You're reading: ​After a year of war against Ukraine, Russia is still the country’s leading trade partner

Despite 16 months of war against Ukraine, Russia remains the country's single largest trading partner, with $3.4 billion exchanging hands in the first quarter of this year.

Comprising 14 percent of Ukraine’s total foreign
trade turnover, the bilateral trade figures signify the extent to which
Ukraine’s Soviet-era industries of metals, machinery and locomotives are still
tied to Russia’s. It also underscores the Ukrainian economy’s failure to
diversify by improving quality standards to tap other markets, in particular,
the European Union.

The share of commerce with Russia, however, has
declined by 13 percent since 2013 when it accounted for 27 percent of trade.
Business with China and the EU has in turn increased.

As a trading entity, the 28-member EU remains
Ukraine’s largest trading partner with $9.3 billion in bilateral turnover in
the first four months of 2015. Ukraine has somewhat benefited from a free trade
deal with the EU that went into effect this year through import-free quotas on
certain products. China is in third with $2.2 billion worth of business.

Russia and Ukraine have stopped short
of engaging in a full-blown trade war despite open military hostilities between
the countries. Moscow though has banned many Ukrainian food products such as
dairy and meat.

“Despite the opened European
Union market… Ukrainian producers still did not manage to reorient towards
European and other foreign markets, so the Russian market stays as our main
partner,” Angela Bochi, senior economist at the International Center for
Policy Studies, a Ukrainian think tank, said.

The bulk of Ukrainian products fail
to meet international quality and safety standards. Having lower standards,
Russia does not mind the cheap prices of Ukrainian goods. This is one of the
main reasons why Russia maintains a leading trade role with Ukraine, Bochi
said.

“When Ukrainian products will
correspond to international requirements, the EU and other international
markets will open up for us. This depends on the marketing abilities of our
companies and on state export policies” which are not in place in Ukraine
yet, Bochi said.

As a result, Ukrainian exports depend
heavily on Russia making the country vulnerable to sudden changes in Russian
foreign trade policies.

The Russian market, in turn, doesn’t
substantially depend on trade with Ukraine. With all the losses in exports
to Ukraine, Russia’s overall exports fell by less than half a percent in 2014
compared to the previous year.

In fact, during the past four years
Russia has a pursued a policy of substituting its imports with local
production. Because of this, Ukraine feels the pain more from cutting bilateral
ties with Russia, according to Bochi.

However, she does see Ukraine
gradually moving toward the EU. In the next few years the structure of
Ukraine’s foreign trade will continue changing and exports to Russia will
gradually fall.

Ricardo Giucci, head of the German Advisory Group in Ukraine,
a think tank, sees the changes as much more drastic.

“The importance of the Russian market for
Ukraine is declining rapidly,” Giucci said.


Since 2013, Ukraine’s trade
with Russia has been declining while on the rise with China, Germany and Poland
– the country’s three biggest trade partners after Russia.

Ukraine has drastically cut gas and oil
imports from Russia, switching towards European reverse flows and thus reducing
its energy dependency on its hostile neighbor. The German Advisory Group
reports that Ukraine imported $4.1 billion worth of gas from Russia last year –
68 percent of total gas imports – compared to $10.8 billion, or 91 percent, in
2013.

But Ukraine has a long way to go to establish
trade independence from Russia. Ukraine’s second largest single trade partner,
China, accounts for only a third of Russia’s trade with Ukraine during the same
period.


Ukraine’s first four months of
2015 show that Russia is still by far the country’s leading trade partner,
though its trade share is continuously decreasing.

Giucci said that it makes
more sense to look at the EU as a unified trading entity rather than at
individual countries. “The EU is a trading block and its members have no
independent trade policy,” he said.

He continued: “In 2014, 32
percent of Ukraine’s exports went to the EU, while only 18 percent went to
Russia.”

This indicates that the
decline in trade with Russia is a long term trend that gained momentum last
year.


Kyiv Post staff writers Olena Gordiienko and Ilya
Timtchenko can be reached at [email protected] and
[email protected], respectively.