Typically, such an evaluation is conducted in the frame of the respective feasibility study and comprises a detailed analysis of the background and the current state of respective trade and economic relations, and an assessment of envisaged effects from elimination of barriers.
1 See Minutes of the meeting with participation of Pres. Dmitry. Medvedev on socio-economic development of Far East and co-operation with the Asia-Pacific nations on 2 July 2010 - http://www.kremlin.ru/transcripts/RUSSIAN ECONOMY: TRENDS AND PERSPECTIVES In parallel with that, the nations concerned are holding bilateral consultations in the format of special task forces. The purpose of such consultations is to adopt a fundamental decision on appropriateness (or vice versa) of entering into such an agreement. At this point, it should be stressed that modern agreements of this kind not only provide for a reciprocal axing of import duties but liberalization of trade with services, investment movements, as well as agreements on so-called systemic matters, too.
As a model research, suffice it to reference to the US International Trade Commission’s report on effects for the US economy from an FTA with South Korea1. Making such research with the use of mathematical methods has proved a standard practice at the preliminary stage of crafting an agreement2.
Of all the Far-Abroad nations Russia used to have an FTA only with Yugoslavia. The agreement was concluded, primarily due to political reasons, back in 2000. But the FTA was applied on the temporary basis and embraced a limited circle of commodities. On November 23, 2010, Geneva saw the official ceremony of the start of negotiations on free trade between the EACT nations (Iceland, Lichtenstein, Norway and Switzerland) and the CU states (Russia, Belarus, Kazakhstan)3. The parties signed a joint declaration on the beginning of the negotiations on a comprehensive free trade agreement between the CU states and the EACT nations4.
In her address at the ceremony, Elvira Nabiulina, the RF Minister for Economic Development ascertained that, ‘The novelty of the project of free trade with EACT for Russia manifests itself both in the comprehensive subject of the agreement and in its format. The entering of the CU between Russia, Belarus and Kazakhstan into full-fledged negotiations on free trade per se constitutes an important step in advancement of our fresh integration structure and its integration into the international trade and economic system”5.
On 11-13 January 2011, the first round of the negotiations took place in Geneva. The parties considered approaches to building future sections of the Agreement: on trade with industrial and agricultural goods, sanitary and phytosanitary measures, technical barriers, protective measures in trade, customs procedures and the ones of identification of the goods’ country of origin, simplification of trade procedures, and intellectual property rights. In addition, at the EACT level the parties discussed investment and public procurement movements. The next round of the negotiations is scheduled for April 2011 in Kazakhstan6.
That said, picking EACT as a counterpart, or, even more so, as a partner in the groundbreaking Russia - Far-Abroad negotiations on FTA appears fairly questionable. On the one hand, once a 10nation structure, EACT has been losing its key members and, subsequently, its influence on the global and even European economy, ever since. On the other hand, EACT has already concluded (!) such agreements, with another 4 to come into effect soon. In addition, EACT is in negotiations with another six prospective counterparts. All the above evidences the EACT negotiation team’s great practical record in the area.
While picking counterparts, EACT mostly focuses on the EU’s partner network, but in some cases proves to be outrunning the EU. More specifically, EACT concluded FTAs with Canada, Ukraine and - far earlier than Ukraine- with South Korea. Meanwhile, being the most pragmatic and consistent EACT nation, Switzerland was a pioneer among developed nations to conclude an 1 U.S. International Trade Commission. U.S.-Korea Free Trade Agreement: Potential Economy-wide and Selected Sectoral Effects \\ Investigation No. TA-2104-24. Corrected printing, March 2010, Washington DC, 393 ð.
2 Other instances which might be of special interest to Russia: India – New Zealand Joint Study for a Free Trade Agreement/Comprehensive Economic Cooperation Agreement. – http://www.mfat.govt.nz/downloads/trade-agreement/ india/nz-india-joint-study-report.pdf; Trade Sustainability Impact Assessment of the Negotiations on a Free Trade Area between the EU and Ukraine: Position Paper. – http://trade.ec.europa.eu/doclib/docs/2009/may/tradoc_143165.pdf.
3 Executive update of the RF Ministry for Economic Development of 23 November 2010. - http://www.economy.
4 The step was preceded by establishment of the joint research group (JRG), to study prospects for a closer trade and investment cooperation. The respective agreement was reached at the level of Russia and EACT nations’ foreign trade/ foreign affairs ministers in Moscow in December 2007. Upon completion of its work in November 2008, the JRG submitted its report with the recommendation to conclude a comprehensive FTA between Russia and the EACT nations.
5 Brief outline of the Min. E. Nabiullina’s address at the ceremony of the beginning of negotiations on free trade between EACT and the Customs Union nations, Geneva, 23 November 20010 http://www.economy.gov.ru/wps/wcm/connect/ e3c3718044cab7359083f5af753c8a7e/tezisi.docMOD=AJPERES&CACHEID=e3c3718044cab7359083f5af753c8a7e.
6 http://www.efta.int/free-trade/free-trade-news/2011-01-14-efta-rubeka-fta.aspx THE ROLE OF FREE TRADE AGREEMENTS IN RUSSIA’S CURRENT...
FTA with Japan1 and embarks on negotiations with China (with the respective news broken at the 2011 Davos Forum).
That said, it is worthwhile noting the existence of a fairly close integration between EACT and EU.
In addition to being located in the same common European economic space and the Shengen zone, these unions are cemented by the system of trade and economic treaties, including the 1972 pioneer FTA.
Meanwhile, Russia is going to continue the dialogue with EU on signing a new Partnership and Cooperation Agreement with the Union, which potentially provides for creation of a free trade zone and even Russia’s accession to the EU’s united economic zone. That is why the start of the CU-EACT negotiations should be coordinated, conceptually and time-wise, with the forthcoming Russia-EU dialogue.
Consensus on negotiations on FTA between the Customs Union and New Zealand was reached in Moscow in May 2010 by Minister E. Nabiulina and T. Grosser, the Aotearoa’s Minister of Trade.
In October 2010, in what became the follow-up of its work, the joint expert group submitted to the Ministers a roadmap comprising a recommendation to launch negotiations on a bilateral FTA with a prospect of covering not only trade with goods, but trade with services, investment movements, private individuals’ movements, intellectual property rights, dispute resolution mechanisms, public procurements, and other matters, should the parties so wish.
As a result, at their meeting on 9 November 2010 Ministers of Trade/Foreign Affairs of the Customs Union and New Zealand, announced the beginning of negotiations in 2011 on conclusion of the bilateral FTA and even specified the desired timeline for their completion - that is, by the late 2011.As a reminder, New Zealand enjoys a stable reputation of the staunchest proponent of liberalization of global trade, and its negotiation team can boast a huge and, most importantly, successful record in this respect. As of today, the nation has already bagged 8 effective FTAs, with another 5 ones being negotiated. The kiwi nation’s major achievement to date has been an AFT with China effective since 2008. New Zealand vigorously pursues negotiations of new treaties with a focus on its partners in the APR.
At this point, it should be noted that both the EACT nations and New Zealand appear relatively minor trade partners to Russia. According to Russian customs statistics, in the 2000s the EACT’s proportion in Russia’s commodity export was 2-4%, while in import – 1-2%.
During the period in question, New Zealand’s respective shares were in the region 0.1% each3.
As concerns trade with commercial services, EACT’s specific weight was slightly greater - up to 5% in export and 4% - in import4. Between 2004 and 2009 the share of EACT (de-facto of Switzerland) in FDI in Russia roughly averaged 2%, while in direct Russian investments to overseas – slightly over 3%5.
From the perspective of trade statistics, Russia’s place in the EACT and New Zealand’s systems of foreign economic relations is practically the same. Russia’s share in these partners’ commodity export and import structure in the 2000s was oscillating within the range of 0-4%6. Between 2005 and Switzerland, as the most active investor among the group of nations in question, channeled to Russia an average of 1% of direct investment, with a faction of those FDI being repatriated Russian capital7.
As already noted above, both New Zealand and Switzerland (the latter - as Russia’s principle counterpart in EACT) fall under the category of fairly liberal economies8. It would be fair to note, 1 At this point, it should be noted that prior long-standing consultations at the EACT-Japan level and conduct of the respective research have ultimately resulted in a decision on inappropriateness of conclusion of an agreement in such a format.
2 The update of the RF Ministry for Economic development of 13 November 2010.- http://www.economy.gov.ru/ minec/press/news/doc20101113_3 According to the FCS’s data, in 2010, New Zealand ranked 81st in the list of Russia’s trade partners by volume of goods turnover 4 The Bank of Russia: statistics of the external sector. – http://www.cbr.ru/statistics/Prtid=svs 5 Rosstat – http://www.gks.ru/wps/wcm/connect/rosstat/rosstatsite/main/enterprise/investment/foreign/# 6 The UN Comtrade’s data. Meanwhile, one needs to factor into Russian re-export from Switzerland which forms a sizeable faction of the mutual goods turnover.
7 Swiss National Bank. Swiss direct investment abroad: By country - capital outflows – http://www.snb.ch/ext/ stats/fdi/pdf/en/1_1_CH_Direktinve_Kapitalexporte.pdf.
8 See: The Heritage Foundation. Index of Economic Freedom, World Rankings – http://www.heritage.org/index/ Ranking.
RUSSIAN ECONOMY: TRENDS AND PERSPECTIVES though, that the Swiss liberal economic policy does not embrace agricultural goods, which are excluded from FTAs the nation ever entered into together with its EACT partners or solo. By contrast, being a large exporter of agricultural products, New Zealand is keen to increase their access to Russia’s market.
At such a juncture the reciprocal liberalization of trade and related spheres of foreign economic activity will likely to be asymmetric – Russia will have to open substantial segments of the national market for the unrestricted competition with the said countries’ goods (fishery products in particular), services and capital. In certain cases, this may become a staggering blow to Russian producers, even notwithstanding relatively small volumes of trade1. Meanwhile, access to the EACT and New Zealand’s domestic markets has long been opened, but those are highly competitive markets and Russian economic agents will find it challenging to win a niche therein.
The agreement with New Zealand appears not just a pilot project for Russia, but the demonstration of it being serious about getting engaged in economic integration processes in APR, which became a zone of the most intense spread of good FTA-wise practices. It is the APEC participants that have been particularly active in promoting economic integration by means of FTAs. Notably, Russia is to chair the Forum in 2012.
Today, as many as 38 bilateral and one quadruple FTAs are effective within APEC, with the latter treaty (aka the Trans-Pacific Strategic Economic Partnership), should it ever expand, being potentially capable of forming the basis for a region-wide free trade zone2. Russia has defacto remained the only APEC nation which so far has failed to create an FTA with its Forum counterparts3.
This juncture put Russia, as the only APEC economy that has not yet joined WTO, in a somewhat ambiguous position on the eve of its chairmanship. The APEC’s discussion format has been lately used vigorously to draw attention to the need for channeling the FTA expansion process in order to ensure uniform standards of conclusion of such treaties. In this context, the APEC’s ultimate goal is to keep building an integrated community in the APR.
It will be impossible to dodge discussions on the issue in 2012, but Russia will find it fairly hard to lead or moderate them.
In the meantime, it is important for Russia and its fellow nations under the Customs Union to identify strategic objectives of the FTA exercise. Mass media in this case report just on “creation of favorable conditions of cooperation both in trade and in the sphere of services, investment, competition, and protection of intellectual property rights”. Information partly is confidential, perhaps, as the negotiations have kicked off just lately.
Besides, a country’s negotiation stand rests on the national businesses’ commercial interests.
From this perspective, chances for Russia to articulate an adequate stance appear pretty unlikely, as our business circles have not clearly voiced their views. That said, it can be ascertained that negotiations in the Customs Union’s frame would result in lowering or abolition of import duties, simplification of customs procedures, etc., as well as liberalization of access for foreign companies to some segments of Russia’s domestic market.