Introduction to DCFTA Course number: EUI_S7 Lecturer:

1. Introduction to DCFTA Course number: EUI_S7 Lecturer:

2. Aims of the lecture • To familiarize participants with the provisions of the Association Agreement dealing with Deep and Comprehensive Free Trade Area, • To allow participants to appreciate the differences between traditional FTAs and DCFTA, • To enhance the general knowledge of trade rules among participants, • To facilitate understanding of positive and negative implications of DCFTA.

3. What is AA? Association Agreement creates a privileged relationship between the EU and Ukraine, NOTE: it is not partial membership in the EU, NOTE: it is incorrect to say that AA provides for associated membership, AA provides a legal framework for creation of a free trade area, It covers standard trade issues (trade in goods, SPS, TBT, but also public procurement), Additional trade in services: “wish-lists”, requests and conditionality, NOTE: AA is very voluminous: over 2000 pages (as per Official Journal of the European Union.)

4. Association Agreement (486 articles) PREAMBLE Title I GENERAL PRINCIPLES Title II POLITICAL DIALOGUE AND REFORM, POLITICAL ASSOCIATION, COOPERATION IN THE FIELD OF FOREIGN AND SECURITY POLICY Title III JUSTICE AND FREEDOM Title IV TRADE AND TRADE RELATED MATTERS (Art. 25 - 336) Title V ECONOMIC AND SECTOR COOPERATION Title VI FINANCIAL COOPERATION Title VII INSTITUTIONAL, GENERAL AND FINAL PROVISIONS ANNEXES Overview

5. What is DCFTA? • DCFTA stands for a “Deep and Comprehensive Free Trade Area”, • Slightly misleading: the end of the acronym stands for “AREA” not for “AGREEMENT”, • Integrated into the Association Agreement, • Specific name for a new “type” of approach of the EU towards its neighbours, • Ukraine, Moldova and Georgia leading the path.

6. Classic "FTA part" of the DCFTA • Liberalization of tariffs in bilateral trade, • It is in line with the provision of the WTO/GATT principles ("substantially all the trade"), • Customs dismantling in an asymetrical manner: Ukraine has usually more time to reduce or eliminate tariffs on EU imports, • EU imports from Ukraine basically duty free from day of entry into force (with some exceptions), • NOTE: (tariff rate) quotas (TRQs) for certain agricultural products, • In general, AA follows a standard EU approach to FTAs: see similarities with, for instance, the EU-Vietnam and EU-Korea FTAs.

7. Chapter 1 National treatment and market access for goods Chapter 2 Trade remedies Chapter 3 Technical barriers to trade Chapter 4 Sanitary and phytosanitary measures Chapter 5 Customs and trade facilitation Chapter 6 Establishment, trade in services and electronic commerce Chapter 7 Current payments and movement of capital Chapter 8 Public procurement Chapter 9 Intellectual property Chapter 10 Competition Chapter 11 Trade related energy Chapter 12 Transparency Chapter 13 Trade and sustainable development Chapter 14 Dispute settlement Title IV TRADE AND TRADE RELATED MATTERS

8. Deep and comprehensive • AA covers non-tariff barriers to trade (NTBs), • Standard approach is to make Ukraine comply with the EU requirements, then products undergo the usual procedures of testing, approval of testing facilities and results, then possible to export to the EU, • DCFTA part is going further: Ukraine is required to comply with listed pieces of EU acquis, • In a nutshell, if Ukrainian products comply with EU law then they automatically qualify for export to the EU.

9. Deep and comprehensive • AA covers Sanitary and Phytosanitary Standards (SPS), • Again, the usual approach would be to (basically apply) comply with EU SPS legislation, • European Food and Veterinary Office (FVO) needs to test compliance and approve, thus only approved products can enter the EU (with some other approvals as well), • AA requires Ukraine to approximate its law with EU acquis in this area.

10. Deep and comprehensive • TBTs: Ukrainian products automatically qualify for export to the EU, • Conditions laid down in EU legislation (and similarly soon in UA legislation) may vary: • self-assessment of conformity, • technical testing mandatory, • mandatory conformity assessment. • ACAA:  Agreement of Conformity Assessment and Acceptance of Industrial Products.

11. DCFTA: services • Unprecedented in the extent of services liberalisation • The services chapter is based on the services part of the association agreements that were concluded with countries acceding to the EU – for example with Croatia, • It provides for a complete freedom of establishment in all services and non-services sectors (with a limited number of reservations), • EU and Ukrainian service providers will be able to set up businesses in each others territories and be treated like domestic service providers, • Furthermore, the DCFTA foresees gradual legislative alignment in financial services, telecom services, postal and courier services, and maritime services.

12. Deep and comprehensive • Provisions on free capital movement, • Public procurement. Except the defence sector, it will allow mutual unrestricted access of EU and UA suppliers and service providers to each others public procurement markets, • Competition policy, including provisions on state aid, Intellectual property rights, including a strong section on enforcement of legislation based on EU rules and detailed provisions on so-called geographical indications.

13. Deep and comprehensive • Mutual administrative cooperation in customs matters, • Trade related energy provisions which will establish rules on the pricing of energy goods (to let market prices prevail and to prohibit dual pricing), • EU then committed a EUR 12.8 billion financial package.

14. The idea would be that the DCFTA would eventually guarantee a certain amount of relocations of factories and investment, however….. As a democratic institution, the EU is not forcing businesses to invest and transfer technology to Ukraine, thus investors need to be attracted, Fact is, economic progress can only come from European or third country companies heavily investing into Ukraine, What about the business community?

15. Ukraine is a formidable platform to jump into the EU market once it implements TBTs and SPS, Doing business environment – competitive advantages, Legal security and stable investment conditions, GoU adopted a comprehensive Export Strategy (Strategic Trade Development Road Map 2017 – 2021)(adopted on 29.12.2017). What about the business community?

16. AA as a challenge • The total switch in export markets led to catastrophic impact on some industries, UA exports to Russia alone dropped by almost USD 5°billion in one year (2014 to 2015), • The trade was almost halted up to today, with some exceptions of specific goods.

17. AA as a challenge • Visa free entry into the EU led to instant brain drain (i.e. in automotive and other light industries), • Non-compliance yet with technical standards of the EU costs billions to restructure, introduce modern industrial processes (positively seen, this is a long-term investment).

18. AA as a challenge • Government has to adopt tons of rules that do not fit (yet) any industry needs, • Private business cannot afford (yet) for the implementation of the new quality infrastructure, • Some parts of the AA would need revision, as the Agreement was negotiated years before being signed (thus, also EU acquis has changed).

19. A look into the future • Government reforms needed (for instance taxation, financial stability, subsidies, state owned enterprises, land reform, On the other side, no EU Membership in sight • Thus, also no potential “accession status” which would guarantee access to further – essential – guaranteed payments, • Customs Union with the EU under the “Dutch Syndrome” or “Disease” looks also far away • BREXIT … which might be an opportunity for the carmakers currently based in the UK to invest in Ukraine.

20. Things to remember • Association Agreement creates a legal framework for bilateral relations between the EU and Ukraine, • At its heart are provisions dealing with trade, • AA provides for creation of DCFTA, • Liberalisation of trade envisaged in AA goes beyond trade in goods, • For the Ukrainian business community it creates a lot of opportunities but one should not forget that there are numerous downsides as well.