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Aug 16, 2013

Trade war with Russia spreads to all fronts

Kyiv Post

The trade war between Ukraine and Russia escalated on Aug. 14 when Ukrainian companies accused Russian customs of causing hurdles and even halting their exports. In response, Ukrainian Prime Minister Mykola Azarov downplayed the complaints, calling on the companies and the media to "not artificially blow up and exaggerate the situation."

But experts say this latest round of troubles is a renewed effort to pressure Ukraine into closer union with Russia. Both countries are members of the World Trade Organization.

"This is a new round of Russia’s usual trade war tactics, which it launches against Ukraine hoping to pressure Ukraine into entering the Customs Union," says Russian political analyst Andrei Okara

Ukraine’s biggest steel holding Metinvest said in a statement on Aug. 14 that although there were no official new trade limits imposed by Russia or changes in trade legislation, the company’s shipments started to be scrutinized vigorously as of Aug. 13.

All of the metal shipped by the company is now being examined by Russian customs officers, who in many cases demand samples that damage the products.

"Previously, customs examinations towards Metinvest and other importers were conducted selectively, the number of carriages examined did not exceed several each quarter," the company said in a statement. It also added that Russian customs are now conducting expert examination of shipment documents that sometimes can take up to two months.

"This leads to undermining of business reputation, and also to significant financial damage to not only Ukrainian suppliers, but the Russian importers, too," says Metinvest.

The complaints of Rinat Akhmetov’s metal holding came just hours after Ukraine’s Federation of Employers, a business association of companies who produce 70 percent of the nation’s GDP and headed by another oligarch Dmytro Firtash, raised the issue of problems at customs at a Cabinet meeting that was taking place the same morning.

Dmytro Oliynyk, deputy head of the Federation of Ukrainian Employers, told the Kyiv Post that the federation has received numerous letters with complaints from its members.

Vitaly Lukianenko, spokesman for Prime Minister Azarov, said the Federation passed a number of documents to Azarov, who, in turn, ordered Cabinet members "to settle the controversial issues in mutual trade," Lukianenko said.

Exports to Russia total $1.3 billion per month and accounts for 24 percent of total goods exported. Ukraine’s media, as well as several investment banks, said in their reports on Aug 14-15 that Russia has started applying stricter controls to up to 50 Ukrainian companies.

Russia’s Customs Service had no comment on the issue. Ukrainian Ministry of Revenues and Duties said that "all customs posts on Ukraine’s border are working as expected" and "no traffic congestions are observed."

Yet Russian newswire RIA Novosti said on Aug. 15, citing sources in Russian railways, that more than 1,000 cargo carriages were stalled at the Russian-Ukrainian border.

A wide range of industries has been affected. Ukraine’s beer brewer Obolon said it faced hurdles at customs. Firtash’s Group DF said many of its enterprises were affected exporting a range of commodities from soda and chemicals to dioxide of titan. Ukrkondprom, an association of confectioners, issued a statement saying its members also have troubles at customs. Winemaker Inkerman also confirmed troubles at the Russian border.

Kyiv-based investment bank Dragon Capital said in its note to investors on Aug. 15 that several companies told them there were "stricter control procedures, which include obligatory unloading, checking and re-loading of all goods. This can result in delays on some supplies to Russia and, given seasonally high temperatures, perishable goods are at the highest risk."

This new round of customs troubles comes just weeks after Roshen, Ukraine’s biggest confectioner, was accused of "systemic violations" by Russia’s health inspector. He also said its sweets contained benzopyrene, a carcinogenic substance.

The company dismissed the allegations, but this week reported that it started layoffs of hundreds of workers at its factories across Ukraine because of shipment declines to a major export market In its Vinnytsia factory alone 400 people will be affected by layoffs.

In previous years it was Ukrainian cheese that had been found at fault by the Russian health inspectors, followed by poultry products.

Although most of Russia’s officials remain silent about what’s happening to Ukrainian goods, some politicians have given clear hints.

The head of the Russian parliament’s CIS committee Leonid Slutsky told Ekho Moskvy radio on Aug. 15 that Ukrainian exporters face complicated customs procedures "because Ukraine is not, unfortunately, a member of the Customs Union."

Online news portal Ukrainska Pravda revealed on Aug. 12 a screenshot of an alleged internal Russian customs order that placed nearly 50 Ukrainian companies in the "high risk" category. The internal order could not be verified by the Kyiv Post

Russia has been unsuccessfully trying for years to lure Ukraine into the Kremlin-led Customs Union it formed with Belarus and Kazakhstan. Ukraine, however, insisted that it only wants an observer status in this trade union, and that it hopes to sign an Association Agreement with the European Union during a summit in November.

The agreement contains a Deep and Comprehensive Free Trade Agreement, which will allow for unprecedented economic integration with Europe. As the date of signing nears, experts say Russia is getting increasingly anxious.

"Of course it’s linked to Ukraine’s intention to sign the Association Agreement with the EU," said Volodymyr Panchenko, head of the International Center for Policy Studies. "Pressure on Ukrainian exports to Russia may escalate further."

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