President of Russia

1/6Photo: the Presidential Press and Information OfficeMeeting with Government members. April 9, 2014Full captionFull caption|||Minimise

Vladimir Putin met with members of the Government to discuss the situation in Ukraine and prospects for developing economic ties between the two countries, in particular in the energy sector.

Taking part in the meeting were Prime Minister Dmitry Medvedev, Deputy Prime Minister Dmitry Rogozin, Presidential Aide Andrei Belousov, Foreign Minister Sergei Lavrov, Industry and Trade Minister Denis Manturov, Energy Minister Alexander Novak, Finance Minister Anton Siluanov, Economic Development Minister Alexei Ulyukayev, and Deputy Chairman of the Gazprom Management Board Vitaly Markelov.

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PRESIDENT OF RUSSIA VLADIMIR PUTIN: Good afternoon, colleagues.

We are here to look at what further steps we can and should take to develop our economic ties with Ukraine, which is one of our key partners. We see the complex internal political processes underway there, and I hope that the Russian Foreign Ministry’s initiatives to bring the situation into balance and change it for the better will bear fruit and produce a positive result. In any event, I hope that the people holding interim office there at the various levels will not do anything that can’t be corrected later if need be. The economy is always at the foundation of all relations though, so let’s take a closer look at this side of things now.  

The first matter I want to address today – something I want to raise with our Economic Development Minister – is that at the last Russia-EU summit in Brussels, we agreed with our European Union partners that we would begin dialogue at the senior expert and ministerial level between Russia and the European Commission on Ukraine’s possible conclusion of an Association Agreement with the EU. Our partners in Brussels recognised that this possibility does have a substantial impact on Russia’s economic interests, and they agreed to hold the necessary consultations with us.

I know that our Economic Development Minister visited Brussels just recently and took part in consultations there. I would like to hear from you about their results.

ECONOMIC DEVELOPMENT MINISTER ALEXEI ULYUKAYEV: Mr President, we have started work. Two expert-level meetings took place in February and March. On March 14, I went to Brussels and met with the European Commission trade commissioner, Mr De Gucht, and his colleagues. We discussed the risks that we think would arise should Ukraine sign an agreement on a free trade zone and associated membership in the European Union. 

We examined two groups of risks. One group arises from having customs tariffs between Ukraine and the EU all but eliminated practically overnight. We think that this would lead to European products pushing Ukrainian-made goods into the Russian market. 

VLADIMIRPUTIN: From the Ukrainian market?

ALEXEIULYUKAYEV: Yes, from the Ukrainian market into the Russian market. Higher quality European goods would take over niches there, and Ukrainian producers would be forced to move on into markets elsewhere.

The second problem concerns technical regulations. European standards and technical regulations would make it impossible for producers to sell these goods not just on the EU market, but on the Ukrainian market too. 

The third problem is that it opens the possibility of goods from third countries being brought into Russia via Ukrainian territory. From our point of view, this would create a considerable and unmanageable risk of increased imports of various sensitive goods, and this would in turn substantially worsen the situation for our domestic producers.

The second group of risks is linked to the fact that Russia and Ukraine are bound by around 400 agreements of various types. Some of these are bilateral agreements, others are multilateral agreements signed within the CIS framework. At least 38 of these agreements are of great importance for our trade and economic relations. They include agreements on standards, certification, veterinary, plant quarantine, phytosanitary control, and pharmacology agreements, agreements on evaluating goods that carry potential risks and so on. This is a critically important matter.

These agreements and the EU Association Agreement with Ukraine cover pretty much the same range of subjects in their regulations. What’s more, a provision in chapter 39 of the draft Association Agreement would require Ukraine to essentially withdraw from these agreements, and this makes it impossible for Ukraine to at once enter associated membership with the EU and also continue to apply the agreements it has with us. In other words, Ukraine is being pushed into either violating these agreements or withdrawing from them unilaterally. Both options create risks and would bring chaos to our trade and economic relations and make it impossible to keep them going as normal.

We think that we have provided sufficient argument to support our position. We set out our concerns, but encountered what I would call a non-constructive, if not to say demonstratively non-constructive, approach. As far as the risks for producers are concerned, our European colleagues say that they think these risks are exaggerated and would have little impact on Russian producers and the Russian economy. Regarding the agreements, they say that it is up to Ukraine to decide how it wishes to regulate its relations with Russia or with other parties to these bilateral and multilateral agreements. They say this is Ukraine’s affair and they are not giving any recommendations or sending any new signals. This was the position we encountered, and it was set out in such a way as to preclude further discussion. 

VLADIMIR PUTIN: I see. Have you agreed to continue these consultations?

ALEXEIULYUKAYEV: The discussions will not continue. Furthermore, our European colleagues even issued a press release stating that they see no reason at the moment to continue this discussion.

VLADIMIR PUTIN: That is a shame.

What is happening with industrial cooperation? How is work with Ukrainian companies going?

INDUSTRY AND TRADE MINISTER DENIS MANTUROV: Mr President, Ukrainian companies are clearly not going through the best of times at the moment, but they are fulfilling their cooperation agreements with Russian companies. This concerns deliveries of spare parts for the defence industry too. Furthermore, we have agreements concerning more than 3,000 items on each side this year. We have a parity relationship as far as reciprocal deliveries of spare parts are concerned.  

To date, there have been no disruptions to deliveries. At the same time we do have big concerns, not about the manufacturing companies themselves, but about Ukrainian state agencies and the possibility that they might impose restrictions. In particular, just a few days ago, Ukroboronprom, which is responsible for regulating defence industry matters, issued a directive requiring companies supplying spare parts to Russia to get additional permissions. But to date, there have been no disruptions to deliveries. 

We have made a thorough study of the main types of goods that we receive from Ukraine and we conclude that we do not have any great dependence on supplies from Ukraine. If Ukraine does impose restrictions, our companies will be able to replace in full the goods that we currently receive through our cooperation with Ukraine.

VLADIMIR PUTIN: Is the Russian side being disciplined about making advance payments for the goods?

DENIS MANTUROV: We are carrying out all of the contractual obligations that we signed with our colleagues and are making all advance payments on time, as set out in the contracts. 

VLADIMIR PUTIN: Roughly, how much do the orders Russia has placed with Ukrainian companies come to?

DENIS MANTUROV: We are talking of orders worth billions of dollars, orders in both the civilian sector and the defence sector. In total, they come to more than $15 billion. 

VLADIMIR PUTIN: Let’s proceed as follows. I ask you to ensure that all contractual obligations with our Ukrainian partners are met without fail. But we need to be prepared for all possible developments, including in terms of having to replace imports. We need to look ahead and work out which Russian companies, in what timeframe, and at what cost could produce these goods at their own facilities. I ask you therefore to come here tomorrow with the directors of our leading companies – you can set the list of these directors yourselves – to have a meeting with me to discuss these matters.

Without question, if this situation does arise, we will have to come up with extra resources. I think that if this does happen, we would need to make some adjustments to the state defence procurement orders and to our defence industry development plans. I ask you to draft the relevant proposals. 

To be continued