As is well known, the war started by Russia in Ukraine affects a wide range of areas, both security and economic. It may also affect aspects related to imports and exports between Israel and Ukraine, which have signed a free trade agreement (FTA) in 2019. The reminder on that comes from the European Commission, which on February 23rd, 2022 released a notice to importers regarding imports from the non-government-controlled territories of the Donetsk and Lugansk oblasts of Ukraine.
FTA between Israel and Ukraine
Israel and Ukraine have signed in 2019 a Free Trade Agreement (FTA), which entered into force in January 2021 [1]. Under the FTA, the imposition of customs duties on the movement of goods between countries was abolished in relation to most types of products, mainly industrial, and customs duties were reduced on agricultural products.
The main products that Israel imports from Ukraine are agricultural products and food products, metals and machinery [2].
Definition of the territory for the purposes of the origin of goods
One of the basic conditions in the FTA for granting a customs duty exemption for a ‘made in Ukraine’ product imported into Israel, is that the product is manufactured in the territory of Ukraine.
The FTA defines in Article 1.2(w)(i) [1], that the territory of Ukraine, is: “…the land territory, internal waters, and territorial sea of Ukraine and the airspace above them and the exclusive (maritime) economic zone and continental shelf, over which Ukraine exercise sovereign rights and jurisdiction in accordance with its national laws in force and international law”.
Origin of a product manufactured in the territory de-facto controlled by another state
The war raised the legal question: “What is the origin of a product manufactured in the territories of eastern Ukraine, that are de-facto under the control of Russia?”. That is, whether for the purposes of the FTA with Israel, such a product remains a ‘Made in Ukraine’ product, or not.
This is not an academic question, but a question that may directly affect the question of whether the product will be subject to customs duty on import to Israel, or not.
It is important to note that there is no FTA between Israel and Russia, and therefore products made in Russia, imported into Israel, are usually subject to customs duties upon importation. For example, ketchup imported from Russia to Israel is subjected to a 12% customs duty, and if imported from Ukraine, is subjected to a reduced duty rate of about 8.5%. Imports of electric motors from Russia are subject to 12% customs duty and from Ukraine to Israel is exempted, and there are many more examples.
Notice by the European Commission regarding imports from Donetsk and Lugansk
The EU has already hastened to issue a notice on February 23rd, 2022 stating that products arriving from the Donetsk and Lugansk territories in Ukraine will not enjoy a customs benefit when entering the EU, due to difficulty in verifying the Ukrainian origin of the product [3]: “…operators of the European Union are advised not to claim preferential treatment for the import into the Union of all goods produced in or exported from the non-government controlled areas of the Donetsk and Lugansk oblasts of Ukraine, since the release of these goods for free circulation gives rise to a customs debt as from date of publication of this notice”.
Examples of other territorial disputes and their impact on FTAs
Needless to say, this is not the first time there has been a territorial dispute over certain territories in the world, and any such dispute usually has one effect or another on trade relations between countries.
For example, in this context, it is interesting to note that the European Union, which has had an FTA with the State of Israel since 1995, previously declared that the territories of Judea and Samaria (the west bank), including territories from Modi’in-Maccabim-Reut, and the Golan Heights (north of Israel, near Syria), would not be considered as the State of Israel for the FTA purposes. Therefore, according to the EU’s decision, a product manufactured in these territories will not enjoy a customs benefit upon entering the EU. This case even came to a decision in the European Court of Justice, which ruled that products manufactured by Soda Club in Mishor Adumim (near Jerusalem) would not enjoy a customs benefit when entering Germany.
Contrary to this, when it comes to other territorial disputes, such as Turkish Cyprus, or the Falkland Islands (dispute between Britain and Argentina), no similar declarations have been made.
Concluding remarks
Israel has been negotiating with the Eurasian Economic Union (Russia, Belarus, Kazakhstan, Armenia, Kyrgyzstan) for several years to sign an FTA, but the talks have not yielded to an agreement yet.
In my opinion, the State of Israel will not be interested in undermining trade relations with Ukraine or Russia, and therefore will not issue declarations regarding the disputed territories of eastern Ukraine.
It will be interesting to follow.
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