August 22, 2013 11:34 pm

Putin rekindles fears of Ukraine trade war over EU ties

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Russia’s president has warned Ukraine it would face protective measures from a Moscow-led customs union of former Soviet republics if it instead forged closer political and trade ties with the EU.

Breaking more than a week of silence during an escalating bilateral trade row, Vladimir Putin suggested on Thursday that tighter customs controls could be necessary to prevent European goods from flowing through Ukraine into Russia.

Mr Putin did not refer to the tighter, time-consuming and costly customs checks temporarily imposed this month by Russia on Ukrainian goods.

“If our neighbours go for considerable liberalisation of customs regulations with the EU, then goods . . . will inevitably flow to the Ukrainian market.”

Speaking during a visit to Rostov-on-Don, Mr Putin suggested that those European goods could, in turn, flow through Ukraine into the Russian market.

“Our experts think that such a threat exists. Then, member states of the customs union will have to think about protective measures. Such a possibility exists.”

Mr Putin’s comments come amid rising concern that Russia aims to punish Ukraine economically for seeking closer ties with the EU instead of joining Moscow, Belarus and Kazakhstan in the regional customs union.

Ukrainian companies last week accused Russian customs officials of paralysing their imports with customs checks that threatened billions of dollars in losses.

The extra border checks were regarded as an attempt to bully Kiev into dropping plans to sign landmark free trade and association agreements with the EU this autumn, coercing it instead into the Moscow-led customs union.

Earlier this week, an EU trade official warned that any “economic threat from Russia directed against Ukraine and linked to the country’s possible signature of the association agreement with the EU is unacceptable”.

On Tuesday, Ukrainian officials said they had reached agreement with Russian counterparts for the tighter customs checks to be dropped. Russian officials declined to comment on this, though backlogs at border crossings were reported to have dissipated.

But Mr Putin’s comments on Thursday brought the dispute back to the fore. He said a Ukrainian government delegation would visit Russia in the coming days for further discussions.

Some observers fear that the dispute could escalate into a full-blown trade war, hitting Ukraine, which is struggling to climb out of a second recession in five years, at a time when it is particularly vulnerable.

The country’s trade is split between Russia, the EU, Asia and other markets. Bankers have estimated that sweeping trade hurdles imposed by Russia could cost Ukraine the equivalent of 1 per cent of annual GDP growth.

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