INGRESO AL PAÍS DE UN CIUDADANO EXTRANJERO PARA TRABAJAR

Appendix 2.2. Table 1 displays output changes as a result of the Deep FTA. There are several reasons why we should expect the elimination of NTBs to be beneficial to Russia and the EU. The reductions in barriers to trade and transport costs decrease the prices of goods for consumers, as well as prices of intermediates and capital goods for producers. The extent of these gains depends on the amount of trade between the trading partners and the trade creation and trade diversion effects. Apart from increased efficiency of resource allocation, as demand shifts to regions with the lowest cost suppliers, additional gains stem from increased com- petition. However all gains from trade also involve adjustment costs and may be associated with potentially painful restructuring in Russia or the EU and poten- tially significant redistribution effects.

Output changes are divided into four categories:

1. High positive impact: output growth higher than 3% of the benchmark output level.

2. Positive impact: output growth higher than 1% of the benchmark output level.

3. High negative impact: output fall higher than 3% of the benchmark out- put level.

4. Negative impact: output fall higher than 1% of the benchmark output level.

In all instances we only analyze output of sectors that contribute more than 1% of total output according to 2004 GTAP data. Other output changes are assumed to be negligible.

Table 7. Implications of the Deep FTA scenario – changes in output relative to post- WTO benchmark (see text)

Positive high Positive Negative _high Negative

Russia paper, ferrous metals, ma- chinery

grains, cattle, forestry, meat, food products NEC, dairy, paper, petroleum & coal, paper & publishing, chemicals, ferrous metals, metals NEC, machinery

mineral prod- ucts, financial services mineral prod- ucts, financial services, manu- facturing NEC

Ukraine none beverages&tobacco, ma-_chinery none

paper & pub- lishing, chemi- cals, minerals NEC

Positive high Positive Negative _high Negative

CIS coal coal, beverages&tobacco, food NEC, minerals NEC, metals NEC, vegetables

none chemicals

Austria none motor vehicles, manufac-turing NEC, insurance,

public adm. none none

Belgium textiles, elec-_{tronic equip.} textiles, electronic equip., _{manufacturing NEC} none none

Cyprus

and Malta none

wood, paper&publishing, machinery, manufactures NEC, construction, trade, transport, communica- tions, business services

transport equip., elec- tronic equip. transport equip., elec- tronic equip. Czech Republic none

textiles, mineral products,

manufacturing NEC none none

Denmark none electronic equip. none none

Estonia textiles, motor vehicles, manu- facturing nec

textiles, motor vehicles, manufacturing NEC, tex- tiles, apparel, chemicals, minerals NEC, metals, transport NEC bever- ages&tobacco bever- ages&tobacco, forestry

Finland electronic _equip. electronic equip., chemi-cals, ferrous metals, metal

products none none

France none none none none

Germany none business serv. none none

Greece none apparel none none

Hungary none textiles, chemicals, motor _vehicles none none Ireland none chemicals beverages & _tobacco beverages & _tobacco

Italy none

textiles, wood, minerals, metal products, manufac- tures NEC, trade, business services none none Latvia textiles, ap- parel, metal products

textiles, apparel, metal products, wood, chemi- cals, ferrous metals

bever-

ages&tobacco beverages & tobacco Lithuania textiles, metal _products textiles, metal products, chemicals, ferrous metals,

electronic equip. None dairy products Luxem-

bourg none transport NEC None none

Nether-

lands none chemicals None none

Positive high Positive Negative _high Negative

publishing, chemicals, minerals NEC, metal products, electronic equip.

Portugal none none none

Slovakia none paper & publishing, min-erals, metal products,

electronic equip. none none

Slovenia none chemicals, electronic equip., manufacturing NEC

none none

Spain none none none none

Sweden none none none none

UK none none none none

Bulgaria none none beverages & _tobacco none

Romania none none none none

Rest of the

World none none none none

Note. “NEC” = not elsewhere classified. Source: own calculations.

Our analysis indicates that the impact of the Deep FTA on sectoral output in Russia is going to be mostly positive. All but 3 sectors are expected to register a growth of output. The products experiencing the highest growth in output (over 3%) include paper, ferrous metals and machinery. The other two sectors that are expected to experience even higher increases in output are beverages and tobacco and wearing apparel. These are sectors with very high standard costs as indicated by the Ukrainian survey, which we assume to go down by 25% in the Deep FTA scenario. As a result of the Deep FTA the production of beverages and tobacco in Russia expands and its exports to the EU increase. The increase in domestic pro- duction replaces imports from Estonia and Latvia on the Russian market, which is an important export destination for this sector (14% of exports of beverages and tobacco from Estonia and 7% from Latvia were sold in Russia in 2004). To a small extent it also replaces exports from Ireland on the EU market. The model includes an aggregate of this sector. It is quite possible that a different mix of products sold by Russia and Ireland would not in fact allow for such substitution. However these sectors contribute less than 1% to total output and hence their impact on total out- put is going to be very limited.

Three sectors where we expect output in Russia to contract as a result of the Deep FTA are mineral products, financial services and manufacturing NEC. The production of these sectors is replaced by imports. The fall of domestic output of

financial services is also due to their replacement by provision of financial ser- vices by foreigners as we assume that as a result of Deep FTA the barriers to such investment go down by further 25% relative to the post-WTO level. However to a large extent this fall in domestic output will be mitigated by the fact that foreign service providers tend to employ a significant proportion of local labor force and operate through local subsidiaries.

The overall impact on the EU is going to be positive too. The countries in which selected sectors are expected to experience output growth over 3% are those that trade with Russia the most. Russia is a significant export destination for Esto- nia, Finland, Latvia and Lithuania. On the other hand Russia’s share in Cyprus’s imports in selected products (grains, oil, gas, petroleum) and in exports (construc- tion, forestry) is very high. An increase in production in the above mentioned countries is a response to a fall in Russian production of those sectors and an in- crease in Russian demand for imports and overall increase in economic activity in the EU27.

Only a few countries register a fall in output higher than 3% for at most a cou- ple of sectors. Following a halving of tariffs on trade in agricultural and food products the production of beverages and tobacco in Russia expands and crowds out such production in Estonia, Ireland and Latvia, for whom Russia is a signifi- cant export market. In addition Lithuania records a small fall in the output of dairy products. One would expect more significant changes in Russian agricultural products with the elimination of tariff protection. However, this lack of big changes can be explained by the low level of initial trade in agricultural products with the EU. In the initial 2004 data set the CIS, Ukraine and the ROW were Rus- sia’s major export and import markets for agricultural products.