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Russia Penalizes Ukraine Because of Its Imminent Trade Deal With EU Valentina Pop Dec. 21, 2015 2:19 p.m. ET BRUSSELS—Moscow is following through on its threats to impose punitive tariffs on Ukrainian products in the new year after the failure of European mediation talks as a sweeping trade deal between Ukraine and European Union goes into effect Jan. 1. The collapse of talks between EU, Ukrainian and Russian officials came as the bloc extended its economic sanctions against Russia because of its military involvement in eastern Ukraine. “We were quite close, had there been a will, we would have come to an agreement. But there wasn't enough flexibility from the Russian side to do that,” EU Trade Commissioner Cecilia Malmström said after the meeting. In the past 18 months, Ms. Malmström held 15 trilateral talks with Ukrainian and Russian ministers aimed at convincing Moscow that the EU-Ukraine free trade deal won't harm Russia’s economic interests. The trade agreement, set to go into effect Jan. 1, is part of a broader EU-Ukraine deal that was at the heart of Ukraine’s political crisis in 2014, when pro-Russian President Viktor Yanukovych left office during prolonged protests. Shortly afterward, Russia invaded Ukraine’s Crimea and supported rebels in eastern Ukraine. In the recent talks, the EU had offered Russia more cooperation with customs authorities, transitional periods for product standards to be met in Ukraine and assistance in guaranteeing the safety of animal byproducts to be exported to Russia, Ms. Malmström said. But it didn't offer a reopening of the EU trade deal itself. “Russia’s continued insistence on a legally binding agreement, which would amount to a reopening of the bilateral agreement between the EU and Ukraine, couldn't be accommodated, as has been made clear throughout these talks,” the European Commission, the bloc’s executive, said in a statement. Russia also made other “impossible demands,” such as full access to EU’s customs database, including sensitive commercial information, according to Ukrainian Deputy Foreign Minister Lana Zerkal.
“The also wanted us to use Soviet standards for everything from pencils to wheels, for another 10 years,” Ms. Zerkal said. As the time neared for the trade deal to go into effect, Russian President Vladimir Putin last week abolished Ukraine’s bilateral free trade deal with Russia. Ms. Malmström said this move ran against everything the EU and Russia had been talking about. “The assumption was very clearly made that Russia will refrain from adding sanctions and suspending the preferential treatment of Ukraine. We were a bit surprised when a few days ago, Putin declared that the suspension would enter into force Jan. 1. “That was confirmed today. This exercise is now over,” Ms. Malmström said. For his part, Russia’s economic development minister, Alexey Ulyukaev, said that Moscow’s retaliatory trade measures are in reaction to Ukraine applying the EU’s sanctions regime against his country. “We have to defend the economic interests of Russia, that’s why we started the sanctions and stopped free trade with Ukraine,” Mr. Ulyukaev said. However, he added, Moscow does not want to break off economic ties with Ukraine. He played down the negative impact this retaliatory measure would have on Russia’s own embattled economy. “Food trade with Ukraine was at $2 billion three years ago and now it’s $200 million, 10 times less. So the real material effect won't be sensitive,” Mr. Ulyukaev said. Separately, the EU on Monday extended until the end of July the economic sanctions imposed on Russia. The sanctions were initially introduced for one year on July 31 last year in response to Russia’s actives support of rebels actions in eastern Ukraine, and were then extended another six months because of Russia’s noncompliance with the terms of a cease-fire deal agreed in Minsk in Belarus. The cease-fire deal required Russia to withdraw its military equipment and soldiers from eastern Ukraine and use its influence on pro-Russian rebels to maintain the cease-fire, exchange hostages with Kiev and allow access to international observers. “However, since the Minsk agreements won't be fully implemented by Dec. 31, the duration of the sanctions has been prolonged whilst the council continues its assessment of progress in implementation,” the EU council of ministers said.
The sanctions, which have weighed on a Russian economy struggling with the slump in oil prices, target Russia’s financial, energy and defense sectors, as well as so-called dual-use technology, which can be used for military purposes. Ukrainian Foreign Minister Pavlo Klimkin said that he welcomes the extension. “The sanctions are very important in keeping Russia on track and narrowing their space of maneuver in eastern Ukraine,” Mr. Klimkin said here before a meeting with EU and Russian officials. Mr. Klimkin said cease-fire violations have increased in the past month and that there was no progress on exchanging hostages, not even the wounded. In addition to expelling humanitarian organizations, the rebels in the Donbas area have also banned Ukrainian technicians from doing repair work at damaged electricity and gas plants, potentially forcing thousands of inhabitants to live in freezing flats, the minister said. “Russia is in full control in Donbas, there is a Russian officer in every rebel unit. So stability is doable for Russia, but they are not interested,” Mr. Klimkin said. Ukrainian officials had been worried that Europe might take a softer line with the Kremlin, just as fighting has flared up again with separatists. Western governments have sought to work more closely with Moscow over the crisis in Syria to combat the threat of Islamic State after the terrorist attacks in Paris in November. Write to Valentina Pop at valentina.pop@wsj.com