June 9, 2009
A Problem with the Udder
Belarus and Russia Are Tumbling into a Full-Blown Trade War That Can Have Only One Outcome
Russia announced a blanket ban on imports of 500 Belarusian diary products Saturday. Russia claims that the move is for purely technical reasons, and was preceded by repeated warnings to Belarus about hygiene and production standards. But the ban was announced just a day after President Alexander Lukashenko angrily accused Russia of using economic aid to leverage Belarus into recognition of Abkhazia and South Ossetia, and the rhetoric on both sides quickly spiraled from frosty exchanges to positively aggressive confrontation. Few independent analysts have any doubt that this move is really political.
The head of Russia’s Federal Consumer Protection Service, Gennady Onishchenko, on Saturday announced that Belarus had failed to change its practices in accordance with a new law regulating sales of milk products that was introduced in December of 2008. The change in the law introduced a new distinction between “drinking milk” – which can now only be used to describe 100-percent fresh milk - and “milk drinks,” which includes products like “long life” milks that are reconstituted from powdered milk. The issue really comes down to a question of labeling – if a product includes even a smidgen of powdered milk, the producer has to find a new name for it.
In his public announcement Onishchenko claimed that Belarusian producers had made “no attempt” to comply with these relatively simple rules, and announced that “from Saturday, Russia stops the import of some 500 types of dairy products from various manufacturers.” But his justification that they were “practically without documents” did not make it clear whether the Belarusians had failed to change their labels, or simply hadn’t filled out the right forms.
Onishchenko said that he had warned the Belarusians before that they were in violation of the new law, though that does not explain the leniency shown thus far. And even if Belarus is in violation of these laws, the timing is enough to raise suspicions about Onishchenko’s intent. As Russia’s chief food safety official he has frequently invoked bans on food imports from countries Russia was not getting on with (Polish meat and Georgian wine are just two of the more famous examples – others have included Latvian sprats, U.S. chicken – in the wake of the war in Georgia – and Moldovan wine) – and relations between Russia and its supposedly closest ally have been remarkably strained recently.
Last Month, after Russian Finance Minister Alexei Kudrin suggested that Belarus might soon find itself insolvent, Belarusian President Alexander Lukashenko directed a stream of undiplomatic invective at Kudrin and Prime Minister Vladimir Putin, and declared that Belarus would “look for happiness in other parts of the planet.” Such was the ferocity of his rhetoric that some in the Russian media speculated that he was about to sever diplomatic ties between the two countries. Since then tension has only escalated.
On Friday, the day before Onishchenko announced the milk embargo, several Russian papers carried an interview with Lukashenko in which he claimed that Russian officials had said they would not buy Belarusian milk unless they had control of Belarusian milk factories (which he said he refused). He also accused Russia of offering Belarus a $500 million loan only on condition that it recognizes Abkhazia and South Ossetia. With relations that frosty, it would be almost uncharacteristic for Russia not to find an excuse for a trade embargo.
The choice of target is an indication of just how impatient the Russian government has become with its ally to the west. Exports of milk to Russia earned Belarus over $1 billion in 2008, and as such the ban is not symbolic but could “really hurt many Belarusian enterprises,” said Jaroslav Romanchuk, the head of the Mises Research Center in Minsk.
And Milk may only be the beginning. “Germs can probably be found in some other food stuffs, technical regulations may block other Belarusian exports – Russia already subsidizes its own producers and prevents Belarusian tractors from competing in tenders. That can really hurt the Belarusian industry and agricultural producers,” said Romanchuk. “We are on the verge of, if we have not already entered, a stage of a fully-fledged trade war between Belarus and Russia,” said Romanchuk.
Such a war can have only one outcome. Russia accounts for some 48 percent of Belarus’s external trade, while Belarus accounts for only around six percent of Russia’s trade. Russia is the sole source of oil and gas for Belarus, and in 2008 subsidized the country’s oil and gas consumption to the tune of 13 percent of the GDP.
But the fact that this is a confrontation that he cannot win does not seem to have deterred Lukashenko. Instead he raised the stakes yet again after the milk ban was announced, by questioning the future of military cooperation between the two countries (according to the Kommersant daily, he likened Belarus’ ten million people to a human shield for Russia against the West, a service that he said “was not free.”) Asked about the possibility of Belarus’ eventually joining the Russian Federation, a move that just a few years ago seemed a very real possibility, he apparently promised “another Chechnya” should Russia even try it.
The reason for Lukashenko’s truculence seems to be a fear of being co-opted into a much weaker position by the Russians. “The next step after recognizing Abkhazia and South Ossetia would be for Russia to insist on expanding the Russia-Belarusian Union State [a close alliance currently between Russia and Belarus that was once envisioned would lead to unification] to include them,” said Romanchuk. “That would leave Lukashenko in the minority, and he would definitely lose in any agreement between the four of them.”
If the Russians have finally lost patience, Lukashenko may be finally forced to make the decision between the European Union and Russia that he has put off for so long. If he sticks with Russia he will have to give up much of his autonomy. But Europe will insist on reforms at home, and is unlikely to replace Russia’s subsidies. But whatever happens, it is already clear that this conflict is not about milk. “The problems are not underneath cows and bulls, but underneath gas and oil pipes,” said Romanchuk.