MOSCOW: Vladimir Putin has ordered the suspension of Russia’s free trade zone with Ukraine, following up on threats that Kiev’s trade deal with the EU would cost it preferential access to the Russian market.
The move by the Russian president comes as EU members prepare to discuss on Friday another extension of sanctions imposed on Russia over its annexation of Crimea and its role in the war in Ukraine.
It also all but ends hopes that trilateral talks scheduled for Monday aimed at addressing Moscow’s concerns over the EU-Ukraine agreement could avert a further escalation of a trade war with Kiev.
Speaking in Brussels, Petro Poroshenko, Ukraine’s president, said there was no question of delaying the start of the trade agreement on January 1. He criticised Mr Putin’s move but added: “We are ready to pay this price for our freedom and our European choice.”
Jean-Claude Juncker, European Commission president, said Monday’s talks between Russia, Ukraine and the EU were the “last chance to find a common understanding”. But he noted that “threats or retaliatory measures” would not help forge a diplomatic rapprochement over the trade deal, which has proved elusive over more than 20 rounds of negotiations.
The decision to suspend the free trade regime with Ukraine from January 1 was taken “in connection with exceptional circumstances which touch upon the interests and the economic security” of Russia, Mr Putin said in a decree published on Wednesday.
It adds to a growing list of tit-for-tat economic and financial disputes. Kiev and Moscow have already banned each others’ airlines, severing direct air links between what used to be closely connected countries. A raft of Ukrainian agricultural and food products have also been subject to Russian non-tariff trade barriers.
Last week, Russia said it would take Ukraine to court if Kiev failed to repay $3bn in debt to Russia within 10 days of its maturity on December 20 or accept a Russian restructuring proposal. Moscow is furious at a recent International Monetary Fund decision to allow the disbursement of rescue funds to countries that default on another IMF member — a rule change which prevents the debt to Russia from derailing a $17bn support package for Ukraine.
Russia is also angry that Kiev has dragged its feet in fully restoring electricity to Crimea, which lost much of its power several weeks ago when suspicious explosions knocked out pylons just north in regions of mainland Ukraine. Despite being occupied by Russia, the peninsula is dependent on Ukraine for electricity, water and other supplies.
In a further sign of deepening tensions, Kiev on Wednesday accused Moscow of looting assets from two Black Sea oil rigs that were seized during last year’s annexation of Crimea by moving them into Russian territorial waters. Also on Wednesday, Arseny Yatseniuk, Ukraine’s prime minister, announced measures to impose a trade embargo on Crimea within 30 days.
Ever since Ukraine said in 2013 that it planned to sign an association agreement with the EU, the Russian government has been threatening Kiev with the loss of what was once a key export market.
Earlier this month, Mr Yatseniuk warned that Kiev would retaliate should Russia impose additional trade restrictions that would cost his country some $600m. But he stressed that Ukraine had diversified to other markets in the course of the escalating trade war with Russia. “Dependency on the Russian market is only 12.8 per cent,” he said.
The multiple rounds of trilateral talks are part of EU efforts to prevent Russia from cutting off Ukraine from its free-trade zone. Although the EU and Ukraine signed a deal for closer economic integration, full implementation was suspended for 12 months until the end of this year.
Russia has argued that its markets would be flooded with European goods should the EU-Ukraine trade regime come into force.
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