Ukraine’s trade dependency makes its geopolitical partnerships problematic
In the first three months of 2021, Ukraine’s trade turnover has amounted to $28.8 billion, almost a quarter of which came from China and Russia — authoritarian states subject to international sanctions.
Over $1 billion also came from Belarus, Ukraine’s northern neigh‑ bor ruled by a dictator Alexander Lukashenko, whose violent crack‑ down on all opposition has left hundreds imprisoned and thousands injured.
Despite an ongoing war with Russia and the anti‑democratic prac‑ tices in all three countries that the Ukrainian government publicly con‑ demns, they remain Ukraine’s top trading partners.
Experts worry that the need for investments and energy imports puts Ukraine in bed with the wrong allies, possibly threatening the coun‑ try’s Euro‑Atlantic ambitions and undermining its pro‑democratic political course.
Closer to China
China has recently become Ukraine’s biggest trading partner, taking that title away from Russia in 2019. In 2020, Ukraine‑China trade turnover amounted to $15.4 billion — a $2.6 billion increase from 2019.
Ukraine mainly exports agricul‑ tural products and metals to China, importing nuclear reactors, machin‑ ery, electric cars, and minerals.
Despite closer economic ties, China’s ambiguous stance on Russian aggression and its United Nations voting record makes it a questionable ally for Ukraine.
China abstained from voting on UN General Assembly Resolution 68/262, entitled “Territorial Integrity of Ukraine,” in which 100 UN member states reaffirmed their commitment to Ukraine’s sovereignty.
China also supported Russia’s request to the UN Security Council to hold a meeting about Ukraine’s Ukrainian language law, which they believed violated the Minsk agreements. When the UN General Assembly passed a resolution urging Russia to remove its forces from Crimea and stop transferring weap‑ ons to Ukraine, China voted against it.
Ukraine’s increasingly close ties to communist China, which the West sees as a major threat, have earned criticism from experts for threat‑ ening the Ukrainian economy and Ukraine’s Euro‑Atlantic ambitions.
“China’s goal is the total usurpa‑ tion of the country’s sovereignty by controlling its key infrastructure objects,” Arthur Kharytonov, main coordinator of the Free Hong Kong Center, told the Kyiv Post.
“They start by taking control of all roads, ports, transposition, and, in fact, that means that we are los‑ ing control over our economy. And neither the EU nor NATO want a Chinese colony,” he added.
On June 30, 2021, Ukraine and China signed an agreement that envisions enhanced cooperation in the field of infrastructure con‑
struction. Chinese loans will finance Ukraine’s infrastructure projects, not only deepening economic ties but increasing Ukraine’s dependency on China.
As Ukrainian President Volodymyr Zelensky actively pushes the com‑ pletion of projects as part of his “Big Construction” infrastructure program, he has stated “the impor‑ tance of the participation of Chinese investors in the implementation of a number of projects on the develop‑ ment of seaport infrastructure.”
Ukraine’s Deputy Prime Minister for Euro‑Atlantic Integration Olga Stefanishyna, however, thinks that economic cooperation with China can be a success story for Ukraine, if done right.
“China became the EU’s number one trading partner in 2020, open‑ ing up interesting economic pros‑ pects for Ukraine. The main thing is to develop projects with a balanced participation of companies from China and the EU, while promoting trade opportunities for our country,” Stefanishyna told the Kyiv Post.
China may also pose a threat to Ukraine’s close relationship with the United States, experts say.
“Ukraine has to be careful to not alienate the U.S., because there are voices in Washington that are against U.S. support for Ukraine,” said Andreas Umland, senior expert at the Ukrainian Institute for the Future and a Research Fellow at the Stockholm Centre for Eastern European Studies. “If Ukraine was to have an even closer relationship with China, the voices of these Ukraine sceptics in Washington would be strengthened.”
Ukraine’s government doesn’t appear worried.
On the air of Ukraine’s 24 TV channel, Ukraine’s Foreign Minister Dmytro Kuleba said that he under‑ stands the confrontation between the U.S. and China, saying that “the model is very simple right now: The United States is Ukraine’s partner in matters of politics and security, and
China is Ukraine’s number one trade partner.”
But on June 24, Ukraine pulled its name off a statement signed by over 40 countries urging the Chinese government to allow access to inde‑ pendent observers to China’s west‑ ern region of Xinjiang over alleged Chinese mistreatment of Muslim Uyghurs and others in the region.
According to diplomats who spoke to the Associated Press, China pres‑ sured Ukraine into withdrawing its support by threatening to withhold Chinese‑made COVID‑19 vaccines destined for Ukraine unless it did so.
Dependent on enemies
Even with wide reaching econom‑ ic sanctions against Russia after it began its war against Ukraine in 2014, Russia remains Ukraine’s third biggest trading partner.
Russia plays a crucial role in Ukraine’s oil and energy sectors, continuously filling Ukraine’s elec‑ tricity gaps in times of power deficits.
Russian exports to Ukraine accounted for approximately 8% of Ukraine’s total imports last year. Just in the first quarter of 2021, the total worth of imported goods from Russia was $1.2 billion.
In 2020, Ukraine imported Russian coal, oil products, gas and electricity for a total of $2.6 billion dollars, more than a third of all imports in this product group.
To reduce its trade dependence on Russia, Ukraine has introduced numerous sanctions against Russian businesses, banks, and individuals.
On June 24 this year, Zelensky signed off on an expanded package of sanctions against 538 Russian individuals and 540 Russian enti‑ ties. The same day, Zelensky also sanctioned 55 Russian state finan‑ cial institutions.
These are the most severe mea‑ sures Ukraine has taken against Russia since the beginning of war.
The government has also focused on decreasing Ukraine’s energy dependence on Russian for years.
In March, Ukraine’s parliament registered a bill that aimed at enhancing Ukraine’s energy inde‑ pendence. If passed, it would intro‑ duce special duties on imports of diesel, liquefied gas, gasoline, and various brands of coal.
The bill also proposes giving the National Commission for State Regulation of Energy and Public Utilities the power to restrict or pro‑ hibit the import of electricity from Russia.
Later, Zelensky instructed Prime Minister Denys Shmyhal to limit electricity imports from Russia and Belarus.
As advised, Ukraine banned elec‑ tricity imports from Belarus and Russia on May 26, until Oct. 1. This move was one of many attempts to make Ukraine’s state‑owned nuclear power plants, Energoatom, profitable.
Yet there is no indication that the ban will last long. Back in September of 2019 the parliament lifted the ban on electricity imports, which was initiated earlier, because Ukraine faced a shortage of coal.
Trading with dictators
Ukraine is a key trading partner for Belarus, with an annual trade turnover of $4.4 billion in 2020. In the first quarter of 2021, exports to and imports from Belarus landed at $1,2 billion.
Belarus is Ukraine’s fifth most important trading partner in terms of imports, as Ukraine relies heavily on its neighbor for oil products. Over a third of Ukraine’s diesel and 50% of bitumen is imported from Belarus.
The government said Ukraine might invest in new oil refineries to decrease its dependency on imports, but experts say the plan is too expensive to be realistic.
About 20% of Ukrainian exports of confectionery and about a third of beer exports go to Belarus.
Along with the West, Ukraine con‑ demned the government of Belarus last year after dictator Alexander Lukashenko rigged the country’s presidential election and brutally suppressed a pro‑democratic upris‑ ing, and later in May, when he forced a commercial flight to land in Minsk to arrest a dissident journalist Roman Protasevich.
Joining EU sanctions against Europe’s last dictatorship, Ukraine banned air traffic with Belarus, even though its state airline Belavia was the third biggest carrier in Ukraine.
The country also imposed sanc‑ tions against dozens of Belarusian officials, banning them from enter‑ ing Ukraine and freezing their assets. The government is now preparing a new round of personal econom‑ ic sanctions against the officials in Minsk for a three‑year period.
Yet, unlike the EU and the U.S., Ukraine hasn’t imposed any sec‑ toral sanctions that would hurt the Belarusian economy.
The ban on Belarusian electricity imports, announced in May, was a purely consumer‑based decision. It had nothing to do with Lukashenko’s hijacking of a Ryanair plane, as the Ministry of Energy requested to con‑ sider the possibility of an import ban a week before the incident.
On June 24, the EU introduced new economic sanctions against Belarus, targeting exports of petro‑ leum products and potash fertilizers, and restricting Belarus’s access to EU capital markets.
The Ukrainian government was pushed to follow the Western lead, but so far no economic sanctions have been put in place.
On July 7, the Cabinet of Ministers offered to expand the list of person‑ al sanctions against Lukashenko’s allies, but Ukraine’s National Security and Defense Council has yet to approve the proposal.
“There is an understanding that Ukraine cannot fully follow the Western sanctions because it is less economically strong,” Umland told the Kyiv Post. “But it has to find balance.”