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Russia Faces Higher Non-Tariff Barriers on Exports to an Enlarged EU

CEPR Discussion Paper No. 3840

Russia’s European Integration: Escapism and current realities

Author: Carl B. Hamilton (Stockholm School of Economics and CEPR)

Russia and the EU are now preparing for significant changes in their economic relations that will be discussed at the EU – Russia Summit on 31st May 2003 in St. Petersburg. Russia seeks WTO accession and to further its integration into the global economy, while the EU is in the completing phase of its eastern enlargement. Against this background, the question is what economic relationship will the EU and Russia develop in the future? In the Partnership and Cooperation Agreement (PCA) of 1994, the answer was given to be a free trade area. But so far there is no evidence that this has been implemented. More recently, the answer has been a ‘European Economic Space’ consisting of EU and Russia. But the content of this proposal is very unclear. In CEPR Discussion Paper No. 3840, Carl B. Hamilton studies the recent history of economic relations between Russia and the EU and gives the following conclusions:

  • A European Economic Space between Russia and the EU is a near impossibility for both legal and domestic political reasons. Instead of holding an agreement such as a European Economic Space as the objective of economic relations, priority should be given to setting definite measures that define a time path and end date for a process leading to free trade in industrial products between the EU and Russia, as was put forward almost ten years ago in the 1994 PCA agreement between the two parties.

  • There is an urgent need for action to abolish the current restrictive trade barriers on Russian exports of steel, chemicals, agricultural products and potentially textiles.

  • It is estimated that in the enlarged EU, Russia will face new non-tariff barriers on its exports in the form of anti-dumping measures and steel quotas. Calculations in this Paper indicate that the new anti-dumping measures will be equivalent to tariffs of 16-21% in Hungary, 5-7% in Poland, 9-17% in The Czech Republic, 23% in Slovenia and 2-9% in Estonia.

  • There is also potential for future conflict between Russia and the enlarged EU over free trade. After accession to the WTO, Russia can be expected to be active for freer trade both in manufactures, and to an even greater extent, agricultural products. As full-members of the EU, the new member countries may act to keep lucrative West European markets for themselves and seek protection against extra-EU imports.

  • The EU and Russia are currently bogged down in a flight to the future and the removal of potential and future barriers to trade in products and services for which there is little export demand. There is too much emphasis in summit declarations on Russia to harmonise to, and adopt the rules and standards of the EU’s internal market.

  • More than half of Russia’s exports are energy products. The enlarged EU will take around 50% of Russia’s total exports. At present, Russia is a small and discriminated against trading partner with the EU. Though Russia has officially stated that it wishes a more balanced economy, it subsidises domestic energy consumption significantly.

  • Russia’s geopolitical situation is different from its economic situation. A failure to separate the two will lead to confusion. It is likely that it is in Russia’s long-term interest to minimise the influence of geopolitics on trade relations. Russia’s accession to the WTO is crucial in this respect.

Contact Information:
For interviews regarding this paper phone Carl B Hamilton on +46708345736, and for further information about CEPR please contact CEPR Press Officer Robbie Lonie, Tel: +44 (0) 20 7878 2919, Mobile: +44 (0) 7740519225 or email rlonie@cepr.org, or carl.b.hamilton@riksdagen.se.

The Centre for Economic Policy Research (CEPR): CEPR was founded in 1983, with the belief that policy decisions should be informed by sound economic analysis, based on fundamental theory. CEPR’s network of nearly 600 affiliated researchers, comprising the top economists in Europe and beyond, collaborate through the Centre to conduct research on issues affecting the European economy. CEPR secures and administers funding grants for researcher projects, and disseminates their results. The Centre’s wide-ranging research includes open economy macroeconomics, international trade, financial economics, labour economics, industrial organization, public policy, and economic institutions.

 

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