US-EU Sanctions against Russia: The next step

Garry R. Moore

G7 country map

G7 country map

In addition to the $70 billion capital flight by Russian oligarchs, the most recent EU and US sanctions will help reduce available capital to Russian industry.

The G7 nations—Canada, France, Germany, Italy, Japan, the United Kingdom and the United States–need to impose all measures to choke off capital to the Russian economy; Russian industry cannot function without capital.

Russian oligarchs’ wealth is declining due to the impact of capital flight and sanctions to date. (See also How far do EU-US sanctions on Russia go?)

Russian oligarchs’ interests counter-balance the extreme Russian interests who dream with Russian President Vladimir Putin about bringing back the “glory days” of the USSR.

Since the G7 nations will not take military action against Putin, then all we can do is choke off capital (i.e. oxygen to the fire) to Russian industry and keep pressure on Putin to stop supplying arms and fighters to the pro-Russian rebels.

This action on the part of the G7 nations would allow the Ukrainian government to destroy the rebels and restore order to Eastern Ukraine with hopes that this region will be able to find a place and peace alongside other Ukrainians in the years ahead.

Upcoming: Yesterday, the EU agreed to expand its sanctions against Russia, according to some public reports. The expanded sanctions list is expected to be released tomorrow. (See also Here’s Why the EU Still Won’t Approve Tough Sanctions On Russia)

Check out out ITE’s earlier posts on this same issue (click on the post title):

Garry R. MooreGarry R. Moore is a regular contributor to the ITE. He is also president of Moore, Garry R – Solutions, Inc., a Canadian based firm that provides economic and political analysis of EU, EU member state, and U.S. policies. Mr. Moore also served as a Senior Policy Advisor for Foreign Affairs and International Trade Canada. To learn more about Mr. Moore, click here.

 

The views expressed in this piece are those of the author and do not necessarily reflect the opinions of International Trade Examiner.

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The TPP Stands for Tense Political Pressure

This is a re-post of my latest writing on the Trans-Pacific Partnership (TPP) Agreement. As an update, negotiators met in Ottawa, Canada from July 3-12.

Once again, the deadline for completion of the TPP has shifted. Not much was accomplished this month. Now, it is being reported that Democrats want to delay the TPP talks until after this year’s midterm elections (click here for related article). The same tensions that have held up this $28 trillion deal remain.

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Original post Feb. 27, 2014 – Following this week’s talks in Singapore, it appears as if the Trans-Pacific Partnership trade negotiations are facing the same obstacles as the larger multilateral World Trade Organization negotiations–tense political pressure. Once again, the TPP  talks are facing a stalemate as a result of politics. One key factor is important to contributing to a more successful conclusion of the TPP negotiations, which I discuss in this blog post.

Just last week, the heads of state from Canada, the United States and Mexico met to discuss revitalizing the North American Free Trade Agreement through the TPP, which will reduce tariff and non-tariff barriers among an additional nine countries throughout the Asia-Pacific region (see video below). That goal is becoming less and less of a reality as political tensions both at the bargaining table and at home threaten the ability to complete the agreement.

The WTO Doha Round, which sought to create rules for the international trade community at large still, has yet to be concluded nine years after the initial deadline. Tensions continue to surround the issue of the liberalization of agricultural trade while developed countries such as the United States maintain protectionist agricultural subsidies. Toward the end of 2013, efforts were, once again, made to revive the talks.

The TPP was supposed to have concluded in December 2013. Instead, the negotiations are still trudging along. The most recent report was that negotiations would possibly end in April. Just this week, talks in Singapore failed to produce a deal. The reduction of tariffs on certain imported goods remains a sticking point. According to a recent Financial Times report:

The US has sensitive industries such as textiles, to which Vietnam wants greater access, and sugar, to which Australia has been pushing for more openness. Japan also wants tariff cuts on imports of automobiles into the US.

At the same time, Japan continues to resist tariff cuts in five agricultural areas – rice, meat, wheat, dairy and sugar – which it regards as “sacred”.

Another contentious issue pertains to the impact that the deal will have on U.S. manufacturers and the lack of transparency in the talks. Consequently, many members of Congress, particularly from the Democratic Party, have expressed their opposition to granting President Barack Obama fast track authority, which would allow him to conclude trade deals successfully and restrict Congress to only voting up or down on those trade deals.

Even if the TPP does finally conclude, there still remains domestic tensions. The key to the successful passage of the agreement is transparency. Failure to apply democratic principles to the process so that all-sized businesses, workers and consumers can have a voice will only result in on-going tensions that will result in the United States missing out on an opportunity to access markets throughout the Asia-Pacific region and enhance trade within North America.

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Should We End the Ex-Im Bank?

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Small business owners looking to export to the global market require additional resources in terms of financing. The Export-Import Bank (referred to as Ex-Im Bank) has played a role in helping small business owners gain the financing that they need to enter into overseas markets. So if the Ex-Im Bank is helping small business owners, why are some politicians and commentators requesting that funding for the Bank not be reauthorized for another five years?

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From Emerging to Frontier Markets

During my conversations with potential exporters, many indicate that they are interested in tapping the BRICS markets, which are referred to as  emerging markets. BRICS is a term to describe the large developing economies that include Brazil, Russia, India, China and South Africa. However, many investors are looking toward another set of markets referred to as frontier markets. Frontier markets may present other opportunities for exporters. However, the challenges are also worth nothing prior to entering these markets.

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What are frontier markets?

Like emerging markets, frontier markets are not developed. Frontier markets are economically smaller than emerging markets. Many of the frontier markets, nonetheless, have experienced rapid economic growth. Thus, investors may find frontier markets riskier yet still possible to invest in and gain high returns.

Which countries are classified as frontier markets?

Using the Morgan Stanley Capital Index, over 30 countries are identified as frontier markets. Those markets are as follows:

Latin America and the Caribbean
Europe and CIS
Africa
Middle East
Asia
ArgentinaBosnia and HerzegovinaBotswanaBahrainBangladesh
JamaicaBulgariaGhana JordanPakistan
Trinidad and Tobago CroatiaKenyaKuwaitSri Lanka
Estonia MauritiusLebanonVietnam
LithuaniaMoroccoOman
KazakhstanNigeriaPalestine
RomaniaTunisiaSaudi Arabia
SerbiaZimbabwe
Slovenia
Ukraine

What are the costs of doing business in these markets?

When conducting business in any foreign market, understanding the cost of doing business in that market is key. The costs of each market varies. Just to give you an idea, below you will find the cost of doing business in one frontier market from each region listed in the table above.

Argentina – $2,260

Botswana – $3,610

Bangladesh – $1,470

Saudi Arabia – $1,229

Ukraine – $2,505

These costs associated with trading across borders refer to the documentation required, customs procedures, ports and terminal handling, and transportation, as outlined by the World Bank’s Doing Business survey.

I also encourage potential exporters to consider the political stability and understand the regulations in any market, including frontier markets.

In sum, other opportunities may exist beyond the BRICS countries such as in frontier markets. However, exporters must also be aware of the costs associated with doing business in frontier markets as well as the political climate that may enhance or hinder trade in that country.

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Putin’s Efforts to Avoid Level 3 Sanctions from the EU

What game is Russian President Vladimir Putin playing to avoid EU level three sanctions? What does this week’s scheduled signing of the EU-Ukraine economic and trade agreement mean for Putin? ITE contributor Garry R. Moore explains.

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The Russian Duma (parliament) is controlled by Putin. The fact that one day the Duma gives Putin permission to invade the Ukraine, and then two months later, takes the permission back illustrates that all of this is for EU consumption. As Putin tightly controls the Duma, this so called permission has little meaning; Putin could easily secure new permission to invade.

I expect that the EU will not fall for this optics game. Hence, the June 27th EU leaders’ discussion regarding third level sanctions is based on the following question: “Is Putin doing enough to control the rebels?

The pro-Russian rebels agreed to the ceasefire, and then a day later, shot down another Ukrainian military helicopter, killing nine soldiers in addition to several other incidents. As the latter events indicate, the rebels have already broken the ceasefire. Furthermore, arms and men continue to flow into the Ukraine.

So what will the EU do regarding third level sanctions? I expect nothing new. Many EU nations continue to trade with Russia, some of which includes selling military arms to Russia.

A key event to watch is Ukraine signing the economic section of EU association agreement tomorrow on June 27th. This agreement will be a hot spear in Putin’s heart as this one act will undermine Putin’s Eurasian Union dream.

I fully expect the Ukraine to sign the EU Agreement which will be a life line to a nation that needs help from the west.

 

Recommended reading:

Russia: Intimidating Ukraine, Even Through Diplomacy

Update 7/2/2014:

 

 

Garry R. MooreGarry R. Moore is a regular contributor to the ITE. He is also president of Moore, Garry R – Solutions, Inc., a Canadian based firm that provides economic and political analysis of EU, EU member state, and U.S. policies. Mr. Moore also served as a Senior Policy Advisor for Foreign Affairs and International Trade Canada. To learn more about Mr. Moore, click here.

 

 

 

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