Moscow warns of import duty hike if Kiev signs EU pact

(BERLIN) - Russia's economy minister warned Ukraine in an interview on Monday that Moscow will raise import duties on its goods if Kiev signs a partnership agreement with the European Union.

"We say to Ukraine: you have the right to go your own way," Alexei Ulyukayev was quoted as telling German business daily Handelsblatt.

"But we will then be forced to raise import duties."

Russia is currently a major market for Ukrainian exports.

Ulyukayev said that, because of free trade within the Moscow-dominated Commonwealth of Independent States, Russia would be flooded with duty-free goods from the EU if Kiev signed an association agreement with the bloc.

Ukraine's refusal three months ago to sign such an EU trade pact sparked a crisis that spiralled into deadly clashes and the downfall of president Viktor Yanukovych.

Ulyukayev ruled out the possibility of Ukraine signing such a pact and also remaining a major trading partner of Russia.

"One is not compatible with the other," he was quoted as saying, adding that Moscow favoured "trilateral negotiations between Russia, the EU and Ukraine" on the issue.

He also said that further Russian loans for Ukraine would be conditional on the make-up of its next government.

"We first need to know who will be in the government, which programme it will follow and who will be prime minister."

The minister warned that the economic situation is rocky in Ukraine.

"The situation there is changing day by day," he said. "But it's already clear that Ukraine faces recession."

He warned of the impact of the dire economic situation on Ukrainian-Russian joint ventures as well as Russian banks, which are heavily invested in the neighbouring country.

"Many investment funds are withdrawing their money from Ukraine -- and in many cases also from Russia," he said.