On July 11, 2016, Ukraine and Canada entered into Canada-Ukraine Free Trade Agreement (CUFTA) aimed to establish a free trade area and strengthen partnership for peace and prosperity, stability, and broad-based economic development between the two countries. CUFTA agreement is targetted at trade of goods; it does not cover services or investment. The agreement will come into effect on the first day of the second month following ratification of the agreement by legislatives branches of both countries.
Conclusion of the CUFTA is the result of a six-year long negotiation process and signing of the agreement marks a new milestone in the already long-standing ties between Ukraine and Canada.
Key highlights of the CUFTA agreement
- Ukraine will immediately eliminate tariffs on almost 86% of Canada’s current exports to Ukraine, with gradual tariff concessions to be implemented for other items over a period of seven years. Among key products benefiting from either immediate or eventual duty-free regime are beef, certain pulses, grains, canola oil, processed foods, animal feed, frozen fish, caviar, certain articles of iron and steel, industrial machinery, articles of plastics, and cosmetics. A full list of products benefiting from duty-free regime and schedule of its implementation are designated in the Tariff Schedule of Ukraine, attached to the CUFTA.
- Canada will immediately eliminate tariffs on 99.9% of current imports from Ukraine. Key products from Ukraine that will benefit from this duty-free regime are sunflower oil, sugar and chocolate confectionery, baked goods, vodka, iron and steel, apparel, ceramics, and minerals. A full list of products benefiting from duty-free regime and schedule of its implementation are designated in Tariff Schedule of Canada, attached to the CUFTA.
It’s interesting to note that the agreement excludes any concessions by Canadian government on over-the-quota supply of dairy, poultry, eggs. This is because Canada restricts the supply of these products by controlling the amount produced domestically and limiting imports with high tariffs.
- The agreement asks for implementation of wide range of commitments related to non-tariff measures aimed to ensure that market access benefits will not be constrained by unjustified trade barriers and implementation of commitments designed to reduce red tape at the border.
- CUFTA agreement includes a separate chapter on electronic commerce that obliges both Canada and Ukraine to not levy customs duties or other charges on digital products transmitted electronically.
- The CUFTA provides Ukrainian and Canadian companies with an opportunity to participate in public procurement in both countries, fixing-up preferential access to procurement opportunities for each other. Ukraine guarantees fair, non-discriminatory and predictable treatment to Canadian companies when bidding on procurement opportunities tendered by Ukrainian central government entities, including government departments and agencies as well as several public enterprises such as airports, the postal system and public transportation (rail and subway systems).
- The agreement includes a provision on implementation of commitments related to protection and enforcement of intellectual property rights (IP).
- CUFTA sets out a number of labor-related commitments, designated to ensure a broad range of internationally recognized labor rights and effective labor dispute-resolution mechanisms.
At present, top 10 Ukrainian exports to Canada include copper, Oil, Iron and steel, tanning, dyeing extracts, iron or steel products, machines, engines, pumps, fertilizers, toys, games. Top 10 Canada’s exports to Ukraine include oil, pharmaceuticals, fish, machines, engines, pumps, iron or steel products, meat, medical, technical equipment, electronic equipment:, oil seed, and cereals. Canada’s exports to Ukraine amount to $191.2 million or 0.4% of its overall imports, whereas Ukraine’s exports to Canada amount to $72.4 million or 0.1% of its overall exports of Ukraine. These numbers are quite insignificant but there is a strong hope that CUFTA agreement will create new opportunities for businesses in both countries.
Long-Established Ties Between Ukraine and Canada
Ukraine and Canada ties have long-established roots in political and economic cooperation between the two countries.
- After Ukraine got its independence in 1991, Canada became the first western country to recognize independence of Ukraine on December 2, 1991, followed by establishment of diplomatic relations on January 27, 1992.
- In 1994, countries signed the joint declaration of the “Special Partnership” (renewed in 2001 and again in 2008), which recognizes Canada’s support for the development of Ukraine.
- In 1995 Canada and Ukraine signed a Foreign Investment Promotion and Protection Agreement.
- In 1996 , a Convention for the Avoidance of Double Taxation was signed.
- In 1999, the two countries signed an Air Transport Agreement (as amended in 2014).
There are a number of Canadian governmental and non-governmental organizations operating on the territory of Ukraine, that are actively involved in providing various types of assistance and strengthening the cultural, educational, and economic ties between the two countries. The Canada-Ukraine Chamber of Commerce plays an important role in development of trade and business relations between the two countries. Canada has been a stanch ally of Ukraine during the country’s current conflict with Russia and has provided material support for Ukraine’s right to defend its territory against Russia. One of the important factors for warm relations between Ukraine and Canada is the strong people-to-people ties between the two countries, with almost 1.3 million Canadians of Ukrainian heritage.
For Ukraine, this bilateral agreement is an important opportunity to re-align its economy to new markets given the difficult political situation with Russia who was the main business partner of Ukraine until 2013. Ukrainian Government also expects increase of Canadian investments as a result of entering into CUFTA, which could fasten the process of getting out of the country’s current economic crisis. More Canadian companies are expected to establish business in Ukraine and take advantage of the new free trade agreement.