While EU and US sanctions against Russia over its aggression in Ukraine, and Russia’s countersanctions, are much discussed due to their evident political significance, less attention has been given to Russia’s punitive sanctions against the three Eastern European states – Ukraine, Moldova and Georgia – that have signed with the EU Association Agreements (AA), which include Deep and Comprehensive Free Trade Area (DCFTA) provisions.
Ukraine is a small open economy heavily relying on external trade. Exports of goods and services accounted for 50.2% of nominal GDP in 2010, while the ratio of imports to GDP was at 53.0%. Recently created Customs Union of Russia, Belarus and Kazakhstan (RBK CU) and the EU-27 are the largest trade partners of Ukraine. Together these two customs unions accounted for about two thirds of Ukraine’s total commodity trade turnover in 2010.
Ukraine’s economy is highly sensitive to world economic trends. Movements of world prices on commodities like metals, raw oil or chemicals as well as capital flow reversals have a significant impact on domestic economic trends. This sensitivity was demonstrated in 2005 that changes on world metal market resulted in sharp reduction of exports causing significant deceleration of Ukraine’s real GDP growth. The story repeated in 2008 when a swift change in world economic conjuncture and financial markets turmoil were among major causes of the economic crisis in the country. The real GDP dropped by about 15% in 2009, being one of the largest reductions among European countries.