1 C E R T CENTRE FOR ECONOMIC REFORM AND T RANSFORMATION Department of Economics, Heriot-Watt University, Riccarton, Edinburgh, EH14 4AS Tel: (+44) 0131 451 3483/3486 Fax: (+44) 0131 451 3498 E-Mail: ecocert@hw.ac.uk World-Wide Web: http://www.hw.ac.uk/ecoWWW/cert/certwpa.htm Russia’s Foreign Trade: New Directions and Western Policies* Paul Hare Centre for Economic Reform and Transformation, Heriot-Watt University Saul Estrin CIS - Middle Europe Centre, London Business School Mikhail Lugachyov College of Economics, Moscow State University Lina Takla West Merchant Bank, London December 1996 Abstract Russia is already a major trading partner of the West, especially the EU, exporting mostly energy sources (gas and oil), metal, minerals and timber, while importing a wider range of manufactured products. In the longer term, Russian manufacturing is likely to start recovering and hence Russia will need to have improved access to Western markets in order to expand its exports. This paper reviews recent trends in the direction and structure of Russian trade and summarises the reforms that have so far been applied to external trade policies and practices. It then develops three scenarios for the development of the Russian economy: (a) a centralised model; (b) muddling through; and (c) accelerated reforms, sketching the likely trading implications of all three. The paper argues that scenario (b) is the most likely, and suggests that the EU (and, to some extent the UK) could most usefully assist Russia in two ways. First, to provide technical assistance to strengthen the institutional infrastructure of foreign trade (i.e. to help reduce transactions costs and risk); and second to adopt a far more relaxed and open approach regarding access to EU markets for Russian manufactures. JEL Classification: F14, L60. Keywords: Russia, economic reforms, foreign trade, European Union Acknowledgements *This study has been prepared at the request of the Foreign and Commonwealth Office (Economic Advisers) and was financially supported by the FCO. The views expressed herein are the personal views of the authors and do not represent the official policy of HM Government. Likewise, any errors or omissions in this study are entirely the authors’ responsibility.