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. Last Updated: 07/27/2016

Trade War Looming Over Ukraine Pipes

Preventing a new trade war over gas and oil pipes will be high on the agenda when Prime Minister Mikhail Kasyanov meets his Ukrainian counterpart Viktor Yushchenko in Moscow on Tuesday.

As part of a pressure campaign in a feud that has been brewing for months, bosses from eight Russian pipe manufacturers on Monday called on Kasyanov to raise tariffs and introduce quotas on cheap Ukrainian imports.

The firms, who have collectively formed the Fund for the Development of the Pipe Industry, said tougher trade measures would show the government's resolve to protect Russian industry, which an official commission found is threatened by Ukraine's cheap pipes.

"Major Russian enterprises consider it impossible to delay any further a decision on introducing special protective tariffs," the FDPI said in a statement sent to Kasyanov on Monday. "Every day of delay results in new losses for Russia's ferrous metals industry and the national economy as a whole," the letter said.

Collectively the eight firms in the FDPI account for 85 percent of Russia's annual pipe sales, which total $2 billion.

Last month, after six months of hesitation, a government commission chaired by Alexei Kudrin, the finance minister and a deputy prime minister, recommended that Ukrainian pipe exporters be slapped with a 20 percent import tax on pipes not available in Russia and a 40 percent tax on competitive products if Ukraine refuses to cut its annual exports to Russia to 480,000 tons.

Last year, Ukraine exported to Russia 788,000 tons of pipe out of its total pipe production of 1.7 million tons.

By comparison, Russia produced 4.1 million tons of pipe in 2000, on demand of 5 million tons.

Yushchenko plans to propose to Kasyanov a quota consisting of more than 650,000 tons a year, Prime-Tass quoted a Ukrainian official as saying Monday.

Vladimir Stetsenko, head of the department in the Ukrainian Economics Ministry that deals with foreign issues, said in a telephone interview from Kiev on Monday that Russian pipe firms just want to "close off Ukrainian imports so they could sharply inflate prices."

"We are ready to negotiate, but only with fair rules," he said, adding that 480,000 tons is not fair when Russia is enjoying healthy production growth.

"Both Russia and Ukraine are going to join the World Trade Organization, and this is not by WTO rules," Stetsenko said.

"We understand that the government is under pressure," said Andrei Komarov, FDPI member and chairman of the board for the Chelyabinsk Pipe Plant. "But Ukraine is proposing conditions it already knows are unacceptable."

"As Putin said in his state of the nation address last year, 'the economy comes before politics.' I hope that means something," said FDPI head Ilya Kokarev.

Kokarev said the Russian pipe industry is losing a minimum of $1 billion a year because of Ukrainian imports, which are of "inferior quality and 25 percent cheaper" than Russian pipes.

Part of the problem lies with Gazprom, the largest importer of Ukrainian pipes, said Ivan Lee, general director of the Volzhskiye Pipe Plant.

Ukraine has a backlog of huge debts owed to Gazprom and is repaying the gas giant with pipes, making it very hard for Russian companies that deal in cash to compete successfully, Lee said.

Kakha Kikhnavelidze, an analyst at Troika Dialog, said that new tariffs on any limits imposed on Ukrainian pipe imports would not be in Gazprom's interest.

"The quality of Ukrainian pipes is really bad, but they are also cheap," Kikhnavelidze said.

"In many ways FDPI's complaints are well-founded," he said.