KIEV, April 12 – Russian Prime Minister Vladimir Putin on Tuesday offered Ukraine up to $9 billion in annual economic benefits for joining a Moscow-led trade bloc, but Kiev appears to be lukewarm to the idea.

The development suggests that Ukraine will seek to pursue a free trade accord with the European Union, instead of joining the Russia-led Customs Union, which also includes Belarus and Kazakhstan.

The development is a political setback for Putin, who has been pushing hard for trying to get Ukraine politically and economically closer to Russia.

The failure to reach the agreement may eventually trigger a trade war between the two countries as Putin has again reiterated Moscow’s earlier threat of erecting prohibitive trade barriers against Ukrainian goods.

President Viktor Yanukovych, at a meeting with Putin, said Ukraine would seek to continue talks with Russia over amending bilateral free trade agreement, a move that is not supposed to impede negotiations between Kiev and Brussels.

These talks will focus on reducing or eliminating a list of goods and commodities, such as crude oil and sugar, that is subject to additional duties imposed by Russia and that is restricting bilateral trade.

“Once we remove this list, we will be able to reach up to $50 billion” in bilateral trade in 2011, up from $42 billion in 2010, Yanukovych said.

The comment indicates that Ukraine will focus on reaching the bilateral trade agreement with Russia rather than joining the Customs Union as Putin has insisted.

Russia has stepped up its diplomatic efforts over the past several months seeking to dissuade Ukraine from signing the free trade accord with the EU in favor of joining the Customs Union.

The accession to the Russia-led bloc would significantly weaken Ukraine’s political and economic ties with the European Union, while at the same time would strengthen Moscow’s influence in the former Soviet Union country.

“We hope that Ukraine will take active part in those [integration] processes that are currently taking place in the post-Soviet space,” Putin told his Ukrainian counterpart, Mykola Azarov, before the meeting with Yanukovych.

“Ukraine’s direct benefit from moving along this way would be, according to our estimates, between $6.5 billion and $9 billion, annually,” Putin said.

The benefit would come from lower natural gas prices, but also from Russia eliminating its duty on exports of crude oil to Ukraine. Putin said the measures would boost Ukraine’s economic growth by an additional 2 percentage points annually.

Should Kiev reject the offer from Moscow and reach the free trade accord with the EU instead, Russia would move to punish Ukraine by erecting prohibitive trade barriers, he said.

“I have to remind that … in this case we would have to implement the protective measures,” Putin said. (tl/ez)