“Customs war” with Russia: Europe fights for Ukraine

Despite the formal statements of Moscow about the end of the "customs war" against Kyiv and the return to a regular regime of checks, enhanced measures remain in fact.

Thus, as of early September, nutritional products and metal products were subject to enhanced checks. Experts say: doubts about the authenticity of the certificates of origin of Ukrainian goods (ST-1 form) are the main formal reason for checks and delays.

"In August, these goods were massively checked, and now the volume of checks has really plummeted. However, the considerable challenges remain, chairman of the Verkhovna Rada Committee on Economic Policy Andriy Ivanchuk tells ForUm. - Formally, the check may last up to 45 days, but the Russian customs officials suggest not waiting for the results ... if making a deposit of 15% of the production cost. This is equivalent to fees for countries outside the free trade regime with Russia. However, we have a basic agreement on the CIS free trade area, ratified by both parties. In addition, checking the ST-1 form is contrary to the Rules of origin of goods in the CIS of 20.11.2009: in particular, the failure because of doubts in the country of origin is not provided. Finally, the actions of the Russians do not comply with the principles of selective customs control on the basis of risk assessment as stipulated in the Convention on the Simplification and Harmonization of Customs Procedures (Kyoto Convention), which was signed by the Russian Federation among others signatories.

As a result, a number of Ukrainian enterprises has suffered losses associated with defaults on the terms of contracts, damage of cargo, damage to reputation. Many exporters are still not in a hurry to carry out shipment, being afraid of delays of goods at customs. Another part of companies simply do not have sufficient means to make 15% of "deposit." What will be next? How will the "cold" economic war with the Kremlin develop?

The Kremlin is obviously prone to confrontation. So, in the midst of the "customs war", President Vladimir Putin announced: in case of signing the EU-Ukraine Association Agreement, the Customs Union will take measures to protect its market from the influx of goods from Europe. Immediately after the statement of the Russian Federal Customs Service on the normalization of checks, the Russian Foreign Ministry said that the EU-Ukraine Association Agreement will worsen the conditions of bilateral trade between Ukraine and the Customs Union. According to Russian foreign minister Alexander Lukashevich, the agreement on CIS free trade area won’t help: Appendix 6 to the agreement will be involved in order to prevent the flow of "Ukrainian goods displaced by the European import” to the Customs Union market. Moreover, "everything will be under the WTO rules". Furthermore, the representative of the Russian Foreign Ministry calls the association with Brussels harmful to Kyiv, saying that even a shallow analysis of the conditions shows that they do not contain any real benefits for Ukraine, and will lead Ukraine to de-industrialization and its transformation into a market for European products.

In early September, advisor to the Russian President on n development of integration within the Customs Union and the Common economic space of Russia, Belarus and Kazakhstan, Sergey Glazyev, threatened that the association with the EU would mean a violation of the Treaty on Friendship, Cooperation, and Partnership between Ukraine and the Russian Federation, as well as would "deprive CIS free trade area of content". The official refers to the Article 13 of the Treaty, which states that countries shall refrain from actions, which could cause economic damage to each other, and "shall seek to harmonize their policies ..., deepening economic integration on the basis of mutual benefit." Putin’s aide is confident that pursuant to the agreement with Europe, Kyiv refuses to observe the Article 13, and with the signing of the association it would lose independence and "cease to be strategic and a full (!) partner for us". Prime Minister of the Russian Federation Dmitry Medvedev added that the agreement with the EU will fully close the entry into the Customs Union for Ukraine.

Thus, the density of threats is relatively high. Perhaps, everything is really saying about the intentions to prevent European integration or at least punished for it, and, in general, for the pursuit of an independent economic policy. Well, the loss may still be palpable – the annualized export to Russia is $ 23-24 billion, and by the end of the year it may fall by $ 2-2.5 billion. More than 50% of exports of domestic machine-building goods, a significant part of the confectionary (about 40% of sector exports at about $ 300 million in the first six months in the CU states), 35-36% of chemical goods and up to 20% of the steel products export are sent to the Customs Union in monetary terms. Already in August, the steel workers had to stop the shipments.

Although, economist Vitaly Kulik is sure that the abovementioned is not the reason to surrender to power game. According to him, the integration with the EU is a solid strategic choice. "We are the independent state, and if we allow a manipulation, then we will be constantly pulled in the past constraining our development. It's time to act freely, intelligently and focusing on prospects. Even if Russia blocked gas supplies, it would receive landslide losses and new conflicts with European consumers. The federal market cannot suddenly refuse our supplies, and even if Russian producers have something to replace them with, you should not forget about the position of the federal consumers, who also has their own lobby. As well as imports from Russia even without gas in 2012 exceeded $ 9 billion. So, we have objective allies behind the Kremlin.

Kyiv aims to give a symmetrical response. So, at the end of August, against "creeping" strengthening of customs inspections, President Viktor Yanukovych stressed: Moscow's decision regarding individual groups of Ukrainian cargo were hasty and ill-considered. Such words spoken at the highest level in the diplomatic language means rather clear signal. In response to that in a telephone dialogue Putin had to say that "he is also discouraged by such acts, thinks they are wrong and have asked managers and specialists for an explanation," and while has no longer allowed new criticism of Ukraine.

Prime Minister Mykola Azarov stressed that trade conflicts with the Customs Union, including those arisen on ground of future association with Europe, are to be solved on the basis of the WTO rules. According to the head of the Ukrainian Cabinet, the Customs Union also declares its commitment to and compliance with the standards of the Organization and that "we should proceed out of it. A free trade area with the European Union is as important for the future of our country as the rapid harmonization of trade regime with the CU. FTA with Europe is almost a reality that can not be ignored". Azarov instructed the relevant ministries to prepare the accession of Kyiv to the CU agreement on elimination of technical barriers in trade with the CIS countries outside the Customs Union. Economic analyst Anton Sichkar believes that such a balanced approach is faithful and decent response to the hysterical attacks of Russians. As for the WTO, experts remind that the Organization has a conflict with Russia, so it is interested to take the side of Ukraine. "Consolidated position, when a small country is supported by influential members of the WTO, has always a better chance of success," director of the Razumkov Center economic programs Vasyliy Yurchyshyn believes.

Economic development and trade minister of Ukraine Ihor Prasolov adds that the Article 19 of the CIS free trade area agreement clearly prescribes solutions to trade disputes – either through the Economic Court of the Commonwealth, or through the WTO. Meanwhile, the MPs prepare a draft resolution on the response to Moscow's actions, which involves detailed report on bilateral trade, which is to be sent to the WTO to obtain advice on the mechanisms of solving such conflicts and their prevention in the future. In addition, the Cabinet together with the National Bank will be asked to develop draft laws and other normative legal acts on the fiscal and banking support for the domestic producers affected by the actions of the Russian Federation. Ivanchuk specifies that it could mean the inclusion of such companies in the list for automatic VAT refund, etc., "in addition, the government should have immediate action plans in case of a recurrence of such conflicts".

Perhaps the most valuable thing for our country in this situation is the active position of Brussels. This indicates that EU already considers Kyiv as part of the Union and is willing to support Ukraine in trouble. August 20, the European Commission representative John Clancy officially stated unacceptable any economic threats from the Kremlin against Ukraine, including those related to the signing of the Association Agreement with the EU. European official stressed: it is crucial that this agreement does not prevent Ukraine from developing a constructive relationship with the CU as long as the relationship is founded on the principles and rules of the WTO, and as long as it does not contradict the future FTA with Europe. "Besides, European goods that will go to the Ukrainian market within FTA mode could not claim for preferential imports in Russia because of rules of origin. - Clancy says. - The free trade area with the third party can not be an excuse for tightening customs procedures".

Then, the same position was confirmed by European Commissioner for Enlargement and Neighbourhood Policy Stefan Füle. August 28, on the first day of work after the summer holidays, members of the European Parliament convened at the special meeting of the Committee on Foreign Affairs devoted to Ukraine. Following the meeting, the Committee chairman Elmar Brok stated that hostile trade behavior of Moscow against Kyiv violates international legislation and is unacceptable. Polish MEP Krzysztof Lisek added: Putin should be awarded the Nobel Prize in ophthalmology because he opened eyes to the real motives of the Russian attacks related to the European integration of Kyiv. Finally, another Pole, chairman of the EP Committee on Cooperation with Ukraine Pawel Kowal offered to sign the association agreement even before the November summit of "Eastern Partnership".

Experts of the Eavex Capital investment company confirm: "customs war" has prompted Brussels to a clear position in support for Ukraine, and signing of the association in autumn. This once again confirms the EU's real interest in this approach, both political and economic interest. European economist Sony Kapoor assures ForUm: “Not only Ukraine, but EU as well is interested in the Association. Moreover, it is not known which party has the greater interest. Yes, now we observe shoots of a way out of the eurozone recession - but that's only the beginning of a long journey, and the key challenges still remain. We can follow this path together, as in such a way it's easier to solve problems".

Meanwhile, the Russians are advancing the attack. Thus, the Eurasian Economic Commission of the Customs Union has already prepared a draft resolution "On response against systemic violations of the conditions of granting tariff preferences by the third countries". It provides for the import monitoring, conduct of on-site inspections in the exporting country ("by its consent"), and "as a last resort" - the suspension of receiving certificates of origin of goods. Yurchyshyn has no doubt that the document is directed specifically against Kyiv.

Deputy economic development minister of the Russian Federation Alexei Likhachev argues that such a practice is widespread in the WTO, as well as spelled out in the agreement on CIS free trade area. "The Customs Union states may impose safety sanctions if there is a real threat of damage proceeding from relations of our partners with the third countries. These may be tariff and non-tariff measures. These may be quantitative restrictions, temporary duties - as well as the specification and complication of customs procedures because of the need to accurately define the country of origin and the correct labeling. Unfortunately, the Ukrainian party has not really listened to our arguments. They are reasonable, and we have to react," the official tells, not hiding the fact that innovations are directed against Ukraine.

Against such a background, Sichkar remarks that Putin considers Ukraine’s rapprochement with Brussels as his personal defeat, and therefore will support a wide variety of choices of economic pressure, where the customs conflict was only the first in a new series, now clearly related to the November signing of the association. The attacks will be periodic, but painful – directed at individual commodity groups, sensitive to domestic export, so not to immediately run under the WTO sanctions. Especially it touches different food products, which are easier to be complained about. Expert Ustenko adds engineering to the risky list, measures against which are to be much more sensitive. The factors acutely set the task of re-orientation of exports to Europe and other regions. Thus, in the first six months of 2013, the deliveries to the EU increased compared to January-June 2012 by 2% up to $ 8.4 billion, and the FTA creation will speed up the process.

Yet there is nothing to be afraid of in this situation. We just need a normal work to protect our economic and political interests, which must flow calmly, competently and consistently. The recent statements by top officials of our country let us hope for this approach. Moreover, Europe shows increasingly firm support for Ukraine in confrontation with Russia. It should be mentioned that Europe is the most important sales market for the Kremlin (22% of total exports), so it is not profitable for Russia to quarrel with the EU.