Ukraine and International Trade

Ukrainian Economics

by Elaine Schwartz    •    Dec 6, 2013    •    803 Views

Fewer bottles of kodrinskoie-sparkling will be served at Russian holiday celebrations. Declaring that Moldova’s exports no longer met its food quality standards, Russia has blocked Moldovan wine exports. In the past, Ukrainian cheese and chocolate have also been on and off Russian shelves.

Russia has been using trade barriers to send a message to its neighbors. With Ukraine and other countries that had composed the Soviet Union moving closer to an Association Agreement with the EU, Russia has created an alternative, the Eurasian Union. Composed so far of Russia, Belarus and Kazakhstan, they have been “courting” Ukraine and other nearby nations. With an industrial base and a population close to 46 million, Ukraine is an important ingredient for renewed Russian economic power in the region and beyond.

Meanwhile, the EU is hoping the same countries will gradually become a part of their free trade area. For Ukraine and its neighbors, the EU “carrot” is access to a massive single market, unencumbered travel without visa restrictions, and millions of euros available for development. The “stick” is that the EU has trade rules, democratic principles and competitive values that autocratic states would have to observe.

Russia, Ukraine, the EU and Trade

From: BBC. Vilnius, Lithuania meeting of European Union leaders for an Eastern Partnership Summit.

 

You can see how Ukraine, an economic plum, is getting pulled in both directions. Having traded equally with Russia and the EU, it will have a clear opportunity cost when it selects one over the other. And, in addition to trade barriers, the Russians have made it clear that an alliance with the EU would result in severe penalties including the Ukrainian natural gas supply.

As Ukrainian advisers, Adam Smith and David Ricardo might point out that as a larger free market, the EU enables all nations to specialize, do what they do best, and enjoy the productivity benefits of comparative advantage.

A final note: Sending a warning message to nearby countries that have moved closer to the EU, Russian state TV used a Swedish children’s program as ammunition. They said the show, Biss och Kajs, demonstrated “Western decadence” because it familiarized children with bodily functions. (The music on the show comes from the Rump Orchestra.)

 

Russian TV cites Swedish children's show

From BBC

 

Sources and Resources: To read more about the swirl of economic considerations that face Ukraine from Russia and the EU, the Economist,  the EUBBC, and Bloomberg all provide insight. For more on the Swedish children’s show, I recommend a BBC article and its YouTube link.

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