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  April 11th, 2022 | Written by

The Impact of the War in Ukraine on the Free Trade Agreements with Israel and the EU

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As is well known, the war between Russia and Ukraine affects a wide range of areas, both security and economic.

This new war situation created, may also affect aspects related to imports and exports between Israel and Ukraine, aspects of customs duties, and other import taxes.

Israel and Ukraine have signed in 2019 a Free Trade Agreement (FTA), and 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 the reduction of customs duties on agricultural products.

The main products that Israel imports from Ukraine are agricultural products and food products, metals and machinery (2).
One of the basic conditions in the FTA for granting a customs exemption for a  “made in Ukrainian” product imported into Israel, is that the product is manufactured in the territory
of Ukraine.

The FTA defines in Article 1.2(w)(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…”

The new war situation that has arisen may intrigue the interesting legal question of: 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 Ukriane” 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 imports 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.
Israel has been negotiating with the Eurasian Economic Union (Russia, Belarus, Kazakhstan, Armenia, Kyrgyzstan) for several years to sign a FTA, but the talks have not yielded to an agreement yet.

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.

Apart from Israel, Ukraine has other FTA, for example, with Canada and the EU countries, and also in these agreements a basic condition for granting a customs exemption for a product made in Ukraine is that it creates in Ukrainian territory.

The EU, by the way, has already hastened to issue a notice on February 23 rd , 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).

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 a 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 EUs 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.

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 east Ukraine.