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Published: Friday June 27, 2014 MYT 5:35:02 PM
Updated: Friday June 27, 2014 MYT 5:36:05 PM

What is Ukraine's association agreement with the EU?

BRUSSELS (Reuters) - After months of upheaval, Ukraine signed a broad political and trade accord with the European Union on Friday, making a historic shift away from Russia and closer to the West.

The signing is a victory for pro-EU Ukrainians who drove Russian-backed president Viktor Yanukovich from power after he abandoned the pact last year in favour of cash from Moscow. New President Petro Poroshenko hopes to bind the nation of 45 million to the European Union via the accord.

The victory was hard-won: it led to Russia's annexation of Crimea from Ukraine and to attempts by pro-Russians in eastern Ukraine to break away and join Russia.

Ukraine also incurred considerable costs when it lost Crimea. One government minister estimated the country had lost resources worth $10 billion

The association agreement with the EU may help offset some of those costs. It falls short of EU membership, but should tie Kiev economically into the 28-nation European Union. It could offer Ukraine a route to the kind of stability and prosperity that neighbouring Poland has achieved.

WHAT IS AN EU ASSOCIATION AGREEMENT?

The agreements are the EU's way of extending influence to its neighbours without offering actual membership. Moldova and Georgia are also signing on Friday.

The agreements gradually liberalise trade with partners, meaning countries end up with unfettered access to the 28-nation bloc's 500 million consumers - the world's largest and wealthiest single market.

The EU also provides technical help and funds to help countries adapt to its regulations and allow businesses to bid for lucrative EU public works contracts.

In return, the EU requires that countries meet its standards on human rights and democracy, fight corruption, strengthens the rule of law and reforms its economy.

WHAT BENEFITS DOES IT BRING?

If properly implemented, the association agreements will help provide Ukraine, Moldova and Georgia with a path towards economic modernisation, higher living standards and a stronger democracy.

Ukrainian exporters will save almost 500 million euros (402 million pounds) a year because they no longer have to pay customs duties, the EU says. Overall, Ukrainian exports to the EU are expected to increase by 1 billion euros a year, including greater sales of textiles, metals and food products.

In the long run, Ukraine's economic output could grow an additional 1 percent a year because of increased exports in goods and services, as well as more European investment in Ukraine, according to an EU study.

Under the accords, the EU will grant access to its market more quickly than Ukraine, Moldova and Georgia. They will enjoy better access to the bloc than the EU will get in return in the first few years.

Brussels also hopes that by meeting EU standards for goods and services, Ukraine, Moldova and Georgia will improve their chances of selling more goods internationally, beyond the EU.

WHAT ARE THE COSTS?

One reason that ousted Ukrainian president Yanukovich rejected the EU deal in November was because he said it would cost Kiev $500 billion in trade with Russia. Implementing EU standards would cost another $104 billion, he said.

The EU says Ukraine is still free to trade with Russia, and it will provide support and funds to help meet EU rules. However, by agreeing to the EU accord, Ukraine can no longer join Russia's customs union, because members Belarus and Kazakhstan are not members of the World Trade Organisation.

EU diplomats worry Moscow may take punitive action against Ukraine, Moldova and Georgia in retaliation for siding with the European Union, an act of "commercial aggression".

That could involve Russia removing Ukraine's preferential treatment to its markets and implementing high tariffs, or at worst blocking goods at its border.

Ukraine, Moldova and Georgia are also agreeing to considerable domestic reforms that will challenge entrenched interests among business and the political class.

(Additional reporting by Adrian Croft; Editing by Larry King)

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