Russia launches trade restrictions on Ukraine

Макроэкономика 21.03.2014 The Russian government reacted fiercely to Kyiv’s announcement on March 19 that its intends to introduce a visa regime for Russian citizens and exit the Commonwealth of Independent States (CIS). As of midnight March 20, Russian customs posts started blocking the entrance of Ukrainian trucks and demanding that drivers show their Russian visas, the Ukrainian Association of Auto Transporters announced the same day. By noon that day, Russian customs were reopened for Ukrainian trucks but the customs control regime has become stricter, the Association said. The same day, the Russian Service for Veterinary Surveillance warned about the difficulties Ukrainian agri-firms will face in supplying products of livestock origin should Ukraine abandon its CIS observer status, the Interfax-Ukrayina news agency reported. CIS Customs Union countries import such products on a simplified procedure, while all the other countries will have to get international veterinary certificates approved by all Customs Union members, according to Russian veterinary watchdog. Ukraine supplied to Russia livestock products worth USD 496 mln in 2013, while Russia supplied to Ukraine only USD 30 mln worth of products, the Service spokesperson said. A day before the Ukrainian government’s sharp statements, Russian police blocked the work of the Russia-based confectionery that belongs to the Roshen holding company of Ukrainian tycoon Petro Poroshenko. Ukraine’s Foreign Affairs Ministry asked Moscow to explain the situation, with no reply available at the moment. Poroshenko has been a key advocate of signing the Ukraine-EU Association Agreement and active supporter of the EuroMaian protest movement. Alexander Paraschiy: Russia has de facto reimposed trade and economic sanctions for Ukraine and its businessmen, which is likely to erupt in a full-blown trade war. Clearly, in these circumstances many publicly traded companies are at risk. Milkiland (MLK PW) may be targeted next, operating a dairy factory in Russia and selling a lot of cheese there (the Russian market accounts for more than 1/3 of its total revenue). A trade ban may also be slapped against MHP (MHPC LI) which sold to Russia 10% of its chicken meat last year. Among other companies that may be affected by the likely trade war are Metinvest (METINV), with about 8% of its revenue from Russia, and Interpipe (INPIP), with about a third of its revenue generated in Russia normally. Ukrainian railcar makers, Kryukiv Railcar (KVBZ UK) and Stakhanov Railcar (SVGZ UK), as well as car producer Bogdan Motors (LUAZ UK) may lose their last chance to see any recovery in demand from Russia, where they used to supply more than three-quarters of their products in 2010-2012. At the same time, we believe that the revenue of aerospace firm Motor Sich (MSICH UK), as well as power-engineering companies like Turboatom (TATM UK), will not be affected by a possible trade war, at least in the short-term. Their products have no analogues in Russia.