Interaction of the Russian Far East with the Countries of the Pacific Rim: Evaluating Institutional and Tariff Trade Barriers

Abstract

Because of its significant remoteness from the main markets of Russia, the Far East region is closely tied to the markets of the Pacific Rim countries. Expanding trade and economic interactions with them has a positive influence on the development of the Far Eastern economy. Reducing trade barriers with the Pacific Rim countries could increase the value of bilateral trade, becoming a source of growth and development for the economy of the Far East region. To determine the scope of the trade increase, we evaluate the potential of bilateral trade interactions occurring as a result of lowering various barriers. The findings indicate that the Far East region has gradually deepened its trade interactions with neighboring Pacific Rim countries. Based on the gravity model, we evaluate and decompose trade barriers in ad valorem equivalent for trade interactions between the Pacific Rim countries and the Far East region. The main source of tariff barriers between the Far East and the countries of the Pacific Rim were the export and import customs duties imposed on the Russian side. The decomposition shows that the comparative institutional barriers between the Far East and Pacific Rim countries were significantly above the tariff barriers. This suggests that the lowering of tariff barriers was not sufficient for the purpose of intensifying bilateral trade. Our analysis implies that trade limitations initiated by the Russian side have caused a shift from tariff barriers to institutional ones. The trade between the Far East region on the one hand and China and the Republic of Korea on the other hand has intensified. The findings suggest that the relative institutional barriers with China will continue decreasing. Reducing the institutional barriers between the Far East and Japan could significantly increase trade interactions between the region and the Pacific Rim market