bne -

Ukrainian Prime Minister Mykola Azarov told his weekly cabinet meeting on August 28 that his government intends to sign the Ukraine-EU Association Agreement, which would deepen EU-Ukraine relations, and that Russia should accept this reality.

"After signing the Association Agreement with the EU, Ukraine will create a free trade zone with the EU. That has to be accepted as reality," Azarov was reported as saying by newswires.

He added: "The whole world is changing, the global system of economic relations. But to build a fence to protect yourself from changes using artificial barriers is simply pointless."

Azarov ordered several ministers, led by Vice Prime Minister Yuriy Boyko, to development a practical mechanism for cooperation between Russia's Customs Union with Belarus and Kazakhstan - and its successor, the Eurasian Economic Union - and the free trade zone that will be created between Ukraine and the EU.

"The main task for the Azarov government in the next three months is to find a compromise on the EU requirements for signing and cope with Russian attempts to undermine the agreement, which will include political campaigns domestically such as a signature drive to hold a referendum on the Customs Union," says Zenon Zawada, a commentator on The Ukrainian Week.

Russia has been trying to head off such a move by Ukraine. Earlier in August, it imposed extra customs checks on Ukrainian imports for several days, causing a near standstill at the border. Russian President Vladimir Putin has also warned Ukraine that the Customs Union might take "protective measures" if Kyiv signs the trade deal with the EU.

Roshen, among Ukraine's top confectionary producers, reported on August 28 an ongoing Russia ban on its products. It says it has yet to receive an official notice from the Russian government explaining the reason that its goods have been banned since late July. "The situation hasn't changed yet, deliveries aren't being made from Ukraine," said company press secretary Iryna Petrenko, as reported by RIA Novosti.

Zawada says Roshen was among the first companies targeted by the Russian government in its trade conflict with Ukraine, partly because its owner, Petro Poroshenko, has been among the biggest supporters of Ukraine signing the Association Agreement. "Yesterday's statement confirms that the trade conflict has only begun, and offers further evidence that discredits that August 20 statement offered by the Revenue and Fees ministry that customs inspections have returned to standard procedure on the Russian-Ukrainian border. The nation's confectionary producers association reported on August 27 ongoing customs delays with certain exports," he says.

Concorde Capital says the situation with Roshen back the criticism given by EU MP and the chairman of the EU-Ukraine Parliamentary Cooperation Committee, Pawel Kowal, that Russia is a large but unreliable market subject to politics. "Indeed, the more Russia escalates its trade conflict, the more arguments arise for the Ukrainian government to sign the Association Agreement with the EU," the brokerage notes.