EU importers of Ukrainian products to the EU will no longer be required to pay duties on any EU imports from Ukraine from June 2022. We summarise and explain the law behind it and what EU businesses now need to know.
Since 24 February 2022, Russia's unprovoked and unlawful war of aggression against Ukraine has severely hampered Ukraine's ability to trade with the rest of the world due to lost manufacturing capacity and closed access to the Black Sea. Under such unusual circumstances, the EU believes it is vital to increase trade flows, liberalise trade for all products, and reduce customs duties on EU-Ukraine trade
As the tweet shows, EU importers of Ukrainian products to the EU will no longer be required to pay duties on any EU imports from Ukraine from June 2022. The EU has decided to offer Ukraine duty and quota-free access. Let's explore what this means for businesses.
What is the EU-Ukraine Association Agreement?
The EU - Ukrainian Association Agreement (the so-called "AA") was signed on June 27th, 2014, and came into effect on September 1st, 2017. It aims to bring Ukrainian law closer to that of the European Union over time. This framework agreement imposes no customs duties of its own but rather, customs arrangements are implemented via the several sectoral agreements that make up the AA as a whole. Some of Ukraine's collaboration with the European Union is governed by specific sectoral accords. Access a detailed debrief on the EU-Ukraine AA here.
Enter the DC-FTA - a deep and comprehensive trade relationship between Ukraine and the EU.
Trade connections between Ukraine and the EU will be bolstered by this agreement, which includes a DCFTA. In addition to trade in products, the DCFTA also addresses rules of origin, services, government procurement, intellectual property rights, competition, and sustainable development.
Since September 1, 2016, the DCFTA has been applied temporarily. Ukraine's programmatic changes at the national level must be completed before the agreement can be signed (such as anti-corruption measures). Access a detailed debrief on the EU-Ukraine AA here.
DCFTA is three phases
The DCFTA was put into effect in three stages:
As part of the first phase (2014-2015), Ukraine and the European Union signed the Deep and Comprehensive Free Trade Area Agreement (DCFTA). However, some sensitive areas like public procurement were left out because they need more time to prepare for free competition.
All elements of the DCFTA except for those relating to customs value or anti-dumping measures were fully implemented during the second phase (2016-2020) .
During the third phase (which formally started in 2021), Ukraine would have to show how it fulfilled its obligations under phase two. This included adopting all necessary legislation and fully implementing obligations under bilateral economic agreements with EU member states. The country must also remove certain non-tariff barriers, open its market fully to goods from third countries, complete accession talks with EFTA/EEA countries, as well as fully ratify WTO agreements required by membership, among other things.
The AA establishes a free trade area between Ukraine and the EU on the basis of WTO commitments.
On the basis of WTO agreements, the AA creates a free trade zone between Ukraine and the EU. This implies that all tariffs on items exchanged between the two parties will be eliminated. Governments establish tariffs in order to raise the cost of imported goods, thereby shielding domestic manufacturers from the competition. Therefore, Ukrainian farmers and manufacturers will not be required to pay any taxes on their agricultural exports to European markets. Products entering the EU from Ukraine were subject to tariffs until June 2022.
Towards the EU Single Market
The DCFTA also provides for progressive integration of Ukraine into the EU's internal market through approximation of Ukrainian legislation to that of the EU. Approximation of Ukrainian legislation to that of the EU is a gradual process. It means that Ukraine will be able to apply for membership in the European Union only after its legislation has been sufficiently adjusted so that it conforms with the acquis communautaire (the body of EU laws).
Measures to temporarily open up trade are making it easier for Ukraine to sell its goods to the EU
On 3 June 2022, the EU published REGULATION(EU) 2022/870 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 30 May 2022 on temporary trade-liberalisation measures supplementing trade concessions applicable to Ukrainian products under 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 agreement has eight articles only. The key ones are
Article 1 Trade-liberalisation measures
1. The following preferential arrangements are introduced:
(a) Certain industrial products from Ukraine that are subject to a seven-year phase-out under Annex I-A of the Association Agreement will have no preferential customs duties when they are brought into the Union.
(b) The entry price system won't be used for the products listed in Annex I-A of the Association Agreement. Imports of these goods won't have to pay any customs fees;
(c) all the tariff rate quotas set up under Annex I-A of the Association Agreement will be cancelled, and the goods covered by those quotas will be allowed into the Union from Ukraine without any customs duties.
2. Antidumping duties on imports from Ukraine that were made while this Regulation was in place will not be collected at any time, even after this Regulation has ended.
3. The application of Regulation (EU) 2015/478 on common rules for imports (investigations, surveillance, safeguard measures etc.) shall be temporarily suspended with regard to imports originating in Ukraine.
Article 2 Conditions for entitlement to the preferential arrangements
The preferential arrangements set out in Article 1(1)(a), (b), and (c) are subject to the following conditions:
(a) following the rules about where products come from (origin), as set out in the Association Agreement;
(b) Ukraine's promise not to add new taxes or fees with the same effect, new quantitative restrictions or measures with the same effect for imports from the EU, raise existing taxes or fees, or add any other restrictions, including discriminatory internal administrative measures, unless it's clear that doing so is necessary because of the war; and
(c) Ukraine's respect for democratic principles, human rights, basic freedoms, and the rule of law, as well as its continued and consistent efforts to fight corruption and illegal activities, as outlined in Articles 2, 3, and 22 of the Association Agreement.
Article 3 Temporary suspension
1. If the EU Commission believes Ukraine hasn't satisfied Article 2's criteria, it may use a "implementing act" to halt all or part of Article 1(1)(a), (b), and (c) (c). This implementing legislation will follow Article 5's review process.
2. If a member state requests the EU Commission to discontinue a preferential arrangement because Ukraine hasn't satisfied Article 2, point (b), the Commission must deliver a reasoned decision within four months concerning whether the allegation is accurate. If the Commission finds the allegation accurate, it will begin the first portion of this article.
Article 4 Safeguard clause
If a Ukrainian product is imported under conditions that cause or threaten to cause serious issues for Union producers of equivalent or directly competitive items, customs tariffs may be reintroduced at any moment. The EU Commission monitors the impact of this Regulation on exports, imports, and Union production of commodities subject to trade-liberalization measures.
The EU-Ukraine Association Agreement provides a clear framework for Ukraine’s economic development toward EU norms and regulations, increasing transparency, reducing corruption and opening new markets for trade and investment. However, the war with Russia made it necessary to accelerate access to the EU market to assist Ukraine's development. So, in June 2022, the EU removed import charges (preferential customs tariffs) on Ukrainian industrial commodities, suspended the entry price programme for fruit and vegetables, and suspended tariff-rate quotas. To prevent fraud, the preferential rules apply only if Ukraine meets all relevant conditions for obtaining benefits under the Association Agreement, including rules of origin and related procedures. Ukraine shouldn't impose new trade restrictions on the EU unless the war justifies it. If Ukraine doesn't meet these conditions, the Commission can suspend preferential arrangements. Due to the emergency in Ukraine, this Regulation should include a transitional provision and enter into force the day after its publication in the EU Official Journal.
How we can help
Just because Ukraine is taking its time implementing the AA's legislative obligations does not imply you have to. There are actions you can take right now to guarantee your company is ready to benefit from Ukraine's zero-tariff, zero-quota access to the European market. The Association Agreement between the EU and Ukraine establishes a clear framework for Ukraine's economic progress toward EU rules and laws, boosting transparency, decreasing corruption, and creating new markets for trade and investment. If your company operates in Ukraine or already imports from Ukraine into the EU, do not hesitate to contact us for advice on how to prepare for tariff reduction in June 2022. And if you are a Ukrainian company wishing to access the Single Market but have questions, we may advise you and support you for no charge at all. Get in touch.