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Ukraine – Trade at a crossroad

May 4, 2011

As Russia attempts to lure the Ukraine into joining a proposed four-country economic bloc with promises of cut-price oil, Ukrainian authorities must decide whether to forgo an EU-Ukraine trade pact, being negotiated currently, or look to Russia, Kazakhstan and Belarus, for future economic and trade cooperation.

Speaking to parliament on April 7, Ukrainian President Viktor Yanukovych indicated that the nation would throw its lot in with the EU because the Ukraine would be unable to do both.

Under the terms of the Ukraine-EU free trade agreement, disclosed by the European Union in February 2010, the EU said that Ukraine is free to conclude other free trade agreements, but warned that it “would be difficult to negotiate a free trade area with the EU if [the Ukraine] was to join a customs union with other countries with which the EU’s trade is not liberalized and which apply a common customs tariff to their imports from countries outside that customs union,” as the case would be in the four-party bloc.

Yanukovych said Ukraine would welcome ‘a 3+1 agreement, which would provide preferential tariffs with the three nations, but would preserve greater national and economic sovereignty and crucially would enable the nation to continue the ongoing trade liberalization agenda with Europe.

In an almost immediate response to the President’s comments, Gazprom, Russia’s gas exporter, said that membership of the customs union would enable the Ukraine, which is largely dependent on Russian gas, to benefit from Russian domestic gas prices, rather than the European price (for Russian gas) it currently pays. Gazprom surmised that such an agreement could benefit Ukraine to the tune of USD 8 bn annually in cut-price gas.

Russian Prime Minister Vladimir Putin is expected to take up this issue during his visit to the Ukraine on 12th April 2011.

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