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EU, Ukraine Begin Applying Trade Deal, Rekindling Russia Tensions

The EU and Ukraine have begun putting into operation their bilateral trade deal since 1 January, in a move that, as was widely expected, has brought long-simmering tensions with Russia on the subject back to the fore.

The Deep and Comprehensive Free Trade Area (DCFTA), as the EU-Ukraine pact is known, is part of the larger political and economic Association Agreement between Brussels and Kyiv that was signed in mid-2014. (See Bridges Weekly, 3 July 2014)

When the trade deal was then ratified simultaneously by the European and Ukrainian parliaments in September 2014, the two sides had agreed to delay the application of the pact until 1 January 2016, with officials citing at the time the difficult economic situation in Ukraine. Autonomous trade preferences that Brussels had been granting Kyiv since May 2014 were to remain in place, however. (See Bridges Weekly, 18 September 2014)

Moscow has long argued against the application of the EU-Ukraine trade deal, citing both competitiveness concerns as well as fears that this arrangement could lead to a massive influx of inexpensive European imports into Russia, given its economic relationship and shared border with Ukraine. The compatibility of the trade deal with Ukraine’s involvement in the Commonwealth of Independent States (CIS) agreements has also been raised.

The trade pact between the two sides was one of the main triggers for the unrest in Ukraine throughout 2014 that resulted in widespread protests and subsequently a major international crisis, including EU sanctions on Russia.

Food embargoes, Russia-Ukraine trade deal suspension

The delay in applying the trade deal had also allowed for the EU, Russia, and Ukraine to hold trilateral negotiations in a bid to find common ground. Despite holding over 20 sessions, those talks ultimately failed to lead to a resolution, breaking down on 21 December.

Speaking ahead of the final December trilateral negotiating meeting, European Commission President Jean-Claude Juncker reaffirmed that the EU-Ukraine trade pact would enter into force in January as planned “and cannot be amended – neither directly nor indirectly,” while referring to the 21 December discussions as a “last chance… to find a common understanding.”

“Let me reiterate what the goal of these talks is: to talk to one another, to engage in a constructive way in order to find pragmatic solutions. That is why any threats or retaliatory measures contradict the mandate, objective, and spirit of these talks,” Juncker said, noting the importance of continued reform in Ukraine to ensure strong trade ties with the 28-nation EU.

Russian lawmakers then agreed on 22 December to suspend the country’s own trade agreement with Ukraine, as part of the CIS trade zone, citing “extraordinary circumstances affecting the interests and economic security of Russia and requiring immediate action.”

Ukrainian leaders, for their part, have said that they will not be deterred by trade measures taken by Moscow in response to moving forward with the DCFTA.

“Ukraine is aware of these restrictions and the expected damage to the Ukrainian economy. But we are ready to pay this price for our freedom and our European choice,” said Ukrainian President Petro Poroshenko last month, in comments reported by Reuters.

Moscow also confirmed in December plans to ban imported food from Ukraine, as it has already done with such products from the European Union. Kyiv has since banned imports of certain Russia food products, including among others vegetables, meat, and dairy, effective from 10 January and in place through August – unless Russia decides to lift its own food embargo.

ICTSD reporting; “Ukraine says to ban imports of some Russian goods in trade row,” REUTERS, 30 December 2015; “Kyiv ‘ready to pay price’ after Russia curbs trade ties over EU deal,” REUTERS, 16 December 2015; “Moscow votes to suspend free-trade zone with Ukraine,” FINANCIAL TIMES, 22 December 2015; “Russia, Ukraine, EU hold last-ditch talks on EU-Ukraine trade deal,” EUROPE ONLINE MAGAZINE, 21 December 2015; “Russia confirms food embargo on Ukraine: PM Dmitry Medvedev,” AGENCE FRANCE PRESSE, 21 December 2015; Ukraine bans Russian foods as trade war escalates,” THE TELEGRAPH, 3 January 2016.