Russia sends a bitter trade message to Ukraine – with chocolate

Russia is holding up imports at the border to show Ukraine the potential cost of a trade deal with the EU.

It started late last month with a little ban on chocolates. 

By last week there were massive traffic jams at the Ukrainian-Russian border, as Moscow began to implement tough inspections on a long list of Ukrainian goods that had formerly entered the country with barely a glance but are now deemed "risky."

Leaders in Kiev are calling it a "trade war" to pressure Ukraine into backing off from signing an "Association Agreement" with the European Union in three months time, which would reduce trade barriers between Ukraine and Europe. 

Moscow denies that it's trying to give Ukraine a taste of the economic pain that's in store if it goes ahead and signs up with the EU, instead of joining a Russia-led customs union, but a top Kremlin official admits that "preventive measures" are being taken in case Ukraine chooses the Western path.

"We are preparing to tighten the customs regime just in case Ukraine takes the suicidal step of signing an agreement of association with the EU," President Vladimir Putin's top economic adviser, Sergei Glazyev, told journalists Sunday.

Ukrainian officials have made it clear that they want to sign the deal with the EU at a summit in Vilnius, Lithuania, in November. Though that shouldn't mean a halt to Russian-Ukrainian trade – both countries belong to the World Trade Organization – it would effectively block Ukraine from joining the former Soviet Customs Union, which Mr. Putin is putting forward as a full-fledged Eurasian alternative to the EU. 

"The real issue behind all this is Ukraine's allegiance," says Alexei Makarkin, deputy director of the independent Center for Political Technologies in Moscow. 

"Ukraine has been trying to sit on two chairs for the past 20 years, and now it's making a European choice that is not in Russia's favor. It's a bitter pill for Russia. It seems that the West, even with its economic crisis and unpredictable elections, is more attractive to Ukrainians," he says. 

Does the EU even want Ukraine?

There is no guarantee that the EU will agree to sign the deal with Ukraine come November. The organization is split between its eastern European members, who want to bring Ukraine into the fold, and older members like Germany, who have doubts, especially about Ukraine's human rights record. 

The trial and imprisonment of opposition leader Yulia Tymoshenko two years ago prompted an outcry in Europe and even led several leaders to boycott a summit meeting that was to be held in Ukraine last year in protest of the continuing mistreatment of Ms. Tymoshenko. 

"The EU has boxed itself into a corner by saying the Association Agreement (with Ukraine) will be signed in Vilnius or never, and that this is dependent on Ukraine's fulfillment of benchmarks. One of these is an end to selective use of justice. i.e. the release of Tymoshenko," which has not happened, says Taras Kuzio, an independent expert on Ukraine. 

"There may be a way out of this but I am not from the diplomat world and do not see it, which makes me pessimistic about [the prospects for the agreement to be signed in] Vilnius," he adds. 

Russia responds

Meanwhile, Russia is stepping up the pressure. 

Three weeks ago, citing "quality concerns," Russia's chief sanitary inspector Gennady Onishchenko slapped a ban on the popular chocolate treats made by the Kiev-based Roshen company, which exports about $200 million in confectionery to Russia each year. In a statement, the company insisted its products meet all "international quality and food safety standards."

By last week virtually all Ukrainian goods, from steel to beer, were being held up indefinitely at the border while Russian inspectors apparently ran unprecedented new inspections.

"We’re talking about a complete halt of Ukrainian exports for a specific period of time, for a week or even a month," said the Ukrainian Employer's Federation, which represents 8,500 companies that together account for almost 70 percent of the country's GDP, in a statement. 

"The losses of Ukraine from the above mentioned actions by the Russian side may reach, depending on the scenario, $2.5 billion in the second half of this year alone," it said. 

But the Russian sanitary chief, Mr. Onishchenko, told journalists this week that his department was just performing needed checks of dubious goods. 

"We have a long and specific list of complaints relating to the protection of consumer rights," Onishchenko told journalists Sunday. "If you want to call this a trade war, then call it a trade war. But we are conducting professional work," he added. 

Vladimir Zharikhin, deputy director of the Kremlin-funded Institute of the Commonwealth of Independent States in Moscow, says that if Ukraine wants to open its borders with Europe, and allow its market to be flooded with European goods, then it must accept that Russia will begin treating any products from Ukraine according to the same rules it applies to European goods. 

"From the customs point of view, Ukraine is joining Europe. Why should this be unexpected for Ukrainians? Probably they thought they'd be able to profit by importing European products, and then moving them on, duty free, into Russia? Things are not going to work out that way," he says. 

Too much history

Russia is by far Ukraine's biggest single trade partner. Ukraine exported about $14 billion worth of goods to Russia last year, and about the same amount to the entire European Union. In the past few years Ukraine has taken steps to diversify sources of its biggest import from Russia, energy, with some success, but it is still likely to remain dependent on Russian gas for the foreseeable future. 

Some experts say the dispute is more about symbolism than substance, and when the dust settles Ukraine and Russia will still be close friends and trading partners. 

"Ukraine simply cannot do without close economic, political, and cultural ties to Russia. Every third Ukrainian has close relatives in Russia," and almost half still describe Russian as their first language, says Mikhail Pogrebinsky, director of the independent Center for Political and Conflict Studies in Kiev. 

A couple of years ago, Ukraine seemed to be leaning toward Russia, and now it seems to be leaning the other way, he says. 

"Public opinion polls show about half the population favors moving toward Europe, while half want to see closer ties with Russia. Where's the catastrophe here? This plan to have an association agreement with the EU is just a technical matter that has acquired such a big symbolic meaning largely because of Russia's negative reaction. But nothing fundamental will change. Maybe the next stage will be a new wave of rapprochement with Russia? That's not unlikely," Mr. Pogrebinsky adds.