Publication: Monitor Volume: 4 Issue: 7

President Boris Yeltsin has canceled Russian value-added taxes on Ukrainian imports, effective February 1, Kremlin foreign policy coordinator Sergei Yastrzhembsky announced yesterday. Yastrzhembsky did not specify when Yeltsin signed the document, which rescinds the Russian president’s August 1996 decree on imposing VAT on Ukrainian goods entering Russia. Yastrzhembsky added that Yeltsin has also instructed the Russian government to implement the decision on allowing Ukraine to export 600,000 tons of sugar annually to Russia duty-free. In a parallel move, Yeltsin instructed the Russian government to negotiate with Kyiv regarding the participation of Russian oil companies in privatizing Ukraine’s Lisichansk, Kremenchug, and Odessa oil refineries. It is unclear whether the Kremlin will link this latter issue with the VAT.

Last week, Kyiv announced the lifting of VAT on Russian imports. Understandings of principle on the reciprocal cancellation of VAT and a partial lifting of Russian duties on Ukrainian sugar had been reached by Presidents Yeltsin and Leonid Kuchma at their informal meeting in November near Moscow. The presidents are scheduled to meet again for an official summit in Moscow next month. (Russian and Ukrainian agencies, January 12)

Still heavily dependent on the Russian market for its exports, Ukraine will undoubtedly hail the Kremlin’s move on VAT and will be content with the compromise on sugar — a major Ukrainian export commodity. At the same time, Moscow’s insistence on acquiring ownership rights in Ukraine’s largest oil refineries is politically controversial in Ukraine and is inconsistent with Kyiv’s effort to reduce its dependence on Russia for fuel.

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