Publication: Monitor Volume: 3 Issue: 167

First Deputy Prime Minister Anatoly Chubais is leading the Russian sugar industry’s charge against Ukrainian imports. While protection from Ukrainian sugar may raise incomes in Russia’s sugar industry, the heavy-handedness with which this goal is being pursued suggests that neither Chubais nor the Russian government is seriously interested in trade liberalization.

The levying by both countries of value-added (VAT) taxes on Russo-Ukrainian trade, and Russia’s unilateral introduction last year of a 25 percent import duty on Ukrainian white sugar imports, were the focus of a Russian government meeting chaired by Chubais on September 3. (Russian agencies, September 3) Chubais announced following the meeting that, although Moscow will propose the mutual cancellation of the VAT by both countries, the Russian side has no intention of canceling the import duty. Moreover, Chubais hinted that similar measures could be applied to other CIS countries with whom Russia is experiencing trade tensions (such as Kazakhstan). Chubais also made it clear that he expects other CIS governments to support Moscow’s position: "If our [CIS] partners do not support us, then, unfortunately, we will be forced to take measures [against them] similar to those we have adopted with Ukraine". (Russian agencies, September 3)

Although Chubais could be attempting to use the threat of a trade war to persuade Ukraine and other CIS countries to liberalize their trade regimes, his rhetoric in the sugar case is far from a free trader’s. The "unconditionally positive results" that have followed from the 25 percent duty on Ukrainian sugar come from the "sharp growth in the output of our sugar refineries, and the larger taxes these firms pay to local budgets", Chubais says. (Russian agencies, September 3) The hope that the duty might convince Kyiv to agree to the mutual VAT cancellation seems not to enter the picture. Instead, Chubais argues that Ukrainian interests are best served by permitting Russian companies to purchase stakes in Ukraine’s sugar industry, and by providing Ukrainian exporters with guaranteed sugar contracts within the framework of Russia’s program of state orders. While such government-to-government bilateral trade deals are common among CIS countries, they are difficult to reconcile with the multilateral logic of the World Trade Organization — to which both Russia and Ukraine have applied for membership.

Ukraine is itself no paragon of free trade (especially with regard to its sugar industry), and sugar is partly exempted from the 1993 Russo-Ukrainian free trade agreement. Still, Chubais’s role in formulating Russia’s sugar policy is difficult to reconcile with the image of the "radical market reformer" that he has cultivated, and for which Western observers generally give him credit. Instead, the picture of Chubais that emerges from the sugar case is that of a Russian nationalist who is perfectly willing to resort to policies of control and protection if he believes they serve Russia’s economic interests, if not his own.

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