Here’s all we know about the EU deal on tariff-free Ukrainian grain

The European Union has finally inked the long-awaited deal to resolve a growing trade dispute on Ukrainian grain, a controversy that had become a sort of litmus test of the bloc’s enduring solidarity with the war-torn nation.

Announced late on Friday afternoon after days of behind-the-scenes intense negotiations, the deal is meant to allay the concerns of five Eastern European countries – Poland, Hungary, Slovakia, Romania and Bulgaria – while minimising the detrimental impact on Ukrainian agricultural exports, one of Kyiv’s largest sources of revenues.

The agreement “preserves both Ukraine’s exports capacity so it continues feeding the world, and our farmers’ livelihoods,” said European Commission President Ursula von der Leyen.

Here’s everything that we know about the deal.

Why was a deal needed in the first place?

Ukraine is a global leader in the production of cereals, which used to be traded at large quantities and competitive prices around the world. But when Russia launched its large-scale invasion, commerce was heavily upended, particularly through the Black Sea route, which the Kremlin put under its tight control. 

In a bid to provide an alternative pathway, the EU decided last year to lift customs duties on a wide range of Ukrainian imports, including agri-food products like wheat, maize, barley, poultry, eggs and sugar, which already enjoyed special treatment under the 2014 EU-Ukraine Association Agreement.

The suspension of tariffs, together with uncertainty over the Black Sea, prompted a steep increase in Ukrainian trade through its land routes toward its European neighbours.

For example: back in June, when the suspension entered into force, the 27 member states imported 548,838 tonnes of Ukrainian maize. By December, the same imports had jumped to 1,541,183 tonnes.

The influx caused deep concern among the countries in Ukraine’s immediate periphery — Poland, Hungary, Slovakia, Romania and Bulgaria — who argued the oversupply was filling up warehouses, distorting economic dynamics and depressing prices for local producers.

Under the threat of a looming summer harvest and continued protests by farmers, a key demographic in upcoming elections, the governments of Poland, Hungary, Slovakia and Bulgaria moved to ban the import of a wide range of tariff-free Ukrainian products, including grain, a surprising decision that was quickly denounced as incompatible with EU rules.

The European Commission then launched talks with the five Eastern European countries and Ukraine to reach an EU-wide solution that could lift the bans.

What’s the essence of the deal?

The deal imposes “preventive measures” on four Ukrainian products – wheat, maize, rapeseed and sunflower seed – that the Commission considers to have the strongest disruptive effect.

These products will be allowed only transit through the five Eastern European countries, which means they will not be stored in their territory nor purchased for domestic consumption. Instead, they will be sent directly to other member states or shipped around the world.

This represents an important compromise by Poland, Hungary, Slovakia, Romania and Bulgaria, who had pushed for a larger list of products to be added to the only-transit measures.

In fact, their national prohibitions targeted a much wider range of Ukrainian imports, such as dairy, fruits, sugar, honey, eggs, meat and wine.

Brussels, however, insisted the solution needed to be proportionate and based on economic data.

So what happens with the bans?

As part of the deal, the five Eastern European countries agree to lift their unilateral bans and comply fully with the EU-wide arrangement.

This means products that were previously banned, like poultry and vegetables, will now have to be allowed access to the internal market of the bordering states.

The lifting of the bans is expected to happen by 2 May, when the preventive measures come into force.

Could other products be targeted?

Yes, but the European Commission will postpone any further decisions until 5 June, the date on which the current tariff-free regime is scheduled to expire.

The Commission has already proposed to extend the regime for another year, until 5 June 2024. The legal text is still pending approval by the European Parliament and the EU Council.

Under the new regulation, the EU will introduce an “expedited safeguard” to monitor market developments and reintroduce tariffs on products that “adversely affect” the entire European market.

This option, much more radical in nature than the only-transit measures under the current deal, will be subject to strict conditions: the Commission will only launch a formal investigation after obtaining “sufficient prima-facie evidence” that a specific Ukrainian product is causing adverse effects.

The investigation will have to conclude within a period of three months.

What else is in the deal?

Money.

In exchange for the lifting of the bans, the European Commission will unblock a €100-million support package for farmers in Poland, Hungary, Slovakia, Romania and Bulgaria.

The member states will be entitled to designate the companies and producers who are eligible for support and the Commission will later reimburse the expenses.

This is not the first time the executive rolls out this kind of support: in late March, the Commission approved a €56.3-million envelope for farmers in Poland, Romania and Bulgaria to compensate for the economic losses stemming from higher Ukrainian competition.

A much vaguer element of the deal is a promise by the Commission to improve the functioning of solidarity lanes and ensure tariff-free imports leave the European market and reach developing countries in Africa and the Middle East, which rely heavily on low-cost Ukrainian foodstuffs.

Logistical problems, high transport fees and a lack of modern infrastructure in Eastern Europe have also been blamed for the grain glut. Privately, Commission officials admit these questions are too complex and deep-seated to be resolved under a temporary deal, which means pressure on local prices is expected to continue in the short term.

“No one pretends the safeguards will alone solve the problems behind the issue, but they create a breathing space,” said a senior EU official.