Following six years of extensive negotiations, Ukraine and the EU have finally signed the Association Agreement between the European Union and the European Atomic Energy Community and their Member States, of the One Part, and Ukraine, of the Other Part (the “Association Agreement”), a very ambitious document in the histories of Ukraine and the EU.

Execution of the Association Agreement is the start of a new era in the relations between the parties. It involves various issues and business sectors. In this note, we summarise some of the matters which could touch on the interests of business in Ukraine:

Tariff Regulation

The EU and Ukraine will gradually create a free trade zone over a transition period of 10 years. During this period, the majority of customs duties (both import and export) are planned to be eliminated (including with respect to the manufacturing of leather and textile goods, food products, and other manufactured and consumer products). Those duties that are not to be totally removed will be substantially reduced (including with respect to agricultural products).

Technical Barriers to Trade

Ukraine committed to gradually bring its technical regulations into compliance with those of the EU. Within the first year of the Association Agreement, Ukraine must start to harmonise its local legislation with a range of EU directives over five areas, including general product safety and security, liability for defective products, and the general structure of product marketing.

It is expected that Ukraine’s commitments under the Association Agreement, particularly with respect to the harmonisation of its legislation with EU norms, will generally positively impact on the Ukrainian business community. However, it will also pose challenges for certain business sectors, as companies are forced to invest into the development and modernization of their production facilities to enhance the competitiveness of their businesses. In the meantime, the Association Agreement offers a transition period for the implementation of the majority of sectors of up to 10 years, which should soften the pain of the harmonisation process.

Public Procurement

Within eight years from the Association Agreement coming into effect, Ukraine must complete the adaptation of its public procurement legislation to EU rules; the first steps are to be taken within the first six months. Specifically, Ukraine will have bring its laws into compliance with the main principles of EU public procurement regulations, including holding open and competitive public procurement procedures and limiting procurement from one source.

Prior to starting the process of adapting the local laws (but within six months from the effective date of the Association Agreement), Ukraine must submit a “road map” outlining the exact steps of harmonisation of public procurement legislation of Ukraine with the relevant EU system. The “road” map is to be further approved by the EU.

It is expected that the more advanced and transparent rules for public procurement will positively impact the inflow of the investments originating from the EU. Broader access of non-residents to the public procurement procedures in Ukraine could also enhance competition in the local market.

Further, as the harmonisation of Ukraine-EU legislation positively progresses, Ukrainian companies will obtain broader access to the EU public procurement sector.

Competition

Important changes to Ukrainian competition law are expected within three years from the effective date of the Association Agreement.

Specifically, Ukraine committed to implement EU rules for certain categories of vertical agreements and concerted practices, as provided in the Commission Regulation (EU) No. 330/210, dated 20 April 2010.

Ukraine further committed to implement other EU competition rules with respect to such matters as technology transfer agreements and control over concentrations.

All these changes should bring clarity and certainty to the regulatory environment for business, as currently Ukrainian competition law is opaque and often arbitrary.

Further, the Ukrainian competition regulator – the Antimonopoly Committee of Ukraine (AMC) – has committed to publicly clarify the grounds on which it will impose financial sanctions on business entities for the infringement of Ukrainian competition law. The AMC must also provide clarification of approaches it will apply to assessment of horizontal mergers. This will raise the transparency and accountability of AMC activity, which in turn should facilitate improvement and attractiveness of the overall business environment.

The Association Agreement is yet to be ratified by both the EU and Ukraine, which it is considered to be a technical step. It is believed that the Parliament of Ukraine will ratify the Association Agreement before its breaks for its summer holiday, which starts at the end of July 2014.

This Agreement shall enter into force on the first day of the second month following the date of deposit of the last instrument of ratification or approval.

As mentioned above, the Association Agreement affects various business sectors and CMS will continue preparing more detailed analyses with respect to the impact of the Association Agreement on various economic areas.