EU countries seal hard-line deal on Ukrainian grain, raising possibility of tariffs

Tariff-free cereals from Ukraine have become an explosive political issue in the European Union.
Tariff-free cereals from Ukraine have become an explosive political issue in the European Union. Copyright Efrem Lukatsky/Copyright 2023 The AP. All rights reserved
Copyright Efrem Lukatsky/Copyright 2023 The AP. All rights reserved
By Jorge LiboreiroGerardo Fortuna
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Member states sealed on Wednesday evening a crucial deal to extend free trade with Ukraine until June 2025.

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But the outcome that emerged from the negotiations represents a hardened position compared to the whatever-it-takes solidarity promised to the war-torn nation, whose agricultural exports bring an essential stream of revenue.

The extension of the special regime will feature a larger number of safeguards on products deemed "sensitive": poultry, eggs, sugar, oats, maize, groats and honey, which will be subject to tariffs if their flows exceed the average volumes of the past three years.

The deal will also make it easier for member states to apply "remedial measures" in case of market turmoil, a vague term that opens the door for bans on a national basis.

Altogether, it is estimated the tweaks will make Kyiv lose about €330 million per year.

The beefed-up provisions come amid farmer protests across Europe, some of whom have accused their Ukrainian counterparts of unfair competition. Although the opposition to low-cost Ukrainian imports initially came from neighbouring countries in Eastern Europe, namely Poland, Hungary and Slovakia, it gradually spread to France, which moved from an expansive to a restrictive position on the debate.

Italy and Austria also shifted their stance towards the Polish camp, further complicating the arithmetic. On the other side of the room, Germany, the Netherlands and the Baltic states, among others, resisted the tightening.

The responsibility to break the impasse fell on Belgium, the current holder of the Council's rotating presidency. Belgium submitted a new compromise text on Wednesday morning, which paved the way for the approval later on the day.

"Ambassadors agreed on a new compromise to extend trade measures (ATM) for Ukraine, securing a balanced approach between support for Ukraine and protection of EU agricultural markets," the presidency announced on social media.

It added the text would be presented to the European Parliament for a "swift" resolution.

A never-ending dispute

Ukraine has historically been one of the world's leading exporters of commodities like sunflower oil, barley, maize and wheat. Russia's all-out war and subsequent blockade of the Black Sea severely hindered the country's ability to ship out its goods, do business and access foreign currency.

In June 2022, the EU lifted all remaining tariffs and quotas on Ukrainian imports to ease the transit via land routes and ensure consistent revenue. But the special regime led to a surge in Ukrainian cereals across neighbouring countries, triggering protests from local farmers, who said the low-cost grain was bringing down prices and filling up storage.

The dispute reached a boiling point in April 2023, when Poland, Hungary and Slovakia slapped overnight bans on a range of agricultural products coming from Ukraine. Romania and Bulgaria quickly warned they would follow suit.

Caught off guard, the Commission struck back, denouncing the prohibitions as unacceptable, unlawful and contrary to the bloc's spirit of solidarity. A group of 12 countries, including Germany, France, the Netherlands, Belgium and Austria, said in a joint letter that the single market's integrity was in danger.

The standoff played out for months and saw multiple attempts to resolve the situation through diplomacy and a lawsuit before the World Trade Organization (WTO).

As of today, Poland, Hungary and Slovakia maintain their bans.

Mindful of the topic's explosiveness, the Commission unveiled in January a proposal to extend the free-trade scheme until June 2025 but with significant changes to apply "remedial measures" against disturbances in one or several member states.

The executive also pitched a brand-new safeguard to keep in check the most "sensitive products" coming from Ukraine: poultry, eggs and sugar. If these import volumes increase above the levels seen in 2022 and 2023, an emergency brake would automatically kick in and pre-war tariffs will be slapped.

Following negotiations between the Council and Parliament, the two sides agreed last week to harden the text with three key tweaks:

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  • Oats, maize, groats and honey were added to the list of "sensitive products".
  • Tariffs will be introduced in 14 days, rather than 21.
  • The Commission commits to "enhance" the monitoring of wheat and other cereals to detect cases of market turmoil, which can justify "remedial measures."

The amendments, though, failed to satisfy the demands of Poland, France and their allies, which pushed to add wheat to the list of "sensitive products" and extend the reference period to 2021, thus reducing the threshold to slap pre-war tariffs.

This prompted the collapse of the provisional deal the same day it was announced, raising fears of a protracted gridlock. 

Wednesday's compromise excludes wheat from the "sensitive products" catalogue but expands the reference period until the second semester of 2021, adding €86 million to the €240 million foreseen under the Commission's original proposal.

Speaking on condition of anonymity, a diplomat described the talks as the "last possible mediation" attempt, leaving no further room for maneuver. Another source spoke of a "very, very delicate balance."

The deal still needs to be negotiated with the Parliament and be ratified by co-legislators, meaning a new last-minute surprise cannot be ruled out.

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If eventually approved, the extension of free trade will be the last one. During a summit in Brussels last week, EU leaders tasked the Commission with "preparing a solution in the framework of the EU-Ukraine Association Agreement," in force since 2017.

This article has been updated with more information about the deal.

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