1. Ukraine The DCFTA: a state of play 9 months after the entry into force

2. What is the DCFTA about? Structure of the Association Agreement Tariff part of the DCFTA Autonomous Trade Measures Non-tariff part of the DCFTA State of play: latest avaible figures, entry into force, relations with Russia

3. What is the DCFTA about? The DCFTA is entirely part of the Association Agreement (title IV). It combines: a standard Free Trade Agreement (duty free trade on both sides, but phased in over 7 years, asymmetrically in favour of Ukraine) a "Deep and Comprehensive" part, that foresees that Ukraine will adopt most norms and standards of the EU internal market (for industrial, consumer, food and agricultural products), but also competition rules, intellectual property, public procurement, services, etc. Its aims at reducing tariff and non-tariff barriers between the EU and Ukraine, and therefore at facilitating trade and investments in both directions

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 INSTITUTIONNAL, GENERAL AND FINAL PROVISIONS …and lots of annexes!

5. Title IV TRADE AND TRADE RELATED MATTERS 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

6. "FTA part" of the DCFTA: Liberalizes most tariffs both ways, in line with the provision of the WTO / GATT (elimination on "substantially all the trade") With delays for many products In an asymetrical manner: Ukraine has usually more time to adapt With (tariff rate) quotas (TRQs) for certain agricultural products All this being specified in the AA/DCFTA (in two annexes, one for Ukraine, one for the EU) A rather usual FTA (with the exception for the asymetry) – whereas the "Deep and comprehensive" part is very specific to Ukraine

7. Where to get information on tariff? Texts of the AA/DCFTA http://eeas.europa.eu/ukraine/assoagreement/assoagreement-2013_en.htm European Commission "Export Helpdesk" http://exporthelp.europa.eu/thdapp/index.htm

8. How to use the annexes? There are several possible cases for tariff: Set at 0 from day 1 Set at 0 progressively Partial reduction from day 1 (and no further reduction) Partial and progressive reduction Set at 0 for a limited quota (TRQ) (and usual tariff beyond quota) This is fully detailed in the Annexes (one for the EU, one for Ukraine) http://eeas.europa.eu/ukraine/assoagreement/assoagreement-2013- annexes-to-title-iv_en.htm

11. Autonomous trade measures - what is it about? ATM1: Key issue with the AA / DCFTA: this is an international treaty, which means that before entry into force it must be signed and then ratified by 30 parliaments which may take years… One option: provisionnal implementation (with consent of the European Parliament), which may reduce the delay to a few months. One other option: unilateral implementation by the EU of the trade part. We called this "autonomous trade measure" and that took place in April 2014, but mechanically ended on 31st December 2015 ATM2: The Commission has just proposed (on 29 September 2016) a second package of ATM which foresees some increase in TRQs and faster reduction of tariff on the EU side in order to support the Ukrainian exports These ATM2 are in the process of being adopted

12. The "DC" part of the DCFTA: a key distinction in trade policy: tariff vs. non tariff barriers Tariff barriers and quotas: the most clear-cut barriers and therefore those which have been historically addressed (e.g. in GATT / WTO rounds) Non-tariff barriers (NTBs): often called "beyond the border" barriers because they refer to everything that makes trade between two partners more difficult but happens beyond the border This distinction is not always accurate ("red tape" at the border represents an NTB) but practical

13. Examples of NTBs: Licenses Standards Red tape (at the border and beyond) Monetary restrictions Geographical indications (GIs) Public procurement rules (e.g. "Buy American" act) State subsidies which distort competition Investment protection rules Many other instruments (e.g. recycling fee in Ukraine or Russian Federation)

14. Industrial goods - Technical Barriers to Trade (TBTs) One of the most important problems that Ukrainian and European exporters face on a day-to-day is the problem of different technical norms and standards The DCFTA foresees widespread alignment between Ukrainian and EU standards, both for industrial goods and agricultural products. In 2005-2006, Ukrainian companies wishing to export to the EU faced additional production costs of about 14% on average in order to ensure that their products met EU standards The use of EU standards will not only make Ukrainian products more competitive on the EU market but also in the rest of the world – the growing markets of the Far East, Middle East, Africa and America

15. Animals, animal products, plants and plant products – SPS In parallel with its commitments on technical barriers to trade, Ukraine also commits itself in the DCFTA to align with EU legislation and standards on all animal health, food safety and plant health measures In addition, a special cooperation mechanism is foreseen to monitor progress and make recommendations on changes to UA's legislation in this field A number of trade facilitation measures are foreseen, e.g. relating to listing of establishments, verification procedures etc.

16. Services In the field of services, the DCFTA is 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

17. Other fields (1/2) Provisions on freer capital movement will help to enhance economic growth by allowing easier access to capital and better allocation of capital to its most productive use There will be gradual alignment of UA's legislation on public procurement with that of the EU. With the sole exception of the defence sector, this would allow mutual unrestricted access of EU and UA suppliers and service providers to each others public procurement markets Competition policy is another area which should see major improvements. UA has agreed to progressively align its legislation with that of the EU in a number of fields, including on state aid, subsidies, and transparency of decisions

18. Other fields (2/2) There are very detailed provisions in the DCFTA regarding intellectual property rights, including a strong section on enforcement of legislation based on EU rules and detailed provisions on so-called geographical indications (GIs) Regarding customs, we already have relatively good cooperation but the DCFTA enhances this by establishing a framework for mutual administrative assistance to ensure the correct application of customs legislation, cooperation on customs irregularities and fraud etc. There are a number of trade related energy provisions which will establish rules on the pricing of energy goods (to let market prices prevail and to prohibit dual pricing)

19. What happened on 1st January 2016? Ukraine started to decrease its tariffs in line with the schedules foreseen in the agreement : good news for Ukrainian consumers and Ukrainian businesses that import EU goods The timetable for implementation of the economic reforms foreseen in the DCFTA started, e.g. deadlines for Ukraine's adoption of EU norms and standards : alignment will be sector by sector after 1, 3, and 5 years - good news for exporters and for Ukrainian consumers and business as products will become better quality, and more competitive, and investment will be attracted The opening of the EU market that was unilaterally implemented in March 2014 (the so-called Autonomous Trade Measures) until the end of 2015 became permanent So 1st of January represented much more the beginning of a process rather than the end of one. Much effort are still needed, particularly from the Ukrainian side

20. The entry into force is only provisional, why? The EU is a complex organisation: the DCFTA is part of the Association Agreement which is an international treaty, and therefore has to be ratified by the parliaments of all EU Member States For that reason, given that the Netherlands have not yet ratified it, only a provisional implementation is possible at this time But this provisional implementation only differs marginally in substance from a full implementation: the vast majority of the DCFTA provisions became binding on 1st January

21. Is the DCFTA useful so far? Over the first two years of implementation of the ATM, trade decrased. Several causes: drop in commodity prices, destruction of manufacturing capacity in the Donbass, illegal annexation of Crimea; plus capital controls; illegal / undeclared trade; and inability for companies to access the EU market in the short term However, exports to the EU have started to increase (+5% over the first 7 months of 2016)

22. What happens if Ukraine does not fulfil its commitments? Several mechanisms are foreseen in the DCFTA to solve possible disputes (eg. non-fulfilment of commitments).However, early disputes are unlikely to happen for two reasons: In many fields it will be a challenge for Ukraine to adopt so many new rules. The good faith and willingness to adopt reforms, as well as their genuine implementation on the ground, will be more important than strict adherence to deadlines. It is in our view more important to ensure each reform is adopted, implemented and enforced correctly – with real effects and results - than taking a legalistic approach to the agreement. We have encouraged Ukraine to prioritise reforms. It is the Ukrainian economy and society (both companies and citizens) that will benefit most from the adoption of EU rules and standards. Ukraine would suffer most by not complying with its own commitments.

23. Is Ukraine ready for the DCFTA ? Will there be a negative impact on some parts of the Ukrainian economy? Ukraine will never be "fully and entirely ready" for the DCFTA or for competing with EU companies but neither were Poland, the Czech Republic, etc., when they signed and enforced Association Agreements with the EU in the early 90s… BUT Ukraine will probably never be more ready than now because of the depreciation of the currency, the international support, the external threat from Russia that gives incentives to finding new markets, the political will of the government to integrate with the EU, etc. Further postponing the reforms foreseen in the DCFTA will make the country less (not more) ready to face European and worldwide competition. But we recognise the challenge: Ukrainian companies need to do their research and make investments.

24. Is the DCFTA compatible with Ukraine's trade relations with Russia? There is 100% de jure and de facto compatibility between the DCFTA and the existing CIS-FTA between Russia and Ukraine. FTAs are fully compatible among each other (the EU has signed and implemented dozens of FTAs, and is negotiating many more) and this is clearly foreseen by the rules of the WTO (which Russia joined in 2012) The DCFTA established a level playing field between the EU and Russia in terms of duty free trade with Ukraine BUT a country cannot sign an FTA on its own if it belongs to a customs union (such as the Eurasian Economic Union). Joining a customs union means losing one's trade sovereignty (or at least sharing it). If Ukraine would join the EEU, it would have to give up any FTA agreements – not only with the EU, but also with Canada, and should stop negotiating on its own with Turkey or Israel

25. What is the state of play regarding the trilateral discussions with Russia? The EU, Ukraine and Russia began trilateral discussions in July 2014 to respond to Russian concerns about the economic impact of the DCFTA on Russia. This was an unusual process as it is hard to figure out legitimate concerns for a third country stemming from a bilateral FTA Still, the EU and Ukraine took part in this process in good faith, notably after it was mentioned in the Minsk agreements The process is de facto over, as there was a disagreement on two clear redlines from the EU side: no further delays in the implementation, no renegotiation of the substance On 1st January 2016, in direct reaction to the entry into force of the DCFTA, Russia adopted a set of sanctions: embargo on agri products; return to MFN regime (unilateral withdrawal from CIS FTA) and transit constraints. These are purely politically motivated decisions which have no economic ground