EU-Ukraine Association Agreement between the EU and Ukraine finally signed

CMS Cameron McKenna, 
Kyiv, Ukraine, Monday, July 7, 2014

Following six years of extensive negotiations, Ukraineand the EU have finally signed the Association Agreement between the EuropeanUnion and the European Atomic Energy Community and their Member States, of theOne Part, and Ukraine, of the Other Part (the “Association Agreement”), a veryambitious document in the histories of Ukraine and the EU.

Execution of the Association Agreement is the start of anew era in the relations between the parties. It involves various issues andbusiness sectors. In this note, we summarise some of the matters which couldtouch on the interests of business in Ukraine:

Tariff Regulation

The EU and Ukraine will gradually create a free tradezone over a transition period of 10 years. During this period, the majority ofcustoms duties (both import and export) are planned to be eliminated (includingwith respect to the manufacturing of leather and textile goods, food products,and other manufactured and consumer products). Those duties that are not to betotally removed will be substantially reduced (including with respect toagricultural products).

Technical Barriers toTrade

Ukraine committed to gradually bring its technicalregulations into compliance with those of the EU. Within the first year of theAssociation Agreement, Ukraine must start to harmonise its local legislationwith a range of EU directives over five areas, including general product safetyand security, liability for defective products, and the general structure ofproduct marketing.

It is expected that Ukraine’s commitments under theAssociation Agreement, particularly with respect to the harmonisation of itslegislation with EU norms, will generally positively impact on the Ukrainianbusiness community. However, it will also pose challenges for certain businesssectors, as companies are forced to invest into the development andmodernization of their production facilities to enhance the competitiveness oftheir businesses. In the meantime, the Association Agreement offers atransition period for the implementation of the majority of sectors of up to 10years, which should soften the pain of the harmonisation process.

Public Procurement

Within eight years from the Association Agreement cominginto effect, Ukraine must complete the adaptation of its public procurementlegislation to EU rules; the first steps are to be taken within the first sixmonths. Specifically, Ukraine will have bring its laws into compliance with themain principles of EU public procurement regulations, including holding openand competitive public procurement procedures and limiting procurement from onesource.

Prior to starting the process of adapting the local laws(but within six months from the effective date of the Association Agreement),Ukraine must submit a “road map” outlining the exact steps of harmonisation ofpublic procurement legislation of Ukraine with the relevant EU system. The“road” map is to be further approved by the EU.

It is expected that the more advanced and transparentrules for public procurement will positively impact the inflow of theinvestments originating from the EU. Broader access of non-residents to thepublic procurement procedures in Ukraine could also enhance competition in thelocal market.

Further, as the harmonisation of Ukraine-EU legislationpositively progresses, Ukrainian companies will obtain broader access to the EUpublic procurement sector.

Competition

Important changes to Ukrainian competition law areexpected within three years from the effective date of the AssociationAgreement.

Specifically, Ukraine committed to implement EU rules forcertain categories of vertical agreements and concerted practices, as providedin the Commission Regulation (EU) No. 330/210, dated 20 April 2010.

Ukraine further committed to implement other EUcompetition rules with respect to such matters as technology transferagreements and control over concentrations.

All these changes should bring clarity and certainty tothe regulatory environment for business, as currently Ukrainian competition lawis opaque and often arbitrary.

Further, the Ukrainian competition regulator – theAntimonopoly Committee of Ukraine (AMC) – has committed to publicly clarify thegrounds on which it will impose financial sanctions on business entities forthe infringement of Ukrainian competition law. The AMC must also provideclarification of approaches it will apply to assessment of horizontal mergers.This will raise the transparency and accountability of AMC activity, which inturn should facilitate improvement and attractiveness of the overall businessenvironment.

The Association Agreement is yet to be ratified by boththe EU and Ukraine, which it is considered to be a technical step. It isbelieved that the Parliament of Ukraine will ratify the Association Agreementbefore its breaks for its summer holiday, which starts at the end of July 2014.

This Agreement shall enter into force on the first day ofthe second month following the date of deposit of the last instrument ofratification or approval.

As mentioned above, the Association Agreement affectsvarious business sectors and CMS will continue preparing more detailed analyseswith respect to the impact of the Association Agreement on various economicareas.

Authors:

DanielBilak, Managing Partner, daniel.bilak@cms-cmck.com

OlgaBelyakova, Senior Associate, olga.belyakova@cms-cmck.com