Association Agreement with the European Union: Opportunities and Prospects
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The Association Agreement between the European Union and its Member States, on the one side, and Ukraine, on the other side (hereinafter — Association Agreement) is considered to be one of the most ambitious and unprecedented in its breadth and depth document in the history of Ukraine, which will facilitate the transition from partnership and cooperation to political association and economic integration.
Look back at History
Negotiations on the Association Agreement and the Deep and Comprehensive Free Trade Agreement (DCFTA) began in 2007 but only on 30 March 2012 the parties initiated this document. On 10 December 2012 the Council of EU approved the decision of Ukraine where it declared its readiness to sign the Association Agreement between the EU and Ukraine at the Eastern Partnership Summit in Vilnius on 28 November 2013 provided that Kiev should show decisive actions and tangible progress in reforming electoral law, solving the problem of selective justice and should continue reforms under EU-Ukraine Association Agenda. However, on 21 November 2013 the Cabinet of Ministers of Ukraine issued unprecedented Decree No. 905-r on suspension of preparation of the Association Agreement with the EU. Despite dramatic developments which took place after the adoption of this Decree, political provisions of the EU-Ukraine Association Agreement were signed on 21 March 2014. At the same time, the commitment to signing the remaining provisions (on DCFTA) was also reaffirmed. Furthermore, in order not to wait for the entry into force of the Association Agreement’s provisions on DCFTA, it was decided to start the unilateral reduction or elimination of the EU’s customs duties on goods originating in Ukraine.
Main Clauses of the Association Agreement
Signing the whole text of the Association Agreement may provide Ukraine a lot of advantages in both spheres, political and economic.
Firstly, the Association Agreement provides for the reduction or even complete elimination of customs duties on export and import. In general, Ukraine and the EU will abolish tariffs on about 97% and 96.3% of tariff lines. Furthermore, the great benefit for Ukraine is that the Association Agreement will be used asymmetrically in favor of Ukraine as the EU will lower tariffs immediately and Ukraine has a transitional period of 10 years.
Secondly, the Association Agreement establishes European rules of customs clearance procedures. It is necessary to remember that the key to successful trade between Ukraine and the EU is the simplification of customs rules and procedures. In accordance with the provisions of the Association Agreement a simple, effective and inexpensive procedure for filing complaints of entrepreneurs to the actions and decisions of national customs, if the latter badly effect on business, shall be provided.
Thirdly, the Association Agreement provides for the simplification of procedures for the registration of companies as well as simplification of accounting for small and medium businesses. The Agreement also establishes transparency regulation of legislative activities.
Fourthly, the Association Agreement will contribute to stimulate domestic production and weaken state control over it by reducing the number of inspections and approvals for supervisory services.
Fifthly, the Association Agreement provides for the cancellation of Ukrainian system of GOST (state standards) and TU (specifications) for the vast majority of industrial products.
Sixthly, the Association Agreement simplifies the procedure of establishing subsidiaries and affiliates. The Agreement provides that Ukrainian legal entities which establish their companies in the EU will work according to the national treatment principle. It means that they may use all the rights and privileges as local entities do.
Furthermore, signing political provisions of the Association Agreement gives Ukraine a lot of benefits as well. Namely, it means that EU provides Ukraine political guarantees of territorial integrity and inviolability of its borders and recognizes Ukraine to be a part of Europe.
Thus, the Association Agreement, including a deep and comprehensive free trade area, is a tool for implementing pro-European reforms in Ukraine. The uniqueness of the Association Agreement is that it includes not only the liberalization of trade, namely the elimination of tariffs, but the provisions of the Association Agreement also provide for the harmonization of laws and legislation. The Association Agreement is the impetus for democratic changes in our country as well as momentum for economic sectoral cooperation with one of the largest markets in the world.
Experience of other States
The list of economic reforms contained in the Association Agreement has been tried several times before. According to the survey each country that signed a free trade area with the EU received economic benefits even though those agreements were less ambitious and far-reaching than the Association Agreement with Ukraine.
Bulgaria, Czech Republic, Hungary, Poland, Romania, Slovakia and Slovenia, as well as three Baltic republics signed similar agreements in 1990. Progress reached in the space of 10 years allowed almost all the above states to join the European Union in 2004, although the EU had rather rough conditions on the economy of new members. Only Bulgaria and Romania entered the EU three years later.
Statistics show that economies of states benefit immediately after the accession to the EU. For example, the average GDP per capita in Poland, Czech Republic, Slovakia and Hungary increased from EUR 14,000 to 17,000 in the first five years after joining the EU and the income gap between new members and average index of the European Union fell by about 10%. The increase in foreign direct investments may also be a great advantage.
Thus, the Association Agreement is a chance for Ukraine to start the transformation of its economy.
Confrontation — European Union vs Customs Union
In the last few months the debates about the future of Ukraine intensified. Given recent events we consider it necessary to compare two integration associations — EU and Customs Union.
Thus, the Association Agreement with the EU, unlike the Customs Union, means the transition to EU rules on the Ukrainian market which will certainly improve business climate in Ukraine. In addition, the launch of DCFTA with the EU will provide access to a larger and more predictable market with much higher purchasing power of consumers, which, however, need high quality products. For example, the EU market has about 500 million consumers, while the market of the Customs Union — only 170 million customers.
Prospects of the Association with the EU are much more specific than prospects of membership in the Customs Union. And the most important thing is that these prospects apply to ordinary citizens, not only to oligarchs and oligopolies. Thus, the Association with the EU means the modernization of the entire Ukrainian society, creation of scientifically developed, socially oriented and competitive Ukraine while joining the Customs Union means the recognition of itself as a satellite of Russia. At the same time, we should not forget that Ukraine and the Customs Union are practically at the same level of technological development, so the positive effects of mutual investment and trade will be very limited. Thus, the EU is better than Customs Union in all aspects. For example, the legal aspect of the Customs Union shows that accession of Ukraine to the Customs Union may lead to a significant limitation of the sovereignty of Ukraine, the economic aspect shows that the integration attractiveness of the Customs Union is very weak and integration framework (foreign trade, industrial cooperation, etc.) is almost lost. The political aspect shows that Ukraine’s accession to the Customs Union primarily benefits Russia and stops the European perspective of Ukraine.
However, we may not deny the fact that the Association with the EU requires from us great efforts and contributions, because any economy needs modernization and updating, especially the Ukrainian economy. Unfortunately, this issue is problematic in Ukraine. For example, since 2002 the EU has invested USD 29,700 billion into its economy, while Ukraine has invested only USD 250 billion into its economy.
Despite possible challenges which the Association Agreement may cause, such document is a significant chance for Ukraine to become a strong country with a developed economy. According to the fact that the Association Agreement provides for a political association and economic integration, namely the creation of DCFTA, it will benefit in both aspects, political and economic. The Association Agreement is a tool for qualitative changes and transformations in our country.