From Ukraine to Kazakhstan, Avoiding Russia

As of January 1, per a decree signed by Russian President Vladimir Putin, cargo bound for Kazakhstan from Ukraine via Russian territory must transit exclusively through Belarus. According to Interfax, the decree was signed in connection with another decree suspending the four-year-old free trade agreement (FTA) between Ukraine and Russia. Russia’s decision to suspend the FTA with Ukraine came in conjunction with the entry into force of Ukraine’s agreements with the European Union to gain tariff-free access to Europe.

Russia maintains that Ukraine cannot belong to both the Commonwealth of Independent States (CIS) and European Union free trade zones.

Moscow’s decision – that trade bound for Kazakhstan transiting through Russia from Ukraine must go through Belarus first – could have seriously detrimental effects for Kazakh-Ukrainian trade. Ukraine has been one of Kazakhstan’s top five import partners fairly consistently over the past decade. In 2012, Kazakhstan imported nearly $3 billion in goods from Ukraine – third only to Russia ($17 billion) and China ($7 billion) and ahead of Germany ($2.2 billion) and the United States ($2.1 billion). In the past three years, that trade has dropped as tensions between Russia and Ukraine escalated, but not enough to lesson Ukraine’s importance to Kazakhstan. According to the Ukrainian Minister of Agricultural Policy and Food, Oleksiy Pavlenko, Central Asian states take 4 percent of all Ukrainian agricultural exports.

Russia is designating which border posts specifically must be used for cargo from Ukraine bound for Kazakhstan. Russia, per the decree, will “establish requirements for identification means [seals], including those operating on the basis of the Glonass technology, the procedure for their placing [removal] and application in motor and rail transportation, and the procedure for the issue [submission] of record cards.” According to Interfax’s summary, “[R]ecord cards shall be deemed invalid in case drivers of motor vehicles violate the procedure for placing, removing and applying seals, including those operating on the basis of the Glonass technology.” (Glonass is the Russian version of GPS)

Ukrainian Prime Minister Arseniy Yatsenyuk and President Petro Poroshenko both spoke to their Kazakh counterparts over the phone in January to discuss the situation.

Yatsenyuk told Massimov that Ukraine intends to notify the World Trade Organization – which Kazakhstan recently acceded to and which Russia has been a member of since 2012 – of “Russia’s illegal actions regarding Ukrainian cargo transit and to apply the organization’s mechanisms for Russia to eliminate these violations.”

The Russian worry, of course, is that Ukraine may serve as a conduit for European goods into the larger CIS region. Much as Belarus has been accused of facilitating the re-export of European goods, Ukraine could become a node in the now illegal trade of foodstuffs from Europe to Russia. Russia added Ukraine to the list of countries subject to its food import ban a response to European sanctions on Russia. The food import ban generated dramatic scenes of bulldozers rolling over wheels of French and Italian cheeses and oranges dumped from the back of trucks into garbage heaps.

According to the Ukrainian readout of the conversation between Poroshenko and Kazakh President Nursultan Nazarbayev, the two discussed the implementation of agreements signed in October, when Poroshenko visited Astana, and the impact of Russia’s embargo. The summary says that Nazarbayev “confirmed willingness to fulfill the effective bilateral and multilateral agreements with Ukraine in order to prevent any discrimination in Ukrainian-Kazakh trade.”

Kazakhstan’s ambition to be an international player is, in part, predicated on acting independently. In October 2015, after Poroshenko’s visit to Kazakhstan I wrote that “Nazarbayev’s repeated position on the Ukraine-Russia debacle is that the Minsk agreements – which call for a ceasefire, de-escalation, and an exit of armed groups from the areas in conflict among other things – should be implemented. Rooting for a peaceful, negotiated settlement is not a controversial position in either Kiev or Moscow. As long as Nazarbayev keeps away from specifics he’s safe – and both Putin and Poroshenko seem happy to let Nazarbayev play the role of intermediary.”

The present issue moves closer to the specifics I said Nazarbayev would stay away from. But the Ukrainian readout does not attribute any potentially inflammatory remarks to Nazarbayev. The closest it comes is this:

Petro Poroshenko emphasized that Russian actions violate the Vienna Convention on the Law of Treaties and respective rules and regulations of the World Trade Organization. In this regard, the Presidents discussed the opportunity of establishing transit of Ukrainian goods in order to prevent Russian adverse effect on the trade turnover between Ukraine and Kazakhstan, as well as the Asian countries.

Notice, Nazarbayev is not linked to comments on the illegality under WTO rules of Russia’s action (Poroshenko emphasized that). An Interfax report carries the title “Kazakhstan president says any trade discrimination towards Ukraine unacceptable,” but such a comment is not clear from the Ukrainian summary of the conversation nor the details of the Interfax article.

According to an RFE/RL report the Ukrainian Minister of Infrastructure said that the country would be making “experimental” deliveries to Kazakhstan via Georgia and Azerbaijan beginning on January 15:

“This Silk Road will not only give Ukrainian goods alternative access to markets in which we have historically been very strong, but also create a new [trade] route between Asia and Western Europe,” Pyvovarskiy said in televised remarks during a meeting with Prime Minister Arseniy Yatsenyuk.

Time will tell whether such a route is economically viable. Getting goods from Ukraine to Kazakhstan by transiting just Georgia and Azerbaijan also includes crossing two seas–the Black Sea and the Caspian Sea. That can’t be cheap.