Russia Runs Out of Arguments for Restricting Ukrainian Exports
On June 3 Ukraine’s Prime Minister Yulia Tymoshenko met in Tbilisi with her Russian counterpart Mikhail Fradkov. The Ukrainian premier refused to sign the protocol envisioning a phased removal of restrictions in multilateral trade among CIS members, according to which all restrictions would be removed only by 2012. The Ukrainian side made it clear once again that Ukraine would agree only to full-scale free trade without any restrictions or reservations.
In March 2005 Vladimir Putin and Viktor Yushchenko agreed to speed up the process to create a free trade zone without restrictions or reservations. Now Russian officials are saying that Moscow hasn’t given any specific promises, and that the two heads of state were not discussing the CIS but the Single Economic Space (SES) to which Ukraine is a party, along with Russia, Belarus, and Kazakhstan.
There is one thing the Russians have overlooked, perhaps intentionally: unless Russia gives up trade restrictions, Ukraine’s withdrawal from the SES can be viewed as a foregone conclusion. Ukraine has stated this repeatedly; EU integration has always been Ukraine’s priority.
Recent statements by the Gazprom management to the effect that beginning in 2006 Ukraine will be charged average European prices for natural gas have added fuel to the flames. Is it reasonable to expect that Ukraine would agree to make concessions in response to such statements?
The two countries are currently negotiating the terms of trade for a number of product groups, including sugar, salt, metals, caramel, alcohol, etc. Notably, in each group Russia is trying to limit Ukrainian exports in a bid to protect their Russian producers.
Similar talks are underway on shipments of Ukrainian pipes to Russia. Since 2001 Russia has been restricting Ukrainian pipe exports by means of the Agreement on Shipment Quotas. Notably, Russian consumers, including Gazprom and Transneft, admitted to having a demand for Ukrainian pipes, all the more so as their quality parameters are on a par with those of Russian pipes, while Ukrainian prices have always been several notches lower than Russia’s. In 2005 Ukraine unilaterally refused to restrict its exports, and Ukrainian producers breathed a collective sigh of relief: the government has finally shown determination in protecting the interests of Ukrainian pipe manufacturers.
Meanwhile, Russia cannot reconcile itself to the fact that it has been unable to coerce Ukraine into signing the pipe agreement. The recent meeting in Kyiv between Russia’s Deputy Minister for Economic Development and Trade, Maksim Medvedkov, and Ukraine’s Deputy Minister for the Economy Andriy Berezny demonstrated once again that the Ukrainian government is quite capable of resisting Russia’s imperial ambitions and protecting domestic producers. At the same time, Russia has received additional incentive to speed preparations for a free trade zone, which Prime Minister Tymoshenko stressed in Tbilisi.
Moreover, as soon as it joins the WTO, which is likely to happen toward the end of this year, Ukraine will be entitled to demand that Russia revoke some or all of its protective measures.
“Ukrainian producers are stealing the livelihood from Russian pipe manufacturers.” This is the bottom line of Maksim Medvedkov’s statements made on May 20 in Kyiv. Russia has occasionally hinted at the possibility of launching antidumping investigations into Ukrainian pipe exports and the possible introduction of an import duty on large, medium, and small diameter pipes made in Ukraine. However, today Russia is definitely not ready for such a serious decision as the introduction of an import duty.
The position of the Kremlin and the Russian government is determined exclusively by the political situation. Nonetheless, Moscow is not likely to risk an open confrontation. This would endanger ongoing programs to build new pipelines and modernize old ones, which are mostly supplied by Ukrainian producers.
So Russia has no choice but to refrain from attempts to restrict Ukrainian pipe exports and accept Ukraine’s proposals ahead of the meeting between Andriy Berezny and Maksim Medvedkov, slated for late June in Moscow.
“In essence, Ukraine’s membership in the SES runs counter to the declared progress toward the EU,” says Oleksandr Paskhaver, Economic Development Center president and aide to President Yushchenko, adding: “I don’t think that in forming the SES, Russia will be making any economic or trade concessions to Ukraine. Today Ukrainian and Russian producers often compete in the Ukrainian, Russian, and international markets, which is why this union has no prospects for Ukraine. Trade wars between Russia and Ukraine never end, despite repeated political statements to the contrary.”
