Iana Dreyer of borderlex.eu -
Ukraine and the EU are adamant both sides will sign the long-planned free trade and association deal. Yet President-elect Petro Poroshenko sowed confusion soon after his election May 25 when he asked for more time before putting pen to paper, highlighting lingering doubts over the true benefits of the deal and how it will be implemented.
Disagreements with Russia over this EU Association Agreement lie at the heart of the current crisis in Ukraine. Ousted president Viktor Yanukovych's last-minute decision to ditch the deal in November following intense pressure from the Kremlin plunged the country into month's of turmoil. But with a new administration in place, headed by a president perceived as competent with a strong madate stemming from the May 25 elections, Kyiv has vowed to sign the deal with the EU after Poroshenko’s inauguration on June 7.
Sources close to the Ukrainian administration tell Borderlex they believe it is now up the EU’s legal services to determine the date for the signature. Sources in the European Commission said the deal would be signed “in the coming period”. Whether the EU-Ukraine text will be signed on June 27 is still uncertain. On that date Moldova and Georgia, two other members of Europe’s Eastern Partnership programme, will sign their own Association Agreements with the EU.
The Ukraine deal is a wide-ranging agreement that covers cooperation on politics, the justice system and economic governance, including in the energy and financial sectors. Its main pillar is a so-called Deep and Comprehensive Free Trade Agreement (DCFTA).
Brussels and Kyiv signed various chapters of the agreement in March, but not the DCFTA. The deal formally applies to the whole of Ukraine in its internationally recognised borders – hence also to Crimea, which was annexed by Russia in March.
The EU has already been applying unilaterally its own tariff eliminations of the DCFTA until November in order to support Ukraine’s ailing economy. The country is now carrying out an International Monetary Fund-led reform programme in return for an aid package of $17bn to help avoid a default.
Reasons to doubt
Poroshenko’s signs of hesitation at the end of May reveal that there are lingering doubts about the deal, even in pro-EU circles in Kyiv. Jonas Grätz, researcher at the think-tank ETH Zürich, thinks that Ukraine’s president “does not want to get into more trouble with Russia”.
DCFTA promoters say it will improve governance and usher in, says Michael Emerson, Senior Associate Fellow at the Brussels-based think-tank CEPS, “the governance revolution the country needs”. Ukraine ranks a very low 112th in the World Bank’s "Doing Business" index, and 144th in Transparency International’s Corruption Perception’s Index, faring worse than Russia.
But there are voices that say the deal forces too many costly regulations onto the country, which could slow much-needed economic growth.
One of the hottest issues concerns technical standards. The DCFTA requires Ukraine to adopt EU standards in its domestic market, and to phase out old Soviet-era “GOST” standards, which are also similar to those applied by Russia.
Many modalities for this are still unclear, such as the exact timetable of implementation, and whether Ukraine will be forced to refuse imports from non-EU countries that don’t apply EU standards, like those from Russia. This is a critical issue in shaping Ukraine’s future trade relationships with the Russia-led Customs Union, which also includes Kazakhstan and Belarus.
The deal states that once Ukraine applies EU technical standards domestically, both parties will conclude an agreement to give imports from Ukraine exactly the same status as those other EU member states give each other as part of the Single Market: there will be no more controls or testing for Ukrainian exports to the EU.
Despite these bright prospects, overall the FTA doesn’t match the innovations included in recent deals the EU has signed outside its immediate neighbourhood. The rules of origin for industrial products, for example, are highly restrictive. Most of these rules state that only up to 30-40% of industrial inputs may come from abroad for an Ukrainian export to qualify for duty-free access to the EU. These rules are comparable to those applied to the EU’s deals signed with Euromed countries like Egypt, Morocco or Tunisia in the 1990s. But they don’t match the 45-50% rule the EU has accepted in a 2010 free trade agreement signed with South Korea. It is questionable whether these rules will be helpful in integrating Ukraine’s industry into global production networks.
Brussels has not sought investor protection provisions in the DCFTA, although the Lisbon Treaty allows it to, despite Ukraine’s very difficult investment climate.
The DCFTA’s rule-book will ultimately need to face up to stark realities on the ground. “The administration is in very bad shape”, says Emerson. Whether the bureaucracy will be willing or simply technically capable to implement EU technical standards is an open question.
Emerson also says there could be considerable slack in the implementation of the deal. The end-stage is clearly articulated in the texts: the listed EU Directives and Regulations must apply at a given date, for many within four years after the deal comes into force. What happens in the meantime, and what happens if one set of rules is applied and not another, is unclear.
Few doubt the deal will be signed eventually. Its ultimate fate as a paper tiger or as a deal that adapts pragmatically to Ukraine’s realities remains to be seen.
A version of this article first appeared here.
Iana Dreyer is Editor of borderlex.eu
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