“Trading aggression”: as the prohibitions on transit will affect Russia and Ukraine

That tightened Russia?

On 3 July, the President amended his decree, which restricts the transit of Ukrainian goods through Russian territory. In particular, the transit of goods subject to food sanctions, is now completely prohibited. In addition, prohibited the transit of goods in respect of which the applicable import customs duties above zero, established the Unified tariff of the Eurasian economic Union, which includes Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia). The representative of the Ministry of economic development says it’s goods 97 groups — from food to equipment (they are spelled out in the decision of the Eurasian economic Commission No. 54).

In accordance with the new decree, in order to smuggle in transit through Russia allowed the goods to Kyrgyzstan, the Ukrainian trucks and trains now have to make a detour, drove to the Russian territory through the Belarusian checkpoint. From 1 January 2016 this procedure is already in place for Ukrainian goods, which followed in Kazakhstan. Travel permitted only in the case if the vehicles are equipped with satellite system GLONASS.

In this connection the decree?

Press Secretary of the President of Russia Dmitry Peskov said that the new decree of the President is associated, rather, with the activities of the Eurasian economic Union of Russia, Kazakhstan, Belarus, Kyrgyzstan, Armenia (EEU). However, he added that he could not “adequately explain” the reasons of signing of the decree.

According to the interviewed experts, the decree is needed to limit the flow of illegal goods to Russia. Professor, faculty of world economy and world politics VSHE Alexey Portansky recalled that from 1 January 2016 in Russia and Ukraine no more free trade zone. In relation to Ukraine are the rates of customs duties are the same as in relation to other countries — EU, USA, Canada, China. “So here we are talking about the restriction of trade with Ukraine and on prevention of possible cases of illegal unloading trucks with products on the Russian territory”, — said the expert.

“To enter the system “Platon” a cargo from Ukraine, which went to Kyrgyzstan and Kazakhstan, did not reach the final consumer, the cars were unloaded at the border with Kazakhstan, the freight is not tracked, and customs duties were not paid. That is, these restrictions must be to ensure that Russia was not the flow of goods from the West, which are free of duty into the territory of Ukraine after the Association,” says President of the public organization “Association “Gruzavtotrans” Mr Mutagen. The economic part of the Association agreement between Ukraine and the EU was signed in the summer of 2014. A free trade area within the Association began to operate from the beginning of 2016.

Restrictions, including tariff and non-zero rates of duties, can be considered an additional barrier for imports from Ukraine during the transit of war with a neighboring Republic, said Portansky. The introduction of Russia restrictions on transit to the Ministry of economic development and trade of Ukraine called “economically and legally unfounded, it is expected will lead to an artificial deterioration of the terms of trade of Ukraine with the third countries”.

Why is it important for Ukraine?

Trade representative of Ukraine Nataliya Mykolska said that Ukraine could lose about 90% of export of Ukrainian goods to Kazakhstan and Kyrgyzstan due to the Russian restrictions. In April 2016 the Ministry of economic development of Ukraine noted that the trade restrictions imposed by Russia has increased the cost of cargo transportation to Kazakhstan by 30%, reports UNIAN. Total exports of Ukraine in Kazakhstan in 2015 amounted to $827 million, said the international trade Centre (ITC) is 2.2% in total exports of Ukraine. According to ITC, the share of deliveries from Kazakhstan in the total import of Ukraine was 3.4% ($35.1 billion in 2015).

Kyrgyzstan does not border with Russia, but in all likelihood, there were cases of supply of goods from Ukraine to Kazakhstan with indication of Kyrgyzstan as a final destination, says Portansky. “So, apparently, for hedging added Kyrgyzstan,” he says. Armenia is also included in the EAEC, but the goods in it are delivered by other routes, and restrictions on the transit on it is probably impractical to distribute, said Portansky.

“Limit, because the bypass would significantly increase the cost of travel, will result in a temporary collapse in the market, we are talking about a fairly large amount of cargo movement,” — said the Director of “Sovtransavto Vladimir Chan. On Tuesday, the Kazakh national chamber of entrepreneurs (NCE), “Atameken” reported that about 50 cars with Ukrainian goods which are for companies in Kazakhstan, idle on the Russian-Belarusian border. Operational duty Krasninskiy customs post of Smolensk customs said that the congestion of trucks with Ukrainian goods and work normally.

What could be the consequences for Russia?

Gaina said that the Ukrainian authorities are considering the Putin’s decree “as a trade aggression, which is contrary to WTO rules”. Ukraine is preparing a response and is going to file a lawsuit to the WTO. “If Russia does not respond adequately, and we think she does not respond, then we are preparing at the moment a request for the initiation of the dispute, to force the Russian Federation, these measures to change that,” she said (quoted by “RIA Novosti”).

Freedom of transit is one of the key principles of freedom of trade, and he is enshrined in the fifth article of the General agreement on tariffs and trade, the WTO emphasizes Portansky, Russia departs from the requirements of this article. “Basically for security reasons, it can be done, but will need to give an explanation. In the decree [the Russian President] is written to introduce a temporary ban — it is clear that partners, primarily Ukraine, you can file a complaint with the WTO. In this case, we can refer to the fact that the ban is temporary and not permanent in nature,” he said.

According to the representative of the Ministry of economic development, the restrictions imposed do not violate WTO rules. “And if Ukraine in response will enter the mirror measures against Russia, domestic companies diversifitsirovat transit or preorienting markets”, — he said. The representative of the Ministry stressed that the Russian government may permit the carriage of certain goods, if there is such an appeal from the government of Kazakhstan or Kyrgyzstan. Official notification from Ukraine that greater restrictions on transit will lead to complete stop of the transportation of goods, the Ministry has not been received.

Russian goods, according to General Director of research Agency InfraNews Alexey Bezborodov, through Ukraine transit is “almost not”, with the exception of crossing the Siret, on the border of Ukraine and Romania. Pass through the train container “with a sufficient number of components for the Russian Renault plant, he said. According to the Federal customs service, trade turnover between Russia and Ukraine in the first four months of this year decreased almost two times and amounted to $2,656 billion.