Ukraine will be barred from joining a customs union of former Soviet states if it signs a free-trade pact with the European Union this November, warned Russian Prime Minister Dmitry Medvedev on Monday, urging Kiev to make the right political choice for the sake of its businesses and citizens.
“I don’t want there to be any illusions on this issue,” said Medvedev during a weekly meeting with his deputy premiers in Moscow. “The situation is quite clear that if a document for associate membership with the EU states is signed, entry into the Customs Union for our Ukrainian partners will be closed."
“I believe that everybody, including people who live in Ukraine, should understand this… This is a key political choice, which the Ukrainian leadership is making today,” the Russian Prime Minister added, calling on EU leaders to speak frankly about the issue as well.
Ukraine hopes to sign a free-trade pact, alongside other agreements, with the EU during a summit this November. Moscow though is concerned that Ukraine's EU agreement could lead to the re-export of EU goods into Russia, mostly tariff-free, where they could threaten sales of Russian-made products.
The problem for Ukraine is that its economy is still heavily dependent on exports of steel, chemicals and grain to Russia, Belarus and Kazakhstan – all members of the Customs Union. More than 60 percent of Ukraine’s exports go to its former Soviet neighbours, while Ukrainians also regularly travel to-and-from these nations.
According to Reuters, Russia first fired a warning shot to Ukraine last month, when they conducted additional customs checks on Ukrainian imports over several days. Russian President Vladimir Putin has also spoken of possible "protective" measures by Moscow and its Customs Union allies.
As a means to coax Kiev into its Customs Union, which was set up in 2010 and offers tariff-free trade between members, Russia has also promised to sell gas cheaper to Ukraine. But Ukrainian President Viktor Yanukovich has dismissed the promise as "humiliating".
Meanwhile, President Yanukovich's dilemma rests in the fact that an agreement with the EU would require Ukraine to comply with European values. This could include a major reform package, including constitutional changes of the judicial system; while Yanukovich would almost certainly face political pressure to release his former Prime Minister Yulia Tymoshenko from prison.
Yanukovich though appears more willing to accede to EU demands, than to Moscow.
"For Ukraine, association with the European Union must become an important stimulus for forming a modern European state," he said during an Independence Day speech last month.
Sensing this, Moscow is stepping up its pressure by threatening Kiev with severe trade sanctions if Ukraine signs its agreements with the EU.
Putin's economic adviser, Sergei Glazyev, said in recent comments cited by the Moscow Times: "By signing an Association Agreement with the European Union, Ukraine would be depriving itself of its sovereign right on all issues of trade policy that we have handed over to the Customs Union. For us, Ukraine would stop being a strategic partner because it would be disappearing as an international partner, as an entity under international law because it will have to agree with all its actions on trade with the European Union."