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EU-Ukraine FTA: Business briefing to cheaper trade

Updated: Jan 29, 2022

(S,P) Cheaper trade for European or Ukrainian goods is a reality, but how to get there? We explain


EU-Ukraine Association Agreement: What you need to know

The Association Agreement, including a Deep and Comprehensive Free Trade Area (AA/DCFTA) between the EU and Ukraine, was negotiated between 2007 and 2011 and signed on 21 March and 27 June 2014.


The DCFTA has been provisionally applied since 1 January 2016 and the Association Agreement formally entered into force on 1 September 2017 following ratification by all EU Member States.


The Association Agreement is the main tool for bringing Ukraine and the EU closer together: it promotes deeper political ties, stronger economic links and respect for common values.


What does the AA/DCFTA want to achieve?

The AA/DCFTA aims to boost trade in goods and services between the EU and Ukraine by gradually cutting tariffs and bringing Ukraine's rules in line with the EU's in certain industrial sectors and agricultural products.


To better integrate with the EU market, Ukraine is harmonising many of its norms and standards in industrial and agricultural products. Ukraine is also aligning its legislation to the EU's in trade-related areas, such as:

  • Competition

  • Technical barriers to trade (TBT)

  • Sanitary and phytosanitary (SPS)

  • Customs and trade facilitation

  • Protection of intellectual property rights


Crimea and Sevastopol

The EU has banned the import of goods originating in Crimea and Sevastopol, as well as investments and a number of directly related services there. This is in line with its policy of not recognising the Russian Federation's illegal annexation of Crimea and Sevastopol.


About the EU-Ukraine Deep and Comprehensive Free Trade Area

The Deep and Comprehensive Free Trade Agreement (DCFTA) reduces tariffs that European or Ukrainian firms face when exporting to Ukraine. The agreement facilitates trade by making customs procedures more efficient and by gradual approximation of Ukrainian legislation, rules and procedures, including standards, to those of the EU.

The DCFTA opens markets for goods and services on both sides, based on predictable and enforceable trade rules.


What are the benefits for EU and Ukrainian businesses?

The association agreement


  • makes it easier and more affordable for EU or Ukrainian businesses to import from and export to EU/Ukraine

  • introduces a variety of benefits for your business, such as the elimination of tariffs as well as efficient and speedy facilitation of traffic through customs at international borders

The EU is one of Ukraine’s largest trading partners, which means that there are several opportunities to import and export from the EU to Ukraine, and vice versa. The key export goods are raw materials such as iron, steel, mining products, agricultural products, machinery and chemical products. Ukraine is currently working to streamline policies to benefit small businesses when trading with the EU.


Tariffs

The EU-Ukraine agreement improves the competitiveness of European businesses in the Ukrainian market and vice versa. Overall, for trade in goods, the agreement eliminated the majority of tariffs – EU: 98.1% and Ukraine: 99.1%.


EU

The agreement removed 94.7% of the tariff lines. For a few, goods tariffs are still gradually being eliminated by the EU with the following transitional periods

  • fertilisers - 2023

  • aluminium articles - 2023

  • cars and most motor vehicles - 2023


Ukraine

On the entry into force of the agreement, 49.2% of industrial products could enter Ukraine free of duties.


The share of EU exports liberalised by Ukraine is scheduled to increase to 96% by 2023. This further gradual elimination of tariffs concerns minerals - 2023. Ukraine’s motor vehicle sector will also enjoy a transitional period lasting until 2026, a result of negotiations agreed upon at the WTO in 2008.


Agricultural goods

EU

Import duties on most agricultural goods imported into the EU were reduced to zero in 2016. Tariff rate quotas apply for the rest of the agricultural goods that are not liberalised. The management of these quotas is done either on a first come first served basis or via import licences. You can find a list of all the tariff rate quotas for both EU and Ukraine in Appendix 1 and 2 to Annex I-A.


Ukraine

Almost half of Ukraine’s agricultural goods were liberalised when the agreement entered into force, but a few goods are subject to a transitional period lasting until 2023.


Not all of Ukraine’s import duties will be reduced to zero by 2026, 8.7% of agri-food tariffs on goods such as dairy, eggs, sugar, animal oils and fats, will be subject to limited linear reductions by 20-60% - a residual tariff will be applied thereafter for sugars, poultry meat and pork meat, tariff-rate quotas (TRQs) will be applied - goods imported within the indicated quantities are duty-free.


No export duties

The EU-Ukraine agreement prohibits the use of export duties by both parties. However, the government of Ukraine agreed to phase out existing export duties towards certain goods by 2026, including livestock and hide raw materials, seeds of some types of oil-yielding crops and types of metal. More information on this can be found in Annex I-C of the EU-Ukraine agreement.


Specific Safeguard

A specific safeguard measure mechanism is provided for Ukraine’s export lasting up to 2031. This means that Ukraine is allowed to impose a surcharge on the export duty of several goods, such as raw hide materials, sunflower seeds and types of metal, steel and copper if, during a yearly period, the cumulative volume of exports from Ukraine to the EU exceeds a trigger level. More information on this can be found in Annex I-D of the EU-Ukraine agreement.


PEM Rules of origin

The rules of origin applicable under the Association Agreement with Ukraine are those of the PEM Convention (The Regional Convention on pan-Euro-Mediterranean preferential rules of origin) (OJ L54, 26.02.2013, p. 4). Requirements for rules of origin under the PEM Convention are defined in Annex 2 of Appendix I of the PEM Convention. Those rules are under revision and a new set of alternative rules of origin should be applicable mid-2021, including provisions on cumulation, duty drawback, tolerance and the non-alteration rule (see below) that will be relaxed. The PEM Convention on rules of origin aims at establishing common rules of origin and cumulation among 25 Contracting Parties (the EU, EFTA, Balkan countries, and FTA partners in the EU's Southern and Eastern Neighbourhood Region) and the EU to facilitate trade and integrate the supply chains within the zone.


Does my product originate in the EU or Ukraine according to the PEM Convention?

For your product to qualify for the lower or zero preferential tariff under the PEM Convention it must originate in the EU or in Ukraine.

A product ‘originates’ if it is either

  • wholly obtained in the EU or in Ukraine, or

  • manufactured in the EU or in Ukraine using non-originating materials, provided such materials have been sufficiently worked or processed in compliance with the product-specific rules (PSR) set out in Annex II of Appendix I of the PEM Convention.


See also Annex I ‘Introductory notes’ to product-specific rules of origin. For certain products, there are alternative product-specific rules - see Appendix II.

The product also needs to fulfil all other applicable requirements specified in the Chapter, such as insufficient working or processing, or the direct transport rule. There are also some additional flexibilities to help you comply with product specific rules for example, tolerance or cumulation.

Examples of the main types of product-specific rules in EU trade agreements

  1. the value-added rule – the value of all of the non-originating materials in a product cannot exceed a certain percentage of its ex-works price

  2. the change of tariff classification – the production process results in a change of tariff classification between the non-originating materials and the final product – for example, production of paper (Harmonized System Chapter 48) from the non-originating pulp (Harmonized System Chapter 47)

  3. specific operations – a specific production process is required, for example spinning of fibres into yarn – such rules are mostly used in the textile and clothing and the chemical sectors

Tips to help you comply with the product-specific rules

The agreement provides additional flexibility to help you comply with the product-specific rules, such as tolerance or cumulation.


Tolerance

the tolerance rule allows the producer to use non-originating materials that are normally prohibited by the product-specific rule for up to 10% of the product's ex-works price this tolerance cannot be used to exceed any maximum-value threshold of non originating materials listed in the product-specific rules specific tolerances apply to textiles and clothing classified in HS Chapters 50 to 63, which are included in Notes 5 and 6 of Annex I ‘Introductory notes to the list in Annex II’.


Cumulation

The PEM Convention provides for two ways of cumulating origin bilateral cumulation - materials originating in Ukraine can be counted as originating in the EU (and vice-versa) when used in the production of the product in the EU diagonal cumulation - materials originating in one Contracting Party of the PEM Convention can be counted as originating in another Contracting Party when assessing if the final product is originating to benefit from preferential access when exported to a third Contracting Party within the pan-Euro-Med zone — diagonal cumulation only applies if a Trade Agreement is in place between all Contracting Parties concerned and those countries apply the same rules of origin

Please check the 'matrix' (table containing all the agreements in force using the PEM Convention) that specifies the Contracting Parties with which Ukraine can apply diagonal cumulation

How does diagonal cumulation work?

Diagonal cumulation occurs among several different countries that share the same rules of origin and have FTAs with each other. This is when a producer of goods in either country can import materials and use them as if they originated in their own country. For example, under the PEM Convention, a Ukrainian trader who makes up clothes in Ukraine for export to Switzerland, can use fabrics originating in the EU to produce the clothes and can count them as originating in Ukraine. The double transformation requirement, i.e. manufacturing of the fabrics from (non-originating) yarn and production of the clothes has been fulfilled and the clothes are considered as originating in Ukraine when exported to Switzerland and will therefore benefit from free access in the Swiss market.


Other requirements

  • The product also needs to fulfil all other applicable requirements specified in the Convention, such as insufficient working or processing, or the direct transport rule.

  • Direct transport rule

  • Originating products must be transported from the EU to Ukraine (and vice-versa) or through the territories of the Contracting Parties with which cumulation is applicable without being further processed in a third country.

Some operations can be conducted in a third country if the products remain under customs supervision, such as

  • unloading

  • reloading

  • any other operation designed to preserve products in good condition

Evidence that these conditions have been fulfilled shall be supplied to the customs authorities of the importing country by the production of

  • a single transport document (e.g. a bill of lading) that covers passage from the exporting country through the third country via which the goods transited

  • a certificate issued by the customs authorities of the third country through which you are transporting your goods

  • failing these, any substantiating documents

Duty drawback

Under the PEM Convention in trade between the EU and Ukraine, it is not possible to get a refund on duties previously paid on non-originating materials used to produce a product that is exported under a preferential tariff.


Origin procedures

Exporters and importers have to follow the origin procedures. The procedures are set out in Title V on Proof of Origin and Title VI on Arrangements for Administrative Cooperation. They clarify e.g. how to declare the origin of a product, how to claim preferences or how the customs authorities can verify the origin of a product.


How to claim a preferential tariff

To benefit from a preferential tariff, importers must provide proof of origin.

The proof of origin can be either

  • a movement certificate EUR.1 or EUR-MED, or

  • an origin declaration or an origin declaration EUR-MED

The proof of origin is valid for a period of 4 months from the date of issue.


Movement certificates EUR.1 or EUR-MED

  • movement certificates EUR.1 or EUR-MED are issued by the customs authorities of the exporting country

  • Annex III includes specimen EUR.1 and EUR-MED certificates and gives instructions for their completion

  • the exporter applying for the certificate should be prepared to submit documents proving the originating status of the products concerned


Origin declaration or EUR-MED origin declaration

Exporters can self-declare that their product originates in the EU or in the Contracting Party of the PEM Convention by providing an origin declaration. The origin declaration can be made by an approved exporter any exporter, if the total value of the consignment does not exceed €6,000


How to make an origin declaration

The exporter should type, stamp or print the following declaration on the invoice, delivery note or other commercial document identifying the product (Annex IV):

“The exporter of the products covered by this document (customs authorisation No ... ) declares that, except where otherwise clearly indicated, these products are of ... preferential origin.”


How to make a EUR-MED origin declaration

In this case, the declaration is the following (Annex IV)

“The exporter of the products covered by this document (customs authorisation No … ) declares that, except where otherwise clearly indicated, these products are of … preferential origin.

- cumulation applied with … (name of the country/countries).

- no cumulation applied”

The origin declaration can be made in any official language of the EU or official languages in the PEM zone as mentioned in the Annex IV (the statement related to cumulation should always be in English).


You must sign your origin declaration by hand. If you are an approved exporter, you are exempted from this requirement provided you give your customs authorities a written undertaking that you accept full responsibility for any declaration identifying you.


Verification of origin

The customs authorities may verify whether a product imported is indeed originating or fulfils other origin requirements. Verification is based on administrative cooperation between customs authorities in the importing and exporting parties checks done by local customs - visits by the importing Party to the exporter are not allowed

The authorities of the exporting party make the final determination of origin and inform the authorities of the importing party of the results.




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