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Canada Inks Trade Deal With Ukraine, Considers Allowing Export of Automatic Weapons To War-Torn Country

The trade deal will likely mean little for either economy in the short-term, as bilateral trade between the two countries remains limited. But it has important energy implications for the future.

by Justin Ling
Jul 15 2015, 5:45pm

Photo courtesy of the government of Canada.

Amid renewed fighting in Donetsk, a looming energy crisis, a crumbling economy, and political discontent in Kiev, Canada has stepped in to offer a shot in the arm for Ukraine's beleaguered government.

At a surprise signing ceremony at Prime Minister Stephen Harper's summer residence in Quebec, the Canadian leader welcomed his Ukrainian counterpart and committed to a new trade deal that will, eventually, eliminate 99.9 percent of tariffs on current imports from Ukraine into Canada, and 86 percent of tariffs on a variety of Canadian products.

"Our government has shown an unwavering commitment to ensuring the stability and security of Ukraine," Harper said in a statement Tuesday. 

Reporters were not allowed to attend the event, and Harper did not answer questions.

That deal, though, will likely mean little for either economy in the short-term, as bilateral trade between the two countries remains limited.

In the long term, however, it promises to facilitate energy exports to Ukraine, and could pave the way for a separate agreement that allows Canadian companies to export restricted weapons to the embattled country.

Canada was the first country to recognize Ukraine's independence from the Soviet Union, the first to send an official to recognize the government of Prime Minister Arseniy Yatsenyuk, the first to send its leader to conduct a state visit after Russia's annexation of Crimea, one of the most willing governments to slap tough sanctions on Moscow, and one of the most generous in terms of financial aid to the state.

As a result, Canada pushing the trade deal is no great surprise — but Harper's own political fortunes may benefit from the announcement, as the sizable and well-organized Canadian-Ukrainian voting bloc could have a bearing on his chances for re-election. It's also good news for Ukraine's shaky economy — it shrank 7 percent last year and may decline by 9 percent in 2015 — that has been hobbled by ongoing fighting.

The government in Ukraine has been plunged into unpopularity in recent months, as fighting drags on, unemployment remains high, and corruption runs rampant.

Ukraine currently has free trade agreements with Russia, and has signed a deal with the European Union, yet its implementation has been delayed until 2016 for fears of "destabilization" of Ukraine's economy.

While the EU is a major trading partner for Ukraine, Canada is not. A release from Harper's office, however, notes just how limited of an impact the Canadian deal will have: Ukraine's economy is expected to grow by less than $15 million as a result of the agreement, while Canada's will expand by roughly $23 million.

The deal will mostly boost small-scale trade of agricultural and forestry goods in the short-term, but the real long-term benefit to both sides will likely be oil and gas.

Currently, Ukraine's energy economy is in tumult.

Pro-Russia forces are occupying gas fields in Donetsk and Donbass, and Russian-owned energy giant Gazprom cut off natural gas to Ukraine earlier this month, citing a lack of payment from Kiev for years of shipments. This came after Ukraine tried to become energy independent by reversing the flow of one of Gazprom's pipelines in Slovakia, which ultimately failed.

While there had been hope for domestic gas exploration within the country, a large chunk of Ukraine's energy reserves are now in the hands of Russia. Not far from the shores of Crimea, a largely untouched reserve of natural gas is waiting to be tapped. Meanwhile, in Donetsk, companies like Shell have either slowed production or pulled out altogether due to fighting. The gas fields, which either fall inside or near rebel-controlled territory, could fall under Russia's control altogether if — as Kiev is warning — the rebels seize control of the Donetsk and Donbas regions.

Meanwhile, both Canadian and Ukrainian leaders have hinted at the prospect of collaboration on the energy front. In September, President Poroshenko said that Canada could be "one of the most important partners" in his country's quest for energy independence, while Natural Resources Minister Greg Rickford talked about Canada's interest in diversifying its oil and gas clientele.

At a briefing in May, Rickford said he was optimistic that Canada could get oil and gas moving from Alberta to its eastern ports — and, eventually, Europe — by 2020.

A senior trade official in the Department of International Trade acknowledged this week that tariffs and duties on all petroleum products sold to Ukraine would be removed as soon as the deal is signed, "and that will help facilitate increased exports." The official, during a technical briefing, acknowledged that once transportation for oil and gas "matures," exports are expected to climb significantly.

It's not just Ukraine's energy sovereignty that's at stake, but it's territorial integrity, too. And there's concerns that Kiev's army does not have the firepower to defend itself, should it come to that.

"Ukrainian light anti-armor capabilities are severely lacking at a time when the Russians have moved large numbers of tanks and armored personnel carriers into the Donbas (70 percent of their existing stocks of light anti-armor weapons reportedly do not work)," reads a report penned by former American military brass, defense staff and government officials which recommends that Washington send lethal aid to Ukraine.

Currently, Ottawa and Washington are only contributing non-lethal aid — which includes military training, flak jackets and helmets, and money for civil society.

That may change soon, as the government of Canada considers putting Ukraine on the Automatic Firearms Country Control List (AFCCL), a list of 39 countries — 40, if Ukraine is included — which can buy automatic and restricted weapons from Canadian companies.

Adding Ukraine to the AFCCL isn't a sure bet, but most countries on that list have free trade agreements with Canada. When South Korea finalized its deal with Canada last spring, it was added to the AFCCL within months.

"The proposed regulation…would allow exporters of certain prohibited firearms, prohibited weapons and prohibited devices to submit permit applications for the export of these items to Ukraine," a government news release reads. Ottawa was accepting public and stakeholder submissions on the merits of the idea until last week, and "officials are presently reviewing the submissions that have been received," a spokesperson for the Department of Foreign Affairs told VICE News.

If the government approves the idea, Canada's defense and security sector could soon be selling weaponry the Ukrainian army is looking for. The Canadian government, on the other hand, has no surplus weapons left to contribute to the cause.

"Canada continues to stand with the people of Ukraine in the face of Vladimir Putin's military aggression," the spokesperson added. 

Follow Justin Ling on Twitter:@justin_ling