Substitution of Concepts

March 6, 2019
Substitution of Concepts

What hinders the adaptation of Ukrainian legislation to the European norms?

Alexander Avazashvili, JTI Director for Regulatory Policy and Tax Issues in Eastern Europe

In one month Ukraine will mark the fifth anniversary of the signing of the Association Agreement with the European Union. Traditionally, a wave of discussions about Ukraine’s success in the fulfillment of its obligations undertaken in 2014 will fill the media and expert circles.

There is progress, although not in all areas. For example, the harmonization of the Ukrainian regulatory field with the European standards is an important issue for the real economy, which is still far from the finishing line. The tobacco industry has one of the lowest rates of harmonization. Why?

It is sometimes said that the tobacco industry slows this process. Yet we are well aware that since our products carry health risks, the regulation of the tobacco sector is important and needed.

The real reason that impedes the approximation of Ukrainian tobacco-control legislation with EU standards is the substitution of the process of adaptation with the European norms with theiur selective and non-transparent copying.

Tellingly, a draft law aimed at bringing Ukrainian legislation in line with the EU Directive has been in the parliament for several years. The adoption of the Directive itself became the result of a lengthy consultation process with all stakeholders, including European economists and tobacco manufacturers. Despite of this fact, the Ukrainian “adoption” of the Directive was developed in a haste by anti-tobacco lobbyists in their exclusive narrow circle.

The lack of banal understanding of how the industry works, the rejection of a transparent dialogue and the exclusion of key stakeholders from the process resulted in a draft law which is out of touch with the market realities. It includes some provisions that directly contradict the existing legislation. In addition, there are no transition periods at all. The main thing is that the draft law contains value judgments, which is absolutely unacceptable in the law-making process.

To avoid such precedents that indirectly sabotage the implementation of the Association Agreement it is important to follow the principles of better regulation. These are generally accepted rules which operate in the countries of the OECD (Organization for Economic Cooperation and Development) and the European Union. There principles are very simple: openness and transparency of the decision-making process, impact assessment of new regulatory measures on the economy and the participation of all relevant stakeholders in the legislative process.

These principles have been successfully used during the development of changes to the Tax Code concerning the long-term plan on the increase of the excise tax on tobacco products. Ukraine has committed itself to raising the excise rates to the European levels under the Association Agreement with the EU. This plan, adopted until 2024, is a good example of the adaptation of Ukrainian legislation.

The decision to implement the eight-year excise plan was made after consultations with all interested stakeholders. As a result this plan became a compromise solution, achieving goals both in terms of filling the budget and protecting health care.

In addition, with such an approach the industry can finally effectively plan its activities in both short and long term perspectives. Because only two years ago the percentage of excise rate increase depended solely on the size of the budget “hole”. Unfortunately, the excise plan is already being violated (+ 9% from the month of July, 2019), but we sincerely hope that this is an exception.

It is important to understand that legislative harmonization must be implemented only in accordance with the principles of better regulation. This requirement was supported unanimously both by the representatives of business and the state during the round table “Quality Regulation: the Harmonization of Ukrainian Legislation With the EU Legislation”, held in the end of January by the Union of Ukrainian Entrepreneurs.

And this is exactly what Ukraine needs in order to fulfill its obligations under the Association Agreement with the EU more effectively.

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