OPINION | The Deep & Comprehensive Free Trade Area: Obstacles on the Way Forward

Starting from 1 January 2016 the Deep and Comprehensive Free Trade Area (the DCFTA) envisaged in the EU-Ukraine Association Agreement has been provisionally applied.

By Taras Kovalchuk
Legal assistant, Asters Law Firm via VoxUkraine

OPINION | The Deep and Comprehensive Free Trade Area: Obstacles on the Way Forward

Image Attribute: Ukrainian Flag / Creative Commons

Starting from 1 January 2016 the Deep and Comprehensive Free Trade Area (the DCFTA) envisaged in the EU-Ukraine Association Agreement has been provisionally applied. As recently published data suggests the DCFTA has already begun to bear fruit. Yet, the arrangement comes with its own set of challenges. The present article highlights them bearing in mind the ambitious objective of the Agreement of gradually integrating Ukraine’s economy in the EU Internal Market.

A recently published data by State Statistics Service of Ukraine reveals EU to be Ukraine’s leading trading partner. Indeed, throughout January – September 2016 export of goods from Ukraine to EU reached 37,9% out of all export volume, while import of goods from EU to Ukraine amounted to 43,9% of all import of goods. This, as the data explains is 4.4 % more than during the respective period of 2015 for export of goods and 6.6% more than throughout respective period of 2015 for import of goods [1].

To a significant extent, behind this success lies cooperation between EU and Ukraine, which found its embodiment in the EU-Ukraine Association Agreement [2]. The latter effectively opened up markets for goods and services between EU and Ukraine by establishing a Deep and Comprehensive Free Trade Area which has been provisionally applied since 1 January 2016 [3].

Thus far, much has been written on the progress a trade regime put forward by the DCFTA brings about. However, a picture can only be complete when pitfalls and omissions of the arrangement at hand are also pointed out. One way to bring the latter to light is to challenge the Agreement by inquiring whether it is feasible that it will achieve the objective sought. The analysis that follows tests the Agreement having regard to its ambitious objective of establishing ‘conditions for enhanced economic and trade relations leading towards Ukraine’s gradual integration in the EU Internal Market’[4]. In doing so, it highlights main obstacles Ukrainian economy is likely to face on its path to EU’s Internal Market.

Modeling the Agreement upon WTO law as an obstacle on Ukraine’s way to EU

It is remarkable how often the Agreement merely confirms WTO obligations and ‘excuses’ for their breach that the parties were subject to or could have made use of before entering into it. In doing so the Agreement not only fails to make any breakthrough in cooperation between the parties but also endangers the achievement of the objective it pursues. This is best illustrated with the following example.

As EU law stands now, even non-discriminatory measures taken by a Member State against imports from another Member State are robustly condemned [5]. When it comes to the Agreement, however, by virtue of reference made to the provisions of the WTO law the parties are at liberty to take trade restrictive measures provided they are not discriminatory [6]. This gives a good reason to wonder, how can the Agreement create conditions leading towards Ukraine’s integration in the EU Internal Market, if there remains to be such a drastic difference in approaches to treatment of imported goods between the EU regime on one hand, and that put forward by the Agreement on the other hand.

This difference in approaches is equally profound with regard to ‘excuses’ for taking trade restrictive measures. Again, thanks to the incorporation of provisions of WTO law in the Agreement, the parties are allowed a degree of leeway to derogate from trade liberalization obligations which are noticeably larger than that allowed under the EU regime. Whereas for example, in EU a measure hindering trade in goods between the Member States cannot be justified on economic grounds, the Agreement does provide for such a possibility [7]. Needless to say, this only serves as a barrier preventing Ukraine from bringing its economy closer to the EU Internal market.

Although promising, the approximation effort envisaged in the Agreement is doomed to face obstacles on the way forward

It is promising that as far as the Agreement’s categories of technical barriers to trade, sanitary and phytosanitary measures, as well as public procurement, are concerned the Agreement provides for the approximation of Ukraine’s legislation to that of the EU [8]. The Agreement then goes even further by providing that, once there is an agreement between the parties that a relevant Ukrainian legislation is aligned with that of the EU, entire sectors of trade in goods will benefit from as far-reaching a regime on the movement of goods as that applicable within the EU [9]. If all goes according to plan for some categories of products this means that if they can lawfully be placed on the Ukrainian market they can also be lawfully placed on the European market. This does sound like a move forward.

However, this breakthrough is undermined in some respects. Of all the above categories, it is only with regard to public procurement that the Agreement envisages specific EU legislation which Ukrainian legislators are to target. With respect to technical barriers to trade, for example, the Agreement uses a rather vague language by referring to areas of legislation which the approximation effort is to cover [10]. The Agreement is furthermore not without its pitfalls when it comes to implementation and application of the approximated legislation. In EU, a uniform application of legislation is possible thanks to interpretive rulings delivered by the Court of Justice of the European Union ( CJEU ) [11]. There is, however, no institution with a similar mandate as far as the application of law in Ukraine is concerned. In these circumstances, one way to ensure that the approximated legislation is not applied in Ukraine in a completely different manner than in EU is to provide for an obligation of interpretation of such legislation in line with the CJEU case-law. The Agreement does so, but only with respect to certain areas of cooperation with the EU, such as services or establishment[12]. Failure to provide for the CJEU case-law conform interpretation obligation in relation to other fields of cooperation between the parties weakens the integration that the Agreement seeks to achieve.

In the light of the above considerations, it is the present writer’s opinion that the ambitious objective stated in the Preamble to the Agreement is hardly achievable. This leads on to the next question.

What steps need to be taken by Ukrainian authorities to remedy pitfalls and omissions of the Agreement?

One way for the Ukrainian authorities to remedy a somewhat limited reach of the Agreement is to put a mechanism in place ensuring that Ukrainian legislation is not only approximated to that of the EU but also implemented in a similar manner with the latter. To accomplish this, Ukrainian parliament can pass a law requiring courts to have regard to relevant decisions of the CJEU while applying the approximated legislation, where this is not specifically envisaged in the Agreement. This is, however, easier said than done. Indeed, doing so would require Ukrainian judges to get equipped with additional knowledge and skills. Not only will they need to familiarize themselves with the practice of the CJEU, but also to be able to implement this practice in Ukraine having regard to Ukrainian realities.

At the same time, Ukrainian government may consider furthering negotiations with the EU on the removal of barriers to trade. Although divergence of regulatory policies of the parties to the Agreement may make it difficult to go beyond WTO trade liberalization obligations, it is yet possible to fill the gaps as far as already negotiated areas of cooperation are concerned. For example, to strengthen the legal approximation effort, Ukrainian government may want to agree with the EU upon specific legislation which Ukrainian legislation is to be approximated to, wherever the latter is not clearly stipulated.

Last but not least, it is important for the Ukrainian government to conduct explanatory work among the population. Ordinary people need to understand that a path to European market integration is a long one.

Endnotes:

[1] State Statistics Service of Ukraine web page accessed 15.11.2016.

[2] Європейська правда “Що змінилося в українській економіці від Угоди про асоціацію – дослідження”, 18.05.2016, доступ 16.11.2016.

[3] European Commission accessed 17.11.2016.

[4] Association Agreement between the European Union and the European Atomic Energy Community and their member states, of the one part, and Ukraine, of the other part [2014] OJ L 161/3, Preamble.

[5] Paul Craig and Gráinne de Búrca, EU law: text, cases, and materials (6th edn OUP 2015) 665.

[6] Association Agreement between the European Union and the European Atomic Energy Community and their member states, of the one part, and Ukraine, of the other part [2014] OJ L 161,  A. 34, 35.

[7] Ibid, A. 40.

[8] Ibid, A.56, 66, 153.

[9] Ibid, A.57 (2).

[10] Guillaume Van der Loo, The EU-Ukraine Association Agreement and Deep and Comprehensive Free Trade Area: A New Legal Instrument for EU Integration without Membership (Brill Nijhoff, 2016) 253.


[11]Emmanouil Billis “The European Court of Justice: A”Quasi-constitutional court” in criminal matters? The Taricco Judgment and its shortcomings”, 19.04.2016, 1 accessed 15.11.2016.

[12] Association Agreement between the European Union and the European Atomic Energy Community and their member states, of the one part, and Ukraine, of the other part [2014] OJ L 161, Annex XVII, A.6.

DISCLAIMER:

The author doesn`t work for, consult to, own shares in or receive funding from any company or organization that would benefit from this article, and have no relevant affiliations

This article was first published at VoxUkraine.org. Republished at IndraStra.com under Creative Commons NoDerivatives License, provided by the Original Publisher.
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