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Alexey Ulyukaev: We see a definite unwillingness of our EU and Ukrainian partners to take into consideration Russian concerns about association

22.12.15

Alexey Ulyukaev: We have finished our meeting regarding our concerns and the implementation of a wide-ranging and integrated agreement about a free trade area between Ukraine and the EU. We have completed this meeting and all our work that comprised 6 meetings of ministers and almost 20 meetings of experts. During these meetings and information exchange Russia showed a high level of flexibility. I remind you that at first the text of the Agreement was supposed to be changed, then we talked about the appendices to it. In response to our EU colleagues’ position we put these requests aside and insisted on the necessity to complete a legally binding agreement of separate DCFTA Agreement that would allow to come to terms with the situation when one country is a participant of two different regulating systems. It is a very important detail. There are many countries that are the members of two free trade areas simultaneously. But we do not know examples of countries that are simultaneously the members of two different regulating systems: technical, veterinary, custom, etc. It was a serious intellectual, political and economic challenge. I am afraid we weren’t ready to meet this challenge. Our partners were persuading us and are doing it now that they will definitely show their will sometime in the future, they will create working groups and consider Russian concerns. They will “kindly consider the offer” that will be sometime received. It goes without saying that the practice of international law does not understand “kind consideration”, it understands “obligations of partners”. The parties have assumed obligations, monitor their realization, amend positions depending on the monitoring results.

We cannot say that we wasted this time, we understood many things better. I must say that since June 2015 the work has intensified. But we lost a plenty of time in the beginning. Then the work became a bit more active from the practical point of view, but till now we haven’t done much. For example, the situation with the technical barriers to trade (technical regulation) is better. The parties agreed in principle that there must be transition periods during which the requirements of CIS GOSTs and European standards of technical regulation can be valid simultaneously.

There was contradiction regarding the terms. Russia offers long terms: up to 10 years for high-priority, the most sensitive sectors and up to 5 years for the rest of the sectors. Our colleagues offered up to 5 years for the most sensitive sectors and up to 3 years for the rest of the sectors. This contradiction may be removed during our future work if there is no progress in other directions.

I am afraid that this is the only evidence of a positive result because in such spheres as veterinary, phytosanitary control, and customs administration we see a definite unwillingness of our partners to take into consideration our concerns.

We assumed and assume the Ukraine has its obligations which it has taken up entering the free trade zone of the CIS. These obligations refer to technical regulation, customs administration and veterinary control spheres. And now entering into the free trade zone of the EU the country must decide if it is ready to fulfill its former commitments. Only in this case obligations can be obligations. In case the country is not ready to fulfill its commitments it cannot be guaranteed that the other side, I mean the Russian side, will fulfill its commitments unilaterally while Ukrainian side will not. This situation is unacceptable in International Law.

Unfortunately, in these spheres we did not receive a positive reply to our concerns. Consequently, our work process did not lead to tangible results in the form of an agreement which contains the issues I mentioned before as well as some other issues, maybe, not very essential, such as investment security or synchronized operation of electric energy systems. In those spheres it could be possible to reach a technical agreement in case of rapprochement of both sides which was not reached.

As for the form of agreement, our colleagues are talking about a political declaration. Actually, we can use it as the resulting document name: the political declaration which states that the parties can take certain actions in future. We are talking about a legally binding agreement where parties assume their obligations and must be responsible for their fulfillment. We could not accomplish it as well.

Thus, we assert that the decision was not found. Russia was left face to face with its concerns and risks. We independently have to defend interests of our economy. We informed about it in advance. Indeed, we prefer choosing all-round cooperation but since we meet a refusal we don't have any other option than to defend national interests of Russian economy, manufacturers and citizens.

In that regard from January 1, 2016 the decision of the CIS countries free trade zone agreement suspension concerning Ukraine will come into effect. It will mean adoption of the most favored nation condition which foresees that Ukrainian exporters will have the same conditions as any other country but not preferential conditions. As you know, the Chairman of the Government of the Russian Federation today reported about signing of the Government Decree on adoption of protective measures of the food embargo. But it does not have a direct connection with our work at the present time. This is a response to Ukrainian initiative to join the sanctions regime which was formerly introduced by the EU, the USA, Japan, Canada and Australia. It is the result of our work. I am ready to answer your questions.

- That is, it can be concluded that the final line has been drawn, and will no longer be any negotiations?

Alexey Ulyukaev: No, it is no so. We will continue to work. Life does not end on January 1, 2016. After January 1, there will be second and so on. That's why we will meet, discuss, and negotiate. Only they will be done on the other side of "Rubicon" - in a situation when there will be implemented the main provisions of the trade and economic part of the Agreement on deep comprehensive free trade area between Ukraine and the EU, on one side. On the other hand, Ukraine will cease to enjoy preferential treatment and will work under the conditions of MFN treatment (most favored nation treatment) in trade with the Russian Federation. Of course, there will arise some issues that will require our discussions. We are open to this discussion, but it is the discussion which will be held after recognizing those of realities, which have now been formed.

- Allow me please asking you a specifying question. On January 1, 2016 the most favored nation treatment will begin to operate, i.e. customs duties will be introduced. Have we calculated which areas in the Russian economy will be most sensitive in case of introduction of customs duties? And how has your work today been influenced by the mentioned today two Government Resolutions on Ukraine - one about food embargo, and the other about the most favored nation treatment? How have they influenced your work today?

Alexey Ulyukaev: On the first question, of course, we have calculated it. We have developed a special mathematical model of multilateral trade relations, analyzing what risks occur, what this means for prices, business of the companies involved deeply in our trade and economic relations with Ukraine. By the way, we provided information about it to our partners. From the moment this was done a year ago, trade volume has strongly reduced. This year it is unlikely to exceed 12 billion dollars (2 years ago it was almost 40) - the volume has reduced three times, so now, of course, these positions will need to be revised.

But, overall, we know these sensitive areas. And as you may remember, in August, the Government took the resolution with the delayed period of enforcement about the most sensitive products. So this work was conducted and will be conducted in the future.

Second, regarding the publication of these decisions. First – our partners, I would say, took it emotionally my explanations to them that there is no reason for such emotional feelings, because as back as in September of this year at our last Ministerial Conference, I directly warned colleagues that the consequences would be if we do not reach agreements. So there is nothing new in that. The only news is that it was published today. More is nothing new.

- At some point the European Commission has proposed to establish a tripartite working group which would work after the implementation of the agreement from 2016, in which Russia, Ukraine and the EU would continue to discuss these issues. Will it be created?

Alexey Ulyukaev: We in the beginning were not against the creation of this working group or the combination of several working groups. Only we differently saw this work. We believed that these working groups should examine and control the execution of those agreements that we would make, the commitments we would undertake. And colleagues believed that these working groups would be to some extent "favorably responsive" to any suggestions. So, we have completely different ideas about the nature of these working groups. As regards the formal side – no decisions on the establishment of this working group are accepted, but we are ready for such a development of events. We are ready to meet separately in case of any questions, to discuss them, ready to create a common mechanism for their consideration. In the end we all need to take care of our business - the Ukrainian, European and Russian - to help and to find solutions. Therefore, we are ready.

- On further economic relations with Ukraine. Are sanctions against Turkey and Ukraine problem for the Russian economy?

Alexey Ulyukaev: Ukraine is our natural trading partner. We are neighbors, having a large number of enterprises and businesses that operate in cooperation with each other. Their numbers are shrinking, but still large. Therefore, we in any case are not going to tear economic relations. The most favored nation treatment means that Ukrainian exporters will have a treatment which is not worse than enterprises of any other country. As, for example, the enterprises of Belgium, in which we are now. To the best of their abilities, our trade missions, relevant institutions will facilitate the exchange of goods. Only it will be done not in preferential treatment, because we have no reasons for preferences for the country, which lowers the bar of its obligations.

We have not imposed sanctions on the European Union. The European Union has imposed sanctions on us. And we just responded to these sanctions. We now have not introduced unilateral sanctions against Ukraine. It was Ukraine which introduced in August of this year unilateral sanctions against Russian individuals and legal entities, enterprises. I can give you a long list of laws introduced by the Verkhovna Rada of Ukraine and the decree accepted by the Government of Ukraine, breaking scientific and technical agreements, breaking cooperation in the investment sphere, ceasing flights between the two countries, etc. This is response. But of course, we are trying to build these responses that they are least burdensome to business.

- When will we see what duties and on what products will be introduced? Maybe you could clear up a question regarding Ukrainian pipes: duties will actually lead to the fact that it will be unprofitable for the Ukrainian side...

Alexey Ulyukaev: We will introduce the unified customs tariff of the Eurasian Economic Union, which exists for all classification codes. The tariffs that we, five member countries of EurAsEC, support. And it is this customs tariff will be imposed on Ukraine.

There is, of course, a fairly large variation, but on average it is in line with our commitments, accepted by Russia, when joining the World Trade Organization. And for 2016 it will be about 6%, and then it will be even a little bit reduced.

As for pipes, I can't specifically answer this question.

- What effect can have this food embargo to Russia?

Alexey Ulyukaev: I said already that the volume of food imports from the Ukraine decreased by approximately 200 million dollars. So it will not have a significant macroeconomic effect.

- Will change of trade relations with Ukraine require additional consultations in the Customs Union?

Alexey Ulyukaev: These consultations are now in progress because the relations of Russia and Ukraine are defined not only by one-sided but also many-sided agreements within the CIS. Their participants are Kazakhstan, Belarus, Armenia and Kyrgyzstan. So this issue is a definitely in the agenda. As far as I know, the EEU high council which had a meeting today in Moscow is discussing this issue. Of course we will also discuss it. It is a matter of our common interest.

- The negotiations today took quite a long time. Basically, the parties arrived with their formalized positions. Will you please tell us what a reason of that delay was? Was it the last attempt to reach an agreement?

Alexey Ulyukaev: In fact, either of both. Technically we followed the text of the expected agreement. This text was composed of sections with square brackets where parties expressed their positions. So, the part of general text was smaller than the part with separate positions. We tried to bring together those positions and remove the brackets. In one or two cases we could do it but substantially we could not.

The discussion was quite interesting. In fact, the representatives of customs authorities of the European Union participated in the discussion for the first time. Perhaps, we could make a significant advancement in this direction, if it has been done in the beginning. I regret to say again that the colleagues did not take this work seriously in the beginning. Only recently we observed the signs of seriousness.

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