Russia threatens to cancel Ukraine trade preferences

Russian PM Dmitry Medvedev warned on Sept. 29 that his government will have to cancel all its trade preferences for Ukraine once the Deep and Comprehensive Free Trade Area between Ukraine and EU takes effect on Jan. 1, 2016 without having taken Russian concerns into account, the Interfax news agency reported. Medvedev insisted that Ukraine and the EU should reach additional agreements with Russia to eliminate all its concerns. “My estimate: the likelihood that the agreement could be reached is extremely low,” Medvedev stated.

Medvedev warned that elimination of the preferential trade regime with Ukraine will have “serious economic consequences”. At the same time, he acknowledged that trade turnover with Ukraine has significantly declined in recent years. He also highlighted that trade with EU countries has also decreased recently, even though Ukraine’s free trade agreement with the EU has been already partially implemented.

Alexander Paraschiy: Ukraine has faced elimination of trade preferences with Russia ever since 2012, when the first trade wars on cheese and confectionery products started. Clearly, most Ukrainian producers have been minimizing their exposure to Russia since last year, as trade conflicts intensified along with the military conflict. Therefore, the effect of new trade restrictions – in the form of lifted import duties for most goods – won’t be painful for Ukrainian economy, we expect. 

Export of Ukrainian goods to Russia, after peaking in 2011, have been gradually decreasing over the last four years. In 7M15, Ukraine’s exports to Russia fell 2.4x yoy and 4.0x as compared to 7M11. To show how dramatic the change has been, Ukrainian exports to Russia in 7M12 exceeded the amount exported to all current EU members by 6%. In 7M15, the EU market was 2.6x bigger for Ukrainian exporters than the Russian one. These figures are based on UkrStat reports.