Risks for Russian-Ukrainian economic relations (by Ambassador Yakovenko)

There has been much speculation lately about the reasons for Russia’s negative stance on the Association Agreement between the European Union and Ukraine. Much has been said about politics, but not enough on the economics of the matter. Still, Russia sees the implementation of the Agreement as a source of considerable, tangible and immediate risks to its market, something that should be discussed by all sides involved, instead of rush into implementation. Listed below are some of the specific possible effects, covering areas of tariffs, customs control, technical regulations, sanitary and phytosanitary measures.
The Agreement stipulates that 80% of export tariffs are to be cancelled or lowered right away and further 15% - within 5 years. As a result we expect the Ukrainian market to be saturated with European goods and components quite quickly, which can lead to Russian goods being displaced from Ukraine and EU. At the same time some Ukrainian goods, including metal products, glass, certain types of equipment, farm produce, consumer goods, pharmaceuticals, etc., can be forced out to the Eurasian Economic Union (Belarus, Kazakhstan and Russia, EEU). There is also a risk that Ukraine will be used as a low-cost transit channel for European goods, for example used cars or rolling stock, bypassing the agreed tariff schedule.
Another area of concern is customs control. According to the Agreement, Ukraine has to adopt some of the EU customs control standards, procedures, software, etc. That can easily ruin the co-ordination between Russian and Ukrainian customs authorities (for example, disrupt the systems of advance data exchange, of mutual customs checks recognition), decrease their efficiency for an extended period, at the very least while the new systems are being introduced. There is also a risk that certain customs data might be purposefully altered in Ukraine in order to re-export European goods to the EEU, or even conceal disparities in standards.
Technical regulations and standards are one of the most serious issues for us in terms of trade with Ukraine. The move to the new rules, in accordance with the Agreement, would mean that Russian exporters will no longer be able to use certificates, issued in Russia and currently accepted by the Ukrainian authorities, including lab and test results. It would also become impossible to use the Russian GOST system – while effective, it seriously differs from the EU methodology. At the same time, there are no agreements between EU, Russia and the EEU on mutual recognition in this area. All this would impose huge financial costs on Russian companies just to keep exporting to the Ukrainian market.
One more area of concern is sanitary and phytosanitary measures. Some of the articles of the Agreement mean that the system of control in the Ukraine, together with labeling standards, will become somewhat more relaxed, and that can possibly lead to exports to Russia of Ukrainian and European goods of inappropriate quality.
Some of the other topics include energy (e.g. obligation to lift export duties for natural gas which can apply in certain circumstances to Russian gas, as well as the obligation to adopt European electricity regulations which can disrupt the concurrent operation of our energy systems within the relevant bilateral Agreement) and migration (imbalances of the Ukrainian economy and unemployment growth can lead to a surge of labour migrants to Russia, especially considering eased border controls).
Russia and Ukraine are long-standing trade partners, with thousands companies and their employees involved in day-to-day mutually beneficial business projects. The risks that concern us are not theoretical, they will create real boundaries that some of the businesses will simply be unable to overcome. It remains our strong conviction that while Ukraine certainly has all the rights to strive for further integration into the EU market, a more thorough discussion of all the risks and consequences of the Association Agreement could have been more than welcome. And I am sure that it is never late for a dialogue. All the more so, that Brussels admits that it will take time and efforts for Ukraine to be prepared to implement its obligations under the Agreement.