Assessing the Impact of Non-Tariff Barriers on Trade within the Eurasian Economic Union. Alexander Knobel, Gaidar Institute Roman Vakulchuk, NUPI

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1 Assessing he Impac of Non-Tariff Barriers on Trade wihin he Eurasian Economic Union Alexander Knobel, Gaidar Insiue Roman Vakulchuk, NUPI

2 Research Quesion This paper sudies o wha exen Eurasian inegraion has led o rade faciliaion and assesses he impac of non-ariff barriers on rade wihin he EAEU in

3 Research Design 528 company surveys and HS2012 classificaion of goods are used o measure he impac of non-ariff barriers; The empirical model draws on he model of Haveman and Thursby. 3

4 Economic Inegraion of Russia, Kazakhsan, Belarus, Armenia and Kyrgyzsan 2010 Cusoms Union: Free movemen of goods The Role of EAEU in he World, Common Economic Space: Free movemen of services, labor and capial Coordinaed (common) policy Inegraed infrasrucure RUS BEL KAZ ARM KYR EAEU Share in world GDP, % Share in world populaion, % Invesmens, % of GDP Invesmens, % in world invesmens Share in world expors, % Share in world impors, % Share in world crude oil and oil producs expors, % Share in world naural gas producion, % Eurasian Economic Union 4

5 EAEU Inra-Regional Trade The scale of inra-regional rade in he various inegraion unions (average for ),% EAEU SACU SAARC 4.7 MERCOSUR 14.8 ASEAN 24.5 NAFTA 41.6 EU Noe: SACU Souhern African Cusoms Union. Source: UNCTAD/WTO (Trade Map) 5

6 Eurasian Economic Union: The Treay The main goal is o cancel all exising exempions from free rade beween he members of he EAEU. Key novelies in he EAEU: 1. Creaing single marke of goods, services, capial and labor, including liquidaion of all remaining barriers o free movemen 2. Legal harmonizaion 3. Coordinaed (if necessary common) policy in he key areas 4. Inegraed infrasrucure in all economic spheres 5. EAEU as an inernaional organizaion wih legal personaliy 6. Oher measures for efficien work of he EAEU Free movemen of goods Free movemen of services, including financial Free movemen of labor Main inegraion crossroads - Movemen oward cancellaion of residence principle - Inegraion of procedures for collecing impor duies - Improving cusoms regulaions - No exempions and resricions for free movemen of: crude oil, oil producs, naural gas, alcohol, obacco, medicines and medical producs, auomobiles, fish - Developing common rade regime for hird counries - Creaing single marke of services wih muual recogniion of auhorizaion documens (43 secors) - Gradual liberalizaion of mos service secors, excluding hose conneced wih naional securiy (mass media, exploraion of uraniferous fields, ec.) - Inroducing bes pracices for invesmen proecion - No migraion cards for 30-day visis inside he EAEU - Social package for labor migrans from EAEU counries and heir families Since 1 January 2016 single marke of medicines and medical devices Since 1 January 2015 single marke in 23 secors of services Since 2019 single elecriciy marke Since 2025 single marke of oil and gas 6

7 The Daa for Non-Tariff Barriers The main problem absence of variaion in NTB measures boh in space and in ime We use daa from Vinokurov E. e al. (2015) abou NTB beween Belarus, Kazakhsan, and Russia Toal value of non-ariff measures' impac on rade wihin he CU by indusry, % of he cos of expored goods Indusry Belarus Kazakhsan Russia Kazakhsan Russia Belarus Russia Belarus Kazakhsan Agriculure, foresry and fisheries Food producs, including beverages and obacco Chemical indusry Meal producs Machines and equipmen Transpor means and equipmen Average

8 The Model Descripion We esimae he following ype of equaions: k, k, ln( Im ) i j k 1 ln( GDPi, ) 2 ln( GDPj, ) ln( impor _ priceij ) ln( disw ) ln(1 NTB ) k k, ij ij ij where Im i j k, impor from counry i of he CU (Russia, Belarus and Kazakhsan) o anoher counry j of he CU; α k fixed effecs on a paricular produc segmen; GDP i, GDP of an expor-counry; GDP i, GDP of an impor-counry; impor_price i,j k, he impor price of produc k, impored from counry i o counry j in year ; disw ij average weighed disance beween counries i o counry j; NTB i,j k non-ariff barrier for delivering produc k from counry i o counry j. 8

9 The Model Descripion We esimae he following ype of equaions: k, k, ln( Im ) i j k 1 ln( GDPi, ) 2 ln( GDPj, ) ln( impor _ priceij ) ln( disw ) ln(1 NTB ) k k, ij ij ij We should noe ha his specificaion shows ha if a barrier s value is decreased o 0, in oher words: if non-ariff measures are fully eliminaed from rade among he EEU member saes, hen rade can grow on average (1+ NTB) θ imes while if 50% reducion of non-ariff barriers (ha is seen o be more realisic) akes place, hen we should expec rade o grow [(1+ NTB)/(1+ NTB/2)] θ imes 9

10 The Daa Descripion We used UN Comrade impor daa for hree member saes of he EAEU. The impor price is calculaed for each six-digi commodiy group ha is equal o he raio of impor cos o physical volume. In he sudy we use he purchase price as a proxy for domesic (foreign) price of an impored commodiy 10

11 Esimaion of equaions (1) k, k, i j k 1 i, 2 j, ij k ln( Im ) ln( GDP ) ln( GDP ) ln( impor _ price ) ln( disw ) ln(1 NTB ) k k, ij ij ij k, k, i j k 1 i, 2 j, ij k 1 ln( Im ) ln( GDP ) ln( GDP ) ln( impor _ price ) ln( disw ) ln(1 NTB ) k k, ij ij ij 11

12 Esimaion of equaions (1) Depended variable: Physical volume of rade Log of imporer GDP Log of exporer GDP Log of weighed disance Log of impor price Log of NTB barrier Presence of ime effecs 0.220*** ( ) 0.670*** ( ) 2.72*** (0.0283) 1.11*** ( ) 1.66*** (0.106) Absence of ime effecs 0.227*** ( ) 0.677*** ( ) 2.72*** (0.0283) 1.10*** ( ) 1.71*** (0.105) Number of observaions Number of en-digi rade groups Period of esimaion R 2 wihin Robusness sandard errors in parenheses. *** significance a 1% level; ** significance a 5% level; * significance a 10% level. 12

13 The Possible Impac of Non-Tariff Barriers Reducion on Differen Trade Direcions wihin he EAEU Trade direcion (exporer >imporer) NTB mean for rade direcion Trade growh from 50% NTB reducion [(1+ NTB mean )/(1+ NTB mean /2)] θ Trade growh from full NTB eliminaion [(1+ NTB mean )] θ Share of rade direcion in oal rade beween Belarus, Russia, and Kazakhsan Average value 13.8% 11.1% 24.3% 100% RUS >BLR 8.7% 7.1% 15.0% 39% BLR >RUS 13.7% 11.0% 24.1% 23% KAZ >RUS 11.9% 9.6% 20.8% 10% RUS >KAZ 12.5% 10.1% 22.0% 26% KAZ >BLR 15.9% 12.7% 28.2% 0.20% BLR >KAZ 36.7% 27.5% 69.4% 1.30% Source: Auhors calculaions, based on θ esimaion resuls. 13

14 Esimaion of equaions (2) k, k, i j k 1 i, 2 j, ij k k k, ln( diswij ) h ln(1 NTBij ) ij h H ln( Im ) ln( GDP ) ln( GDP ) ln( impor _ price ) k, k, i j k 1 i, 2 j, ij k 1 k k, ln( diswij ) h ln(1 NTBij ) ij h H ln( Im ) ln( GDP ) ln( GDP ) ln( impor _ price ) where H= {agriculure and food indusry (secions HS I IV); energy producs (secion HS V); parially processed producs (chemical indusry, clohes, maerials, wood, non-precious mealls) (secions HS VI XV); machines and equipmen and oher goods wih high degree of processing (secions HS XVI XXI)} is a seleced allocaion of produc caegories. 14

15 Esimaion of equaions (2) Depended variable: Physical volume of rade Log of imporer GDP Log of exporer GDP Log of weighed disance Log of impor price Log of NTB barrier, Agriculure & food Log of NTB barrier, Mineral producs Log of NTB barrier, average degree of processing producs Log of NTB barrier, Machinery, Vehicles Presence of ime effecs 0.236*** ( ) 0.688*** ( ) 2.82*** (0.0287) 1.11*** ( ) 5.83*** (0.245) (1.20) 1.15*** (0.113) 2.40*** (0.195) Absence of ime effecs 0.242*** ( ) 0.694*** ( ) 2.82*** (0.0287) 1.10*** ( ) 5.94*** (0.245) (1.21) 1.20*** (0.113) 2.44*** (0.195) Number of observaions Number of en-digi rade groups Period of esimaion R 2 wihin Source: Auhors calculaions. Robusness sandard errors in parenheses. *** significance a 1% level; ** significance a 5% level; * significance a 10% level. 15

16 The Esimaes of Poenial of Non-Tariff Barriers Reducion for Differen Aggregaed Trade Groups Trade group NTB mean for rade group Trade growh from 50% NTB reducion [(1+ NTB mean )/(1+ NTB mean /2)] θ h Trade growh from full NTB eliminaion [(1+ NTB mean )] θ h Share of rade group in oal rade beween Belarus, Russia, and Kazakhsan Toal 13.8% 11.1% 24.3% 100% Agriculure & food (I IV HS secions) Mineral producs (V HS secions) Average degree of processing producs (VI XV HS secions) Machinery, Vehicles (XVI XXI HS secions) 12.9% 41.5% 105% 14.9% 12.3% 5.1% 10.9% 34.4% 11.8% 6.5% 13.9% 30.7% 17.7% 20.7% 48.1% 20.1% Source: Auhors calculaions, based on θ h esimaion resuls. 16

17 Esimaion of Equaions (3) XXI k, k, i j k 1 i, 2 j, l ij k l I ln( Im ) ln( GDP ) ln( GDP ) ln( impor _ price ) ln( disw ) ln(1 NTB ) k k, ij ij ij Esimaes of his equaion allows o analyze o wha exen price changes impac rade in differen segmens of rade groups. The secions XIV (naural or culured pearls, precious or semi-precious sones, precious meals, ec.) and XIX (arms and ammuniion; pars and accesso-ries hereof) have been excluded from esimaion due o lacking daa for hese rade groups. 17

18 Esimaion of Equaions (3) III. Animal or vegeable fas and oils and heir cleavage producs; prepared V. Mineral producs II. Vegeable producs I. Live animals; animal producs IV. Prepared foodsuffs; beverages, spiris and vinegar; obacco and X. Pulp of wood or of oher fibrous cellulosic maerial; recovered (wase VI. Producs of he chemicals or allied indusries XIII. Aricles of sone, plaser, cemen, asbesos, mica or similar maerials; VII. Plasics and aricles hereof; rubber and aricles hereof XV. Base meals and aricles of base meal IX. Wood and aricles of wood; wood charcoal; cork and aricles or cork; XI. Texile and exile aricles XII. Foowear, headgear, umbrellas, sun umbrellas, walking-sicks, sea- XX. Miscellaneous manufacured aricles Esimaion, based on equaions (1) (2) VIII. Raw hides and skins, leaher, furskins and aricles hereof; saddlery XVI. Machinery and mechanical appliances; elecrical equipmen; pars XVII. Vehicles, aircraf, vessels and associaed ranspor equipmen XXI. Works of ar, collecors' pieces and aniques XVIII. Opical, phoographic, cinemaographic, measuring, checking, Source: Auhors calculaions, based on esimaion resuls. 18

19 Conclusions We used 10-digi rade groups for he period According o he resuls, he coefficiens of he base variables mach our hypohesis: a negaive impac of he price of delivered goods and weighed disance beween rading economies along wih a posiive impac of he size of economies Poenial growh in a paricular rade iem depends largely on a rade flow (e.g. Kazakhsan-Russia) and aggregaed rade group o which his iem belongs As regards rade by aggregaed rade groups, agriculure and food indusry (15% of oal rade) have he highes poenial (40% growh under 50% reducion of NTBs and almos 100% growh under full eliminaion of NTBs) The resuls show ha he effors o eliminae non-ariff measures have been limied 19

20 Thank you for aenion! 20