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The DCFTA Provisions and their Implementation: Some Observations

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The presentation reviews several key DCFTA provisions and their implementation from the point of view what other countries could learn from this experience. Veronika Movchan is a Ukraine expert, an academic director and Head of the Center for Economic Studies at IER in Kiev. Her main research interests are for example trade policy and regional integration.

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The DCFTA Provisions and their Implementation: Some Observations

  1. 1. The DCFTA provisions and their implementation: Some observations Veronika Movchan Institute for Economic Research and Policy Consulting for Bertelsmann Stiftung Berlin Kyiv, 2018
  2. 2. 2  Deep and Comprehensive Free Trade Areas (DCFTAs) with Georgia, Moldova and Ukraine are among the most comprehensive FTAs concluded by the EU  The DCFTAs envisage: ▫ Zero import duties for majority of products, elimination of export duties and quantitative restrictions, abolishment of export subsidies ▫ Harmonization of product safety regulation both for food and industrial products aimed to mutual recognition agreement ▫ Enhanced protection of intellectual property rights ▫ Mutual access to public procurement ▫ Liberalization of trade in services  Key task of this presentation is to review several key DCFTA provisions and their implementation from the point of view what other countries could learn from this experience Introduction
  3. 3. 3 Provisional application Fully in force Georgia September 2014 – June 2016 Since July 2016 Moldova June 2014 – June 2016 Since July 2016 Ukraine* January 2016 – August 2017 Since September 2017 The launch of the DCFTA Note: * In April 2014 – December 2015, EU applied Autonomous Trade Measures (ATMs) replicating the first year of the DCFTA regarding the EU market access Observation 1: The implementation of the DCFTA can start through the mechanism of provisional application before the ratification procedures are completed by all EU member states
  4. 4. 4 Schedule of import duties liberalization: example of Ukraine Change in duties Access to the EU market Access to Ukraine market Immediately to zero 95% of industrial TL 82% of agricultural TL 50% of industrial TL 40% of agricultural TL Zero after transition period 5% of industrial TL (transition: up to 7 years) 1% of agricultural TL (transition: up to 7 years) 50% of industrial TL (transition: up to 10 years) 50% of agricultural TL (transition: up to 7 years) Partial liberalization 17% of agricultural TL 10% of agricultural TL Observation 2: The DCFTA can be asymmetric foreseeing faster opening of the EU market Observation 3: The DCFTA does not automatically imply duty-free trade for all products; the protection of sensitive products is possible but requires reciprocity Note: TL – tariff line
  5. 5. 5 Instruments of partial liberalization  Reduced by still non-zero final duties Applied by Ukraine on selected agriculture and food products including dairy products, eggs, selected food products (10% of agriculture TL). The level of reduction from the baseline level is 20-60%, transition period – up to 10 years  Tariff rate quotas (TRQs) Intensively used by the EU and to a smaller degree – by its DCFTA partners. In case of Ukraine’s DCFTA, the EU protects animal origin products, grains, some food products. Ukraine protects meat and sugar, less than 1% of agriculture TL. Moldova applies TRQs on meat and processed meat products, sugar. Georgia does not apply TRQs  Entry price regulation For selected vegetables, fruits and juices, the EU abolished ad valorem part of its import duty, but preserved specific duty establishing an entry price for the access to the EU market. The instrument is used for exports of all three DCFTAs partners. Observation 4: There are several instruments of partial liberalization applied within the DCFTAs, but the TRQ is the most widespread
  6. 6. 6 Ukraine’s TRQs usage 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 12.0 13.0 14.0 15.0 16.0 17.0 18.0 19.0 20.0 21.0 22.0 Corn, corn meal and pellets Natural honey Grape and apple juice Poultry and semi-finished… Processed tomatoes Cereals Sugar Soft wheat, wheat flour and… Butter and dairy spreads Wheat , barley meal and… Exports to EU (tons)/ TRQ (tons)2017 2014 • Actual volume of UA exports noticeably exceeds TRQ volume for 90% of fully used TRQs thus EU duties outside TRQs are not prohibitive • But TRQ volume has appeared much lower than the country export capacity despite it was set after consultations with business Observation 5: Negotiations about TRQs should rely on future potential volume of domestic production to maximize the DCFTA impact
  7. 7. 7  Georgia and Moldova DCFTAs contain a “anti-circumvention mechanism” to ensure that tariff liberalization does not stimulate fraud re-exports  The mechanism: ▫ Is applied to selected agriculture and food products ▫ Sets “trigger levels” of export volumes to the EU, after which the mechanism could be launched ▫ Requires exporter to justify higher export volumes if 80% of the trigger level is reached ▫ Allows uninterrupted exports if the justification is satisfactory ▫ Allows a 6-month suspension of duty-free regime for the concerned product if exporter could not provide a proper justification  Moldova exports products subject to anti-circumvention mechanism above ‘trigger levels’ suggesting successful implementation of the mechanism Observation 6: The anti-circumvention mechanism allows successfully reducing the risk of fraud re-exports and thus can help to contain possible concerns and stimulate more liberal agreement Anti-circumvention mechanism
  8. 8. 8 Food safety regulation  Adaptation to the EU food safety requirements is the prerequisite for the access to the EU market for agricultural and food producers  Main challenge: exports of animal origin products  There are two approaches: ▫ Individual (commodity or sector) access Any third country can get access to the EU market through getting the EU approval for its national safety control system for a specific product and then, if required, verification of individual producers. The DCFTA envisages time-bound procedures for the recognition of equivalence of measures thereby facilitating the process ▫ Country access Once the SPS approximation is fully undertaken, all concerned producers will be able to export after obtaining the certificate from their national competent authorities. The lists for SPS approximation within the DCFTAs contain about 250 EU legal acts being both cumbersome and costly, especially for smaller economies of Moldova and Georgia Observation 7: The DCFTA facilitates individual access, but also aims full approximation of SPS legislation that many experts deem too costly
  9. 9. 9 Before DCFTAs: 2013 After DCFTAs: as of May 2018 Food (max 15 categories) Animal by-products (max 10 categories) Food (max 15 categories) Animal by-products (max 10 categories) Georgia No access No access 1 category (8 establishments) 2 category (4 establishments) Moldova No access 2 categories (24 establishments) 2 categories (2 establishments) 2 categories (48 establishments) Ukraine 4 category (8 establishments) 6 categories (86 establishments) 9 category (66 establishments) 9 category (280 establishments) Individual access for animal origin products • Producers of animal origin products can spend several years before they get individual access to the EU market. In Ukraine, preparations have been active since the launch of the DCFTA talks in 2008 • The DCFTA definitely stimulated the process of getting access to the EU market both for new products and for new producers of already allowed products Observation 8: The DCFTA became an important stimulus for producers of animal origin products to get individual access to the EU market
  10. 10. 10 Intellectual property rights (IPRs)  The DCFTAs reconfirm the WTO TRIPS provisions and go beyond them in several areas, in particular the IPRs enforcement  Protection of geographic indications (GIs) is a key component of the IPR chapter: ▫ Georgia/Moldova: excising agreements with the EU regarding GIs are integrated in the DCFTA; lists of mutually protected GIs are added; GIs subcommittee are envisaged ▫ Ukraine: list of protected EU GIs is added; no registered Ukraine's’ GIs; GIs subcommittee are envisaged; transition periods (up to 10 years) before all EU GIs are enforced (e.g. for Feta, Parmigiano Reggiano). The EU promised to provide technical and financial supports for re-branding of companies needed due to changed GIs protection Observation 9: The DCFTA envisages higher level of IPRs protection compared to baseline WTO TRIPS. Observation 10: The enforcement of the selected EU GIs could be postponed.
  11. 11. 11 Public procurement The DCFTA envisages a mutual access to public procurement markets. The EU public procurement accounts for about 18% of GDP of the EU EU market access tentative schedule: Georgia Moldova Ukraine 1. Supplies for central government authorities 3 years 9 months 6 months 2. Supplies for state, regional and local authorities and bodies 5 years 3 years 3 years 3. Supplies for all contracting entities 6 years 4 years 4 years 4. Services and works contracts and concessions for all contracting authorities 7 years 6 years 6 years 5. Services and works contracts and concessions for all contracting entities in the utility sector 8 years 8 years 8 years • The DCFTAs grants mutual access to public procurement markets • The access is granted in stages after the DCFTA country complete the legislative approximation associated with the stage and this progress is verified and confirmed. Observation 11: The access to the EU public procurement market envisaged within the DFCTAs is possible after confirmed successful reforms.
  12. 12. 12 Trade in services EU Georgia Moldova Ukraine Reservations with regard to market access and national treatment for cross-border supply of services (mode 1) up to 201 14 3 27 Reservations with regard to market access and national treatment for establishments up to 161 32 12 21  The liberalization of trade in services is less extensive than trade in goods  The legal approximation and thus potentially “internal market treatment” at the EU market is envisaged for several sectors: ▫ Postal and courier services; Electronic communication; Financial services; and International maritime transport. ▫ Ukraine took the definite commitment to complete the legal approximation, while Georgia and Moldova “recognize the importance of approximation” ▫ The current progress in approximation is slow Observation 12: Trade in service liberalization is far less extensive, with the EU being relatively more closed than its DCFTA partners.
  13. 13. Contacts @IER_Kyivwww.ier.com.ua 8/5-А Reytarska str., Kyiv 01030, Ukraine tel: +38-044-278-6360 e-mail: institute@ier.kiev.ua IER.Kyiv