The Reshaped Economic Relations Between Russia and Turkey After Western Economic Sanctions E-Book

Dilan Günes

• Herausgeber: Books on Demand
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 175

Veröffentlichungsjahr: 2019

Beschreibung

Economic sanctions as a foreign policy tool is used by sender countries to change policy or behavior of a target country. The economic sanctions are multilevel phenomena that not only affects both sides of the action but also have implications for third parties, reshaping the political and economic relations of the sender and target countries with the other states. The effects of the economic sanctions imposed by the West on Russia and Turkey have direct implications for the balance of power in the region and globally. Therefore, this paper aims to examine how did economic sanctions (re)shape the economic relations between Russia and Turkey. In doing so, the paper applies explanatory sequential mixed methods. First, logarithmic regression model was conducted by time series data over the period ranging from 1992 to 2018. The paper confirms that economic sanctions imposed on target countries that already have trade relations increase the bilateral trade between them, especially for Turkish case. Subsequently, content analysis was conducted reviewing annual data starting from 1992 but mostly focusing on 2014-2018 period. The analysis shows that because the sender countries are important trade partners in the target countries, to counterbalance the effects of economic sanctions target countries choose to diversify their trade. According to the results, Russia diversified towards Asia and Central Asia while Turkey increased its trade with the EU which is mutual ally of the US and Turkey. Excluding the 2015 plane crisis between Russia and Turkey, the Western sanctions imposed on both countries increased the bilateral trade between them. However, these two countries are the first choice of each other when it comes to trade partner diversification.

Leseprobe

Book Title: The Reshaped Economic Relations Between Russia and Turkey After Western Economic Sanctions

Author: Dilan Güneş

Editor/Reductor: Leonardo Pataccini (PhD)

Reviewer: Gökhan Erkal (PhD)

Abstract

Economic sanctions as a foreign policy tool is used by sender countries to change policy or behavior of a target country. The economic sanctions are multilevel phenomena that not only affects both sides of the action but also have implications for third parties, reshaping the political and economic relations of the sender and target countries with the other states. The effects of the economic sanctions imposed by the West on Russia and Turkey have direct implications for the balance of power in the region and globally. Therefore, this paper aims to examine how did economic sanctions (re)shape the economic relations between Russia and Turkey. In doing so, the paper applies explanatory sequential mixed methods. First, logarithmic regression model was conducted by time series data over the period ranging from 1992 to 2018. The paper confirms that economic sanctions imposed on target countries that already have trade relations increase the bilateral trade between them, especially for Turkish case. Subsequently, content analysis was conducted reviewing annual data starting from 1992 but mostly focusing on 2014 - 2018 period. The analysis shows that because the sender countries are important trade partners in the target countries, to counterbalance the effects of economic sanctions target countries choose to diversify their trade. According to the results, Russia diversified towards Asia and Central Asia while Turkey increased its trade with the EU which is mutual ally of the US and Turkey. Excluding the 2015 plane crisis between Russia and Turkey, the Western sanctions imposed on both countries increased the bilateral trade between them. However, these two countries are the first choice of each other when it comes to trade partner diversification.

Keywords: International political economy, economic sanctions, trade diversification, bilateral trade, Russia-Turkey economic relations, explanatory sequential mixed methods

List of Abbreviations

GDP- Gross Domestic Product

FDI- Foreign Direct Investment

EU- European Union

US- The United States of America

OFAC- U.S Department of the Treasury’s Office of Foreign Assets

IPE- International Political Economy

UN- United Nations

UK- United Kingdom

UNCTAD- United Nations Commission Trade and Development

UNFCCC- United Nations Framework Convention on Climate Change

NOEM- New Open Economy Macroeconomics

UNCOMTRADE- United Nations International Trade Statistics Database

WITS- World Integrated Trade Solution

TUIK- Türkiye İstatistik Kurumu

HSE- Gary Clyde Hufbauer, Jeffrey Schott and Kimberly Ann Elliott

RCA- Revealed Comparative Advantage

TII- Trade Intensity Index

TCI- trade Complementarity Index

Table of Contents

CHAPTER 1: INTRODUCTION AND LITERATURE REVIEW

1.1 Introduction

1.2 Literature Review

1.2.1. Historical Overview of Economic Sanctions

1.2.2. Contemporary Approaches on Economic Sanctions

1.2.3. Bilateral Trade and Diversification

1.2.4. Economic Sanctions and Bilateral Trade from a Global Perspective

CHAPTER 2: THEORETICAL FRAMEWORK

2.1. International Political Economy (IPE) as a Field

2.2. Contemporary Theories of IPE

2.2.1. Nationalism

2.2.2. Liberalism

2.2.3. Marxism

2.3. Economic Sanctions and Bilateral Trade in The Field of IPE

2.4. Economic Sanctions and Bilateral Trade in Terms of Nationalism and Liberalism

CHAPTER 3: METHODOLOGY

3.1. Research Design & Strategy

3.2. Case Selection

3.3. Methods of Data Collection & Data Analysis

3.3.1. Quantitative Methods

3.3.2. Qualitative Methods

CHAPTER 4: DESCRIPTION OF SANCTIONS AND TRADE RELATIONS

4.1. Western Sanctions Against Russia

4.2. Western Sanctions Against Turkey

4.3. Political Relations Between Russia and Turkey

CHAPTER 5: QUANTITATIVE RESULTS AND ANALYSIS

5.1. Quantitative Results

5.2. Analysis of Quantitative Results

CHAPTER 6: QUALITATIVE RESULTS & ANALYSIS

6.1. Qualitative Results

6.1.1. Revealed Comparative Advantage (RCA)

6.1.2. Trade Complementarity Index (TCI)

6.1.3. Trade Intensity Index (TII)

6.1.4. Evolution of Russian-Turkish Trade Partnership

6.2. Qualitative Analysis

6.2.1. Economic Sanctions Process and Outcomes for Each Country

6.2.1.a. Process and Outcomes for Russia

6.2.1.b. Process and Outcomes for Turkey

6.2.1.c. Assessment of Sanctions on Russia and Turkey

6.2.2. Bilateral Trade Between Russia and Turkey

6.2.3. Trade Diversification of Russia and Turkey

CHAPTER 7: SUMMARY & CONCLUSION

List of Sources

Appendix

CHAPTER 1: INTRODUCTION AND LITERATURE REVIEW

1.1 Introduction

A politician and diplomat, Aung San Suu Kyi, once said: “Sanctions and boycotts would be tied to serious political dialogue” (BrainyQuote, 2019) stressing that sanctions are a part of politics. Economic sanctions which have an old history dating back to at least 432 BC, are often used today by sender countries to change their target’s policies or political behavior (Hufbauer et al., 2007). After the First World War economic sanctions were considered as a way to replace arm conflicts and after the Second World War sanctions were used to hinder or supplement war (Hufbauer et al., 2007, p.10). Even though in the past the sanctions have been used for military purposes, today, economic sanctions pursue foreign policy goals not simply related to armed conflicts. One of the main intentions behind imposing sanctions is to demonstrate authority in international relations by punishing the target country. Deterrence can also be one of the reasons to impose sanctions on a country. With the sanctions, the sender country aims to deter the target country to follow the international rules. Additionally, sanctions aim to make a change in the behavior or a policy of the target country (Hufbauer et al., 2007). There are three ways in which a target country can choose to respond after being exposed to economic sanctions: one, is to negotiate with the sanction sender countries to ease up the pressure of the economic sanctions; second, to retaliate, and third, to look for alternatives to counterbalance the effects of the sanctions.

In the contemporary world, the use of economic sanctions is a usual resource in foreign policy. Especially economic sanctions imposed on countries like Russia and Iran are often on the agenda. The issue with the sanctions is that it is not only between the sender and the target country but also other countries. In other words, economic sanctions are multilevel phenomena that not only affects both sides of the action (sender and target country) but also have implications for third parties, (re)shaping the political and economic relations of the sender and target countries with the other countries.

In 2014, because of the Ukrainian crisis and the annexation of Crimea, EU governments and the U.S. agreed to impose economic sanctions on Russia. According to the Observatory of Economic Complexity tool, Russia’s main export destinations are China, Netherlands, Germany, Belarus, and the United States. Statistics further show that the EU is the main trading partner of Russia and compose 43% of Russia’s trade (Eurostat, 2016). Not only the EU but also imports from the U.S. represent a valuable portion of Russian trade. Therefore, the West aimed to put economic pressure on Russia by imposing economic sanctions. From the intentions listed above, the sanction sending countries punished, deterred and demanded a change in the behavior of Russia. Even though being exposed to very harsh economic sanctions, Russia preferred to retaliate and impose counter-sanctions towards the Western countries. The Western sanctions were containing limitations in the arms trade, dual-use goods export, financial measures, prohibition to satisfy claims, other items and restriction on services (EU Sanction Map, 2019). Additionally, the West decided to implement measures to politically isolate Russia and create economic costs to it by import bans on energy and defense products, an embargo on trade of arms, an export ban on technological equipment related to weaponry (Dong and Li, 2018). Russia imposed counter-measures to the ones that imposed sanctions to Russia, including bans and restrictions on foreign economic activities involving limitations in imports of certain agricultural goods, raw materials and food products. This reciprocal conflict is still continuing, and new sanctions are being imposed on both sides. The fact that this process has not yet been concluded proves that the effects and consequences of the Western sanctions imposed on Russia are an important issue even today.

One of the most debated issues when evaluating sanctions on Russia is whether the sanctions were effective or not. Because Russia is not stepping back from its foreign policy and continue to retaliate, scholars consider sanctions as not effective enough. Russia after 2014 sanctions aimed to minimize the possible impact of the economic pressure by enabling certain economic policies. One of the most important policies was the import substitution where Russia minimized its dependence on the imports and replace the foreign products with the domestic ones. Also, initially Russia kept inflation and unemployment under control which in turn stabilized the economy. Even though Russia took preventive measures to minimize the costs of Western sanctions, still the economic indicators experienced a decline. The reason behind the overall decline is not only the sanctions but also because of the decline in oil prices in 2014.

As stated above, diversification is one of the possible alternative strategies to counterbalance the effects of economic sanctions, especially when they are related to trade. In this context, targeted countries may diversify their trade while negotiating with the sender or retaliating it. In the case of Russia, especially after 2014, it seems that the country has responded to the economic sanctions by turning its face towards the East. On the other hand, Russia with for countries in the region (Armenia, Kazakhstan, Kyrgyzstan, and Belarus) established the Eurasian Economic Union (EAEU) in 2015. On the other hand, Russia’s bilateral trade with Asian countries including China and Pakistan increased drastically after 2014. Moreover, in addition to the Asian and Central Asian countries, Turkey has emerged a potential strategic trade partner for Russia.

There is a long-standing commercial partnership between these countries, and this has continued to increase from the 90s to the present day. Although trade relations have never reached a point of completion, it can be said that economic relations have been fluctuating in line with political developments. For example, in 2015 Turkey shot down a Russian jet in the Turkish-Syrian border. After this incident, Russia imposed economic sanctions against Turkey which changed the course of their trade relations towards a negative trend. Because the political tension was high between Russia and Turkey this reflected into the trade as well. Other than this, countries’ domestic matters, international matters like the Syrian civil war and external sanctions all have a part in changing economic relations between these nations. Therefore, one of the questions that need an answer is whether the economic sanctions imposed on Russia have an effect on the dynamic between Russian and Turkish economic relations.

In 2018, the US decided to impose sanctions on Turkey because of the arrest and detention of Pastor Andrew Brunson. In the first wave of sanctions, the U.S Department of the Treasury’s Office of Foreign Assets (OFAC) targeted Turkey’s Minister of Interior Suleyman Soylu and Minister of Justice Abdulhamit Gul for implementing human rights abuse. These sanctions had already affected the Turkish economy negatively but Trump’s announcement on doubling the tariffs on steel and aluminum made the situation worse for the economy. Turkish lira started to depreciate dramatically so as the other economic indicators. Turkey is a NATO country that had close relations with the U.S. and known to be aiming to become an EU member for a long time. Therefore, the decision of the US to impose sanctions to one of its allies concerned other countries including EU countries. The majority of the countries (Germany, France, Italy, Azerbaijan, Russia) criticized the US for their foreign policy. However, Turkey with receiving other countries’ support, has made it clear that it would retaliate and impose counter-sanctions against its ally the US. Hence, Turkey has stopped buying electronic products and construction materials and doubled the tax applied to 22 products that are originating in the U.S. (Sputnik, 2018). Like it was in the Russian case, in the Turkish case the question of how these sanctions will affect the relations with Russia remains unanswered.

The relationship between Turkey and Russia changed after the collapse of the Soviet Union, when they started to consider each other more as strategic partners than geopolitical opponents. Despite their differences, Russia and Turkey have significant similarities in political terms and regional aspirations. Both countries have a quite similar political style, characterized by strong leaderships. Likewise, both countries aspire to become great regional and global players, sharing common interests that motivate them to cooperate in international and regional matters. After Turkey was exposed to economic sanctions, it substantially increased the cooperation with Russia. This raised questions about Russia’s next step in the relations with Turkey and whether Russia was ‘winning Turkey’ over the US, since until that moment Turkey presented a balanced politics between two of its big partners. In this context, it is argued that the political and economic effects of the economic sanctions imposed by the United States and the EU on Russia and Turkey have direct implication for the balance of power in the region and globally. Therefore, the main research question of this paper is “How did Western economic sanctions reshape the economic relations between Russia and Turkey?”

The literature on economic sanctions generally investigates the effectiveness or success of the imposed sanctions. One of the most comprehensive studies is Hufbauer et al. in their book called “Economic Sanctions Reconsidered” where they look at 174 cases to examine the success or failure of sanctions. Not only the effectiveness of the sanctions but also its relationship with bilateral trade was studied broadly. Studies investigate the success of the sanctions by looking at the bilateral trade between the sender and the target country or to measure the costs of sanctions to either side. Thus, the majority of the literature presents the issues in the interest of the sending countries while it lacks the target country perspective. A very limited number of studies demonstrate the outcomes and the responses of the target countries after they were exposed to sanctions. Moreover, the studies in the literature generally preferred to conduct large-N or single case studies. The studies that are more focused on economics adopt quantitative methods and the ones that are more focused on political science or IR select qualitative methods.

In order to address the existing gaps in the literature, the present research will conduct and in-depth analysis of these two countries sanctioned by the West. The literature on Russian sanctions was widely studied while the recent sanctions against Turkey were not studied. Therefore, it is considered that combining a well-studied and not studied case together adds a new and original study to the literature. I examine their bilateral trade with each other by analyzing their responses to sanctions. For this, I preferred to use the explanatory sequential mixed method where with quantitative methods I examine the relationship between bilateral trade between Russia and Turkey (dependent variable) and effects of GDP, FDI (independent variables) and sanctions (dummy variable). Following the results of the quantitative part, I conduct qualitative analysis on bilateral trade between Russia and Turkey and bilateral trade with other countries in the context of diversification. Using mixed methods addresses the gap of a single-sided approach to the relations between economic sanctions and bilateral trade. This method enables me to conduct an in-depth analysis. Also, the mixed nature of the methodology suits the best to the international political economy (IPE) theory of this study.

Economic sanctions and its relationship with bilateral trade is a very recent and relevant topic in the field of international political economy (IPE) and international relations. By combining economics, political science and international relations IPE help to understand the complex structure of mutual interaction between economics and politics. Not only global problems but also how foreign policy and economic policies influence each other is an interest of IPE. Two of the IPE theories nationalism and liberalism assist the process of analyzing the economic relations between Russia and Turkey after the Western sanctions.

This thesis assumes that economic sanctions may have an impact on the bilateral trade of targeted countries, leading them to cooperate more economically in order to counterbalance their effects. Therefore, the first hypothesis of this thesis is “Economic sanctions that are imposed on two target countries, that already have trade relations, will increase the bilateral trade between them”. The thesis also argues that the Western economic sanctions have affected Russia and Turkey economically since their trade with the West composes most of their overall trade. Simply, if the sender country has potential leverage over the target country then it is expected that economic sanctions will have an effect on the target country (Hufbauer et al., 2009, p.51). This negative economic effect is inevitable if the sender and the target country have trade relations before. Therefore, while negotiation or retaliating the target countries should think ahead to prevent another possible economic blow. According to these arguments, since, EU’s potential leverage is high on Russia and the US’s potential leverage is high on Turkey these two countries will need to diversify their trade and economic relations to diminish the impact of the sanctions. Therefore, the second hypothesis of this paper is “The bigger the share of trade of the sender in the target, the more target country will need to diversify to alleviate the pressure of economic sanctions”.

This research addresses economic sanctions which is a very topical subject today and the effect of imposed sanctions on Russia and Turkey is an ongoing process. Therefore, it will be helpful to understand the contemporary economic and political relations between Russia and Turkey, as well as their current relationship with the EU and the US. This paper aims to find out the foreseeable impacts on international economic relations on the region. Therefore, this research will contribute to the literature by exploring economic relations more in-depth with the help of liberalism and nationalism approaches. The rest of the paper will continue with the literature review. In the literature section, I will present the most important studies that demonstrate contemporary approaches to economic sanctions and bilateral trade. The second chapter presents the theoretical framework for the relationship between the two main concepts. The theory chapter will give information on the international political economy field (IPE) and focus mostly on liberalism and nationalism approaches. The third chapter will describe the methodology of explanatory sequential mixed methods that test the hypotheses. The fourth chapter will be a descriptive chapter for sanction. Following chapters combine results and analysis of the variables. The chapter will start with background information on Western sanctions on Russia and Turkey separately, then continue with the quantitative and qualitative analysis. Lastly, I will summarize the main arguments and answer of the research question with the help of hypotheses and conclude the paper with a general evaluation with future suggestions.

1.2 Literature Review

1.2.1. Historical Overview of Economic Sanctions

Even though we see that economic sanctions are studied and are in the news recently, the concept of sanctions dates back to ancient Greece (Hufbauer et al., 2007). Of course, as time goes by the form and meanings and process of economic sanctions changed. Towards the end of the 19th century, we start seeing sanctions more and they are more relevant to today’s knowledge than the pre-First World War era. As Hufbauer et al. say “after the First World War was extensive attention given to the notion that economic sanctions might substitute for armed hostilities as a stand-alone policy” (2007, p.10). Economic sanctions were used as a tool to limit the military capabilities of the target countries. Further, in their historical overview, Hufbauer et al. assert that after the Second World War period “other foreign policy motives became increasingly common, but sanctions were still deployed on occasion to force a target country to withdraw its troops from border skirmishes, to abandon plans of territorial acquisition, or to desist from other military adventures” (2007, p.10). After the Second World War, still, the “sanctions are imposed to impair the economic capability of the target country, thereby limiting its potential to wage war or for foreign adventurism. This was an important rationale for the broad-based multilateral controls on strategic trade” (Hufbauer, 2007, p.11). In the modern world, military deterioration is done by restricting a target country’s efforts to establish weapons of mass destruction and nuclear capabilities (Hufbauer, 2007, p.12). After the Second World War, sanctions have been employed more regularly, economic sanctions have been imposed to pursue foreign policy goals apart from the ones related to armed conflicts and security. Particularly, the imposed sanctions are pursuing the goal to change a target country’s regime either implicitly or explicitly, frequently in the foreign policy disputes framework (Hufbauer, 2007, p.13).

Lektzian and Souva (2003) reported that starting from the 1990s, economic sanctions have many users (such as the United States, Russia, the United Nations, and the European Union, China, Germany, France, Japan, Turkey, etc.) to challenge internal and external problems. The study conducted by Hufbauer et al. demonstrate that the United States has deployed sanctions 109 times (either alone or with its allies), sequentially, the UN imposed sanctions 20 times, the UK by cooperating with its allies has deployed sanctions 16 times and the EU used it 14 times (2007, p.17).