Influence of Tariff Liberalization on Bilateral Trade: Implications for Russia and Its Asian Trade Partners

Introduction

Tariffs are the most common kind of barrier to trade. Moreover, they remain the main instrument of trade regulation in Russia (and EAEU on the whole), as the use of non-tariff measures is limited. The number of Russian non-tariff barrier, imposed on import goods accounted for 365 in the early 2019, compared with 2724 in China, 1795 in the Republic of Korea, 1739 in Japan, or 750 in India.

Foreign trade policy conducted by the government, predetermines the country’s positions on global markets and in international division of labor and remains one of the key instruments for achieving the country’s long-term strategic priorities.

The contemporary strategic priorities of Russia’s foreign trade are declared in its main long-term planning documents: The Road Map “Supporting Access to Foreign Markets and Export Support,” The Federal programs “Development of foreign economic activity” and “Industrial development and increase of its competitiveness”, Priority projects “International cooperation and export in industrial sector” and “Export of agricultural products”, The strategy of scientific and technological development of the Russian Federation etc. The long-term goals can be formulated as follows:

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  Achieving a geographical balance of Russian foreign trade,

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  Increasing exports of manufacturing products, especially engineering products;

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  Reducing dependence on the export of raw materials, expanding non-oil and non-energy exports,

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  Ensuring the competitiveness of domestic products in global agricultural markets.

The study aims at quantitative evaluating and comparing trade creation effects of tariff liberalization (the elasticities of mutual trade flows on import tariffs) in Russia’s relations with its three Asian partners: China, India and Thailand. The authors make an attempt to compare potential effects of tariff liberalization on bilateral trade of different commodity groups (trade creation effects), as well as make conclusions, to which extent the mutual tariff liberalization can contribute to attaining the strategic priorities, declared above.

Background

The influence of tariffs on trade flows is widely discussed in academic literature, the effects are evaluated with the use of both qualitative and quantitative instruments.

Import tariffs influence prices of imported goods. According to the classical theories of international trade lower prices on import goods result in higher demand amongst consumers, which stimulate import (Balassa, 1967; Heckscher and Ohlin, 1991).

Falling tariff levels, teamed with lower transportation and communication costs, have cleared away many man-made and natural obstructions to trade, making the international playing fieldflatter than it has ever been (Baldwin and Martin, 1999).

A significant number of studies are devoted to assessing the impact of tariff regulation on the dynamics of foreign trade.

For several decades Leamer (1988) has been engaged in assessing the impact of foreign trade regulatory instruments (tariff and non-tariff) on the dynamics of import flows in the sectoral and geographic aspects. With the dependent variable being a natural logarithm of imports, 2 factors were used in the model as influencing regressors: the average level of customs duties (on the relevant product category) and the quantitatively expressed aggregated indicator of the applied non-tariff restrictions. The researcher came to the conclusion that the impact of customs duties on imports is relatively more significant compared to the impact of non-tariff restrictions.