Russia Tries to Turn Ukraine East

As Ukraine closes in on an association agreement with the EU, Moscow has led what Ukrainian officials are calling a trade war.

It’s a classic story of East vs. West. Ukraine, a country that has been perpetually pulled into the shadow of Russia, is only two months away from signing a landmark Association Agreement with EU leaders at a summit in Vilnius, Lithuania. Such a move, though still very far from promising Ukraine membership in the European Union, would in many ways redraw the boundaries of Europe, claiming Ukraine for the West once and for all.

Mother Russia, however, has been developing her own ‘Eurasian customs union’ with ex-Soviet states Belarus and Kazakhstan since 2010 and is strongly recommending that Ukraine join. The customs union is designed to act as an economic and diplomatic counterweight to Brussels and, because of the disparity of size and power between its members, all major decisions will undoubtedly be taken from Moscow. Former secretary of state Hilary Clinton, denouncing what she saw as land grab by the Kremlin over previous USSR territory, called the Eurasian union a “move to re-Sovietize the region”.

Ukraine, given its history with interventionist Russian projects, is understandably reluctant to join, and has publicly stated its intent to instead pursue links with Europe, something a majority of Ukrainians support. Ukraine plans to demonstrate such intentions this November in signing the Association Agreement. In the meantime, the Kremlin is pulling out all the stops to forcefully persuade Ukraine that its place is entrenched in the East.

Wine and chocolates

“We are preparing to tighten customs procedures if Ukraine makes this suicidal step of signing the EU Association Agreement,” stated Sergei Glazyev, Russian president Vladimir Putin’s advisor on developing the customs union, on August 18th. Even before Ukrainian president Viktor Yanukovych has taken such a step, however, it appears that the Kremlin has already moved from verbal intimidation to punishing trade restrictions.

The first hit was the Ukrainian confectionery firm Roshen, known for its assorted chocolates. Despite having already supplied its products to the Russian market since 1996 and despite the fact that no Russian inspectors paid visits to Roshen factories, the Kiev-based company was informed that their chocolates were banned from entering Russia because of an improper handling of raw materials in the production process. Fellow customs union members Belarus and Kazakhstan soon joined the ban, which could lead Roshen, one of Ukraine’s biggest companies and largest employers, to lose up to $200 million.

Soon afterward, Belarus suddenly banned wine imports from Inkerman Wineries, located on the northern coast of the Black Sea. The Belarus market constitutes 35 percent of Inkerman’s output, setting the company up to lose a large percentage of their overall revenue. The reason given for Belarus’ wine ban was that Inkerman’s products did not fulfill “organoleptic indicators”, meaning that the wine doesn’t have enough taste. The recent bans send a clear message from Moscow to the Ukrainian leadership: that Ukraine’s economic dependence on Russia is real, and the Kremlin is willing to use this dependence to achieve its means.

Energy dependence

Nowhere, is this dependence more clear than in the field of energy. Despite Ukraine’s liberal and westward-leaning previous government, President Yanukovych came into office commanding a country more dependent on Russia than ever. After an intense round of negotiations over gas prices, former Prime Minister Yulia Tymoshenko signed a ten-year contract with Russian state-run giant Gazprom pledging to purchase more Russian gas than needed at above market rates. In January of this year, the Yanukovych government refused to purchase any gas Ukraine did not import for use and was promptly slapped with a $7 billion bill.

Faced with such an asymmetrical relationship, the Yanukovych government has increasingly turned to the West in its search for new sources of economic growth. At the beginning of 2013, Ukraine signed a $10 billion deal with Royal Dutch Shell, who will soon commence exploration for shale gas in the east of the country. Signing the Association Agreement with the EU would doubtless open up similar opportunities as regulations are passed to bring the Ukrainian market into line with European norms.

For the time being, the economic ball seems firmly in the EU’s court. Ukraine has shown itself dedicated to building bridges with Brussels; now Ukrainians are waiting for European leaders, notably German chancellor Angela Merkel, to say “Willkommen!”

Andrew Witthoeft is an EU affairs advisor currently based between Seattle and Brussels, Belgium.