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Economic policy of Ukraine  »  Ukraine-EU cooperation  »  The EU-Ukraine Association Agreement  »  Provisions of Association agreement between Ukraine and the European Union on free trade area

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Provisions of Association agreement between Ukraine and the European Union on free trade area версія для друку RSS facebook
16.04.2013 | 14:23 |

The official opening of negotiations on a free trade area between Ukraine and the European Union took place February 18, 2008 in Kyiv under the chairmanship of the President of Ukraine and the EU Commissioner for Trade. On July 19, 2012 in Brussels, the initialing of the Association Agreement between Ukraine and the EU in terms of the provisions on free trade took place. Thus a line was drawn under the negotiation process that lasted more than 4 years.

The provisions of the Association Agreement on establishing a free trade area are an integrated core part of the future Association Agreement between Ukraine and the European Union and account for nearly 85% of the total amount of the Agreement and include the following chapters:

1.                                                   Trade in Goods including tariff liberalization;

2.                                                   Technical Barriers to Trade;

3.                                                   Trade Remedies;

4.                                                   Sanitary and Phytosanitary Measures;

5.                                                   Customs and Trade Facilitation;

6.                                                   Trade in Services;

7.                                                   Current Payments and Movement of Capital;

8.                                                   Government procurement;

9.                                                   Intellectual property rights (IPR);

10.                                               Geographical Indications;

11.                                               Competition: Antitrust and Mergers, State Aid;

12.                                               Trade-Related Energy;

13.                                               Transparency;

14.                                               Trade and Sustainable Development;

15.                                               A special dispute settlement mechanism under the FTA.

 

Filling future FTA aimed at achieving the maximum economic integration, to which both sides will be ready, and has a unique practice of the EU.

The establishment of free trade regime is part of Deep and Comprehensive Free Trade Area in the format "FTA +" with a focus on regulatory cooperation.

The format of "FTA +" implies that the reduction and liquidation of trade barriers within the free trade regime deals not only with the liberalization of bilateral trade in goods, but also accompanied with the Sides' agreement to liberalize further areas such as trade in services, foreign direct investment and government procurement.

The key difference of “FTA +” from classical free trade areas is spread of free trade regime on the service sector and (partly) the liberalization of the labor force, as well as an extensive program of economic and sectoral adaptation of Ukraine's norms and standards of the European Union, which will allow to eliminate nontariff barriers for Ukrainian exports to the EU internal market.

Paying attention to the fact that an integral part of Deep FTA is bringing Ukrainian legislation and practice into conformity with the norms and regulations of the EU, the particular importance is given to the application of international and European standards and tools in the relevant areas of cooperation.

 

Among the major achievements of the concluding Agreement generally can be identified, primarily:

·                     The improvement of conditions of exports of Ukrainian products to the EU primarily due to the elimination of import duty and reduction of non-tariff barriers to trade in agricultural products.

Note: the EU unites 27 Members States with an area about 4 million sq. km., where more than 503.68 million people live (more than the population of the U.S. and Russia together), with the average level of income in 39 th. U.S. per capita is one of the world's major markets, which many countries are seeking to get access to.

In recent years, the share of the EU market is on average 33% of total exports of goods in Ukraine. Share of imports from EU countries-members was on average 35.6%. Thus the EU market has a significantly higher tariff protection, primarily for agricultural goods and products (current average arithmetic rate of importable duty in the EU only on customs tariff is 7.6%, Ukraine - 5.0%, and by goods groups Nomenclature 01-24 (agriculture) - 19.8% and 9.2% respectively. Meanwhile, rates of import duty from the EU side for individual tariff lines are 1.5 - 14 times higher than rates of  import duty of Ukraine.).

The establishment of a Free Trade Area will provide additional benefits to domestic exporters in the market with high enough protection. According to the reached agreements the liberalization covers more than 97% of tariff lines (or more than 95% of bilateral trade between the Sides). Thus, the abolishment of EU import duty on most goods will take place in the first year of the enforcement of the agreement (with 99% of tariff lines).

Besides, the Ukrainian exporters will have an additional advantage on trade in goods on which the EU offered to introduce tariff quotas. First of all it is about pork, chicken, sugar, etc.. These products are sensitive for the EU and are usually excluded from the FTAs and are covered by the general customs tax regime. However, as a result of negotiations, Ukraine got the opportunity to export to EU fixed volumes of above mentioned goods under zero import duties. This is not about restriction of imports, but only about that the import of these goods which will be above fixed volumes falls under the general import regime which is applied to Ukraine today.

The specified above will facilitate the growth of exports of goods and services (most notably may increase exports of agricultural products and food products, including confectionery, in particular - exports of textile and leather industry, metallurgy and metal processing, chemical manufacturing, transportation services and services for legal entities).

Meanwhile, a slight increase in imports of goods and services will be observed (the largest increase is being expected in imports of chemical products and machinery; significant growth - in food production and agriculture, production of non-metallic mineral products, textile and leather industry, other manufacturing, transport and financial mediation);

Note: According to preliminary estimates of the World Bank that were based on General Equilibrium Model, an establishment of Free Trade Area with the EU, compared with presently existing high tariff protection of EU agriculture could significantly expand production of the agricultural sector in Ukraine and render Ukrainian exports with a general economic effect of $ USD 200 million  per year, or 0.4% of the GDP.

·                     acceleration of economic growth. Additional growth is expected mainly due to economic activities such as agriculture and food processing, textile and leather industry, metallurgy and metal processing, transportation services, services for legal entities;

·                     increase of the number of employees in economic activity: growth relative to baseline expected mainly due to economic activities such as agriculture and food industry, trade and repair, transportation. Meanwhile expected slight decrease in the number of employees in the chemical industry, production of machinery and equipment;

·                     expansion of the state budget revenues. With international experience of functioning FTA, short-term loss of revenue due to tariff liberalization will be offset by an increase in other items of revenue from domestic taxes;

·                     encourage foreign direct investment in Ukraine: the establishment of “FTA +” with the EU will become a powerful additional argument in favor of foreign direct investment in the production of goods or services targeted on export to the EU countries using the existing competitive advantages of the Ukrainian economy;

·                     improving the business and investment climate for domestic business operators: the process of adaptation of “FTA +” and enhancing the quality of its implementation will result in improvement of the business environment in Ukraine in general;

·                     benefits for the Ukrainian consumers: the gradual elimination of existing tariff and regulatory barriers to increase the variety and quality of products and services available to consumers. In addition, competitive pressures, stemming from liberalization of market access, encourage specialization, thus encouraging innovation and lowering costs;

·                     the EU rejection to use export subsidies in trade with Ukraine.

Moreover, the result of the completion of administrative reforms to be implemented for the realization of Ukraine's obligations under this Agreement, will be an improvement of the efficiency of public administration in the area of food safety and bringing it into line with EU requirements. The technical regulation reform will lead to the acceptance and application of technical regulations for specific industrial products based on the main provisions of EU, the creation of appropriate infrastructure of designated conformity assessment bodies and retrofit of testing laboratories and the implementation of their accreditation, as well as the modernization of production to provide production in accordance with the requirements of technical regulations. In turn, this will allow domestic producers to compete with their European counterparts.

Along with this, the development of protection of geographical indications in Ukraine provided under the Agreement, as well as involvement experience and resources of the EU will lead to the development of marking goods that will emphasize on the national identity of Ukrainian products on the domestic and global markets, spreading the positive image of the state as a producer of special in quality products and as a consequence, will facilitate sales and exports due to reputation.

The provisions for the application of rules of origin of the European Union will also have a great importance for Ukrainian exporters (producers of goods) to the EU that will provide bilateral cumulation of origin between Ukraine and the EU. According to the agreements concerning the Agreement provisions on the capital flow and payments provided to guarantee the free capital flow relating to direct investments made in accordance with the laws of the country, as well as related to commercial loans.

Implementation of the Agreement will also contribute to strengthening ties in trade, environment and social policies and practices for further promotion of the objectives of expanding trade between Ukraine and the EU, consideration and complementarity of economic, social and environmental interests in the development of state and society.

Thus, considering the completion of the negotiation process and the drafting of the Association Agreement to be signed, the Government of Ukraine held significant measures associated with the preparation of the internal market to operating conditions within the Free Trade Area between Ukraine and the EU. In particular, reforms are carried out in areas such as sanitary and phytosanitary measures, technical regulations and standardization, public procurement, state aid, etc.. The work of harmonizing the legislation of Ukraine with the EU legislation is conducted on an ongoing basis , including in the framework of Ukraine-EU Association Agenda and the National Programme of Adaptation of Ukraine's legislation to the European Union (Law of Ukraine on March 18, 2004 № 1629-IV as amended).

For example, as for today 7061 national standard has been approved and harmonized with the international and European ones and 40 technical regulations developed on the base of EU legislation, 27 of which have already been implemented. In addition, large-scale measures are being taken related with the preparation of the internal market to operating conditions within the Free Trade Area between Ukraine and the EU. For this purpose, On June,15, 2011 there was approved the order of the Cabinet of Ministers of Ukraine № 548-р "On the approval of a plan to increase the benefits and minimize the negative effects of an establishment of Free Trade Area with the European Union for the Ukraine's economy."

The specified above has already provided for domestic exporters an access to the European market on certain goods, particularly on foods of animal origin.

As of on January 2013 the European Union included Ukraine in the list of countries that had approved plans for state monitoring of residues of veterinary drugs and contaminants in animal products such as milk, eggs, honey, poultry and aquaculture (Commission Decision № 2011/163/EU).

So today Ukraine is able to export to the EU member states as follows:

-                     marine fish (for human consumption),

-                     honey,

-                     products of animal origin not for human consumption (by-products),

-                     eggs and egg products.

The work of obtaining permission for export of poultry is on the final stage, while the work on the requirements and permission for export of milk is still ongoing. To expedite obtaining final permission to export these products to the market of the EU Member States Ukraine must fulfill a number of requirements, which requires considerable resources.

In addition, in recent years there has been a tendency of growth of exports agricultural commodities and products (crops and seeds and oleaginous fruits) to the EU. In particular, grain exports increased by 92%, or USD 949.9 million and seed exports increased by 33.5% or USD 308.0 million.

 

 


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