Background
Interim benefits to support Ukraine
Deep and Comprehensive Free Trade Area
Trilateral consultations


Background

On June 27 2014, one revolution later and more than eight months past the scheduled date, the European Union and Ukraine signed the EU-Ukraine Association Agreement (for further details please see "Deal or no deal? Will European Union and Ukraine sign free trade agreement?"). The agreement is part of the first set of a new generation of association agreements with Eastern Partnership countries that provides for the establishment of a Deep and Comprehensive Free Trade Area (DCFTA).

Once the agreement is fully implemented, import duties will be eliminated on almost 99% of bilateral trade. According to the European Commission's estimates, the DCFTA should save EU and Ukrainian exporters €391 million and €487 million respectively each year. The agreement will also remove non-tariff barriers. The European Union and Ukraine will be prevented from adopting or maintaining import or export restrictions. They have also agreed to increase cooperation regarding technical barriers to trade and to enhance transparency. Over time, Ukraine will progressively adapt its laws, technical regulations and standards to those of the European Union for both goods and services. In addition to rules governing the liberalisation of trade in goods and services, the European Union and Ukraine have adopted common rules that concern, in particular:

  • the free movement of capital;
  • the protection of IP rights; and
  • the sanctioning of anti-competitive practices.

On June 27 2014 the European Union also signed association agreements with Georgia and Moldova that are similar to the agreement concluded with Ukraine. These will serve to reinforce economic integration and deepen political and economic ties between the European Union and its eastern neighbours. Stabilisation and association agreements have been previously concluded with Albania, Montenegro and the former Yugoslav Republic of Macedonia, and interim agreements on trade and related matters with Bosnia and Herzegovina and Serbia are in force.

Interim benefits to support Ukraine

On April 23 2014, three months before the agreement was signed, the European Union began unilaterally applying the tariff component of the DCFTA under EU Regulation 374/2014 to support the new government in Ukraine. Under the regulation, imports of goods originating in Ukraine will benefit from the preferential treatment provided for in the agreement until the DCFTA enters into force or November 1 2014 at the latest.

Deep and comprehensive free trade area

The association agreement will enter into force after it goes through the internal ratification process in each of the two trading partners. The process may be lengthy in the European Union because ratification is required by all 28 EU member states. To date, Latvia, Lithuania and Romania have ratified the agreement.

In order not to delay benefits until ratification is complete, the agreement foresees the provisional application of the DCFTA. The provisional application is due to start on the first day of the second month after the date of the deposit of the last instrument of approval or ratification. The European Union and Ukraine expect the DCFTA to enter into force by November 1 2014, as initially planned.

Trilateral consultations

The signing of the EU-Ukraine Association Agreement does not mark the end of the uncertainty in trade relations between the partners. The presidents of the European Commission, Russia and Ukraine have agreed to hold trilateral consultations on the possible negative effects on Russia, the association agreement and the DCFTA. During the first round of consultations held in Brussels on July 11 2014, the parties agreed that implementation of the agreement will modify trade and investment conditions on the Ukrainian market and may have negative consequences for trade between Ukraine and Russia. Further, as an initial identification of potential risks by Russia, experts from the European Union, Russia and Ukraine will attempt to propose solutions and issue a preliminary report by September 1 2014. The report will be reviewed during the second round of consultations held in Brussels on September 12 2014.

Expert discussions have not been facilitated by the increasingly tense environment. At the end of July 2014, the European Union imposed Stage 3 sanctions on Russia. Russia retaliated in early August 2014 by imposing an import ban on certain agricultural and food products that primarily targets EU imports.

For further information on this topic please contact Charles Julien at King & Spalding LLP by telephone (+41 22 591 0800), fax (+41 22 591 0880) or email (cjulien@kslaw.com). The King & Spalding LLP website can be accessed at www.kslaw.com.