AA and DCFTA ACRONYMS FOR INTEGRATION

1. AA and DCFTA ACRONYMS FOR INTEGRATION Induction training for Senior, Associate and Junior Legal Approximation and Sectorial Policy Fellows Ukrainian State Employment Service Training Institute (str. Novovokzalna 17, room 201)

2. Stefan Moser Consultant stefanmoserconsultancy@gmail.com

3. What does AA mean? Shortly, “Association Agreement” Synonymous with Free Trade Agreement FTAs or AAs evolved over the time Standard trade issues (trade in goods, SPS, TBT, but also Public Procurement) Additional trade in services, “wishlists”, requests, conditionality, etc. Thus, the AA with the Ukraine ended up having roughly 2100+ pages (Official Journal of the EU)

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 like the “PROTOCOL ON RULES OF ORIGIN” and more

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

6. The classic "FTA part" of the DCFTA • Liberalizesmosttariffsbothway • In line with the provision of the WTO/GATT principles ("substantially all the trade") • Customs dismantling in an asymetricalmanner: Ukraine has usually more time to reduce or eliminatetariffs on EU imports • EU imports from Ukraine basicallyduty free fromday of entry into force (withsome exceptions) • With (tariff rate) quotas (TRQs) for certain agricultural products • Large approach for FTAs, similar for instance for EU-Vietnam and EU-KoreaFTA

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 (DC)” • Non Tariff Barriers to Trade (NTBs) • Usual approach would be to make Ukraine compatible with the EU, then undergo the usual procedures of testing, approval of testing facilities and results, then possible to export to the EU • DC part is going further, Ukraine takes over “EU Acquis” legislation • Implemented, Ukrainian products automatically qualify for exports to the EU (so the theory of single market approximation)

9. “Deep and comprehensive DC” • 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) • If then through the DC, Ukraine takes over EU Acquis legislation

10. “Deep and comprehensive DC” • And as for TBTs, Ukrainian products automatically qualify for exports to the EU • Condition of EU legislation (and similarly soon UA legislation) vary: • Self-assessment of conformity • Technical testing mandatory • Mandatory conformity assessment • ACAA:  Agreement of Conformity Assessment and Acceptance of Industrial Products

11. DCFTA - Services part • Unprecedented in the extent of its 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). • In other words, 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. More DCFTA: • 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 on state aid, subsidies, and transparency of decisions regulated • Intellectual property rights, including a strong section on enforcement of legislation based on EU rules and detailed provisions on so-called geographical indications (GIs) • 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

13. EVOLUTION • The AA political and cooperation provisions have been provisionally applied since November 2014. • The EU and Ukraine provisionally applied their Deep and Comprehensive Free Trade Agreement (DCFTA) since 1 January 2016. • In the field of Rules of Origin, GoU decided to join the Paneuromed Convention on Rules of Origin (full accession 1st Feb 2018)(would allow at the moment EU-EFTA-UA cumulation of inputs) • Negotiations with Turkey, Egypt, Israel and other potential FTA partners to open up more markets, also with Canada (the latter concluded)

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 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 29.12.2017) WHERE IS THE BUSINESS?

15. TURBULENCES IN THE AIR • 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. • 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) • 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 the EU Acquis changed)

16. FUTURE • Government reforms needed (taxation, financial stability, subsidies, state owned enterprises, land reform, etc) • 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 British carmakers to invest in Ukraine

17. FUTURE • Let’s discuss how you see the future • Where should Ukraine drift towards? • Economy • Trade and debts accumulation • Industry and global value chains • Investment - FDI

18. QUESTIONS & ANSWERS