TRADE-RUSSIA: Disputes Arise with Ukraine

By IPS Correspondents Reprint | | Print |

Sergei Blagov

MOSCOW, Aug 19 2002 (IPS) - A series of moves in recent days have failed to resolve growing trade disputes between Russia and Ukraine, the two biggest ex-Soviet states.

Trade between the two which had reached about 12 billion dollars last year has declined an estimated 30 per cent this year due to punitive tariffs and restrictions.

Russian Prime Minister Mikhail Kasyanov met his Ukranian counterpart Anatoly Kinakh in Moscow Friday last week to discuss disputes over gas supplies. A week earlier Ukranian President Leonid Kuchma met Russian President Vladimir Putin in Moscow to discuss ways of saving trade relations. Officials say these talks have helped avert a full-scale trade war, but serious differences remain.

On July 30 Ukraine slapped a 31.7 per cent import tariff on Russian-made cars. A week later Russia imposed import tariff on Ukranian steel – 31.8 per cent. The leaders agreed to cut import restrictions on some goods. But they could not resolve differences over many, including Russian cars.

Disputes over huge financial issues remain unresolved. Ukraine has been claiming several former Soviet assets abroad. But it has been reluctant to share with Russia any responsibility for repaying the debts of the former Soviet Union. Official meetings to divide old Soviet assets have remained inconclusive.

Energy is at the heart of many of the disputes. Ukraine which depends on Russia for 80 per cent of its energy needs, is entitled to a certain amount of free gas as payment for a gas pipeline that crosses its territory on way to Europe. But Russia says Ukraine takes more than the agreed amount.

Putin and Kuchma agreed to set up a joint natural gas consortium by October this year. The consortium will aim to end these gas disputes and associated financial problems.

Russia has been insisting that Ukraine pays up the debts it has run up for the gas. The two are not agreed on what Ukraine owes. Ukraine says it owes 1.4 billion dollars, the Russians say it owes more than two billion dollars.

Kuchma concedes that the practice of stealing gas from export pipelines is not “civilised”. He promised Putin his government would crack down on offenders.

Ukraine, which used to be the breadbasket of the Soviet Union, and produced up to a third of its weapons, has now run up a foreign debt of about 12 billion dollars. The two states have called one another natural partners, but since the break-up of the Soviet Union in 1991 differences have surfaced also over several other issues such as trade, the division of Soviet assets, and Ukraine’s wish to join NATO (North Atlantic Treaty Organisation).

Russia’s Black Sea fleet, which rents a harbour from Ukraine in the Crimean port of Sevastopol, is at the heart of complicated financial arrangements between the two countries.

Former Soviet leader, the Ukrainian-born Nikita Kruschev, ‘gifted’ Crimea to Ukraine in 1954, and Ukraine inherited the peninsula at independence. Russian nationalists challenge the legality of the ‘gift’ and the transfer.

In February 1999 Russia and Ukraine approved a friendship agreement and three separate accords on the Black Sea fleet. Under the agreements Russia recognised Ukrainian sovereignty over the Crimean Peninsula. Russia leased Sevastopol for 20 years to base its share of the Black Sea fleet. The fleet itself was split between the two countries when the Soviet Union broke up.

Tricky negotiations lie ahead in resolving several of these disputes. The collapse in trade is meanwhile hurting both countries.