EU – Ukraine Association Agreement
A quick guide to the recently signed and ratified association agreement between the European Union and Ukraine.
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Purpose of the Agreement
Finally, on July 11, 2017, the European Council completed the ratification of the AA with Ukraine, while full implementation of the AA begins on September 1, 2017. Following is a quick guide to the background, key content and provisions of the AA.
Since its independence Ukraine has sought a close economic and political relationship with the European Union and has pursued that as a key foreign policy. Russia, the single largest trading partner of Ukraine, obstructed the country’s efforts to integrate with the EU. After a prolonged period of negotiation, which was stalled and marked by demonstrations, trade embargoes and territorial invasion, in 2014 the AA was signed in two parts: the political content was signed in March 2014 and trade and economic content was signed in June 2014.
The provisions relating to political content has come into application provisionally since November 1, 2014 and the trade content has come into effect provisionally since January 2016. This May the last EU country (Netherlands) has ratified the AA followed by its approval by the Council of the European Union on July 11, 2017. As a result, AA provisions shall formally come into force on September 1, 2017.
The AA endorses Ukraine’s ‘European Choice’; politically it sets the stage for the realisation and preservation of European values of democracy, human rights, fundamental freedom and rule of law in Ukraine while economically, it seeks to improve and modernize the trade practices and reform the economic policy and regulations and make Ukraine an investment, trade friendly destination and a competitive exporter for the EU and international market.
Parties to the AA have committed to a strong relationship based on common values, such as value for democracy, human rights, rule of law, fundamental rights, and good governance.
The AA underscores the promotion of respect for the principles of sovereignty and territorial integrity, inviolability of borders and independence; it also emphasizes the need for cooperation to fight against corruption, organised crime and terrorism, as well as countering the proliferation of weapons. It calls for promotion of sustainable development and principles of a free market as central to the relationship between the EU and Ukraine.
Rule of Law and Movement of People
Ukraine is required to commit itself undertaking reforms in judiciary to improve transparency and prevent corruption to enhance the rule of law.
Both parties commit themselves to increasing their dialogue and cooperation on migration, asylum and border management and combat trafficking. Among others, the AA paved way for the introduction starting from the 11th of June, 2017 of visa-free travel for Ukrainians holding biometric passports to enter the Schengen area member states for short term visits.
The AA aims to facilitate the gradual alignment of Ukraine’s foreign, security and defence policies with those of the EU at bilateral, regional and multilateral levels. This will effectively redefine the relationship of Ukraine with Russia and the rest of the world.
The EU, as a collective, is the largest trading partner for Ukraine. The DCFTA will create more business opportunities for Ukraine by improving the standards of its products and enhancing its competitiveness in the world market. In turn, the EU will gain from the competitive exports of Ukraine.
The AA completely liberalises trade in goods (subject to rules of origin) and services between Ukraine and the EU. It also removes all barriers against the flow of investment. The EU has already implemented total liberalisation for most of products, however Ukraine will do so over an extended period of seven years.
Both parties shall commit to combating irregularities and customs frauds that are intended to take advantage of the preferential treatment of goods granted under the DCFTA. Failure to fulfil the commitment would result in temporary suspension of trade.
With most of the custom duties and trade barriers removed it would result in a new spurt of economic growth and business opportunities for both Ukraine and the EU. It would open up alternative revenue sources for the tax authorities in the form of indirect taxes.
The EU and Ukraine can take defensive measures such as anti-dumping, anti-subsidy, and safeguard measures against imports from the other party that cause or threaten to affect the domestic industry. It must be noted that the EU has in place anti-dumping duties on imports from Ukraine involving specific products such as chemicals and metals.
The AA urges Ukraine to undertake legislative commitment towards aligning customs codes with the EU. Both parties are required to improve the customs services and simplification of customs procedure at the borders to facilitate speedy movement across borders without the congestion of goods carriers.
Ukraine should adapt to the European technical and quality standards to comply with the health and safety requirements with regards to industrial goods. In the absence of tariffs, non-tariff barriers in the form of technical standards would pose the intense challenge for the Ukrainian exporters, however, it would help them to modernize and harmonize with international standards and make them competitive. Ukraine has already commenced the process of harmonizing its national standards with those of the EU that has two tiers, one at a broad sectoral product level directives and another at product-specific standards.
Food and Safety Regulations
Similar to the standards for industrial goods, Ukraine is required to commit to aligning to the product specific safety regulations under the EU’s sanitary and phytosanitary measures. It will elevate the standards of Ukrainian agricultural and food products to the international standards and eventually enhance the market opportunities for Ukrainian exporters. Since the commitment to the European standards would be cost intensive, the AA allows Ukraine to waive comprehensive conformity for very small farms and some traditional products. The EU would also provide technical support with some major projects to improve safety standards.
The provisions relating to the services are organised under three heads – establishment of service entities in the jurisdiction of the parties to the AA, cross-border supply of services, temporary presence of individuals in the jurisdiction of the parties for the purpose of providing service. Subject to several reservations, both parties commit to treating the service providers of other party no less favourably than their own. However it must be noted that Ukraine has to modernise, adapt and harmonise its service standards and systems with those of the EU.
The AA provides for the gradual and reciprocal liberalisation of public procurement market of both parties’. It also provides the regulations for award of contract and they are identical to the EU public procurement law that is based on the principles of non-discrimination, equal treatment, transparency and proportionality. Ukraine is required to set up a central authority to implement the regulations and to appoint an autonomous body to review decisions of the contracting authorities.
Ukraine is required to reform its IPR system to conform with the international practices by focusing on strengthening the enforcement of industrial property rights, protecting geographical indications, mechanisms to increase the protection of rights and interests of copyright holders and a unified procedure for collecting fees due under copyrights. Strengthening the IPR regime is crucial for attracting international investments.
The AA required Ukraine to undertake legislative commitment to prevent and reform monopolistic behaviour and state subsidies. It is essential to curb monopolistic activities that result in suppression of competition and to restrict excessive state subsidies to ensure wider choice, lower prices and better quality for customers. It is significant for modern and thriving economy.
Economic and Sector-Specific Cooperation
Economic and Financial Assistance
During most of its post independence period Ukraine was reeling under recession through its fortune turned around with the turn of the century led by the global commodity price boom which was short-lived; the 2008 global financial crisis besieged the Ukrainian economy that gradually recovered in 2010 only to be hit by the political turmoil and Russian invasion. The country’s economy is in need of a major revamp and the EU has committed to extending financial assistance. Until 2020, the EU and several of its financial institutions would provide an assistance package of over €11 billion.
Ukraine is required to commit to the adoption of the European system of regulating banks, insurance and securities market. This is a precondition for Ukrainian banks and financial institutions to be granted license to set up branch, subsidiaries or agencies in the EU and vice versa.
Modernizing and standardizing the sector is crucial for integrating Ukraine into the EU’s supply chain hence the AA details the standards and regulations pertaining to different modes of transport and qualifications of operators, safety standards of vehicles and vessels and directives for inspection bodies. Strengthening and standardising the sector is significant to realise the full potential of the AA, to promote cross-border trade and movement of people and to enhance cooperation and interoperability among operators in the sector.
Natural gas constitutes a major share of Ukrainian imports and until recently it was majorly dependent on Russia for its supplies. Making Ukraine energy-efficient is critical for its economic progress and for geopolitical reasons. Ukraine is urged to adopt the EU energy efficiency standards and to reform the energy policy to align prices with import costs.
The sector comprises of electronic communication, broadcasting, postal services and IT. Ukraine has a thriving IT sector and is a popular destination for outsourcing. The AA urges Ukraine to undertake efforts for harmonisation and alignment of regulations with those of the EU within the next four years. When the alignment is achieved the Ukrainian enterprises will receive a full local market treatment in the EU, meaning, the enterprises will be treated the same way as the EU enterprises.
The EU prioritises consumer protection by implementation of common safety rules and standards for products and services. The AA also emphasises on consumer protection by urging Ukraine to align its regulations with those of the EU. Ukraine’s obligation under the AA can be grouped into categories – first, general commitments related to information exchange and the improvement of information provided to consumers; second, obligations related to product safety; and third, institutional and administrative procedures for the protection of consumers and the enforcement of consumer rights. Though Ukraine has a system in place it is not effectively implemented and does not match up to the EU regulations.
Ukraine is to harmonise its legislation with that of the EU for annual accounts of certain types of companies and consolidated accounts for group companies. It is expected that overall harmonisation of law will improve transparency and predictability of legal regime, ensure protection of investors and shareholders and enhance the overall business climate in Ukraine.
It is worth mentioning that Ukraine has already allowed for companies to use international accounting and financial reporting standards, which facilitate comparability of accounts, as well as has significantly simplified procedures, related to opening of business and reporting.
The AA assures technical assistance and investment finance, though there are references to the EU legislation there is flexibility in terms of application and timeframe. A strategic action plan has been developed with the collaboration of experts from both parties to implement agrarian reforms in the next five years.
The AA requires Ukraine to implement reforms focusing on anti-discrimination, gender equality, health and safety and to align its labour laws with those of the European Union. Presently the employer’s’ interest is ignored in the labour law, which is entrenched in the communist legacy. The newly proposed labour code envisages more flexibility in labour relations and more rights provided to employers, and the key points are:
- Written contracts are to become compulsory.
- Employers will be able to dismiss employees for well-defined reasons.
- The working week is to be limited to 40 hours, or 44 hours if agreed.
- There will be a regulation of flexible work schedule and homework.
- There is a provision against gender discrimination.
- The list of reasons for fixed-term contracts is to be extended.
- The redundancy payment is to be increased.
The EU will extend cooperation in the education sector by offering joint master degree programmes, capacity building projects, policy dialogue in education reform network, promoting teaching and research in the field of the EU studies and promote mobility of teachers and students and modernisation of higher educational institutions. Likewise, in the area of culture and creative sectors, both parties will cooperate by promoting mobility of artists and arts.
The AA provides for cooperation in the area of science and space technology; recently, Ukraine has been endowed the status of ‘associated Country’ that allows it to participate at the same status of a EU member state in the Horizon 2020, a key scientific programme with substantial funding.
Ukraine shares its border, tradition, and history with many of the EU counterparts. The AA calls for cross-border cooperation in general terms, and in specific sectors such as transport, energy, education, tourism and health, and the modernisation of cross- border emergency services.
Legal and Institutional Provisions
The AA urges gradual approximation of Ukraine’s legislation to the EU norms and standards. Specific timelines, varying between 2 and 10 years, are set within which Ukraine should approximate its legislations to the relevant EU legislation. As the EU law and legislation is not static but under constant evolution, Ukraine is also required to pursue dynamic approximation to keep pace with the principal EU reforms and in accordance with Ukraine’s capacity to carry out the approximation.
Two basic dispute settlement mechanisms are provided:
- General – applicable to all parts of the AA and it relies on two parties finding a mutually agreed solution in the Association Council, failing which the aggrieved party may take ‘appropriate measures’.
- DCFTA specific – It is a more elaborate system that provides two alternative tracks, either binding arbitration, or softer mediation for consensual solutions.
There is also a provision for the special case of violation of the ‘essential elements’ of the Agreement (i.e. basic political principles), which can lead to suspension of the entire Agreement.
The following institutional provisions are included in the AA:
- The EU-Ukraine Summit – provides overall political guidance and an opportunity to discuss any bilateral or international issues at the presidential level.
- The Association Council – at ministerial level, it has broad powers to amend many details of the Agreement (in its annexes), but it cannot change the main body of the Agreement.
- Association Committee – at senior official level, with other specialized committees such as for trade matters, and sub-committees is responsible for the continuous updating of the AA in the light of legislative developments in the EU.
- Parliamentary Association Committee, It will be a forum for Members of the European Parliament and the Parliament of Ukraine to meet and exchange views.
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