Trade reciprocity and circumvention – Ukraine & the neighbourhoodDecember 25, 2015
Looking away from the usual “last minute legislation” expected from the Verkhovna Rada when it comes to facilitating its domestic and international obligations, most recently the tax and budget laws for 2016, the Verkhovna Rada also passed legislation allowing the Ukrainian government the ability for reciprocity when The Kremlin trade embargo with Ukraine commences on 1st January 2016.
A Kremlin inspired embargo (in all but name) is timed to commence simultaneously with the full implementation of the EU DCFTA with Ukraine. In short the Government of Ukraine may now apply the same rules of the game to Russian produce as The Kremlin will do to that of Ukraine. The Ukrainian law passed on 24th December with 291 votes in favour from the 420 deputies registered in the chamber. (226 votes were required to pass the law).
So be it. Trade between Ukraine and Russia has plummeted following the illegal annexation of Crimea and the occupation of parts of The Donbas in the east. With a further $900 million reduction anticipated from The Kremlin applied embargo to Ukrainian products, there is really little further damage of significants any Ukrainian instigated trade warfare with Russia will do to its own economy.
Indeed Ukrainian trade will expand with China, the EU, Turkey, Israel and several MENA nations. Most economists predict economic growth of about 2% in Ukraine during 2016. They may be right, depending upon the scale of Kremlin designed and controlled hostilities in eastern Ukraine that will undoubtedly continue throughout 2016 – and beyond.
The issue for Ukraine is not returning to growth in 2016 – the issue is maintaining that growth in 2017, for that will require market reforms that thus far have been glacial in coming.
However, necessity is the mother of invention – or perhaps better stated, the mother of circumvention.
Just as it is possible to purchase Belorussian (EU produced repackaged) seafood products in supermarkets in Moscow – Belarus being that entirely landlocked nation renowned for its seafaring abilities (not) – it seems highly likely it will be possible to buy Kazakh produce (that it doesn’t produce – Ukrainian products repackaged) in Moscow supermarkets too.
Indeed it is of note that since The Kremlin’s actions against Ukraine, fellow CIS and EurAsian Union (EEU) nations Belarus and Kazakhstan have hardly been swift in publicly supporting Moscow. An inherent problem with allies being coerced or bought off by The Kremlin in order to earn the title of “Kremlin ally”.
Kazakhstan has recently seemed to have taken, if not a more anti-Kremlin stance, then certainly a stance that is so pro-Kazakh – that will be perceived as somewhat anti-Kremlin. Despite the supposed trade rules of the EEU, Kazakhstan went ahead and signed a political and trade agreement with the EU on 21st December.
Perhaps understandable, for Kazakhstan and Ukraine have some commonalities within The Kremlin – President Putin has inferred publicly that both are not truly sovereign/real States over the past few years. It may thus be felt in Astana that whilst The Kremlin distracted by busily making poor decisions over Ukraine, Syria, Turkey (and eventually it will with Iran too) – notwithstanding even worse domestic decisions – now is the time to act and prudently insure its essential place in a Sino-European trade route now.
That said, Astana will be more than aware that President Putin looks set to remain in power for at the very least (discounting ill-health) a few more years yet – and the “collective Putin” even longer. Some delicate decoupling is required, together with a swift coupling with Chinese and European interests to avoid any gaps, and thus weaknesses, that can be exploited if and when the Kremlin’s Eye of Mordor fall upon Kazakhstan.
Kazakhstan is also receiving more than 10 times the Chinese FDI than Russia currently – much “Silk” related. Indeed due to the Chinese Silk Road/Iron Rail/Silk Belt projects, Kazakhstan and Turkmenistan particularly in Central Asia, are looking east to China and also west to Europe along these trade routes – no doubt Turkey and perhaps Iran eventually will too. What is becoming painfully obvious is that it looks far less to Moscow, instead is turning a cool (if not cold) shoulder.
It comes then as little surprise that Kazakhstan has apparently reached agreement with Ukraine over continuing trade that appears to simply ignore The Kremlin imposed trade embargo with Ukraine – an embargo that theoretically should effect all EEU members. Some may opine that such an agreement simply underlines the hollowness of the EEU project – and certainly when not all EEU members are WTO members, then any trade block/major economy to trade block negotiations will not go very far at all.
Furthermore, Kazakhstan and Ukraine have apparently agreed an intensified industrial cooperation too – and having mentioned Turkmenistan, Ukrainian – Turkmen relations appear fairly warm. A recognition perhaps that Ukraine may ultimately be the final central/northern spur into Europe for the Chinese “Silk” projects, whilst Turkey services the southern European entry – all of which deliberately avoid the territory of Russian Federation entirely.
The relationship between Ukraine and Kazakhstan may well be something worth keeping an eye upon, for it will say as much about the Kazakh intent in the neighbourhood as it will of that of Ukraine.