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

Foto: Euro­pean Union

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 23rd 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).

 

 

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