PhD Nezhenets E. V., Dzyd E. V., Kruchek A. S.

Oles Honchar Dnipropetrovsk National University, Ukraine

THE FREE TRADE AGREEMENT BETWEEN UKRAINE AND EU: CONCEPTUAL BACKGROUND, ECONOMIC CONTEXT

Relations between Ukraine and the European Union (EU) are currently shaped via the European Neighbourhood Policy (ENP), this foreign policy is an instrument of the EU designed for the countries it borders. The EU is seeking an increasingly close relationship with Ukraine, going beyond cooperation, to gradual economic integration and deepening of political cooperation. Ukraine is said to be a priority partner within the ENP. In 2012, the EU signed deals on free trade and political association with Ukraine. But this process stopped because of strong deterioration of democracy and the rule of law, including the imprisonment of Y. Tymoshenko and Y. Lutsenko in 2011 and 2012 [1].

In near future it is expected that EU and Ukraine will sign DCFTA- Deep and Comprehensive Free Trade Agreement, this is relatively new concept in the EU trade policy. The DCFTA will be part of a future Association Agreement, which will replace the present Partnership and Cooperation Agreement between the EU and Ukraine (which dates from 1998) [2].

First this notion appeared in the decade of the 1990s when the Barcelona Process was launched, and in the same time a series of trade agreements between the EU and the Southern Mediterranean countries started to be negotiated. In the next 10 years this notion developed into the key economic instrument of the European Neighborhood Policy (ENP) in respect to both the Eastern and Southern neighbours of the EU.

The idea of a deep free trade area (also can be called – free trade area «plus») goes beyond the traditional concept of trade liberalization, which focuses mostly on reducing and removing customs tariffs, sometimes limited to trade in manufactured goods only (so-called «shallow» integration).

The concept of a deep FTA – «plus» includes the reduction or removal of non-tariff barriers (NTB). It also reduces obstacles for the liberalization of the investment regime, it promotes the liberalization of trade in services, and harmonization sectorial policies. Sometimes it may include free movement of people and labor rotation.

Accordin to famous economist D. Evans, most deep FTAs include the following components:

– investment rules;

– a degree of regulatory harmonization;

– regulation of anti-dumping procedures;

– limitation of using export subsidies (beyond WTO rules);

– competition policy alignment;

– regulation of service provision;

– dispute settlement mechanism;

– institution/s to monitor implementation of agreement [3].

This deep integration between EU and Eastern neighbours, could not existed without Eastern Partnership (EaP). EaP is a program that EU launched in May 2009.This program includes 6 countries: Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine. We can say this program gives a basis for further deepening of both bilateral and multilateral integration between EU and other countries.

Firstly, relations between EU and Ukraine begun with PCA (Partnership and Cooperation Agreement) in trade and economic relations, signed in June 1994, which entered into force on March 1, 1998. It is not too much to mention, that all PCAs signed between the EU and countries of the former Soviet Union in the 1990s have been relatively modest in the area of economic integration. The most important provision has related to the Most Favored Nation (MFN) clause in bilateral trade. Ukraine ranks 12th, among the most effective users of the EU’s GSP (Generalized System of Preferences). Preferential imports to the EU from Ukraine include machinery and mechanical appliances, plants, oils, base metals, chemicals and textiles [4].

In 2005, the EU granted Ukraine market economy status. This ensures that antidumping investigations against Ukrainian exporters to the EU are conducted applying the normal value of exports based on prices paid or payable in Ukraine, and not in the third country as it is done for non-market economies. This brought positive and negative effects. As for the negative side, we can named the anti-dumping measures. For example in April 2010, there have been six anti-dumping measures adopted by the EU against the products originating from Ukraine. In Ukraine, there were three anti-dumping measures against products from selected EU countries, and six safeguard measures concerning all trade partners including the EU [5].

Next step was made in March 2007, when negotiations between Ukraine and the EU started on a new enhanced agreement in order to replace the PCA. Since the Paris EU-Ukraine Summit in September 2008 the negotiated agreement was upgraded to the Association Agreement (AA), which included the DCFTA as an integral part. But here «easy-part» ends, because this DCFTA maintain many controversial questions and demands. Ukraine was not ready to fillfull all this requirements. The most important «problem» are:

– geographical Indications (GIs): the EU demanded protection for some 3,000 GIs such as cognac or champagne produced by Ukrainian companies and a product rebranding if necessary. Ukraine wanted to obtain a transition period for such a rebranding and a compensation mechanism for its firms;

– trade aspects of energy cooperation: the EU demanded guarantees of the safe and uninterrupted transit of natural gas through Ukraine. As a result of negotiations, Ukraine committed ensuring that the country’s internal legislation would facilitate the free and uninterrupted transit of gas. However, neither the EU nor Ukraine can bear responsibility for actions undertaken by third parties. The EU also expects that domestic energy pricing in Ukraine will be conducted on a market basis;

– transportation services: Ukraine wanted free access to the EU market for all types of transportation services for its companies, including the free movement of physical persons to provide these services on EU territory. The EU side was reluctant to grant such access, mostly due to the unfinished process of creating the Single European Market for services. There was also the question of the incompatibility of Ukraine’s labor and ecological standards in transportation services with those of the EU. As a result, Ukraine will have to rely on bilateral agreements with individual EU member states.

The Ukraine-EU trade regime was further liberalized when Ukraine joined the WTO in 2008. Current trade regime between Ukraine and the EU has been quite liberalized after WTO accession and under the GSP, it continues to maintain serious tariffs and especially non-tariff barriers.

Ukraine still can receive main benefits from the DCFTA for the economy, main of them can be characterized as follows:

– The DCFTA will provide Ukrainian enterprises with better access to the EU market and third-country markets (as a result of harmonization with EU product standards and benefits of scale); it should also help Ukrainian enterprises become part of global production network by encouraging IIT.

– The DCFTA will increase competition on the domestic market, leading to better consumer choice.

– The harmonization of Ukrainian standards with those of the EU will also increase the quality and safety of domestically produced and traded goods and services.

– The additional inflow of FDI will contribute to the modernization of Ukraine’s economy, enterprise restructuring, job creation, and possibly a greater diversification of its sectoral and product structure; indirectly, it should help to reduce its high energy intensity.

– Regulatory and institutional harmonization may help to improve the business and investment climate in Ukraine [6].

To sum up, we can say that it is critical moment in relationship between EU and Ukraine. It is very important for Ukraine to choose the right way of developing this relation and to consider all possible effects from this cooperation.

The list of references:

1. EU leaders: Ratification of Association Agreement and DCFTA depends on settlement of Tymoshenko-Lutsenko issue. Kyiv Post (20 July 2012).

2. Сайт Європейської Комісії [Electronic resource]. – Mode of access: http://www.ec.europa.eu/ trade/policy/countries-and-regions/countries/ukraine/

3. Evans D. A Framework for Evaluating Regional Trade Agreements: Deep Integration and New Regionalism [Electronic resource] / D. Evans. – Mode of access: http://www.sussex.ac.uk/Units/PRU/tradelib_firms_Robinson.pdf

4. EU-Ukraine Association Agreement to be signed, Ukraine to go to Europe – speaker, Interfax-Ukraine (25 September 2013).

5. Ponomarenko A. Die europäische Orientierung der Ukraine: Dekret des Präsidenten der Ukraine über die Strategie der Integration der Ukraine in die Europäische Union; Partnerschaftsabkommen zwischen der EU und der Ukraine / A. Ponomarenko.

6. Dabrowski M. The EU-Ukraine Association Agreement: Trade and Economic Issues at Stake / M. Dabrowski, S. Tara. [Electronic resource]. – Mode of access: http://www.europarl.europa.eu/committees/fi/studiesdownload.html?languageDocument=EN&file=59671