Putin to Ukraine: the door's still open to a trade pact

The door is still open for Ukraine to integrate its economy more closely with Russia's, President Vladimir Putin said in his annual state-of-the-nation address to lawmakers on Thursday.

Ukraine might even be allowed to join a free trade zone with the European Union while still maintaining the tight trading links with Russia that are crucial to the Ukrainian economy's survival, Mr. Putin suggested. Striking a more conciliatory note than in the past towards Russia's neighbor, he said simultaneous trade talks could be "complementary."

Ukraine has been in turmoil for weeks, since President Viktor Yanukovych abruptly postponed plans to sign an association agreement with the EU, in part because Ukraine's fragile economy could not afford any corresponding rupture of trading ties with Russia.

"I very much hope that all the political forces of Ukraine, taking into account their country's basic interests, will find a way to resolve their current problems," Putin said. 

Putin has been trying for years to persuade Ukraine to join a Moscow-led customs union, whose membership so far includes only Russia, Kazakhstan, and Belarus. The Kremlin plans to expand that group into a Eurasian Economic Union by 2015, a free trade zone that it hopes could eventually rival the European Union in its scope and economic power. Armenia, Kyrgyzstan and Tajikistan have all expressed interest in signing on, but their economies are much smaller than that of Ukraine's, which has refused to join and insisted it would seek long-term integration with the EU instead. 

"Even before all these events we are now seeing in Kiev, Ukraine had expressed interest and since May of this year has been present as an observer at all meetings of the [Moscow-led customs union]. ... We are not obliging anyone to do anything, but if our friends would like to cooperate, we are ready to continue this work at an expert level," Putin said. 

Mr. Yanukovych insists that his pivot away from Europe was a short-term tactical maneuver, based on Ukraine's fear of losing its current trade preferences with Russia and a relatively poor package of financial aid offered by the EU. 

But after tens of thousands of Ukrainians took to the streets to protest Yanukovych's failure to sign the EU deal, the Ukrainian government is sending a delegation to Brussels and signaling that it might soon close a deal that will pull it into Europe's orbit. 

The Kremlin in the past has repeatedly warned Ukraine that taking the EU route would automatically cause Russia to raise customs barriers and has introduced some selective measures -- such as a summer chocolate embargo -- to illustrate just how much economic pain may lie ahead. 

But Putin struck a more moderate note in his address Thursday, suggesting that cooperation with the Eurasian Economic Union need not prevent Ukraine from associating with the EU as well. 

"Our integration project is based on equality, on real economic interests. We will consistently promote the Eurasian process, without opposing it to other integration projects, including such a mature project as the European one. We will proceed from the premise that they are complementary," Putin said.