Ukraine-Russia Trade War Simmering Against Background of Proxy Conflict in Donbas

Against the noise and background of a real full-blooded but undeclared war in the east, a quiet but equally savage war is being fought, except the battle arena is different. Trade. Yes, that’s right. Not much is written about it but long-standing economic relationships and ties are being severed, some going back many years. One of the most recent banning actions was carried out on 13 August, when Russia prohibited some alcohol imports from Ukraine. Rospotrebnadzor, better known as the Russian Federal Service for Consumer Rights Protection, confirmed on its site that the ban relates to Obolon beer, beer brewed by the SUN Inbev Ukraine company, and spirits distilled by the Ukrainian Distribution Company, which is a sub-division of Global Spirits. Khortytsya vodka is part of its portfolio. Rospotrebnadzor provided the stock cliché of “during an investigation… multiple violations of the requirements of legislation in the sphere of defending consumer rights were found”. There is little doubt the move was political, coming at a time when the Ukrainian army was making significant progress in trying to recapture territory held by pro-Russia terrorists.

President Poroshenko’s confectionery felt ban last year

But to get a better picture let’s go back to 2013 when the Maydan revolution of last autumn 2013 was barely smoldering. Back in November the head of the Ukrainian state inspectorate for protection of consumer rights, Serhiy Orekhov, announced that Ukrainian confectionery corporation Roshen would resume exports to Russia by 1 December, having been suspended that summer for quality checks. Ukrainian dairy products were also banned in 2013. With a whiff of irony in the air, Rospotrebnadzor was forced in March to temporarily close one of its own milk plants in Omsk. The reason? Why the little matter of a group of male workers who had decided to pose naked in a milk tank used to make cheese, and which had found its way onto You Tube.

Ukrainian retaliation was excuse for a string of bans

But by the time Russia was annexing Crimea in March Ukraine, with the Yanukovych regime now focused on fleeing with the spoils of power, was getting the message. Ukrainian watchdog Derzhspozhyvinspektsiya, the Ukrainian equivalent of Rospotrebnadzor, moved to ban Russian confectionery, cheese and fish products from sale because they do not conform to Ukrainian norms. Sweets from the Krasniy Oktyabr and Rot Front plants as well as the Babayev concern were hit. Ukraine complained of goods being unsafe and sub-standard.

Just four days after the chocolate ban by Ukraine, Russia banned produce from six dairy farms, largely making cheese and butter: Ros, Okhtyrka, Zolotonosha, Hadyachsyr, Pyryatyn and Tekhmolprom companies. This was now a trade war. And as the war in the east rumbled on through the hot summer, so did the trade war. On 4 July the Russian watchdog decided to prohibit dairy products from several Ukrainian plants. Rospotrebnadzor banned milk and dairy goods from several Ukrainian enterprises, specifically from seven plants run by the Milkiland-Ukraine subsidiary enterprise after it “discovered violations of legislative requirements in the field of consumer rights’ protection”. Cheese and, to the point, “requirements for fatty acid composition”, were to blame. One week later, déjà vu. This time the target was the Kharkiv-based Lozovskiy Dairy Plant. By 25 July Ukrainian Agrarian Policy and Food Minister Ihor Shvayka decided to say out loud what everyone could see: the food bans by Russia were politically motivated.  He said restrictions imposed by agro regulator Rosselkhoznadzor and Rospotrebnadzor “on imports of food products from Ukraine are politically motivated… Russia’s bans are, as a rule, unmotivated and unfounded”. What is more, he stressed, allegations that Ukrainian foods contain prohibited substances have not been confirmed. “There have been no instances of prohibited substances found in potatoes, dairy products, poultry or cattle,” he noted. Moldova has experienced the same. The import of Moldovan fresh fruits and canned fruits and vegetables to Russia has been prohibited since 21 July of this year. Moldovan authorities and experts said back then that Russia’s decision was predictable after Moldova signed the association agreement and free trade agreement with the EU in June. Moldovan wine was banned back in May 2013. What is telling is that Moscow currently only allows the import of wine from the separatist Dniester region and from Gagauzia, an autonomous pro-Russian entity in southern Moldova.

By the end of July Rospotrebnadzor even decided to threaten McDonald’s, hinting it could face serious problems on the Russian market “following checks that have revealed numerous violations”. There was still time in that month to ban more items from Ukraine. Tinned fruit, vegetables and fish from Ukraine are no longer sold in Russia. US chains KFC and Burger King were next on the menu. They too were told they may face problems on the Russian market following McDonald’s. In fact, on 20 August Rospotrebnadzor halted the work of four restaurants. The irony is that one of the four was the first McDonald’s to open in 1990, just as the Cold War was its in death throes. The McDonald’s eatery on Bolshaya Bronnaya Street attracted huge crowds when it opened in January 1990 as it was first to open in the Soviet Union.

As an aside, many people suggest that Vladimir Putin’s self-imposed ban on many EU food imports, announced on 6 August, will have little effect on the level of support for the government among the public. At least for the time being. After all, they are more than willing to hold out for Mother Russia. Ironically, the appetites of senior officials may find it tougher. The BBC’s Moscow correspondent, Daniel Sanford, quipped on Twitter when the ban was announced that “EU-sanctioned Russian officials will no longer be able to eat Italian salami, French cheese, British salmon, German sausage”. It seems a new kind of “Hunger Games” are now at the fore, with countries both near and far scrambling for a slice of the cake in the substitution of goods as well as sources of imports by Russia. But there is clearly a price to pay.

At the same time as Russia banned food imports from the EU and neighbor Ukraine, Russian Agriculture Minister Nikolay Fedorov told Rossiya 24 TV on 20 August that the country  would need up to 3bn dollars per annum in coming years to ensure that domestic producers can substitute food imports from the West. No small potatoes (no pun intended). Ukrainian Prime Minister Arseniy Yatsenyuk admitted in July that a full embargo on bilateral trade with Russia was possible. In reality, the flow of Russian gas via Ukraine to Western Europe makes that almost impossible, though he did warn: “My forecast is we need to get ready for practically a full embargo on trade with Russia in the bilateral format”. And Ukrainian producers and exporters will need to search for new markets. Long gone are the days when critics could accuse the Kremlin of using energy as a political lever. Trade, and particularly food, can now be used hand in hand with energy just as easily.

Peter Dutczyn for Ukraine Crisis Media Center 

Share

Twitter