The Association Agreement: read it as a specification, not a treaty

The economic chapters of the Association Agreement between Ukraine and the European Union were signed on 27 June. The political provisions had been signed in March. The document runs to around two thousand one hundred pages including annexes, and almost nobody who writes about it has read past the preamble.

That is a missed opportunity, because the annexes are the useful part. This entry explains how to use them.

What kind of document this is

The agreement is not primarily about tariffs, although it includes them. Its substance is a commitment by Ukraine to adopt specified pieces of European legislation, in specified sectors, by specified deadlines, and to demonstrate that the adopted rules are actually enforced.

The annexes list the directives and regulations by number. For each one there is an implementation period — typically two to seven years from entry into force, occasionally ten for the most demanding. Read together, they are a dated map of how Ukrainian regulation will change over the coming decade.

Nothing about this is aspirational in the way that political declarations are. Market access under the DCFTA is conditional: for many product categories, tariff-free entry to the EU depends on Ukraine having implemented the relevant technical and sanitary regime and on Ukrainian conformity assessment bodies being recognised.

The chapters that matter commercially

Technical barriers to trade: Ukraine adopts the EU approach to product standards, market surveillance, accreditation and conformity assessment. The end state is mutual recognition of industrial product certification for listed sectors. This is the single most valuable provision for manufacturers.

Sanitary and phytosanitary measures: the largest and most demanding annex. Ukraine adopts EU food safety, animal health and plant health rules. Approval of individual establishments for export to the EU depends on it. For agri-food exporters this determines everything.

Public procurement: phased opening of each side's procurement market to the other's suppliers, tied to Ukraine adopting EU procurement directives. The phases run over eight years by contract type.

Competition and state aid: prohibition of the state aid practices that sustain parts of Ukrainian heavy industry, with a transition period. This one has real domestic political cost and it is where implementation is most likely to slip.

Energy: adoption of the Third Energy Package, including unbundling of gas transmission from supply. This is the legal basis for the Naftogaz restructuring that follows.

How to use it

Three concrete steps for any business with Ukrainian exposure.

Find your sector in the annexes and note the implementation deadline for each instrument that applies to you. That date is when your Ukrainian competitors will face the same compliance costs you already carry in the EU — and when your Ukrainian suppliers will need to have solved certification.

Second, identify which conformity assessment bodies will be able to certify to the new rules. There are few, and capacity is the practical bottleneck. Early relationships with accredited laboratories are worth real money.

Third, treat the timetable as indicative rather than binding. Ukrainian implementation of EU commitments has historically run late, sometimes by years, and the enforcement mechanism is political rather than judicial. Plan for the direction being certain and the dates being optimistic.

The caveat worth stating

Ukraine's own tariff liberalisation under the agreement has been deferred to the end of 2015, while the EU applies its side unilaterally from April. That asymmetry helps Ukrainian exporters in the short term and postpones the adjustment for Ukrainian import-competing sectors.

Deferred adjustment does not become cheaper. Businesses in protected sectors here have eighteen months to prepare for competition they have never faced, and most will spend it lobbying for a further extension.

Related in this archive

• Vilnius 2013: the suspension, and the arithmetic behind it
• Why the trade choice was framed as a choice, and what the economics actually said
• What external partners can actually deliver, and what they cannot
• Ukraine Annual Review 2014: the year everything deferred came due

I use this document as a specification too: I look up which annex my product sits in, on what schedule and against which standard. Two thousand pages cannot be read but three annexes can. Every company that learns this method starts benefiting from the agreement before the others — because its competitors still take it for a geopolitical text.