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Carefully, markets come off
How the Far East to increase exports to Asian countries
The two most important areas of state policy for the development of the Far East in that part that is related to the outside world are the construction of an export-oriented economy and the opening of regional markets in Asia for Far Eastern goods and services. Already, about 78% of exports from the Far East are in Asia. Therefore, initially, the key idea of the advanced development of the Far East was, and remains, the creation of special conditions for investors, both Russian and foreign. At the September meeting of the State Council in Vladivostok in September 2017, the priorities of social development in the region were fixed. The sphere, while the least affected by the "advanced reforms" - this is foreign trade. However, without increasing the Far East’s export presence in the Asian markets, the political achievements of a turn to the East will be harder to maintain. Russia's unique position in Asia, in which no country in the region is hostile to it, can and should now be converted into economic gains.
In this regard, the region today faces two fundamental tasks - building up foreign trade through traditional export support tools. Apparently, it will also be necessary to do this by linking the trade and investment strategies of the region into a single integrated strategy for integrating into the regional markets of Asia and Eurasia. This is necessary both on the basis of the interests of the Far East (the sparsely populated market of the region can be attractive only for investments in the production of export-oriented goods and services), and - from the realities of modern Asia. In this case, the ultimate goal is to increase the level and quality of life of the Far Eastern people themselves, attract new residents to the region, and create a center of development and prosperity comparable to the European part of Russia.
FAR EAST AND NEW ASIAN REALITY
Asia and the regulation of regional trade are changing: from traditional FTAs, zeroing tariffs and protecting sensitive goods, the countries of the region are moving to mixed-type agreements, and in the FTA themselves, the main achievements are not so much the decision to zero a certain number of product lines, facilitating trade, information exchange, removal of non-tariff barriers, convergence of the regulatory framework and other new areas of cooperation. Speaking of the Trans-Pacific, which has not yet taken place, and the Comprehensive regional economic partnership, the word tariffs is not at all key. The number one task is to define the rules of trade in the most dynamically developing and most populated region of the world. Russia and the EAEC are practically not involved in this process, but they are already forced to adapt.
In parallel, not only “growth” and “trade” are becoming the main words in Asia, but also “development” and “inclusiveness”, ie. distribution of benefits and opportunities for economic growth among broad segments of the population. We can safely assume that the more acute issues of balanced socio-economic development will arise in Asian countries (the latest confirmation of the importance of this topic is the main topic in China at the end of the next congress and the investment program of Narendra Modi "Make in India"), the less interest will be aroused the ability to simply invest in someone else's market to produce goods for your own. An increasingly important commodity, both economic and political, will be jobs in Asia. Because more and more Chinese or Indian citizens have mastered smartphones, and can order any product through them in one click - except for work. The National Bureau of Statistics of China estimates that some 269 million internal migrants are people who leave rural areas to move to cities for work. Probably, new technological advances will only aggravate this process. Probably, new technological advances will only aggravate this process.
And the Far East, of course, can be embedded in this trend. But for this it is necessary to give the opportunity to discuss trade and investment at one site. Today, the profile ministry is responsible for the faster development of the Far East, the Ministry of Economic Development for investments, the Eurasian Economic Commission for trade negotiations and export terms, and the Ministry of Industry and Trade is fighting for import substitution, and the Far East region may become a victim of competition of various agendas of "turning to the East" rather than its main engine and beneficiary.
HOW TO SIMPLIFY TRADE
However, it is possible to make life easier for Far Eastern exporters today. First, due to the qualitative improvement of the interagency dialogue in the EAEU, including through the creation of the institution of ambassadors of the member states to the EEC. It should become easier and faster for national departments, manufacturers and ECE officials to talk, otherwise it will be extremely difficult to achieve a proactive trade policy in Asia from the ECE. Secondly, over time, thanks to the expansion of the competence of the Eurasian Economic Commission in the negotiations on the FTA due to the mandate to discuss investments. Without this, the Commission will simply not be able to effectively negotiate a single mixed-type agreement, and convincing the Indians to reduce tariffs without saying a word about investments is an ambitious but unrealistic undertaking.
Thirdly, applying a comprehensive analysis of infrastructure projects and trade priorities of the Far East. Conventionally, it is important not only to find money for the port of Zarubino and to observe the terms of commissioning the port, but also to remove discriminatory barriers to the supply of Russian cereals to Asian countries through the joint methodical work of the Ministry for the Development of the Far East, REC and Rospotrebnadzor, the main guarantor for compliance with standards for foreign partners. Finally, today we need to think not only about increasing exports, but also structuring imports, so that at the expense of foreign investment in the Far East, production included in the regional value chains. And then the increase in imports for individual commodity groups will mean not the failure of import substitution programs, but the development of export-oriented industries, in the development of which suppliers of raw materials, semi-finished products and spare parts, and end-users in Asia will also be interested. Great prospects for such an integration of the Far East into economic ties in the APR opens the Free Port of Vladivostok.
More than once it was said by politicians, experts and businessmen that if we are talking about non-primary exports, then in Asia, no one will wait for Russian goods with open arms. Today, the most promising sectors of the Far Eastern economy are simultaneously the most difficult to use when entering the markets of most Asian countries. First of all, this is agriculture (cereals, meat, fish and products from them), food, chemical and pulp and paper industry. In this connection, the issue of regulation in the markets of the APR countries of access to the products of the priority sectors of the Far Eastern economy today is becoming one of the key ones from the point of view of ensuring the competitiveness of Far Eastern exports and the effectiveness of the entire package of measures to integrate the Far East into the APR market.
Such relatively promising products of Far Eastern exports as timber, precious stones and metals are much more open for export to Asian countries. Tariffs for them are often nullified or very low, certification procedures are simplified as much as possible. Therefore, the main priority for the Far East in the case of commodities and precious stones is not export as such, but an increase in the level of processing of products for export, which requires the attraction of investments in regional production and the creation of an effective mechanism for export guarantees.
THE PROBLEM OF NONTARIFF BARRIERS
Indeed, in all Asian markets, Far Eastern goods face or potentially face significant tariff and, for most promising export positions, sensitive non-tariff barriers. While tariff barriers are predominantly non-discriminatory, i.e. they act not only against Russian suppliers, then non-tariff barriers work both on an openly discriminatory basis and on a discriminatory basis against new suppliers when they compete with other importers who have already successfully adapted to non-tariff barriers. For example, the average import duty on corn in the Republic of Korea is 424,41%, in China - 54,33%. On rice in the Republic of Korea there is an average customs tariff equal to 513%, in Japan - 121,07%, in India - 73,54%, in China - 65%.
The key addressees of such barriers are national producers, who are protected by such barriers; importers already adapted to the market, which such barriers also protect against external competitors; and new importers, only entering the Asian markets. It is to the latter group that the Far East belongs, and its position is least advantageous. At the same time, Asian trade partners and the Asian countries themselves pay considerable attention to informing national producers about the specifics of national regulation through export-import banks, chambers of commerce, associations of exporters, associations of small and medium-sized businesses, industry exhibitions. Therefore, even with elimination of discriminatory barriers, Far Eastern exporters face not only competition with national Asian producers, but also with more informed producers of goods from countries that have long been operating in Asian markets.
The increase in the number of non-tariff barriers in Asia was particularly noticeable during the period of 2008-2011 when they became a defensive reaction of the countries of the region to the consequences of the global financial crisis and the growing economic expansion of the PRC in the region (in most cases, reduction and elimination of many tariff barriers).
Today Asian countries are actively using non-tariff restrictions instead of tariff barriers, both developed countries of the region, Japan, Korea, and developing ones. For example, the average tariff rates of ASEAN countries fell from 8,9% in 2000 to 4,5% in 2015, and the number of NTMs increased from 1634 measures to 5975 measures during the same period.
Proceeding from this, Far Eastern exporters need maximum support from the state: through negotiations on reducing and eliminating barriers, primarily non-tariff barriers, and creating opportunities for rapid and qualitative adaptation to such barriers. And also by facilitating the establishment or redirection of information and analytical work in the interests of the Far East in the interests of exporters.
As in the case of investments, there are many partners in the Far East for such initiatives. First, it is possible and necessary to facilitate terms of trade through negotiations on reducing / eliminating barriers at the level of the Eurasian Economic Commission (ECE), through negotiations of the Ministry of Economic Development, through promoting regional interests within the framework of the Russian representation in the World Trade Organization (WTO). Secondly, through independent initiatives to reduce barriers through working with investors from Asian countries - through the use of their resources of national lobbying. Thirdly, thanks to a series of measures to obtain operational and complete information on barriers and to bring this information to exporters. Fourthly, through coordination of the agenda with the participation of the Russian Export Center (with the possibility of expanding its work abroad), an export-import bank, an export credit agency, a chamber of commerce, regional authorities, business associations, bilateral dialogue platforms to support exporters.
Despite the multidimensionality of challenges and barriers for Far Eastern exporters, several non-economic cards play into the region's favor at once. The worsening of relations between Japan and China, the use of informal sanctions by China against South Korea, the security crisis on the Korean peninsula, the aggravating situation in the water (and with it food security) situation in most countries of the Asia-Pacific naturally create a request for diversification of suppliers for all leading economies of the region. But mastering this request is already the responsibility of Russia.
Text: Timofei Bordachev (director of the Central Research Institute of Higher School of Economics, program director of the Valdai Club), Anastasia Likhacheva (deputy director of the Central Research Institute of Higher School of Economics)