutional capacity under the Association Agreement, a comprehensive strategy of fulfillment of such commitment (as stipulated in Annexes IV-A, IV-B, IV-C).   

Moreover, parties agreed to establish a rapid consultation mechanism to solve trade irritants in SPS-related goods along with alert and early warning systems for SPS emergencies.

Intellectual property

DCFTA includes provisions on copyright, designs, patents and Geographical Indications (GIs) as well as strong enforcement rules based on the EU’s internal standards.

Meanwhile, the most sensitive issue is the protection of agricultural GIs. Some EU GIs, which have been used by Ukrainian producers for some time already, will be protected after different periods of time. For instance, the period of 10 years is established for Champagne, Cognac, Madeira, Porto, Calvados, Grappa, Armahnac, ect.; 7 years for Parmigiano Reggiano, Roquefort and Feta.

Competition

Anti-competitive practices (e.g., cartels, abuse of dominant position, anti-competitive mergers) will be subject to effective enforcement actions. Moreover, the competition law will apply to state-controlled enterprises to ensure the level playing field. Ukraine will have to implement EU competition rules as provided in the Commission Regulation (EU) No.330/210. Parties also agreed to conquer distortions of competition caused by subsidies. The EU and Ukraine will annually report the amount and sectoral distribution of subsidies. All sectors liberalized by DCFTA are subject to rules on subsidies, except for agriculture and fisheries.

Trade in services

Unlike traditional FTAs, the DCFTA provides for unprecedented level of integration in the field of different services as well. The legislative approximation is stipulated in financial services, telecommunications, postal and courier services as well as international maritime services. Ukraine shall implement the EU acquis in those sectors that will allow Ukrainian firms access to the EU internal market in respective sectors. Despite some reservations, the EU will open the internal market for key services once Ukraine effectively implements the EU acquis.

Public procurement

Except for defense procurement, Ukrainian suppliers will have full access to European public procurement market as well as EU suppliers will be granted access to the Ukrainian procurement market. However, initially within 8-year period Ukraine will have to harmonize its respective legislation with the EU norms. The so-called roadmap of harmonization shall be elaborated within 6 months upon entry of the Association Agreement into force.

Sectoral approximation    

It is worth emphasizing that the DCFTA covers lots of other issues to name but a few: customs and trade facilitation, electronic commerce, movement of capital, trade-related energy issues along with the issues of trade and sustainable development. Separate provisions are devoted to transparency, dispute settlement and institutional framework.

Goods originating in Crimea

On June 23, 2014 the Council of the EU decided to prohibit the import into the EU of any goods originating from Crimea or Sevastopol with the exception of those having been granted a certificate of origin by the Government of Ukraine.

New opportunities

The signing of the Association Agreement has opened a diversity of new opportunities for business in Ukraine. Sayenko Kharenko is at your service to provide legal and government relations advice and assistance to use the tools envisaged in the Association Agreement for the benefit of your business.

For more information, please contact Nataliya Mykolska.

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