What does the DCFTA between Ukraine and the European Union mean for European companies, and how do they benefit from its implementation?
The Deep and Comprehensive Free Trade Area (DCFTA) between Ukraine and the European Union came into force at the beginning of this year. The DCFTA is part of the EU-Ukraine Association Agreement (AA) that itself was voted against by Dutch citizens in a (non-binding) referendum in the Netherlands on 6 April. The Dutch government must now decide how to proceed with the AA (which has already been ratified by the other 27 countries of the EU) and what process of renegotiation to offer. Until that is determined, the AA (and the DCFTA) applies on a temporary basis.
The DCFTA, as one of the main parts of the AA, was widely discussed in Ukraine among the business community. Ukraine accepted a number of commitments to harmonise its rules with those of the EU, affecting long-held practices and the business interests of many players.
But what does the DCFTA mean for European companies, and how do they benefit from its implementation? Some points to consider:
Market access for goods
The average tariff on imports to Ukraine from the EU was 8%. Ukraine will eliminate custom duties for about 97% of tariff lines. This will be done over 10 years and Ukraine will eventually reduce the average import tariff to 1.38%. But from 1 January 2016 tariffs have been remoted for 82.6% positions of industrial goods, and for about 35% of agricultural products.
Technical barriers to trade and sanitary and phytosanitary (SPS) measures
The technical requirements for goods and certification rules in Ukraine differ from those of the EU. Ukraine will progressively adapt its technical regulations and standards to bring them into line. Ukraine has also committed to align its SPS and animal welfare legislation to that of the EU; this means that products certified/accredited/checked shall not incur additional procedures, and the DCFTA implementation will help to reduce compliance costs.
Establishment, trade in services and electronic commerce
In this part of the agreement Ukraine again takes commitments to harmonise with those of the EU, its domestic legislation with regard to financial services, postal and courier services, telecommunication services and international maritime services. The harmonisation is aimed at improving transparency and legal certainty in those sectors for EU investments in Ukraine.
Ukraine will adopt current and future EU legislation on public procurement. As a result, EU suppliers and service providers with certain exceptions will have access to the Ukrainian procurement market, and Ukrainian suppliers to EU market.
The DCFTA enforces intellectual property rules again based on those of the EU. Historically, Ukrainian producers have been using names with geographical indications (GIs) protected in the EU. From 1 January 2016 most EU GIs are protected in Ukraine as well, but for some names, there is a postponement:
- 10 years for Champagne, Cognac, Madeira, Porto, Jerez /Xérès/ Sherry, Calvados, Grappa, Anis Portugues, Armagnac, Marsala, Malaga and Tokaj
- 7 years for Parmigiano Reggiano, Roquefort and Feta.
Other issues covered by the DCFTA
Trade remedies, trade-related energy issues, trade facilitation, competition, movement of capital, trade and sustainable development, transparency, dispute regulations and mediation mechanism.
Ukraine is a big market with a population of over 40 million (even without Crimea and part of Donbass) and this market is going through a change in its orientation due to mutual trade restrictions with Russia enforced in 2016. The DCFTA, in many respects, aims to align Ukrainian legislation with EU rules to create in Ukraine a business environment similar to that of Europe. It also aims to eliminate various trade barriers and reduce the cost of access to consumers. European suppliers have a chance to fill the niche, compete with local and Asian producers and they will soon find a familiar regulatory environment in Ukraine to do this.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.