Ukraine expands bitter trade war with Russia

Dmitry Zaks
Ukrainian Prime Minister Arseniy Yatsenyuk faces charges he has been unable to deliver on a pledge to tackle corruption and fix the economy (AFP Photo/Sergei Supinsky)

Kiev (AFP) - Ukraine on Wednesday ratcheted up its trade war with Russia in reprisal for Moscow's seeming efforts to slash its westward-leaning neighbour's economic ties with other former Soviet states.

Prime Minister Arseniy Yatsenyuk told a cabinet meeting that Kiev was adding 70 food and other products to its existing list of items Russia cannot sell in Ukraine.

The hawkish government leader said the measure was being adopted in response to "Russia's economic aggression" -- a reference to a ban on Ukrainian food that Moscow imposed at the start of the year.

"And we will continue to defend our domestic market in the future," Yatsenyuk warned.

The ugly food fight comes in response to Ukraine's decision to enter a landmark free trade and political association agreement with the European Union on January 1.

Former Ukrainian president Viktor Yanukovych's shock decision to nix the EU pact in November 2013 led to three months of violent street protests that toppled his government and forced him into self-imposed exile in Russia.

The Moscow-backed leadership's downfall effectively burst Russian President Vladimir Putin's dream of enlisting Ukraine in a Kremlin-led alliance that could counterbalance the European Union and potentially even the NATO military bloc.

Ukraine's February 2014 revolution was followed two months later by a pro-Moscow eastern revolt that Kiev and its Western allies accuse Russia of both plotting and backing -- a charge the Kremlin denies.

Brussels delayed the Ukrainian deal's implementation by a year in 2014 to appease Kremlin concerns about Russia being flooded with European products that cross its border at reduced prices through Ukraine.

But numerous rounds of negotiations found no solution and concluded with Russia following through on its threat to impose a sweeping trade ban on Ukrainian food.

Kiev responded with tit-for-tat measures that entered into force on January 10.

Yet Moscow went a step further by also severely complicating the transit of Ukrainian products to important markets in Central Asia and the Caucasus.

That measure provoked fury in Kiev and led to Wednesday's expanded imports ban.

Ukrainian Deputy Trade Minister Natalia Mykolska said the new embargo covered kitchen staples like ketchup and sauces as well as additional types of fish.

"We are also adding new pastry items," Mykolska told reporters.

Ukraine's initial list blacklisted products ranging from Russian cosmetics and meat to vodka and cigarettes.

- Russia's weakening foothold -

Yet the trade war's impact will be felt much less severely by both countries' consumers than it would have been a few years ago.

Russia's share of Ukrainian exports fell from around 30 percent during Yanukovych's tenure to just 12 percent last year.

That trend is likely to continue as Ukrainian firms look for new clients in Europe and fast-growing Asian markets such as China.

Trade Minister Aivaras Abromavicius estimated that Ukraine's sales revenues fell by a meagre $98 million (90 million euros) as a result of Russia's sanctions since the start of the year.

But he conceded that companies may have lost up to $600 million more due to Russia's decision to end its preferential tariffs system for Ukraine.

Some analysts said Moscow's efforts to keep reins on Kiev threatened to backfire and only provide further incentive for Ukraine to build stronger alliances Brussels and Washington.

"The harder that Moscow now presses Ukraine in the trade, economy, debt and energy fields, the more independent of Russia Ukraine becomes, and the weaker the foothold that Russia will have for the future in Ukraine," Nomura International economist Timothy Ash wrote in the Kyiv Post.