Kremlin leader Vladimir Putin blocked the transit of Ukrainian goods through Russian territory destined for Kazakhstan on Jan. 4, further escalating a trade war between the two nations.
Kyiv could lose more than $700 million in yearly trade with Astana if the ban holds.
Moscow’s transit block was “discriminatory” and violates World Trade Organization rules, the Ukrainian Economy Ministry said in a statement published on Jan. 4.
Effective through July, the measures allow transit through Russia only via Belarus, and come after Russia enacted a food embargo on Jan. 1, the same day that Ukraine’s free-trade deal with the European Union went into force.
Ukraine stands to miss out on $500 million in yearly trade with Russia, Prime Minister Arseniy Yatsenyuk said late last year. The combined potential loss from the two restrictive measures is about 1 percent of Ukraine’s expected $94 billion gross domestic product this year.
Additionally, the terms of transportation via Belarus have yet to be agreed with Belarusian authorities, according to a Dragon Capital note to investors. Moscow also limited Ukrainian exports to Central Asia to two customs points on Russia’s border with Belarus and three customs points on the Russian-Kazakh border.
Moreover, while on Russian territory, Ukrainian goods have to be marked with identification seals, including electronic ones that can be tracked by the Glonass global navigation satellite system, the Russian equivalent of GPS.
According to Kazakh state statistics, Kyiv’s trade with Astana declined by 36 percent in the first nine months of last year compared with the same period of 2014. Ukraine was the sixth biggest exporter to Kazakhstan, accounting for 2.8 percent of the central Asian country’s overall $25.6 billion in imports. Kyiv mainly shipped agricultural products, food, machinery and chemicals.
Ukraine retaliates, Russian economy slides
In response to Russia’s food embargo, Kyiv restricted the import of 43 categories of Russian products as of Jan. 10. They include vodka, beer, cigarettes, meat, chocolates, dairy products, animal food and locomotives, according to a Dec. 30 government resolution.
Since 2012, Ukrainian exports to Russia fell by three times to 12.5 percent of total exports, according to Yatsenyuk.
Falling oil prices and Western sanctions imposed over the Kremlin’s military invasion of Ukraine have sent Russia’s economy into a recession the past two years. Russia’s economy shrank to $1.3 trillion last year from $2.1 trillion in 2013. The World Bank expects Russia to stay in recession this year.
Ukraine’s economy halved since 2013 to $85 billion last year, but is slated to rise by 1 percent this year, and an additional 2 percent in 2017, according to the World Bank.
Transit to other states unrestricted
According to explanations provided by Russia to the Ukrainian Infrastructure Ministry on Jan. 11, the transit of the Ukrainian goods to other countries via Russian territory is unrestricted. Goods shipment do not need any identification seals and can be sent via any road vehicle border crossing points.
The Infrastructure Ministry also said the transit of Ukrainian goods via Russian territory would continue to shrink, as Russia wants to significantly decrease the number of permits it grants for goods transiting through its territory.
“A quota of individual licenses for shipments between Ukraine and Russian has not been agreed yet, due to Russian demands that the amount of these individual licenses for transit be significantly decreased,” the Infrastructure ministry said in a statement.
In the meantime, the Economy Ministry called on national cargo carriers to avoid sending goods via the Russian Federation to avoid inconvenience to drivers and additional costs to businesses.
Kyiv could mirror Russian ban
Kyiv might introduce similar restrictions on the transit of Russian goods via Ukrainian territory, Deputy Economy Minister Natalia Mykolska said on Jan. 5. However, she said the government would decide on this only after consultations with Ukraine’s partners in the EU free trade zone, as such transit restrictions could affect them too.
On Jan. 6, in a phone conversation with his Kazakh counterpart, Yatsenyuk said that Kyiv would notify the WTO, of which both Russia and Kazakhstan are members, about “Russia’s illegal actions regarding Ukrainian cargo transit, so as to apply the organization’s mechanisms to make Russia eliminate these violations.”
Alternative routes
As the trade row with Russia deepens, Ukraine’s government says it is pursuing other routes that would bypass Russia.
It sees China’s new Silk Road as an outlet for accessing Central Asian markets. This $200 billion Chinese project to connect eastern China with Europe by rail, road and sea was named after the ancient caravan route used for the lucrative trade in Chinese silk.
In December, this new route was officially opened in Georgia, and on Jan. 15 Ukraine will join it when a container train starts a trial trip from the Ukrainian Black Sea port Illichivsk to China via Georgia, Azerbaijan and Kazakhstan, the Infrastructure Ministry stated on its website.
However, this route is “double as expensive, takes almost twice longer (than land transportation) and is vulnerable to weather,” Dragon Capital said in a note to investors.
Kyiv Post writer Olena Savchuk can be reached at [email protected]
