Practice Areas Review: Customs Law

Free Trade Area with EU: Changes in Customs Regulations



Partner, Ph.D. in Economics, WTS Tax Legal Consulting/ KM Partners

Oleksiy KOROP

Oleksiy KOROP

Adviser, Ph.D. in Law, Attorney at Law, WTS Tax Legal Consulting/KM Partners


WTS Tax Legal Consulting/ KM Partners

5 Pankivska Street,
5th Floor, Kiev, 01033
+380 44 490 7197

WTS Tax Legal Consulting/KM Partners is Ukrainian law firm specializing in tax, legal and consulting services, which has been working on the legal services market of Ukraine since 1999 and has a dual structure: WTS Tax Legal Consulting LLC as a consulting firm and KM Partners Attorneys at Law. The services related to protection in criminal proceedings on white-collar crimes are provided by KM Partners.

WTS Tax Legal Consulting/KM Partners is a member of the WTS Alliance — a global network of selected consulting firms represented in about 100 countries worldwide.

Our firm offers a wide range of services in different tax branches starting from customs and transfer pricing issues, assessment of potential risks and defining the areas of vulnerability to defend the clients’ interests in the disputes with customs authorities or appealing against the results of controlled transactions audit. The quality of our tax consulting services is well-known both in Ukraine and abroad: since 2005 the firm and its Senior Partner Alexander Minin have been constantly top-ranked in the tax practice category on the basis of the results of national and foreign ranking research, such as: The Legal 500, Сhambers Europe Clients’ Guide, International Law Office Client Choice Awards, Who is Who Legal, Tax Directors Handbook, Best Lawyers, Ukrainian Law Firms. A Handbook for Foreign Clients, and many others.

The Company has qualified and experienced experts who specialize in corporate law, real estate and land issues, competition law, commercial and contract law, civil law, labor law and intellectual property law. Among main practices there is also dispute resolution in national courts, arbitration courts and through commercial arbitration.

We provide integrated consulting services focused on the informative support of the management’s operational decision-making in the dynamic regulatory environment of Ukraine. Within this practice we support the development and implementation of innovative solutions that provide competitive advantages to our clients. The Company has long and successful cooperation with clients from various industries, including agriculture, fuel and energy complex, construction, transport and infrastructure, information technologies and telecommunications, trade and others.


Starting from 1 January 2016, Title IV Trade and Trade-Related Matters of the Association Agreement between the European Union and its Member States, of the One Part, and Ukraine, of the Other Part (Agreement) came into force. This Title provides for the gradual elimination of import and export duties and establishes a deep and comprehensive free trade area (DCFTA).

This historical event deeply affects the overall regulatory framework in Ukraine and especially the customs sphere.

In terms of customs, the Agreement will have long-term and immediate implications.

As for the long-term, it provides the obligation for Ukraine to adapt its customs legislation according to the provisions of the EU listed in Annex XV. This would mean a serious step forward in harmonization of our customs legislation with EU rules, ensure the legal base for transferring to our soil the principles and best practices used in EU.

As for immediate effect we should, first and foremost, mention the common provisions on elimination of customs duties.

Detailed schedules on elimination of import duties for each code from the Ukrainian Classification of Goods for Foreign Economic Activity (here in after — Ukrainian Classification) areset out in Annex I-A to the Agreement.These schedules are asymmetric and, therefore, the duty rates in Ukraine and the EU are different.

Starting from 2016, the EU will eliminate the customs duties on imports for Ukrainian goods, classified in more than 98% of the codes of the Ukrainian Classification. There are tariff quotas, established for some codes. Within such quotas, Ukrainian entities may import the goods to the EU without customs duty. For example, mushrooms, falling within the Ukrainian Customs Code 2003 10 (20-30), may be imported without any customs duty in a volume of up to 500 tons. These tariff quotas apply on a “first come, first served” basis.

The schedule of elimination of import duties by Ukraine establishes the transitional period for many codes from the Ukrainian Classification. In addition, for certain customs codes from Groups 02 and 17 of the Ukrainian Classification(pork, poultry meat and sugar) Ukraine establishes tariff quotas as well.

Part 2 of Article 29 of Title IV of the Agreement stipulates the successive gradual reduction of the base rate of import duties for each good. For example, the base rate of import duty for the code 2009 71 (apple juice) is set at 10% with a transitional period of 3 years. This rule should be interpreted in a way that in 2016 this rate should be 7.5%, in 2017 — 5%, in 2018 — 2.5%.

Well, in practice other interpretations are also possible. We would consider the absence of clearly set rates in the Agreement as a potential disadvantage. Yet, in order to avoid controversies, the Ministry of Economic Development and Trade has published a list of import duties rates applicable to goods originating in the EU in 20161.

Annex I-C to the Agreementprovides for schedules of export duty elimination by Ukraine. Currently, Ukraine applies export duties for the following categories of goods:

— live animals and leather materials;

— certain types of oil seed crops;

— scrap of alloyed ferrous and nonferrous metals;

— scrap of ferrous metals.

The Agreementprovides for the successive reduction of export duties during the 10-year period from the day when the Agreement comes into force. Yet, in some cases Ukraine would be able to apply additional export duties during the 15-year period in case the export volumes exceed the weight limit indicator stipulated for the respective year.

The schedules of elimination of export and import duties in the Agreementare based on the Harmonised Commodity Description and Coding System of 2007. At the same time, current Ukrainian Customs Tariff is based on the Harmonised Commodity Description and Coding System of 2012. Therefore, there might be  situations when the code, which an importer or exporter currently uses for customs clearance, is missing in the respective Schedule of the Agreement. In this case the transitional tables to the Ukrainian Classification of Commoditiesof 2007 and 2012 may be applied. These transitional tables were approved by the Order of the Ministry of Revenues and Duties of Ukraine No.54, of 22 January 20143.

The Agreement provides for special provisions on tariff elimination for some categories of goods.

Thus, separate Annexes to the Agreementprovide for the successive elimination of tariff regulatory measures on importation into Ukraine of passenger cars and worn clothing.

Also Annex I-A to the Agreement Tariff Schedule of Ukraine stipulates the application of 10% import duty rate with a transitional period of 7-10 years for many codes under tariff heading 8703 (passenger cars). In other words, the Agreement provides for successive reduction of the import duty rate. However, Ukraine ensured the possibility of protecting its internal market by imposing special additional duties. Such duty may be imposed by Ukraine during 15 years from the date the Agreement comes into force. The aggregate rate of the import and specific additional import duty for passenger cars shall not exceed 10%.

Articles 44 and 45 of the Agreement establish the procedure and grounds for the imposition of additional import duty on passenger cars originating in the EU. Namely, Ukraine may impose such a special import duty if special indicators set in the Agreement are met. Such indicators are provided for each year following the 1st year of effect of the Agreement and for a period of 15 years. The Agreement does not provide for the possibility to impose the special additional duty during the first year of its effect. The indicators include the volumes of import of passenger cars from the EU (namely, 45,000 units annually) and market share (for instance, 20% in the second year of the Agreement’s effect).

As for worn clothing, the Agreement establishes successive elimination of import duty rate annually by 1% point within 5 years except for the first year of the Agreement. During the first year, the rate of 5.3% is applied. According to the Agreement, the following reduction of the rate is applied to worn clothing that meet the value indicator, set out in the Agreement.

In order to be eligible for the benefits of the Agreement, the goods should be deemed as originating in Ukraine or the EU, respectively. Protocol I Concerning the Definition of the Concept of Originating Products and Methods of Administrative Co-operation (hereinafter — Protocol of origin) establishes the rules that should be met by the goods to be deemed originating in a contracting party as well as the ways in which the origin should be confirmed.

In general, movement certificate EUR.1 confirms the origin according to the Protocol of origin. Starting from 2016, such certificates are to be issued in Ukraine by the customs offices, while earlier this was the function of the Chamber of Commerce of Ukraine. The procedure on the issuing of the above-mentioned certificates is provided in the Order of the Ministry of Finance of Ukraine No.1142 as of 18 November 20144. As for the EU, the procedure on the issuing of certificates by the competent authorities is provided in EU Council Regulation No.1207/2001 as of 1 June 2001.

In addition to EUR.1 certificates, the Protocol of origin also establishes simplified ways on confirmation of origin. Namely, this is the declaration invoice, which is the special text on the document accompanying consignment put by the exporter. Such simplified confirmation of origin is allowed for consignments with a value below EUR 6,000 or for any consignments made by an “approved exporter”. The way to receive the status of “approved exporter” is stipulated in Article 23 of the Protocol of originand is a novelty for Ukrainian customs law.

To conclude, the DCFTA with EU is an outstanding event, which has serious influence over the customs legislation of Ukraine. Besides changes in the customs duties as such, the Agreement opens the door to more conceptual changes in relations between the customs authority and the business sector. We hope that the Ukrainian authorities will be up to the challenge and not miss this outstanding opportunity.


1 Association Agreement between the European Union and the European Atomic Energy Community and their Member States, of the One Part, and Ukraine, of the Other Part.


3 Order of the Ministry of Revenues and Duties of Ukraine No. 54 as of 22 January 2014 On Approval of the Transitional Tables from Ukrainian Classification of Goods for Foreign Economic Activity of 2007 to Ukrainian Classification of Goods for Foreign Economic Activity of 2012 (Excerpt).

4 Order of the Ministry of Finance of Ukraine No.1142 as of 18 November 2014 On Approval of Procedure of Filling in and Issuing Customs Certificate EUR.1 According to the Association Agreement between the European Union and the European Atomic Energy Community and their Member States, of the One Part, and Ukraine, of the Other Part’.