assessments

Aug 27, 2015 | 09:30 GMT

6 mins read

Why Russia's Import Ban Has Mostly Failed

(DANIL SEMYONOV/AFP/Getty Images)
Forecast Highlights

  • Moscow's countersanctions against the West will not convince the European Union or the United States to ease their own sanctions against Russia.
  • Russia will use the threat of an agriculture ban against countries in Europe's periphery to facilitate political dialogue.
  • Russia's response to Western sanctions will continue to employ a mix of political, security and military tactics.

In the standoff between Russia and the West, economic measures have been as potent as the ordnance in eastern Ukraine. The European Union and the United States imposed sanctions on Russia for its involvement in the conflict, and Moscow responded with its own countersanctions in August 2014. The countersanctions, which focus on restricting agricultural imports, have had mixed results in terms of damaging EU economies, and they have mostly failed to neutralize EU sanctions, much less force meaningful political concessions from Europe. In fact, the European Union extended its sanctions. Russia's economic restrictions instead are likely to be more successful in driving political negotiations with pro-West countries in the EU periphery.

Russia's ban of U.S. and EU agricultural products included meat, dairy products, fish and fruit, but exempted items such as wine and spirits, baby food and beverages. While the U.S. and EU sanctions have hurt the Russian economy, which is predicted to go into a major recession in 2015, Russia's countersanctions have not had the same effect on the West. Because the ban was only implemented more than halfway into 2014 and annual statistics for 2015 have yet to be completed, it is difficult to fully grasp the ban's repercussions in each EU country. Available data does, however, reveal some important trends.

The Ban's Effects

Looking at annual economic change from 2013 and 2014, food exports from Lithuania, Finland, Estonia, Norway and Poland have been hit the hardest by Russia's food ban. In terms of the absolute value of sanctioned trade with Russia, Germany, Norway, Poland, Lithuania and Denmark have suffered the most. Yet, for all of these countries, with the exception of Lithuania, products banned by Russia did not exceed 1 percent of their total exports, relatively minimizing their overall export losses. 

However, available data from 2015 shows that the Baltic countries of Estonia, Latvia and Lithuania, which have traditionally relied on Russia as a major market for their agricultural exports, have been hurt the worst. According to Estonia's Statistics Office, Estonia's exports to Russia, mainly in the agricultural sector, fell by 41 percent in the first half of 2015 compared to the same period in 2014 (prior to the Russian sanctions). Latvia's exports to Russia declined by 24 percent over the same period, while Lithuania's exports decreased by 38 percent. Agricultural products were again a major contributor in both cases. 

Other EU countries have seen trade with Russia fall in the first half of 2015, but the extent to which the agriculture ban is responsible is less clear. For example, German trade with Russia dropped 34 percent from January to May 2015, but this was largely because of declining trade in industrial goods. Germany's agricultural exports to Russia accounted for only a small portion of total bilateral trade. Italy has also reportedly suffered losses totaling 1.2 billion euros (roughly $1.3 billion) because of the Russian food embargo, according to the Italian Agricultural Producers Confederation. But again, food only accounts for a small portion of Italy's total trade with Russia.

An Ineffective Political Tool

Politically, the agricultural ban has done even less to change EU policy toward Russia. Certain countries, particularly the Baltic states, have asked the European Commission to compensate for economic losses they have suffered because of the agricultural ban. Regardless, restrictions have not made the European Union more accommodating. The bloc voted unanimously in June to extend sanctions against Russia until the end of 2015. Moscow had lobbied certain relatively friendly countries such as Greece, Cyprus and Hungary, even courting them with economic incentives, but it was not enough to prevent EU leaders from uniting on the sanctions issue. 

Following the decision, Russian President Vladimir Putin signed a decree to prolong Russia's agricultural import ban for EU countries until August 2016. Russia also began a campaign to crack down on banned food products smuggling, which apparently diluted the severity of Russia's ban. The European Union increased its exports to Belarus and Kazakhstan, which are members of a customs union with Russia. From there, EU exports were re-exported into Russia. Once Russia closed the loophole in early 2015, re-exporters simply started falsifying countries of origin on illegal shipments. Under Putin's directive, Russian agricultural import watchdog Rosselkhoznadzor then destroyed thousands of kilograms of illegally imported food and Russia's agricultural minister spoke of criminalizing food smuggling into the country. The fact remains, however, that the agricultural ban has so far done little to convince the West to ease its sanctions on Russia.

Beyond Europe

Still, Russian economic restrictions have been more effective on pro-West countries outside of the European Union. On Aug. 6, Russia announced that it would add several non-EU countries that have joined the European Union's sanctions against Russia to the ban, including Ukraine. The decision stipulated that the agricultural ban would be applied to Ukraine only if it moved forward with the trade component of the EU Association Agreement, which has been delayed until the beginning of 2016. Moldova has been on this restriction list since 2014 as well for signing the EU Association Agreement, but Russia has applied the ban selectively, giving several companies from pro-Russia regions such as Gagauzia and Transdniestria exemptions.

Consequently, selectively applying economic restrictions has prompted political negotiations in the region. In Moldova, Stratfor has received indications that the policy has made the government relax previous constraints on the transit of Russian military personnel into Transdniestria. Russia has also used economic restrictions to facilitate political dialogue with Georgia. Russia had threatened to add Georgia to the agricultural ban list in early August, but after discussions between Russian and Georgian officials that could have involved political concessions from Tbilisi, Moscow decided to exclude Georgia from the list. 

Russia's countersanctions will continue to have mixed economic and political results. The agricultural ban has not been effective in loosening EU or U.S. sanctions against Russia, and the future of those sanctions will likely be influenced by the battlefield in eastern Ukraine rather than by Russia's economic measures. Russia has, however, fostered political dialogue with Moldova and Georgia by threatening economic restrictions. Bringing up the possibility of adding Ukraine to the import ban is likely part of the negotiation process between Kiev and Moscow as well. Russia has maintained that it has the capacity for an "asymmetrical" response to the West's economic restrictions, be it political, security or military. Russia's countersanctions will likely continue to be but one aspect of Moscow's multi-pronged strategy in its standoff with the West.

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