Ukraine’s parliament, the Rada, has given the government free rein to introduce a series of “responsive measures” in trade against Russia, in response to Russia’s decision to introduce a food embargo against Ukraine, and to suspend its Commonwealth of Independent States (CIS) Free Trade Area agreement with Kiev beginning January 1.
For its part, Moscow made the decision to ban the import of Ukrainian food products after Kiev joined with Washington and Brussels in introducing economic sanctions against Russia.
More importantly, Russia’s decision to suspend the CIS free trade area agreement with Ukraine was the result of the impending entry into force of the economic portion of Kiev’s Association Agreement with Brussels, signed in October 2014. The agreement aims to promote Ukraine’s economic integration into the bloc, including the creation of a free trade zone.
Over the past year, Moscow had repeatedly warned that if Ukraine retained their preferential trade rights within the CIS free trade area, while simultaneously opening their markets to European goods, the Russian market would be flooded by the uncontrolled flow of EU goods via Ukraine, something which would be devastating for Russian producers. Accordingly, on December 16, President Putin signed a decree to suspend Russia’s trade preferences with Ukraine, effective January 1.
Explaining the Russian government’s decision, the Foreign Ministry released a statement earlier this week saying that while Moscow cannot interfere in Kiev’s ‘sovereign choice’, even if Ukrainian officials have decided to undermine their own economy, Russia cannot allow the choice to harm its own interests. “It’s unclear why Russia has to pay for that choice. We have our own economic interests that we have no plans to sacrifice, especially to satisfy foreign ambitions,” the statement noted.
Ukraine’s response, approved by the country’s parliament on Thursday, requires the restriction or total ban on various forms of economic cooperation, the abolition of preferential tariffs on Russian goods, and the imposition of duties on all trade operations.
“The logical question that arises,” the independent Russian newspaper Svobodnaya Pressa suggests, “is whether and to what extent these sanctions will have an impact on us, especially considering that our trade with post-Maidan Ukraine has already declined nearly threefold.”Speaking to the newspaper, Tamara Guzenkova, deputy director of the Russian Institute for Strategic Studies, said that to date, the decline in trade has had as much or even more to do with the collapse of the Ukrainian economy as it has with the worsening relations between Moscow and Kiev.
“Indeed, over the past two years, trade turnover between Ukraine and Russia has decreased significantly. If in good years it reached upwards of $40 billion, today it struggles to reach $12-15 billion.” But this, the expert suggested, is not really “connected with Ukraine’s spiteful refusal to trade with Russia.”
This, the expert suggests, is related to the fact that Ukraine does not have the ability “to acquire Western markets. After all, the absence, or at least reduction of customs duties does not cancel out the existence of standards and norms according to which goods may or may not enter into the European Union. Ukraine is unable to cope, even despite the preferences they’ve already been granted.”
“Of course, there will be certain pressures, and losses, because sanctions are both political and economic in their character. But these ‘symmetrical measures’ on Ukraine’s part will not be catastrophic for Russia. The economic and business cooperation between our two countries is gradually coming to naught. This has been a process with a prolonged character. Now, perhaps, the last ties which bind our countries economically will be torn.”
Therefore, “for the Ukrainian economy, 2016 will be a very difficult year. As for Russia, I think we have learned to adapt.” For example, “even without Ukraine, our aviation industry has existed for several years. Military-technical cooperation has practically stopped. With the collapse of its industrial production, Kiev vacillates between buying and not buying Russian gas, and in any event, consumes much less.”With the situation in Ukraine only set to worsen, Guzenkova believes that a number of Ukrainian regions will be forced “to attempt to expand the ‘grey zone’ of cross-border trade, because people need to survive somehow – to have at least some money to heat their apartments, to have light, and some essentials. Therefore, I believe that a series of trade relations will be converted into a ‘grey flow’ of goods smuggling, which will increase in the border regions.”