Analysis of Russian-British Economical and Trade Cooperations - Dissertation Example

?ANALYSIS OF RUSSIAN-BRITISH ECONOMICAL AND TRADE COOPERATIONS: EXISTING SITUATIONS AND PERSPECTIVES I. INTRODUCTION Since the collapse of the SovietUnion, Russia has been widely seen as an emerging economic powerhouse in the global trade as it adopted the democratic form of government and the free market. Today, the country, along with Brazil, India and China, constitute the so-called BRIC, the block that leads the developing world in terms of growth and economic transformation. In an appeal written back in 2008 by Jim Murphy MP, the UK Minister for Europe, Foreign and Commonwealth to the Chairman of the Parliament’s European Union Committee, the previous point was raised to underscore the importance of Russia as a trading partner. In addition, Murphy argued that Russia share many common interests and face many common challenges with European countries such as Britain (UK House of Lords: European Union Committee 2009, p.32). His point reflect the general attitude in the UK policy networks that to pursue bilateral relations with the country is beneficial for not just for the UK and Russia, but also for the European Union and the global economy. II. RESEARCH QUESTION AND RESEARCH OBJECTIVES The problem, however, with Russia as a trading partner rests on the country’s position and policies with regards to international trade. Is it prepared or willing to engage with the UK within the standard practices and rules accepted by the international trading community? This is the question that this study will attempt to address. For this purpose, the following objectives will be pursued: to describe the current UK-Russia trade relations; to determine whether it is viable; to identify the problems and challenges in the bilateral trade relations; and, to propose solutions to address or improve on them. As the investigation reveal the existing conditions and future trends in the UK-Russia trade, the study can contribute to the body of literature that can inform related policy-making as well as the investment decisions from both sides in the process of the bilateral trade. III. LITERATURE REVIEW International trade is a popular subject in the academic field. The increasing integration of the international market and the dominance of free trade drive this interest. It is not surprising, hence, to find sufficient and comprehensive body of literature that tackle the post-Communist Russian experience and its trade relations with other countries such as the United Kingdom. International Trade This review starts with the dynamics of international trade in an attempt to provide the framework to contextualize the scope of this research. In this area, the work of Augier et al. (2005) proved helpful. Their work explained how international trade works by providing a historical account, in-depth analysis on the series of events that led to the current free trade regime, specifically the emergence and role of the World Trade Organization. A more important contribution, however, is their description of the concept of “rules of origin” in international trade. By explaining how it works, the researchers were able to identify the factors behind free trade agreements, preferences in these agreements as well as the relationship between trade partners. Similar works include an earlier research by Groteworld (1971), which mapped out the patterns of international trade in the period of the infancy of globalization, that by Patrick McDonald (2004), who outlined the impact of free trade; and Norling and Swanstrom’s (2007) investigation of the Eurasian trade dynamics. British Perspective Scholarly work all point to the fact that Britain is one of the earliest that embraced free trade. A relevant historical account, including an examination on the motivations and eventual development of the economic model in Britain, can be found in William Grampp’s (1987) work. The importance of this research is the analysis behind the adoption and endorsement by the British government of free trade, which would have a lasting impact on the British attitude towards trade with other countries. The chronology of events leading to the modern economic policy on international trade is widely documented. One of the many studies that explored this theme includes A.J. Christopher’s (1985), which identified and analyzed the patterns of British overseas trade relations from 1885 onwards. From the existing body of literature on the British experience with respect to free trade, one will find a clear and consistent roadmap wherein free trade is not only adopted but also encouraged. The United Kingdom is one of those in the forefront, urging the world to embrace liberal capitalism and integrate into a trading cohesive community. The Russian experience is extremely different. For the most part of the 20th century, it remained closed to the world. The Russian nation, throughout its history has not experienced compelling reasons for internationalization through economic cooperation and trade and that its involvement in the “far abroad” has been largely through military activities and political alliances in foreign affairs (Zhuplev, 2008, p.100). It was only during the 1980s when it finally recognized the benefit of the economic model and adopted it in its own economic policy along with the country’s democratization. The transition involved resulted into unique developments that drive the Russian perspective on international engagement. Russian Renewal The transition has brought about far reaching changes in Russia. Borodaj and Nikiforov and Swiderski (1995) provided an insightful account of the so-called Russian renewal, driven by the changes in the nature of the person and his capacities as social actor, which finally transforming the geopolitical, cultural, spiritual and economic spheres. An important point raised by this paper is how Russia could survive and thrive in the contemporary world. It was argued that Russia cannot stay as an agrarian nation and that it must be industrialized. The idea is for the country to remain as a strong state, wherein well-armed military would be a precondition to integrity and competitiveness (Borodaj and Nikiforov and Swiderski , p.114). This piece of work is one of the many that highlight how national identity is crucial in the manner of the Russian engagement with the world. This is demonstrated in the current Russian foreign, security and economic policies. According to a research by Graham Smith (2001, P.481), for instance, the Russian policy since the early 1990s has been leaning towards a more aggressive and nationalistic stance within global affairs. The impact of these variables to the Russian attitude towards bilateral and multilateral trade can be depicted in the manner by which it privatized its enterprises. There are several studies that explored this theme such as those by MacFarlane (2006), which chronicled and investigated the patterns of the Russian economic development. One of the important developments of the post-communist Russia was the mass privatization program that was initiated since the 1990s. This is the subject of a research by Filatotchev et al. (2001), which investigated the program and outlined the patterns of ownership of Russian firms today. This study revealed that there has been a dramatic redistribution and concentration of ownership titles and associated voting rights in privatized firms, outsider investment involvement are limited. The researchers found that against this background, external investors have been cautious in providing finance, and the lack of sufficiently developed legal mechanisms that would protect the rights of shareholders and promote investment have hindered post-privatization enterprise restructuring (Filatotchev et al. , p.299). Specific case studies that demonstrate what Filatotchev et al. has explained were included in the work of Martha Olcott (2002). With the examples of many foreign investors, Olcott found that the privatized firms remain in Russian hands as investors became exasperated with endless negotiations with government, term sharing demands and the penchant of Russian partners to modify terms of agreements. Another important work that can illustrate the Russian attitude towards trade is Zhuplev’s examination of the economic internationalization of Russia. Zhuplev found, the economic model that shape Russian economic policies does not resemble that of the West’s but rather that of Venezuela and a little of the Chinese economic system as well. Zhuplev (p.101-102) also cited several specific factors that affect Russian economic policymaking. These are: High level of centralism in governance, strong statesmanship, authoritarian leadership and inward-looking orientation; Traditional communitarianism; The country’s immense size, harsh climate and limited access to nonfreezing deep-sea ports and global waterways; The role and influence of the Russian Orthodox Church; and, Deep-rooted Communist values. Zhuplev (p. 102) explained that, collectively, these factors have cultivated a nationalistic mistrust for foreigners, foreign products, ideas and investment. This is further supported by the increasing self-reliance and influence of the country made possible by its emergence as an oil and gas supplier. As of 2007, despite several global crises, the oil industry buoyed the Russian economy (Ziegler 2007). Indeed, in an Organization of Economic Cooperation and Development (OECD) study, Russia posted a dismal record in attracting inward foreign investment, citing statistics provided by the Federal Service of State Statistics, which revealed how foreign direct investment stagnated during the 2001-2002 period, with $2.8 billion annually. Although, figures started to pick up afterwards, reaching a record-breaking $9.4 billion in 2004, the figures are too modest in comparison to the FDI attracted by China (OECD, 2005, p.129). Current British Russian Trade Oil and gas products and luxury goods primarily dominate the trade between UK and Russia. Russia is an important fuel supplier for Britain while recent figures show that the UK exported some 2.4 billion-pound worth of goods in 2009 (GB, 2007, p.32). The UK also has major interests in Russia with over 400 UK companies in a broad range of sectors, which include retailing, services (particularly financial services), oil and gas supplies and services (GBDBIS, p. 173). As existing research has explained – a number of these were previously cited in this section – investors experience difficulties in investing and trading with the country. However, some investors and the UK policymakers themselves are optimistic about the future trade relations with Russia. They cite several trade milestones that prove beneficial for both parties, which could be replicated when the Russian business landscape improves. The government declares that “there is a strong and rapidly growing trade relationship between the UK and Russia and other EU Member States, Whilst undoubtedly UK companies do face difficulties in doing business in Russia, this should not be allowed to overshadow the success stories. (UK House of Lords…, p.32). Some of these are identified by a report of the UK Parliament on the UK-Russia bilateral relations: Bilateral trade has grown for the sixth consecutive years from 2000 to 2006, with increase averaging 20% per year and that in 2006 alone, UK exports grew to 1.9 billion pounds while UK imports from Russia stood at 3.6 billion pounds. UK companies also has a total aggregate investment of $5.5 billion just in the first nine months of 2006, with the UK placing fourth in the top investors in Russia. Russian investments in the UK include those in sports, metallurgy and the stock market. The aggregate Russian investment in the stock market alone is a staggering $4 billion in Initial Public Offerings in 2005, rising to $20 billion in 2006 and over $40 billion in 2007 (GBDBIS, p.173). The United Kingdom is one of the supporters of the Russian accession to the World Trade Organization. This support is anchored on the belief that Russia will not only contribute to the global economy since it is the largest non-member economy today. In addition, the British government maintains that WTO membership will force Russia to be open and adopt rules-based trading system, which would benefit its investment interests and prospects in the country (GB, p. 32). This is clearly seen as a solution to the structural challenges experienced by those engaged in trade with Russia. The difficulties in pursuing this WTO solution are numerous. As outlined by Sabelnikov (1996), Russia would have to agree on changing some of its core foreign policy values even with the existence of compromise agreements. The corpus of literature is clear on three important points. First is the argument that Russia can be a difficult trading partner owing to its nationalistic and inward-looking attitudes with respect to trade and foreign relations. The United Kingdom, however, is undaunted by these difficulties. It continues to pursue trade and strategies that would pave the way for economic and market reform in the country. Finally, there are the success stories to take into account. Statistics and investigative accounts all cite the inroads in the UK-Russia bilateral trade relations. With all these variables considered, this research will focus on how this relationship can be improved. III. METHODOLOGY The method of investigation for this study is qualitative methodology. To explain qualitative methodology and give light to how this study would be approached, Denzin and Lincoln’s (1994, p.2) definition has been taken into account. According to these scholars qualitative research is: Multi method in focus, involving an interpretative, naturalistic approach to its subject matter. This means that qualitative research study things in their natural settings, attempting to make sense of or interpret phenomena in terms of the meanings people bring to them. Qualitative research involves the studied use and collection of a variety of empirical materials. The proposed flow of the investigation according to the suggested methodology will commence by conducting preliminary interviews. This can be accomplished through informal or formal talks and correspondence, say, through email, or through the holding one by one meeting. For this purpose, a structure interview questions will be developed, which will be answered by two to three resource persons. The idea behind this step is to gain sufficient knowledge and background on the subject so that a more effective strategy of inquiry can be developed. The information collected from the interview will also be used in the discussion section as part of the research primary sources. The specific qualitative research framework to be employed is descriptive research, which according to Monsen and Van Horn (2008, p.5), is effective in obtaining information used in devising hypothesis and proposing associations. It is important to underscore that this qualitative research method cannot test or verify as well as evaluate hypotheses. For this purpose I will gather secondary sources - some consisted of documents released by trade authorities or related institutions while the rest were derived from books, journals, among other documents and resources that are available and could certainly be verified. The collected information will be presented in the form of case studies and discussions that contain published in-depth interviews and observations. Critics of the qualitative approach point to the fact that authors of secondary sources are, at times, guilty of errors in the transmission of information. And so, the corpus of literature may not be as reliable, at least, without serious and intense scrutiny. To address this, this study will collect as much sources as possible on a particular fact, point or argument in order to corroborate or cross-check the validity of information and data presented. In an effort to be scientific in the method of research, this study would follow the linear progression of the academic research model. As has been outlined and demonstrated in this proposal, a problem or an issue is identified, research is initiated, and then, a thesis is formulated. Afterwards, the research would finally commence, which would be followed by the analysis and the requisite recommendations/conclusion. References Augiers, P, Gasiorek, M, Tai Long, C, Martin, P and Prat, A 2005, The Impact of Rules of Origin on Trade Flows. Economic Policy, vol. 20, no. 43, pp. 567, 569-624. Borodaj, J, Nikiforov, A and Swiderski, E 1995, Between East and West: Russian Renewal and the Future. Studies in East European Thought, vol. 47, no 1/2, pp. 61-116. Christopher, A 1985, Patterns of British Overseas Investment in Land, 1885-1913. Transactions of the Institute of British Geographers, vol. 10, no. 4, pp. 452-466. Denzin, N and Lincoln, Y 1994, Handbook of qualitative research, London: Sage Publications. Filatotchev, I, Kapelyushnikov, R, Dyomina, N and Aukutsionek, S 2001, The Effects of Ownership Concentration on Investment and Performance in Privatized Firms in Russia. Managerial Decision Economics, vol. 22, no. 6, pp. 299-313. Grampp, W 1987, How Britain Turned to Free Trade. The Business History Review, vol. 61, no. 1, pp. 86-112. Great Britain: Parliament (GB) 2007, Global security: Russia, second report of session 2007-08, report, together with formal minutes, oral and written evidence. London: The Stationery Office. Great Britain Department for Business, Innovation and Skills (GBDBIS) 2011, Trade and Investment for Growth. London: The Stationery Office. Groteworld, A 1971, The Growth of Industrial Core Areas and Patterns of World Trade. Annals of the Association of American Geographers, vol. 61, no. 2, pp. 361-370. MacFarlane, N 2006, The 'R' in BRICs: Is Russia an Emerging Power? International Affairs, vol. 82, no. 1, pp. 41-57. McDonald, P 2004, Peace through Trade or Free Trade? The Journal of Conflict Resolution, vol. 48, no. 4, pp. 547-572. Monsen, E & Van Horn, L 2008, Research: Successful Approaches. American Dietetic Association. Norling, N and Swanstrom, N 2007, The Virtues and Potential Gains of Continental Trade in Eurasia. Asian Survey, vol. 47, no. 3, pp. 351-373. OECD 2005, OECD Reviews of Regulatory Reform OECD Reviews of Regulatory Reform: Russia 2005: Building Rules for the Market. Paris: OECD Publishing. Olcott, M 2002, Reforming Russia's Tycoons. Foreign Policy, no. 130, pp. 66-75. Sabelnikov, L 1996, Russia on the Way to the World Trade Organization. International Affairs, vol. 72, no. 2, pp. 345-355. Smith, G 2001, The Masks of Proteus: Russia, Geopolitical Shift and the New Eurasianism. Transactions of the Institute of British Geographers, vol. 24, no. 4, pp. 481-494. UK House of Lords: European Union Committee 2009, Government and Commission responses session 2007-08; remaining Government responses session 2006-07: 24th report of session 2008-09. London: The Stationery Office. Ziegler, C 2008, Russia and the CIS in 2007: Putin's Final Year?. Asian Survey, vol. 48, no. 1, pp. 133-143. Zhuplev, A 2008, Economic Internationalization of Russia: Roots, Trends, and Scenarios. International Political Science Review, vol. 29, no. 1, pp. 99-119. Read More