Deadly Trade

Kyiv Post - - Front Page - MELKOZEROVA@KYIVPOST.COM GON­CHAROVA@KYIVPOST.COM ZHUK@KYIVPOST.COM

Rus­sia re­mains Ukraine’s largest ex­port des­ti­na­tion ($3.5 bil­lion), its top source of im­ports ($5.1 bil­lion) and its biggest in­vestor ($1.7 bil­lion) despite the Krem­lin’s on­go­ing war that has killed 10,000 people and dis­mem­bered the na­tion. What are the con­se­quences of trade with the en­emy? Is Ukraine still too de­pen­dent on its neigh­bor?

Roman Baskov has sev­eral apps on his phone that help him spot Rus­sian goods in Ukrainian stores. The 29-year-old wants to be cer­tain he never buys any­thing pro­duced in Rus­sia.

“I don’t want to give a sin­gle hryv­nia to the oc­cu­pants,” he ex­plains.

He’s not the only Ukrainian to boy­cott Rus­sian prod­ucts. But this hasn’t stopped Ukraine and Rus­sia from trad­ing $8.6 bil­lion worth of goods in 2016 – mak­ing Rus­sia, by far, the biggest trade part­ner of Ukraine. The num­bers break down into $5.1 bil­lion in im­ports from Rus­sia – led by oil and pe­tro­leum – and $3.6 bil­lion in ex­ports to Rus­sia. Rus­sia was also Ukraine’s largest in­vestor in 2016, with nearly $1.7 bil­lion.

The in­ten­sive eco­nomic re­la­tion- ship is hap­pen­ing despite Rus­sia’s war that has killed 10,000 people since its start in 2014 and cost Ukraine con­trol of its Crimean penin­sula and parts of the eastern Don­bas.

Trade drop­ping

Trade has, how­ever, dropped by more than half af­ter both gov­ern­ments im­posed se­lec­tive trade em­bar­goes on each other af­ter Rus­sia’s an­nex­a­tion of Crimea and in­sti­ga­tion of the war in eastern Ukraine, both in 2014.

Both na­tions in­tro­duced lists of goods banned for im­port. How­ever, even banned Rus­sian goods like caviar, meat and fish still find their way onto Ukrainian store shelves.

Trade ex­perts say that one rea- son for the stub­bornly high num­ber is that Rus­sia buys higher-value fin­ished prod­ucts from Ukraine, while Euro­pean Union na­tions fa­vor cheaper raw ma­te­ri­als.

‘Do­ing ev­ery­thing...’

Hanna Hopko, an in­de­pen­dent mem­ber of Ukraine’s par­lia­ment who chairs the par­lia­men­tary com­mit­tee on for­eign af­fairs, told the Kyiv Post she wants Ukraine to be­come in­de­pen­dent from Rus­sia in all ways, sooner rather than later. But she thinks it could take an­other five years.

How­ever, Hopko said that politi­cians clam­or­ing for a com­plete halt to trade have not pro­posed al­ter­na­tives and are not ready to take re­spons­bil­ity for such a step.

“They are not ready nei­ther to look for new mar­kets, nor to pro­mote Ukrainian goods,” Hopko said. “Ukraine’s govern­ment is do­ing ev­ery­thing pos­si­ble.”

Hlib Vysh­lin­sky, CEO of the Cen­ter for Eco­nomic Strat­egy, told the Kyiv Post that the fact that Ukraine keeps trad­ing with Rus­sia while ask­ing West to im­pose tougher sanc­tions, is not hyp­o­crit­i­cal.

Since Ukraine is a vic­tim of Rus­sia’s hy­brid war, “it would be the win sit­u­a­tion mostly for Rus­sia if Ukraine im­me­di­ately cut all the eco­nomic ties,” Vysh­lin­sky said. “Be­cause then Ukraine’s econ­omy will suf­fer and Rus­sia’s mes­sage of Ukraine as a failed state to the world will be­come true.”

‘Soviet her­itage’

Ukrainian mem­ber of par­lia­ment Vic­to­ria Voyt­sit­ska, who is sec­re­tary of the par­lia­men­tary com­mit­tee on fuel, en­ergy and nu­clear pol­icy, told the Kyiv Post that many of Ukraine’s nu­clear power sta­tions still op­er­ate only on Rus­sian-made re­ac­tor fuel el­e­ments.

En­ergy ex­pert An­driy Gerus told the Kyiv Post that 70 per­cent of Ukraine’s nu­clear power sta­tions (ap­prox­i­mately 9 from 15) can only op­er­ate on Rus­sian-made re­ac­tor fuel el­e­ments.

“This is our Soviet her­itage. When all the coun­tries were united, their economies were deeply con­nected. We’re not the same state any­more, but the eco­nomic con­nec­tion is still very strong,” Voyt­sit­ska said.

Voyt­sit­ska said Ukraine is try­ing to di­ver­sify its econ­omy and re­tool its nu­clear sta­tions to use U.S.-pro­duced fuel el­e­ments, but that this tran­si­tion re­quires money and time.

En­ergy ex­pert Gerus told the Kyiv Post that, over the last two years, Ukraine has di­ver­si­fied its sources of nu­clear fuel, buy­ing 30 per­cent of its fuel in the United States. Soon Ukraine will be im­port­ing most of its nu­clear fuel from the United States. But that leaves nine out of 15 re­ac­tors still de­pen­dent on Rus­sian fuel.

Re­gard­ing oil, how­ever, Gerus said Ukraine doesn’t have many al­ter­na­tive sources, even though most pe­tro­leum im­ports are from na­tions other than Rus­sia.

The bulk of Ukraine’s im­ports from Rus­sia, some $4 bil­lion worth, were the prod­ucts of heavy in­dus­try, in­clud­ing met­als, ores and chem­i­cal prod­ucts. On a smaller scale, Ukraine also im­ported $952 mil­lion in clothes, ac­ces­sories, fab­rics and beauty prod­ucts; $150 mil­lion in ve­hi­cles; and nearly $20 mil­lion in food.

All the same, since the EuroMaidan Rev­o­lu­tion that drove Ukrainian Pres­i­dent Vik­tor Yanukovych to power on Feb. 22, 2014, Ukrainian im­ports at lot less than it used to – down to $5.6 bil­lion in 2016 from $24.5 bil­lion in 2013, ac­cord­ing to Ukrainian Cham­ber of Com­merce Pres­i­dent Hen­nadiy

Chyzhykov.

In 2016, Rus­sia mostly bought from Ukraine fer­rous met­als and metal goods ($893.2 mil­lion), nu­clear re­ac­tors and boil­ers ($642.9 mil­lion), and in­or­ganic chem­istry prod­ucts ($504.9 mil­lion).

Chyzhykov said that, since 2014, Ukraine has lost about $14 bil­lion in po­ten­tial ex­port in­come be­cause of the fall­out from the war and trade em­bar­goes. “More­over, due to the Rus­sian ban on the transit of Ukrainian goods to other for­mer Soviet bloc and Cen­tral Asia coun­tries, we also lost sev­eral bil­lion dol­lars,” Chyzhykov said.

Olga Ponomarenko from the Devel­op­ment Cen­ter think tank of the Rus­sian Higher School of Eco­nom­ics said that ma­chin­ery and heavy equip­ment al­ways made up the lion’s share of Ukraine’s ex­ports to Rus­sia.

Com­pared to 2012, ex­ports of these goods fell by 80 per­cent in 2015.

“Ex­ports of smaller cat­e­gories of goods fell by ‘only’ 50 per­cent in dol- lar equiv­a­lent terms, which is an in­di­a­tion rather of the hryv­nia’s de­val­u­a­tion than a sig­nif­i­cant de­crease in real trade vol­umes,” Ponomarenko told the Kyiv Post.

Rus­sia re­mains “an im­por­tant trade part­ner” for Ukraine, she said, cit­ing the ge­o­graph­i­cal prox­im­ity of the coun­tries.

Banned goods

Back in 2014, when Rus­sia sent its mil­i­tary to in­vade and an­nex Crimea and then into the Don­bas to ig­nite the cur­rent war, reg­u­lar Ukraini­ans were the first ones to call for a shut­down of trade with Rus­sia.

Ac­tivists launched a cam­paign in so­cial me­dia, urg­ing people to stop buy­ing Rus­sian-made goods.

Baskov said he stopped us­ing Rus­sian bank Alfa Bank, and he avoids the Rus­sian-owned chain of fit­ness cen­ters Sportlife.

“I don’t buy (Rus­sian) chew­ing gum, choco­late bars or chem­i­cal prod­ucts,” he told the Kyiv Post.

The cam­paign turned into a wave of protest, with Ukrainian re­tail­ers also join­ing the boy­cott. Store man­agers started mark­ing Rus­sian goods with warn­ing signs read­ing “Made in the Rus­sian Fed­er­a­tion.”

In re­sponse, Rus­sian Pres­i­dent Vladimir Putin ended his coun­try’s free trade agree­ment with Ukraine in 2015. Ukraine’s cab­i­net struck back by ban­ning sev­eral dozen types of goods from Rus­sia.

Then in Jan­uary 2016, the Ukrainian and Rus­sian gov­ern­ments ex­tended the mu­tual em­bar­goes on cer­tain types of goods they ini­ti­ated in 2015.

Rus­sia banned Ukrainian meat, poul­try, fish, veg­eta­bles, milk, fruits, and nuts. Ukraine’s list is longer, and in­cludes fish, caviar, poul­try, meat, co­coa, sweets, cof­fee and tea, beer, al­co­hol, cig­a­rettes, lo­co­mo­tives, and much more. Ukraine has also banned the sale of weapons to Rus­sia, as well as prod­ucts that can be also used for mil­i­tary pur­poses.

How­ever, Alexey Doroshenko, a Samopomich Party law­maker and the head of the Re­tail Trade Sup­pli­ers As­so­ci­a­tion of Ukraine, told the Kyiv Post that the Ukrainian govern­ment doesn’t know much about the ac­tual sit­u­a­tion on the mar­ket.

“They ob­serve the sit­u­a­tion from the hills of Pech­ersk,” Doroshenko said, re­fer­ring to the fact that most Ukrainian cen­tral govern­ment build­ings are lo­cated on the hills of Kyiv’s Pech­ersk Dis­trict.

Data pub­lished bythe State Sta­tis­tics Ser­vice con­firm Doroshenko’s claim, re­veal­ing that both sides break their own em­bar­goes.

In 2016, Ukraine im­ported from Rus­sia $306,000 worth of meat and fish, $187,600 worth of cof­fee and tea, and sugar and con­fec­tionar­ies worth $500,900. Many de­scrip­tions of im­ported and ex­ported goods in the sta­tis­tics are vague, mak­ing it dif­fi­cult to prove that the em­bargo was in­deed vi­o­lated.

For­bid­den caviar

One of the goods banned for im­port from Rus­sia, was one of the na­tion’s sig­na­ture prod­ucts – caviar.

But ac­cord­ing to Doroshenko, Ukrainian busi­nesses de­cided the ban con­cerned only caviar packed in cans. So they keep im­port­ing caviar as a raw ma­te­rial packed in large drums, Doroshenko says, and then repacked into jars for re­tail­ing, mark­ing them as “made in Ukraine.”

“You can see how wealthy a coun­try is by check­ing its ex­ports. The higher the level of pro­cess­ing is, the wealth­ier the coun­try is. That’s be­cause a prod­uct packed in small jars, de­signed with brand la­bels, costs a lot more than the same prod­uct packed in large cans and sold as a raw ma­te­rial,” Doroshenko said.

In an emailed com­ment to the Kyiv Post, the press ser­vice of Ukraine’s Eco­nomic Devel­op­ment and Trade Ministry em­pha­sized the fact that the im­por­ta­tion of all Rus­sian caviar has been banned by the govern­ment since 2015.

“There is no men­tion of whether it is packed in Rus­sia or not,” the press ser­vice said.

Will ‘suf­fer more’

Kateryna Chep­ura, spokesper­son of the Vid­sich Civic Move­ment that or­ga­nized the boy­cott of Rus­sian­made goods in 2014, said the fact that Ukraine and Rus­sian are still main eco­nomic part­ners af­ter three years of war is trau­matic.

“Un­for­tu­nately, our economies are deeply con­nected. We un­der­stand that and are not call­ing for an im­m­di­ate cut of all the eco­nomic ties with Rus­sia as Ukraine will suf­fer more from that,” said Chep­ura. “Although our govern­ment has been tak­ing mea­sures to de­crease our de­pen­dence from Rus­sia, the move­ment is re­ally slow and re­luc­tant. In three years of war they could have done much more than im­pose the se­lec­tive list of banned prod­ucts.”

Baskov is hop­ing Ukrainian and Rus­sian re­la­tions can re­turn to nor­mal -- but, for that, Putin would have to go.

“I’m sure that the Rus­sian regime will fall, and we’ll be able to trade with Rus­sia the same as with any other civ­i­lized coun­try – on an equal ba­sis, and with com­pet­i­tive mar­ket con­di­tions,” he said.

The Boy­cott Rus­sian Gas Sta­tion group protests out­side Rus­sian gas sta­tions TNK and Lukoil in Kyiv on Aug. 22, 2014. Par­tic­i­pants used fire ex­tin­guish­ers and spray­paint. Three years into the Krem­lin’s war against Ukraine, Rus­sia re­mains Ukraine’s largest trade part­ner and in­vestor. (Kostyan­tyn Ch­er­nichkin)

BY VERONIKA MELKOZEROVA, OLENA GON­CHAROVA and ALYONA ZHUK Vid­sich Civic Move­ment ac­tivists hold posters call­ing for a boy­cott of trade with Rus­sia – which has the prod­uct code 460 -- as other protesters lie on the floor in one of Kyiv su­per­mar­kets dur­ing a “Rus­sian-made Kills” per­for­mance in 2014. (Cour­tesy of Vid­sich)

A cus­tomer ex­am­ines coun­try-of-ori­gin iden­ti­fy­ing codes of caviar in a Kyiv su­per­mar­ket on March 22. Caviar was in­cluded in the list of banned Rus­sian goods by the Ukrainian govern­ment in 2015. How­ever, ex­perts say Ukrainian busi­ness­men keep buy­ing it from Rus­sia as raw ma­te­rial and repack­ag­ing it as “Made in Ukraine.” (Volodymyr Petrov)

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