Publication: Monitor Volume: 3 Issue: 176

Ukrainian Prime Minister Valeriy Pustovoytenko told a Moscow press conference on September 16 that President Boris Yeltsin and Prime Minister Viktor Chernomyrdin have ordered the Russian government to "re-examine" the 25 percent duty levied against Ukrainian sugar imports, as well as the 10 percent value-added tax imposed on all Ukrainian imports. (Russian agencies, September 15, 16, 19, 20) Removal or reduction of these duties, should they occur, would be a major accomplishment for Pustovoytenko on his first visit to Moscow as Ukrainian prime minister. However, while Kyiv may have won this battle in its "sugar war" with Moscow, broader prospects for liberalized trade in refined sugar remain unclear. (See the Monitor, September 10)

Prior to the introduction of the 10 percent VAT on Ukrainian imports last summer (which was reciprocated by Ukrainian levies on Russian imports) Ukraine exported some 1.1 to 1.3 million tons of refined sugar annually to Russia duty free. This sum was approximately equal to the amount by which Ukraine’s domestic production of refined sugar (2.7 to 3 million tons annually) exceeded domestic purchases (1.5 to 2 million tons). It also roughly matched the gap between domestic demand (4.5 to 5 million annual tons) and production (3.5 million tons) in Russia. As such, Ukrainian shipments of surplus sugar to Russia were a constant feature of the government-to-government trade deals that characterized both trade between Russia and Ukraine and among most CIS countries. However, the 1997 trade agreement calls for Russia to purchase only 600,000 tons of Ukrainian refined sugar, due in part to the higher costs of these imports associated with the higher duties. The roughly $300 million in lost export revenues associated with this smaller quota account for about a quarter of the whopping 27.5 percent decline in Ukraine’s exports to Russia recorded during the first half of 1997.

Pustovoytenko’s September 16 announcement that Yeltsin and Chernomyrdin have ordered the Russian government to "re-examine" the barriers to Ukrainian sugar imports are something of a surprise, given the protectionist stand on this matter taken by First Deputy Prime Minister Anatoly Chubais prior to Pustovoytenko’s arrival. Moreover, powerful forces within Russia seem to be standing with Chubais. These include the "Rossiiskoye Prodovolstviye" trading house, which has invested more than $1 million in sugar production since the introduction of the tariffs on Ukrainian sugar. Although the tariffs initially caused the price for a ton of sugar on the Russian domestic market to spike from $500 to $575, General Director Aleksei Rubinchik says that the price has since fallen back to $500 per ton. Increased competition from Ukrainian imports could therefore be ruinous for Russian sugar refiners, Rubinchik argued. The fact that Sberbank, Russia’s largest financial institution, owns 51 percent of "RosProd" suggests that the "sugar war" is a long way from being resolved.

Russian Orthodox Patriarch Crusades in Ukraine.