Putin's disreputable attempt to threaten Ukraine with trade sanctions
Putin has publicly raised the threat of cancelling the Russia-Ukraine free trade agreement by stopping the tariff-free preferences provided for in that agreement. A leading Russian economist has described all this in the words of Dostoevsky's immortal classic, 'Crime and Punishment'. [Gazeta.ru, 06.07.2014.http://www.gazeta.ru/comments/2014/07/05_a_6098741.shtml].
If scrapping the free trade agreement is to be the punishment, what was the crime? As our last blog described in some detail, there are neither legal nor economic grounds for such action. This means that the crime has to be identified in political terms, like Ukraine refusing to be bound by the Russian-led customs union, and prefering instead to to make a free trade and associaition agreement with the EU. The latter of course is Ukraine's undisputed sovereign right. So the crime is basically refusing to accept renewed Russian hegemony.
Less publicly Russia has asked its customs union partners, Belarus and Kazakhstan, whether they would be willing to join in this punishment of Ukraine. This was only logical since these trade policy matters are now a competence of the customs union and Eurasian Economic Commission. The answer from both Minsk and Astana was NYET, they don't agree to punish Ukraine, and quite reasonably so since there are no grounds for this. This leads on to the question whether Russia would proceed on its own with this punishment. If they do so they would then have to assure customs controls between Belarus and Russia, since otherwise Ukrainian goods would flow free of tariffs into Russia via Belarus. And this of course would mean that the customs union, Putin's flagship project for the Eurasian Economic Union, would be politically and operationally dysfunctional.