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Association with the EU: fraud or advantage
Author article
Vladymyr Marinich

Nowadays the EU – Ukraine Association Agreement remains one of the most discussed topics both by politicians and citizens of Ukraine.

The failing moments and fantastic prospects of the Association are outlined in order to justify the fact of the tragic events in Ukraine during the power shift in 2014.

Such conversations do not go further demagogy and empty platitudes. There is still no human-understandable and objective economic and legal analysis of the above mentioned matter.

It is visible that the new government needs to provide information about this Agreement in the most favorable light for Ukraine, because it has to justify its actions, while the opposition remains in an opposite extreme.

What new does the Association with the European Union grant us?

The first and foremost it should be said that the EU Association does create something supernatural neither in Ukraine nor in the Ukraine's relations with the EU.

Due to illiteracy, the majority of Ukrainian citizens did not know or forgot that similar agreements had already been concluded.

Namely, the Agreement on Partnership and Cooperation between the EU and Ukraine was signed on June 16, 1994 and ratified by the Law of Ukraine dated November 10, 1994 No 237. The foregoing Agreement sets out the basic principles of conducting trade between the EU countries and Ukraine. The provisions of this Agreement were expanded and supplemented in the EU – Ukraine Association Agreement.

The EU – Ukraine agreement on visa facilitation was signed on June 18, 2007 and in respect of the aspect of the visas issue is much more promising than the EU – Ukraine Association Agreement.

In 2008 Ukraine became a member of the international system GATT/WTO (the World Trade Organization, which was created by transforming the legal relations of participants of the General Agreement on Tariffs and Trade to legal relations of higher level), which led to the establishment general foreign trade principles in Ukraine.

These trade principles still remain in force for Ukraine and the EU within the Association Agreement.

The program "Eastern Partnership" was started on May 7, 2009 at the European Union summit in Prague. Ukraine also became the member of the above mentioned program. Conditions of the program as well involve the simplification of visa regime and adaptation of the Ukrainian legislation to the EU legislation.

In addition, on November 22, 2010 the Action Plan on visa liberalization of the EU visa regime for Ukrainian citizens was presented.

Thus, the controversial Association Agreement is for the most part a compilation of the previously signed agreements, which does not establish new opportunities for Ukrainian citizens.

The peculiarity of the average citizen is that he/she absolutely or almost does not know anything about the existing international agreements of Ukraine and has never read and known nothing about the Association of Ukraine with the EU.

However at the same time, a citizen persistently wants to receive the information about the issues “that he/she will not know in the future” instead of “those that he/she did not know before”.

What is a global dimension of legal and economic consequences of the fact that people insistently wish to remain uniformed or persistently stay too lazy to think of?

To make this easy to understand, I will provide you with the following example. The referendum to withdraw from the Union of Soviet Socialist Republics was held in Ukraine. Whereas in order to join the Association with the EU, the holding of a referendum is not intended.

What does this mean? This indicates that no supernatural changes will not happen in Ukraine relations with the EU and all actions that may be performed through the Association Agreement, may be done without the mentioned Agreement, because it does not imply any complicated multistage and structured liabilities.

In other words, the EU – Ukraine Association Agreement is just a slogan, a red flag but only for illiterate people. As well, the EU – Ukraine Association Agreement may be called Intergalactic agreement and it would not change anything. But in order to excite the people, their brains were putted into a flutter by waving a red rag in the form of association with the EU.

Why does the issue of the Association Agreement become so urgent in 2014?

This issue is unlikely to have ever been burning.

It is important to notice that the negotiation process, which is dedicated to the conclusion of the Association Agreement, was started in 2007 under Yushchenko presidency.

This aspect raises a lot of questions.

For instance, if the Agreement was so important why its text was not completed and signed during Yushchenko presidency?

The text of the Agreement was finally approved only in November 2011 under President Yanukovych.

This aspect also raises a lot of questions. If Yanukovych was radically against this Agreement, why was it necessary to approve the text?! The politics may mess around the text at least for ten years.

Whatever the case on March 21, 2014 representatives of the Member States of the European Union, European Commission President Jean-Claude Juncker (on behalf of the European Union) and Prime Minister Arseniy Yatsenyuk (on behalf of Ukraine) signed a political bloc of the Agreement, which consists of the preamble, Article 1, Sections I, II and VII. The General Declaration of the Final Act of the Summit between the EU and Ukraine was signed to confirm the abovementioned fact.

The economic part of the Agreement was signed on June 27, 2014 by affixing a signature on the full text of the document, which includes sections III, IV, V and VI.

However, the Verkhovna Rada adopted the Law “On Ratification of the Association Agreement between Ukraine, for one part, and the European Union, the European Atomic Energy Community and Their Member States, for the other part" only on September 16, 2014, despite the “purportedly” importance of the Association Agreement (which was constantly emphasized in 2013 by the future president of Ukraine Poroshenko and the Prime Minister Yatsenyuk).

Whereas, the Association Agreement enters into force only after its ratification by all parties, namely by Ukraine and all the EU Member States, and transmission of the instruments of ratification to the Secretary General of the European Union Council. Such a procedure is established under the Association Agreement and the above-mentioned Law of Ukraine.

However, the EU Member States do not push forward ratifying the Association Agreement with Ukraine. Thus, all rush with the signing of the Agreement and the forcing of panic in Ukraine concerning this Agreement were good for nothing. It is expected that it will come into force not earlier than in mid 2017th – early 2018th.

 

Is it possible to provide a brief description of a purport of the EU – Ukraine Association Agreement?

The majority of the provisions of the political part of the Agreement contain general statements, which do not even make sense to talk about. They are more like curtsies toward each other when greeting and do not bear any legal meaning. The specific conditions, which implementation requires real actions and changes, constitute only a small part of the Agreement. Such conditions include the following provisions:

  • the provisions of the Article 8 of the Agreement, under which Ukraine is obliged to ratify the Rome Statute of the International Criminal Court, in which genocide and war crimes are defined as core crimes;
  • the provisions of the Article 12 of the Agreement, under which the disarming regime and control over the weaponry of Ukraine shall be established;
  • the provisions of the Articles 461 and 464 of the Agreement, under which the Association Council and Association Committee, that perform the functions of supranational authorities of control over the execution of this Agreement, shall be established.

The economic part of the Agreement also contains a huge amount of declaratory and non-binding provisions.

It is worth paying attention to the following.

The provisions of the Articles 29 and 78 of the Agreement establish the gradual abolition of customs duties in accordance with the timetable, which is sated out in the Annexes to the Agreement.

Perhaps we will discuss the mentioned issue later, when it becomes relevant.

At the moment I would like to draw your attention to the fact that the Agreement singles out the second-hand clothes from all existing products as one that prevails for import to Ukraine. Ukraine shall unilaterally reduce the import duty on the mentioned above product for not less than 1% per year (under Annex 1-B).

As a result, Europe will renew its clothing market and every Ukrainian will receive a second-hand “Gabbana”. Perhaps somewhere in the village, it would be considered as a good deal, but for the consumer industry of Ukraine it sounds like an affront and funeral march.

Concerning a visa-free regime and facilitate access to employment in Europe, the Agreement just sets the EU's obligation to fulfill the conditions that have been previously determined (in accordance with the Article 19 of the Agreement) and also offers the opportunity to every European country to consider this issue on their own with no obligations to Ukraine (in accordance with the Article 18 of the Agreement).

At the same time, it is planned to begin the combating against illegal immigrants from Ukraine, who work illegally in the EU (in accordance with the Article 16 of the Agreement).

In other words, this agreement does not provide the facilitation of the movement of citizens of Ukraine to Europe and vice versa it implies strengthening the fight against such a movement.

Beyond that, under the provisions of the Article 40 of the Agreement, the EU unilaterally reserves the right to restrict import of agricultural products from Ukraine, which puts into question the earnings of our agriculture and of its employees.

In accordance with the provisions of the Article 56 of the Agreement, Ukraine takes on the obligation to bring the product manufacturing standards into compliance with the EU standards (standards of production and marketing of products).

This issue raises again the question, “whether our producers are capable to move to the European standards during the financial crisis in order to be able at least to trade in Ukraine, without mentioning Europe?”

The provisions of the Article 128 of the Agreement provide an opportunity for financial service suppliers to provide such services within the Agreement validity area (that is the territory of Ukraine and the EU). Likewise, under the provisions of the Article 145 of the Agreement, a free movement of capital, which is related to the provision of loans, investments (including portfolio) and financial loans, is established. This actually means a free expansion of foreign banks to the territory of Ukraine. Taking into account noncompetitiveness of Ukrainian banks the mentioned situation may lead to the transition of Ukrainian banks under the foreign banks’ control or even to shutdown of Ukrainian banks.

The focus is primarily on investing and lending, providing that Ukrainians will be interested in investing in the European economy and taking out loans at European banks. It turns out, that another mechanism of the outflow of funds from Ukraine comes into force.

 

Is it possible to figure out in advance the consequences of the Association for ordinary citizens of Ukraine?

The provisions of the Article 269 of the Agreement establish a rule under which the price on the domestic energy market shall be brought in line with international market prices (market for goods within the territory of Parties of the Agreement). Such a rule may be considered as a catastrophic element of the Agreement for the population of Ukraine.

Ukrainian businessmen and economists have expected positive developments from new rules of trade with the EU, however, meanwhile their hopes have not come true yet.

Meanwhile, the export of Ukrainian goods decreased by 31% in January 2015 (1354,2 mln. USD). The trade deficit comes to 25,1 mln. USD (the information on economic indicators is compiled in accordance with the information that is provided on the website of the State Statistics Committee of Ukraine i).

Virtually all economic activities show negative dynamic, except for agriculture (according to the results of 2014 the agriculture sector activity increased on 2.8%). In comparison with the same period of the previous year in early 2015 Ukraine lost on trade with the EU amounts to 481 mln. USD.

The country’s manufacturing collapses through a “contagion effect”. In general raw materials and cheap goods are mainly exported abroad. At present the foreign trade activity of Ukraine is carried out under the conditions of unprecedented physical destruction of production facilities and large-scale shutdown and sale of industry.

It should be understood that all the above mentioned agreements between Ukraine and the European Union and its Member States are on the same level and do not bear profound changes in the life of Ukraine and do not raise the relationship with the European Union to a new level. It is like the squares on the floor. You may jump as much as you like, you would not go up to the upper floor. Consequently, all these agreements may be considered not as a convergence mechanism, but as a deterrence mechanism of Ukraine rapprochement with the European Union. The mechanism offers to jump from square to square, making it impossible to get to the upper floor.

 

What are current free trade area prospects for Ukraine in terms of our economic situation??

On October 04, 2015 the international organization ISDA (International Swaps and Derivatives Association, Inc.) officially expressed the recognition of default in Ukraine, which pre-condition was the preliminary resolution on Ukraine dated September 23, 2015. The recognition of a default in Ukraine was a reaction to the signing of the decree of the Cabinet of Ministers of Ukraine "On the Beginning of the Procedure of Restructuring of State and State-guaranteed Debt and the Partial Write-off" dated September 22, 2015 No 978-r. The foregoing decree imposed a moratorium on the upcoming on September 23 payment of 500 mln. USD debt on Eurobonds.

In accordance with a statement of Peter M Werner (the representative of the Regionally specialized department of ISDA Department for European markets) dated October 09, 2015, declaration of even a technical default in Ukraine is the signal of the beginning of stripping the country's assets by financial vultures and other sharks of the financial business.

 

A lot of agreements, a lot of papers, a lot of conditions and at the same time the collapse of the economy – and what value does come out for an ordinary person?

 

An ordinary person should compare each crucial point “before and after the association with the EU” in order to understand this set of letters and words.

 

Managing Partner of the Law Firm "FOX" Volodymyr Marinich