Russia’s WTO accession and trade in services: an examination into Russia–EU relationships

Abstract

A Spain-based team of economists specialized in the study of services presents the results of their research on the evolution of Russian international transactions in services in the light of its imminent accession to the WTO. The study analyzes the evolution of three out of four modes of international transactions in services with Russia’s main trading partner, the European Union. Focusing on exports and imports and on foreign direct investment, the authors aim to assess if there was any process of substitution over the period 2005–2010. Business services emerge as one of the most dynamic group in terms of international transactions.

Keywords:

• globalization
• services
• trade in services
• Russia
• European Union

JEL codes:

• F13
• F14
• L84
• O52
• O5

Notes

1. General Agreement on Tariffs and Trade until 1995.

2. According to Aslund (2007), the accession of Russia to the WTO was a pure political issue and “provides an eminent example of the dampening effect of rising authoritarianism on economic reforms.”

3. According to WTO data, in 2010 52.2% of Russian exports were directed to the EU and 38.3% of imports came from this area.

4. This protection can be due to noneconomic reasons related to national security or economic nationalism (Golub 2009). Many service activities such as telecommunications, banking, or transport are often considered by host countries as “strategic” or “sensitive.” Services are therefore generally subject to far more stringent restrictions than manufacturing and even natural resources (Hoekman 1995, cited by Golub 2009).

5. Low productivity growth of services is a debatable question. A series of studies highlights that the productivity growth rates of several service activities (transport, communications, some advanced producer services) are similar to and even higher than the growth rates of manufacturing industries (Maroto and Rubalcaba 2008).

6. These 12 indicators are, for economic incentive and institutional regime: tariff and nontariff barriers and regulatory quality and rule of law; for education and human resources: adult literacy rate (percent aged 15 and above), secondary enrollment, and tertiary enrollment; for innovation systems: researchers in R&D per million population, patent applications granted by the UPSTO per million population, and scientific and technical journal articles per million population; and for information structure: telephones per 1000 persons, computers per 1000 persons, and internet users per 1,000 persons.

7. Russia is the second largest manufacturer of military equipment in the world after the USA. Moreover, the industry is growing very rapidly (US$15 billion last year). R&D services are of utmost importance for this industry, as it is a highly knowledge-intensive.

8. Some recent studies, like Ledyaeva, Karhunen, and Whalley (2013), point out that the major explanation for the key investor role of Cyprus in industries like financial services and real estate is in the capital reinvested through subsidiaries, a process known informally as “round-tripping.”

9. Financial intermediaries mediate between lenders and borrowers by channeling funds from one to the other. Examples of financial intermediation are services provided in connection with transactions in financial instruments or advisory, custody, and asset management services.