First Results of EU-Ukraine Road Freight Agreement

steve gibson // C 2.0

A month ago, Ukraine and the EU signed a road agreement that simplified road freight requirements between the parties. The arrangement proved to be mutually beneficial – trade volumes increased, and the cost of transportation from Ukraine decreased. It slowed the price increase for Ukrainian goods on the European market and thus helped fight inflation. The agreement also helped the business of European companies with facilities in Ukraine to transport their goods to Europe.

On June 28, Ukraine and the EU signed an Agreement on the Carriage of Freight by Road, giving Ukrainian road haulage operators the temporary right to transport goods to EU countries without special transportation permits. Such permits were established by bilateral agreements between Ukraine and individual EU countries, which also set the maximum number of permits per year that countries can exchange. The Agreement expanded and generalized 12 bilateral agreements on the abolition of permits that Ukraine signed with European countries in March of this year.

The practice of permits lasted for several decades and has significantly limited Ukraine’s capacity to export its products by road over the past five years. Since the signing of the DCFTA in 2016, the trade volumes between Ukraine and the EU almost doubled, and the number of truck crossings increased by 42%. This was especially true of the Polish direction.

Since 2018, Poland annually reduced the number of permits it was ready to issue to Ukrainian carriers, arguing that the agreement should be symmetrical and the demand of Polish carriers for Ukrainian permits is low. And each year, Ukraine initiated special meetings and consultations of the working group to increase the quota. Similar, albeit minor, issues Ukraine had with Lithuania.

The shortage of permits also provoked the creation of a black market, where these permits were resold. The problem got so severe that Ukraine threatened to invoke an arbitrage procedure designed in the Ukraine-EU Association Agreement.

Now this has been put to an end, at least until June 30, 2023. What Ukraine wanted and could only dream of for a long time – the “transport visa-free regime” – worked due to Russian aggression, blocking Ukrainian exports by sea and the global food crisis. Ukrainian grain grown for export, including to African countries, had to be exported, which required removing all artificial restrictions.

In addition, there was a fuel shortage in Ukraine due to Russia’s destruction of Ukrainian refineries, and the fuel had to be imported from the EU. During the first three months of the war, the volume of fuel imported by road vehicles increased 15 times.

Ukraine felt the effect immediately – the Ministry of Infrastructure reported an increase in applications for international transportation licenses. The number of trucks crossing the border has also increased several times.

For business, on the one hand, the agreement is a relief because it does not need to obtain a permit and can carry more cargo. On the other hand, the increased flow of cars created congestion at border crossings. The influx of new inexperienced drivers unfamiliar with the requirements for documentation and standards further slows the border crossing. Carriers also complain that the new drivers are knocking down freight rates. But this is a normal economic process of adaptation.

In general, the Agreement appeared very timely and helped Ukraine a lot in fuel imports and exports of agricultural products. According to the Deputy Minister of Infrastructure Mustafa Nayyem, Ukrainian exports could stop through minimum two countries already in September this year due to the deficit of permits.

Ukrainian businesses named signing the Road Agreement one of the most important factors this year that can attract investments to Ukraine. The agreement also benefited the European countries; it slowed the price increase for Ukrainian goods on the European market and thus inflation. It also helped the business of European companies with facilities in Ukraine to transport their goods.

It has only one drawback – it ends in June next year. But I think the positive experience this year will convince the EU to make the agreement permanent. Especially since achieving the EU candidacy status, Ukraine can become an important transport hub in Eastern Europe.

Continue exploring:

If Your Flight Is Delayed, It Is Not Pilot’s Fault

Universal Basic Income: When Everything Is Enough, Everything Starts Missing

The Institute for Economic Research and Policy Consulting - Kyiv