Francisco A. Laguna & Wojciech Kornacki
International consumers and entrepreneurs benefit from free and unimpeded flows of goods, information, and services around the world. This allows access to the latest information to purchase the most competitive products without artificial trade barriers, embargoes, sanctions, additional taxes, duties or outright prohibitions. This also results in lower costs, more competition and innovation. The new international sanctions stemming from the crisis in Ukraine offer new business opportunities because they re-direct the flow of goods, information and services between the US, EU and the Russian Federation to other States. This post discusses the current state of globalization, the international sanctions, and how the changes in the flows of commerce may benefit other countries and businesses.
After the end of the Cold War, many new markets emerged allowing for an international trade bonanza. The rise of the Chinese industrial and consumer market economy is the most widely known example. However, at around the same time, critics of globalization argued that globalization was only about outsourcing labor intensive products to developing countries and the so-called “brain drain”.
A recent study conducted by McKinsey and Company market analysts evaluated the actual data and concluded that there was much more to globalization than outsourcing. In its review of the study, Bloomberg pointed out that as the information revolution continues to spread, globalization has led to more knowledge-intensive products than labor-intensive goods. This, in turn, means that while sanctions may disrupt the flow of goods, the flow will not be stopped because most of the States around the world are too dependent on international exports and imports.
The International Sanctions
Generally, States or international organizations use economic sanctions against other countries to influence the sanctioned States to change their policies. Some examples involve the international community sanctioning Iran over its support of terrorist organizations, or North Korea since the Korean War, or Cuba since the Cuban Revolution.
During the ongoing crisis in Ukraine, the United States, Canada, Switzerland, Australia, Japan, the EU, and other States, have sought to modify the policies of the Russian Federation concerning the Russian intervention in Crimea and Eastern Ukraine by imposing economic sanctions on the Russian economy. In response, the Russian Federation imposed its own sanctions. The complete list of US sanctions against the Russian Federation is here.
New Opportunities Stemming from the Sanctions
The new international sanctions alter the flows of international trade, but do not extinguish them. While, the Russian Federal may ban imports of foods from the European Union, Russians still need to eat. The Russian Federation may threaten to refuse to sell its natural gas to the European Union, but it must find a new purchaser quickly. This creates new business opportunities because some markets may temporarily close their doors while opportunity knocks elsewhere.
Brazil and Argentina seek to increase their food and grain exports to the Russian Federation. In addition, Russia recently signed a $400 billion natural gas delivery agreement with China, but it will take several years to implement it.
On the other hand, following the ouster of the pro-Russian Ukrainian President Victor Yanukovych, the European Union has signed new trade agreements with Ukraine. Similar trade agreements have been signed between the European Union and Moldova and Georgia. According to the European Commission Press Release, the agreements will boost imports and exports between the European Union and Ukraine, Moldova and Georgia, thus potentially re-directing some of the goods and services, and creating new business and investment opportunities. The agreement with Ukraine is expected to result in an immediate 500 million euros increase in trade. As previously reported in the TransLegal blog, Global Economy Needs More Natural Gas – Opportunities and Risks, the United States is also making preparations to sell more natural gas to the European Union.
Contact TransLegal to discuss how the international sanctions and changing flows of goods, information and services between the US, EU and the Russian Federation may affect your business.