EU Provides Trade Preferences to Ukraine

Regulation (EU) No 374/2014 of the European Parliament and the Council on the reduction or elimination of customs duties on goods originating in Ukraine has come into effect on April 23, 2014. According to this regulation, EU provides autonomous trade preferences to Ukraine in the form of a unilateral introduction of cheaper rates of duty for certain Ukrainian goods, or even completely duty-free. The movement certificate EUR.1 constitutes the documentary evidence for the application of the regulation.

Mr. DE GUCHT (European Commissioner for Trade) welcomed the positive signal the European Union had sent Ukraine.
He explained the unilateral trade measure being proposed by the commission that day, which consisted of reducing or even eliminating customs duties on EU imports of products originating in Ukraine.
This important gesture would allow Ukraine to draw extensively and immediately on the benefits of the free trade area.

The EUR.1 movement certificate is a form recognized as a certificate of origin, which is used in international trade, and with which importers can obtain reduction or exemption on the import duties in the country of destination. The tariff preference on the ground of a EUR.1 certificate is only granted for those countries with which the European Union have concluded a free-trade agreement, for example Albania, Egypt, Mexico, Norway, South Africa, and now Ukraine.

The EU comprises the following 28 sovereign member states: Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and United Kingdom.

Autonomous trade preferences are granted for Ukrainian goods starting from April 23, 2014 and will apply until November 1, 2014. During the preferential treatment, EUR.1 certificate will be issued by Ukrainian Chamber of Commerce and Industry (CCI) and its regional chambers in accordance with Commission Regulation (EEC) No 2454/93 - Customs Code Implementation Provisions.

The preferences include a wide variety of products, but selected ones are subject for quota system. This means that Ukrainian exporters will be able to deliver only a limited amount of those products with reduced import duties. The rate of duty is zero within the quota, and according to the base rate of EU import duty outside of the quota.

The table below offers a case study of the changes in duty rates for several products provided by Gartner Ukraine.

Commodity HS Code The Rate of EU Import Duty
Base Preferential
Crude Sunflower Oil 1512 11 91 6.40% 0%
Refined Sunflower Oil 1512 19 90 9.6% 0%
Soybean Oil 1507 10 90 6.4% 0%
Technical Oil 1512 11 10 3.2% 0%
Palm Olein 1511 90 90 9% 0%
Liquid Frying Fat 1517 90 99 16% 0%
Sunflower Meal and Cake 2306 30 00 0% 0%
Wheat Bran Pallets 2302 30 90 89 €/MT 0 €/MT*
Wheat Flour 1101 00 15 172 €/MT 0 €/MT*
Wheat 1001 90 99 95 €/MT 0 €/MT*
Yellow Corn 1005 90 00 94 €/MT 0 €/MT*
Barley 1003 00 90 93 €/MT 0 €/MT*
Blended Butter (Spreads) 2106 90 98 9% + EA 0%*

*Within the quota.

Not only Ukrainian exporters will benefit from this preferences, but also EU buyers. This can be illustrated by the following example:

1 flexitank (22 MT) of refined sunflower oil is going to be imported to Greece. During customs clearance the importer must pay two indispensable kinds of payments – import duty and VAT.
The total cost has next simplified form:

 CFR Price = FCA price + Cost of Delivery
Total Cost = (CFR Price + Import Duty) * VAT
The price is €657 per MT of Refined Sunflower oil FCA. The import duty will compose:
Preference Document Rate
None 9.6%
Certificate of Origin Form A 6.1%
EUR.1 Movement Certificate 0%

The VAT rate varies depending on the country. In Greece the VAT is 13% for Category 1 goods.

For Greece, the total price can be next.

  • with the EUR.1 movement certificate:
    Price of 1 flexitank CFR Thessaloniki: €16 300
    + 0% import duty: €0
    + 13% VAT: €2 119
    Total: €18 419
  • with the Certificate of Origin Form A:
    Price of 1 flexitank CFR Thessaloniki: €16 300
    + 6.1% import duty: €994.30
    + 13% VAT: €2 248.26
    Total: €19 542.56
  • without any preference documents:
    Price of 1 flexitank CFR Thessaloniki: €16 300
    + 9.6% import duty: €1 564.8
    + 13% VAT: €2 322.42
    Total: €20 187.22

Accordingly, the Greek buyer can save €1768.22 from the cost of 1 flexitank. This is equivalent to the cost of 2 MT extra of delivered Refined Sunflower oil. Therefore, each eleventh flexitank can be “for free”.

Now that the trade preferences are in effect and Ukraine implemented the associated procedures, such as issuance of EUR.1 by the CCI, the procedure and documentary registration of deals with European partners is significantly simplified. In that way, there are emerging opportunities in trade between EU and Ukraine participants in international trade would be interested in examining.

5 May 2014