Russia sends new warning to Ukraine over EU deals

MOSCOW Mon Sep 23, 2013 2:36pm EDT

Russian First Deputy Prime Minister Igor Shuvalov takes part in the Reuters Investment Summit in Moscow September 23, 2013. REUTERS/Sergei Karpukhin

Russian First Deputy Prime Minister Igor Shuvalov takes part in the Reuters Investment Summit in Moscow September 23, 2013.

Credit: Reuters/Sergei Karpukhin

MOSCOW (Reuters) - Russia issued a new warning to Ukraine on Monday that Moscow could respond with protectionist barriers if its former Soviet ally joins a free trade pact with the European Union.

Russia is worried it will be flooded by European goods if Ukraine removes import duties with the EU under agreements likely to be signed in November, but also fears Kiev is making a pivotal shift away from Moscow.

"This is Ukraine's choice and we have to respect it, but at the same time money has to be taken into account," First Deputy Prime Minister Igor Shuvalov told the Reuters Russia Investment Summit.

"If they have a stronger economy, it will be a plus, but only if it is not achieved by making us weaker."

He denied Moscow was putting pressure on Kiev or drawing up plans to retaliate. But he also said Russia would have to act "if there is evidence of dumping or the use of hidden forms (of protectionism) such as support for exports, support for agricultural producers".

Shuvalov's remarks made clear Moscow had not been appeased by Ukrainian Prime Minister Mykola Azarov, who tried on Saturday to soothe Russian fears over planned agreements with the EU on political association and free trade.

Azarov says Ukraine, whose economy is dominated by exports such as steel, chemicals and agricultural produce, would benefit almost immediately from lower duties on Ukrainian exports.

Russian officials, led by President Vladimir Putin, say Ukraine has more to gain from joining a Customs Union grouping Russia, Kazakhstan and Belarus. Moscow is also holding out against Ukraine's pleas for cheaper Russian gas to help its hard-pressed economy.

Moscow's efforts to persuade Kiev not to move closer to the EU form part of a broader drive by Russia to deter former Soviet allies from edging out of its orbit and moving their economy and future trade towards western Europe.

But Ukraine, a vast country with a population of 45 million and psychologically tied closely to Russia by history and shared culture, is the sorest point of contention.

Shuvalov has played an important role in this drive in his government role overseeing relations with the former Soviet republics in the Commonwealth of Independent States (CIS).

He said the Russia-led customs union would not suffer if Ukraine did not join, but its accession would create a trading bloc with a population of about 200 million.

Reiterating that Kiev could not join the customs union if it signed the free trade pact, because the two were legally incompatible, he said: "It's either one or the other."

The 28-nation EU, which includes eastern European countries that were for decades under Soviet control, has made clear it will not give in to what it called Russian attempts to limit the "sovereign choices" of Ukraine and other countries.

Kiev still has one potential obstacle to overcome before any deals are signed with the EU - it has not bowed to pressure to release former prime minister Yulia Tymoshenko, a political rival of President Viktor Yanukovich who was jailed for abuse of office and is seen by the EU as a victim of "selective justice."

But EU governments agreed in Brussels on Monday that, if they sign a political association agreement with Ukraine, they will speed up procedures for its implementation.

Such agreements can take years to be ratified by member states but could now take immediate effect once Ukraine ratifies it, EU officials said.

Ukraine's economy relies heavily on exports of steel, coal, fuel and petroleum products, chemicals and grain. More than 60 percent of its exports go to other former Soviet republics, with Russia, Belarus and Kazakhstan the most important.

(Additional reporting by Adrian Croft in Brussels; Editing by Matthew Tostevin)

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