Putin pulls plug on Russia's free trade zone with Ukraine

Putin pulls plug on Russia's free trade zone with Ukraine
By bne IntelliNews December 17, 2015

President Vladimir Putin has signed an order to suspend Russia's free trade agreement with Ukraine as of January 1, 2016, while telling the world's media in his annual press conference that while no sanctions will be imposed on Kyiv, it has forfeited its previous commercial perks.

Seen as retaliation for Ukraine joining a free trade pact with the European Union that is due to take effect on the same day, the Russian move was implemented "due to exceptional circumstances affecting the Russian Federation's interest and economic security and requiring immediate measures", according to according to a document published on the government's legal information website on December 16.

During his 11th televised annual Q&A session on December 17, Putin stressed that Russia will not introduce any sanctions against Ukraine. "Regrettably, we predict a worsening of economic relations with Ukraine as of January 1," he added. "We will have to make a decision we will no longer be doing business with Ukraine as a member of the CIS free trade zone." Kyiv will no longer enjoy the privileges and preferences it used to, Putin said.

Suspending the free trade zone agreement signed in 2011 is the latest development in a series of restrictive or retaliatory measures announced by Moscow and Kyiv, whose relations fell apart after the Russian annexation of Crimea in March 2014.

On December 16, the Ukrainian cabinet approved a boycott of goods and services to and from Russian-held Crimea peninsula, with the decision taking effect in 30 days.

"The government will approve a number of decisions today. The first decision concerns the restriction on supply of goods and services to Crimea, which is Ukrainian territory, but is temporarily occupied by the Russian Federation and, accordingly, from Crimea,"

Ukrainian Prime Minister Arseniy Yatsenyuk said the decision will come into force after 30 days and will prohibit "to supply works, goods and services in every customs regime with the exception of personal belongings, socially significant foodstuffs and humanitarian aid".

This follows a recent energy cut-off of Crimea when Ukrainian electric power lines to the peninsula were blown up by Tatar and nationalist protesters. Russia responded by speeding up the completion of a power line to the peninsula from across the Kerch Strait.

Following heated trilateral EU-Ukraine-Russia talks in early December, Russian officials warned a food embargo may be imposed on Ukraine following Kyiv's decision to join international sanctions against Russia. The embargo, if approved, will be scheduled to come into effect on January 1, 2016, although this would not tally with Putin's assurance that there will be no sanctions against Ukraine.

"Since Ukraine joined in the sanctions against the Russian Federation - economic and financial - we have resolved to introduce protective measures in the form of food embargoes," Russia's Economy Minister Alexei Ulyukayev said earlier.