Prime Minister John Key says Russia has tried to reignite free trade talks - but New Zealand has made it clear it will not budge until Russia buckles to international demands over Ukraine.

And Key said Putin sending warships in an apparent show of muscle-flexing during the weekend's G20 summit was unhelpful when Russia was facing increasing international pressure over the Ukraine and suspicions it was involved in the shooting down of the Malaysia Airlines flight.

However, Key could also face questions about why New Zealand is not taking a firmer stance on Russia.

Key said halting the free trade talks had sent a message. The Government had pulled Trade Minister Tim Groser out of the talks in March because of the Ukraine. "We were within millimetres of signing a free trade agreement with Russia and we stopped that. The Russians have been wanting to progress that and New Zealand has been saying 'no, we're not going to progress that until we see a change in what has been happening and the approach of the international community'."


Asked if that was damaging our reputation at the G20, where many countries had imposed the sanctions, he said New Zealand law did not allow it to impose specific trade sanctions, so it was limited to travel sanctions. However, New Zealand companies had been urged not to trade with Russia. "There would be great opportunities for our companies, in particular dairy companies like Fonterra to exploit that and they're not doing that."

He said if the law allowed those sanctions New Zealand would have imposed them. He blamed Labour for that, saying it would not agree to change the law to allow sanctions other than those mandated by the UN. Attempts to get that mandate from the Security Council had been stymied by Russia's veto power.

Key said there was little that could be done about Putin and the warships, which risked overshadowing the EU.

"He will have his own motivations for doing that. You've got the 20 biggest leaders in the world here for G20, ultimately there are a lot of different positions. Some of those things are bubbling away and having quite a big impact."

He did not believe the standoff would derail the G20. "Really, people's attention will be focused on the leaders and the outcomes of the G20 and less about whether there's a few Russian ships floating around off the coast of Australia."

He said the trouble over Ukraine was having an impact on economic growth in Europe.

Also yesterday Key announced New Zealand has completed a free trade deal with South Korea.

"It's been a long hard agreement to reach," he told reporters. "It's a good deal."


He said South Korea is a big market for New Zealand, with two-way trade between the two countries worth $4 billion a year.