EU-Ukraine Summit 2021: What does it say about the state of EU-Ukraine relations after 7 years of the association?

The consid­er­able break­throughs in the EU-Ukraine economic agenda have been harmed by sluggish political devel­op­ment, partic­u­larly concerning the rule of law. The judicial reform, anti-corrup­tion efforts, inde­pen­dent and efficient law-enforce­ment insti­tu­tions and legally sound ‘de-oligarchi­sa­tion’ remain the top prior­i­ties, where Ukraine still has to do the homework and the EU enhance its moni­toring and veri­fi­ca­tion efforts. Without progress in these critical areas economic inte­gra­tion risks to be stalled. 

The 23^rd EU-Ukraine Summit, held in Kyiv on October 12, 2021, marked the seventh anniver­sary of the Asso­ci­a­tion Agreement (AA), the major game-changer in the relations between the parties. The Joint Statement following the Summit is a good signboard for under­standing the status of the relations and the plans for the future.

The EU has been the primary trade partner of Ukraine, and its role further strengthens in 2021. According to the customs data, in the first nine months of 2021, Ukraine’s exports of goods to the EU reached USD 20 bn, so that annual figures will surpass the previous peak regis­tered in 2019 (USD 21 bn). Likewise, imports of goods from the EU have also resumed its growth, although slower. As a result, the EU accounts for 42% of Ukraine’s goods exports and 43% of imports.

In the policy domain, the impor­tance of trade with the EU trans­lates into reducing tariffs and non-tariff barriers (NTBs) to trade as envisaged in the deep and compre­hen­sive free trade area (DCFTA), the integral part of the AA.

Although the DCFTA envisages signif­i­cant tariffs liber­al­iza­tion, both partners preserved non-zero duties for selected, mostly agro-food, products. For this purpose, the EU estab­lished tariff-rate quotas for 36 cate­gories, while Ukraine used three tariff rate quotas and preserved some non-zero duties.  However, the Agreement allows tariff liber­al­iza­tion accel­er­a­tion after five years since the launch. Ukraine has initiated consul­ta­tions regarding this liber­al­iza­tion already in early 2021. The current Summit Joint Decla­ra­tion marks the next important step, welcoming the launch of “nego­ti­a­tions on broad­ening and accel­er­ating the scope of the elim­i­na­tion of customs duties”. It is a signif­i­cant break­through, hoping to resolve Ukraine’s most critical business concern regarding the AA/​DCFTA.

Another essential element of the economic inte­gra­tion of Ukraine into the EU internal market is the elim­i­na­tion of non-tariff barriers to trade. To achieve that, the DCFTA envisages the conclu­sion of the Agreement on Confor­mity Assess­ment and Accep­tance of indus­trial products (ACAA) for indus­trial goods, the recog­ni­tion of equiv­a­lence for food and related products, and trade facil­i­ta­tion measured through the mutual recog­ni­tion of autho­rized economic oper­a­tions (AEO) and the inte­gra­tion of Ukraine into the European common transit system.

Recently, the public focus has been on the conclu­sion of the framework ACAA incor­po­rating three specific areas, namely machinery, low voltage equipment and elec­tro­mag­netic compat­i­bility. In mid-2021, the EU expert mission concluded a pre-assess­ment of Ukraine’s legis­la­tion related to the ACAA, confirming a rela­tively high, although still incom­plete, degree of legal alignment. In September, the second phase of eval­u­ating quality infra­struc­ture began. If Ukraine imple­ments the mission’s recom­men­da­tions swiftly, we could expect the launch of the ACAA talks already in 2022.

The Joint Decla­ra­tion does not mention two other essential NTBs, namely food safety and customs proce­dures, where substan­tial progress has also been achieved. In partic­ular, Ukraine has already aligned its legis­la­tion and launched a parallel use of the NCTS, preparing to join the European common transit system, expected by 2023. In addition, the first Ukrainian company got the AEO status, paving the way for the mutual recog­ni­tion of the AEO between Ukraine and the EU. As for the food safety sphere, the first recog­ni­tion of equiv­a­lence for certi­fi­ca­tion systems – for cereal seeds – was achieved in late 2020.

The Joint Decla­ra­tion also marked the vital break­through in the AA/​DCFTA modern­iza­tion in the trade of services. The parties reported on the update of Annex XVII of the AA for telecom­mu­ni­ca­tion, postal and courier and inter­na­tional maritime transport services. Moreover, the Summit reit­er­ated AA commit­ments regarding the internal market treatment for telecom­mu­ni­ca­tion services confirming Ukraine’s efforts to achieve it and the EU readiness to provide it. Other forth­coming inte­gra­tion elements could be the mutual recog­ni­tion of elec­tronic trust services, signif­i­cantly simpli­fying business oper­a­tions between Ukraine and the EU. The Decla­ra­tion also mentions Ukraine’s efforts to align with the EU Digital Single Market, but without the explicit commit­ments regarding Ukraine’s accession.

In transport, the key achieve­ment of the Summit is the conclu­sion of the Common Aviation Area (CAA) Agreement, the well overdue event as the document was initialled back in 2013. The market opening will happen in several stages, linked to the speed of Ukraine’s approx­i­ma­tion efforts. The progress in inland waterways and railway transport are also mentioned. However, the Decla­ra­tion omits road transport, where the deficit of transit permits has already created tangible barriers for trade in goods – for both Ukraine and its EU coun­ter­parts. The reso­lu­tion of this bottle­neck should remain in the focus of the EU-Ukraine relations.

Given the vital impor­tance of energy security for both the EU and Ukraine, the parties have always focused on energy issues. Over the last seven years, Ukraine has trans­formed its gas and elec­tricity markets in line with the EU norms. That has allowed the country to deepen inter­con­nec­tion with the European gas market through agree­ments on the coop­er­a­tion of operators of gas trans­mis­sion networks of Ukraine and neigh­bouring EU member states. It has also paved the way for the forth­coming synchro­niza­tion with the ENTSO‑E power grid, the prepa­ra­tions for which are ongoing. The Summit confirmed the mutual interest in further inte­gra­tion based on the EU norms and the impor­tance of Ukraine’s gas transit system for the European energy security and agreed to “consult and co-ordinate, as appro­priate, on [energy] infra­struc­ture devel­op­ments”.

As a sign of the future, the Joint Decla­ra­tion has also covered the Green Deal, partic­u­larly welcoming the launch of the EU-Ukraine dialogue on the European Green Deal and Ukraine’s Green Tran­si­tion. However, although the EU promised to support Ukraine in devel­oping its carbon pricing policy in the context of the Carbon border adjust­ment mechanism (CBAM), no exemp­tions for Ukraine have been mentioned. Accord­ingly, certain Ukrainian export products will be imposed with addi­tional certifi­cates to adjust to the carbon price level of the EU Emission trading system.

The consid­er­able break­throughs in the EU-Ukraine economic agenda have been harmed by sluggish political devel­op­ment, partic­u­larly concerning the rule of law. The judicial reform, anti-corrup­tion efforts, inde­pen­dent and efficient law-enforce­ment insti­tu­tions and legally sound ‘de-oligarchi­sa­tion’ remain the top priority for the relations, as high­lighted in the Joint Decla­ra­tion. Regret­fully, in this sphere, Ukraine is still lagging with multiple chal­lenges to resolve. Before the Summit, experts called for iden­ti­fying the G7’s roadmap for judicial and anti-corrup­tion reforms in Ukraine as a tool for imple­menting the political asso­ci­a­tion and initi­ating talks on joint border control. Unfor­tu­nately, though, the Joint Decla­ra­tion does not contain these provisions.

Summing up, Ukraine and the EU signif­i­cantly deepened their economic and espe­cially trade inte­gra­tion against the back­ground of Ukraine’s gradually progressing legal and insti­tu­tional approx­i­ma­tion over the last seven years. However, for further progress, it is essential to have the EU-Ukraine join work on moni­toring and veri­fi­ca­tion that these efforts are compliant with the EU norms and practices as it is the prereq­ui­site for inte­gra­tion to the EU Internal Market. Therefore, it is very encour­aging that the Joint Decla­ra­tion confirms this mutual commitment.

However, some of Ukraine’s state funda­men­tals, partic­u­larly the rule of law, remain fragile, hampering the economic progress and European inte­gra­tion perspec­tives. It is the locus of the battle for the European future of Ukraine now.

Veronika Movchan is an Academic Director at the Institute for Economic Research and Policy Consulting — IER (Kyiv). Her main research interests lie in the sphere of trade policy, including WTO-related issues, regional inte­gra­tion, non-tariff measures, quan­tifi­ca­tion of trade policy instru­ments, and modeling of policy changes, including the CGE modelling. She worked as research fellow at Stanford Univer­sity (USA) and the DIW-Berlin, Germany, as well as a consul­tant at the World Bank Resident Mission in Kyiv and the Harvard Institute for Inter­na­tional Devel­op­ment (Ukraine).