Accord exposes Kiev to political economics of Kremlin’s whim

Analysis: Moscow has leverage through economic ties and rebel regions

Ukraine's president, Petro Poroshenko, knows from personal experience how Russia could react to his country's landmark trade deal with the European Union.

The confectionery billionaire, who signed an EU association agreement alongside Georgian and Moldovan leaders on Friday, saw his Roshen firm's chocolates barred from Russia last year on safety grounds; Roshen denied there was a problem, and no other country complained about the product. At the time of the ban, Mr Poroshenko was the most prominent business advocate for the EU pact, and he supported protests that erupted when then president Viktor Yanukovich scrapped the deal last November.

Mr Yanukovich claimed his experts had realised that the association agreement, negotiated over several years, would actually be a disaster for Ukraine, wrecking ties with Russia, sinking the economy and causing mass unemployment. Moscow had made clear its disapproval with measures like the Roshen ban, tough new customs checks on other imports from Ukraine, and veiled threats to make it harder for Ukrainians to work in Russia.

Four months after Mr Yanukovich and his pro-Moscow allies fled to Russia, Mr Poroshenko is president and the EU deal is signed, but the Kremlin’s anger at Ukraine’s tilt to the West is unabated.

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Price already paid

Russia has already exacted a huge price from Ukraine for attempting to escape its sphere of influence, annexing Crimea and allowing – Kiev says training and organising – heavily armed Russian fighters to enter eastern Ukraine.

Moscow has long warned that trade ties would suffer badly if Ukraine pursued a pro-EU path, and the crisis-hit country’s feeble economy can ill afford the loss of a Russian market to which it sends about a quarter of its exports.

Moscow says a surge of EU goods into Ukraine will prompt its producers to dump their wares on to Russia’s market, to the detriment of domestic manufacturers.

Many analysts expect Moscow to revoke Ukraine’s special trade status and impose tariffs on its imports, and to continue to use its domination of the regional energy market to exert pressure on both Ukraine and Moldova.

Moldova saw Moscow ban imports of its wine and brandy last year, and its vital agricultural sector is vulnerable to further Russian measures.

Moscow barred Georgian wine and mineral water imports for several years, and fought a war with Tbilisi in 2008, after which it recognised the independence of two separatist regions in the country, Abkhazia and South Ossetia.

Georgia is less exposed than Ukraine and Moldova to economic pressure from Russia, but Moscow can destabilise it via those breakaway provinces, as it can Moldova through its own pro-Moscow rebel enclave, Transdniestria, and Ukraine through Crimea and insurgency-wracked Donetsk and Luhansk.

The three new signatory states also fear their many citizens who live in Russia could be the targets of a crackdown on migrant workers.

The countries hope Brussels will seek to soften Russia’s reaction, however, and believe the long-term economic and other benefits of linking with the EU will outweigh any damage from their break with Moscow.

European opportunity

The ex-Soviet republics will now receive tariff-free access to the world’s largest and wealthiest single market, while enjoying some protection from EU imports in their own markets during a transition period.

The EU also pledges to help them modernise their economies, reduce corruption and strengthen democracy, human rights and the rule of law.

“The short-term shock of joining the EU free-trade zone amid a slowdown of economic activity and possible measures from Russia may lead to a recession,” warned Dorin Dragutanu, governor of Moldova’s central bank.

“But recession isn’t the end of the world. There is life after recession.”