On 1 January 2016, the European Union (the "EU") and Ukraine began applying the Deep and Comprehensive Free Trade Area (the "DCFTA"), which forms part of the EU-Ukraine Association Agreement signed on 27 June 2014. The political part of the Association Agreement came into force in November 2014. The entire Association Agreement will become fully effective as soon as the ratification procedures of EU Member States are completed.
The DCFTA contemplates the establishment of a free trade area encompassing the EU and Ukraine over a transitional period of a maximum ten years. It offers Ukrainian business stable and predictable preferential access to the world`s largest market comprising 500 million customers; it provides EU business easier access to the largest emerging market remaining in Europe, comprising 45 million people.
Pursuant to the DCFTA, the vast majority of customs duties on the import and export of goods are to be removed; Ukraine`s Ministry of Economic Development and Trade states that the DCFTA eliminates 97% of tariffs on Ukrainian goods and reduces the overall tariff on Ukrainian exports from 7.6% to 0.5%. Starting from 1 January 2016, zero rates apply to the import of (i) industrial goods, with some exceptions for Ukraine`s automotive sector; (ii) a number of agricultural goods, such as certain types of corn and wheat, vegetable seeds, etc.; and (iii) certain food products listed in the DCFTA, such as condiments. The gradual elimination of custom duties in respect of other goods will occur over certain transition periods. Depending on the type of goods, three- (e.g., hats, umbrellas, pavement), five- (e.g., plates, washing equipment, tractors), seven- (e.g., electromobiles) or ten-year (e.g., passenger cars) transition periods will apply.
Starting from 1 January 2016, the application of export duties to goods moving between Ukraine and the EU is prohibited (with certain temporary exceptions for Ukraine regarding some agricultural and metals products).
Under the DCFTA, Ukraine is committed to align its legislation with the EU’s. In this regard, the Cabinet of Ministers of Ukraine adopted Regulation No. 847-p dated 17 September 2014 "On Implementation of the Association Agreement between Ukraine and European Union, European Atomic Energy Community and their Member States".
Timeframes for such approximation as well as the list of the EU acts which have to be domestically implemented are set out in the Annexes to the Association Agreement, and include aligning quality standards, competition requirements product registration, food safety measures, customs, government procurement, and protection of intellectual property rights. Some ministries (e.g., the Ministry of the Agrarian Policy) have already approved their own plans listing specific EU directives to be fully or partially implemented and timeframes for their implementation.
In these situations there are always market winners and losers, but overall the DCFTA will make the Ukrainian market more transparent and competitive, forcing Ukrainian producers to become more efficient and contributing to the modernization and diversification of the Ukrainian economy, and promoting greater integration with the EU. The EU estimates that even basic implementation of the DCFTA will add about 6% to the Ukraine`s gross domestic project (GDP) in the medium term and 12% in terms of increased prosperity for Ukrainians. Full implementation of reforms set out in the Association Agreement will contribute to even greater GDP growth by promoting technology transfers, improving the business climate and eliminating corruption.