Sanction Busting Within and Outside Regional Integration

Abstract

The trade balance of Russia with its top 20 trade partners has increased over the last few years till 2022 with few exceptions such as the United States and the United Kingdom. Even the Russian trade deficit with Germany till 2021 has turned to trade surplus in 2022. However, as a result of the strict sanctions imposed on certain trade products by European Union (EU) nations and the US, the total import values of Russia declined from $266 billion in 2021 to $199 billion in 2022. To explain if third countries, including Eurasian Economic Union (EAEU) nations, aid Russia by means of sanctions-busting, we offer several empirical tests. In this paper, we use annual cross-sectional data for 22,648 products exported to Russia along with tariff rates imposed on them in 2022. We first notice that even though the number of sanctioned exports is three times lower than that of non-sanctioned exports, the total import value from sanctioned exports is predicted to be larger than that from non-sanctioned exports on average by 0.36 percentage point. Second, the Russian import values from both EU and Rest of the World (ROW) exports are significantly greater than those from EAEU nations. Last but not least, EAEU nations, which are Russia's partners within the union, and EU nations, are more susceptible to activities such as sanction-busting compared to other third countries.