On June 27, during the summit in Brussels Ukraine and the European Union signed the economic part of the agreement on association which provides for establishment of a free trade zone.

Signing by Kiev of the agreement on association with the EU does not change anything in trade and economic relations between Ukraine and Russia. The thing is that in crossing of the customs border of the Eurasian Economic Union (EEU) import duties are charged on goods depending on the country of origin of those goods. If it is Ukrainian goods, they are charged at a zero rate as they are goods from the CIS free trade zone. If goods are manufactured in any EU country, they are charged at the MFT rate, that is, in accordance with the common customs tariff (CCT) of the EEU.

There are concerns that goods from the EU delivered to Ukraine with zero or low import duties charged will be remade and shipped to the EEU as Ukrainian goods. Such concerns are not quite justified as the CIS free trade agreement provides for the rules of origination of goods under which rules goods are deemed Ukrainian if they were subjected to substantial remaking in Ukraine. Without going into technical details, it can be said that classification of any goods is to be changed (for example, chemical agents imported from the EU are used in production of pharmaceuticals) which situation requires either establishment by the Ukrainian industry of a substantial added value or the cost of components of the European origin should not exceed 5% of the price of finished goods.

So, the issue of a transit supply of cheap goods from the EU via Ukraine is largely a far-fetched one.

In its turn, growth in import duties in trade with Ukraine is not advantageous either to Russia or Belarus and Kazakhstan or Ukraine itself because higher barriers in mutual trade result in higher prices and lower competitive edge and efficiency on the markets of all the above countries and, consequently, loss of their prosperity. If one proceeds from the logic of inflicting economic damage to Ukraine as a penalty for choosing the European integration as a strategic vector of its development, it is important to remember that that damage will inevitably backfire on Russia. For Russia, the losses will probably be less dramatic in relative terms than for Ukraine due to the fact that the Russian economy is 8-10 times larger than the Ukrainian one, but losses cannot be escaped.

Alexander Knobel, PhD (Economics), Head of the Department of Foreign Economic Affairs