The FINANCIAL — Moscow said it would go through with punitive tariffs on Ukrainian products in January after European efforts to head off Russian retaliation against a sweeping EU-Ukraine trade deal failed, according to Nasdaq.
The collapse of mediation talks among EU, Ukrainian and Russian officials on December 21 came as the bloc extended its economic sanctions against Russia because of its military involvement in eastern Ukraine.
“We were quite close—had there been a will, we would have come to an agreement,” EU Trade Commissioner Cecilia Malmströ m said after the meeting. “But there wasn’t enough flexibility from the Russian side to do that.”
The trade agreement, set to go into effect Jan. 1, is part of a broader EU-Ukraine deal that was at the heart of Ukraine’s political crisis in 2014, when pro-Russia President Viktor Yanukovych was ousted from office during prolonged protests. Shortly afterward, Russia annexed Ukraine’sCrimea region and supported rebels in eastern Ukraine.
In the recent talks, the EU had offered Russia more cooperation between their customs authorities and a gradual transition to new product standards in Ukraine so that Russian producers can still sell goods there. European officials also proposed more assistance in guaranteeing the safety of animal byproducts to be exported to Russia, Ms. Malmströ m said. But they didn’t offer a reopening of the EU trade deal itself.
“Russia’s continued insistence on a legally binding agreement, which would amount to a reopening of the bilateral agreement between the EU and Ukraine, couldn’t be accommodated, as has been made clear throughout these talks,” the European Commission, the bloc’s executive, said in a statement.
Russia also made other “impossible demands,” such as full access to the EU’s customs database, including sensitive commercial information, according to Ukrainian Deputy Foreign Minister Lana Zerkal. “They also wanted us to use Soviet standards for everything from pencils to wheels, for another 10 years,” she said.
As the date neared for the trade deal to go into effect, Russian President Vladimir Putin last week abolished Ukraine’s bilateral free-trade deal with Russia. Ms. Malmströ m said the move ran against everything the EU and Russia had been talking about.
“The assumption was very clearly made that Russia will refrain from adding sanctions and suspending the preferential treatment of Ukraine,” she said. “We were a bit surprised when a few days ago, Putin declared that the suspension would enter into force Jan. 1.”
Russia’s economic development minister, Alexey Ulyukaev, said that EU and Ukrainian officials hadn’t addressed his government’s concerns and that Moscow’s trade measures were aimed at protecting the Russian economy. Russia, which has already announced plans for a ban on food exports from Ukraine beginning Jan. 1, hasn’t specified which sectors would be affected by the tariffs.
“We have to defend the economic interests of Russia, that’s why we started the sanctions and stopped free trade with Ukraine,” Mr. Ulyukaev said. However, he added, Moscow didn’t want to break off economic ties with Ukraine.
He played down the negative impact of the retaliatory measures on Russia’s own embattled economy, saying that annual food trade with Ukraine was currently $200 million, one-tenth of the $2 billion it was three years ago. “So the real material effect won’t be sensitive,” he said.
Separately, the EU on Monday extended the economic sanctions imposed on Russia until the end of July, citing the failure to fully implement the terms of a cease-fire deal reached in the Belarusian capital of Minsk in February. The sanctions were initially introduced for one year on July 31, 2014, in response to Russia’s military support of rebels actions in eastern Ukraine. They were extended another six months this summer because of Russia’s noncompliance with the terms of a cease-fire deal reached in the Belarusian capital of Minsk in February.
The cease-fire deal required Russia to withdraw its military equipment and soldiers from eastern Ukraine and use its influence with pro-Russia rebels to maintain the cease-fire, exchange hostages with Kiev and allow access to international observers.
“However, since the Minsk agreements won’t be fully implemented by Dec. 31, the duration of the sanctions has been prolonged whilst the council continues its assessment of progress in implementation,” the EU council of ministers said.
The sanctions, which have weighed on a Russian economy struggling with the slump in oil prices, target Russia’s financial, energy and defense sectors, as well as so-called dual-use technologies that have both military and commercial purposes.
Ukrainian Foreign Minister Pavlo Klimkin said that he welcomed the extension. “The sanctions are very important in keeping Russia on track and narrowing their space of maneuver in eastern Ukraine,” Mr. Klimkin said before meeting with EU and Russian officials. Mr. Klimkin said cease-fire violations had increased in the past month and that there was no progress on exchanging hostages, not even the wounded. In addition to expelling humanitarian organizations, the rebels in the Donbas area of eastern Ukraine have also banned Ukrainian technicians from doing repair work at damaged electricity and gas plants, potentially forcing thousands of inhabitants to live in freezing homes, the minister said.
“Russia is in full control in Donbas, there is a Russian officer in every rebel unit,” Mr. Klimkin said. “So stability is doable for Russia, but they are not interested.”
Ukrainian officials had been worried that Europe might take a softer line with the Kremlin, just as fighting has flared up again with separatists. Western governments have sought to work more closely with Moscow over the crisis in Syria to combat the threat of Islamic State following the terrorist attacks in Paris in November.