Ukrainian Think Tanks Liaison Office in Brussels

It is time for both EU and Ukraine to reshape their long-term relations, especially in the context of the heated debate about the future of the EU and its neighbourhood policy towards Balkans, Turkey and Great Britain. The jubilee 20th Ukraine-EU Summit provided a good basis for Kyiv to raise the issues of long-term cooperation between the EU and Ukraine at the highest political level. Although it is clear that in the nearest future Ukraine will not get the formal prospect of the EU-membership, both parties agreed upon four preferable areas to deepen the cooperation. Customs issues and regulation of international trade is one of the priority areas.

This article suggests that the EU-Ukraine relations deserve to be even deeper than it is envisaged by the Association Agreement. A new goal towards free movement of goods can provide a new framework for the future cooperation between the EU and Ukraine.

Although Ukraine faces a long way towards fully implementation of the Association Agreement, it is worth thinking now how to go beyond its scope, since the Association Agreement does not explicitly say where it brings Ukraine on the path to the EU.

In order to identify this new framework for the long-term cooperation, both partners shall prioritize most promising and mutually beneficial areas of the Agreement and initiate the dialogue about further steps to deepen cooperation in these specific areas.

What directions should Ukraine make? It is necessary to choose those that will have a quick effect on the country: both on average Ukrainian and on the economy in general. One of these directions is facilitating trade between the EU and Ukraine.

Why focus on the free movement of goods?

The goal for Ukraine is to integrate into EU as sooner and as closer as possible. The deeper level of integration would ensure more incentives for Ukrainian government to implement the reforms in the terms of agreement as well as internal reforms.

As for cross-border trade: since 2014, after temporary preferences were introduced by the EU, most of European customs duties for Ukrainian goods (with minor exceptions) have been abolished. However, in order to ensure truly free movement of goods, in addition to the abolition and reduction of customs duties, it is necessary to harmonize the controls carried out by the customs authorities of Ukraine and the EU.

If Ukraine puts this area in line with European standards, then it will be possible to achieve a “visa-free” movement of goods aimed at streamlining controls on the EU-Ukraine customs border. Consequently, a farmer from any Ukrainian village would be able to deliver his apples to a French supermarket as easily as he now can travel to the EU.

However, mere fulfilment of its obligations under the Association Agreement by Ukraine is not enough to achieve “visa-free” movement of goods.

At the moment, the maximum that Ukrainian government agencies will receive from the implementation of the agreement in customs sphere is harmonization of Ukrainian customs law with EU acquis. However, harmonization of legislation itself does not envisage liberalization of controls at the EU-Ukraine borders upon import and export of goods.

On the other hand, harmonized procedures on both sides of the border, joint approaches to control of goods, proper exchange of information between Ukrainian and European authorities (all these are not explicitly envisaged by the Association Agreement) may reduce the costs of crossing the border both for Ukrainian and EU businesses.

What needs to be done in order to reach the “visa-free” movement of goods?

EU-Ukraine Association Agreement provides for exchange of information between EU and Ukraine customs authorities via the mechanism of mutual administrative assistance in custom issues.

Automation of information exchange, as well as extension of its scope, may provide tangible benefits both for EU and Ukraine. For instance, the results of the control measures and formalities performed by the Ukrainian customs can be acknowledged by the European customs (and vice versa). This allows reducing administrative burden for businesses who move goods cross the border (as the number of duplicated controls over the same goods would significantly decrease).

We would like to reiterate that such convergence of controls does not yet mean creating any customs union (where there are no customs between member states) between the EU and Ukraine. That is not the offer. Instead, the idea is in enhanced cooperation, exchange in information and joint controls between European and Ukrainian authorities. Consequently, Ukrainian controls have to be as transparent and simple as possible – so that Europeans should trust it, just the same way that Ukrainian customs inspector would trust data obtained from his European colleagues. How to do it in practice, is described in detail in the policy brief. Here are the brief abstracts of the study.

Partial “dismantling” the economic (customs) borders between Ukraine and the EU is a realistic mission. However, to this intent two crucial steps should be taken:

  • Optimization and simplification of customs procedures related to trade between Ukraine and the EU so that each party would have to go through a minimal number of formal requirements in relation to goods received from the other party;
  • Harmonization of approaches to customs control in a way that would help reduce the need for burdensome customs controls between the EU and Ukraine, which could be implemented by way of mirroring the basic EU requirements to import of goods from third countries.

These, in turn, can be achieved by applying the “more-for-more” principle or additional efforts on the part of Ukraine, provided that the EU will also take certain steps (even if they are not explicitly stipulated in documents such as the Free Trade Agreement).

The first step is that the EU and Ukraine should mutually recognize a status of the authorized economic operator for qualifying businesses involved in the EU-Ukraine trade.

As a result, customs procedures in the EU will be simplified for Ukrainian enterprises that have received the status of an authorized economic operator from the Ukrainian customs authorities. Having a number of special simplifications upon customs clearance in Ukraine, such an enterprise will automatically use the same simplifications during customs clearance in the EU.

The second step is that Ukraine should harmonize its customs legislation with the EU legislation to the greatest possible extent (even where it is not explicitly envisaged by the Association Agreement).

This step will provide a legal basis for the possible mutual recognition of authorized economic operators, for the creation of a paperless customs environment and for the mutual recognition of the results of customs control.

The third step is the introduction of the Common Transit System (NCTS).

Accession of Ukraine to NCTS will lead to a significant simplification of import-export procedures, as the customs authorities of the two parties will exchange a significant amount of information in electronic customs declarations. This will accelerate border control – since at least there will be no need to fill out new transit declarations on the opposite side of the border.

The fourth step is the introduction of a paperless customs environment.

The exchange of electronic documents other than customs declarations (for example, the electronic exchange of information through more than 200 standardized electronic documents is implemented between the EU and EFTA) can significantly facilitate the free movement of goods. Distribution of electronic exchange on documents, such as certificates of origin, electronic invoices, cargo documents, etc., will lead to significant time savings in customs clearance both in the EU and in Ukraine.

The fifth step is the mutual recognition of the results of individual forms of customs control (for example, the results of weighing and scanning).

Customs control measures are carried out on both sides of the border – for example, a customs inspection (which usually time-consuming) of the same consignment of goods can be held both when exporting goods from Ukraine and when importing into the EU. Establishing an appropriate degree of trust between the customs authorities and exchanging control information will eliminate duplication of control and time-lag associated with it.

Why should the idea of the free movement of goods be supported by the EU?

“Free movement of goods” is not a membership, it’s not a customs union, but it’s an important political step, and it may be more of them.

And the main thing – it is fully in line with the policy of balanced enlargement of the EU, and the European Union may well help in this matter.

Especially in the situation when there are no political will on other initiatives of Ukraine in the EU, Brussels needs to be aware of what should be the incentive to implement the agreement. Being realistic, EU understands that it is necessary to give an impetus. From Ukrainian point of view, the visa free regime may be a motivation, because it does not go against the ideas voiced by European institutions.

What is the benefit for the European Union? It’s simple. An opportunity to have more sustainable and predictable neighbour. But it’s wrong to pretend that there is a discussion, a certain reviewing of the political relations, and do not mention, do not fit Ukraine, in this context.

Authors: Liubov Akulenko, Kateryna Potapenko (NGO “UCEP”), Robert Zeldi, Anton Melnyk (EY Company in Ukraine)

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