Ukraine first needs to bring its legislation and production quality in line with a variety of European standards before it could start benefiting from a landmark free-trade deal that will go into effect on Jan. 1, 2016.
Everything from certification, quality control and traceable food is required or needs upgrading even for companies that don’t do business with the European Union.
Having the free-trade pact with the EU delayed until the start of 2016 might be a good thing. Not only do the majority of Ukrainian products not meet European standards, legislation in areas such as food safety, sanitation, labeling and technical requirements hasn’t caught up as well.
Under a compromise reached on Sept. 12 with Russia, which opposes the deal, the postponement means that Ukraine will not have to cut its duties on EU imports for 15 months. In turn, the EU will keep in place for Ukraine quotas for certain imports under preferential terms through the end of next year.
As a result, Ukraine is expected to export €13.8 billion worth of products to the 28-nation bloc by year’s end, according to the European Parliament, an increase of 9 percent over the previous year.
Given that the EU is the final destination of 33 percent of the nation’s exports, much “homework” needs to be done to create a legal framework for trade under the new deal, said Nataliya Mykolska, head of international trade expertise at Sayenko Kharenko law firm.
The new standards will affect every business regardless if they do business with the EU.
This is a timely move since Russian retailers increasingly refuse to do business with Ukrainian companies since additional restrictions could be enforced any day by hostile Russian regulators in the Kremlin’s ongoing trade war.
“Ninety eight out of 100 Russian retailers sent us a rejection,” Oleg Tushkevych, sales director at package producer Ergopack, told hubs.com.ua, a business news website.
Moreover, Russia’s ban on Ukrainian confectionery, dairy and meat products have forced many companies to look for markets in Asia and the EU. Kryukiv Railcar Works, a major publicly traded company, cut wagon production by 66 percent this year since orders stopped coming from Russia, its principal client.
Machinery is highly dependent on exporting to Russia, said Sergiy Svystil, vice president of the Ukrainian Chamber of Commerce and Industry. “But this market is limited for Ukrainian producers now and the situation is becoming worse by the day, so producers have to seek new markets now and the European market is one of the options.”
Motor Sich, a Zaporizhya-based aircraft engine maker, has already started looking for clientele in the EU. After Russia canceled an order for MS-500V helicopter engines, a type used only in Russia, management started looking at the Polish market.
Capital, a business daily, reported that Motor Sich is considering joint production with an EU partner. Poland’s PZL Swidnik, an aircraft producer, is considering using Motor Sich’s engines for its Mi-2 and Sokol helicopters, reported Capital and Polish media.
EU certification is required for this to happen, however. This is problematic for Motor Sich and other Ukrainian producers, said Svystil of the Ukrainian Chamber of Commerce and Industry. They need to modernize Soviet-era production to meet the EU’s technical requirements.
One company that has met requirements is Ukraine’s largest poultry producer, Myronivsky Hliboproduct. The London-listed company plans to supply as much as 15,000 tons of chicken meat this year to the EU.
On a national level it took Ukraine five years to alter its standards and obtain permission to sell poultry to the EU in October 2013. Internally, MHP had to pass through a number of EU inspections during the process, said company spokesperson Zoya Shevchuk.
There are four main stages that Ukrainian poultry makers go through to export poultry to the European.
Once a company meets all the technical requirements set by the Brussels-led political and economic bloc, it still needs permission from the EU to export a specific type of product. A Ukrainian producer should have the Eur-1 certificate of origin to enter the EU market, according to Igor Dankov, customs law expert at EY, an accounting and consulting company. It’s a requirement for all exports that exceed €6,000.
Certificates of origin currently are issued by the Ukrainian Chamber of Commerce and Industry. In the future, traders will most likely apply for the certificate with the nation’s customs policy, according to Dankov of EY. This still needs to be legally set though. Currently the customs service lacks qualified experts for this kind of work, he added, while the Chamber of Commerce employs 610 specialists of this type.
Preparations for exporting goods to the EU may take between two months and two years. It depends on the type of product and whether it meets the bloc’s requirements, said Hanna Shtepa, a lawyer with Baker & McKenzie.
European requirements include proper health control, labeling, marketing and veterinary issues. Each product is categorized in respect to its quality and safety standards, said EY’s Dankov.
Food standards include restrictions on contaminants, such as pesticides, while control over veterinary medicine residue in meat is mandatory. Traceability of food products is crucial since Ukraine may export only locally produced goods. All packaging should be marked with the international standard stamps.
