European Commission proposes temporary trade liberalization with Ukraine

European Commission proposes temporary trade liberalization with Ukraine to support the trade position of the country affected by the Russian invasion 

Sanctions against Russia

In response to Russia's invasion of Ukraine on February 24, 2022, the EU has rapidly adopted several sanctions measures against Russia in recent months. It amounts to significant expansions and reinforcements of the sanctions measures that the EU has imposed against Russia since 2014 as a result of the annexation of Crimea and Sevastopol and the attempts to destabilize Ukraine. Meanwhile, the list of Russian (legal) persons, entities and bodies against whom respectively which financial sanctions have been adopted is bursting at the seams.[1] In addition, the package of economic sanctions included in Regulation (EU) No 833/2014[2] is extensive, diverse and far-reaching. It is directed against different sectors, against exports to, as well as imports from Russia, affects the trade in products, but also investments and various forms of services, including financial services. The latest fifth package of sanctions includes import bans on coal, timber and fertilizers, as well as new export bans. Additional restrictions have been imposed on the Russian transport sector, preventing Russian road haulage companies and Russian-flagged vessels from entering the EU. Belarus, meanwhile, has not been left out of the picture: because of its involvement in the invasion of Ukraine, the EU has also extended existing sanctions against this country. The end is not in sight; the war continues and the EU is even considering a boycott of Russian oil as part of possible additional sanctions.[3] On 4 May 2022 EC President Ursula von der Leyen has presented a proposal to stop Russian oil imports by the end of the year and by doing so cut off Russia from its main sources of revenue.

"Frankenstein's Monster"

With the sanctions measures, the EU is reacting to the invasion of Ukraine and trying to influence the behavior of Russia (and Belarus). At the same time, the restrictive measures obviously also have a significant impact on the EU business community; for what exactly is still allowed and what is no longer allowed, or only under certain conditions, when it comes to trade to or from Russia or with Russian (legal) persons? EU companies that have any kind of dealings with Russia cannot escape having to study the sanctions in detail. This is not an easy task; just last week, a customer sighed that the diligently constructed and piled up sanctions regulations against Russia now almost resemble "Frankenstein's monster".

Temporary liberalization of trade with Ukraine

Consistently with the sanctions against Russia and the support for Ukraine, including the supply of weapons, the EU is also planning to help Ukraine in other ways. On April 27, 2022, the European Commission made a proposal[4] for a regulation to provide for temporary trade liberalization to complement the trade concessions applicable to Ukrainian products under the 2014 Association Agreement between the EU and its Member States on the one hand and Ukraine on the other.  

It states that the Russian invasion has had a profoundly negative impact on Ukraine's ability to trade internationally. The war is claiming victims, people have fled, production capacity is partly destroyed by the war and there is a serious lack of logistical resources, partly due to the closure of access to the Black Sea. In this context, Ukraine has asked the EU to create conditions that will enable it to maintain, as far as possible, its trade position with the rest of the world and, in any case, to further strengthen its trade relations with the EU. The measures should provide Ukrainian producers with greater flexibility and security.

Trade liberalization measures

The Commission is proposing a regulation introducing trade-liberalizing measures in the form of the three following measures, which should apply for a period of one year:

• Temporary suspension of all outstanding tariffs under Title IV of the Association Agreement between the EU and Ukraine. This concerns three categories of products: 

1. certain industrial products subject to duty phase out by the end of 2022;
2. fruits and vegetables subject to the entry-price system;
3. agricultural products and processed agricultural products subject to tariff-rate quotas.

• Temporary non-collection of anti-dumping duties on imports originating in Ukraine as of the date of entry into force of this Regulation; and
• Temporary suspension of the application of the common rules for imports (safeguard) with respect of imports originating in Ukraine.

The temporary and exceptional measures should contribute to supporting and fostering the existing trade flows from Ukraine to the Union. The Commission notes that this is in line with one of the main objectives of the Association Agreement, namely to create the conditions for closer economic and trade relations leading to Ukraine's gradual integration into the EU Internal Market. Furthermore, the Commission considers the proposed measures based on Article 207(2) of the Treaty on the Functioning of the EU to be proportionate to Ukraine's current economic difficulties, including its trade with the EU.

Estimated effect on own resources minor

The Commission estimates that the EU can expect a loss of customs revenue of less than EUR 31 million per year; in addition, the loss of anti-dumping duties is estimated at EUR 34.6 million. As the level of imports from Ukraine has been strongly affected by the armed conflict, the figures may be lower. The Commission estimates the impact on EU own resources as very limited.

Liberalization not without conditions  

The proposed preferential arrangements are subject to conditions. These include respect for the rules of origin of products and the related procedures in the Association Agreement, the need for Ukraine to refrain from introducing new customs duties or charges having equivalent effect, or from increasing them, unless clearly justified in the context of the war, and the need for Ukraine to respect democratic principles, human rights and fundamental freedoms and the rule of law, as well as to continue its efforts in the fight against corruption.

The proposal also provides for the possibility of reintroducing customs duties if it becomes apparent that products originating in Ukraine are being imported into the EU under conditions which cause, or threaten to cause, serious difficulties to EU producers of like or directly competing products.

About Ploum's Customs, Trade and Logistics team

The specialists of our Customs, Trade and Logistics team will be pleased to assist you if you have any questions on this topic or on other issues related to trade, customs, logistics and import/export and sanction regulations. Due to our many years of experience in the customs practice, we can serve you quickly and effectively. Please contact Jikke Biermasz (j.biermasz@ploum.nl).