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MEMO/09/189

Brussels, 23 April 2009

European Neighbourhood Policy – UKRAINE

"Ukraine's accession to the World Trade Organisation in May 2008, the progress made in negotiations on a new EU-Ukraine Association Agreement and the launch of negotiations for the country's accession to the Energy Community Treaty are all important signs of the deepening relationship between the EU and Ukraine. Nonetheless domestic political uncertainty coupled with a deepening economic and financial crisis in the second part of last year led to a slowing in the pace of reform. Ukraine now urgently needs to take decisive action to address the economic and financial crisis and implement the reform agenda. We will provide Ukraine with full support in this regard", said today Benita Ferrero-Waldner, External Relations and Neighbourhood Policy Commissioner.

EU–Ukraine relations: basic facts

The EU-Ukraine Partnership and Cooperation Agreement (PCA) entered into force in 1998. Seven sub-committees meet on a regular basis, to monitor and guide the implementation of the broad range of areas covered by the PCA.

In September 2008 at the EU-Ukraine Summit in Paris it was agreed that a new agreement which was in the course of being negotiated should be given the title of Association Agreement. It will replace the PCA and will be ambitious in nature. It will include as an integral element a deep and comprehensive Free Trade Area.

The leaders also agreed to launch negotiations on a “New Practical Instrument” to replace the current EU-Ukraine Action Plan. It will prepare for and facilitate the implementation of the new EU-Ukraine Association Agreement once it enters into force. Finally it was also agreed at Paris to open a visa dialogue with the aim of establishing a visa free regime as a long-term perspective.

Major developments in 2008 and overall assessment

Ukraine made progress in many areas covered by the EU-Ukraine Action Plan. However, there was a slowing in the pace of reform as a consequence of continuing domestic political instability and, in the second part of the year, the deepening global financial and economic crisis. Ukraine made no or only limited progress in the implementation of some key political reform measures including constitutional and judicial reform and efforts to combat corruption.

Major achievements during the reporting period were:

  • Ukraine’s accession to the World Trade Organisation in May 2008.
  • Continued progress in negotiations on the new Association Agreement between the EU and Ukraine including as an integral part a deep and comprehensive free trade area.
  • The launch in October of a visa dialogue between Ukraine and the EU with the aim of establishing a visa free regime as a long term perspective.
  • Continued cooperation with the Republic of Moldova on integrated border management with the aim of aligning border management to EU standards. This involved in particular close collaboration with the EU Border Assistance Mission (EUBAM) and included issues such as the fight against smuggling and illegal trafficking.
  • Co-operation on Common Foreign and Security Policy (CFSP) matters was also positive with Ukraine aligning itself to nearly all CFSP positions open for alignment.
  • In March 2008, the EU and Ukraine signed, in the context of the Memorandum of Understanding on Energy, a roadmap on energy efficiency, renewable energy sources and climate change.
  • In November 2008 negotiations were launched on the country’s accession to the Energy Community Treaty, which includes commitments for gradual convergence with EU internal energy market rules.
  • Negotiations on a comprehensive aviation agreement of the EU with Ukraine were launched in January 2008.

On the macroeconomic side, the securing of a stand-by arrangement with the International Monetary Fund of USD 16.4 billion (about €12.9 billion) under a comprehensive economic stabilization programme was critical in addressing the sharply deteriorating economic and fiscal situation stemming from the international economic and financial downturn. The Government of Ukraine is currently engaged in discussions with the IMF regarding disbursement of the second tranche of the standby loan. Real GDP decreased by 11.7% year-on-year in October-December 2008 (estimate) bringing overall GDP growth down to 2.1% for the whole year.

A special tax regime for agriculture, forestry and fisheries to avoid the negative consequences of the financial crisis entered into force on 1 January 2009. It includes a special mechanism of VAT handling that is designed to maintain special treatment and indirect support to agricultural producers in line with WTO obligations.

EU-Ukraine trade has been growing at a steady two-digit rate in recent years and amounted to €39.4 billion in 2008. Ukrainian exports to the EU increased by 15.1%; while imports from the EU increased by 12.4%. The EU share in Ukraine's overall external trade in goods in 2007 was 39%, ahead of Russia.

How the EU supports reforms in Ukraine

Ukraine is a key energy partner of the European Union, notably in the gas sector where some 80% of EU imports of Russian gas transit through Ukraine’s gas pipeline system. Relations with Ukraine in the energy field were tested in January 2009 following a commercial dispute between the Russian Federation and Ukraine concerning gas. As a result of this dispute there was a temporary cut of Russian transit supplies to Europe via Ukraine resulting in emergency situations in several EU Member States and some neighbouring states. The European Commission facilitated the resolution of the gas crisis inter alia by the dispatch of a team to Russia and Ukraine to monitor gas transit flows.

Regarding nuclear energy, the European Commission and Ukraine continued implementing a joint project, with the International Atomic Energy Agency, on the evaluation of the safety of Ukraine’s nuclear power plants. Ukraine pursued the upgrading of its nuclear power plants.

In October 2008, the European Commission disbursed the second tranche of the EURATOM loan for the upgrading of the Khmelnitsky-2 Rivne-4 nuclear reactors. Ukraine continued to strengthen the Nuclear Regulatory Authority, with EU support.

The Community Civil Protection Mechanism was mobilised in August 2008 to help Ukraine to assess the flooding of the Dnister (Dniester), the Prut and the Seret Rivers as well as rivers in the Zakarpattia region. The Post-disaster Damage Needs Assessment on the accident in the Kerch Strait was completed in 2008 on the basis of good co-operation with the Ukrainian authorities. In August 2008 Ukraine and the European Commission signed a new administrative arrangement on closer co-operation in the field of civil protection.

The conditions for the detention of irregular migrants improved in some regions in the second half of 2008 with the opening of two modern migrant accommodation centres funded by the EU (Zhuravychi and Rozsudiv) and the closing of a temporary holding centre in Pavshino. In addition the State Border Guard Service opened five modern EU-funded temporary holding facilities in Shatsk, Malniv, Mostyka, Chernivtsi and Izmail.

Opportunities to promote civil society cooperation at local and regional levels have been enhanced following the establishment in August 2008 of a Ukrainian Civil Expert Council. This body which will operate within the context of the EU-Ukraine Cooperation Committee was officially formed with a membership of approximately 30 civil society organisations.

9 twinning operations are ongoing (one was recently completed and several others under preparation) in Ukraine in sectors such as Civil Aviation, Space Cooperation and Public Financial Control. These twining operations bring dozens of civil servants from all over the EU to work on a daily basis with Ukrainian counterparts to help advance reforms and to share EU know-how and best practices in various areas.

The EC has supported institutional and capacity development in a broad range of priority sectors from the rule of law and human rights, regional and sustainable development; to trade relations; financial services, education and public health among others. In 2008 alone approximately 300 projects tackling these issues were being implemented on the ground.

Assistance to Ukraine

In 2008, the EU continued to support the Ukrainian reform efforts and committed assistance for a total amount of €138.6 million under the European Neighbourhood Partnership Instrument (ENPI), which included additional €16.6 million through the Governance Facility.

The Action Programme 2008 for Ukraine includes an additional €70 million to support energy efficiency in Ukraine, including €63 million to be disbursed as budget support over a three year period. The Action Programme 2008 also includes the €45 million sector policy support programme "Promoting mutual trade by removing technical barriers to trade between Ukraine and the European Union", comprising €39 million budget support, to be disbursed in four tranches and €6 million for technical assistance.

Support in the area of nuclear safety continued amounting to €48.255 million within the framework of the continuation of the TACIS programme and the Action Plans 2007 and 2008 under the Instrument for Nuclear Safety Cooperation.

In 2008, a first partial tranche of €23 million was disbursed under the 2007 Energy Sector Policy Support Programme.

Ukraine also benefited from substantial allocations from the Neighbourhood Investment Facility (NIF) – in 2008 three projects were approved (“Technical Assistance for the Ukrenergo High Voltage Transmission networks”, “Technical Assistance Support for Ukrainian Municipalities” and “Technical Assistance for Burshtyn TPP Rehabilitation and Efficiency Improvement”) committing €6.6 million, expected to leverage €608 million in loans of European Finance Institutions in the transport energy and social sector.

The overall allocation for 2007-2010 is expected to significantly exceed €500 million, under the ENPI.

The Communication from the Commission to the Parliament and the Council Implementation of the European Neighbourhood Policy in 2008 (23 April 2009) and a country report on Ukraine are available at

http://ec.europa.eu/world/enp/documents_en.htm

More on Ukraine and ENP:

http://ec.europa.eu/external_relations/ukraine/index_en.htm;

http://ec.europa.eu/world/enp/index_en.htm

See also IP/09/625 EU reinforces ties with its neighbours and continues to support their reforms.


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