The already customary pipe and confectionery fronts in the Russo- Ukrainian trade war have now been supplemented with salt. This fully meets the forecasts of some Ukrainian experts who claim that we will witness a real trade war very soon because Russia feels it can exert scot-free pressure on Ukraine under the slogans of protecting its market. So the Ukrainian authorities have something to think over. It is obviously high time the Ukrainian producer came to the conclusion that the Russian market, important as it is, is not the only one in the world. But, in all probability, everything still lies ahead.
The appointment of Viktor Chernomyrdin as ambassador and the Russian president’s special trade representative in Ukraine coincided with another aggravation of economic relations between the two countries. Managers of export-import companies are reviving the half forgotten phrase, trade war. The latter is traditionally launched by Moscow. Meanwhile, Kyiv, although armed with quite a serious weapon for aggressive battles on all fronts, prefers retreating to poorly prepared defensive positions. This time it is an especially glaring mistake. Mr. Chernomyrdin’s appointment gives not so much the Russian as the Ukrainian business elite a chance to speedily solve their export- import problems even without substantial government support. And there are as many problems as never before.
One front of the trade war, the export of Ukrainian salt to Russia, was opened as recently as last week. The Russian producers, now working at a mere 60-70% of their capacity, demanded that Moscow reduce supplies from Ukraine. The price of Crimean salt is almost a third as low as that of the salt made at Russian plants. In addition, our crafty entrepreneurs export table salt under the guise of halite, a non-ore-type mineral, which allows cutting the transportation duty by a fourth. As a result, the main Russian salt-producing companies, Uralkaliy and Silvinit, have slashed output by 21% and 30% respectively over the past year. It is they that initiated an anti- dumping investigation. The attempt to find government hands in these problems in Ukrainian ministries and departments ended in a failure. It looks like Kyiv’s reaction will again be passive and belated.
That this passivity is of little use for the Ukrainian government, let alone the producers, has been proven by developments on the legendary pipe dealing front of the trade war. As long as a month ago the managers of eleven pipe manufacturing plants wrote an open letter to Prime Minister Viktor Yushchenko, accusing him of “not understanding the problems of the industry, which is facing a 25-30% output drop in the second quarter and a fall in the living standards of workers and their families.” The managers estimate that the voluntarily reduction of Ukrainian pipe exports to Russia from May 1 is already tantamount today to the imposition of a 40-50% duty. After waiting futilely for at least a modest cabinet promise to fight for an increased quota, managers of the pipe making giants began in May to fulfill the threats mentioned in their open letter. This drastically reduced tax revenues and delayed the return of hard currency earnings from abroad. This action was supported by steel mills, for Eastern Ukrainian industrial management has always displayed the ability to unite to solve common problems. There is no doubt now that the new premier will hold talks in Moscow on increasing the pipe quota well before October, the time when Mr. Yushchenko planned to do this. And it is quite probable that the first stage of these talks will be consultations with Mr. Chernomyrdin and the managers.
Meanwhile, it will take Russia another 100 days to finish its anti-dumping investigation of Ukrainian caramel. With a 21% temporary duty now being in force, it is the temporary status of restrictions that can instill a shimmering hope in our confectioners. People’s Deputy Petro Poroshenko, president of the Ukrprominvest Co., which is a shareholder in the leading confectionery enterprises, does not look convinced when he says that Moscow could revise its decision on the duty. But this doers not mean one must give up struggling, as the government has in fact done now. Andrei Kushnirenko, director of the tariff policies department in Russia’s Ministry of Trade, admits he never expected it would be so easy to defend his country’s interests in Kyiv.
Yet, this does not mean the economic war consists of victories for one side only. Moscow has obviously suffered a defeat on the energy front. The United Energy Systems of Russia (EES Rossii) made its bids for the Ukrainian oblenerho (regional power-supply companies) privatization tender, only to be turned down each time. The Yushchenko government’s unofficial stand comes down to the following: the energy-sector shares must go to Western, not Russian or Ukrainian, companies. And although this intention has been fulfilled only partially (word has it that the Slovak company which bought four oblenerho enterprises is in fact manipulated by Ukrainian capital), the Russians have not yet been allowed to take part in energy-sector privatization. What made this stay clear policy a rather comical was the recent statement of Oleksandr Bondar, chairman of the State Property Fund, who called on the Russians — after the first six tenders had already been held — to invest more actively in the Ukrainian economy because they seem to be more accustomed to investing in politically risky situations.
The agitated president of EES Rossii, Anatoly Chubais, has recently blurted out that Russian participation in the energy-sector privatization was part of a deal struck by Vladimir Putin and Leonid Kuchma in Dnipropetrovsk. But now that the tenders are over, it is the right time for Kyiv to begin dictating its conditions. The negotiations between Mr. Chubais and Ukrainian Vice Premier Dubyna, to be held soon, is by far the best opportunity to do so. A loyal advocate of the East Ukrainian managerial corps, Oleh Dubyna knows (and can drop a hint) what steps Moscow should take to get access not only to the energy-sector privatization but also to the coveted transit of Russian electric power to Western markets. There will hardly be another suitable moment to drop this kind of a hint. For it is precisely now that the proverbial dependence on Russian gas has diminished as never before — not only because of the seasonal factor but also thanks to fresh deals with Turkmenistan.
Among other arguments thus far unused, i.e., the not-yet-opened fronts of the trade war, is restriction on exporting cars, for example, Volga, to Ukraine. This is nothing but a nuclear bomb. But Kyiv seems to be keeping this instrument in reserve. The point is that the appointment of Viktor Chernomyrdin as ambassador inspires hope that at least some problems in the two countries’ economic relations will be solved by diplomatic means, not by brandishing duties, quotas, or antidumping threats.
