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With loss of Russian market Ukraine’s crisis exit prospects look bleak

December 23, 2015, 19:16 UTC+3 Zamyatina Tamara

MOSCOW, December 23. /TASS/. Ukraine’s economic association with the European Union and the suspension of the free trade zone agreement between Russia and Ukraine it has entailed will not let the authorities in Kiev find a way out of a prolonged crisis, polled experts have told TASS.

Russian President Vladimir Putin on December 16 signed a decree to suspend the operation of the free trade zone agreement with Ukraine "in connection with the exclusive circumstances concerning the interests and economic security of Russia." And on Tuesday, December 22, the State Duma voted for a law to strip Ukraine of all benefits and preferences.

In November, Ukraine suspended preparations for signing an agreement of association with the European Union due to a decline in trade with its main partners — Russia and the CIS. The agreement was to take effect on December 31, 2015. On Monday, December 21, the EU-Russia-Ukraine troika exerted futile attempts to iron out trade contradictions. Putin said after the talks that when the Russian delegation proposed controversies for discussion, the chief EU delegate took her leave, dropping at the last moment: "Game Over." But it was Russia that was accused of disrupting the talks, though. Putin added: "I believe that we will get back to all these issues many more times again. We wish to mend relations with our partners — Ukraine and the European Union."

The head of the international development directorate at the Institute of Modern Development, Sergey Kulik, believes that Europe will fail to provide a worthy substitute for the Russian market despite its strongest wish to do so and the current political trend in favour of support for the authorities in Kiev. "Most Ukrainian goods fall short of the European quality standards. Moreover, the EU is unable to let Ukraine take some niches in the over-saturated European food market. In the meantime Ukraine at the moment is a mostly agrarian country," Kulik told TASS.

"With the expansion of the Ukrainian crisis most Russian experts [if not all of them] have become aware the European Union will inevitably have to pay ever greater, unexpected costs, financial in particular. And these costs will keep snowballing with the disruption of trading and economic ties between Russia and Ukraine. This explains why Brussels looked so nervous at the EU-Russia-Ukraine talks," Kulik said.

He believes that the European Union and Kiev will have to look for third countries where to market Ukrainian products: "Kiev is already in talks with Ankara on creating a free trade zone. But Turkey is a major exporter of farm produce itself. Why should Turkey import Ukrainian vegetables and animal fat? In the meantime, Ukraine in its current deplorable financial condition cannot afford to import Turkish goods."

Kulik explained why Russia was so much worried over the forthcoming economic association of Kiev and the European Union: if the current duty-free trade regimen remains in force, a flow of re-export goods may start pouring into Russia through Ukraine and the CIS countries. "Brussels refused to turn an attentive ear to Moscow’s arguments. The suspension of the free trade zone with Ukraine became inevitable. It is crucial to ensure this measure should be supported by Russia’s partners in the Eurasian Economic Union. Otherwise, the risk of re-export of European and Ukrainian goods through Belarus, Kazakhstan and Armenia will remain," Kulik warned.

Deputy Director of the CIS Countries Institute, Vladimir Zharikhin, has recalled that before the government coup in Kiev at the beginning of 2014 Russia had been Ukraine’s number one trading and economic partner.

"Before the government coup bilateral trade stood at $40 billion a year. In Russia’s overall export Ukraine accounted for several percent, while in Ukraine’s export Russia’s share was as large as 45%, and most of the export items were high-tech products. This explains why Ukraine’s former president, Viktor Yanukovich, had paused the coming into effect of the economic part of the agreement of association with the European Union, hoping to preserve the free trade zone agreement with Russia in this way," Zharikhin has told TASS.

When they saw for themselves the specifics of trading and economic relations within the Ukraine-Russia-EU triangle, the new authorities in Kiev asked Brussels to act as a go-between to help harmonize relations with Moscow.

"But the European Union refused to take Russia’s arguments into account. It disrupted the negotiations and in this way once again framed Ukraine, thereby upsetting the slightest chance it might find a way out of the current grave financial and economic turmoil," Zharikhin said.

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