Deep and Comprehensive Free Trade Agreements

The European neighbourhood policy seeks to provide comprehensive agreements with countries which politically are not in the position to join the EU whether for geopolitical or economic reasons. It promotes EU values in relation to human rights, the rule of law, democracy, market economy, sustainable development, labour protection, et cetera.

Deep and Comprehensive Free Trade Agreements have been negotiated with some former Soviet Republic including in particular Ukraine, Georgia and Moldova. DCFTAs are likely to become the template agreement for similar agreements with other countries. They may also replace free trade agreements put in place at an earlier date.

The Ukraine, EU DCFTA was signed in March 2014. Its application was postponed until December 2015 in the context of the peace process with Russia, Ukraine and the EU.

The Association Agreement provides a comprehensive and detailed agreement by which Ukraine aligns its commercial laws and procedures with those of the European Union. It comprises numerous commitments and agreements which are subject to transitional arrangements effectively bringing Ukraine into alignment with the commercial and legal norms of the European Union over a period.

The Deep and Comprehensive Free Trade Agreement is much more extensive than traditional free trade agreements. It comprises not only a free trade area and customs agreement but also obliges Ukraine to adopt a large part of the European Union business rules over a 10-year period.

The agreement is over nearly 10,000 pages in total, most of which comprises detailed provisions relating to tariff headings. The agreement provides for the elimination of almost all tax.

Services and Alignment

Ukraine is required to gradually align its technical regulations with EU requirements, laws and procedures. It must adopt EU requirements regarding compliance and certification procedures. Ultimately, this will facilitate Ukraine goods entering the EU with a presumption of compliance.

Ukraine’s sanitary and phytosanitary measures, (i.e. agricultural and food safety) are gradually aligned so that certified products can comply with EU standards without further checks.

The agreement provides for freedom to provide specified services on preferential terms and in many cases on the basis of equivalence to EU treatment.  There is a right to establishment for Ukraine service providers (subject to reservations). This also extends to new services in the future.

Ukraine is to apply the EU rules on public procurement. Accordingly, businesses of each are to be free to participate in the public tenders of the other.

There are provisions, which are designed to safeguard particular industries in Ukraine from increased competition, in particular in the areas of clothing, textiles and vehicles.

Goods and Tariffs

The DCFTA provides for the immediate elimination of duties on over 97 per cent of exports from the Ukraine to the EU. Three per cent remains subject to import duties including in particular, certain agricultural products. Enhanced quotas are granted in respect of remaining import duty areas particularly in respect of agriculture.

The average tariff between the Ukraine and the EU falls from 7.6 per cent to 0.5 per cent after the Agreement takes effect falling to 0.05 per cent after 10 years. Equally EU exports to Ukraine average tariff will fall 5 per cent to 0.42 per cent and 0.32 per cent after 10 years.  The agreement provides for duty-free arrangements in respect of 99 per cent of Ukrainian experts to the EU in value terms.

Goods Standards

The Ukraine is to adopt EU technical regulations in relation to product safety. This includes all provisions in respect of defective products and recall. It is to adopt the EU regulations in respect of the environment and the protection from misleading practices.

The EU Ukraine will make its laws and procedures conform with EU regulation so that certified products may enter from Ukraine to the EU without further checks.  The provisions are to be incorporated into Ukraine law in accordance with a scheduled time frame.

Numerous European standards have already been adopted in Ukraine and further standards are the course of adoption. Many will ultimately become part of Ukraine law or be otherwise adopted.

Ukraine adopts EU sanitary and phytosanitary measures including those in respect of food safety, animal and plant health, animal feed and animal welfare. This includes the provisions in respect of additives, risks from additives, contaminants, toxins, disease-carrying organisms, and risks from animal and plant-carried diseases. Under the Agreement, a comprehensive strategy and timetable for the adoption of sanitary and phytosanitary measures are to be developed.

European geographical indications of origin are to be recognised and respected. The Ukraine has agreed to phase out the use of certain geographical indications of origin and products produced in Ukraine over a 10-year period.

Rule of Origin

The specific rules and requirements differ for products over numerous product classifications in accordance with the customs tariff. Each follows the same broad framework. Under the DCFTA, specific rules of origin applied for each product, which enjoys preferential access. The goods must be wholly obtained or have undergone determined working or processing in the country concerned.

Each product has a specific rule of origin which it must satisfy in order to comply with preferential access under the agreement in order. Goods must fulfil the relevant conditions in the origin protocol of the agreement. The rules set out the minimum working, or processing required on non-originating materials so that the resulting goods can obtain Ukraine originating status.

The rules of origin for each relevant product must be certified by Ukrainian customs authorities by the issue of a form. The customs offices of the Ukraine are to ensure compliance with the rules of origin and to issue certificates in accordance with legislation enacted in Ukraine. The certification procedure has been simplified.

The agreement provides for the establishment of authorised exporters in Ukraine. They may self-declare compliance and receive tariff preference without obtaining a certificate of origin.

Conformity Assessment

Before a product may be placed in the market and the EU, it must comply with the relevant technical requirement. There are procedures for the assessment of conformity. Manufacturers may be able to choose may be able to choose one of a number of conformity assessment procedures. This may be done by the manufacturer or a conformity assessment body.

Conformity assessment may involve testing, inspection and certification. The CE mark is attached. The manufacturer must prepare a declaration of conformity as part of the procedure. The manufacturer must carry out the conformity assessment, create a technical file, issue a declaration of conformity and apply the CE mark. The process of conformity assessment required depends on the product concerned

During the first year of the agreement, the following are to apply,

  • general product safety provisions,
  • unit of measurement,
  • liability for defective products,
  • a common framework for the marketing of products,
  • market surveillance and accreditation.

During the second year, the provisions are to apply in the following areas.

  • machinery
  • lifts,
  • pressure equipment,
  • electromagnetic compatibly,
  • safety of toys,
  • electrical equipment,
  • personal protective equipment,
  • energy efficiency,
  • freezers.

During the third year,

  • certain medical devices,
  • transportable pressure equipment,
  • detective equipment,
  • radio equipment, recreational craft.

During the following year, the following are covered

  • measuring equipment,
  • energy consumption labelling.

Phytosanitary Measures

Ukraine is to adopt sanitary and phytosanitary measures for agricultural products and food. Under a general phytosanitary and sanitary provisions, products may be imported into the EU, provided they originate from an eligible country for that product,

  • which has an EU approved system of inspection.
  • originates from an approved establishment listed in the EU database
  • accompanied by health certificates.
  • pass any controls at the border inspection post.

The EU can suspend imports from all or part for the country or take protective measures as necessary in the case of any risk to public or animal health.

Imports must be accompanied by a health certificate by the relevant competent authority in the exporting country certifying suitability for exportation to the EU.  The following products require authorisation. Ukraine produces are approved in most instances.

  • the meat of domestic ungulates,
  • poultry meat,
  • farmed game,
  • wild game,
  • minced meat,
  • fishery products,
  • eggs and eggs products.

The agreement provides for trade measures. It includes traditional defence mechanism such as anti-dumping and anti-subsidy mechanisms. WTO rights and obligations are applied to ensure fair treatment.

Barriers to Trade

The agreement seeks to reduce technical buyers to trade.   The Agreement seeks to integrate Ukraine as much as possible into the EU market in services and e-commerce. Unlike classic standard FTAs, it provides for freedom of establishment in services and non-services sectors, subject to some reservations. It provides for the expansion of the internal market for a set of key services. Ukraine effectively accepts the EU body of laws.

The agreement provides for a right of establishment (as opposed to commercial presence) in services and non-services sector. The right is subject to a number of reservations identified on a negative list. The provision is unprecedented for the E.U. and guarantees automatic coverage for new services and further liberalisation not listed as exceptions.

The agreement is complemented by a process of legislative approximation in financial services, telecommunication services, postal and courier services, and international maritime service. The Ukraine is committed to taking up existing and future EU laws in those sectors. When it has done so, Ukrainian firms will be granted access to the EU internal market for the sectors concerned.

The provision on free movement of capital includes standard safeguards with the possibility to apply measures to ensure the stability of the financial system.

Competition Procurement and State Aid

Ukraine agrees to prohibit practices which can distort competition in trade. The parties agreed to maintain effective competition laws and an appropriately equipped competition authority. Ukraine will align its competition law and enforcement to that of EU law in a number of fields.

Competition law will apply to the state-controlled enterprise. Parties agreed to remedy and remove distortion of competition caused by subsidies where these affect trade and to subject those commitments to a dispute settlement mechanism.

Ukraine commits to adopting a system of control of state aids similar to that of the EU, with an independent authority. Each party is to report the total amounts, types and sectoral distribution of subsidies and provide further information on subsidies and schemes on request.

Energy and Environment

Ukraine is already a member of the Energy Community Treaty, which imports an obligation to accept the EU energy body of laws on electricity and gas.

The trade-related energy part of the agreement comprises

  • rules on the pricing of energy products (market prices prevail)
  • transport and transit in energy cost.
  • a commitment to a distinct and functionally-independent regulator to ensure a competition and an efficient functioning of the gas and electricity market;
  • rules on non-discrimination access to the exploration and production of hydrocarbons.

The provisions on trade and sustainable development include a commitment to core labour standards of the International Labour Organisation and ILO decent work agenda.

There is a commitment to implement multilateral environmental agreements to which EU and Ukraine are parties and to promote sustainable management of forestry and fisheries.

 

There is confirmation of the states’ rights 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. There are to be strong monitoring mechanisms, including public scrutiny through a civil society involvement.

Dispute Resolution

The dispute mechanism, settlement mechanism for the agreement is based on the WTO dispute mechanism with a faster procedure. Consultation is followed, if unsuccessful by a reference to an arbitration panel consisting of three experts chosen by the parties or selected by lot from an agreed list.

The panel can receive observations. The ruling is to be delivered within 120 days and is binding. The party in breach has a reasonable period to bring itself into compliance. If it does not, the complainant may impose proportionate sanctions.

A remediation mechanism allows parties to tackle adverse effects on trade in goods. The purpose is not legal but to find a quick solution to the issue. The parties are assisted by a mediator that they have chosen or selected by lot from an agreed list.

Societal Values

The preamble sets out the ambition for a close and lasting relationship. If refers to common values on which EU law is built which are shared by Ukraine; democracy; respect for human rights and fundamental freedoms. It refers to Ukraine as a European country with common history and values with the member states of the EU. It acknowledges that the political association and economic integration of Ukraine with the EU will depend on progress in the implementation of the Association Agreement as well as Ukraine’s track record in ensuring respect for common values and progress in convergence with the EU in political, economic and legal areas.

Title I defines general principles, which form the basis of domestic and external policies of the association, namely

  • respect for democratic principles,
  • human rights and fundamental freedoms and
  • the rule of law.
  • Promotion of respect for the principles of sovereignty and territorial integrity,
  • inviolability of borders and independence
  • countering the proliferation of weapons of mass destruction.
  • the principles of a free market economy,
  • good governance
  • the fight against corruption,
  • the fight against different forms of transnational organised crime and terrorism,
  • promotion of sustainable development as well as effective multilateralism
  • are central to enhancing the relationship between EU and the Ukraine.

Political Dialogue

Title II provides for political dialogue reform and political association cooperation and convergence in foreign security and policy. Title II of the Agreement foresees the intensification of the EU-Ukraine political dialogue and cooperation with a view to the gradual convergence in the area of common security and foreign policy as well as common security and defence policy.

Title II covers issues such as the aims of the political dialogue and cooperation on domestic reform as well as foreign and security policy.

The agreement foresees several for the conduct of political dialogue. The EU – Ukraine summit is the highest level of political dialogue. At ministerial level, the dialogue is conducted within the Association Council. The political dialogue seeks to

  • deepen political association and increase political and security policy, convergence and effectiveness.
  • promote international stability and security based on effective multilateralism
  • strengthen cooperation and dialogue on international security and crisis management
  • faster, result-oriented and practical cooperation for achieving peace, security and stability in Europe
  • strengthen respect for democratic principles, rule of law, good governance, human rights and fundamental freedoms.

Title II seeks the cooperation of Ukraine and EU in promoting international justice by ratifying the Rome Statute of the international criminal court and related instruments.

Title III, Justice, freedom and security covers

  • the rule of law,
  • respect for human rights,
  • protection of personal data,
  • cooperation on migration, asylum and border management,
  • treatment of workers,
  • the mobility of workers,
  • movement of persons,
  • fight against money laundering and terrorist financing
  • cooperation in the fight against drugs and crime.

The EU and Ukraine commit through the Association Agreement to increase their dialogue and cooperation on migration asylum and border management. It contemplates the introduction of a visa-free travel regime for citizens of Ukraine in due course provided that the conditions are in place.

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