• Learnings from the Ukraine FTA

Learnings from the Ukraine FTA

22 March 2018

In the context of the movement of goods, we compare EU trade agreements currently in place as a means to predict the likeliest model when it comes to the EU-UK break up.

It can be helpful to consider the various trade agreements currently in place with the EU when predicting which model is likeliest to be chosen when it comes to the EU-UK breakup. In this article we take a look at this in the context of the controls on the movement of goods; not the duty impact.

As the UK have decided to leave the Customs Union and the Single Market, as stated by President of the European Council Donald Tusk, a Free Trade Agreement (FTA) becomes the only option.

When considering the type of FTA which might apply, it is useful to refer to the slide presented by Michel Barnier to the European Council on 15 December 2017.

Picture A: Michel Barnier, European Commissioner lead negotiator, UK Red Lines chart.

Based on the UK Red Lines and the analysis above it appears that the Canada Trade Agreement (or future Japan Trade Agreement) represent the most likely models to adopt.

In this context it is now worth taking a closer look at the Deep and Comprehensive Free Trade Area (DCFTA) that was signed between the EU and the Republic of Ukraine, as the Republic of Ukraine is a country that shares a physical border with the EU.

This agreement formally entered into force on 1 September 2017. One important difference to note is that the Ukraine has closer links to the EU Customs Union and Single Market than the UK as the Ukraine accepts the jurisdiction of the ECJ and regulatory compliance with the EU.

The DCFTA offers the Ukraine a framework to modernise its trade relations and economic development by the opening of its markets via progressive removal of customs tariffs and quotas, and by an extensive harmonisation of laws, norms and regulations in various trade-related sectorscreating the conditions for aligning key sectors of the Ukrainian economy to EU standards.

Similar to the Canada Trade Agreement, the aim of the Ukraine Trade Agreement is to eliminate respectively 99.1% and 98.1% of duties in trade value.

Thus, duty-free tariff rate quotas have been granted to the Ukraine for cereals, pork, beef, poultry and a handful of additional products, while for others the progressive elimination by the EU of the custom duties will occur over a longer transition period (generally 10 years).

Despite all these tariff benefits however, the most significant benefit for seamless movement of goods appears to be missing. There is still a hard border between the EU and Ukraine and all the border crossing formalities continue to have to be fulfilled (such as – import and export documentation, permits and border physical checks).

Picture B: Poland and Ukraine border within Europe.

The picture above displays the border between Poland and Ukraine. This border is 529km long and has six transit border crossings available for transit movement.

When we take a closer look at the situation at this border, we see clearly that the waiting time depends on factors such as:

  • Which border crossing is taken
  • At what time the border crossing is taken
  • Direction of movement at the border (i.e. exit from the EU or entrance into the EU)

This data is detailed below:

Picture C:  Estimated waiting times to cross the border between Poland and Ukraine.

The waiting time to cross the border between Poland and Ukraine is estimated between 0 hours or up to 9 hours. It is important to note that this time excludes actual goods inspection time which may take a few extra hours.

Interestingly, times to clear customs in Poland to enter the EU are significantly lower than the time taken to exit Poland. Our next article will analyse this further.

If we compare the length of the border between Ukraine and Poland vs Republic of Ireland and Northern Ireland, both are very similar lengths of 529km and 499km respectively.

This begs the questions:

  • How many border crossings will be needed in Ireland to avoid congestion?
  • Will an electronic border solve the problem?
  • Will the EU allow for an electronic border when the UK becomes a 3rd country while leaving the Single Market and Customs Union and moving more towards the Canada/Japan Model?

For further information or to arrange a meeting please contact Carol Lynch on [email protected].

For more information about the partnership between BDO and Irish Exporters Association, click here.